should be read in conjunction with, and ... - axa-im.com.hk
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AXA UNIT TRUST -
ASIA MULTI-FACTOR ADVANTAGE FUND
SECOND ADDENDUM TO
EXPLANATORY MEMORANDUM DATED DECEMBER 2019
This Second Addendum should be read in conjunction with, and forms part of, the
Explanatory Memorandum of AXA Unit Trust - Asia Multi-Factor Advantage
Fund (the “Fund”) dated December 2019, as amended and supplemented by the
Addendum dated 21 September 2020 and from time to time (the “Explanatory Memorandum”). The Manager accepts responsibility for the accuracy of the information contained in this Second Addendum at the date of publication. All capitalised terms in this Second Addendum have the same meaning as in the Explanatory Memorandum, unless otherwise stated. The changes stated herein shall be made to the Explanatory Memorandum with immediate effect from the date of this Second Addendum. Unless otherwise stated herein, the Explanatory Memorandum remains in full force and effect. A. General updates relating to Foreign Account Tax Compliance Act, Common
Reporting Standard and Taxation
1. The paragraph under the sub-section headed “Hong Kong” under the section headed “TAXATION” of the Explanatory Memorandum shall be deleted and replaced with the following: “Taxation of the Fund
Profits Tax
Profits derived by the Fund will be exempt from Hong Kong Profits Tax under Section 26A of the Inland Revenue Ordinance (“IRO”) during such period as the Fund is authorised by the Securities and Futures Commission of Hong Kong as a collective investment scheme under Section 104 of the Securities and Futures Ordinance.
Stamp duty
The sale and purchase of Hong Kong stock (if any) by the Fund, unless otherwise under any applicable exemption, is generally subject to Hong Kong stamp duty at 0.13% on the higher of the consideration amount or market value, payable by each of the buyer and the seller (i.e. 0.26% in total for a complete transaction).
“Hong Kong stock” is defined under the Hong Kong Stamp Duty Ordinance (“SDO”) as “stock”, the transfer of which is required to be registered in Hong Kong.
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Pursuant to the remission order issued by the Secretary for the Treasury on 20
October 1999, any Hong Kong stamp duty payable on the transfer of Hong Kong
stocks to the Fund as consideration for an allotment of Units or transfer of Hong
Kong stocks by the Fund upon redemption of Units shall be remitted.
Taxation of the Unitholders
Profits Tax
Unitholders will not be liable to Profits Tax (which is currently charged at the rate of 16.5% for corporations, and 15% for unincorporated businesses; half tax rate (i.e. 8.25% or 7.5%) applies on the first HK$2 million of assessable profits of those eligible taxpayers, subject to certain conditions being met) in Hong Kong on gains arising from the sale, redemption, disposal or otherwise transfer of Units, unless such gains, not being regarded as capital in nature, arise from a trade, profession or business carried on by the Unitholders in Hong Kong and are sourced in Hong Kong.
Distributions received by Unitholders from their investments in the Units would not be chargeable to Profits Tax in Hong Kong (whether by way of withholding or otherwise) under current law and practice of the Inland Revenue Department of Hong Kong.
Stamp duty
Units will be regarded as “Hong Kong stock” for the purposes of Hong Kong stamp duty. Sales or transfers of Units will be liable to Hong Kong ad valorem stamp duty at 0.13% on the higher of the consideration for, or the value of, the Units payable by each of the transferor and the transferee (i.e. a total of 0.26% for a complete transaction). In addition, a fixed duty of HK$5.00 is currently payable on any instrument of transfer of Units. No Hong Kong stamp duty is payable, however, where the sale or transfer of the Unit is effected by extinguishing the Unit or the sale or transfer is to the Manager who subsequently re-sells the Units within two months thereof.
Hong Kong stamp duty will not be imposed on the issuance of Units by the Fund.
The above Hong Kong tax disclosure is general in nature and does not purport to cover all Hong Kong tax consequences of investing in the Fund. Each prospective Unitholder should inform himself of, and, where appropriate, take advice on the taxes applicable to the acquisition, holding and redemption by him of Units under the laws of the places of his citizenship, residence and domicile.”
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2. The sub-section headed “Impacts of the Foreign Account Tax Compliance Act
and any other similar regulations” under the section headed “TAXATION” of the Explanatory Memorandum shall be deleted and replaced with the following:
“Foreign Account Tax Compliance Act (“FATCA”)
Under sections 1471 – 1474 (commonly referred to as “FATCA”) of the U.S. Internal Revenue Code of 1986, as amended from time to time (“U.S. Code”), certain payments derived from the U.S. source income made on or after 1 July 2014 (including
interest, dividends and certain derivative payments derived from U.S. sources
(referred to as “withholdable payments”)) may be subject to a withholding tax at 30% rate, unless the recipient of the payment satisfies certain requirements which enable
the U.S. Internal Revenue Service (“IRS”) to identify U.S. persons (within the meaning of U.S. Code) with interest in such payments. Such withholding may apply
to payments of gross proceeds from the sale or other disposition of property of a type
which can produce U.S source interest and dividends, and certain non-U.S. source
payment attributable to the amounts that would be subject to FATCA withholding
(referred to as “foreign passthru payments”) at a later date.
On 13 November 2014, Hong Kong entered into an intergovernmental agreement with
the U.S. (“IGA”) for the implementation of FATCA, adopting a Model 2 IGA
arrangement. Under such Model 2 IGA arrangement, foreign financial institutions
(“FFIs”) in Hong Kong (such as the Fund) can register with the IRS and comply with
the terms of an agreement with the IRS (an “FFI agreement”). Otherwise the Fund
will be subject to a 30% withholding tax on relevant U.S. source payments and other
withholdable payments.
It is expected that FFIs in Hong Kong (such as the Fund) complying with the terms of
an FFI Agreement (i) will generally not be subject to the above described 30%
withholding tax; and (ii) will not be required to withhold tax on withholdable
payments to non-consenting US accounts (i.e. certain accounts of which the holders
do not consent to FATCA reporting and disclosure to the IRS) or close such accounts
(provided that information regarding such account is reported to the IRS pursuant to
the provisions of the IGA).
The Fund has already registered with the IRS and being treated as a “reporting financial institution” under a Model 2 IGA. Upon request, the Fund can provide its GIIN (Global Intermediary Identification Number) assigned by the IRS.
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Pursuant to the obligations set out under the FFI Agreement, the Fund will have to
obtain certain information or documentation including self-certification forms from
the Unitholders or their "controlling persons” (as the case may be) to determine
whether they are U.S. persons and obtain their consent to report, disclose and/or
transfer their relevant account information to the IRS if the account is determined to
be a U.S. Account.
Broadly, a U.S. Account refers to a financial account held by either any Specified U.S.
persons in the Fund or a Non-U.S. Entity investor with a Specified U.S. person as
controlling person(s).
The information to be reported to the IRS in respect of a U.S. Account includes, (i) for
individual investors or controlling person(s) of an entity investor - name, date / place
of birth, address, U.S. taxpayer identification number (“TIN”); for entity investor -
name, address, U.S. TIN, (ii) the account balance or value, (iii) account number, (iv)
distributions and amounts received from redemption of the Units; and such other
information in such form or manner as the Trustee and/or Manager may reasonably
require for the purpose of fulfilling the relevant requirements under the FFI
Agreement.
In addition, the Fund may from time to time be subject to any treaty, law, regulation,
rules, codes of practice, guidelines, guidance in other jurisdictions or any other inter-
governmental agreements between governments or authorities of two or more
jurisdictions, which, together with FATCA, are collectively known as the “Applicable Laws and Regulations”.
For the purposes of ensuring compliance with the Applicable Laws and Regulations,
investors in the Fund will generally be required to provide to the Fund certain
information or documentation, e.g. self-certification forms, and if the investors are
entities and/or holding units of the Fund for the account or benefit of other person(s)
or entity(ies), such information shall also be required about the entity investor and
their controlling person(s), where applicable, as mentioned above.
Also, where: (a) there is a change of circumstances which may render any of the
information provided to the Fund, the Trustee and/or the Manager out-of-date; or (b)
there is a change of circumstances with respect to the investor that causes the Fund,
the Trustee and/or the Manager to know or have reason to know that any of the
information obtained previously is incorrect, unreliable or out-of-date, such investor
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must promptly (in any event within 30 days of the change), provide the updated
information in such form and in such manner as the Fund, the Trustee and/or the
Manager may reasonably from time to time require.
The Unitholder or its controlling person(s) of a U.S. Account will have to provide
consent to report to the Manager and/or the Trustee for processing, transferring and/or
disclosing the reportable information to the IRS and confirm the accuracy of such
information.
Where: (i) an investor fails to provide the required information or documentation to
the Fund as the Fund, the Trustee and/or the Manager reasonably require; (ii) the
information or documentation provided in relation to any investor, controlling
person(s), and as applicable, is inaccurate, incomplete or not promptly updated; or (iii)
the Fund, the Trustee and/or the Manager are prevented from disclosing the
information for whatever reason, the Fund may be subject to certain withholding tax
with respect all or a portion of any payments to the Fund (e.g. investment returns as a
result of any investment made by the Fund), and the Fund, the Trustee and/or the
Manager may take any action in good faith and on reasonable grounds, to the extent
not prohibited by applicable law, to ensure compliance with the Applicable Laws and
Regulations. Such actions include but are not limited to (i) reporting, disclosing and/or
transferring such information by the Fund, the Trustee and/or the Manager with
respect to an investor to the local and/or foreign authorities at any time (including, if
applicable, after the units of the investors have been redeemed for whatever reason),
provided that any reporting, disclosure and transfer of such information will be
consistent with the applicable regulations governing the use of personal data in Hong
Kong (including the Personal Data (Privacy) Ordinance, as amended from time to
time); (ii) withholding or deducting from such Unitholder’s redemption proceeds or distributions to the extent permitted by applicable laws and regulations; and/or (iii)
deeming such Unitholder to have given notice to redeem all his Units in the Fund to
the extent permitted by applicable laws and regulations.
The Fund, the Trustee and the Manager each intends to ensure the Fund’s compliance with Applicable Laws and Regulations. However, neither the Fund, the Trustee nor
the Manager can provide any assurances that the Fund will be able to comply with the
Applicable Laws and Regulations. If the Fund does not comply with the Applicable
Laws and Regulations, the application of withholding taxes, deductions, or penalties
due to any non-compliance may adversely affect the net asset value per Unit and
therefore cause investors to suffer a material loss. If any investor has any doubt on the
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impact of the Applicable Laws and Regulations on itself / himself / herself or its / his
/ her tax position or on the Fund, the investor should seek independent professional
advice.
THE TAX DESCRIPTION CONTAINED IN THIS DOCUMENT (1) MAY NOT
BE RELIED UPON, AND WAS NOT INTENDED TO, PROVIDE PENALTY
PROTECTION UNDER THE U.S. INTERNAL REVENUE CODE AND (2) IS
WRITTEN TO MARKET THE UNITS. WITHOUT PREJUDICE TO THE
GENERALITY OF THE SUB-SECTION "GENERAL" UNDER THIS SECTION
"TAXATION", ALL PROSPECTIVE INVESTORS ARE STRONGLY URGED TO
CONSULT WITH THEIR OWN PERSONAL LEGAL AND TAX ADVISERS
CONCERNING ANY TAX CONSEQUENCES, WHICH MAY ARISE FROM
THEIR INVESTMENT, OWNERSHIP, OR BENEFICIAL INTEREST IN THE
FUND.
Common Reporting Standard (the “CRS”)
The Inland Revenue (Amendment) (No.3) Ordinance (the “Ordinance”) (as amended from time to time) came into force on 30 June 2016. This is the legislative
framework for the implementation of the OECD’s Standard for Automatic
Exchange of Financial Account Information (commonly known as “CRS”) in Hong Kong. The CRS requires financial institutions (“FIs”) in Hong Kong to obtain
information from the account holders, conduct due diligence on the account holders
and file such information as it relates to reportable account holders who are tax
resident in Reportable Jurisdictions (as defined below) with the Hong Kong Inland
Revenue Department (“IRD”) which in turn will exchange such information with
the jurisdiction(s) in which that account holder is resident. Generally, tax
information will be exchanged only with jurisdictions with which Hong Kong has
activated an exchange relationship (“Reportable Jurisdictions”); however, under
CRS, the Fund and/or its agents are not restricted from obtaining further
information relating to residents of jurisdictions other than Reportable Jurisdictions.
The Fund is required to comply with the requirements of the Ordinance, which
means that the Fund and/or its agents shall obtain the required information or
documentation from the unitholders and prospective investors and where required
report the relevant information of the unitholders to the IRD.
In general, the Ordinance requires the Fund (specifically the person who acts for
the Fund to maintain financial accounts) to, amongst other things: (i) register the
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Fund’s status as a “Reporting Financial Institution” with the IRD to the extent the
Fund maintains any reportable accounts; (ii) conduct due diligence on its account
holders (i.e. unitholders) to identify whether any such accounts are considered
“Reportable Accounts” under the Ordinance; and (iii) report to the IRD the required
information on such Reportable Accounts on an annual basis. The IRD is expected
on an annual basis to transmit the required information reported to it to the
competent authorities of the relevant Reportable Jurisdiction(s). Broadly, the
Ordinance requires that Hong Kong reporting FIs should report on: (i) individuals
or entities that are tax resident in a Reportable Jurisdiction; and (ii) certain entities
controlled by individuals who are tax resident in a Reportable Jurisdiction.
Under the Ordinance, details of reportable unitholders or their controlling person
(as the case may be), including but not limited to their name, place/date of birth,
address, jurisdiction of tax residence, TIN(s) (if any), account details, account
balance/value of the interest in the Fund, and income or sale or redemption
proceeds, is required to be reported to the IRD and subsequently exchanged with
competent authorities in the relevant Reportable Jurisdiction(s).
By investing in the Fund and/or continuing to invest in the Fund, unitholders
acknowledge that they may be required to provide additional information to the
Fund, the Trustee, the Manager and/or the Fund’s agents in order for the Fund to comply with the Ordinance. The unitholder’s information (and information on controlling person including beneficial owners, beneficiaries, direct or indirect
unitholders or other persons associated with such unitholders as appropriate), may
be exchanged by the IRD to authorities in other jurisdictions.
Each unitholder and prospective investor should consult its own professional
advisor(s) on the administrative and substantive implications of CRS on its own tax
position and any current or proposed investment in the Fund.”
B. Change of Directors of the Manager
The list of Directors of the Manager under the section headed “ADMINISTRATION” shall be deleted and replaced with the following: “Bruno Guilloton Lam Chung Han, Terence
James Christopher Veneau Jean-Christophe Menioux”
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C. Other Miscellaneous Updates
1. The first paragraph of the sub-section headed “The Manager” under the section
headed “MANAGEMENT OF THE FUND” of the Explanatory Memorandum relating to the Manager shall be deleted and replaced with the following:
“AXA Investment Managers Asia Limited was incorporated in Hong Kong on 28 July 1989 and is licensed with the SFC to carry on Type 1 (dealing in securities),
Type 2 (dealing in futures contracts), Type 3 (leveraged foreign exchange trading),
Type 4 (advising on securities) and Type 9 (asset management) regulated activities
under Section 116(1) of the Securities and Futures Ordinance. It is a wholly-owned
subsidiary of AXA Investment Managers, S.A.”
2. The seventh paragraph of the sub-section headed “Realisation of Units” under the section headed “APPLICATION AND REALISATION” of the Explanatory Memorandum shall be deleted and replaced with the following:
“If on any one day more than 10% of the units in issue would be realised, the
Manager may, with the approval of the Trustee, elect to limit realisation to 10%
of the units in issue and such limitation will then be applied pro rata to all
unitholders who have given a realisation request. The balance is carried forward
to be dealt with (subject to the same limitation) on the next Dealing Day. If
requests for realisation are so carried forward, the Registrar will inform the
unitholders concerned. The value of the deferred realization proceeds may decline
during the period up to the realization of the units and the redeeming unitholders
will bear the risk of loss.”
AXA Investment Managers Asia Limited
Dated: 30 December 2021
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AXA UNIT TRUST -
ASIA MULTI-FACTOR ADVANTAGE FUND
ADDENDUM TO
EXPLANATORY MEMORANDUM DATED DECEMBER 2019
This Addendum (“Addendum”) should be read in conjunction with, and forms
part of, the Explanatory Memorandum of AXA Unit Trust- Asia Multi-Factor
Advantage Fund (the “Fund”) dated December 2019, as may be amended and
supplemented from time to time (the “Explanatory Memorandum”). The
Manager accepts responsibility for the accuracy of the information contained in
this Addendum at the date of publication. All capitalised terms in this Addendum
have the same meaning as in the Explanatory Memorandum, unless otherwise
stated. As a result of the change of address of the Manager, AXA Investment Managers Asia Limited, the following amendments to the Explanatory Memorandum shall apply with immediate effect: Update on the Address of the Manager
1. The sub-section headed “Manager” under the section headed “Administration”
on page 1 of the Explanatory Memorandum shall be deleted and replaced with the
following:
“Manager
AXA INVESTMENT MANAGERS ASIA LIMITED
Suites 3603-05, 36/F, One Taikoo Place,
Taikoo Place, 979 King’s Road,
Quarry Bay, Hong Kong SAR”
2. The section headed “Enquiries and Complaints Handling” on page 46 of the
Explanatory Memorandum shall be deleted and replaced with the following:
“Enquiries and Complaints Handling
Enquiries and complaints relating to the Fund should be addressed to the Manager
(at the offices, Suites 3603-05, 36/F, One Taikoo Place, Taikoo Place, 979 King’s
Road, Quarry Bay, Hong Kong).
Investors who wish to have their enquiries or complaints attended to by telephone
may contact the Manager at +852 2285 2000. Upon receipt of the enquiries,
feedback or complaints, the Manager will endeavour to revert to the relevant
investor within 7 working days either orally or in writing.”
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3. The section headed “Documents Available For Inspection” on page 46 of the
Explanatory Memorandum shall be deleted and replaced with the following:
“Documents Available For Inspection
Copies of the Trust Deed, the agreement between the Manager and Sub-Investment
Manager (as amended from time to time) and the latest annual and semi-annual
reports (if any) will be available in the English language only (no Chinese language
reports will be issued) and are available for inspection free of charge at any time
during normal business hours on any day (excluding Saturdays, Sundays and public
holidays) at the offices of the Manager, Suites 3603-05, 36/F, One Taikoo Place,
Taikoo Place, 979 King’s Road, Quarry Bay, Hong Kong. Copies of the Trust Deed
and such agreement can be purchased from the Manager on payment of a reasonable
fee.”
AXA Investment Managers Asia Limited
Dated: 21 September 2020
AXA UNIT TRUST -
ASIA MULTI-FACTOR
ADVANTAGE FUND
EXPLANATORY MEMORANDUM
AXA Investment Managers Asia Limited
December 2019
PRELIMINARY INFORMATION
The Manager accepts responsibility for the accuracy of the information
contained herein as at the date of this Explanatory Memorandum. Neither
the delivery of this Explanatory Memorandum nor any offer, issue or sale of
units shall, under any circumstances, constitute a representation that the
information given in this Explanatory Memorandum is correct as of any time
subsequent to such date. This Explanatory Memorandum may from time to
time be updated. Intending applicants for units should ask the Manager if
any supplements to this Explanatory Memorandum or any later Explanatory
Memorandum have been issued.
The issue of this Explanatory Memorandum is authorised only if
accompanied by a copy of the latest annual report and audited accounts of
the Fund and, if issued after such report and audited accounts, a copy of the
most recent semi-annual report. Units of the Fund are offered on the basis
of the information and representations contained in this Explanatory
Memorandum. Any further information or representations made by any
dealer, salesman or other person must be regarded as unauthorised and must
accordingly not be relied upon.
Receipt of any document about the Fund does not constitute an offer of units
in any jurisdiction in which it is illegal to make such an offer. In particular,
the units have not been registered under the United States Securities Act
1933 and are not being offered in the United States of America or its
territories or possessions or areas subject to its jurisdiction or to or for the
benefits of nationals or residents thereof except pursuant to an exemption
available under the said Act of 1933.
The AXA Unit Trust - Asia Multi-Factor Advantage Fund (formerly known
as AXA Unit Trusts – Pacific Fund) is a unit trust constituted by a Trust
Deed governed by the laws of Hong Kong. The Fund has been authorised
under Section 104 of the Hong Kong Securities and Futures Ordinance by
the Securities and Futures Commission (the “SFC”) in Hong Kong. But SFC
authorisation of the Fund does not imply official recommendation. On
granting authorisation to the Fund, the SFC does not take responsibility for
the financial soundness of the Fund or for the correctness of any statements
made or opinions expressed in this Explanatory Memorandum. SFC
authorisation is not a recommendation or endorsement of a product nor does
it guarantee the commercial merits of a product or its performance. It does
not mean that the product is suitable for all investors nor is it an endorsement
of its suitability for any particular investor or class of investors.
Important
If you are in any doubt about the contents of this Explanatory
Memorandum, you should seek independent professional financial
advice.
TABLE OF CONTENTS
ADMINISTRATION .............................................................................................. 1
DEFINITIONS ........................................................................................................ 3
SUMMARY ............................................................................................................. 6
Principal Features of Investment in the Fund ............................................................. 6
MANAGEMENT OF THE FUND ......................................................................... 6
The Manager ............................................................................................................. 6
The Sub-Investment Manager.................................................................................... 8
Trustee ...................................................................................................................... 8
INVESTMENT ....................................................................................................... 9
Investment Policy and Aim ....................................................................................... 9
Use of Derivatives .................................................................................................... 9
Securities Financing Transactions ............................................................................. 9
Investment and Borrowing Restrictions ..................................................................... 9
Borrowings ............................................................................................................. 10
Stock Connect ......................................................................................................... 10
RISK CONSIDERATIONS .................................................................................. 13
General ................................................................................................................... 13
Equity market risk ................................................................................................... 13
Liquidity Risk ......................................................................................................... 13
Regional Concentration Risk ................................................................................... 14
Foreign Currency Risk ............................................................................................ 14
Emerging Markets Risk ........................................................................................... 14
Political, Social and Economic Risks ....................................................................... 16
Market Risk ............................................................................................................ 17
Management Risk ................................................................................................... 17
Method and model risk ............................................................................................ 18
Legal Environment.................................................................................................. 18
Counterparty Risk ................................................................................................... 19
Custody Risk .......................................................................................................... 19
Risks relating to Investment in the mainland China ................................................. 20
Risk associated with the Stock Connect ................................................................... 22
Investor Risks ......................................................................................................... 25
Risk of Termination ................................................................................................ 25
Taxation Risk .......................................................................................................... 26
APPLICATION AND REALISATION ............................................................... 26
Application for Units .............................................................................................. 26
Realisation of Units................................................................................................. 27
Compulsory Realisation of Units ............................................................................. 28
Switching ................................................................................................................ 30
Minimum Holding .................................................................................................. 30
CONFLICTS OF INTEREST .............................................................................. 31
TAXATION........................................................................................................... 32
Hong Kong ............................................................................................................. 32
Personal Data .......................................................................................................... 37
General ................................................................................................................... 37
GENERAL INFORMATION ............................................................................... 37
The Trust Deed ....................................................................................................... 37
Modification of Trust Deed ..................................................................................... 38
Valuation and Prices ............................................................................................... 38
Charges ................................................................................................................... 40
Cash Rebates and Soft Commissions ....................................................................... 42
Income .................................................................................................................... 42
Reports and Accounts ............................................................................................. 42
Meetings of Unitholders .......................................................................................... 42
Transfer of Units ..................................................................................................... 43
Suspension of Dealing............................................................................................. 43
Termination of the Fund .......................................................................................... 44
Anti-Money Laundering Regulations ...................................................................... 45
Enquiries and Complaints Handling ........................................................................ 46
Documents Available For Inspection ....................................................................... 46
SCHEDULE 1 – INVESTMENT RESTRICTIONS ............................................ 47
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ADMINISTRATION
Manager
AXA INVESTMENT MANAGERS ASIA
LIMITED
Suites 3603-06, 36/F, One
Taikoo Place, Taikoo Place,
979 King’s Road,
Quarry Bay, Hong Kong SAR
Sub-Investment
Manager
AXA INVESTMENT MANAGERS ASIA (SINGAPORE) LTD
1003 Bukit Merah Central, #06-07, Singapore (159836) (registered
address) and One George Street, #14-02/03, Singapore (049145)
(business address)
Trustee
CITITRUST LIMITED
50/F, Champion Tower,
Three Garden Road,
Central, Hong Kong SAR
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Registrar
CITICORP FINANCIAL SERVICES LIMITED
9/F, Citi Tower, One Bay East
83 Hoi Bun Road
Kwun Tong, Kowloon, Hong Kong SAR
Solicitors
DEACONS
5th Floor, Alexandra House
18 Chater Road
Central, Hong Kong
Auditors
PRICEWATERHOUSECOOPERS
22nd Floor, Prince’s
Building
Central
Hong Kong
Directors Of The Manager
Bruno Guilloton
Simon Lopez
Lam Chung Han, Terence
Laurent Bilard
Jean-Christophe Menioux
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DEFINITIONS
"Business Day" a day (other than Saturday and public holidays) on which
licensed banks in Hong Kong are generally open for business
or such other day or days as the Manager, with the consent of
the Trustee, may determine from time to time, provided that
where as result of a number 8 typhoon signal being hoisted
or a black rainstorm warning being issued by the Hong Kong
Observatory or other similar event, the period during which
licensed banks in Hong Kong are open on any day is reduced,
such day shall not be a Business Day unless the Manager,
with the consent of the Trustee, determine otherwise.
“China A-shares” shares issued by companies listed on the Shanghai Stock
Exchange or the Shenzhen Stock Exchange, traded in
Renminbi and available for investment by domestic
(Chinese) investors, the qualified foreign institutional
investors, the Renminbi qualified foreign institutional
investors, and investors through Shanghai-Hong Kong Stock
Connect
“Code” the Overarching Principles Section and Section II-Code on
Unit Trusts and Mutual Funds of the SFC Handbook for Unit
Trusts and Mutual Funds, Investment-Linked Assurance
Schemes and Unlisted Structured Investment Products or any
handbook, guideline and code issued by the SFC, as may be
amended from time to time
“Connected Persons” in relation to a company, means:
(a) any person or company beneficially owning, directly
or indirectly, 20% or more of the ordinary share capital of
that company or able to exercise, directly or indirectly, 20%
or more of the total votes in that company; or
(b) any person or company controlled by a person who or
which meets one or both of the descriptions given in (a); or
(c) any member of the group of which that company
forms part; or
(d) any director or officer of that company or of any of its
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connected persons as defined in (a), (b) or (c) above
"Dealing Day" each Business Day or such other days as the Manager may
from time to time, with the approval of the Trustee determine,
provided that reasonable notice of any such determination
shall, unless the Trustee otherwise agrees, be given by the
Manager to all Holders at such time and in such manner as
the Trustee shall approve
"Fund" AXA Unit Trust - Asia Multi-Factor Advantage Fund
(formerly known as, AXA Unit Trusts – Pacific Fund)
“Government and other
Public Securities” any investment issued by, or the payment of principal and interest on, which is guaranteed by a government, or any fixed-interest investment issued by its public or local authorities or other multilateral agencies.
"Hong Kong" the Hong Kong Special Administrative Region of the
People's Republic of China
"Sub-Investment AXA Investment Managers Asia (Singapore) Ltd Manager”
"Manager" AXA Investment Managers Asia Limited “Qualified Exchange
Traded Funds” exchange traded funds that are:
(a) authorized by the SFC under 8.6 or 8.10 of the Code; or (b) listed and regularly traded on internationally recognized stock exchanges open to the public (nominal listing not accepted) and either (i) the principal objective of which is to track, replicate or correspond to a financial index or benchmark, which complies with the applicable requirements under 8.6 of the Code; or (ii) the investment objective, policy, underlying investments and product features of which are substantially in line with or comparable with those set out under 8.10 of the Code
"Registrar" Citicorp Financial Services Limited "REITs" real estate investment trusts "reverse repurchase
transactions " transactions whereby the Fund purchases securities from a counterparty of sale and repurchase transactions and agrees to sell such securities back at an agreed price in the future
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“RMB” renminbi, the lawful currency of the People’s Republic of China
"sale and repurchase
transactions " transactions whereby the Fund sells its securities to a counterparty of reverse repurchase transactions and agrees to buy such securities back at an agreed price with a financing cost in the future
"Securities Market" any stock exchange, over-the-counter market or other
organised securities market that is open to the international public and on which such securities are regularly traded
"securities lending
transactions”
transactions whereby the Fund lends its securities to a
security-borrowing counterparty for an agreed fee
"SFC"
the Securities and Futures Commission of Hong Kong
"substantial financial
institution"
an authorized institution as defined in section 2(1) of the
Banking Ordinance (Chapter 155 of Laws of Hong Kong) or
a financial institution which is on an ongoing basis subject to
prudential regulation and supervision, with a minimum net
asset value of HK$2 billion or its equivalent in foreign
currency
"Trustee"
Cititrust Limited in its capacity as trustee of the Fund
"Trust Deed" the trust deed dated 22 April 1987 (as amended from time to
time) establishing the Fund
"US$" and "US
Dollars"
the currency of the United States of America
6
SUMMARY
Principal Features of Investment in the Fund
• Investment in securities in the Pacific region, in particular Asia,
aiming to achieve long-term capital growth.
• Active investment management policy.
• Access to worldwide and specialised investment expertise of the AXA Group.
• Minimum initial investment of US$1,000 (or equivalent in other currencies).
• Daily valuations and dealing.
• A Fund established and authorised in Hong Kong, denominated in US Dollars.
MANAGEMENT OF THE FUND
The Manager
AXA Investment Managers Asia Limited was incorporated in Hong Kong
on 28 July 1989 and is licensed with the SFC to carry on Type 1 (dealing in
securities), Type 2 (dealing in futures contracts), Type 4 (advising on
securities) and Type 9 (asset management) regulated activities under Section
116(1) of the Securities and Futures Ordinance. It is a wholly-owned
subsidiary of AXA Investment Managers, S.A.
The Manager has established a liquidity management policy which enables
it to identify, monitor and manage the liquidity risks of the Fund and to
ensure that the liquidity profile of the investments of the Fund will facilitate
compliance with the Fund’s obligation to meet redemption request. Such
policy, combined with the liquidity management tools of the Manager, also
seeks to achieve fair treatment of unitholders and safeguard the interests of
the remaining unitholders in case of sizeable redemptions.
The Manager’s liquidity policy takes into account the investment strategy,
the liquidity profile, the redemption policy, the dealing frequency, the ability
to enforce redemption limitations and the fair valuation policies of the Fund.
7
These measures seek to ensure fair treatment and transparency for all
investors.
The liquidity management policy involves monitoring the profile of
investments held by the Fund on an on-going basis to ensure that such
investments are appropriate to the redemption policy as stated under the
section headed “Realisation of Units” and will facilitate compliance with the
Fund’s obligation to meet redemption requests. Further, the liquidity
management policy includes details on periodic stress testing carried out by
the Manager to manage the liquidity risk of the Fund under normal and
exceptional market conditions.
The Manager has assigned a designated staff responsible for risk
management to carry out the day-to-day liquidity risk monitoring function
and they are functionally independent from the day-to-day portfolio
management. The oversight of liquidity risk management staff and other
related responsibility are performed by the Manager’s chief risk officer.
The following tools may be employed by the Manager to manage liquidity
risks:
- the Manager is entitled to limit the number of units of the Fund
redeemed on any Dealing Day to 10% of the total number of units in
issue;
- the Manager may, in calculation of the issue price and the redemption
price, add fiscal or purchase charges or deduct fiscal or sales charges
to protect the interest of the remaining unitholders;
- the Manager may borrow up to 10% of the value of the net assets of
the Fund to meet redemption requests, on the condition that the
Manager has contracted to sell sufficient investments to meet such
payment or for short term liquidity management purposes in
connection with trade settlements and other expenses of the Fund.
The Manager will consult the Trustee before the use of any of the liquidity
management tools. Investors should note that there is a risk that the liquidity
management tools as described above may not be effective to manage
liquidity and redemption risk at all times.
In addition, the Manager uses a risk-management process which enables it
to assess liquidity risks. Fund liquidity risk is assessed both at launch and
throughout the Fund’s life-cycle. All new products launched are considered
by the Global New Business Committee. This includes an assessment of the
8
proposal by the Risk Management department. Their assessment of any new
product will include a consideration of liquidity issues.
Liquidity monitoring of this Fund is performed on an ongoing basis by the
Risk Management department. The monitoring of portfolio liquidity profile
is based on alert thresholds determined on both the asset and liability side.
Liquidity monitoring results are analyzed by the Risk Management team
with the support of the portfolio manager, if needed. Based on the analysis
outcome, and when deemed necessary, an action plan will be put in place or
appropriate action will be taken to safeguard the interests of unitholders.
The Sub-Investment Manager
The Manager has appointed AXA Investment Managers Asia (Singapore)
Ltd as the Sub-Investment Manager to the Fund.
AXA Investment Managers Asia (Singapore) Ltd was incorporated under
the laws of Singapore on 10 April 1990 and is registered with the Monetary
Authority of Singapore to carry out the regulated activity of fund
management under the Securities and Futures Act (Cap 289) of Singapore.
It is a wholly-owned subsidiary of AXA Investment Managers, S.A.
Trustee
Cititrust Limited is the Trustee of the Fund and is incorporated in Hong
Kong on 11 April 1967. It is a wholly-owned subsidiary of Citigroup Inc. It
is registered as a Trust Company under Section 77 of the Trustee Ordinance.
Under the Trust Deed, the Trustee shall take into custody or under its control
all the investments, cash and other assets forming part of the assets of the
Fund and hold them in trust for the unitholders of the Fund in accordance
with the provisions of the Trust Deed and, to the extent permitted by law,
shall register cash and registrable assets in the name of or to the order of the
Trustee and be dealt with as the Trustee may think proper for the purpose of
providing for the safe keeping thereto.
9
INVESTMENT
Investment Policy and Aim
The Fund is a unit trust established and authorised in Hong Kong aiming to
provide investors with long-term capital growth by investing in securities of
companies in countries in the Pacific region, in particular Asia. Its principle
aim is to achieve maximum capital growth through investments in equity
securities of companies which are principally listed, domiciled or which
have substantial business in the Pacific region, in particular Asia. It is
important that the Manager retains the flexibility to exploit the opportunities
which arise from different movements between one stock market and
another. There is, therefore, no formal restriction on the proportion of the
assets that can be invested in any one market or currency.
The Fund can employ advanced data analytics such as machine learnings,
big data and artificial intelligence. The resulting portfolio may then be
optimized to maximize expected return relative to risk and will incorporate
various proprietary ESG (environmental, social and governance) factors in
order to achieve the Fund’s objective. More information on the Manager’s
and its Sub-Investment Manager’s approach to ESG integration can be found
on http://www.axa-im.com.hk. This website has not been reviewed by the
SFC.
The Fund may not invest 30% or more of the Fund’s net asset value in China
A-shares through Stock Connect.
Notwithstanding the objectives of the Fund, unitholders should, however, be
aware that the price of units and the income from them may go down as well
as up.
Use of Derivatives
The Fund will not use derivatives for any purposes.
Securities Financing Transactions
The Fund does not intend to enter into any sale and repurchase transaction,
reverse repurchase transaction or securities lending transaction.
Investment and Borrowing Restrictions
Although broad powers of investment in securities are included in the Trust
10
Deed, it is the Manager's policy to invest at least 70% of the total net asset
value of the Fund in the Pacific region, in particular Asia.
The Trust Deed also lays down certain investment restrictions on the
investment of the Fund's assets and borrowing restrictions. The Fund is
subject to the investment restrictions set out in Schedule 1 to this
Explanatory Memorandum and the following additional requirements:
- the Manager may not invest more than 10% of the Fund's net assets in
securities in countries where the proceeds on realisation cannot be
immediately repatriated.
- the Manager may not for the account of the Fund make short sales.
- the Manager may not for the account of the Fund invest in any unit trusts
or mutual funds which have not been authorised or approved by the SFC.
- the Manager may not invest more than 10% of the Fund’s net assets in
other unit trusts and mutual funds.
Where investment restrictions set out in the Trust Deed and/or the
Explanatory Memorandum are exceeded, the Manager will take as a priority
objective all necessary steps within a reasonable period of time to remedy
the situation, taking due account of the interests of the unitholders.
Borrowings
Subject to borrowing restrictions set out in Schedule 1 to this Explanatory
Memorandum, the Manager may borrow for the account of the Fund up to
10% of the value of the net assets of the Fund to acquire investments or for
short term liquidity purposes, to meet realisations and other expenses of the
Fund.
Stock Connect
The Stock Connect is a securities trading and clearing linked programme
developed by the Hong Kong Exchanges and Clearing Limited (“HKEx”),
the Shanghai Stock Exchange (“SSE”), the Shenzhen Stock Exchange
(“SZSE”) and the China Securities Depository and Clearing Corporation
Limited (“CSDCC”), with an aim to achieve mutual stock market access
between mainland China and Hong Kong. It comprises the Shanghai-Hong
Kong Stock Connect and the Shenzhen-Hong Kong Stock Connect. The
Shanghai-Hong Kong Stock Connect comprises a Northbound Trading Link
and a Southbound Trading Link. Under the Northbound Trading Link, Hong
Kong and overseas investors (including the Fund), through their Hong Kong
brokers and a securities trading service company established by the Stock
Exchange of Hong Kong Limited (“SEHK”) and the Hong Kong Securities
11
Clearing Company Limited (“HKSCC”), are able to trade eligible shares
listed on the SSE by routing orders to the SSE. Under the Southbound
Trading Link, eligible investors, through mainland Chinese securities firms
and a securities trading service company established by the SSE, are able to
trade eligible shares listed on the SEHK by routing orders to the SEHK. The
same arrangement applies to the Shenzhen-Hong Kong Stock Connect.
Eligible securities – Initially, Hong Kong and overseas investors are only
able to trade certain stocks listed on the SSE market (the “SSE Securities”)
and the SZSE market (the “SZSE Securities”).
SSE Securities include all the constituent stocks from time to time of the
SSE 180 Index and SSE 380 Index, and all the SSE-listed China A-shares
that are not included as constituent stocks of the relevant indices but which
have corresponding China H-shares listed on the SEHK, except the
following:
a) SSE-listed shares which are not traded in RMB; and
b) SSE-listed shares which are under risk alert.
SZSE Securities will include all the constituent stocks of the SZSE
Component Index and the SZSE Small/Mid Cap Innovation Index, and all
the SZSE-listed China A-shares which have corresponding China H-shares
listed on SEHK, except the following:
a) SZSE-listed shares which are not traded in RMB; and
b) SZSE-listed shares which are under risk alert or under delisting
arrangement.
At the initial stage of Shenzhen-Hong Kong Stock Connect, shares listed on
the ChiNext Board of SZSE under Northbound Trading Link will be limited
to institutional professional investors. Subject to resolution of related
regulatory issues, other investors may subsequently be allowed to trade such
shares.
It is expected that the list of eligible securities will be subject to review.
Trading day – Investors (including the Fund) will only be allowed to trade
on the other market on days where both the mainland China and Hong Kong
markets are open for trading, and banking services are available in both the
mainland China and Hong Kong markets on the corresponding settlement
days.
12
Trading quota – Trading under the Stock Connect will be subject to a daily
quota (“Daily Quota”), which will be separate for Northbound and
Southbound trading. The Daily Quota limits the maximum net buy value of
cross-boundary trades under the Stock Connect each day. The quotas do not
belong to the Fund and are utilised on a first-come-first-serve basis. The
SEHK will monitor the quota and publish the remaining balance of the
Northbound Daily Quota at scheduled times on the HKEx’s website. The
Daily Quota may change from time to time.
Settlement and Custody – The HKSCC is responsible for the clearing,
settlement and the provision of depository, nominee and other related
services of the trades executed by Hong Kong market participants and
investors.
Corporate actions and shareholders’ meetings – Under the Shanghai-Hong
Kong Stock Connect, notwithstanding the fact that HKSCC does not claim
proprietary interests in the SSE Securities held in its omnibus stock account
in the CSDCC, the CSDCC as the share registrar for SSE listed companies
still treats the HKSCC as one of the shareholders when it handles corporate
actions in respect of such SSE Securities. The HKSCC will monitor the
corporate actions affecting SSE Securities and keep the relevant participants
of CCASS (the Central Clearing and Settlement System operated by the
HKSCC) informed of all such corporate actions that require CCASS
participants to take steps in order to participate in them. The same
arrangement is applicable to SZSE Securities under the Shenzhen-Hong
Kong Stock Connect.
Currency – Hong Kong and overseas investors (including the Fund) will
trade and settle SSE Securities and SZSE Securities in RMB only.
Trading fees – In addition to paying trading fees and stamp duties in
connection with China A-shares trading, the Fund may be subject to other
fees and taxes concerned with income arising from stock transfers which are
determined by the relevant authorities.
Coverage of Investor Compensation Fund – The Fund’s investments
through Northbound trading under the Stock Connect is not covered by the
Hong Kong’s Investor Compensation Fund, nor the China Securities
Investor Protection Fund ( ) in the mainland
China. Legislative amendments in relation to Hong Kong’s Investor
Compensation Fund have been proposed to cover Northbound trading, and
are expected to take effect in 2020.
13
Further information about the Stock Connect is available at the website:
http://www.hkex.com.hk/eng/market/sec_tradinfra/chinaconnect/chinaconn
ect.htm. This website has not been reviewed by the SFC.
RISK CONSIDERATIONS
Investment in the Fund carries a high degree of risk including, but not
limited to, the risks referred to below. No assurance can be given that
unitholders will realise a profit on their investment. Moreover,
unitholders may lose some or all of their investment. The risks referred
to below do not purport to be exhaustive. Potential investors should
review this Explanatory Memorandum carefully, in its entirety, and
consult with their professional advisers before making an application
for units.
General
There is no assurance that any appreciation in the value of investments will
occur, or that the investment objective of the Fund will be achieved. The
value of investments and the income derived therefrom may fall as well as
rise and investors may not be able to receive the original amount invested in
the Fund at the time of redemption. Loss of capital may be due to direct
exposure or counterparty exposure. No guarantee is made to investors with
respect to the restitution of their initial or subsequent investments in the
Fund. The difference at any one time between the cost of subscribing for
units and the amount received on redeeming units means that any investment
in the Fund should be viewed as a long-term investment. Investment in units
in the Fund is more volatile and risky than some other forms of investment.
An investment should only be made by those persons who are able to sustain
a loss on their investment.
Equity market risk
The Fund’s investment in equity securities is subject to general market risks,
whose value may fluctuate due to various factors, such as changes in
investment sentiment, political and economic conditions and issuer-specific
factors.
Liquidity Risk
There is a risk that investments held by the Fund may become less liquid in
response to market developments or adverse investor perceptions. Not all
14
securities or investments held by the Fund will be actively traded and
consequently liquidity may be low. Moreover, the accumulation and
disposal of holdings in some investments may be time consuming and may
need to be conducted at unfavourable prices. The Fund may also encounter
difficulties in disposing of assets at their fair price due to adverse market
conditions leading to limited liquidity.
Further, there is a risk that, because of a lack of liquidity and efficiency in
certain markets due to unusual market conditions or unusual high volumes
of repurchase requests or other reason, the Fund may experience some
difficulties in purchasing or selling securities and, therefore, meeting
subscriptions and redemptions in time.
Illiquidity of securities may also bring about the circumstances prescribed
under the section headed “Suspension of Dealing” where the Manager may
suspend dealings in the units of the Fund.
Regional Concentration Risk
The Fund which invests primarily in Pacific region (in particular Asian)
companies may be more volatile than a broad-based fund (such as a global
equity fund) as it is more susceptible to adverse economic, political, policy,
foreign exchange, liquidity, tax, legal or regulatory event affecting the
region.
Foreign Currency Risk
The Fund will have exposure to fluctuations in currency exchange rates
where it invests directly or indirectly in securities denominated in currencies
other than US dollars. The markets in which foreign exchange transactions
are effected are highly volatile, highly specialised and highly technical.
Significant changes, including changes in liquidity and prices, can occur in
such markets within very short period of time, often within minutes. Foreign
exchange trading risks include, but are not limited to, exchange rate risk,
interest rate risk and potential interference by foreign governments through
regulation of local exchange markets, foreign investment, or particular
transactions in foreign currency.
Emerging Markets Risk
The Fund invests in emerging markets. Therefore, some of the securities
held in the Fund may involve a greater degree of risk than generally
associated with similar investments in major securities markets, such as
15
liquidity risks, currency risks/control, political and economic uncertainties,
legal and taxation risks, settlement risks, custody risk and the likelihood of
a high degree of volatility, due, in particular, to political and regulatory
factors, as described hereunder. The prospects for economic growth in a
number of these markets are considerable and returns have the potential to
exceed those in mature markets where growth is achieved. Investments in
emerging markets offer diversification opportunities as correlations between
those markets and major markets are generally quite low. However, price
and currency volatility are generally higher in emerging markets. Emerging
markets securities may be substantially less liquid and more volatile than
those of mature markets. Securities of companies located in emerging
markets may be held by a limited number of persons. This may adversely
affect the timing and pricing of the Fund's acquisition or disposal of
securities.
Practices in relation to settlement of securities transactions in emerging
markets involve higher risks than those in developed markets, in part
because the Fund will need to use brokers and counterparties, which are less
well capitalised, and custody and registration of assets in some countries
may be unreliable.
The Fund will seek, where possible, to use counterparties, whose financial
status is such that this risk is reduced. However, there can be no certainty
that the Fund will be successful in eliminating this risk for the Fund,
particularly as counterparties operating in emerging markets frequently lack
the substance or financial resources of those in developed countries.
The legal infrastructure in certain countries in which investments may be
made may not provide the same degree of investors' protection or
information to investors as would generally apply to major Securities
Markets. Generally accepted accounting, auditing and financial reporting
practices in emerging markets may be significantly different from those in
developed markets. Compared to mature markets, some emerging markets
may have a low level of regulations, enforcement of regulations and
monitoring of investors' activities. Those activities may include practices
such as trading on material non-public information.
Some governments exercise substantial influence over the private economic
sector and investments may be affected by political and economic
instability. In adverse social and political circumstances, governments have
been involved in policies of expropriation, confiscatory taxation,
nationalization, intervention in the securities market and trade settlement
16
and imposition of foreign investment restrictions and exchange controls, and
these could be repeated in the future. In addition to withholding taxes on
investment income, some emerging markets may impose differential capital
gain taxes on foreign investors.
The possibility of fraud, negligence, undue influence being exerted by the
issuer or refusal to recognize ownership exists, which, along with other
factors, could result in the registration of a shareholding being completely
lost. Therefore, investors should be aware that the Fund may suffer loss
arising from this type of registration problem and may have no successful
claim for compensation.
Political, Social and Economic Risks
The value of the Fund’s assets may be adversely affected by political,
economic, social and religious instability; inadequate investor protection;
changes in laws or regulations of countries; international relations with other
nations; natural disasters; corruption and military activity. The Fund may
have difficulty in obtaining or enforcing judgments against companies or
their management.
Furthermore, the economies of developing countries differ from the
economies of more developed countries in many respects, such as the rate
of growth, inflation, capital reinvestment, resource self-sufficiency,
financial system stability, the national balance of payments position and
sensitivity to changes in global trade. The governments of certain countries
have placed restrictions on the operational freedom of private enterprise, and
have or may nationalise privately owned assets including companies held by
the Fund. From time to time, a relatively small number of companies and
industries may represent a large portion of the total stock market in a
particular country or region, and these companies and industries may be
especially sensitive to adverse social, political, economic or regulatory
developments.
Countries in the Pacific Region (in particular Asia) may also have different
accounting standards, less corporate disclosure, governance and regulatory
requirements than do more developed countries. As a result, there may be
less publicly available information about companies in developing
countries. There is generally less governmental regulation of stock
exchanges, brokers and issuers than in more developed countries, which may
result in less transparency with respect to a company’s operations. The
economies of many developing countries are dependent on exports and
17
global trade and some have limited natural resources (such as oil), resulting
in dependence on foreign sources for certain raw materials, and vulnerability
to global fluctuations in price or supply. Changes in the economies or
markets of the main trading partners of developing and developed countries,
could negatively impact the growth prospects of different countries and
markets. These risk factors may not be easy to anticipate.
Market Risk
The market price of shares in the Pacific region (in particular Asia) owned
by the Fund may go up or down, sometimes rapidly or unpredictably. Such
shares may decline in value due to factors affecting equities markets
generally in the Pacific region (in particular Asia) or particular industries
represented in such equities markets. The value of a security may decline
due to general market conditions which are not specifically related to a
particular company, 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 sentiment generally. They may also
decline due to factors that affect a particular industry or industries, such as
labour shortages or increased production costs and competitive conditions
within an industry. During a general downturn in the equities markets,
multiple asset classes may decline in value simultaneously, as well as the
value of the Fund’s investment. Equity securities generally have greater
price volatility than debt securities. Different parts of the market and
different types of equity securities can react differently to these risks. For
example, large cap stocks can react differently from small cap stocks, and
“growth” stocks can react differently from “value” stocks.
Management Risk
Any actively managed investment portfolio is subject to the risk that its
investment manager will make poor stock selections. The Investment
Manager will apply its investment techniques and risk analyses in making
investment decisions for the Fund, but there can be no guarantee that they
will produce the desired results.
Past performance is not a reliable indicator as to future performance. The
nature of and risks associated with the Fund’s future performance may differ
materially from those investments and strategies historically undertaken by
the Investment Manager. There can be no assurance that the Investment
Manager will realise returns comparable to those achieved in the past or
generally available on the market.
18
Method and model risk
In seeking to achieve the Fund’s investment objectives, the Manager and/or
Sub-Investment Manager uses recommendations generated by proprietary
quantitative analytical models owned and operated by the AXA Investment
Managers group of companies. Quantitative modelling is a very complex
process involving hundreds of thousands of data points and settings encoded
in computer software, and the Manager and/or the Sub-Investment Manager
and their affiliates review these codes and the various components to the
models with a view to ensuring that they are appropriately adapted and
calibrated to reflect the Manager and/or the Sub-Investment Manager's
views as to the potential implications of evolving external events and factors,
including constantly changing economic, financial market and other
conditions. This process involves the exercise of judgments and a number of
inherent uncertainties. The Manager and/or the Sub-Investment Manager’s
views, including those related to the optimal configuration, calibration and
adaptation of the models, may change over time depending on evolving
circumstances, on information that becomes available to the Manager and/or
the Sub-Investment Manager and their affiliates and on other factors.
While the Manager and/or the Sub-Investment Manager attempts to ensure
that the models are appropriately developed, operated and implemented on
a continuing basis, sub-optimal calibrations of the models and similar issues
may arise from time to time, and neither the Manager and/or the Sub-
Investment Manager nor any of its affiliates can guarantee that the models
are in an optimal state of calibration and configuration at all times. Further,
inadvertent human errors, trading errors, software development and
implementation errors, and other types of errors are an inherent risk in
complex quantitative investment management processes of the type the
Investment Manager employs. While the Manager and/or the Sub-
Investment Manager's policy is to promptly address any such errors when
identified, there can be no guarantee that the overall investment process will
be without error or that it will produce the desired results.
Legal Environment
The interpretation and application of decrees and legislative acts often can be
uncertain or inconsistent, particularly in respect of matters relating to
taxation. Legislation could be imposed retrospectively or may be issued in
the form of internal regulations that the public may not be made aware of.
Judicial independence and political neutrality cannot be guaranteed. State
bodies and judges may not adhere to the requirements of the law and the
19
relevant contract. There is no certainty that investors will be compensated in
full or in part for any damage incurred or loss suffered as a result of
legislation imposed or decisions of state bodies or judges.
Some markets are only beginning to develop the concept of legal/formal
ownership and of beneficial ownership and consequently the courts in such
markets may consider that any nominee or local custodian as registered
holder of securities would have full ownership thereof and that a beneficial
owner may have no rights whatsoever in respect thereof.
Counterparty Risk
The Fund may invest in instruments where an underlying counterparty may
be involved. If any of the underlying counterparties of the underlying
investment defaults, the Fund may suffer losses. Such counterparty risks
include:
• Cash and deposits – the Fund may hold cash and deposits in banks
and deposit-taking institutions. Such institutions may not be subject
to regulatory or full or partial government protection, and, as a result,
losses may be incurred in the event of liquidation of the bank or
deposit-taking company.
• Settlement Risk – Settlement procedures in some emerging market
countries may be less developed and reliable. Settlement processes
may require delivery of securities or cash before the receipt of the
cash or securities. In some countries the settlement cycle may be
delayed due to the transfer of title of the securities and its registration
process. This may lead to missed investment opportunities which
may leave large portions of the Fund’s assets uninvested. Losses may
even be incurred due to the failures of the registration process, or the
inability of the counterparty to complete its contractual obligations.
Custody Risk
Custodians or sub-custodians may be appointed in local markets for the
purpose of safekeeping assets in those markets. Where the Fund invests in
markets where custodial and/or settlement systems are not fully developed,
the assets of the Fund may be exposed to custodial risk. In case of
liquidation, bankruptcy or insolvency of a custodian or sub-custodian, the
Fund may take a longer time to recover its assets. In extreme circumstances
such as the retroactive application of legislation and fraud or improper
20
registration of title, the Fund may even be unable to recover all of its assets.
The costs borne by the Fund in investing and holding investments in such
markets will be generally higher than in organised securities markets.
Risks relating to Investment in the mainland China
Investing in the securities markets in the mainland China is subject to the
risks of investing in emerging markets with a greater degree of risk than
generally associated with similar investments in major securities markets,
due to, in particular, political and regulatory factors, as described hereunder.
China domestic securities may be substantially less liquid and more volatile
than those of mature markets. This may adversely affect the timing and
pricing of the Fund’s acquisition or disposal of securities.
The existence of a liquid trading market for China A-shares may depend on
whether there is a supply of, and demand for such China A-shares. Securities
exchanges in China typically have the right to suspend or limit trading in
any security traded on the relevant exchange. In particular, trading bands are
imposed by the stock exchanges in China on China A-shares, where trading
in any China A-share security on the relevant stock exchange may be
suspended if the trading price of the security has increased or decreased to
the extent beyond the trading band limit. A suspension will render it
impossible for the Manager and/or the Sub-Investment Manager to liquidate
positions and can thereby expose the Fund to losses. Further, when the
suspension is subsequently lifted, it may not be possible for the Manager
and/or the Sub-Investment Manager to liquidate positions at a favorable
price. The price at which securities may be purchased and sold by the Fund
and the net asset value of the Fund may be adversely affected if trading
markets for China A-shares are limited or absent.
Many of the mainland China economic reforms are subject to adjustment
and modification that may not always have a positive effect on foreign
investment in the mainland China market.
The legal infrastructure in the mainland China may not provide with the
same degree of investors’ protection or information to investors, as would
generally apply to major securities markets. The recognized accounting,
auditing, financial reporting practices and regulatory requirements may be
significantly different from those in developed markets. Further, regulations
continue to develop and may change quickly which may further delay
redemptions or restrict liquidity.
21
The mainland China government may also exercise substantial influence
over the private economic sector and investments may be affected by
political and economic instability. In the past, the mainland China
Government applied nationalization, expropriation, confiscatory levels of
taxation and currency blockage. Such event could adversely affect the
interests of the Fund and there is no assurance that such events will not occur
in the future.
Moreover, factors such as the mainland China government policy, fiscal
policy, interest rates, inflation, investor sentiment, the availability and cost
of credit, the liquidity of the mainland China financial markets and the level
and volatility of equity prices could significantly affect the value of the
Fund’s underlying investments and thus the net asset value of the Fund.
Practices in relation to settlement of securities transactions in the mainland
China involve higher risks than those in developed markets, in part because
the Fund may need to use local brokers, depositary and counterparties
subject to different regulations compared to the other international
developed markets. The Fund will seek, where possible, to use
counterparties whose financial status is such that this risk is reduced.
Moreover, as securities purchase transactions in China markets may require
cash to be available in the custody account before trading there may be a
time lag before market exposure can be obtained after and the pricing point
of a subscription; consequently, the Fund may be under-exposed and subject
to performance dilution risk. i.e. If markets rise between the day of the
pricing point of the subscription into the Fund and the day the Fund is able
to invest, Unitholders may see their performance diluted. Conversely, if
markets fall between those two dates, Unitholders may benefit.
Both the Shanghai and Shenzhen securities markets are in the process of
development and change. This may lead to trading volatility, difficulty in
the settlement and recording of transactions and difficulty in interpreting and
applying the relevant regulations. The mainland China government has been
developing a comprehensive system of commercial laws and considerable
progress has been made in the promulgation of laws and regulations dealing
with economic matters such as corporate organization and governance,
foreign investment, commerce, taxation and trade. Because these laws,
regulations and legal requirements are relatively recent, their interpretation
and enforcement involve uncertainties.
22
Investments in the mainland China will be sensitive to any significant
change in political, social or economic policy in the mainland China. Such
sensitivity may, for the reasons specified above, adversely affect the capital
growth and thus the performance of these investments.
Risk associated with the Stock Connect
Regulatory risk: The current regulations are subject to change and there can
be no assurance that the Stock Connect will not be abolished. New
regulations may be issued from time to time by the regulators/stock
exchanges in the mainland China and Hong Kong in connection with
operations, legal enforcement and cross-border trades under the Stock
Connect. The regulations are untested and there is no uncertainty as to how
they will be applied, and are subject to change which may have retrospective
effect. The Fund may be adversely affected as a result of such changes.
Investment limitations: The Stock Connect is subject to quota limitations on
daily basis. In particular, once the remaining balance of the relevant quota
drops to zero or the daily quota is exceeded, buy orders will be rejected
(although investors will be permitted to sell their cross-boundary securities
regardless of the quota balance) and there is no certainty that the quota might
be extended in the future. Therefore, quota limitations may restrict the
Fund’s ability to invest in China A-shares through the Stock Connect on a
timely basis, and the Fund may not be able to effectively pursue its
investment strategy.
In addition stock may be recalled from the scope of eligible stocks for
trading via the Stock Connect and in such a case the stock can only be sold
but restricted from being bought. This may affect the ability of the Fund to
implement its investment strategy.
It is contemplated that the SEHK, the SSE and the SZSE would reserve the
right to suspend trading if necessary for ensuring an orderly and fair market
and that risks are managed prudently. Consent from the relevant regulator
would be sought before a suspension is triggered. Where a suspension is
affected, the Fund’s ability to access the mainland China market via Stock
Connect will be adversely affected.
The Stock Connect will only operate on days when both the mainland China
and Hong Kong markets are open for trading and when banks in both
markets are open on the corresponding settlement days. So it is possible that
there are occasions when it is a normal trading day for the mainland China
market but the Fund cannot carry out any China A-shares trading via the
23
Stock Connect where that day is not a trading day in Hong Kong. The Fund
may be subject to a risk of price fluctuations in China A-shares during the
time when the Stock Connect is not trading as a result.
Pre-trade checking: Mainland China regulations require that before an
investor sells any share, there should be sufficient stocks in the account;
otherwise the SSE and the SZSE will reject the sell order concerned. Pre-
trade checking will be carried out on China A-shares sell orders to ensure
there is no over-selling.
Execution issues: Stock Connect trades may, pursuant to the Stock Connect
rules, be executed through one or multiple brokers. Given the pre-trade
checking requirements, the Manager and/or the Sub-Investment Manager
may determine that it is in the interest of the Fund that it only executes Stock
Connect trades through a broker who is affiliated to the Fund’s sub-
custodian that is an exchange participant. In that situation, whilst the
Manager and/or the Sub-Investment Manager will be cognizant of its best
execution obligations, it will not have the ability to trade through multiple
brokers and any switch to a new broker will not be possible without a
commensurate change to the Fund’s sub-custody arrangements.
Ownership of Stock Connect securities: The recognition of the Fund’s
ownership on the Stock Connect securities will be subject to applicable
requirements, including laws relating to any disclosure of interest
requirement or foreign shareholding restriction. It is uncertain whether the
Chinese courts would recognise the ownership interest of the Unitholders to
allow them standing to take legal action against the Chinese entities in case
disputes arise.
Operational risk: The Stock Connect provides a channel for investors from
Hong Kong and overseas to access the mainland China stock markets
directly. The Stock Connect is premised on the functioning of the
operational systems of the relevant market participants. Market participants
are able to participate in this programme subject to meeting certain
information technology capability, risk management and other requirements
as may be specified by the relevant exchange and/or clearing house. Market
participants generally have configured and adapted their operational and
technical systems for the purpose of trading China A-shares through the
Stock Connect. However, it should be appreciated that the securities regimes
and legal systems of the two markets differ significantly and in order for the
programme to operate, market participants may need to address issues
arising from the differences on an on-going basis.
24
Further, the “connectivity” in the Stock Connect requires routing of orders
across the border. 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 assurance that the systems of the SEHK and market
participants will function properly or will continue to be adapted to changes
and developments in both markets. In the event that the relevant systems fail
to function properly, trading in both markets through the programme could
be disrupted.
Clearing and settlement risk: The HKSCC and CSDCC establish clearing
links and each has become a participant of each other to facilitate clearing
and settlement of cross-boundary trades. For cross-boundary trades initiated
in a market, the clearing house of that market will on the one hand clear and
settle with its own clearing participants, and on the other hand undertake to
fulfil the clearing and settlement obligations of its clearing participants with
the counterparty clearing house. Should the remote event of CSDCC default
occur and the CSDCC be declared as a defaulter, the HKSCC’s liabilities in
Northbound trades under its market contracts with clearing participants will
be limited to assisting clearing participants in pursuing their claims against
the CSDCC. The HKSCC will in good faith seek recovery of the outstanding
stocks and monies from the CSDCC through available legal channels or
through the CSDCC’s liquidation. In that event, the Fund may suffer delay
in the recovery process or may not be able to fully recover its losses from
the CSDCC.
No Protection by Investor Compensation Fund: The Fund’s investments
through the Stock Connect will not be covered by Hong Kong’s Investor
Compensation Fund. Hong Kong’s Investor Compensation Fund is
established to pay compensation to investors of any nationality who suffer
pecuniary losses as a result of default of a licensed intermediary or
authorised financial institution in relation to exchange-traded products in
Hong Kong. Since default matters in Northbound trading via the Stock
Connect do not involve products listed or traded in SEHK or Hong Kong
Futures Exchange Limited, they will not be covered by the Investor
Compensation Fund. On the other hand, since the Fund is carrying out
Northbound trading through securities brokers in Hong Kong but not
mainland Chinese brokers, they are not protected by the China Securities
Investor Protection Fund ( ) in the mainland
China. Therefore the Fund is exposed to the risks of default of the broker(s)
it engages in its trading in China A-shares through the Stock Connect.
25
Taxation risk: The mainland Chinese tax authorities announced temporary
tax exemptions on capital gains realised by overseas investors on trading of
China A-shares under the Stock Connect. However, there is no guarantee
that such temporary tax exemptions will be granted or will continue to apply,
will not be repealed or re-imposed retrospectively, or that no new tax
regulations and practice relating to the Stock Connect will be promulgated
in future. The Fund may be subject to uncertainties in its tax liabilities where
it invests through the Stock Connect.
Investor Risks
Substantial redemptions of units (which are more likely to occur in adverse
economic or market conditions) could require the Manager to liquidate
investments of the Fund more rapidly than otherwise desirable in order to
raise the necessary cash to fund the redemptions and to achieve a position
appropriately reflecting the smaller equity base. This could adversely affect
the net asset value of both units being redeemed and of existing units.
The Manager may compulsorily redeem a Unitholder’s units in the Fund in
certain circumstances if the holding of units by investors may result in
adverse tax or other consequences for the Fund, the Manager or the Trustee
or their associates. Such compulsory redemption may create adverse tax
and/or economic consequences to the Unitholder depending on the timing
thereof. No person will have any obligation to reimburse any portion of an
investor’s losses upon any termination of the Fund, compulsory redemption
or otherwise.
Risk of Termination
The Fund may be terminated in the circumstances summarised under the
section headed “Termination of the Fund” below. In the event of the
termination of the Fund, the Fund would have to distribute to the Unitholders
their pro rata interest in the assets of the Fund. It is possible that at the time
of such sale or distribution, certain investments held by the Fund will be
worth less than the initial cost of acquiring such investments, resulting in a
loss to the Unitholders. Moreover, any organisational expenses (such as
establishment costs) with regard to the Fund that had not yet been fully
amortised would be debited against the Fund’s assets at that time.
26
Taxation Risk
Potential investors’ attention is drawn to the taxation risks associated with
investing in the Fund. For further details, please see the section on
“TAXATION”.
APPLICATION AND REALISATION
Application for Units
An application form to purchase units in the Fund is available on request
from the Manager and Registrar. The Fund will deal daily and investors will
be able to purchase units on each Dealing Day. Applications received after
3pm on a Dealing Day or other than on a Dealing Day will be held by the
Registrar and dealt with on the next Dealing Day thereafter.
To purchase units, an investor should complete the application form and
return it to the Registrar in Hong Kong. Where an application is made by
facsimile, the original application form should be forwarded immediately to
the Registrar. Neither the Trustee, the Manager nor the Registrar shall be
responsible for any loss resulting from the non- receipt of any application
made by facsimile.
Payment should be made together with the application form. If cleared funds
are not received by or on behalf of the Trustee within three Business Days
after the date on which the units are issued, the application may be cancelled
by the Manager or, at the option of the Manager, the sum due can be required
to be paid. Investors should note that for payment in US Dollars to be
received for value on a particular Business Day, payment must be made for
value on the New York business day preceding such Business Day. A
confirmation note bearing account number of the unitholder, stating the
number of units registered in the unitholder's name, the name of the
unitholder and the address shown in the register of the unitholder will be
issued by the Registrar when the application is accepted.
Payment shall be made to the Registrar by telegraphic transfer (or other
manner as may be agreed by the Manager). No money should be paid to any
salesman or intermediary in Hong Kong who is not licensed or registered to
carry on Type 1 (dealing in securities) regulated activity under Part V of the
Securities and Futures Ordinance. All application moneys must originate
from an account held in the name of the applicant. No third party payments
shall be accepted.
27
The Fund is denominated in US Dollars. The initial minimum purchase is
US$1,000 or equivalent in other currencies and moneys paid in a currency
other than US Dollars will be converted at the cost of the investor. The
Manager has discretion to accept or reject in whole or in part any application
for units.
Units issued by the Fund will be held for investors in registered form.
Certificates will not be issued unless the Manager and the Trustee otherwise
agree. Fractions of a unit (rounded down to 4 decimal places) may be issued.
Any amount corresponding to such rounding will accrue to the Fund.
Up to four persons may apply as joint unitholders, but all must sign the
application form. Confirmations or certificates (if any) will be sent to the
address or email address of the first named joint unitholder.
The Manager shall be entitled to satisfy any application for units by selling
units or satisfy any request for realisation of units by purchasing units. Such
sales and purchases will be at the current offer and realisation price.
The Manager has an absolute discretion to accept or reject in whole or in
part any application for units. In the event that an application is rejected,
application moneys will be returned without interest at the risk of the
person(s) entitled thereto. No units will be issued where dealing is
suspended, as described under "Suspension of Dealing" below.
Realisation of Units
Units may be realised on any Dealing Day provided that a unitholder's
remaining holding has the value of at least US$1,000 at the time of
realisation and that he has held such units for a period of at least seven days.
Realisation will take place at the applicable realisation price calculated by
reference to the value of investments at the close of business on the Dealing
Day on which the realisation request is accepted. The Manager is entitled in
the case of a unitholder who is a resident outside Hong Kong to deduct and
retain for the account of the Fund any additional expenses incurred which
are in addition to those which would have been incurred had the unitholder
been resident in Hong Kong.
Realisation forms can be obtained from the Manager and Registrar which
should be completed and signed by the unitholder (in case of joint
unitholders by all the joint unitholders) and delivered to the Registrar.
28
The original of any realization form given by facsimile should be forwarded
immediately to the Registrar. Neither the Manager, the Trustee nor the
Registrar shall be responsible to a unitholder for any loss resulting from non-
receipt of any realization form or from any amendment of any realisation
form prior to receipt.
Realisation forms received by the Registrar before 3pm on a Dealing Day
will be dealt with on that Dealing Day. Realisation forms received by the
Registrar after such time or on a day which is not a Dealing Day will be
carried forward and dealt with on the next Dealing Day.
Unitholders will receive a confirmation note showing the details of the sale
and the realisation proceeds will normally be sent within seven days after
the Dealing Day on which the realisation takes effect or, if later, the date of
receipt of the original realization form. No third party payments shall be
allowed.
There is no realisation charge. Partial realisation is allowed but there is a
minimum realisation amount of US$1,000.
If on any one day more than 10% of the units in issue would be realised, the
Manager may elect to limit realisation to 10% of the units in issue and such
limitation will then be applied pro rata to all unitholders who have given a
realisation request. The balance is carried forward to be dealt with (subject
to the same limitation) on the next Dealing Day. If requests for realisation
are so carried forward, the Registrar will inform the unitholders concerned.
The value of the deferred realization proceeds may decline during the period
up to the realization of the units and the redeeming unitholders will bear the
risk of loss.
No units may be realised during any period when dealing is suspended, as
described under "Suspension of Dealing" below.
Compulsory Realisation of Units
If the Manager or the Trustee suspects that any units are owned directly,
indirectly or beneficially by any person:
(a) in contravention of any laws or requirements of any country, any
governmental authority or any stock exchange on which such units are
listed; or
29
(b) in circumstances (whether directly or indirectly affecting such person
and whether taken alone or in conjunction with any other persons,
connected or not, or any other circumstances appearing to the
Manager or the Trustee to be relevant) which in their opinion might
result in the non-compliance with any statutory, regulatory or official
requirement which would result in the Fund, the Trustee and/or the
Manager or their respective delegates or agents incurring any liability
to taxation or requiring registration with any regulatory authority or
suffering any other pecuniary disadvantage which the Fund, the
Trustee and/or the Manager or their respective delegates or agents
might not otherwise have incurred or suffered or in the Fund, the
Manager, the Trustee or their respective delegates or agents being
exposed to any liability, penalty or regulatory action,
the Manager or the Trustee may, acting in good faith, on reasonable grounds
and in compliance with any applicable laws and regulations:
(i) give notice requiring the relevant unitholder to transfer the units to a
person who would not be in contravention of the above restrictions or
requesting the relevant unitholder to realise within 30 days of the date
of the notice or within such longer period as such notice may
prescribe; or
(ii) deem receipt of a realisation request in respect of such units; or
(iii) take such other actions as it reasonably believes are required by
applicable laws or regulations.
Where the Manager or the Trustee has given such notice pursuant to (i)
above and the unitholder has failed to either (1) transfer or request to realise
the relevant units within 30 days of the date of the notice or within such
longer period as such notice may prescribe, or (2) establish to the satisfaction
of the Manager or the Trustee (whose judgment is final and binding) that the
relevant units are not held in contravention of any of the restrictions set out
above, the unitholder is deemed to have given a realisation request in respect
of the relevant units on the expiry of 30 days from the date of the notice or
such longer period as such notice may prescribe.
The Manager may deem a unitholder to have given a realisation request in
respect of units held by such unitholder pursuant to (ii) above where:
30
(a) the unitholder has refused or failed to provide or produce to the
satisfaction of the Trustee and the Manager or their delegate(s) or
agent(s) any document or information required to ensure compliance
with any anti-money laundering laws or regulations in any applicable
jurisdiction; and
(b) the Trustee or its delegate(s) or agent(s) have notified the Manager
that they are not able to confirm the identity of the unitholder to their
satisfaction.
Switching
Switching to another class of unit of the Fund is not permitted as the Fund
only issues one class of units.
Minimum Holding
The minimum holding is presently US$1,000. This is the minimum which
may be invested and subsequently no partial realisation or transfer will be
permitted if it would reduce the holding below this figure.
31
CONFLICTS OF INTEREST
The Sub-Investment Manager, the Manager, the Trustee and the Custodian
and their respective connected persons may, from time to time, act as trustee,
administrator, transfer agent, manager, investment managers or advisers,
custodian, representative or in any other capacity as may be required from
time to time in relation to, or be otherwise involved in or with, other funds
and clients including those which have similar investment objectives to
those of the Fund or contract with or enter into financial, banking or other
transaction with one another or with any investor of the Funds, or any
company or body any of whose shares or securities form part of any Fund or
may be interested in any such contract or transaction. It is, therefore, possible
that any of them may, in the course of their business, have potential conflicts
of interest with the Fund. Each will, however, have regard in such event to
their obligations under the article, and the material contracts, and in
particular, to their obligations to act in the best interests of the Fund and will
endeavor to ensure that such conflicts are managed and minimized so far as
reasonably practicable and that measures are adopted that seek to ensure
such conflicts are resolved fairly, taking into account the interests of the
unitholders of the Fund as a whole.
The Manager may recommend transactions for the benefit of the Fund, in
which the Manager, or its directors, officers, employees or authorized
delegates, has or have, directly or indirectly, a material interest or a
relationship of any description with other persons or entities, which may
involve a potential conflict with the Manager’s duties and obligations to the
Sub-Investment Manager or the Fund. Subject to the restrictions and
requirements applicable from time to time, the Manager, the Sub-Investment
Manager or any of their respective connected persons may deal with the
Fund as principal provided that dealings are carried out in good faith and
effected on best available terms negotiated, executed at arm’s length and in
the best interests of the unitholders of the Fund. Any transactions between
the Fund and the Manager, the Sub-Investment Manager or any of their
connected persons as principal may only be made with the prior written
consent of the Trustee. All such transactions must be disclosed in the Fund’s
annual report.
32
In transacting with brokers or dealers connected to the Manager, the Sub-
Investment Manager of the Fund, the Trustee or any of their connected
persons, the Manager must ensure that:
(a) such transactions are on arm’s length terms;
(b) it uses due care in the selection of such brokers or dealers and ensures
that they are suitably qualified in the circumstances;
(c) transaction execution must be consistent with applicable best
execution standards;
(d) the fee or commission paid to any such broker or dealer in respect of
a transaction must not be greater than that which is payable at the
prevailing market rate for a transaction of that size and nature;
(e) it monitors such transactions to ensure compliance with its
obligations; and
(f) the nature of such transactions and the total commissions and other
quantifiable benefits received by such broker or dealer shall be
disclosed in the annual report of the Fund.
In addition, cross-trades between the Fund and other fund(s) or client
account(s) managed by the Manager or its affiliates may be undertaken
where the Manager considers that, as part of its portfolio management,
cross-trades between the Fund and the relevant fund or relevant client
account would be in the best interests of the unitholders of both the Fund
and the relevant fund or the client of the relevant client account to achieve
their respective investment objective and policy. By conducting cross-
trades, the Manager may achieve trading efficiencies and savings for the
benefit of the unitholders and/or clients. In conducting transactions, such
cross-trades will be executed on arm’s length terms at current market value
and the reason for such trades shall be documented prior to execution, in
compliance with the Fund Manager Code of Conduct issued by the SFC.
TAXATION
The following statements regarding taxation are based on advice received by
the Fund regarding the law and practice in force in Hong Kong at the date of
this document.
Hong Kong
The Fund is not expected to be subject to Hong Kong tax in respect of any
of its authorised activities.
33
No tax will be payable by unitholders in Hong Kong in respect of income
distributions of the Fund or in respect of any capital gains arising on a sale,
realisation or other disposal of units, except that Hong Kong profits tax may
arise where such transactions form part of a trade, profession or business
carried on in Hong Kong and stamp duty may be payable on a transfer of units.
Impacts of the Foreign Account Tax Compliance Act and any other
similar regulations
Under provisions of U.S. federal income tax law commonly referred to as the
Foreign Account Tax Compliance Act (“FATCA”), certain payments of U.S.
source income (including, for example, interest and dividends and the gross
proceeds from the disposition of certain US assets that can produce US source
income) to foreign financial institutions (“FFIs”) are subject to a new 30
percent withholding tax beginning 1 July 2014. On 13 November 2014, Hong
Kong entered into an intergovernmental agreement with the U.S. (“IGA”) for
the implementation of FATCA, adopting a “Model 2” IGA arrangement. Under
this “Model 2” IGA arrangement, FFIs in Hong Kong (such as the Fund) would
be required to register with the U.S. Internal Revenue Services. The Fund has
registered with the U.S. Internal Revenue Service as a participating FFI.
FFIs may avoid FATCA withholding by registering with the U.S. Internal
Revenue Service (“IRS”) and undertaking certain U.S. tax compliance and
reporting obligations. Pursuant to these obligations, an FFI such as the Fund
will have to obtain certain Fund Information (as defined below) from any
“Consenting Persons” (as defined below) who are U.S. persons for U.S. federal
income tax purposes and seek their consent to report, disclose and/or transfer
such Fund Information to the IRS.
A “Consenting Person” includes: any investor in the Fund; where the investor
is an entity, its substantial owner and controlling person; and where the investor
holds units of the Fund for the account or benefit of other person(s) or
entity(ies), those other person(s) or entity(ies).
“Fund Information" includes: (a)(i) where the Consenting Person is an
individual, his or her full name, date of birth, place of birth, residential address,
mailing address, tax identification number, citizenships, residencies and tax
residencies; (ii) where the Consenting Person is an entity or corporate, its full
name, place of incorporation or formation, registered address, address of place
of business, tax identification number, tax status, tax residency, and such
information as the Trustee and/or Manager may reasonably require regarding
each of its substantial owners, controlling persons, beneficiaries and settlors (if
34
applicable); (b) in respect of an account through which a Consenting Person
may receive or claim benefits or payments from the Fund, the account balance,
account value, account number, contributions paid to account and amounts
withdrawn or paid from the account; (c) any other documentation or
information relating, directly or indirectly, to the tax status of the Consenting
Person, e.g. IRS Form W-8 or IRS Form W-9; and (d) any accompanying
statements, waivers, and consents, in such form and in such manner, as the
Trustee and/or the Manager may from time to time reasonably require.
In addition, the Fund may from time to time be subject to any treaty, law,
regulation, rules, codes of practice, guidelines, guidance in other jurisdictions
or any other inter-governmental agreements between governments or
authorities of two or more jurisdictions, which, together with FATCA, are
collectively known as the “Applicable Laws and Regulations”.
Each Consenting Person will be required to complete and sign such documents
and take such actions for the purposes of ensuring compliance with the
Applicable Laws and Regulations by the Fund, the Manager and/or the Trustee.
Without prejudice to the generality of the preceding paragraph, for the purposes
of ensuring compliance with the Applicable Laws and Regulations, investors in
the Fund will generally be required to provide to the Fund the Fund Information
of themselves, and if the investors are entities and/or holding units of the Fund
for the account or benefit of other person(s) or entity(ies) (i.e. beneficiaries), the
Fund Information of themselves as well as of their substantial owners and
controlling persons and, as applicable, the beneficiaries.
Also, where: (a) there is a change of circumstances which may render any of
the Fund Information out-of-date; or (b) there is a change of circumstances with
respect to a Consenting Person that causes the Trustee and/or the Manager to
know or have reason to know that any of the Fund Information is incorrect,
unreliable or out-of-date, the relevant Consenting Person must promptly (in any
event within 30 days of the change), in such form and in such manner as the
Trustee and/or the Manager may reasonably from time to time require, provide
to the Trustee and the Manager the updated Fund Information.
Each Consenting Person will have to consent to the Manager’s and the
Trustee’s processing, transferring and/or disclosing the Fund Information to
any local and/or foreign authorities, and confirm the accuracy of the Fund
Information (including any update to the Fund Information). In providing the
Fund Information of the relevant Consenting Person(s) to the Fund, the
Consenting Person in question: (a) consents to the reporting, disclosure and/or
35
transfer of such Fund Information of himself / herself / itself to any local and/or
foreign authorities; (b) confirms that it / he / she has obtained the consent of
each such other Consenting Person to the reporting, disclosure and/or transfer
of such Fund Information of each such other Consenting Person to any local
and/or foreign authorities (if applicable); and (c) confirms the accuracy of the
Fund Information of himself / herself / itself and, if applicable, that of each such
other Consenting Person.
Where: (i) an investor fails to provide such Fund Information to the Fund as the
Manager and/or the Trustee reasonably require; (ii) the Fund Information
provided in relation to any Consenting Person is inaccurate, incomplete or not
promptly updated; or (iii) the Manager and/or the Trustee are prevented from
disclosing the Fund Information for whatever reason, the Fund may be subject
to certain withholding tax with respect all or a portion of any payments to the
Fund (e.g. investment returns as a result of any investment made by the Fund),
and the Fund, Trustee and/or the Manager may take any action in good faith
and on reasonable grounds, to the extent not prohibited by applicable law, to
ensure compliance with the Applicable Laws and Regulations. Such actions
include but are not limited to reporting, disclosing and/or transferring such Fund
Information by the Fund, the Manager and/or the Trustee with respect to an
investor to the local and/or foreign authorities at any time (including, if
applicable, after the units of the investors have been redeemed for whatever
reason), provided that any reporting, disclosure and transfer of Fund
Information will be consistent with the applicable regulations governing the use
of personal data in Hong Kong (including the Personal Data (Privacy)
Ordinance, as amended from time to time).
The Fund, the Trustee and the Manager each intends to ensure the Fund’s
compliance with Applicable Laws and Regulations. However, neither the Fund,
the Trustee nor the Manager can provide any assurances that the Fund will be
able to comply with the Applicable Laws and Regulations. If the Fund does not
comply with the Applicable Laws and Regulations, the application of
withholding taxes, deductions, or penalties due to any non-compliance may
adversely affect the net asset value per Unit and therefore cause investors to
suffer a material loss. If any investor has any doubt on the impact of the
Applicable Laws and Regulations on itself / himself / herself or its / his / her tax
position, the investor should seek independent professional advice.
THE TAX DESCRIPTION CONTAINED IN THIS DOCUMENT (1) MAY
NOT BE RELIED UPON, AND WAS NOT INTENDED TO, PROVIDE
PENALTY PROTECTION UNDER THE U.S. INTERNAL REVENUE
CODE AND (2) IS WRITTEN TO MARKET THE UNITS. WITHOUT
36
PREJUDICE TO THE GENERALITY OF THE SUB-SECTION
"GENERAL" UNDER THIS SECTION "TAXATION", ALL
PROSPECTIVE INVESTORS ARE STRONGLY URGED TO CONSULT
WITH THEIR OWN PERSONAL LEGAL AND TAX ADVISERS
CONCERNING ANY TAX CONSEQUENCES, WHICH MAY ARISE
FROM THEIR INVESTMENT, OWNERSHIP, OR BENEFICIAL
INTEREST IN THE FUND.
The Inland Revenue (Amendment) (No.3) Ordinance (the “IRO”) came into
force on 30 June 2016. This is the legislative framework for the
implementation in Hong Kong of the Standard for Automatic Exchange of
Financial Account Information (“AEOI”). The AEOI requires financial
institutions (“FI”) in Hong Kong to collect information relating to non-Hong
Kong tax residents holding accounts with FIs, and exchange such
information with the jurisdiction(s) in which that account holder is resident.
Generally, tax information will be exchanged only with jurisdictions with
which Hong Kong has a Competent Authority Agreement (“CAA”);
however, the Fund and/or its agents may further collect information relating
to residents of other jurisdictions.
The Fund is required to comply with the requirements of AEOI as
implemented by Hong Kong, which means that the Fund and/or its agents
shall collect and provide to the Hong Kong Inland Revenue Department
(“IRD”) tax information relating to unitholders and prospective investors.
The AEOI rules as implemented by Hong Kong require the Fund to, amongst
other things: (i) register the Fund’s status as a “Reporting Financial
Institution” with the IRD; (ii) conduct due diligence on its accounts (i.e.,
unitholders) to identify whether any such accounts are considered
“Reportable Accounts” for AEOI purposes”; and (iii) report to the IRD
information on such Reportable Accounts. The IRD is expected on an annual
basis to transmit the information reported to it to the government authorities
of the relevant jurisdictions with which Hong Kong has signed a CAA.
Broadly, AEOI contemplates that Hong Kong FIs should report on: (i)
individuals or entities that are tax resident in a jurisdiction with which Hong
Kong has signed a CAA; and (ii) certain entities controlled by individuals
who are tax resident in such other jurisdiction. Under the IRO, details of
unitholders, including but not limited to their name, jurisdiction of birth,
address, tax residence, account details, account balance/value, and income or
sale or redemption proceeds, may be reported to the IRD and subsequently
exchanged with government authorities in the relevant jurisdictions of tax
residence.
37
By investing in the Fund and/or continuing to invest in the Fund, unitholders
acknowledge that they may be required to provide additional information to
the Fund, the Manager and/or the Fund’s agents in order for the Fund to
comply with AEOI. The unitholder’s information (and information on
beneficial owners, beneficiaries, direct or indirect shareholders or other
persons associated with such unitholders that are not natural persons), may
be communicated by the IRD to authorities in other jurisdictions.
Each unitholder and prospective investor should consult its own professional
advisor(s) on the administrative and substantive implications of AEOI on its
current or proposed investment in the Fund
Personal Data
Pursuant to the provisions of the Personal Data (Privacy) Ordinance (Chapter
486 of the Laws of Hong Kong, “PDPO”), the Trustee, the Manager, or any
of their respective delegates (each a “Data User”) may collect, hold, use
personal data of individual investors in the Fund only for the purposes for
which such data was collected and shall comply with personal data protection
principles and requirements as set out in the PDPO and all other applicable
regulations and rules governing personal data use in Hong Kong from time
to time. Accordingly, each Data User shall take all practicable steps to ensure
that personal data collected, held and processed by them are protected against
unauthorized or accidental access, processing, erasure or other use.
General
Investors should consult their professional advisers on the consequences to
them of acquiring, holding, realising, transferring or selling units under the
relevant laws of the jurisdictions to which they are subject, including the tax
consequences and any exchange control requirements. These consequences,
including the availability of, and the value of, tax relief to investors will vary
with the law and practice of the investors' country of citizenship, residence,
domicile or incorporation and their personal circumstances.
GENERAL INFORMATION
The Trust Deed
The Fund is constituted under Hong Kong law by a trust deed dated 22 April
1987, and various deeds of variation. All unitholders are entitled to the
benefit of, are bound by and are deemed to have notice of the provisions of
38
the Trust Deed.
Unitholders and prospective investors are advised to consult the terms of the
Trust Deed and, in the event of any conflict with the provisions of this
Explanatory Memorandum, the provisions of the Trust Deed prevail.
The Trust Deed governs the responsibilities of the Trustee and the Manager
and contains provisions for their exculpation from liability and
indemnification in certain circumstances. For the avoidance of doubt,
neither the Trustee nor the Manager shall be exempted from or indemnified
against any liability imposed under the laws of Hong Kong (including in the
case of the Trustee, under the Trustee Ordinance) for breach of trust or any
liability through fraud, negligence, default or breach of duty for which it
may be liable in relation to its duties, or be indemnified against such liability
by unitholders or at unitholders’ expense.
Modification of Trust Deed
The Trustee and the Manager may agree to modify the Trust Deed by
supplemental deed provided that (a) in the opinion of the Trustee such
modification (i) is not materially prejudicial to the interests of the unitholders,
does not operate to release to any material extent the Trustee or the Manager
from any responsibility to the unitholders and does not increase the costs and
charges payable out of the assets of the Fund or (ii) is necessary in order to
comply with any fiscal or other statutory, regulatory or official requirement
(whether or not having the force of law) or (iii) is made to correct a manifest
error, and (b) such modification will not impose upon any unitholder any
obligation to make any further payment or to accept any liability in respect of
his units. In all other cases modifications involving any material changes
require the sanction of an extraordinary resolution of the unitholders affected,
and provided also that no such modifications shall be made without the
approval of the SFC (but, only to the extent that it is required).
Valuation and Prices
The Fund is valued on each Dealing Day by reference to the value of
investments at close of business on the Dealing Day. The method of
establishing the Fund's net asset value is set out in the Trust Deed. The Trust
Deed provides among others that:-
(a) Quoted investments
The value of any investment quoted or dealt in on a Securities Market shall
39
be calculated by reference to the price appearing to the Manager to be the
last traded or (if no last traded price is available) midway between the latest
available market dealing offer price and the latest available market dealing
bid price on the Securities Market on which the investment is quoted, listed
or ordinarily dealt in for such amount of such quoted investment as the
Manager in consultation with the Trustee may consider in the circumstances
to provide a fair criterion, provided that:
(i) If a listed investment is quoted, listed or normally dealt in on more than
one Securities Market, the Manager shall adopt the price or, as the case may
be, middle quotation on the Securities Market which, in its opinion in
consultation with the Trustee provides the principal market for such
investment.
(ii) In the case of any investment which is quoted, listed or normally dealt
in on a Securities Market but in respect of which, for any reason, prices on
that Securities Market may not be available at any relevant time, the value
thereof shall be certified by such firm or institution making a market in such
investment as may be appointed for such purpose by the Manager or, if the
Trustee so requires, by the Manager after consultation with the Trustee.
(iii) There shall be taken into account interest accrued on interest-bearing
investments up to (but not including) the date as at which the valuation is
made, unless such interest is included in the quoted or listed price.
(b) Unquoted investments
The value of any investment which is not quoted or dealt in on a Securities
Market shall be the initial value thereof equal to the amount expended out
of the Fund in the acquisition thereof (including in each case the amount of
the stamp duties, commissions and other acquisition expenses). The
Manager may at any time with the approval of the Trustee and shall at such
times or at such intervals as the Trustee may request cause a revaluation to
be made of any unquoted investment by a professional person approved by
the Trustee as qualified to value such unquoted investment.
(c) Cash, deposits, etc.
Cash, deposits and similar investments shall be valued at their face value
(together with accrued interest) unless, in the opinion of the Manager in
consultation with the Trustee, any adjustment should be made to reflect the
40
value thereof.
(d) Other valuation methods
Notwithstanding the above, the Manager may, after consultation with the
Trustee, adjust the value of any investment or permit some other method of
valuation to be used if, having regard to currency, applicable rate of interest,
maturity, marketability and other considerations the Manager deems
relevant, it considers that such adjustment is required to reflect the fair value
thereof.
The net asset value of the Fund is divided by the number of units in issue to
give the net asset value per unit. The right is reserved in the Trust Deed to
add a service charge in respect of any fiscal or purchase charges to the net
asset value per unit when computing the issue price. The resultant total is
then rounded up to the nearest cent. The price at which units shall be issued
is the issue price. The realisation price at which units are realised shall be an
amount equal to the net asset value per unit less a service charge to take
account of fiscal or sale charges and the resultant total will be rounded down
to the nearest cent.
The relevant Dealing Day for the calculation of offer and realisation price is
the date of receipt of the application for subscription or realisation request if
received before 3pm on a Dealing Date or if received after such time or on
a day which is not a Dealing Day, the next Dealing Day thereafter. No
redemption fee will be charged.
Prices based on the net asset value per unit of the Fund is published each
Business Day on the website of www.axa-im.com.hk*.
* This website has not been reviewed by the SFC
Charges
Applicants may be required to pay an initial charge which is currently not
exceeding 5% of the gross subscription amount. The initial charge will be
retained by the relevant distributor.
The Manager is paid a management fee, currently at the rate of 1.25% per
annum of the net asset value of the Fund. The Trust Deed allows the
Manager a maximum fee of 1.5% per annum of the net asset value of the
Fund; three months' notice will be given to the Trustee and the unitholders
41
of any increase of the fee up to the maximum.
The Manager may share any fees it receives with distributors or agents
procuring subscriptions to the Fund. The Manager and its associates may
with the consent of the Trustee deal with the Fund, both as principal and
agent, and, subject as provided below under "Cash Rebates and Soft
Commissions", may retain any benefit which they receive as a result.
The Manager will bear the fees of the Sub-Investment Manager.
The Trustee is entitled to an annual fee payable on a monthly basis and
calculated on a sliding scale below:-
Net Asset Value of Fund Percentage Fee
up to US$200,000,000 0.02% p.a.
over US$200,000,000 0.01% p.a.
The Registrar shall be entitled to receive a transaction-based fee for the
Fund, subject to a minimum of US$24,000 per annum, and reimbursement
by the Fund for any other out-of-pocket expenses incurred in the
performance of its duties as Registrar.
The Fund will bear the costs set out in the Trust Deed. Such costs include
but are not limited to costs incurred in the administration and investing the
assets of the Fund, the cost of borrowing, of unitholders' meetings, of
preparing, printing and distributing reports and statements and certain costs
incurred to comply with legislative requirements.
42
Cash Rebates and Soft Commissions
The Manager, the Sub-Investment Manager or any of their connected
persons may not retain cash or other rebates from brokers or dealers in
consideration of directing transactions for the Fund to such brokers or
dealers. In addition, the Manager, the Sub-Investment Manager or any of
their connected persons does not intend to enter into any soft dollar
arrangement with brokers or dealers.
Income
The Fund has power to distribute its net income but it is not the present
intention of the Manager to do so.
Reports and Accounts
Accounts will be made up annually as at 31st of December in each year.
Audited accounts and a report will be sent to unitholders within four months
after the conclusion of each accounting period. The Manager will also send
unaudited semi- annual reports to unitholders within two months after the
end of the semi-annual period ending on 30th June in each year. As an
alternative to the distribution of the printed financial reports, electronic
copies of the audited annual reports (in English only) and unaudited semi-
annual reports (in English only) will be available on www.axa-im.com.hk*.
Investors will be notified as to where such accounts and reports are available
in printed and electronic forms within the specified time periods.
* This website has not been reviewed by the SFC.
Meetings of Unitholders
The Trust Deed contains detailed provisions for meetings of unitholders.
Meetings may be convened by the Trustee or the Manager. Unitholders
holding at least 10% in value of the units in issue may request by writing for
the Manager to convene a meeting of unitholders. Not less than 21 days'
notice of a unitholders’ meeting, at which an extraordinary resolution is to
be proposed, shall be given to unitholders. Unitholders may appoint proxies
who need not themselves be unitholders. By an extraordinary resolution,
which is one passed by not less than 75% of the votes cast at the meeting,
the meeting can authorise changes to the Trust Deed, increase the percentage
of management fee and trustee fee, terminate the Fund, approve a merger
with another Fund, or to sanction any alteration in the investment policy or
43
objective of the Fund. The unitholders can also elect a chairman of the
meeting or adjourn the meeting. The quorum for a meeting to pass an
extraordinary resolution will be unitholders present in person or by proxy
registered as holding or representing not less than 25% of the units in issue.
Not less than 14 days’ notice of a unitholders’ meeting, at which an ordinary
resolution is to be proposed, shall be given to unitholders. The quorum for
only an ordinary resolution, however, shall be unitholders present in person
or by proxy registered as holding 10% of the units in issue. An ordinary
resolution is one passed by not less than 50% of the votes cast at the meeting.
For an adjourned meeting, the unitholders present in person or by proxy
(whatever their number or the number of units held by them) will form a
quorum.
On a poll every unitholder present in person or by proxy has one vote for
every unit of which he is the holder. In the case of joint unitholders the senior
of those who tenders a vote (in person or by proxy) will be accepted and
seniority is determined by the order in which the names appear on the
register of unitholders.
Transfer of Units
Units may be transferred by an instrument in writing in common form
signed by (or, in the case of a body corporate, signed on behalf of or sealed
by) the transferor and the transferee. The transferor will be deemed to
remain the holder of the units transferred until the name of the transferee is
entered in the register of unitholders in respect of such units. No units may
be transferred if, as a result, either the transferor or the transferee would hold
units having a value less than the minimum holding of US$1,000.
Suspension of Dealing
The Manager may, after consulting the Trustee, having regard to the best
interests of unitholders, declare a suspension of the determination of the net
asset value of the Fund for any period during which (i) there is a closure of
or the suspension of trading on any stock exchange or other securities market
on which a substantial part of the investments of the Fund is normally traded;
or (ii) there is a breakdown in any of the means normally employed by the
Manager in ascertaining the prices of investments or for any other reason the
prices of investments cannot, in the opinion of the Manager, reasonably be
ascertained; or (iii) circumstances exist as a result of which in the opinion of
the Manager, it is not reasonably practicable to realise investments of the
Fund; or (iv) the remittance of funds which will or may be involved in the
44
realisation of, or in the payment for, the investments of the Fund cannot in
the opinion of the Manager, be carried out promptly at normal rates of
exchange. During this period, no realisation can be made nor can any new
units be created or sold by the Manager. Notice will be given to unitholders
and all those whose applications to subscribe for or realise units shall have
been affected by such suspension. When dealings are suspended, the
proceeds of realisation already effected may be retained by the Trustee and
dispatched only on the ending of the suspension. Realisation requests can be
withdrawn during a period of suspension and, if not withdrawn, will be dealt
with on the next Dealing Date immediately after the suspension is lifted. The
SFC and unitholders will be notified of the imposition and ending of any
suspension immediately following the decision and such suspension of
dealings will be published at least once a month during the suspension online
at www.axa-im.com.hk*.
* This website has not been reviewed by the SFC
Termination of the Fund
The Fund will continue indefinitely, unless terminated earlier in accordance with
the provisions of the Trust Deed in the following circumstances:-
(i) by either the Trustee or the Manager giving not less than one year's
notice in writing, to expire at the end of 2006 or any 20th year
thereafter;
(ii) by the Manager in its discretion if:-
• the net asset value of the Fund is less than five hundred
thousand US Dollars (US$500,000); or
• the Fund ceases to be authorised pursuant to the Securities
and Futures Ordinance of Hong Kong; or
• any law is passed which renders it illegal or in the opinion of
the Manager impracticable or inadvisable to continue the
Fund; or
(iii) by the Trustee if:-
• the Manager goes into liquidation, becomes bankrupt or if a
receiver is appointed over any of the Manager's assets; or
45
• in the opinion of the Trustee, the Manager is incapable of
performing its duties satisfactorily or fails to perform its
duties satisfactorily or does any other thing which in the
opinion of the Trustee is calculated to bring the Fund into
disrepute or to be harmful to the interests of unitholders; or
• the Fund ceases to be authorised pursuant to the Securities
and Futures Ordinance of Hong Kong or if any law is passed
which renders it illegal or in the opinion of the Trustee
impracticable or inadvisable to continue the Fund; or
• an extraordinary resolution has been passed within a period
of 60 days approving any scheme whereby some or all of the
assets of the Fund are transferred to any other unit trust or
mutual fund; or
• the Manager ceases to manage the Fund and the Trustee fails
to appoint a successor manager within a period of 30 days.
Any unclaimed proceeds or other cash held by the Trustee upon termination
of the Fund may at the expiration of twelve months from the date upon which
the same were payable be paid into court subject to the right of the Trustee
to deduct therefrom any expenses it may incur in making such payment.
Anti-Money Laundering Regulations
As part of the Trustee's and the Manager's responsibility for the prevention
of money laundering, they may require a detailed verification of an investor's
identity and the source of the payment of application moneys. Depending on
the circumstances of each application, a detailed verification might not be
required where:-
(i) the applicant makes the payment from an account held in the
applicant's name at a recognised financial institution; or
(ii) the application is made through a recognised intermediary.
These exceptions will only apply if the financial institution or intermediary
referred to above is within a country recognised as having sufficient anti-
money laundering regulations.
The Trustee and the Manager reserve the right to request such information
46
as is necessary to verify the identity of an applicant and the source of the
payment. In the event of delay or failure by the applicant to produce any
information required for verification purposes, the Trustee and/or the
Manager may refuse to accept the application and the application moneys
relating thereto.
Enquiries and Complaints Handling
Enquiries and complaints relating to the Fund should be addressed to the
Manager (at the offices, Suites 3603-06, 36/F, One Taikoo Place, Taikoo
Place, 979 King’s Road, Quarry Bay, Hong Kong).
Investors who wish to have their enquiries or complaints attended to by
telephone may contact the Manager at +852 2285 2000. Upon receipt of the
enquiries, feedback or complaints, the Manager will endeavor to revert to
the relevant investor within 7 working days either orally or in writing.
Documents Available For Inspection
Copies of the Trust Deed, the agreement between the Manager and the Sub-
Investment Manager (as amended from time to time) and the latest annual
and semi-annual reports (if any) will be available in the English language
only (no Chinese language reports will be issued) and are available for
inspection free of charge at any time during normal business hours on any
day (excluding Saturdays, Sundays and public holidays) at the offices of the
Manager, Suites 3603-06, 36/F, One Taikoo Place, Taikoo Place, 979 King’s
Road, Quarry Bay, Hong Kong. Copies of the Trust Deed and such
agreement can be purchased from the Manager on payment of a reasonable
fee.
47
SCHEDULE 1 – INVESTMENT RESTRICTIONS
1. Investment limitations applicable to the Fund
No holding of any security may be acquired for or added to the Fund which would be inconsistent with achieving the investment objective of the Fund or which would result in:-
(a) the aggregate value of the Fund’s investments in, or exposure to, any single entity (other
than Government and other public securities) through the following exceeding 10% of the latest available net asset value of the Fund:
(i) investments in securities issued by that entity;
(ii) exposure to that entity through underlying assets of financial derivative instruments; and
(iii) net counterparty exposure to that entity arising from transactions of over-the-
counter financial derivative instruments.
(b) subject to sub-paragraph 1(a) of this Schedule 1, the aggregate value of the Fund’s
investments in, or exposure to, entities within the same group through the following
exceeding 20% of the latest available net asset value of the Fund:
(i) investments in securities issued by those entities; (ii) exposure to those entities through underlying assets of financial derivative
instruments; and (iii) net counterparty exposure to those entities arising from transactions of over-
the-counter financial derivative instruments. For the purposes of sub-paragraphs 1(b) and 1(c) of this Schedule 1, “entities within the
same group” means entities which are included in the same group for the purposes of
consolidated financial statements prepared in accordance with internationally recognized accounting standards.
(c) the value of the Fund’s cash deposits made with the same entity or entities within the same
group exceeding 20% of the latest available net asset value of the Fund provided that the 20% limit may be exceeded in the following circumstances:
(i) cash held before the launch of the Fund and for a reasonable period thereafter
prior to the initial subscription proceeds being fully invested; or (ii) cash proceeds from liquidation of investments prior to the merger or
termination of the Fund, whereby the placing of cash deposits with various financial institutions would not be in the best interests of investors; or
(iii) cash proceeds received from subscriptions pending investments and cash held
for the settlement of redemption and other payment obligations, whereby the placing of cash deposits with various financial institutions be unduly
48
burdensome and the cash deposits arrangement would not compromise investors’ interests.
For the purposes of this sub-paragraph 1(c), “cash deposits” generally refer to those that
are repayable on demand or have the right to be withdrawn by the Fund and not referable to provision of property or services.
(d) the Fund’s holding of any ordinary shares exceeding 10% of any ordinary shares issued by
any single entity. (e) the value of the Fund's investment in securities and other financial products or instruments
that are neither listed, quoted nor dealt in on a Securities Market, exceeding 15% of the latest available net asset value of the Fund.
(f) the value of the Fund’s total holding of Government and other public securities of the same
issue exceeding 30% of the latest available net asset value of the Fund. Subject to aforesaid, the Fund may invest all of its assets in Government and other public securities in at least six different issues. For the avoidance of doubt, Government and other public securities will be regarded as being of a different issue if, even though they are issued by the same person, they are issued on different terms whether as to repayment dates, interest rates, the identity of the guarantor, or otherwise.
(g) (i) the value of the Fund's investment in units or shares in other collective investment
schemes (namely “underlying schemes”) which are non-eligible schemes (the list of “eligible schemes” is as specified by the SFC from time to time) and not authorized by the SFC in aggregate exceeding 10% of its latest available net asset value; and
(ii) the value of the Fund's investment in units or shares in each underlying scheme which is either an eligible scheme (the list of “eligible schemes” is as specified by the SFC from
time to time) or a scheme authorized by the SFC exceeding 30% of its latest available net asset value unless the underlying scheme is authorized by the SFC, and the name and key investment information of the underlying scheme are disclosed in the Explanatory Memorandum, provided that: (A) no investment may be made in any underlying scheme the investment objective of
which is to invest primarily in any investment prohibited by Chapter 7 of the Code; (B) where an underlying scheme's objective is to invest primarily in investments
restricted by Chapter 7 of the Code, such investments may not be in contravention of the relevant limitation. For the avoidance of doubt, the Fund may invest in underlying scheme(s) authorized by the SFC under Chapter 8 of the Code (except for hedge funds under 8.7 of the Code), eligible scheme(s) of which the net derivative exposure does not exceed 100% of its total net asset value, and Qualified Exchange Traded Funds in compliance with sub-paragraphs 1(g)(i) and (ii) of this Schedule 1;
(C) the underlying scheme’s objective may not be to invest primarily in other collective
investment scheme(s);
(D) all initial charges and redemption charges on the underlying scheme(s) must be waived if the underlying scheme is managed by the Manager or its Connected Persons; and
49
(E) the Manager or any person acting on behalf of the Fund or the Manager may not obtain a rebate on any fees or charges levied by an underlying scheme or its management company, or any quantifiable monetary benefits in connection with investments in any underlying scheme.
For the avoidance of doubt:
(aa) unless otherwise provided under the Code, the spread requirements under sub-paragraphs 1(a), (b), (d) and (e) of this Schedule 1 do not apply to investments in other collective investment schemes by the Fund;
(bb) the investment by the Fund in a Qualified Exchange Traded Fund will be considered
and treated as listed securities for the purposes of and subject to the requirements in sub-paragraphs 1(a), (b) and (d) of this Schedule 1. Notwithstanding the aforesaid, the investments by the Fund in Qualified Exchange Traded Funds shall be subject to sub-paragraph 1(e) of this Schedule 1 and the relevant investment limits in Qualified Exchange Traded Funds by the Fund shall be consistently applied;
(cc) where investments are made in listed REITs, the requirements under sub-paragraphs
1(a), (b) and (d) of this Schedule 1 apply and where investments are made in unlisted REITs, which are either companies or collective investment schemes, then the requirements under sub-paragraphs 1(e) and (g)(i) of this Schedule 1 apply respectively; and
(dd) where the Fund invests in index-based financial derivative instruments, the
underlying assets of such financial derivative instruments are not required to be aggregated for the purposes of the investment restrictions or limitations set out in sub-paragraphs 1(a), (b), (c) and (f) of this Schedule 1 provided that the index is in compliance with the requirements under 8.6(e) of the Code.
2. Investment prohibitions applicable to the Fund
The Manager shall not, unless otherwise specifically provided for in the Code, on behalf
of the Fund:-
(a) invest in physical commodities unless otherwise approved by the SFC on a case-by-case basis taking into account the liquidity of the physical commodities concerned and availability of sufficient and appropriate additional safeguards where necessary;
(b) invest in any type of real estate (including buildings) or interests in real estate
(including any options or rights but excluding shares in real estate companies and interests in REITs);
(c) make short sales unless (i) the liability of the Fund to deliver securities does not
exceed 10% of its latest available net asset value; (ii) the security which is to be sold short is actively traded on a Securities Market where short selling activity is permitted; and (iii) the short sales are carried out in accordance with all applicable laws and regulations;
(d) carry out any naked or uncovered short sale of securities; (e) subject to sub-paragraph 1(e) of this Schedule 1, lend, assume, guarantee, endorse
or otherwise become directly or contingently liable for or in connection with any obligation or indebtedness of any person.
50
(f) acquire any asset or engage in any transaction which involves the assumption of any liability by the Fund which is unlimited. For the avoidance of doubt, the liability of unitholders of the Fund is limited to their investments in the Fund;
(g) invest in any security of any class in any company or body if any director or officer
of the Manager individually owns more than 0.5%, or collectively they own more than 5%, of the total nominal amount of all the issued securities of that class;
(h) invest in any security where a call is to be made for any sum unpaid on that security,
unless the call could be met in full out of cash or near cash from the Fund’s portfolio whereby such amount of cash or near cash has not been segregated to cover a future or contingent commitment arising from transaction in financial derivative instruments for the purposes of 7.29 and 7.30 of the Code.
3. Borrowing and Leverage
The expected maximum level of leverage of the Fund is as follows: Cash borrowing
3.1 No borrowing shall be made in respect of the Fund which would result in the principal
amount for the time being of all borrowings made for the account of the Fund exceeding an amount equal to 10% of the latest available net asset value of the Fund provided always that back-to-back loans do not count as borrowing.
4. Name of the Fund
4.1 If the name of the Fund indicates a particular objective, investment strategy, geographic
region or market, the Fund must, under normal market circumstances, invest at least 70% of its net asset value in securities and other investments to reflect the particular objective, investment strategy or geographic region or market which the Fund represents.