private bank funds
TRANSCRIPT
JPMORGAN PRIVATE BANK FUNDS I
Sociktk d'investissement a capital variable Luxembourg
PROSPECTUS
VISA 200611 3838-4157-09C L'apposition du visa ne p d'argument de publicite Luxembourg, le 24/03/2006 Commission de Surveillance du Sec
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February 2006
NOT FOR USE BY OR DISTRIRUTTON TO U.S. PERSONS
JPMorgan Asset Management (Europe) S.hr.1. European Bank and Business Ceiitre, 6, route de l'rkves,
L-2633 Senningerberg: Grand Duchy of Luxembourg
JPMOKGAN PRIVATE BANK FUNDS I (the "Fund") has been authorised under part I of the Luxembourg law of 20 December 2002 relating to collective investment undertakings ("loi relative uux orgunismes de placement collec/f', the "Luxembourg Law") and qualifies as an Undertaking for Collective Investments in Transferable Securities ("UCITS") under the amended EC Directive 85/6 1 1 of 20 December 1985, and may therefore be offered for sale in European Union (''EU'') Member States (subject to registration in countries other than Luxembourg). In addition, applications to register the Fund may be made in other countries.
None of the Shares has been or will be registered under the United States Securities Act of 1933 (the "1933 Act"), or under the securities laws of any state or political subdivision of the United States o f America or any of its territories, possessions or other areas subject to its jurisdiction including the Commonwealth of Puerto Rico (the "IJnited States"), and such Shares may be offered, sold or otherwise transferred only in compliance with the 1933 Act and such state or other securities laws. Certain restrictions also apply to any subsequent transfer of Shares in the United States to or for the account of any US Person (as detined in Regulation S under the 1933 Act) which includes any resident of the United States, any corporatioil, partnership or other entity created or organised in or under the laws of the llnited States (including any estate of any such person created or organised in the United States). The attention of investors is drawn to the compulsory redemption provisions applicable to US Persons described under section 'l.2 Redemption and Conversion of Shares" below. The Fund has not been and will not be registered under the United States Investment Company Act of 1940, as amended.
If you are in any doubt as to your status, you should consult your financial or other professional adviser.
The distribution of this Prospectus in other jurisdictions may also be restricted; persons into whose possession this Prospectus comes are required to inform themselves about and to observe any such restrictions. 'l'his Prospectus docs not constitute an offer by anyone in any jurisdiction in which such offer is not authorised or to any person to whom it is unlawful to make such offer.
Prospective investors should review this Prospectus carefully and in its entirety and consult with their legal, tax and financial advisers in relation to (i) the legal and regulatory requirements within their own countries for the subscribing, purchasing, holding, converting, redeeming or disposing of Shares; (ii) any foreign exchange restrictions to which they arc siib-ject in their own countries in relation to the subscribing, purchasing, holding, convcrtiiig, redeeming or disposing of Shares; (iii) the legal, tax, financial or other consequcnces of subscribing for. purchasing, holding, converting, redeeming or disposing of Shares; and (iv) any other consequences of such activities.
Before consent to distribute this Prospectus is granted; certain jurisdictions require that it be translated into an appropriate language. Unless contrary to local law in the jurisdiction concerned, in the event of an)' inconsistency or ambiguity in relation to thc meaning o f any word or phrase in any translation, the English version shall prevail.
Any information or representation given or made by any person which is not contained herein or in any other document which may be available for inspection by the public should be regarded as unauthoriced and should accordingly not bc relied upon. Neither the delivery of this Prospectus nor the offer, issue or sale of Shares in the Fund shall iinder any circumstances constitute a representation that the information given in this Prospectus is Correct as at any time subsequent to the date hereof.
Unless stated to the contrary, all rcfercnces herein to times and hours refer to Luxembourg time.
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The most recent annual report and the latest semi-annual report, if published thereafter form an integral part of this Prospectus. These documents, if and when published, and the Simplified Prospectus(es) published by the Fund are available at the registered office of the Fund and from its local sales agents listed under the section headed 'Information for Investors in Certain Countries'.
The Management Company or JPMorgan Chase & Co. may use telephone recording procedures to record, inter alia, transaction orders o r instructions. By giving such instructions or orders by telephone, the counterparty to such transactions i s deemed to consent to the tape-recording of conversations between such counterparty and the Management Company or JPMorgan Chase & Co. and to the use of such tape recordings by the Management Company and/or JPMorgan Chase & Co. in legal proceedings or otherwise at their discretion.
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C O N T E N T S
Principal Features and Glossary .............................................................................................................. 5 Board of Directors ................................................................................................................................... 9 Management and Administration ............................................................................................................ 9 Investment Policies ................................................................................................................................ 11
1 . Specific Investment Policy of each Sub-Fund .......................................................................... 11 2 . Additional Investment Policies for all Sub-Funds ................................................................... 11 3 . Securities Lending .................................................................................................................... 1 1 4 . Pooling ...................................................................................................................................... 11
The Shares ............................................................................................................................................. 12 1 . Subscription for Shares ............................................................................................................ 12 2 . Minimum Subscription and Holding Amounts and Eligibility for Shares ............................... 14 3 . 4 . Redemption of Shares .............................................................................................................. 15 5 . Transfer of Shares .................................................................................................................... 17
General Information .............................................................................................................................. 17 1 . Organisation ............................................................................................................................. 17
3 . Reports and Accounts ............................................................................................................... 18 4 . 5 . Conversion of Shares ................................................................................................................ 19 6 . Pooling ...................................................................................................................................... 19 7 . Determination of the Net Asset Value of Shares ..................................................................... 20 8 . Calculation of Bid and Offer Prices ......................................................................................... 21 9 . 10 . 11 . Merger or Liquidation of Sub-Funds ........................................................................................ 23 12 . Conflicts of Interest .................................................................................................................. 23 13 . Material Contracts .................................................................................................................... 24 14 . Documents ................................................................................................................................ 24
Dividend Policy ..................................................................................................................................... 24
1 . Board of Directors .................................................................................................................... 25 2 . Management Company and Domiciliary Agent ....................................................................... 25 3 . Investment Managers ................................................................................................................ 27 4 . Custodiant Corporate and Administrative Agent ..................................................................... 27 5 .
Management and Fund Charges ............................................................................................................ 28 1 . Explanation of the Charging Structures ................................................................................... 28 2 . 3 . Operating and Administrative Expenses .................................................................................. 29 4 . Transaction Fees ....................................................................................................................... 29 5 . Extraordinary Expenses ............................................................................................................ 30 6 . Reporting of Fees and Expenses .............................................................................................. 30
Taxation ................................................................................................................................................. 30 1 . The Fund ................................................................................................................................... 30 2 . Shareholders ............................................................................................................................. 30 3 . European llnion Tax Considerations ....................................................................................... 31
Appendix I - Investment Restrictions and Powers ................................................................................ 32
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Listing of Shares ....................................................................................................................... 15
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2 . Meetings ................................................................................................................................... 17
Allocation of assets and liabilities among the Sub-Funds ........................................................ 18
Temporary Suspension of Issues, Redemptions and Conversions ........................................... 22 Liquidation of the Fund ............................................................................................................ 22
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. . Management and Adininistration .......................................................................................................... 25
Registrar and Transfer Agent ................................................................................................... 28
Annual Management and Advisory Fee ................................................................................... 28
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Appendix I1 . Sub-Fund Details ............................................................................................................ 46 Appendix 111 . Risk Factors .................................................................................................................. 48
Risks related to the Fund .......................................................................................................... 48 Market-related Risks ................................................................................................................ 50
Risk Management Process ........................................................................................................ 54
1 . 2 . 3 . 4 .
. . Derivative Risks ....................................................................................................................... 53
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Principal Features and Glossary
The following summary is qualified in its entirety by reference to the more detailed information included elsewhere in this Prospectus.
Art i c 1 e s
Bid and Offer Prices
Business Day
CSSF
Custodian
Dealing Basis
Directors
Distributor
Conversion of Shares
Documents of the Fund
- > I he Articles of Incorporation of the Fund as amended from time to time.
Shares of each Class are issued at the Offer Price of such Class determined on the applicable Valuation Day in accordance with the relevant provisions under "Calculation of Bid and Offer Prices".
Subject to certain restrictions specified herein, Shareholders may at any time request redemptions of their Shares at the Rid Price of the relevant Class determined on the applicable Valuation Day in accordance with the relevant provisions under "Calculation of Bid and Offer Prices".
A week day other than New Year's Eve, New Year's Day, Easter Monday, Christmas Day, the day prior to and following Christmas Day, or, if these days do not fall on week days, holidays in lieu of these days.
Commission de Surveillance du Secteur Financier - The regulatory and supervisory authority of the Fund in Luxembourg.
The assets of thc Fund are held under the custody or control of J.P. Morgan Bank Luxembourg S.A.
Foiward pricing (A forward price is a price calculated at the valuation point follo\ving the Fund's deal cut of7 time.)
The Board of Directors of thc Fund (the "Board"; the "Directors" or the "Roard of Directors".)
The person or entity duly appointed from time to time by the Management Company to distributc or arrange for the distribution of Shares.
As inore f~illy described under "The Shares - Conversion of Shares" below, unless specifically indicated to the contrary in the relevant section of Appendix 11. Shareholders may at any time request conversion of their Shares into Shares of the same Class of another Sub-Fund on the basis of the Bid Price of the Original Shares and the net asset value of the Shares of the Sub- Fund into which tlie conversion is requestcd. A conversion charge may be applicable. as more fidly described under "The Shares - Conversion of Shares" below.
Copies of tlie Articles, Prospcctus, Simplified Prospectus(es), supplementary documents and financial reports are available free of charge at the registered ofl'ice ofthe Fund.
Eligible State Any EU Member State, any inember state of the Organisation for Economic Co-operation and Development ("OECD"), and any other state which the Directors deem appropriate with regard to the investment objectives of each Sub-Fund. Eligible States include in this category countries in Africa, the Americas, Asia, Australasia and Europe.
EU Member State A member state ofthe European Union.
EUIUEuro The official single European currency adopted by a number of EU Member States participating in the Economic and Monetary Union (as defined in Europcan Union legislation.)
FATF Financial Action Task Force (also referred to as Groupe d'Action Financikre Internationale "GAFI"). The FATF includes 33 members: 3 1 countries and jurisdictions (15 of the EU Member States; Argentina; Australia; Brazil; Canada; Hung Kong'China; Iceland; Japan; Mexico; New Zealand; Noway; Russian Federation; Singapore; South Africa; Switzerland; Turkey and the United States of America); and two international organisations (the European Commission and the Gulf Co-operation Council.)
Financial Year The financial year o f the Fund ends on 3 1 March each year.
Fund The I h d is an investment company organised under Luxembourg Law as a sociktk anonyme qualifying as a societe d'investissement a capital variable ("SICAV"). The Fund comprises several Sub-Funds. Each Sub-Fund may have one or morc classes of Shares. The Fund is authorised under Part I of the Luxembourg law of 20 December 2002 relating to collective investment undertakings and qualifies as an IJndertakiilg for Collective Investments in Transferable Securities ("UCITS") under the amcnded EC Directive 8516 1 1 of20 December 1985.
Historical Performance
Past performance information for each Sub-Fund is contained in that Sub- Fund's Simplified Prospectus, which is available at the registered officc of the Fund.
Investment Manager
The Management Company has delegated investment management and advisory functions for each Sub-Fund to one of the Investment Managers listed in the Management and Administration section below and as further specified in respect of each Sub-Fund in Appendix 11.
Investor A subscribcr for Shares.
ISDA Thc Intcriiational Swaps and Derivatives Association is the global trade association representing participants in the privately negotiated derivatives industry.
JPMorgan Chase & c o .
The Management Company's ultimate holding company, located at 270 Park Avenue, New York, N.Y. 1001 7-2070, USA and that company's direct and indirect subsidiaries and affiliates worldwide.
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Legal Structure Open-ended investmcnt company with separate Sub-Funds incorporated in the Grand Duchy of Luxembourg.
Listing of Shares The Shares of each Class o f each Sub-Fund will not be listed on the Luxembourg Stock Exchange unless stated to the contrary in the relevant section o f Appendix 11.
Management Company
JPMorgan Asset Management (Europe) S.ar.1. has been designated by the Directors of the Fund as Management Company to provide investment management, administration and marketing functions to the Fund with the possibility to delegate part of such functions to third parties.
Minimum Tnves tmen t
The minimum investment levels for initial and subsequent investments are specified under "The Shares - Minimum Subscription and Holding Amounts and Eligibility for Shares" below.
Net Asset Value per In relation to any Shares of any class, the value per Share determined in Share accordance with the relevant provisions described under the heading "6.
Determination of the Net Asset Value of Shares" as set out in the section "General Information".
Reference Currency The reference currency of a Sub-Fund (or a Class thereof, if applicable) which, however, does not necessarily correspond to the currency in which the Sub-Fund's assets are invested at any point in time.
Registrar and Transfer Agent
Thc issue, redemption, transfer and conversion of Shares will be processed by JPMorgan Asset Management (Europe) S.ar.1.
Regulated Market Thc market detined in item 13 of Article 1 of the Council Directive 93/22/EEC of I O May 1993 on investincnt services in the transferable securities field, as amended, as well as any other market in an Eligible State which is regulated, operates regularly and is recognised and open to the public.
Risk Considerations As more fully described under Appendix 111, Investors should note that the value of an investment in the Shares may fluctuate and the value of Shares subscribcd by an Investor is not guarantecd.
Shares Shares of each Sub-Fund w/ill be offered in registered form. All Shares must be fully paid for and fractions will be issued up to 3 decimal places. Registered Shares will be issued and contirmed by mcans of a contract note dispatched to the investor, Following the issue of the Shares. No Share certiticates will be issued. Shares may also be held and transferred through accounts maintained with clearing systems.
Share Class(es)/ Class(es) of Shares
Pursuant to the Articles of the Fund, the Board of Directors may decide to issue, within each Sub-Fund. separate classes of Shares (hereinafter referred to as a "Share Class" or "Class of Shares", as appropriate) whose assets will be commonly invcstcd but where a specific initial or redemption charge structure, fee structure, minimum subscription amount, currency or dividend policy may be applied. If different Classes are issued within a Sub-Fund, the
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details of each Class are described in the relevant section of Appendix 11.
Share Dealing Shares are available for subscription, conversion and redemption on each Valuation Day for the relevant Sub-Fund or Sub-Funds, subject to the limitations and charges set out in the section "The Shares".
Shareholder A holder of Shares.
Simplified Prospectus(es)
In accordance with the requirements of the Luxembourg Law and applicable CSSF circulars, the Fund publishes, in addition to this Prospectus, a Simplified Prospectus for each Sub-Fund which contains the information required by Schema C of Annexe I to the aforesaid law. The Simplified Prospectus includes amongst others, information on the past performance and portfolio turnover of each Sub-Fund, which will be updated on an annual basis.
Sub-Fund A specitk portfolio of assets and liabilities within the Fund having its own net asset value and represented by a separate Class or Classes of Shares, which are distinguished mainly by their specific investment policy and objective and/or by the currency in which they are denominated. The specifications of each Sub-Fund are described in the relevant section of Appendix TT to this Prospectus. The Board may, at any time, decide to create additional Sub-Funds and, in such case, Appendix I1 to this Prospectus will be updated.
UCI An Undertaking for Collective lnvestmenl.
UClTS An Undertaking for Collective Investment in Transferable Securities governed by the amended Council Directive 85/61 l/EEC of 20 December 1985.
USD United States dollars.
Valuation Day Thc net asset value per Share of each Class is determined on each day which is a valuation day for that Sub-Fund. Unless otherwise specified in the relevant section of Appendix II: a "Valuation Day" is a Business Day other than a day o n which any exchangc or market on which a substantial portion of the relevant Sub-Fund's investments is traded. is closed o r while dealings on any such exchange or market are restricted or suspended. Requests for issue, rcdemption, transfer and conversion of Shares of any Class are accepted by the Fund in Luxembourg on any Valuation Day of the relevant Sub-Fund. A list of expected non-valuation days is available from the Management Company on request.
Words importing the singular shall, where the context permits, include the plural and vice versa.
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JPMORGAN PRIVATE BANK FUNDS I sociitk d'investissement a capital variable
Registered ofice: 6, route de Treves, L-2633 Senningerberg, Grand Duchy of Luxembourg R.C.S. Luxembourg B 114.378
Board of Directors
Chairman Jacques Elvinger, Partner, Elvingcr, Hoss & Prussen, 2, Place Winston Churchill, L-20 14 Luxembourg, Grand Duchy of Luxembourg
Directors
Benoit Dumont, Managing Director, J.P. Morgan (Suisse) S.A., 8, rue de la ConfkdCration, 1204 Geneva, Switzerland Alain Feis, Interinvest SA r.1.: 1 1 9 , avenue de la Fai'encerie, L-1511 Luxembourg, Grand Duchy of Luxembourg Jean Fuchs, Fuchs & Associks Finance, 12, boulevard Royal, L-2449 Luxembourg, Grand Duchy of Luxembourg James Risch, Managing Director, J.P. Morgan (Suisse) SA., 8, rue de la Confederation, 1204 Geneva, Switzerland
Manaaement and Administration
Management Company, Global Distributor, Registrar and Transfer Agent, and Domiciliary Agent:
JPMorgan Asset Management (Europe) S.ar.l., European Bank & Business Centre, 6 , route de Treves, L-2633 Senningerberg, Grand Duchy of Luxembourg
Investment Managers:
J.P. Morgan International Bank Limited, 125 London Wall: London EC2Y 5AJ, United Kingdom
Such other company as the Management Company may appoint as investment adviser and manager to a specific Sub-Fund and which is identified as such in the rclcvant section of Appendix I1 attached to this Prospectus.
Custodian, Corporate and Administrative Agent:
J.P. Morgan Bank Luxembourg S.A., 6; route de Treves, L-2633 Senningerberg, Grand D U C ~ I ~ of Luxeni bourg
Auditors:
PricewaterhouseCoopers S.ir,l., 400, route d'Esch, D.P. 1443: 1,-1014 Luxembourg, Grand Duchy of Luxembourg
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Luxembourg Legal Advisers:
Elvinger, Hoss & Prussen, 2, Place Winston Churchill, L-2014 Luxembourg, Grand Duchy of Luxembourg
Investment Policies
1. Specific Investment Policy of each Sub-Fund
The Board of Directors has determined the specific investment policy and objective of each of the Sub- Funds as described in Appendix I1 to this Prospectus. There can be no assurance that the investment objective for any Sub-Fund will be attained. Pursuit of the investment policy and objective of any Sub- Fund must be in compliance with the limits and restrictions set forth under "Investment Restrictions and Powers" below.
2. Additional Investment Policies for all Sub-Funds
To the extent described in Appendix I1 in relation to each specific Sub-Fund, a substantial portion of the investments may be made in UCITS and UCIs.
Each Sub-Fund may, only for the purpose of efficient portfolio management and to hedge against market risks: engage in various investment strategies, as described in Appendix I "Investment Restrictions and Powers, Financial Techniques and Instruments".
The Sub-Funds may hold such ancillary liquid assets as the Investment Managers consider appropriate in the form of, without limitation, current accounts, fixed term deposits or money market instruments having a residual maturity of less than 12 months.
3. Securities Lending
Each Sub-Fund may engage in securities lending in compliance with the limits and restrictions set forth under "Investment Restrictions and Powers" below.
In respect of third parties, iricluding members of JPMorgan Chase & Co., organising or structuring securities lending arraiigcments or acting as agents in relation to securities lending transactions. the Fund may sharc with such third parties the revenues arising from the securities lending transactions as may be agreed between the Fund and such third partics from time to lime. The Board of Directors will ensure that revenues arising from securities lending arrangements are in accordance with usual market practice and that the Fund retains an appropriate share thereof. The net revenues of the Fund arising from securities lending transactions arc specified in the semi-annual and annual reports published by the Fund.
4. Pooling
Where the investment policies of the Sub-Funds (and applicable laws and regulations) so permit, and for the purpose of effective management, the Board of Directors, in accordance with the Articles, may pool the management of all or part of the assets of the Sub-Funds concerned so that each Sub-Fund will participate in the relevant pool of assets in proportion to the assets contributed thereto by the rclevant Sub-Fund. For further details, see under "General Information - Pooling".
Pagc I I
The Shares
Subject to the restrictions described below, Shares of each Class of each Sub-Fund are freely transferable and are each entitled to participate equally in the profits and liquidation proceeds attributable to that Class. The rules governing such allocation are set forth below. The Shares, which are of no par value and which must be fully paid upon issue: carry no preferential or pre-emptive rights, and each one is entitled to one vote at all general meetings of Shareholders and at all meetings of the Sub- Fund in which Shares are held. Sharcs redeemed by the Fund become null and void.
The Board of Directors may restrict or prevent the ownership of its Shares by any person: firm or corporation, if the ownership is such that it may be against the interests of the Fund or of the majority of its Shareholders or of any Sub-Fund or Class therein. Where it appears to the Board of Directors that a person who is precluded from holding Shares, either alone or in conjunction with any other person, is a beneficial owner of Shares, the Fund may proceed to compulsory redemption of all Shares so owned.
Unless otherwise specitied in Appendix TI for any Sub-Fund, applications for subscriptions, redemptions and conversions from or to any Sub-Fund will be dealt with on the Valuation Day on which they are received, provided they are received prior to 2.30 p.m. Luxembourg time on that Valuation Day. Applications received after such time will be accepted on the next Valuation Day. As a result of this: applications for the subscription, redemption and conversion of Shares shall be dealt with on an unknown net asset value basis before the determination of the net asset value for that day.
Specifically, the Fund does not permit market timing (as set out in CSSF circular 04/146) or related excessive, short-term trading practices. In order to protect the best interests of Shareholders, the Fund and/or the Management Company reserve the right to reject any application for the subscription or conversion of Shares from any investor engaging in such practices or suspected of engaging in such practices and to take such further action as they, in their discretion, may deem appropriate or necessary.
Further information in relation to the subscription, conversion and redemption of Shares is sct out be 1 ow.
1. Subscription for Shares
Subscriptions for Shares in each Sub-Fund can be made on any day that is a Valuation Day for the relevant Sub-Fund. Applications for Shares should be sent to one of the sales agents (hereinafter referred to as "Sales Agents") at the address given under "Information for Investors in Certain Countries" below or to the Registrar and Transfer Agent or, in either casc: at the address given in the annual report.
The initial launch date or offering period for each newly creatcd or activated Class o r Sub-Fund will be determined by tlie Board and disclosed in tlie Application Form and in the latest annual report of the Fund. The Application Form will be updated as new Classes or Sub-Funds become available. The Board of Directors may fix minimum subscription amounts for each Class which, if applicable, are detailed below under "The Shares - 2. Minimum Subscription and Holding Amounts and Eligibility for Shares". The Board of Directors has the discretion. from time to time, to waive any applicable minimum subscription amounts. The relevant minimum subscription amount shall not apply where the Shares are subscribed for by companies in JPMorgan Chase & Co. acting as investment manager or by third party investmcnt managers approvcd by JPMorgan who are subscribing on behalf of their clients.
Shares of each Class shall be allotted at the Offer Price of such Class determined on the Valuation Day on which the application has been accepted.
A transaction charge may also apply to any subscription or redemption of Shares. Details of such charge, if any, are provided in Appendix 11.
Shares are normally only issued on receipt of cleared funds. In the case of subscriptions from approved financial intermediaries or other investors authorised by the Management Company, the issue of Shares is conditional upon the receipt of settlement in cleared funds within a previously agreed period not normally exceeding 3 Business Days aAer acceptance of the application for subscription.
If, on the settlement date, banks are not open for business, or an interbank settlement system is not operational, in the country of the currency of the relevant Class, then settlement will be on the next Business Day on which those banks and settlement systems are open. Payment for Shares must be received by the Custodian in the reference currency of the relevant Class. Request for subscriptions in any other major freely convertible currency will only be accepted if so determined by the Board of Directors and on the basis of receipt of cleared funds by the Custodian. A currency exchange service for subscriptions is provided by the Management Company on behalf of, and at the cost of, the investors. Further information is available from the Management Company on request. Payment by cheque will not normally be accepted. The Board of Directors may from time to time accept subscriptions for Shares against contribution in kind of securities or other assets which could be acquired by the relevant Sub- Fund pursuant to its investment policy and restrictions. Any such contribution in kind will be valued in a report drawn up by the auditor of the Fund in accordance with the requirements of Luxembourg law. All supplemental costs associated with contributions in kind will not be borne by the Fund.
The Board of Directors reserves the right to accept or refuse any application in whole or in part atid for any reason. The Fund may also limit the distribution of Shares of a given Class or Sub-Fund to specific countries. The issue of Shares of a given Class shall be suspended whenever the determination of the net asset value per Share of such Class is suspcndecl by the 1:und (see "General Information - Temporary Suspension of Issues: Redemptions and Conversions").
Pursuant to the Luxembourg law of 19 February 1973 (as amended), the law of 5 April 1993 (as amended) and to the law of 12 Novembcr 2004 and associated circulars of the Luxcrnbourg supervisoy authority, obligations have been outlined to prevent the use of undertakings for collective investment such as the Fund for money laundering purposes. Within this context a procedure for the identification of investors has been imposed: the application form of an investor must be accompanied by such documents set out in the current version of the application form, which can be obtained from the Management Company. Such identification procedure may he waived by the Management Company in the following circumstances:
a) i n the case of subscriptions through an intermediary of a financial sector resident in a country which imposes an identification obligation equivalent to that required under 1,uxembourg law for the prevention of money laundering;
b) in the case of subscription through an intcrinediary or nominee whose parent is subject to an identification obligation equivalent to that required by Luxembourg law and where the law applicable to the parent imposes an equivalent obligation on its subsidiaries or branches.
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It is generally accepted that professionals of the financial sector resident in a country which has ratified the conclusions of the FATF are deemed to have an identification obligation equivalent to that required by Luxembourg law.
C
Confinnation of completed subscriptions will normally be despatched on the Business Day following the execution of the subscription instructions. Investors are advised to refer to the terms and conditions on the application form to inform themselves fully of the terms and conditions to which they are subscribing.
f E U R IO,OO0.000
The Management Company may enter into agreements with certain Distributors (as defined hereafter) pursuant to which they agree to act as or appoint nominees for Investors subscribing for Shares through their facilities. In such capacity the Distributor may effect subscriptions, conversions and redemptions of Shares in nominee name on behalf of individual Investors and request the registration of such operations on the register of Shareholders of the Fund in such nominee name. The nominee/Distributor maintains its own records and provides the Investor with individualised information as to its holdings of Shares in the Fund. Except where local law or custom proscribes the practice, Investors may invest directly in the Fund and not avail themselves of a nominee service. Unless otherwise provided by local law, any Shareholder holding Shares in a nominee account with a Distributor has the right to claim, at any time, direct title to such Shares.
CLASS
C
2. Minimum Subscription and Holding Amounts and Eligibility for Shares
E U R ~
€EUK 100,000
The minimum subscription amount and minimum holding requirement for each Class of Shares of each Sub-Fund is specified below.
Minimum Subscription and Holding Amounts
CLASS I EUH'
Where a Shareholder wishes to add to his/her Shareholding in a given Share Class, the additional subscription must be at least the amount set out in the table below. The Board of Directors is not required to accept additional subscriptions falling below the spccified amount.
The Board of Directors has the discretion, from time to time, to waive or reduce any applicable minimum subscription amounts. The relcvant minimum subscription amount shall not apply where the Shares are subscribed for by companics in JPMorgan Chase & Co. acting as investment manager or by third party investment managers or distributors approved by JPMorgan who are subscribing on behalf of their clients.
or its equivalent in the refercnce currency of the relevant Class or its equivalent in the reference currency of the relevant Class
I
Where the Shareholder of a given Class within a Sub-Fund accumulates a holding of suficient size to satisfy the minimum subscription requirements of a 'parallel Share Class' within that Sub-Fund with lower fees and expenses, the Board of Directors may, in its absolute discretion, convert the Shareholder's Shares into Shares in the 'parallel Share Class' with the lower fees and expenses. A 'parallel Share Class' within a Sub-Fund is one that is identical in all material respects (including investment and dividend policy) save for the minimum subscription amount and expenses applicable to it.
'I'he Board of Directors may, at any time, decide to compulsorily redeem all Shares from Shareholders whose holding is less than the minimum subscription amount specified in the table titled 'Minimum Subscription and Holding Amounts' above or who fail to satisfy any other applicable eligibility requirements set out above or stated in the relevant section of Appendix 11. In such case, the Shareholder concerned will receive one month's prior notice so as to be able to increase his holding above such amount or otherwise satisfy the eligibility requirements.
3. Listing of Shares
The Shares of each Class of the Sub-Funds will not be listed on the Luxembourg Stock Exchange unless there is a statement to the contrary in the relevant section of Appendix IT. If the Directors decide to create additional Sub-Funds or Classes they may, if they think appropriate, apply for the Shares in those Sub-Funds to be listed on the Luxembourg Stock Exchange. For so long as the Shares of any Sub-Fund are listed on the Luxembourg Stock Exchange, the Fund shall comply with the requirements of the Luxembourg Stock Exchange relating to those Shares.
4. Redemption of Shares
Any Shareholder may apply for redemption of his Shares in part or in whole on any Valuation Day. Kedemption applications should be sent to the Registrar and Transfer Agent at its address at 6, route de Trkves, T,-2633 Senningerherg, Grand Duchy of Luxembourg or: if appropriate, to the address of the relevant Salcs Agent (if one has becn appointed to deal with such redemptions) as indicated under "Information for Investors in Certain Countries" below.
Redemptions shall be effected at the Rid Price of the relevant Class determincd on the Valuation Day on which the redemption application has been acccpted. Kedetnption applications will, at the discretion of the Board of Directors, only be executed where thc subscription proceeds for the relevant Shares will have been received by the Fund.
The Registrar and Transfer Agent may at its option carry out any authentication procedures that it considers appropriate to verify, confirm or clarify Shareholder payment instructions relating to a redemption application. This aims to mitigate the risk of error and fraud for the Fund, its agents or Shareholders. Where i t has not been possible to complete any authentication procedures to its satisfaction, the Registrar and Transfer Agent may, at its discretion, delay the processing of payment instructions, until authcntication procedurcs have been satistied, to a date later than the envisaged payment date for redemptions set out in this section. This shall not affect the Valuation Day on which the redemption application is accepted and shall not affect the fact that the Bid Price for any redemption shall be determined on the Valuation Day on which the redemption application is accepted.
If the Registrar and Transfcr Agent is not satisfied with any verification or confirmation, it may decline to execute the relevant redemption instruction unt i l satisfaction is obtained. Neither the Registrar and Transfer Agent nor the Fund shall be hcld responsible to the Sharcliolder or anyone if it delays execution or declines to execute redemption instructions in these circumstances.
Redemption payments will normally be made in the Reference Currency of the relevant Class and the Custodian will issue payment instructions therefore to its correspondent bank for payment within a previously agreed period not normally exceeding 3 Business Days after acceptance of the redemption application (unless otherwise specified in Appendix 11).
If, in exceptional circumstances, redemption proceeds cannot be paid within three Business Days from the relevant Valuation Day, for example when the liquidity of the relevant Fund does not permit, payment will be made as soon as reasonably practicable thereafter (not exceeding, however, ten Business Days from the relevant Valuation Day) at the Bid Price calculated on the relevant Valuation Day.
If, on the settlement date, banks are not open for business, or an interbank settlement system is not operational, in the country of the currency of the relevant Class, then settlement will be on the next Business Day on which those banks and settlement systems are open. On request, redemption proceeds paid by bank transfer may be paid in most other currencies, at the cost of the Shareholder. In exceptional circumstances and if not detrimental to the other Shareholders, the Board of Directors may request that a Shareholder accepts 'redemption in kind' i.e. receives a portfolio of stock from the Share Class of equivalent value to the appropriate cash redemption payment. In such circumstances the investor is free to refuse the redemption in kind and to insist upon cash redemption payment in the reference currency of the relevant Class. Where the investor agrees to accept redemption in kind he will, as far as possible, receive a representative selection of the Share Class' holdings pro rata to the number of Shares redeemed. Any such redemption in kind will be valued in a report drawn up by the auditor of the Fund in accordance with the requirements of Luxembourg Law. All supplemental costs associated with redemptions in kind will not be borne by thc Fund.
Unless waived by the Management Company, if, as a result of any conversion or redemption request, the amount invcsted by any Shareholder in a Class of Shares i n any one Sub-Fund falls below the minimum holding for that Class of Shares, it will be trcated as an instruction to redeem or convcrt, as appropriate: the Shareholder's total holding in the relevant Class of Shares.
Shareholders are required to notify the Registrar and Transfer Agent immediately in the event that they are or become US Persons or hold Sharcs for the account or benefit of US Persons or otherwise hold Shares in breach of any law or regulation or otherwise in circumstances having, or which may have, adverse regulatory, tax or fiscal consequences for the Fund or the Shareholders or otherwise be detrimental to the interests of the Fund. If the Directors becornc aware that a Shareholder (a) is a US Person or is holding Shares for the accoiint of a US Person, (b) is holding Shares in breach of any law or regulation or otherwisc in circumstances having, or which may have, adversc regulatoty, tax or fiscal consequences for the Fund or the Shareholders or otherwise be detrimental to the interests of the Fund, the Directors may redeem the Shares in accordance with the provisions of the Articles of the 1:und.
Additionally, if requests for the redemption of more than 10 YO of the total number of Shares in issue of any Sub-Fund are received on any Valuation Day, the Board of Directors may decide that redemption requests in excess of 10% shall be postponed until the ncxt Valuation Day following that on which the relevant redemption requests were received. Redemption requests which have not been dealt with because of such postponement must be given priority to later requests made on tlic next following Valuation Day or Valuation Days iintil completion of the original requests.
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Redemption o f Shares of a given Sub-Fund shall be suspended whenever the determination of the net asset value per Share of such Sub-Fund is suspended by the Fund (see "General Information - Temporary Suspension of Issues, Redemptions and Conversions").
A Shareholder may not withdraw his request for redemption of Shares of any one Class except in the event of a suspension of the determination of the net asset value of the Class and, in such event, a withdrawal will be effective only if written notification is received by the Registrar and Transfer Agent before the termination of the period of suspension. If the redemption request is not withdrawn, the Fund shall proceed to redeem on the first applicable Valuation Day following the end of the suspension of the determination of the net asset value of the Shares of the relevant Sub-Fund.
From time to time it may be necessary for the Fund to borrow on a temporary basis to fund redemptions. For restrictions applicable to the Fund's ability to borrow, see "Investment Restrictions and Powers" below.
5. Transfer of Shares
The transfer of registered Shares may normally be effected by delivery to the relevant Sales Agent or the Registrar and Transfer Agent of an instrument of transfer in appropriate form. On receipt of the transfer request, the relevant Sales Agent or the Registrar and Transfer Agent may, after reviewing the endorsement(s), require that the signature(s) be guaranteed by an approved bank, stock broker or public notary. Any transferee must (a) be a Non-U.S. Person or a U.S. Eligible Private Placee, (b) satisfy the subscription conditions within the relevant Class or Sub-Fund and (c) if such transferee is a new investor in the Fund or is a U.S. Eligible Private Placee, execute a subscription agreement.
Shareholders are advised to contact the relevant Sales Agent or the Registrar and Transfer Agent prior to requesting a transfer to ensure that they have all the correct documentation for the transaction and that the conditions for a lawful transfer are satisfied.
General Information
1. Organisation
The Fund is an investment company organised as a societe anonyme under the laws of the Grand-Duchy of Luxembourg and qualifies as a socikte d'investissement a capital variable (SICAV). The Fund was incorporated in Luxembourg on 16 February 2006 for an unlimited period. Its Articles were published in the Memorial, Recueil des Societes et Associations ("Memorial") on 13 March 2006. The Fund is registered with tlie Registre de Commerce et des Sociitis, Luxembourg, under number B 114.378.
Consolidatcd Articles and a notice in respect of tlie issue and redemption ofthc Shares by the Fund are on file with the Regisire de Commerce et des Socidiis in Luxembourg.
The minimum capital requirement of the Fund is sct out by Luxembourg Law. The minimum capital required by the Luxembourg Law (EUR 1,250:OOO) must be achieved within a period of six months following the authorisation of the Fund as an undertaking for collective investment.
2. Meetings
The annual gcneral meeting of Shareholders (the "Annual Meeting") will be held at the registered office of the Fund in Luxembourg on the last Friday of tlie month of July annually at 12 noon or, if any such
day is not a bank business day in Luxembourg, on the next following bank business day. Notices of all general meetings will be published in the Memorial, to the extent required by Luxembourg Law, in the d'Wort and in such other newspaper as the Board of Directors shall determine and will be sent to the holders of registered Shares by post prior to the meeting at their addresses shown on the register of Shareholders. Such notices will include the agenda and will specify the time and place of the meeting and the conditions of admission. They will also refer to the rules of quorum and majorities required by Luxembourg Law and laid down in Articles 67 and 67- 1 of the Luxembourg law of 10 August I9 15 on commercial companies (as amended) and in the Articles of the Fund.
Each whole Share confers the right to one vote. The vote on the payment of a dividend (if any) on a particular Sub-Fund or Class requires a separate majority vote from the meeting of Shareholders of the Sub-Fund or Class concerned. The Registrar and Transfer Agent will register registered Shares jointly in the names of not more than four Shareholders should they so require. In such case the rights attached to such a Share must be exercised jointly by all those parties in whose name it is registered except when (i) voting at an Annual Meeting where only the tirst named Shareholder may vote, (ii) the Shareholders have indicated their desire to have individual signatory powers, or ( i i i ) unless one or more persons (such as an attorney or executor) islare appointed to do so. Any change in the Articles affecting the rights of a Sub-Fund or Class must be approved by a resolution of both the general meeting of the Fund and the Shareholders of the Sub-Fund or Class concerned.
3. Reports and Accounts
Audited annual reports shall be published within 4 months following the end ofthe accounting year and unaudited semi-annual reports shall be published within 2 months following the period to which they refer. The tjrst report will be a semi-annual report as of30 September 2006. The annual and semi-annual reports shall be made available at the registered ofices of the Fund and the Custodian during ordinary office hours. The Fund's accounting year ends on 31 March each year and for the first time on 31 March 2007.
The reference currency of the 1:und is IISD. The aforesaid reports will comprise consolidated accounts of the Fund cxpressed in lJSD as well as individual infoimation on each Sub-Fund expressed in the reference currency of each Sub-Fund.
4. Allocation of assets and liabilities among the Sub-Funds
The assets and liabilities will be allocated among the Sub-Funds in the following manner:
the proceeds from the issue of each Share of each Sub-Fund are to be applied in the books of the Fund to the pool of assets established for that Sub-Fund and the assets and liabilities and income and expenditure attributable thereto are applied to such pool subject to the provisions set forth hereafter;
where any asset is dcrived from another asset, such derivative asset is applied in the books of the Fund to the same pool as the asset from which it was derived and on each revaluation of an assct, the increase or diminution in value is applied to the relevant pool;
where the Fund incurs a liability which relates to any asset o f a particular pool or to any action taken in connection with an asset of a particular pool, such liability is allocated to the relevant pool;
(d) in the case where any asset or liability of the Fund cannot be considered as being attributable to a particular pool, such asset or liability is allocated to all the pools in equal parts or, if the amounts so justify, pro rata to the net asset values of the relevant Sub- Funds;
(e) upon the payment of dividends to the holders of Shares in any Sub-Fund, the net asset value of such Sub-Fund shall be reduced by the amount of such dividends.
Under the Articles of the Fund, the Board of Directors may decide to create within each Sub-Fund one or more Classes whose assets will be commonly invested pursuant to the specific investment policy of the Sub-Fund concerned but where a specific initial or redemption charge structure, fee structure, minimum subscription amount, hedging policy or dividend policy may be applied to each Class. A separate net asset value, which will differ as a consequence of these variable factors, will be calculated for each Class. If one or more Classes have been created within the same Sub-Fund, the allocation rules set out above shall apply, as appropriate, to such Classes.
5. Conversion of Shares
To the extent described in and permitted by Appendix I1 for certain Sub-Funds, and subject to any suspension of the determination of the net asset values concerned, Shareholders have the right to convert all or part of their Shares of a Sub-Iund into Shares of the same Class of another existing Sub-Fund, by applying for conversion in the same manner as for issue and redemption of Shares. In addition, if, as a result of a conversion, the value of a Shareholder's holding in the relevant Class would become less than the relevant minimum Holding Amount, the Shareholder may be deemed (if the Board so decides) to have requested the conversion ofall of his Shares.
The number of Shares issued upon conversion will be based upon the Bid Price of the original Shares and the net asset value of the Shares of the Sub-Fund into which the conversion is requested, plus the applicable convcrsion fee. on the coninion Valuation Day oil which the conversion request is accepted. If the conversion request is received before 2.30 pin Luxembourg time on a day which is not a common Valuation Day for the relevant Sub-Funds, the conversion will be made on the basis of the prices calculated on the next following Valuation Day of each of the Shares of the hvo Sub-Funds concerned (requests received after 2.30 p.m. Luxembourg time on any Valuation Day being deferred to the next Valuation Day in the same maimer as for issue and redemption of Shares).
The Board of Directors may apply a conversion charge not exceeding I % of the net asset value of the Shares in the new Sub-Fund.
6. Pooling
For the purpose of effective management, and sub+jcct to the provisions of the Articles and to applicable laws and regulations, the Board of Directors may invest and manage all or any part of the portfolio of assets established for two or more Sub-Funds (for the purposes hereof "Participating Sub-Funds") on a pooled basis. Any such asset pool shall be formed by transferring to it cash or other assets (subject to such assets being appropriate with respect to the investment policy of the pool Concerned) from each of the Participating Sub-Funds. Tlicrearter, the Board of Directors may from time to time make further transfers to each asset pool. Assets may also be transferred back to a Participating Sub-Fund up to the amount of the participation of the Class conccrned. The Share of a Participating Sub-Fund in an asset pool shall be measured by reference to notional units of equal value in the asset pool. On formation of an asset pool, the Board of Directors shall, in their discretion, determine the initial value of notional units (which shall be expressed in such currcncy as the Board of Directors consider appropriate) and
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shall allocate to each Participating Sub-Fund units having an aggregate value equal to the amount of cash (or to the value of other assets) Contributed. Thereafter, the value of the notional unit shall be determined by dividing the net asset value of the asset pool by the number of notional units subsisting.
When additional cash or assets are contributed to or withdrawn from an asset pool, the allocation of units of the Participating Sub-Fund concerned will be increased or reduced, as the case may be, by a number of units determined by dividing the amount of cash or the value of assets contributed or withdrawn by the current value of a unit. Where a contribution is made in cash, it will be treated for the purpose of this calculation as reduced by an amount which the Board of Directors consider appropriate to reflect fiscal charges and dealing and purchase costs which may be incurred in investing the cash concerned; in the case of cash withdrawal, a corresponding addition will be made to reflect costs which may be incurred in realising securities or other assets of the asset pool.
Dividends, interest and other distributions of an income nature received in respect of the assets in an asset pool will be immediately credited to the Participating Sub-Funds in proportion to their respective participation in the asset pool at the time of receipt. Upon the dissolution of the Fund, the assets in an asset pool will be allocated to the Participating Sub-Funds in proportion to their respective participation in the asset pool.
7. Determination of the Net Asset Value of Shares
The net asset value of the Shares of each Class is determined in its reference currency on each Valuation Day by dividing the net assets attributable to each Class by thc number of Shares of such Class then outstanding. The net assets of each Class are made u p ofthe value ofthe assets attributable to such Class less the total liabilities attributable to such Class calculated at such time as the Board of Directors shall have set for such purpose.
The value ofthe assets of the Fund shall be determined as follows:
the value of any cash on hand or on deposit. bills and demand notes and accounts reccivable, prepaid expenses, cash dividends and interest declared or accrued as aforesaid, and not yet received shall be deemed to be the full amount thereof. unless, however, the same is unlikely to be paid or received in full, in which case the value thereof shall be determined after making such discount as the Board of Directors may consider appropriate in such case to reflect the true value thereof;
the value of securities and/or financial derivative instruments which are quoted or dealt in on any stock exchange shall be based on the latcst available price on the relevant stock exchange;
securities and/or financial derivative instruments dealt in on another- regulated market are valued on the basis ofthe latcst available price o n such market;
The financial derivative instruments which are not I isted on any official stock exchange or traded on any other organised market will be valued in a reliable and verifiable manner on a daily basis and in accordance with market practice;
for non-quoted securities or securities not traded or dealt in on any stock exchange or other regulated market, as well as quoted o r non-quoted securities on such other market for which no valuation price is available, or securities for which the quoted prices are not representative of the fair market value, thc value thereof shall be determilied prudently and in good faith by the Board of Directors 011 the basis of foreseeable sales prices;
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(t) swaps are valued at their fair value based on the underlying securities (at close of business or intraday) as well as on the characteristics of the underlying commitments;
(g) Shares or units in UCITS and other lJCls shall be valued at their last available net asset value as reported by such undertakings;
(h) liquid assets and money market instruments may be valued at nominal value plus any accrued interest or on an amortised cost basis. All other assets, where practice allows, may be valued in the same manner.
To the extent that the Directors consider that it is in the best interests of all Shareholders or potential Shareholders, given the prevailing market conditions and the level of subscriptions or redemptions requested by Shareholders or potential Shareholders in relation to the size of the relevant Sub-Fund, securities may be valued either at their bid or offer prices. The net asset value may also be adjusted for such sum as may represent the appropriate provision for dealing charges which may be incurred by the relevant Sub-Fund under such conditions, provided always that such sum shall not exceed 1 YO of the net asset value of the Sub-Fund at such time.
Sub-Funds primarily invested in markets which are closed for business at the time the Sub-Fund is valued are normally valued using the prices at the previous close of business. Market volatility may result in the latest available prices not accurately reflecting the fair value of the Sub-Fund’s investments. This situation could be exploited by investors who are aware of the direction of market movement, and who might deal to exploit the difference between the next publishcd Net Asset Value and the fair value of the Sub-Fund’s investments. By these investors paying less than the fair value for Shares on issue, or receiving more than the fair value on redemption, other Shareholders may suffer a dilution in the value of their investment.
To prevent this, the Fund may, during periods of market volatility, adjust the Net Asset Value per Sliare prior to publication to reflect more accurately the fair value of the Sub-Fund’s investments. The adjustment will be based upon the percentage change in the benchmark index for the Sub-Fund since the previous close, provided that siich change exceeds the threshold as determined by the Directors for the relcvanr Sub-Fund. If an adjustment is made: it will be applied consistently to all Classes of Shares in the same Sub-Fund and at the level ofthe percentage change in the benchmark index.
The Directors are authorised to apply other appropriate valuation principles for the assets of the Fund and/or the assets o f a given Class if the aforesaid valuation methods appear impossible or inappropriate due to extraordinary circumstances or events.
The value of assets denominated in a currency other than the refcrcnce currency of a Sub-Fund shall be determined by taking into account the rate of exchange prevailing at the time of the determination ofthe net asset value.
The net asset value per Share of each Class and the Bid and Offer Prices thereof are available at the registered ofice of the Fund: on each Valuation Day.
8. Calculation of Bid and Offer Prices
‘I’he Offer Price per Share of each Class is calculated by adding an initial charge, if any, to the net asset value per Share. The initial charge will be calculated as a percentage of the net asset value per
Page 2 I
Share not exceeding the levels shown in Appendix I I . The Offer Price shall be rounded up to the nearest two decimal places of the unit of currency in which the Shares are denominated. The Management Company is entitled to the initial charge and any rounding adjustment.
The Bid Price per Share of each Class is calculated by deducting a redemption charge, if any, from the net asset value per Share. The redemption charge will be calculated as a percentage of the net asset value per Share, not exceeding the levels shown in Appendix TI. The Bid Price shall be rounded to the nearest two decimal places of the unit of currency in which the Shares are denominated. The Management Company is entitled to the redemption charge and any rounding adjustment.
9. Temporary Suspension of Issues, Redemptions and Conversions
The determination of the net asset value of Shares of one or more Classes may be suspended during:
any period when any of the principal markets or stock exchanges on which a substantial portion of the investments of the Sub-Fund concerned is quoted or dealt in, is closed otherwise than for ordinary holidays, or during which dealings therein are restricted or suspended; or
the existence of any state of affairs which constitutes an emergency as a result of which disposal or valuation of assets of the Sub-Fund concerned would be impracticable; or
any breakdown in the means of communication or computation normally employed in determining the price or value of the assets of the Sub-Fund concerned or the current prices or values on any market or stock exchange; or
any period when the Fund is unable to repatriate funds for the purpose of making payments 011 the redemption of Shares or during which any transfer of funds involved in the realisation or acquisition of investments or payments due on redemption of Shares cannot in the opinion of the Board of Directors bc effected at normal rates of exchange; or
any other circumstance or circumstances where ;I failure to do so might result in the Fund or its Shareholders incurring any liability to taxation or suffering other pecuniary disadvantages or other detriment which the Fund or its Shareholders might not otherwise have suffered.
The Board of Directors has the power to suspend the issue, redemption and conversion of Shares in one or more Classes for any period during which the determination of the net asset value per Share of the Sub-Fund(s) concerned is suspended by the Fund by viitue of the powers described above. Any redemptionlconversion request made or in abeyance during such a suspension period may be withdrawn by written notice to be received by the Fund before the end of such suspcnsion period. Should such withdrawal not be effected, tlic Shares in question shall be redeemed/convcrted on the first Valuation Day following the termination of the suspension pcriod. I n the event of such period being extended, notice shall be published in newspapers in the countries where the Fund’s Shares are sold. Investors who have requested the issue, redemption or conversion of Shares shall he informed of such suspension when such request is made.
10. Liquidation of the Fund
The Fund is incorporated for an unlimited period and liquidation shall normally be decided upon by an extraordinary general meeting of Shareholders. Such a meeting must be convened if the net assets of the Fund become less than two thirds of the minimum capital required by Luxembourg Law.
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Should the Fund be liquidated. such liquidation shall be carried out in accordance with the provisions of the Luxembourg Law which specifies the steps to be taken to enable Shareholders to participate in the liquidation distributions and in this connection provides for deposit in escrow at the Caisse de Consignation in Luxembourg of any such amounts which it has not been possible to distribute to the Shareholders at the close of liquidation. Amounts not claimed within the prescribed period are liable to be forfeited in accordance with the provisions of Luxembourg Law. The net liquidation proceeds of each Sub-Fund shall be distributed to the Shareholders of each Class of the relevant Sub-Fund in proportion to their respective holdings of such Class.
11. Merger or Liquidation of Sub-Funds
The Board of Directors may decide to liquidate any Sub-Fund if the net assets of such Sub-Fund fall below EUR 20,000,000 (twenty million) Euro or if a change in the economic or political situation relating to the Sub-Fund Concerned would justify such liquidation. The decision to liquidate will be published by the Fund prior to the effective date of the liquidation and the publication will indicate the reasons for, and the procedures of, the liquidation operations. Unless the Board of Directors otherwise decides in the interests of, or to keep equal treatment between, the Shareholders, the Shareholders of the Sub-Fund concerned may continue to request redemption or conversion of their Shares fiee of charge. Assets which are not distributed upon the close of the liquidation of the Sub-Fund will be deposited with the Custodian for a period o f 6 months after the close of liquidation. After such time, the assets will be deposited with the Caisse de Consignation on behalf of those entitled.
Under the same circumstances as provided above, the Board of Directors may decide to close down any Sub-Fund or Share Class by merger into another Sub-Fund (the "new Sub-Fund"), Class (the "new Share Class") or Luxembourg domiciled Undertaking for Collective Investment authorised under Part I of the Luxembourg Law. In addition, such merger may be decided by the Board of Directors if required by the interests of the Shareholders of any of the Sub-lknds or Classes concerned. Such decision will be published in the same manner as described in the preceding paragraph and, in addition, the publication will contain information in relation to the new Sub-Fund, Share Class or Undertaking for Collective Investment. Such publication will be made within one month beforc thc date on which the merger becomes effective in order to enable Shareholders to request redemption of their Shares, free of charge, before the operation involving contribution into the new Sub-Fund, Share Class o r Undertaking for Collective lnvestment becomes effective.
12. Conflicts of Interest
The Management Company, the Investment Managers, which are members of JPMorgan Chase & Co., the Sales Agents, the Registrar and Transfer Agent, Corporate and Administrative Agent and the Custodian may from time to time act as management company, investment manager or adviser, sales agent, administrator, registrar, custodian or trustee in relation to, or be othcrwise involved in, other funds or UCITS and other UCls which have similar investment objectives to those of the Fund or any Sub- Fund. It is therefore possible that any of them may, in the due course of their business, have potential conflicts of interest with the lund or any Sub-Fund. In such event, each will at all times have regard to its obligations under any agreements to which it is party or by which it is bound in relation to the Fund or any Sub-Fund. In particular, but without limitation to its obligations to act in the best interests of the Shareholders when undertaking any dealings or investments where conflicts of interest may arise. each will respectively endeavour to ensure that such conflicts are resolved fairly. More specifically, the Management Company, under the rules of conduct applicable to it: must try to avoid contlicts o f interests and, when they cannot be avoided, ensure that its clients (including the Fund) are fairly treated.
'I'here is no prohibition on the Fund entering into any transactions with the Management Company or any Investment Manager which are members of JPMorgan Chase & Co., the Sales Agents, the Registrar and Transfer Agent or the Custodian or with any of their affiliates, provided that such transactions are carried out as if effected on normal commercial terms negotiated at arm's length. The Management Company, Investment Manager or any of its affiliates acting in a fiduciary capacity with respect to its client accounts may recommend to or direct its clients to buy and sell Shares of the Fund. If a client defaults on its obligation to repay indebtedness to JPMorgan that is secured by Shares in the Fund, and JPMorgan forecloses on such interest, JPMorgan would become a Shareholder of the Fund. As a consequence, JPMorgan and its affiliates could hold a relatively large proportion of Shares and voting rights in the Fund.
Aftiliates of JPMorgan Chase & Co. act as counterparties for certain forward foreign exchange and financial fiitures contracts. The Management Company, Global Distributor, Registrar and Transfer Agent, Domiciliary Agent, Custodian, Corporate and Administrative Agent and the Principal Paying Agents of the Fund are considered as related parties.
13. Material Contracts
The following material contracts have been or shall be entered into: -
An Agreement, effective from 16 February 2006, between the Fund and JPMorgan Asset Management (Europe) S.ir.1. pursuant to which the latter was appointed Management Company of the Fund. This Agreement is entered into for an unlimited period and may be terminated by either party upon three months' written notice.
An Agreement, effective from 16 February 2006, between the Fund and J.P. Morgan Rank Luxembourg S.A. pursuant to which the latter was appointed custodian of the assets of the Fund. Thc Agreement is entered into for an unlimited period and may be terminated by either party upon three months' written noticc.
An Administration Agreement, effective from 16 February 2006, between JPMorgan Asset Management (Europe) S.ir.1. and J.P. Morgan Bank Luxembourg S.A. pursuant to which the latter has been delegated the function of providing NAV calculations, company secretarial and paying agency services (the "Administration Agreement"). The Administration Agreement is entered into for an unlimited period and may be terminated by either party upon three months' written notice.
Documents
Copies of the contracts mentioned above arc available for inspection, and copies of the Articles, the current Prospectus, the current Simplitled Prospcctus(es) and the latest financial reports may be obtained free of charge during normal office hours at the registered office of the Fund in Luxembourg. The Articles and reports form an integral part of this Prospectus.
Dividend Policy
Unless otherwise stated in the relevant scction of Appendix I1 it is the policy of each Sub-Fund and Class to reinvest all revenues and capital gains and not pay any dividends and of the Classes qualify as "distributing" for the purposes of United Kingdom tax legislation relating to offshore Funds. 'fhe Board of Directors shall nevertheless have the option, in any given accounting year, to propose to
Page 21
the Shareholders of any Sub-Fund or Class at the Annual Meeting the payment ofa dividend out of all or part of that Sub-Fund's or Class' current net investment income, if the Board thinks it appropriate to make such a proposal. The Board may only propose the payment of a dividend out of the actual profits of any Sub-Fund or Class.
The Registrar and Transfer Agent may at its option carry out any authentication procedures that it considers appropriate to verify, confirm or clarify Shareholder payment instructions relating to dividend payments. This aims to mitigate the risk of error and fraud for the Fund, its agents or Shareholders. Where it has not been possible to complete any authentication procedures to its satisfaction, the Registrar and Transfer Agent may, at its discretion, delay the processing of payment instructions until authentication procedures have been satisfied, to a date later than the envisaged dividend payment date.
If the Registrar and Transfer Agent is not satisfied with any verification or confirmation, it may decline to execute the relevant dividend payment until satisfaction is obtained. Neither the Registrar and 'Transfer Agent nor the Fund shall be held responsible to the Shareholder or anyone if it delays execution or declines to execute dividend payments in these circumstances.
Management and Administration
1. Board of Directors
The Directors of the Fund are responsible for its management and control including the determination of investment policies and of investment restrictions and powers. The Board is composed of the individuals identified under the section "Board of Directors".
2. Management Company and Domiciliary Agent
The Board of Directors of the Fund has designated JPMorgan Asset Management (Europe) S.a r.1. as Management Company of the Fund to perform investment management, administration and marketing functions for the Fund and as domiciliary agent to the Fund.
The Management Company was incorporated as a "Sociktk Anonyme" in Luxembourg on 20 April 1988 under the name of Fleming Fund Management (Luxembourg) S.A. The Management Company became a "SociM i responsabilitk limit&" (S.5r.l.) on 28 July 2000, amended its name to J.P. Morgan Fleming Asset Management (Europe) S.ir.1. on 22 February 2001 and amended it to JPMorgan Asset Management (Europe) S.ir.1. on 3 May 2005. Its Articles were initially published in the Memorial on 6 July 1988 and the latest amendment thereto was published on 2 August 2005. JPMorgan Asset Management (Europe) S.ir.1. has an authorised and issued share capital of EUR 10,000,000.
JPMorgan Asset Management (Europe) S.ir.1. was authorised on 25 May 2005 as a management company managing UCITS governed by the EC Directive 2001/107 and therefore complies with the conditions set out in Chapter 13 of the Luxembourg Law. The corporate object of JPMorgan Asset Management (Europe) S.ir.1. is to provide investment management, administration and marketing services to undertakings for collective investment.
Board of Managers uf the Management Company
Executive Managers
The Executive Managers of thc Management Company have responsibility for the overall supervision of the Management Company (including its branches) and are:
Jon P Griffin, Vice President: JPMorgan Asset Management (Europe) SA r.l., 6, route de TrGves, L- 2633 Senningerberg, Grand Duchy of Luxembourg. Graham Goodhew, Vice President, JPMorgan Asset Management (Europe) S.a r.]., 6, route de Treves, L-2633 Senningerbcrg, Grand Duchy of Luxembourg. Jean-Jacques Lava, Vice President, JPMorgan Asset Management (Europe) S.1 r.l., 6, route de Tritves, L-2633 Senningerberg, Grand Duchy of Luxembourg.
Non-executive Managers
The Non-executive Managers are responsible solely for the supervision of matters relating to branches of the Management Company and are:
Massimo Greco, Managing Director, JPMorgan Asset Management (Europe) S.a r.l., Via Catena, 4 - 1-20121 Milan, Italy.
Peter Schwicht, Managing Director, JPMorgan Asset Management (Europe) S.a r.]., Frankfurt Branch? Junghofstrasse, 14 - D-603 I 1, Frankfurt, Germany.
The Management Company is entitled to receive the initial charge and any charge on conversions and any rounding adjustments, as detailed herein. It may pay all or part of the charges it receives as a commission or discount to financial intermediaries or distributors.
The Management Company has bceri permitted by the Fund to delegate its investment inanage~nent functions to investment managers authorised by the Fund: comprising the Investment Managers listed in the Management and Administration section at the front of this Prospectus.
The Management Company is responsible for the central administration of the Fund and acts as its domiciliary agent. The Management Company has bccri permitted by the Fund to delegate certain administrative functions to specialised service providers based in Luxembourg. In that context, the Management Company has delegated corporate and administrative functions to J.P. Morgan Bank Luxembourg S.A.
In the context of its marketing function, thc Management Company may enter into agreements with Distributors pursuant to which the Distributors agree to act as intermediaries or nominees for investors subscribing for Shares through their Facilities.
The Management Company will monitor on a colitiiiued basis the activities of the third parties to which it has dclegated functions. The agreements entered into between the Management Company and the relevant third parties provide that the Management Company can give at any time further instructions to such third parties, and that it can withdraw their mandate with immediate effect if this in the interest of the Shareholders. The Managcmerit Company's liability towards the Fund is not affected by the fact that it has delegated certain filnctioiis to third parties.
Pagc 26
The following other Funds have appointed JPMorgan Asset Management (Europe) SA r.1 as Management Company:
JPMorgan Funds JPMorgan Investment Funds JPMorgan Investment Strategies Funds JPMorgan Liquidity Funds JPMorgan World Funds JPMorgan Portfolio Strategies Funds I1
3. Investment Managers
The Management Company has delegated investment manager functions to the Investment Managers set out in the Management and Administration section at the front of this Prospectus. The Investment Managers shall manage the investments of the Sub-Funds in accordance with stated investment objectives and restrictions and, on a discretionary basis, acquire and dispose of securities of the Sub- Funds. The terms of the appointment of the investment managers are specified in the Investment Management Agreements. Investment Managers are entitled to rcceive as remuneration for their services hereunder such fee payable by the Management Company out of its own fee as is set out in the relevant Investment Management Agreement or as may othcrwise be agreed upon from time to time. The Investment Managers may be part of JPMorgan Chasc & Co. JPMorgan Chase & Co. has a number of direct and indirect subsidiaries engaged globally in providing a wide range of financial services, including JPMorgan Chase Bank, N.A., a New York state banking institution, member of the Federal Reserve System, whose main office is at 270 Park Avenue, New York, N.Y. 101 7-2070, USA., and all its branch offices and direct and indirect subsidiaries in and outside of the United States.
Each of the Investment Managers may, in its discretion, purchase and sell securities through dealers who provide research, statistical and other information to the Investrnent Managers. Such supplemental information received from a dealer is in addition to the scrvices required to be performed by the Investment Managers under the relevant Investment Management Agreement and the expenses which the Investment Manager incurs while providing advisorq. scrvices to the Fund will not necessarily be reduced as a result of the receipt of such information. In addition, the Investment Managers may enter into transactions or arrangements with other members of JPMorgan Chase & Co.
4. Custodian, Corporate and Administrative Agent
J.P. Morgan Bank Luxembourg S A . has been appointed as custodian of all of the Fund’s assets, comprising securities, money market instrments. cash and other assets. It may entrust the physical custody of securities and other assets, mainly securities tradcd abroad, listed o n a foreign stock market or accepted by clearing institutions for their transactions. to such institutions or to one or more of its banking correspondents.
J.P. Morgan Bank 1,uxembourg S.A. must:
a) ensure that the issue, redemption, conversion and cancellation of Shares effected by or on behalf of the Fund are carried out i n accordance with the law and the Articles;
I
b) ensure that in transactions involving the assets of the Fund, the consideration is remitted to it within the usual time limits;
c) ensure that the income ofthe Fund is applied in accordance with its Articles.
J.P. Morgan Bank Luxembourg S.A. was incorporated in Luxembourg as a societk anonyme on 16 May 1973 and has its registered office at 6, route de Trkves, L-2633 Senningerberg, Grand Duchy of Luxembourg. It has engaged in banking activities since its incorporation.
hi its capacity as Corporate and Administrative Agent, J.P. Morgan Bank Luxembourg S.A. is responsible for the determination of the net asset value of the Shares in each Sub-Fund and Class and for the maintenance of accounting records.
5. Registrar and Transfer Agent
JPMorgan Asset Management (Europe) S.a r.1. was incorporated in Luxembourg on 20 April 1988 and has its registered office at European Bank and Business Centre, 6, route de Trkves, L- 2633 Senningerberg, Grand Duchy of Luxembourg.
In its capacity as Registrar and Transfer Agent, JPMorgan Asset Management (Europe) S.a r.1. is responsible for processing the issue, redemption and conversion of Shares and maintaining the register of Shareholders.
Manaaement and Fund Charges
1. Explanation of the Charging Structures
Investment in the Fund is generally offered via one charging structure, as represented by the C Share Classes.
Operating and Administrative Expenses are allocated to the Sub-Funds to which they ate attributable or among all Sub-Funds and Share Classes pro rata to their respective net assets (or in a fair and reasonable manner determined by the Directors of the Fund). The allocation of Operating and Administrative Expenses is audited annually by the independent auditors of the Fund. Operating and Administrative Expenses are accrued daily within each Sub-Fund's Share Classes according to the applicable charging structure of each Class.
Certain Sub-Funds or Share Classes may incorporate a performance fee as further detailed below.
The Fund's formation expenses and the expenses relating to the creation of new Sub-Funds may be capitalised and amortised over a period not exceeding five years, as permitted by Luxembourg Law.
Any exceptions to the charging structures detailed above are noted in Appendix TI.
2. Annual Management and Advisory Fee
The Fund pays to the Management Company an annual management fee calculated as a percentage of the average daily net assets of each Sub-Fund o r Share Class under its management ("Annual Management and Advisoy Fee"). 'I'he Annual Management and Advisory Fee is accrued daily and payable monthly in arrears at the rate specified in Appendix 11. Certain Sub-Funds or Share Classes may incorporate a performance fec as further detailed below.
Page 28
Subject to the investment restrictions described below, Sub-Funds may invest in UCITS and other UCls managed by the Management Company, the Invcstmcnt Managers or any other member of JPMorgan Chase & Co. The avoidance of a double-charge of the Annual Management and Advisory Fee on such assets is achieved by either a) excluding the assets from the net assets on which the Annual Management and Advisory Fee are calculated or b) investing in UCITS or other UCls via Classes that do not accrue an Annual Management and Advisory Fee or other equivalent fees payable to the relevant Investment Manager's group; or c) the Annual Management and Advisory Fee being netted off by a rebate to the Fund or Sub-Fund of the annual management and advisory fee (or equivalent) charged to the underlying [JCITS or other UCIs; or d) charging only the difference between the Annual Management and Advisory Fee of the Fund or Sub-Fund as per Appendix I I and the Annual Management and Advisory Fee (or equivalent) charged to the underlying UCITS or other UCls.
3. Operating and Administrative Expenses
The Fund bears all its ordinary operating expenses ("Operating and Administrative Expenses") including but not limited to formation expenses such as organisation and registration costs; ongoing custody fees covering transaction and safekeeping charges payable to the Custodian ("Custody Fees"); tlduciary fees payable to the Custodian ("Fiduciary Fees"); accounting fees covering fund accounting and administration services payable to the Custodian ("Accounting Fees"); transfer agency fees covering registrar and transfer agency services and payable to the Registrar and Transfer Agent ('Transfer Agency Fees"); the Luxembourg asset-based / m e J'ubomicnzent. up to the maximutn rate referred to under "Taxation" below ("Taxe d'aboiinement"); attendance fees and reasonable out-of-pocket expenses incurred by the Fund's Directors; legal and auditing fees and expenses; ongoing registration and listing fees, including translation expenses; and the costs and expenses of preparing, printing, and distributing the Fund's Prospectus, financial reports and other docuinents made available to its Shareholders. Operating and Administrative Expenses do not include Transaction Fees and Extraordinary Expenses (as defined below).
Except where otherwise indicatcd in Appendix 11, Operating and Administrative Expenses borne by the C Share Classes of all Sub-Funds are set at a fixed rate specificd in Appendix I 1 and the Management Company bears the portion of such Operating and Administrative Expenses which exceed the rates specified. Conversely, the Management Company is entitled to retain any amount by which the tyxed ratc of Operating and Administration Expenses to be borne by the relevant Class; as set out in Appendix 11. exceeds the actual expenses incurred by such Class.
4. Transaction Fees
Each Sub-Fund bears the costs and expenses of buying and selling portfolio securities and financial instruments, brokerage fees and commissions, interest o r taxes payable, and other transaction-related expenses ("Transaction Fees").
Transaction Fees are accounted for on a cash basis and are paid when incurred or invoiced from the net assets of the Sub-Fund to which they are attributable. Transaction Fees are allocated across each Sub-Fund's Sliare Classes.
Page 29
5. Extraordinary Expenses
The Fund bears any extraordinary expenses including, without limitation, litigation expenses and the full amount of any tax, levy, duty or similar charge imposed on the Fund or its assets that would not be considered as ordinary expenses ("Extraordinary Expenses").
Extraordinary expenses are accounted for on a cash basis and are paid when incurred or invoiced from the net assets of the Sub-Funds to which they are attributable. Extraordinary Expenses are allocated across each Sub-Funds Share Classes.
6. Reporting of Fees and Expenses
The aggregate amount of all fees and expenses paid or payable by each Sub-Fund are reported in the unaudited semi-annual and audited annual financial reports of the Fund.
Taxation
The following summary is based on the law and practice currently in force in the Grand Duchy of Luxembourg. It is therefore subject to any future changes. Investors should, however, consult their professional advisers on the possible tax or other consequences of buying, holding, transferring or selling the Fund's Shares under the laws of their countries of citizenship, residence or domicile. The following is based on the Directors' understanding of the law and practice in force at the date of this document and applies to Investors acquiring Shares in the Fund as an investment.
1. The Fund
Under current law and practice, the Fund is not liable to any Luxembourg income tax, nor are dividends paid by the Fund liable to any Luxembourg withholding tax. However, the Fund is liable in I,uxembourg to a subscription tax ( " l m r ~ dbhonnement") of 0.05 % per annum of its net assets, such tax being payable quarterly and calculated on the total net asset value of the Fund at the end of the relevant quarter. This tax is not applicable for the portion of the assets of the Fund invested in other Luxembourg collective investment undertakings. No stamp duty or other tax is payable in Luxembourg on tlic issue of Shares in the Fund exccpt a tax, payable once only which \\as paid upon incorporation of the Fund. Up to 3 maximum of 0.05 %, the aforementioned subscription tax is included in the fees and expenses referred to under "Management and Fund Charges" above.
N o tax is payable in Luxembourg on rcalised or unrealised capital appreciation of the assets ofthe Fund. Although the I:iind's real ised capital gains, whether short- or long-term, are not expected to become taxable in another country, the Shareholders must be aware and recognise that such a possibility is not totally excluded. The regular income ofthc Fund from some of its securities as well as interest earned on cash deposits in certain coiintries may be liablc to withholding taxes at varying rates, which normally cannot be recovered.
2. Shareholders
Sharcholders are not normally subject to any capital gains, income: gift, estate, inheritance or other taxes in Luxembourg exccpt for Shareholders domiciled, resident or having a permanent establishment in Luxembourg, and except for certain former residents of Luxembourg and non-residents if owning more than 10% of the share capital of the Fund, disposing of it in whole or part within six months of acquisition. Also see "European Union Tax Considerations" section below.
Page 30
3. European Union Tax Considerations
The Council of the EU has. on 3 June 2003, adopted Council Directive 2003/48/EC on taxation of savings income in the form of interest payments (the "Directive"). Under the Directive, Member States of the EU will be required to provide the tax authorities of another EU Member State with information on payments of interest or other similar income paid by a paying agent (as defined by the Directive) within its jurisdiction to an individual resident in that other EU Member State. Austria, Belgium and Luxembourg have opted instead for a tax withholding system for a transitional period in relation to such payments. Switzerland, Monaco, Liechtenstein, Andorra and San Marino and the Channel Islands, the Isle of Man and the dependent or associated territories in the Caribbean, have also introduced measures equivalent to information reporting or, during the above transitional period, withholding tax.
The Directive has been implemented in Luxembourg by a law dated 21 June 2005 (the "EUSD Law").
Dividends distributed by a Sub-Fund of the Fund will be subject to the Directive and the EUSD Law if more than 15% of such Sub-Fund's assets are invested in debt claims (as defined in the EUSD Law) and proceeds realised by Shareholders on the redemption or sale of Shares in a Sub-Fund will be subject to the Directive and the EUSD Law if more than 40% of such Sub-Fund's assets are invested in debt claims (such Sub-Funds, hereafter "Affected Sub-Funds").
The applicable withholding tax will be at a rate of 15% from 1 July 2005 until 30 June 2008, 20% from 1 July 2008 until 30 June 201 I and 35% from 1 July 201 I onwards.
Consequently, if in relation to a n Affected Sub-Fund a Luxembourg paying agent makes a payment of dividends or redemption proceeds directly to a Shareholder who is an individual resident or deemed resident for tax purposes in another Ell Member State or ccrtain of the above mentioned dependent or associated territories, such payment will, subject to the next paragraph below, be subject to withholding tax at the rate indicated above.
No withholding tax will be withheld by the Luxembourg paying agent if the relevant individual either ( i ) has expressly authorised the paying agent to report information to the tax authorities in accordance with the provisions o f the EUSD Law or (ii) has provided thc paying agent with a certificate drawn up in the format required by the EUSD Law by the competent authorities of his State of residence for tax purposes.
The Fund reserves the right to reject any application for Shares if the information provided by any prospective investor does not meet thc standards required by the EUSD Law as a result of the Directive.
The foregoing i.s only a surnmmy of the irtiplicritions of tliu Directive rrnd the EUSD Law, is based on tlw current interpretation tliereoj'and does not purport to he complete in all respects. It does not constitute investment or tax ridvice rinil Investors should thcrejbre seek iiilvice from tlieir.Jiiiancicr1 or tax adviser on tke.frrl1 inzplicntionsjiir themselves of the Directive m d the EUSD Law.
I'a&e 3 I
Appendix I - Investment Restrictions and Powers
The Board shall, based upon the principle of spreading of risks, have power to determine the investment policy for the investments of each Sub-Fund.
i i )
iii)
iv)
The Fund may exclusively invest in:
Transferable securities and money market instruments admitted to ofticia1 listing on a Stock Exchange; and/or
Transferable securities and money market instruments dealt in on another Regulated Market; and/or
Recently issued transferable securities and money market instruments, provided that the terms of issue include an undertaking that application will be made for admission to official listing on a Regulated Market and such admission is secured within a year of the issue; andlor
IJnits of UCITS authorised according to Directive 85/61 I/EEC and/or other undertakings for collective investment (YJCT") within the meaning of the thst and second indent of Article I , paragraph (2) of Directive 85/61 I/EEC, whether situated in an EIJ Member State or not, provided that:
- such othcr UCls have been authorised under the laws of any member country of the European Union or under the laws of Canada, I-Iong Koiig, Japan, Norway, Switzerland or thc United Slates of America,
- the level of protection for unitholders in such other UCls is equivalent to that provided for unitholders i n a UCITS, and in particular that the rules on assets segregation, borrowing, lending, and uncovered sales of transferable securities and motley market instruments are equivalcnt to the recpirements of the amended EC Directive 85/6 I 1 ~
- the business of such other UCIs is reported i n half-yearly and annual reports to enable an assessment of the assets and liabilities, incorne and operations over the reporting period:
- no more than 10% of the assets o f the UCITS or of the other UCIs, whose acquisition is contemplated, can, according to their constitiitional documents, i n aggregate be invested in units of other UCITS or other UCIs; and/or
v)
vi)
vii)
Deposits with credit institutions which are repayable on demand or have the right to be withdrawn, and maturing in no more that 12 months, provided that the credit institution has its registered office in a country which is an OECD Member State and a FATF State; and/or
financial derivative instruments, including equivalcnt cash-settled instruments, dealt in on a Regulated Market referred to in sub-paragraphs i) and ii) above, and/or tinancial derivative instruments dealt in over-the-counter ("OTC derivatives"), provided that:
- the underlying consists of instruments covered by this section 1) a), financial indices, interest rates, foreign exchange rates or currencies, in which the Sub-Funds may invest according to their investment ob-jective;
- the counterparties to OTC derivative transactions are institutions subject to prudential supervision, and belonging to the categories approved by the Luxembourg supervisory authority;
- the OTC derivatives are subject to reliable and verifiable valuation on a daily basis and can be sold, liquidated or closed by an offsetting transaction at any time at their fair value at the Board's initiative.
and/or
Money market instruments other than thosc dealt in on a Regulated Market, if the issue or the issuer of such instruments are thcmsclves regulated for the piirpose of protecting investors and savings, and providcd that such instruments are:
a. issued or guarantecd by a central, regional or local authority or by a central bank of an EU Member State, the European Central Bank, the EU or the European Invcstment Bank, a non-EU Member State or: in case of a Federal State, by one of the inernbcrs making up the federation, or by a public international body to which one or niorc EU Member States belong; or
b. issued by an undertaking, any securities of which are dealt in on Regulated Markets referred to in I ) a) i) and ii) above; or
c. issued or guaranteed by a credit institution which has its registered office in a country which is an OECD Member State and a FA'I'F Slate; or
d. issued by othcr bodies belonging to the categories approved by the CSSF provided that investments in such instrurnents are subject to investor protection eauivalent to that laid down in a. b. or c. above and provided
that the issuer is a company whose capital and reserves amount to at least ten million Euro (EUR 10,000,000) and which presents and publishes its annual accounts in accordance with the fourth Directive 78/660/EEC, is an entity which, within a group of companies, is dedicated to the financing of the group or is an entity which is dedicated to the financing of securitisation vehicles which benefit from a banking liquidity line.
In addition, the Fund may invest a maximum of 10% of the assets of any Sub- Fund in transferable securities and money market instruments other than those referred to under a) above.
The Fund may hold ancillary liquid assets.
The Fund will ensure that the global exposure relating to derivative instruments does not exceed the total net value of the Sub-Fund to which they apply.
The exposure is calculated taking into account the current value of the underlying assets, the counterparty risk, foreseeable market movements and the time available to liquidate the positions. This shall also apply to the following subparagraphs.
The Fund may invest, as a part of investment policy of its Sub-Funds and within the limits laid down in paragraph 3) a), v) and vi) in financial derivative instruments provided that the exposure to the underlying assets does not exceed in aggregate the investment limit laid in paragraph 3 ) . When the Fund on the behalf or any of its Sub-Funds invests in index-based financial derivative instruments, these investments do not have to be combined to the limits laid down in paragraph 3 1.
When a transferable security or money market instrument embeds a derivative, the latter must be taken into account when complying with the requirements of this item 2.
3 ) a) i) The Fund will invest no more than 10% of the assets of any Sub-Fund in transferable securities or money market instruments issucd by the same issuing body.
The Fund may not invcst more than 20% of the total assets of such Sub-Fund in deposits made with the same body.
The risk exposure to a counterparty of a Sub-Fund in an OTC derivative transaction may not exceed 10% of its assets when the counterparty is a credit institution referred to in 1 ) a) v) above or 5% of its assets in other cases.
I’ape 34
ii) The total value of the transferable securities and money market instruments held by the Fund on behalf of the Sub-Fund in the issuing bodies in each of which it invests more than 5% of the assets of such Sub-Fund must not exceed 40% of the value of the assets of such Sub-Fund.
This limitation does not apply to deposits and OTC derivative transactions made with financial institutions subject to prudential supervision.
Notwithstanding the individual limits laid down in paragraph 3) a) i): the Fund may not combine for cach Sub-Fund:
- investments in transferable securities or money market instruments issued by, andlor
- deposits made with, and/or
- exposures arising from OTC derivative transactions undertaken with a single body,
in excess of 20% of its assets.
iii) The limit of 10% laid down in sub-paragraph 3 ) a) i) above will be increased to a maximum of 35% in respect of transferable securities or money market instruments which are issued or guarantecd by an EU Member State, its local authorities or agencies, or by another Eligible State or by public international bodies of which one or more EU Member States are mcmbers.
iv) The limit laid down in the first paragraph of 3 ) a) i ) may be of a maximum of 25% for certain debt instruments when they are issued by a credit institution which has its registered office in the EU and is subject by law, to special public supervision designed to protect unitholders. I n particular, sums deriving from thc issue of these debt instruments must be invested in accordance with the law, in assets which, during the whole period of validity of the debt instruments, are capable of covering claims attached to said instrumcnts and which, in case of bankruptcy of the issuer; would be used on a priority basis for the repayment of the principal and payment of accrued interest.
If a Sub-Fund invests more than 5% of its assets in the debt instruments referred to in the above paragraph and issued by one issuer: the total value of such invcstments may not cxceed 80% ofthe valuc of the assets of the Sub-Fund.
v) The transferable securities and money market instruments referred to paragraphs iii) and iv) above shall not be included in the calculation of the limit of 40% stated in paragraph 3 ) a) ii) above.
vi) The limits set out in sub-paragraphs i), ii) iii) and iv) may not be aggregated and, accordingly, investments in transferable securities or money market instruments issued by the same issuing body, in deposits or derivative instruments made with this body carried out in accordance with sub-paragraphs i), ii) iii) and iv) above may not, in any event, exceed a total of 35% of any Sub-Fund's assets;
Companies which are part of the same group for the purposes of the establishment of consolidated accounts, as defined in accordance with directive 83/349/EEC or in accordance with recognised international accounting rules, are regarded as a single body for the purpose of calculating the limits contained in section 3) a).
A Sub-Fund may cumulatively invest up to 20% of the assets in transferable securities and money market instruments within the same group.
b) i) Without prejudice to the limits laid down in section 4 below, the limits laid down in section 3 a) above are raised to a maximum of 20% for investments in shares and /or debt securities issued by the same body when, according to the prospectus, the aim of the Sub-Funds' investment policy is to replicate the composition of a certain stock or debt securities index which is recognised by the CSSF, on the following basis:
- -
the composition of the index is suftlciently diversified, the index represents an adequate benchmark for the market to which it refers, it is published in an appropriate manncr. -
ii) The limit laid down in 3 ) b) i ) above is raiscd to 35% where that proves to be justified by exceptional market conditions i n particular in regulated markets where certain transferable securities or money market instruments are highly dominant. The investment up to this limit i s only permitted for a single issuer.
iii) Notwithstanding the provisions outlined in section 3 a), the Fund is authorised to invest up to 100% of the assets of any Sub-Fund, in accordance with the principle of risk spreading, in transferable securities and money market instruments issued or guaranteed by an EU Member State, by its local authorities or agencies, or by another member state of the OECD or by public international bodies of which one or more EO Member States are members, provided that such Sub-Fund must hold securities from at least six diffcrent issues and securities from one issue do not account for more than 30% of the total assets of such Sub-Fund.
The Fund may not acquire:
i) Shares carrying voting rights which should enable it to exercise significant
Page 36
influence over the management of an issuing body; or
ii) More than:
a. b. c. d.
10% of the non-voting shares of the same issuer; and/or 10% of the debt securities of the satne issuer; and/or 25% of the units of the same UCITS and/or other UCI; and/or 10% of the money market instruments of the same issuer;
The limits under 4) a) ii) b. c. and d. may be disregarded at the time of acquisition, if at that time the gross amount of the debt securities, or of money market instruments or units or the net amount of the instruments in issue cannot be calculated.
Paragraphs 4 a) i ) and 4 a) iij above are waived as regards:
i j transferable securities and money market instruments issued or guaranteed by an EU Member State or its local authorities;
iij transferable securities and money market instruments issued or guaranteed by a non-member state of the EU;
iii) trarisferable securities and money market instruments issued by public international bodies of which one or more EU Member States are members;
ivj Shares held by a Sub-Fund in the capital of a company incorporated in a non- member state of the EU which invests its assets mainly in the securities of issuing bodics having their registered office in that State. where under the legislation of that state: such a holding represents the only way in which the Sub-Fund can invest in the issuing bodies of that State. This derogation, however, shall apply only if in its investment policy thc company from the non-Member State of the EU complies with tlie limits laid down in 3 ) a), 4) a) i) and ii), and 5).
v j Shares held by one or more investment companies in the capital of subsidiary companies which, exclusively on its or their behalf carry on only the business of management: advice or marketing i n the country where the subsidiary is located, in regard to the redemption of Shares at the request of Shareholders.
No more than 20% of a Fund's assets may be invested in the units of a singlc UClTS or other UCI. For the purpose of the application of this investment limit, each compartment of a UCITS or other IJCI with multiple compartments is to be considered as a separate issuer provided that tlie principle of segregation of the obligations of the various compartments vis-&vis third parties is ensured.
Page 37
Investments made in units of UCIs other than IJCITS may not in aggregate exceed 30% of the assets of a Sub-Fund
When the Fund invcsts in the units of other UClTS and/or other UCls linked to the Fund by common management or control, or by a substantial direct or indirect holding, or managed by a management company linked to the Management Company, no subscription or redemption fees may be charged to the Fund on account of its investment in the units of such other UCITS and/or UCIs.
In respect of a Sub-Fund's investments in IJCITS and other UCIs linked to the Fund as described in the preceding paragraph, double-charging of fees will not occur. The Fund will indicate in its annual report the total management fee charged both to the relevant Sub-Fund and to the lJCTTS and other UCIs in which such Sub-Fund has invested during the relevant period.
The underlying investments held by the UCITS or other UCIs in which the Fund invests do not have to be considered for the purpose of the investment restrictions set forth under 3 ) a) above.
In addition the Fund will not:
Make investments in - or entcr into transactions involving - precious metals, commodities, commodities contracts: or certificates representing these;
purchase o r sell rcal estate or any option, right or interest therein, provided the F ~ i d may invest in transferable securities secured by real estate or interests therein or issued by companies which invest in real estate or interests therein;
carry out uncovcred sales of transferable securities or other tinancial instruments? money market instruments or lJClTS and/or other UCls referred to above;
Make loans to - or act as guarantor on behalf of - third parties, provided that for the purpose of this restriction:
i ) the acquisition of eligible investments in fully or partly paid form and
ii) the permitted lending of portfolio securities and
iii) this restriction shall not prevent the Fund from acquiring transferable securities, money market instruments or other financial instruments referred to in paragraph 1) a) iv), vi) and vii). which are not fully paid.
borrow for the account of any Sub-Fund amounts in excess of 10% of the total assets of that Sub-Fund taken at market value, any siich borrowings to be from
Page 38
7)
9
banks and to be effected only as a temporary measure for exceptional purposes including the redemption of Shares. However, the Fund may acquire foreign currency by means of a back-to-back loan;
mortgage, pledge, hypothecate or otherwise encumber as security for indebtedness any securities held for the account of any Sub-Fund, except as may be necessary in connection with the borrowings mentioned above, and then such mortgaging, pledging, or hypothecating may not exceed 10% of the asset value of each Sub- Fund. In connection with OTC transactions including amongst others, swap transactions, option and forward exchange or futures transactions, the deposit of securities or other assets in a separate account shall not be considered a mortgage, pledge or hypothecation for this purpose;
underwrite or sub-underwrite sccurities of other issuers;
Make investments in any transferable securities involving the assumption of unlimited liability.
To the extent that an issuer is a legal entity with multiple compartments where the assets of a compartment are exclusively reserved to the investors in such compartment and to those creditors whose claim has arisen in connection with the creation, operation or liquidation of that compartment, each compartment is to be considered to be a separate issuer for the purpose of the application of the risk- spreading rules set out in 3) a); 3 ) b) i ) and ii); and 5) above.
8) During the tirst six months following its launch, a new Sub-Fund may derogate from restrictions 3) and 5 ) while ensiiring observance of the principle of risk- spreading.
9) Each Sub-Fund must ensure an adequate spread of investment risks by sufficient diversification.
10) The Fund will in addition coinply with such further restrictions as may be required by the regulatory authorities in which the Shares are marketed.
11) The Fund need not comply with the invcstment limit percentages when exercising subscription rights attached to sccurities which form part of its assets.
If the perccntage limitations set forth in thc above restrictions are cxceeded for reasons beyond the control of the Fund or as a result of thc excrcise of subscription rights. it must adopt as a priority objective for its sales transactions the remcdying of that situation, taking due account of the interests of its Shareholders.
Financial Techniques and Instruments
The use of derivatives or other financial techniques and instruments may not cause the Fund to stray from the investment objectives set out in Appendix I I - Sub-Fund Details.
Such investment strategies include transactions in financial fiturcs contracts and options thereon. The Sub-Funds may also engage in transactions in options and warrants on portfolio securities, on bond and stock indices and on portfolios of indices. The Sub-Funds may seek to hedge their investments against currency fluctuations which are adverse to the respective currencies in which these Sub-Funds are denominated by utilising currency options, futures contracts and forward foreign exchange contracts. In this regard, the currency exposure of a Sub-Fund may be managed with reference to the market benchmark used for the investments of such Sub-Fund. In that case, the benchmark will be disclosed in Appendix 11. The currency exposure resulting from such benchmark may or may not be hedged against the reference currency of the Sub-Fund. Within the limits set out herein, each Sub-Fund may also use forward foreign exchange contracts, currency options or currency swaps to alter the currency composition of the Sub-Fund’s portfolio with reference to such benchmarks.
The Sub-Funds may sell interest rate futures contracts, write call options or purchase put options on interest rates or enter into swap agreements for the purpose of hedging against interest rate tluctuations. Each of the Sub-Funds may also enter into repurchase and reverse repurchase agreements. The Sub- Funds may also invest in credit-linked securities qualifying as transferable securities.
If any Sub-Fund intends to make use of these techniques on a regular and ongoing, rather than occasional basis, this will be described accordingly in Appendix 11.
When using the techniques and instruments described in the preceding paragraphs, the Sub-Funds must comply with the limits and restrictions specified in this Appendix. Unless otherwise specified in Appendix I1 for any Sub-Fund, each Sub-Fund may, only for the purpose of efficient portfolio management and to hedge against market risks, engage in various investment strategies:
a) With respect to options on securities:
i) the Fund may not invest in put or call options on securities unless:
- siich options are quoted on a stock excliangc or traded on a regulated niarkct; and
- the acquisition price of such options does not exceed: in terms of premium, 15 YO of the total net assets ofthe relevant Sub-Fund;
ii) the Fund may write call options on securitics that it does not own. IIowever, the aggregate of the exercise prices of such call options must not exceed 25 9’0 of the net asset value of the relcvant Sub-Fund;
iii) the Fund may write put options on securities. However, the relevant Sub-Fund tnust hold suficient liquid assets to cover the aggregate ofthc cxercise prices of such options written.
b) ‘I’he Fund may enter into fonvard currency contracts or write call options or purchase put options on currencies provided however that the transactions made in one currency in respect of one Sub-Fund may in principle not exceed the valuation of the aggregate assets of such Sub- I~und denominated in that currency (or currencies which are likely to fluctuate in the same manner) nor exceed the pcriod during which such assets are held.
By derogation to the above, Sub-Funds may be managed by refercnce to a benchmark to hedge
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currency risk. These bcnchmarks are appropriate, recognised indices or Combinations thereof and disclosed in the Appendix. The neutral risk position of any Sub-Fund will be the composition of the index in both its investment and currency component weightings. The Investment Managers may take currency positions towards this index by purchasing (or selling) currencies for forward settlement by the sale (or purchase) of other currencies held in the portfolio. The Investment Managers may however give to the Sub-Fund a currency exposure that differs from that applicable index provided that, when using forward currency contracts, purchases of currencies that are not a reference currency of the relevant Sub-Fund will be permitted to increase the exposure up to a maximum of 15% above the benchmark weight of a given currency and in total such purchase transactions providing a currency exposure which is greater than the benchmark weighting (except purchases in the reference currency of the Sub- Fund) will not be in excess of the value of 20% of the assets of the relevant Sub-Fund.
In addition: the Fund may engage in the following currency hedging techniques:
(i) hedging by proxy, i.e. a technique whereby a Sub-Fund effects a hedge of the reference currency of the Sub-Fund (or benchmark or currency exposure of the assets o f the Sub- Fund) against exposure in one currency by instead selling (or purchasing) another currency closely related to it, provided however that these currencies are indeed likely to fluctuate in the same manner.
(ii) cross-hedging, i.e. a technique whereby a Sub-Fund sells a currency to which it is exposed and purchases more of another currency to which the Sub-Fund may also be exposed, the level of the base currency being left unchanged, provided however that all such currencies are currencies of the countries which are at that time within the Sub-Fund's benchmark or investment policy and the technique is uscd as an efficient method to gain the desired currency and asset exposures.
(iii) anticipatory hcdging, i.e. a techiiique whereby the decision to take a position on a given currency and the decision to have some securities held in a Sub-Fund's portfolio denominated in that currency are separate, provided however that the currency which is bought in anticipation of a later purchase of underlying portfolio securities is a currency associated with those countries which are within the Sub-Fund's benchmark or investment policy.
A Sub-l-'und may not scll forward more currency exposure than there is in underlying assets exposure on either an individual currency (unless hedging by proxy) or a total currency basis.
In casc the publicatioii of the benchmark indcx has been stopped or whcre major changes in that benchmark have occurred or if for some reason the Directors feel that another benchmark is appropriate, anothcr benchmark may be chosen. Any such change of benchmark will be reflected in an updated Prospectus.
The Fund may only enter into forward currency contracts if they constitute private agreements with highly rated financial institutions specialiscd in this type of transaction and may only write call options and purchase put options on currencies if they are traded on a regulated market operating regularly: being recognised and open to thc public.
c) The Fund may not deal in financial futures, except that:
i) for the purpose of hedging the risk of the fluctuation of the value of the portfolio securities of its Sub-Funds, the Fund may sell stock index futures provided that there exists sufiicient correlation between the composition of the index used and the corresponding portfolio of the relevant Sub-Fund;
ii) for the purpose of efficient portfolio management, the Fund may, in respect of each Sub- Fund, purchase and sell futures contracts on any kind of financial instruments provided that the aggregate commitments in connection with such purchase and sale transactions together with the amount of the commitments relating to the writing of call and put options on transferable securities (referred to under a) ii) and iii) above and d) below) does not exceed at any time the value ofthe net assets ofthe Sub-Fund;
d) The Fund may not deal in index options except that:
i) for the purpose of hedging the risk of the fluctuation of the value of the portfolio securities of its Sub-Funds, the Fund may sell call options on indices or purchase put options on indices provided there exists a sufficient correlation between the composition of the index used and the corresponding portfolio of the relevant Sub-Fund. The value of the underlying securities included in the relevant index option shall not exceed, together with outstanding commitments in financial futures contracts entered into for the same purpose, the aggregate value of the portion of the securities portfolio to be hedged; and
ii) for the purpose of efficient portfolio management the Fund may, in respect of each Sub- Fund, purchase and sell options on any kind of financial instruments provided that the aggregate commitments in connection with such purchase and sale transactions together with the amount of the commitments relating to the writing of call and put options on transferable securities (rcfcrred to under a) ii) and iii) above) and the purchase and sale of fiitures contracts or tinancial instruments (referred to under c) ii) above) does not exceed at any time the value of the net assets of the Sub-Fund;
provided however that the aggregate acquisition cost (in terms of premiums paid) of options on securities, index options, interest rate options and options on any kind of financial instruments purchased by the Fund in respect of a particular Sub-Fund shall not exceed I5 % oftlie total net assets of the relevant Sub-Fund;
provided that the Fund may only cnter into the transactions referred to in paragraphs c) and d) above. if these transactions concern contracts which arc traded on a regulated market operating regularly, being recognised and open to the public.
e) i) The Fund may sell interest rate futures contracts for the purpose of managing interest rate risk. It may also for the same purpose write call options or purchase put options on interest rates or enter into interest rate swaps by private agreement with highly rated financial institutions specialised in this type of operation. In principle, the aggregate of the commitments of each Sub-Fund relating to fiitures contracts, options and swap transactions on interest rates may not exceed the aggregate estimated market value of the assets to be hedged and held by the Sub-Fund in the currency corresponding to those contracts.
(ii) The Fund may use bond and interest rate options, bond and interest rate futures and index futures contracts for the purposes of efficient portfolio management and may enter into currency, interest rate and index swaps provided that the aggregate underlying commitments of such contracts does not exceed the aggregatc value of the assets held by
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any Sub-Fund.
The Fund may enter into swap contracts in which the Fund and the counterparty agree to exchange payments where one or both parties pay the returns generated by a security, instrument, basket or index thereof. The payments made by the Fund to the counterparty and vice versa are calculated by reference to a specific security, index, or instruments and an agreed upon notional amount. Any such underlying security or instrument must be a transferable security and any such index must be an index of a regulated market. The value of the underlying securities shall be taken into account for the calculation of the investment restrictions applicable to individual issuers. The relevant indices include, but are not limited to, currencies, interest rates, prices and total return on interest rates indices, tixed income indices and stock indices.
The Fund may enter into swap contracts relating to any financial instruments or index, including total return swaps, provided that the total commitment arising from such transactions together with the total commitment in connection with the purchase and sale transactions of futures contracts aiid options on any kind of financial instruments and with the amount of commitments relating to the writing of call and put options on transferable securities does not exceed at any time the value of the net assets of the relevant Sub-Fund. The writing of call options on transfcrable securities for which the Fund has adequate coverage are not considered for the calculation of the aggregate amount of the commitments referred to above. All such permitted transactions must be effected through highly rated financial institutions spccialised in this type of transaction.
(iii) The Fund may use credit default swaps. A credit default swap is a bilateral financial contract in which one counterpart (the protection buyer) pays a periodic fee in return for a contingent payment by the protcctioii seller following a credit event of a reference issuer. The protection buyer must either sell particular obligations issued by the reference issuer for its par value (or soine other designated rcfcrence or strike price) when a credit event occurs or receive a cash settlement based on the difference between the market price and such reference price. A credit event i s commonly defined as bankruptcy, insolvency. receivership, material adverse restructuring of debt, or failure to meet payment obligations whcn due. The ISDA havc produced standardised documentation for these transactions under the umbrella of its ISDA Master Agreement.
The Fund may use credit default swaps in order to hedge the specific credit risk of some of the issuers in its portfolio by buying protection.
In addition, the Fund may. provided it is in its exclusive interest, buy protection under credit default swaps without holding the underlying assets provided that the aggregate preiniuins paid togethcr with the present value of the aggregate premiums still payable in connection with crcdit default swap purchased together with the amount of the aggregate of premiums paid relating to the purchase of options on transferable securities or on tlnancial instniments for a purpose other than hedging, may not, at any time: exceed 15% of the net assets of the relevant Sub-Fund.
Provided it is in its exclusivc interest: the Fund may also sell protection under credit default swaps in order to acquire a specific credit cxposure. In addition, the aggregate coininitinents in connection with such credit default swap sold together with the amount of the coininitments relating to the purchase aiid sale of futures and option contracts on any
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kind of financial instruments and the commitments relating to the sale of call and put options on transferable securities may not, at any time, exceed the value of the net assets of the relevant Sub-Fund.
The Fund will only enter into credit default swap transactions with highly rated financial institutions specialised in this type of transaction and only in accordance with the standard terms laid down by the ISDA. Also; the Fund will only accept obligations upon a credit event that are within the investment policy of the relevant Sub-Fund.
The Fund will ensure it can dispose of the necessary assets at any time in order to pay redemption proceeds resulting from redemption requests and to meet its obligations resulting from credit default swaps and other techniques and instruments.
The aggregate commitments of all credit default swap and total return swap transactions will not exceed 20% of the net assets of any Sub-Fund provided that all swaps will be fully funded.
f) The Fund, in order to generate additional revenue for Shareholders, may engage in securities lending transactions only subject to the following conditions and restrictions:
i)
i i)
iii)
iv)
the Fund may only participate in securities lending transactions within a standardised lending system organised by a recognised securities clearing institution or by a highly rated financial institution specialised in that typc of transaction:
the Fund must receive collatcral in cash and/or in the form of securities issued or guaranteed by Member States of the OECD or by their local authorities or by supranational institutions and organisations with EU, regional or worldwide scope which is blocked in favour of the Fund until termination of the lending contract and the value of which must be at least equal to the value of the global valuation of the securities lent;
lending transactions may not be carried out on more than 50 % of the aggregate market value of the securities in the portfolio of each Sub-Fund provided however that this limitation i s not applicable where the Fund has the right to terminate the contract at any time and obtain restitution of the securitics lent: and
lending transactions may not extend beyond a period of 30 days;
The Management Company and the securities lending administrator will participate in the revenue generated for tlie Fund for their organisation and administering ofthcsc transactions.
g) The Fund may enter, either as purchaser or seller. into repurchase agreements with highly rated tinancial institutions specialized in this type of transaction. During the lifetime of the repurchase agreements, the Fund may not sell the securities which are tlie object of the agreement (i) either before the repurchase of the securities by the counterparty has been carried out or (ii) the repurchase period has expired. The Fund inust ensure it restricts the value of purchased securities subject to repurchase obligation at such a level that it is able, at all times: to meet its obligations to redeem its own Shares. Repurchasc agreements will only be entered into on an ancillary basis unless otherwise provided for a Sub-Fund in the Appendix.
h) With respect to options referred to under a), b): d) and e) above, the Fund may enter into OTC option transactions with first class financial institutions participating in these types of transactions if such transactions are more advantageous to the Fund or if quoted options having
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the required features are not available.
Use of the aforesaid techniques and instruments involves certain risks and there can be no assurance that the objective sought to be obtained from such use will be achieved.
Appendix I1 - Sub-Fund Details
The information contained in this Appendix should be read in conjunction with the full text of the Prospectus of which this forms an integral part.
JPMorgan Private Bank Funds I - Genesis Fund
1. Reference Currency
EUR
2. Classes of Shares
The Sub-Fund contains C Class Shares only.
3. Tnves tm en t Policy
The investment objective of the Sub-Fund is to achieve a total rate of return in excess of the global equity markets from a portfolio of equity securities.
The Sub-Fund invests in a concentrated portfolio of equity securities, normally with a majority of Spanish large cap issuers which are dealt in on a regulated market. The Sub-Fund will also have exposure to global equities and, on an ancillary basis, global tixed income securities.
The Sub-Fund may seek exposure to the issuers aforementioncd through direct investments in such issuers, through UCITS and lJCIs (including UCIs managed by JPMorgan Chase & Co) investing primarily in such issuers and through financial derivative instruments where the underlying consist of the aforesaid issuers or of appropriate financial indexes. No lcvcrage w~il l be undertaken and. hence, the exposure through financial derivative instruments: together with the direct invcstincnt in the issuers and investments in UCITS and UCls, will not exceed the net assets ofthe Sub-Fund.
In the context of its investment policy described abovc, the Sub-Fund will invest mainly in securities denominated in Euro and USD. The Investinent Manager may hedge a proportion of the non-reference currency exposure. The Investment Manager will manage the currency allocation of the Sub-Fund subject to the restrictions contained in Appendix I - "Invest~ment Rcstrictions and Powers".
Since the portfolio is concentrated and comprised normally of a majority of Spanish securities it may be subject to greater volatility than a portfolio diversified over a higher number of issuers of different countries. Investors should thus carefully read the information contained in the main part of the Prospectus, under "Appendix I11 - Risk Factors".
The Sub-Fund may invest in securities of issuers of emerging countries and investors should be aware that such investments are more speculative and subject to greater risk than those in securities of issuers of developed countries. Investors should thus carefully read the information contained in the main part of the Prospectus, under "Appendix TIT -Risk Factors".
Further information relevant to the Sub-Fund's investment policy is contained in the main part of the Prospectus under "Investment Policies" and "Investment Restrictions and Powers".
4. Investor Profile
This is an equity Sub-Fund investing in a portfolio of Spanish stocks and, to a lesser degree in global equity, chosen mainly for their growth and value characteristics. Investors in this Sub-Fund should have at least a three-to-five year time horizon.
5. Risk Profile
As the Sub-Fund invests in equities, Investors are exposed to stock market fluctuations and the financial performance of the companies held in the Sub-Fund's portfolio. The Sub-Fund is denominated in EUR, but will have exposure to non-EUR currencies. Investors may see the value of their investment fall as well as rise on a daily basis, and they may get back less than they originally invested.
6 . Investment Manager
J .P. Morgan International Bank Limited, 125 London Wall, London EC2Y 5AJ. United Kingdom
7. Fees and Expenses
Share Class Initial Annual Management 1 Charge 1 and Advisory Fee
I Genesis C (acc) - EUR I 5% I 0.40%
Operating and Administrative Expenses see below
Redemption Charge
1 .OO%
In derogation to the section 'Management and Fund Charges - 3. Operating and Administrative Expenses' in the main body of the prospectus, the Operating and Administrative Expenses relating to Class C of this Sub-Fundwill be applied to the entire net assets at a rate determined by the scalc set out below, and will exclude custody fees covering transaction charges payable to the Custodian ("Custody Transaction Fees") and the Luxembourg asset-based taw d'ahorznement, up to the maximum ratc referred to under "Taxation" above ("l'axe d'abonnement"). Custody Transaction Fees and Taxe d'abonnement will be accrued daily within the Share Class and remain payable by the Share Class.
0.30% where the net assets are EUR 35,000,000 or less 0.15% where the net assets are EUR 35,OOO:OOO to 49,999,999 0.12% where the net assets are from EUR 50,000,000 to 64, 909,999 0.10% where the net assets are from ElJR 65,000,000 to 79, 999,999 0.09% where the net assets are from EUR 80,000,000 to 94, 999,999 0.08% where the iict assets are greater than EUR 94,999,999
8. Initial Offering Period
Sharcs in the Sub-Fund will be initially offered on 28 February 2006 at an initial price of EUR 100.
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Appendix I11 - Risk Factors
The list of risk factors set out below does not purport to he a complete explanation of the risks involved in investing in Shares of the Fund. Before making any decision to subscribe for or buy Shares, prospective investors should carefully read the entire Prospectus, including any additional risk factors listed in the relevant section of Appendix 11, and consult with their professional advisers regarding the tax and other consequences of an investment in the Shares in light of their personal circumstances.
An investment in the Shares involves a high degree of risk: including the risk of loss of the entire amount invested, as a result of both (i) the types of investments to be made by the Sub-Funds and (ii) the structure and operations of the Sub-Funds. There can be no assurance that any of the Fund's Sub- Funds will achieve their respective investment objective or that there will be any return of capital to shareholders. Before investing in the Shares, prospective investors should carefully consider the inherent risks, including the following:
1. Risks related to the Fund
1.1 Conflicts of lntcrest
The investment activities of the Fund and the Investment Manager and their respective affiliates including affiliated Sub-Fund Investment Managers will present certain contlicts of interest. See "Gencral Information - Conflicts of Interest" in the Prospectus.
1.2 Limited Liquidity and Restrictions on Redemptions and Transfers of Shares
To date, there is no market for tlie Shares and no secondary market is expected to develop to provide shareholders with liquidity of investment except through redemption. The I h i d does not intend to apply for the listing of certain Classes of Shares on a stock exchange. Shares of the Fund may only be redeemed pursuant to tlie terms and conditions provided under "The Shares - Redemption of Shares" and any such redemptions will bc limited to Valuation Days as specified above. The shareholders' ability to redeem their Shares may also be limited by the Fund's decision to suspend the valuation of its Shares, or to carry forward large redemptions requests, In addition, the transfer or disposition of Shares is subject to the Fund's approval and Shares can only be transferred to certain transferees as described herein above as set out in the section entitled "The Shares" in the Prospectus. Such restrictions on the transferability of Sliarcs may further limit their liquidity.
1.3 Effects of Kedcmptions
1,argc redemptions of Shares within a limited period of time could require the Fund to liquidatc positions morc rapidly than would otherwise be desirable, adversely affecting the value of both the Shares being redeemed and the outstanding Shares. In addition, regardless of the period of time over which redemptions occur. thc resulting reduction in a Sub-Fund's net asset value could make it inore diftkult for the Investment Manager or applicable Sub-Fund Investment Manager to generate profits or recover losses. Redemption proceeds paid by the Fund to a redeeming shareholder may be less than the net asset value of such Shares at the time a redcmption request is made duc to fluctuations in the net asset value between the date of the request and the applicable Valuation Day.
1.4 Dependence on the Investment Manager
All allocation or investment decisions with respect to the Fund’s assets will be made by the Investment Manager and shareholders will not have the ability to take part in the day-to-day management or investment operations of the Fund. As a result, the success of the Fund will depend largely upon the abilities of the Investment Manager and their respective personnel, and there can be no assurance that the Investment Manager or their personnel will remain willing or able to provide advice to and trade on behalf of the Fund o r that their trading will be profitable in the future. If the Fund were to lose the services of the Investment Manager, the Fund and/or the relevant Sub-Fund might have to be liquidated.
1.5 Effect of Performance Fees
The Investment Manager, or Sub-Fund Investment Manager where applicable, will receive a performance fee from the Fund based on a percentage of any net realised and unrealised profits (see section Management and Fee charges). Performance fees may create an incentive for the Investment Manager to make investments that are riskier or more speculative than would be the case in the absence of such incentive compensation arrangements. The performance fees payable to the Investment Manager will be based on the cumulative appreciation in the net asset value of a Share Class or Series as a whole (before deduction of any performance fees), including any income attributable to the cash assets of such Class. In addition, the Investment Manager’s performance fees will be based on unrealised as well as realised gains. There can be no assurance that such unrealised gains will, in fact, ever be realised.
1.6 Institutional Risk
All assets of the Fund will bc held under the custody or supervision of the Custodian. The Custodian is authorised to use correspondent banks and nominees, which may include affiliates of the Investment Manager. ‘rhe institutions, including brokerage firms and banks, with which the Fund (directly or indirectly) does business, or to which portfolio sccurities have been entrusted for custodial purposes, may encountcr financial diftkulties that impair the operational capabilities or the capital position of the Fund. The Fund intends to limit its securities transactions to well-capitalised and establishcd banks and hrokcrage firms in an effort to mitigate such risks.
1.7 Lcgal Restrictions on Portfolio Investments
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The Fund is subject to regulations in Luxembourg and its direct and indirect portfolio investments may be subject to regulations (including tax and exchange control regulations) in other countries. The Fund may also be subject to regulations in countries where its Shares may be registered for distribution. The Investment Manager is subject to regulation by, and is registered with, the United States Securities and Exchange Commission as an investment adviser, and the United States Commodity Futures Trading Commission as a commodity trading advisor. In addition, as affiliates of a U.S. bank holding company: the Fund and its Investment Manager are subject to certain United States federal banking laws and regulations. In view of the legal requirements applicable to the Fund and the Investment Manager, the Fund and each of its Sub-Funds (and their Subsidiaries, if any) may at times need to limit, for other than investment reasons, the amount of assets invested in a particular financial instrument or issuer. Such actions may affect the performance of the Fund’s Sub-Funds. In addition, possible changes to the laws and regulations governing permissible activities of the Fund, the Investment Manager and their affiliates could restrict or prevent the Fund or the Investment Manager from continuing to pursue the Sub-Fund’s investment objectives or operate in the manner currently contemplated.
1.8 Possible Adverse Tax Consequences
No assurance may be given that the manner in which the Fund or any of its Sub-Funds will be managed and operated, or that the composition of its direct and indirect portfolio investments, will not result in possible adverse tax consequences for any particular shareholder or group of shareholders. The Fund does not intend to provide its shareholders with information regarding the percentage ownership of its Shares held by residents of any country. The Fund’s books and records could be audited by the tax authorities of countries where the Fund will be managed and operated, or where a portion of its direct and indirect portfolio investments are made, or where a particular shareholder or group of shareholders residc. Any such audits could subject the Fund to tax, interest and penalties, as well as incremental accounting and lcgal expenses. Should the Fund be required to incur additional taxes or expcnses as a result of tlie capital contributions made by any shareholder, or become subject to any record-keeping o r reporting obligations as a result of permitting any person to remain or be admitted as a shareholder of the Fund, the Fund will, if the amounts so justify, attempt to seek reimbursement of the costs of such taxes, expenses or obligations from such person.
1.9 Reserve for Liabilities
Under certain circumstances, the Fund may t?nd it nccessary, upon redemption by a shareholder, to set up a reservc for contingent or filture liabilities or valuation difficulties and withhold a certain portion of that shareholder’s net redemption proceeds. This could happen, for example, if the Fund or the issuer of onc of its portfolio securities were involved in a dispute regarding the value of its assets; in litigation, or subject to a tax audit at the time the redemption request is accepted.
1.10 Future Returns
No assurance can be given that the strategies employed by the Jnvcstment Managers in the past to achieve attractive returns will continue to be successful or that the return on tlie Fund’s investments will be similar to that achieved by the Investment Managers in the past.
2. Market-related Risks
2.1 General Economic Conditions
.
The success of any investment activity is affected by general economic conditions, which may affect the level and volatility of interest rates and the liquidity of the markets for both equities and interest- rate-sensitive securities. Certain market conditions, including unexpected volatility or illiquidity in the market in which the Fund directly or indirectly holds positions. could impair the Fund’s ability to achieve its ob-jectives and/or cause it to incur losses.
2.2 Market Risks
The success of a significant portion of the each Sub-Funds’ investment program will depend, to a great extent, upon correctly assessing the future course of the price movements of stocks, bonds, financial instruments and foreign currencies. There can be no assurance that an Investment Manager or any Sub-Fund Investment Manager will be able to predict accurately these price movements.
2.3 Tnvesting in Equity Securities
lnvesting in equity securities may offer a higher rate of return than those in short term and longer term debt securities. However, the risks associated with investments in equity securities may also be higher, because the investment performance of equity securities depends upon factors which are difficult to predict. Such factors include the possibility of sudden or prolonged market declines and risks associated with individual companies. The fundamental risk associated with any equity portfolio is the risk that the value of the investments it holds might decrease in value. Equity security values may fluctuate in response to the activities of an individual company or in response to general market and/or economic conditions. Historically, equity securities have provided greater long-term returns and have entailed greater short-term risks than other investment choices.
2.4 Investing in Fixed Income Securities
Even though interest-bearing securities are investments which promise a defined stream of income, the prices o f such securities generally are inversely correlatcd to changes in interest rates and, therefore, are subject to the risk of market price fluctuations. The values of fixed-income securities also may be affected by changes in the credit rating, liquidity or financial condition of the issuer. Certain securities that may be purchased by the Fund may be sub-jcct to such risk with respect to the issuing entity and to greater market fluctuations than certain lower yielding, higher rated tixed-incomc securities.
The volume o f transactions effected in certain international bond markets may be appreciably below that of the world’s largest markets. such as the United States. Accordingly, a Sub-l-’und‘s investments in such markets may be less liquid and their prices may be more volatilc than comparable investments in securities traded in markets with larger trading volumes. Moreover, the settlement periods in certain markets may be longer than in others which may affect portfolio liquidity.
2.5 Risks in Transactions in Currencies
In general, foreign exchange rates can be extremely volatile and difficult to predict. Foreign exchange rates may bc influenced by: among other factors: changing supply and demand for a particular currency: trade, fiscal and monctary policies of governments (including exchange control programs, restrictions on local exchanges or markets and limitations on foreign investment in a country or on investment by residents of a country in othcr countries); political events; changes in balances of payments and trade; domestic and forcign rates of intlation; domestic and foreign rates of interest; international trade restrictions; and currency devaluations and revaluations. In addition, governments from time to time intervene, directly and by rcgiilation7 i n the currcncy markets to intluence prices
directly (see "Risks of Government Intervention"). Variance in the degree of volatility of the market from the Investment Manager's expectations may produce significant losses to a Sub-Fund, particularly in the case of transactions entered into pursuant to non-directional strategies.
2.6 Investing in Other Undertakings for Collective Investment
Certain Sub-Funds may invest as described in Appendix I I , some or all of their assets, in units or shares of UCITS or lJCls in accordance with Luxembourg Law. Such investments are subject to market fluctuations and to the risks inherent in all investments; accordingly, no assurance can be given that their investment objective will be achieved.
Although there will be no duplication of entrance fees and management or advisory charges in relation to investments in UClTS or UCls in relation to which a company of JPMorgan Chase & Co. acts as investment manager and/or promoter, there may be duplication of certain other fees and expenses such as custodian fees, administration fees, auditors and legal fees and certain other administrative expenses. Also, in relation to investments in UCI'I'S or UCls which are not related to JPMorgan Chase & Co., there may be a duplication of entrance fees and management or advisory charges.
2.7 Investments in Foreign and Emerging Markets
Investments in certain foreign securities may be subject to greater risks than investments in securities of issuers from member-States of the OECD duc to a variety of factors including currency controls and currency exchange rates fluctuations, changes in governmental administration or economic or monetary policy or changed circumstances in dealings bctween nations. Dividends paid by foreign issuers may be subject to withholding and other foreign taxes that may decrease the net return on these investments. There may be less publicly available information about foreign issuers in certain countries and such issuers may not be subject to uniforrn accounting, auditing and financial reporting standards and requirements comparable to those of the Fund or most OECD issuers. In certain countries, securities of local issuers are less liquid and more volatile than securities of comparable issuers of more mature cconomies, and foreign brokerage commissions are generally higher than in more developed markets. Foreign securities markets may also be less liquid, more volatile and subject to lower levels of government supervision than those in the OECD. Investment in foreign countries could be affected by other factors not present in more developed countries: including expropriation, contiscatory taxation and potential difficulties in enforcing contractual obligations. These markets may be volatile and illiquid and the investments ofthc Sub-Funds in such markets may be considered speculative and sub-ject to significant custody and clearance risks and delays in settlement. Jnvestors should consult a professional adviser as to the suitability for them of an investment in any Sub-Fund investing in foreign and emerging markets. Subscriptions to Shares of any Sub-Funds investing i n such markets should be considcred only by investors who arc aware of, and able to hear, the risks related thereto and such investments should he made on a medium- to long-term basis.
2.8 Lack of Liquidity in Markets
Despite the heavy volume of trading in securities and other financial instruments: the markets for some securities and instruments have limited liquidity and depth. This limited liquidity and lack of depth could be a disadvantage to the Sub-Funds, both in thc rcalisation of the prices which are quoted and in the execution of orders at desired prices.
2.9 Kisk of Government Intervention
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Interest rates and trading in financial instruments bascd on currencies or interest rates are subject to certain risks arising from government regulation of or intervention in the currency and interest rate markets through regulation of the local exchange market restrictions on foreign investments by residents, limits on inflows of funds or changes in the general level of interest rates. Such regulation or intervention could adversely affect the Fund's performance.
3. Derivative Risks
3.1 Volatility
Because of the low margin deposits normally required in trading derivative instruments, an extremely high degree of leverage is typical for trading in derivatives instruments. As a result, a relatively small price movement in a derivative contract may result in substantial losses to the investor. Investment in derivative transactions may result in losses in excess of the amount invested.
Risk of Trading Credit Defmlt Swrips Credit default swaps may trade differently from the funded securities of' the reference entity. In adverse market conditions, the basis (difference between the spread on bonds and the spread on credit default swaps) can be significantly more volatile.
3.2 Particular Risks of Exchange Traded Derivative Transactions
Suspensions of Triiiiing Each securities exchange or commodities contract market typically has the right to suspend or limit trading in all securities or commodities which it lists. Such a suspension would render it impossible for the Sub-Funds, to liquidate positions and, accordingly. expose the Fund to losses and delays in its ability to redeem Shares.
3.2 Particular Risks of OTC Derivative Transactions
Absence oj'regulution; counterpnrty ilefriult In gcneral. there is less governmental regulation and supervision of transactions in the OTC markets (in which currencies, forward, spot and option contracts. crcdit default swaps: total return swaps and certain options on currencies are generally traded) than of transactions entered into on organised exchanges. In addition, many of the protections afforded to participants on some organised exchanges, such as the performance guarantee of an exchange clearinghouse, may not be available in connection with OTC transactions. Therefore, any Sub-Fund entering into OTC transactions will be subject to the risk that its direct counterparty will not perform its obligations under the transactions and that the Sub-Fund will sustain losscs. A Sub-Fund will only enter into transactions with counterpartics which it believes to be creditworthy, and may reduce the exposure incurred in conncction with such transactions through the rcceipt of letters of credit or collateral from certain counterparties. Regardless of the measures the Fund may seek to implement to reduce counterparty credit risk, however, there can be no assurance that a counterparty will not default or that the Fund will not sustain losses as a result.
Liquidity; requirement to perform From time to timc, the counterparties with which the Fund effccts transactions might cease making markets or quoting prices in certain of the instruments. In such instances, the Fund might be unable to enter into a desired transaction in currencies, credit default swaps or total return swaps o r to enter into an offsetting transaction with respect to an open position, which might adversely affect its performance. Further: in contrast to cxchange-traded instruments, forward, spot and option contracts
on currencies do not provide the Investment Manager with the possibility to offset the Fund's obligations through an equal and opposite transaction. For this reason, in entering into forward, spot or options contracts, the Fund may be required, and must be able, to perform its obligations under the contracts.
Necessity for counterparty trading relationships As noted above, participants in the OTC market typically enter into transactions only with those counterparties which they believe to be sufficiently creditworthy, unless the counterparty provides margin, collateral, letters of credit or other credit enhancements. The Fund may, but does not currently intend to, enter into transactions on the basis of credit facilities established on behalf of any company within JPMorgan Chase & Co. While the Fund and the Investment Manager believe that the Fund will be able to establish multiple counterparty business relationships to permit the Fund to effect transactions in the OTC market and other counterparty markets (including credit default swaps, total return swaps and other swaps market as applicable), there can be no assurance that it will be able to do so. An inability to establish or maintain such relationships would potentially increase the Fund's counterparty credit risk, limit its operations and could require the Fund to cease investment operations or conduct a substantial portion of such operations in the futures markets. Moreover, the counterparties with which the Fund expects to establish such relationships will not be obligated to maintain the credit lines extended to the Fund, and such counterparties could decide to reduce or terminate such credit lines at their discretion.
The foregoing risk factors do not purport to be a complete explanation of the risks involved in investing in the Shares. Prospective investors should read this entire information Prospectus and consult with their legal, tax and financial advisors before making any decision to invest in the Fund.
4. Risk Management Process
The Fund employs a risk management process which enables it to monitor and tneasurc at any time the risk of the positions and their contribution to the overall risk profile of each individual Sub-Fund. Furthermore, the Fund employs a process for accurate and independent assessment of the value of OTC derivativc instruments which is communicated to the CSSF 011 a regular basis in accordance with Luxembourg Law of 20 December 2002.
Investors should consult a professional adviser as to the suitability for them of an investment in any Sub-Fund and in particular any Sub-Fund investing in less developed or emerging markets. Subscriptions to Sub-Funds investing in such markets should be considered only by investors who are awarc of, and able to bear, the risks rclated thereto and such investments should be made on a long-term basis.
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