The Sub-Fund aims to provide high income in line with a systematic strategy on a selected equity index as described below (the “Derivative Investment Strategy”). The Derivative Investment Strategy commences on June 24, 2016 and matures on June 19, 2018 (“Investment Period”).
The Derivative Investment Strategy’s performance at the end of the Investment Period is based on a performance valuation mechanism according to points a), b), c), d), e), f) and g) below :
a) The Equity Index EURO STOXX 50 (Bloomberg ticker : SX5E Index) is selected (the “Index”).
The EURO STOXX 50 index tracks the 50 largest in terms of market capitalization and most liquid Super sector leaders in the Euro-zone. The weightings of Index are reviewed quarterly.
Source : http://www.stoxx.com/download/indices/rulebooks/stoxx_indexguide.pdf (page 45)
All index constituents and weights are freely available on the official website of the respective provider.
b) June 24, 2016 is defined as “Strike Date” and June 26, 2018 is defined as “Swaps’ Termination Date”. June 26, 2017 is defined as the “First Valuation Date” and June 19, 2018 is defined as the “Second Valuation Date”.
c) The level of the Index is recorded on the First Valuation Date and on the Second Valuation Date.
d) If on the First Valuation Date the Index is equal to or above of its level on Strike Date and on the Second Valuation Date the Index is equal to or above of its level on Strike Date, then on the Swaps’ Termination Date the Derivative Investment Strategy yields 8%.
e) If on the First Valuation Date the Index is below its level on Strike Date and on the Second Valuation Date the Index is equal to or above of its level on Strike Date, then on the Swaps’ Termination Date the Derivative Investment Strategy yields 2%.
f) If on the First Valuation Date the Index is equal to or above of its level on Strike Date and on the Second Valuation Date the Index is below its level on Strike Date, then on the Swaps’ Termination Date the Derivative Investment Strategy loses 2%.
g) If on the First Valuation Date the Index is below its level on Strike Date and on the Second Valuation Date the Index is below its level on Strike Date, then on the Swaps’ Termination Date the Derivative Investment Strategy loses 8%.
For the avoidance of doubt, at the end of the Investment Period, points d), e), f) and g) cannot all be true at the same time ; only one of the four will apply, according to the level of the Index on both Valuation Dates, as described under points d), e), f) and g).
In parallel to investing in the Derivative Investment Strategy, the Sub-Fund also invests in an actively managed portfolio of bank deposits, money market instruments, transferable debt securities, including fixed and variable interest rate securities and government bonds admitted to an Official Listing or dealt in on a Regulated Market, traded worldwide (the “Investment Portfolio”) with the aim to cover the Derivative Investment Strategy and the Sub-Fund’s costs and expenses. More specifically the revenues of the Investment Portfolio will not benefit to the Sub-Fund but will be exchanged with the swap counterparty/ies and will be used to cover the Sub-Fund’s costs and expenses.
It results from the above that :
- on the one hand, any positive outcome of the investment in the Sub-Fund cannot in principle be greater than the gain under point d) above and,
- on the other hand, the outcome of the investment in the Sub-Fund can be a loss greater than the loss under point g). This worst-case scenario could happen in the case of a combined very negative outcome of the Derivative Investment Strategy and a decrease in the market value of investments in the Investment Portfolio.
The Sub-Fund seeks to achieve its Investment Objective as follows :
- primarily, investing mainly in the Investment Portfolio composed of bank deposits, money market instruments, debt securities, mortgage-backed securities and asset-backed securities. The Sub-Fund may not invest more than 20% of its assets in mortgage-backed securities and asset-backed securities. The Sub-Fund may invest more than 35% of its assets in Romanian Government T Bills/Bonds. The Sub-Fund cannot invest in Greek Debt. “Primarily” means up to 100% of the Net Asset Value of the Sub-Fund.
- secondarily, entering into over-the-counter derivative transactions called equity-linked swap agreements under ISDA (the “Swaps”) with the aim of meeting the Investment Objective. The effect of this transaction is that the Sub-Fund exchanges the returns on its Investment Portfolio (net of the Sub-Fund’s costs and expenses) for returns specifically tailored to the Investment Objective of the Sub-Fund.
The swap counterparty/ies will be selected from the following credit institutions : Barclays Bank PLC ; BNP Paribas S.A. ; Deutsche Bank A.G. ; JPMorgan Chase Bank N.A. ; Royal Bank of Scotland PLC ; Société Générale S.A., Credit Agricole S.A., HSBC Bank PLC, Credit Suisse, UBS AG, Bank of America Merrill Lynch, Citigroup Global Markets Ltd, Morgan Stanley & Co International PLC.
The name(s) of the swap counterparty/ies and the signed Swaps will be made available for inspection, upon investor(s) request, during normal business hours at the registered office of the Management Company. The swap counterparty/ies pay to or receive from the Sub-Fund during the Investment Period amounts described in the Swaps ; payment flows will contribute to the realization of the Derivative Investment Strategy.
The Net Asset Value of the Sub-Fund, and therefore the value of the Sub-Fund’s Units will increase (or decrease) in line with the valuation of both the Investment Portfolio and the Swaps. The Swaps’ aggregate notional amount will on Strike Date correspond to the Sub-Fund’s Net Asset Value and will be adjusted on an ongoing basis based on the applicable valuation of the Swaps provided on a daily basis by the Swap counterparties to take into account subscription and redemption requests in the Sub-Fund.
The ability of the Sub-Fund to meet its Investment Objective is dependent on the ability of the swap counterparty/ies to meet their obligations under the Swaps. Also, the aforementioned ability of the Sub-Fund to meet its Investment Objective is dependent on the performance of the investment portfolio (i.e. the investors could materialize a loss on their capital not only in the case (f), (g) of the Derivative Investment Strategy, but also in the case of issuers’ defaults in the investment portfolio).Liquidities, securities lending and repurchase agreements may be used within the limits described in sections 3.1. and 4. of this Prospectus. In addition to the Derivative Investment Strategy, the Sub-Fund may invest in other financial derivative instruments but for the purpose of hedging only.
The Directors will decide before maturity of the Derivative Investment Strategy, whether the Sub-Fund will be liquidated, prolonged for a new term with a new investment objective and policy (in which case the prospectus will be amended accordingly) or contributed to another Sub-Fund of the Fund. Unit holders will be informed accordingly in due course. Should the Directors decide that the Sub-Fund will be prolonged for a new term or contributed to another Sub-Fund of the Fund, Unit holders will be offered a one month period during which they will have the possibility to redeem their Units free of charge before such changes become effective.
Profile of investors
The Sub-Fund has a high-risk profile, mainly associated with the use of financial derivative instruments, linked to equity exposure. Investors should also consider the fact that the capital invested is potentially at risk. The Sub-Fund is addressed to investors with a medium-term investment horizon and who are seeking return from exposure to equity markets.
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