Investment involves risks.  Please refer to the Prospectus for details including the risk factors.

1. Investment risk

The Sub-Fund’s investment portfolio may fall in value due to any of the key risk factors below and therefore your investment in the Sub-Fund may suffer losses. There is no guarantee of the repayment of principal.

2. Risks associated with fixed income securities (including money market instruments)

Short-term fixed income securities risk

· The Sub-Fund invests primarily in fixed income securities with short maturities. This means the turnover rates of the Sub-Fund’s investments may be relatively high and the transaction costs incurred as a result of the purchase or sale of such securities may increase which in turn may have a negative impact on the NAV of the Sub-Fund.

Credit risk

· The Sub-Fund is exposed to the credit/default risk of the issuers of the fixed income securities that the Sub-Fund may invest in.

Interest rate risk

· Investment in the Sub-Fund is subject to interest rate risk. In general, the prices of fixed income securities rise when interest rates fall, whilst their prices fall when interest rates rise.

Volatility and liquidity risk

· The fixed income securities in some of the markets in which the Sub-Fund invests may be subject to higher volatility and lower liquidity compared to more developed markets.  The prices of securities traded in such markets may be subject to fluctuations. The bid and offer spreads of the price of such securities may be large and the Sub-Fund may incur significant trading costs.

· Under adverse market conditions or in the event of large-scale redemption requests, the Sub-Fund may encounter difficulties in valuing and/or disposing of its assets at their fair price, resulting in liquidity risk. Although the Manager may implement a range of liquidity risk management tools to manage these risks, there is a risk that the tools may be ineffective to manage liquidity and redemption risks as a result this may have adverse impact on the Sub-Fund and its investors.  

Credit rating and downgrading risk

· Credit ratings assigned by rating agencies are subject to limitations and do not guarantee the creditworthiness of the security and/or their issuer at all times.

· The credit rating of a fixed income security or its issuer may subsequently be downgraded.  In the event of such downgrading, the value of the Sub-Fund may be adversely affected. The Manager may or may not be able to dispose of the fixed income securities that are being downgraded.

Credit rating agency risk

· The credit appraisal system in the Mainland China and the rating methodologies employed in the Mainland China may be different from those employed in other markets.  Credit ratings given by the Mainland China rating agencies may therefore not be directly comparable with those given by other international rating agencies.

Sovereign debt risk

· The Sub-Fund’s investment in securities issued or guaranteed by governments may be exposed to political, social and economic risks. In adverse situations, the sovereign issuers may not be able or willing to repay the principal and/or interest when due or may request the Sub-Fund to participate in restructuring such debts. The Sub-Fund may suffer significant losses when there is a default of sovereign debt issuers.

Valuation risk

· Valuation of the Sub-Fund’s investments may involve uncertainties and judgmental determinations.  If such valuation turns out to be incorrect, this may affect the NAV calculation of the Sub-Fund.

Risk associated with CIBM

· Investing in the CIBM via Bond Connect and the CIBM Direct Access is subject to regulatory risks and various risks such as volatility risk, liquidity risk, settlement and counterparty risk as well as other risk factors typically applicable to fixed income securities. The relevant rules and regulations on this regime are subject to change which may have potential retrospective effect. In the event that the relevant Mainland Chinese authorities suspend account opening or trading on CIBM, the Sub-Funds ability to invest in the CIBM will be adversely affected. In such event, the Sub-Fund’s ability to achieve its investment objective will be negatively affected.

“Dim Sum” bonds risk

· The “Dim Sum” bond market is still a relatively small market which is more susceptible to volatility and illiquidity. The operation of the “Dim Sum” bond market as well as new issuances could be disrupted causing a fall in the NAV of the Sub-Fund should there be any promulgation of new rules which limit or restrict the ability of issuers to raise RMB by way of bond issuances and/or reversal or suspension of the liberalisation of the offshore RMB (CNH) market by the relevant regulator(s).

3. Risks associated with bank deposits

Bank deposits are subject to the credit risks of the relevant financial institutions. The Sub-Fund’s deposit may not be protected by any deposit protection schemes, or the value of the protection under the deposit protection schemes may not cover the full amount deposited by the Sub-Fund. Therefore, if the relevant financial institution defaults, the Sub-Fund may suffer losses as a result.

4. Concentration risk

The Sub-Fund will invest primarily in RMB-denominated and settled instruments. The Sub-Fund is therefore likely to be more volatile than a broad-based fund that adopts a more diversified strategy.

5. Emerging markets risks

The Sub-Fund may invest in emerging markets, including but not limited to Mainland China, South Korea, Malaysia and the Gulf states, which may involve increased risks and special considerations not typically associated with investment in more developed markets, such as liquidity risks, currency risks/control, political and economic uncertainties, legal and taxation risks, settlement risks, custody risk and the likelihood of a high degree of volatility.

6. Risks associated with investment made through the QFI regime

· The Sub-Fund’s ability to make the relevant investments or to fully implement or pursue its investment objective and strategy is subject to the applicable laws, rules and regulations (including restrictions on investments and repatriation of principal and profits) in the PRC, which are subject to change and such change may have potential retrospective effect.

· The Sub-Fund may suffer substantial losses if the approval of the QFI status of the Manager (as the QFI holder) is being revoked/terminated or otherwise invalidated as the Sub-Fund may be prohibited from trading of relevant securities and repatriation of the Sub-Fund’s monies, or if any of the key operators or parties (including QFI custodian/broker) is bankrupt/in default and/or is disqualified from performing its obligations (including execution or settlement of any transaction or transfer of monies or securities).

7. RMB class(es) related risk 

· RMB is currently not freely convertible and is subject to exchange controls and restrictions.

· Although offshore RMB (CNH) and onshore RMB (CNY) are the same currency, they trade at different rates. The CNH rate may be at a premium or discount to the exchange rate for CNY and there may be significant bid and offer spreads.  Any divergence between CNH and CNY may adversely impact the NAV of the Sub-Fund and thus the investors.

8. Currency and foreign exchange risk

Underlying investments of the Sub-Fund may be denominated in currencies other than the base currency of the Sub-Fund. The NAV of the Sub-Fund may be affected unfavorably by fluctuations in the exchange rates between these currencies and the base currency and by changes in exchange rate controls.

9. Mainland China tax risk

· There are risks and uncertainties associated with the current Mainland China tax laws, regulations and practice in respect of the Sub-Fund’s investment in Mainland China. It should also be noted that there is a possibility of Mainland China tax rules being changed and taxes being applied retrospectively. Any increased tax liabilities on the Sub-Fund may adversely affect the Sub-Fund’s value.

· [Based on professional and independent tax advice, the Manager will not make tax provisions in respect of the Sub-Fund’s investment in Mainland China (i.e. the onshore Mainland China fixed income securities).]

10. Risks associated with distribution out of capital or effectively out of capital

· Payment of distributions out of capital or effectively out of capital amounts to a return or withdrawal of part of an investor’s original investment or from any capital gains attributable to that original investment.  Any such distributions may result in an immediate reduction of the NAV per share.