Schroder Asian Asset Income Fund Product Key Facts August 2014 Edition
PRODUCT KEY FACTS Schroder Asian Asset Income Fund Issuer: Schroder Investment Management (Hong Kong) Limited August 2014 This statement provides you with key information about this product. This statement is a part of the offering document and should be read in conjunction with the offering document. You should not invest in this product based on this statement alone. Quick facts Manager: Trustee: Dealing frequency: Base currency: Dividend policy: Financial year end of this fund: Minimum investment: Schroder Investment Management (Hong Kong) Limited HSBC Institutional Trust Services (Asia) Limited 滙豐機構信託服務 ( 亞洲 ) 有限公司 Daily HKD A and C Accumulation Units Dividend will not be distributed but will be reinvested into the fund. A and C Distribution Units Dividend will be distributed on a monthly basis. However, the distribution rate is not guaranteed. Distributions may be paid out of capital and reduce the fund s net asset value. 30 June Initial HKD5,000, RMB5,000 or USD1,000 (or equivalent), Subsequent Investment HKD5,000, RMB5,000 or USD1,000 (or equivalent) What is this product? This is a sub-fund of the Schroder Umbrella Fund II constituted in the form of an umbrella unit trust established under the laws of Hong Kong. Objectives and investment strategy The fund s objective is to provide income and capital growth over the medium to longer term by investing primarily in Asian equities and Asian fixed income securities. The fund will seek to achieve the investment objective primarily through investment in a portfolio of equity securities of Asian companies which offer attractive yields and sustainable dividend payments, including real estate investment trusts, and bonds and other fixed or floating rate securities, of investment grade or below investment grade (at the time of or subsequent to acquisition), issued by governments, government agencies, supra-national and corporate issuers in Asia which offer attractive yields. The fund may substantially invest in bonds and debt securities which are below investment grade or unrated. The fund may, if the manager considers fit and to a limited extent, seek exposure to other asset classes including but not limited to non-asian securities and commodities (including energy, metals and agricultural commodities) indirectly through exchange traded funds and/or similar instruments. 1
Schroder Asian Asset Income Fund The fund will actively allocate between Asian equities, Asian fixed income securities, other asset classes and cash to achieve the fund s objective. The fund will use a cyclical approach to asset allocation where the asset mix will be adjusted according to the four phases of the economic cycle recovery, expansion, slowdown and recession based on a combination of fundamental and quantitative factors such as asset class valuation, macroeconomic data and liquidity. Cash will be treated as a separate asset class and will be deployed if necessary to limit downside risk during adverse market conditions. The fund s expected asset allocation ranges for each asset class is expected to be the following: Asian equities: 30-70% Asian fixed income: 30-70% Other asset classes: 0-20% Cash: 0-30% In addition to active asset allocation, the fund will also perform active security selection for its investments in Asian equities, Asian fixed income and other asset classes. For the Asian equities portfolio, the fund intends to focus on companies that are able to create true shareholder value, have a strong and stable earnings stream and have a strong sustainable dividend yield. For the Asian fixed income portfolio, the fund intends to select securities that deliver attractive yield and capital growth taking into account both fundamental and technical views such as valuation, demand/supply conditions and liquidity. The fund will also perform duration management based on the manager s interest rate views. Duration is a measure of the sensitivity of the portfolio value to changes in interest rates. Hence duration management means managing the impact that interest rate movements have on the value of the portfolio. For example, an increase in interest rates usually has a negative impact on the value of bonds, hence the manager would reduce the duration of the portfolio to reduce the effect from rising interest rates. The fund may also utilize financial derivative instruments for the purposes of hedging, although the manager is not obligated to do so. In extreme market conditions, the fund may hold more than 10% of its assets in cash. The fund will have limited Renminbi (RMB) denominated underlying investments. The manager will also manage the fund taking into account the distribution policy of the fund. Please refer to Distribution section of the offering document for details. What are the key risks? Investment involves risk. Please refer to the offering document for details including the risk factors. 1. Equity investment risk The fund s investment in equity securities is subject to the risk that the market value of the stocks may go down as well as up due to numerous factors such as changes in investment sentiment, political environment, economic environment, regional or global economic instability, currency and interest rate fluctuations. If the market value of the stocks go down the net asset value of the fund may be adversely affected. 2. Risks relating to investment grade, below investment grade and unrated debt securities There is a risk that investment grade securities that the fund invests in may be downgraded due to adverse market conditions. In the event of a down-grading of the credit rating of a security or an issuer relating to a security that the fund invests in, the value of the fund may be adversely affected. The fund may invest in debt securities below investment grade which are generally accompanied by a higher degree of counterparty risk, credit risk and liquidity risk than higher rated, lower yielding securities. Investment in unrated debt securities may be subject to risks similar to those associated with below investment grade debt securities. 3. Risks relating to distributions In respect of Distribution Units, the manager will declare and pay distributions on a monthly basis. However, the distribution rate is not guaranteed. The manager has the sole and absolute discretion to vary the frequency of distributions, subject to one month s prior notice to the relevant unitholders. If the manager does not intend to retain the flexibility to pay distributions out of the capital of the fund, the change will be subject to the SFC s prior approval and one month s prior notice to the relevant unitholders. Where the income and/or capital gain generated by the fund is insufficient to pay a distribution as the fund declares, the manager may at its discretion make such distributions out of the capital of the fund. 2
Schroder Asian Asset Income Fund You should note that in the circumstances where the payment of distributions are paid out of capital, this represents and amounts to a return or withdrawal of part of the amount you originally invested or capital gains attributable to that and may result in an immediate decrease in the value of units of the relevant Distribution Units. 4. Credit risk Investment in bonds or other debt securities is subject to the credit risk of the issuer. In the event that any issuer of bonds or other debt securities in which the fund invests defaults, becomes insolvent or experiences financial or economic difficulties, this may affect the value of the relevant securities (which may be zero) and may in turn adversely affect the net asset value per unit of the fund. 5. Interest rates risks Changes in market interest rates will affect the value of debt securities held by the fund. Generally, the market value decreases when interest rates rise and increases when interest rates fall. 6. Emerging and less developed markets The fund s investment in emerging and less developed markets may be subject to significant risks such as political and economic risks, legal and regulatory risks, market and settlement risks, execution and counterparty risk, and currency risk. As a result, prices of securities traded in the securities markets of emerging or developing countries tend to be volatile. 7. Risks relating to Real Estate Investment Trusts ( REITs ) The fund may be subject to risks similar to those associated with the direct ownership of real property (in addition to securities market risks) through its investment in REITs. The prices of REITs are affected by changes in the value of the underlying property owned by the REITs. REITs are dependent upon management skills and generally may not be diversified. Certain special purpose REITs in which the fund may invest may have their assets in specific real property sectors, such as hotel REITs, nursing home REITs or warehouse REITs, and are therefore subject to the risks associated with adverse developments in these sectors. The REITs invested in by the fund may not necessarily be authorized by the SFC and the distribution policy of the fund may not reflect the dividend policy of the underlying REITs. 8. Risks relating to hedging and the hedged classes There is no guarantee that the desired hedging instruments will be available or hedging techniques will achieve their desired result. If the counterparties of the instruments used for hedging purposes default, investors of the hedged classes may be exposed to currency exchange risk on an unhedged basis and may therefore suffer further losses. There can be no assurance that any hedging strategies employed by the manager will fully and effectively eliminate the risk exposure of the fund and investors of the hedged classes may be exposed to currency exchange risk for non-hedged classes. In adverse situation, the fund s use of financial derivative instruments may become ineffective in hedging and the fund may suffer significant losses. Each hedged class will hedge the fund s base currency back to its currency of denomination, on a best effort basis, with an aim to align the performance of the class to that of the equivalent class denominated in the fund s base currency. The effects of hedging will be reflected in the net asset values of the hedged classes. Similarly, any expenses arising from such hedging transactions, which may be significant depending on prevailing market conditions, will be borne by the hedged classes in relation to which they have been incurred. Currency exposures or currency hedging transactions within the fund s portfolio will not be considered when hedging transactions are entered into for the hedged classes. There can be no assurance that any hedging strategy employed by the manager will fully and effectively achieve a positive desirable effect and result. Furthermore, the volatility of the hedged classes measured in the fund s base currency may be higher than that of the equivalent class denominated in the fund s base currency. Whilst the hedging strategy may protect unitholders in the hedged class against a decrease in the value of the fund s base currency relative to the denominated currency of the hedged class, but it may also preclude unitholders from benefiting from an increase in the value of the fund s base currency. 3
Schroder Asian Asset Income Fund 9. Renminbi ( RMB ) Currency Risk Since 2005, the RMB exchange rate is no longer pegged to the US dollar. RMB has now moved to a managed floating exchange rate based on market supply and demand with reference to a basket of foreign currencies. RMB exchange rate is also subject to exchange control policies. The daily trading price of the RMB against other major currencies in the inter-bank foreign exchange market is allowed to float within a narrow band around the central parity published by the People s Republic of China. RMB is currently not freely convertible and RMB convertibility from offshore RMB (CNH) to onshore RMB (CNY) is a managed currency process subject to foreign exchange control policies of and restrictions imposed by the Chinese government. The value of CNH could differ, perhaps significantly, from that of CNY due to a number of factors including without limitation those foreign exchange control policies and repatriation restrictions. Since 2005, foreign exchange control policies pursued by the Chinese government have resulted in the general appreciation of RMB (both CNH and CNY). This appreciation may or may not continue and there can be no assurance that RMB will not be subject to depreciation at some point. Classes denominated in RMB will generally be valued with reference to CNH rather than CNY. While CNH and CNY represent the same currency, they are traded in different and separate markets which operate independently. As such CNH does not necessarily have the same exchange rate and may not move in the same direction as CNY. Classes denominated in RMB, both hedged and unhedged, participate in the CNH market, which allows investors to freely transact CNH outside of mainland China subject to the availability and clearing quotas of CNH. Classes denominated in RMB will have no requirement to remit CNH to CNY. Non-RMB based investors (e.g. Hong Kong investors) in Classes denominated in RMB may have to convert HK dollar or other currency(ies) into RMB when investing in Classes denominated in RMB and subsequently convert the RMB redemption proceeds and/or dividend payment (if any) back to HK dollar or such other currency(ies). Investors will incur currency conversion costs and you may suffer losses depending on the exchange rate movements of RMB relative to HK dollar or such other currencies. For non-hedged RMB denominated classes, depending on the exchange rate movements of RMB relative to the base currency of the fund and/or other currency(ies) of the non-rmb denominated underlying investment of the funds, (i) you may still suffer losses even if there are gains or no losses in the value of the non-rmb denominated underlying investments; or (ii) you may suffer additional losses of the non-rmb denominated underlying investments of the fund fall in value. For RMB denominated hedged classes, please also refer to Risks relating to hedging and the hedged classes above for the relevant risks. Even if the fund aim at paying redemption monies and/or distributions of RMB denominated classes in RMB, the manager may, under extreme market conditions when there is not sufficient RMB for currency conversion and with the approval of the trustee, pay redemption monies and/or distributions in US dollar. There is also a risk that payment of redemption monies and/or distributions in RMB may be delayed when there is not sufficient amount of RMB for currency conversion for settlement of the redemption monies and distributions in a timely manner due to the exchange controls and restrictions applicable to RMB. In any event, redemption monies will be paid within one calendar month upon receipt of all properly completed documentation. 10. Financial derivative instruments ( FDI ) Risks associated with FDI include counterparty risk, credit risk and liquidity risk, valuation risk, volatility risk, over-the-counter transaction risks and hedging risk. Such exposure may lead to a high risk of significant capital loss. The leverage element component of an FDI can result in a loss substantially greater than the amount invested in the FDI itself. There can be no assurance that any hedging strategy employed by the manager will achieve desired results. 11. Foreign Account Tax Compliance Act ( FATCA ) related risks The provisions of the Foreign Account Tax Compliance Act were enacted on 18 March 2010 as part of the Hiring Incentive to Restore Employment Act ( FATCA ). It includes provisions under which the manager as Foreign Financial institution ( FFI ) may be required to report directly to the US Internal Revenue Service ( IRS ) certain information about units held by US persons for the purposes of FATCA or other foreign entities subject to FATCA and to collect additional identification information for this purpose. FFIs that do not enter into an agreement with the IRS and comply with the FATCA regime could be subject to 30% withholding tax on any payment of US source income (including interests and dividends) as well as on the gross proceeds deriving from the sale of securities generating US income made to the fund. Provided that the fund acts in accordance with the provisions it will not be subject to withholding tax under FATCA. 4
Schroder Asian Asset Income Fund Although the manager will attempt to satisfy any obligations imposed on it and to avoid the imposition of any FATCA penalty withholding on the fund, no assurance can be given that the manager will be able to achieve this and/or satisfy such FATCA obligations. If the fund becomes subject to a FATCA penalty withholding as a result of the FATCA regime, the value of the units held by unitholders may be adversely affected and unitholders may suffer material losses. Unitholders should seek independent professional advice regarding the FATCA requirements with respect to their own situation. In particular, where investors invest in or held units of the fund through an intermediary, nominee or custodian, investors are recommended to check whether such intermediary, nominee or custodian is FATCA compliant and any possible FATCA implications. Is there any guarantee? This fund does not have any guarantees. You may not get back the full amount of money you invest. What are the fees and charges? Charges which may be payable by you You may have to pay the following fees when dealing in the units of the fund. Fee What you pay Unit class A C Subscription fee (Initial charge) Switching fee Redemption fee (Redemption charge) Up to 5% of the gross investment amount Up to 5% of the switching amount Nil Ongoing fees payable by the fund The following expenses will be paid out of the fund. They affect you because they reduce the return you get on your investments. Annual rate (as a % of the fund s net asset value) Unit class A C Management fee* 1.25% 0.625% Trustee fee 0.08% (Subject to a minimum fee of HKD156,000 per annum) Performance fee Administration fee (Service Provider s costs) Not applicable 0.02% to 0.2% * The fee may be increased up to a maximum annual rate of 7% of the net asset value of the fund after giving at least one month s prior notice to unitholders. Other fees You may have to pay other fees when dealing in the units of the fund. Please refer to Expenses and Charges section of the offering document for fees payable by the fund. 5
Additional information Schroder Asian Asset Income Fund You generally buy and redeem units at the fund s next-determined net asset value (NAV) after Schroder Investment Management (Hong Kong) Limited receives your request, directly or via a distributor, in good order at or before 5 pm HK time, being the fund s dealing cut-off time on each dealing day of the fund. Before placing your subscription or redemption orders, please check with your distributor for the distributor s internal dealing cut-off time (which may be earlier than the fund s dealing cut-off time). Compositions of the distributions (i.e. the percentages of distribution being paid out of capital and net distributable income) for the last twelve months for each of the classes of Distribution Units paying distributions out of capital are available from the manager on request and on the Schroders Internet site (www.schroders.com.hk). The website has not been reviewed by the SFC. The net asset value of this fund is calculated and the price of units is published on each business day in the South China Morning Post and the Hong Kong Economic Times. They are also available online at www.schroders.com.hk. The website has not been reviewed by the SFC. Important If you are in doubt, you should seek professional advice. The SFC takes no responsibility for the contents of this statement and makes no representation as to its accuracy or completeness. 6
5 12 (www.schroders.com.hk) www.schroders.com.hk 6
FATCA FATCA FATCA FATCA FATCA FATCA FATCA A C 5.00% 5.00% A C * 1.25% 0.625% 0.08% 156,000 0.02% 0.2% * 7% 5
9. 2005 (CNH) (CNY) CNH CNY 2005 CNH CNY CNH CNY CNH CNY CNH CNY CNH CNH CNH CNH CNY (i) (ii) 10. 11. Foreign Account Tax Compliance Act, FATCA (Foreign Account Tax Compliance Act) (Hiring Incentive to Restore Employment Act) 2010 3 18 FATCA FFI FATCA IRS FATCA IRS FATCA FFI 30% FATCA 4
4. 5. 6. 7. REITs REITs REITs REITs REITs REITs REITs REITs REITs REITs 8. 3
30-70% 30-70% 0-20% 0-30% 10% 1. 2. 3. (1) (1) 2
1 HSBC Institutional Trust Services (Asia) Limited A C A C 6 30 5,000 5,000 1,000 5,000 5,000 1,000 II II 1 1