Investing with Banque Havilland for Legal Entities

INVESTING WITH BANQUE HAVILLAND FOR LEGAL ENTITIES

LIST OF CONTENTS

MiFID CLIENT CATEGORISATION 5

MiFID QUESTIONNAIRE 7

RISK DISCLOSURES 17

INFORMATION CONCERNING DERIVATIVES 27

Under MiFID,clients can becategorised as: professional oreligible counterparty. Please seebelow for more detailed information: result thatthosefalling withintheretail category -willbeafforded ahigherlevel ofprotection thanthosefalling into the requirements should reflect this.Hence MiFIDattaches different regulatory protections to eachofthesecategories, withthe following: MiFIDrecognizes thatinvestors have different levels of knowledge, skillandexpertise and therefore theregulatory categories defined by the Markets in Financial Services Directive (MiFID). The reasoning behind the categorisation is the In order to deliver theappropriate level ofprotection, thebankisrequired to classify theclient(you) withinoneoftheclient MiFID CLIENTCATEGORISATION • • • Counterparties orprovide therequired evidence to beconsidered asaProfessional Client“onrequest”. all clients will be considered as Retail Clients, unless they automatically qualify as a Professional Client or Eligible not belong to the Professional Client or Eligible Counterparties categories. The Bank has decided that, by default, the most requirements interms ofcommunication, disclosure andtransparency. Retail Clients are clients thatdo level ofprotection. Asaconsequence, Eligible Counterparties donothave to fillouttheMiFIDquestionnaire. management. If the client meets the definition of an Eligible Counterparty, the bank will provide him/her with a low other investment andsubsequentservices (astheseare definedbyMiFID),includinginvestment advice andportfolio receiving, transmitting orexecuting theirorders. Classification ofaclientasEligible Counterparty doesnotapply to any professional clients bynature, according to theabove, whentheinvestment services provided to themconsist in Clients. Inreturn, they receive alower level ofprotection thanRetail Clients. Under MiFIDrules, Professional Clients needto provide less information to theirfinancialinstitution thanRetail of thethree ‘large undertakings’ criteria: companies andpensionfunds.Large undertakings can alsoqualifyasProfessional Clients ifthey meetatleast two authorised orregulated to operate inthefinancialmarkets, suchascredit institutions, investment firms,insurance PROFESSIONAL CLIENTS: RETAIL CLIENTS: ELIGIBLE COUNTERPARTIES: 3. Owncapital ofatleast EUR2million 2. Netturnover ofatleast EUR40million 1. Abalance sheettotal ofatleast EUR20million The MiFIDRetail Clientcategory istheclassification thatoffers themost protection andimposes Professional Clients includeentitiesnotclassified asEligible Counterparties, whichare Eligible Counterparties withinthemeaningofMiFIDare clients whoconstitute

5 •••• LI I INVESTING WITH BANQUE HAVILLAND I FOR LEGAL ENTITIES I 502_3 6 •••• LI I INVESTING WITH BANQUE HAVILLAND I FOR LEGAL ENTITIES I 502_3 client category andconfirms thatithassignedallnecessary documents: The Clientconfirms thatitdiscussed its clientcategorisation withits clientadvisor. Therefore, theClientagrees withits Please contact your clientadvisorto verify ifyou can request adifferent clientclassification. provided withahigherlevel ofprotection. An Eligible Counterparty hastherightto beclassified asaProfessional orRetail Clientandasaconsequence willbe level ofprotection. A Professional Clienthastherightto beclassified asaRetail clientandasaconsequence willbeprovided withahigher provided thatatleast two ofthemare met(Clients need to fillthedocument“MiFIDCUSTOMER CLASSIFICATION”): will beprovided withalower level ofprotection. Thecriteria for classification to thisparticularcategory are thefollowing, A Retail Clienthastherightto request adifferent classification, namely Professional Client“onrequest”, andasaconsequence CONFIRMATION OF THE CLIENT CATEGORISATION REQUEST FOR A DIFFERENT CATEGORISATION • • •

knowledge ofthetransactions to beentered into. The clientworks orhasworked inthefinancialsector for atleast oneyear inaprofessional position,whichrequires financial instruments; The sizeoftheportfolio exceeds 500000Euros, whereas theportfolio isdefinedasincludingcash deposits and transactions perquarter over theprevious 4quarters; The clienthasbeencarrying outtransactions, ofatleast 10000Euros pertransaction, atanaverage frequency of10 Eligible Counterparty Professional Client Retail Client information where applicable. The Clienthasread theMiFIDClientCategorisation sectionandconfirms thatitwillprovide thenecessary MiFID Questionnaire Should you needanyassistance, please donothesitate to discuss thiswithyour clientadvisor. Example ifthere ismore thanonerepresentative: body ofanentityfor each portfolio. Section 2and3should relate to theaccount holder, i.e.therelevant person(s) ortherelevant decisionmaking for financialinstruments, soplease skipsection1andgodirectly to section2. If you are classified asaProfessional Clientyou are considered to have thenecessary knowledge andexperience manage theaccount (e.g.holders ofpower ofattorney) shallfilloutaseparate form. In addition,anyperson and/ortherelevant decisionmakingbodyincase anentityhavingthepower to effectively of anentity. Section 1should relate to theaccount holder, i.e.therelevant person(s) ortherelevant decisionmakingbody do notanswer allthequestions, theBankisnotallowed to provide you withinvestment services. recommend anappropriate andmore personalised investment proposal. Please beinformed thatincase you Please take your timeandcarefully thinkaboutthequestions. Providing accurate answers willenable usto This assessment isbasedonquestions covering three mainareas: and expectations. The aimofthisquestionnaire isto helpdevise anappropriate investment strategy for your current situation GUIDANCE ON WHO SHOULD FILL OUT THE QUESTIONNAIRE: Existing ClientAccount N° New • • Section 2and3should relate to allrepresentatives asthey should bealignedonthesesections. Section 1should relate to allpersons authorisedto actonbehalfofthelegal entitytowards the Bank, Section 3:Your investment objective andrisktolerance Section 2:Your financialsituation Section 1:Your knowledge andexperience Client ALL INFORMATION WILL BE KEPT STRICTLY CONFIDENTIAL.

7 •••• LI I INVESTING WITH BANQUE HAVILLAND I FOR LEGAL ENTITIES I 502_3 8 •••• LI I INVESTING WITH BANQUE HAVILLAND I FOR LEGAL ENTITIES I 502_3 2) 1) have thenecessary knowledge andexperience for financialinstruments, soplease skipthissection. If you are classified asaProfessional Client“perse”orProfessional Client“onrequest”, you are considered to which products you may ormay notbefamiliar with. Understanding your personal andprofessional knowledge andexperience asaninvestor willhelpusassess Section 1:Knowledge andExperience 4) 3) REPRESENTATIVE 1 knowledge for more thanoneyear? Are you/have you beenemployed oractive inthepast 5years inapositionrequiring financial Please provide someinformation aboutyour highest educational level. What kindofinvestment service are you looking for inthefuture? What typeofinvestment service(s) are you familiar with? None Other DPM -Iwould like to delegate themanagementofmyinvestments to thebank validating eachdecision Advisory -Iwould like to beassisted inmyinvestment decisions,butIwant to betheone the bank Execution only services- Iwould like to take myown investment decisionswithoutassistance from assets to aprofessional Discretionary Portfolio Management(“DPM”)services -Ihave delegated themanagementofmy professional Investment Advice services -Ihave traded financialinstruments withtheassistance from a Execution only services -Ihave traded financialinstruments withoutassistance from aprofessional No Yes Higher education/non-finance Higher education/finance Secondary

Currency trading Commodities Precious Metals and (incl. DCI) Structured products other derivatives Forwards, Swaps or Options, Futures, Alternative Fund/REITS CFD Bonds (incl.funds) Equity (incl.funds) 5) 6) have thenecessary knowledge andexperience for financialinstruments, soplease skipthissection. If you are classified asaProfessional Client“perse”orProfessional Client“onrequest”, you are considered to which products you may ormay notbefamiliar with. Understanding your personal andprofessional knowledge andexperience asaninvestor willhelpusassess REPRESENTATIVE 2 any underlying important risks). (In thetable, knowledge meansthatunderstand you features thedistinctive of thefinancialproduct and and alsoprovide someinformation aboutyour experience witheachfinancialinstrument Please checkinthetable below theproducts whosefeatures andrisks you are aware of, Please provide some information aboutyour highest educational level. Other Highereducation/non-finance Highereducation/finance Secondary KNOWLEDGE ? Yes

<1 year

HOW LONG HOW ? 1y-5y

>5 years >5 years

NUMBER OF TRANSACTION <10

PERYEAR ? 10 -50

>50

<2 500€ VOLUME OF TRANSACTION

PERYEAR ? 10 000€ 2 500€-

>10 000 € 000 >10

9 •••• LI I INVESTING WITH BANQUE HAVILLAND I FOR LEGAL ENTITIES I 502_3 10 •••• LI I INVESTING WITH BANQUE HAVILLAND I FOR LEGAL ENTITIES I 502_3 Currency trading Commodities Precious Metals and (incl. DCI) Structured products other derivatives Forwards, Swaps or Options, Futures, Alternative Fund/REITS CFD Bonds (incl.funds) Equity (incl.funds) 8) 7) 10) 9)

What typeofinvestment service(s) are you familiar with? knowledge for more thanoneyear? Are you/have you beenemployed oractive inthepast 5years in a positionrequiring financial any underlying important risks). (In thetable, knowledge meansthat understand you features thedistinctive of thefinancialproduct and What kindofinvestment service are you looking for inthefuture? provide someinformation aboutyour experience witheachfinancialinstrument Please check in the table below the products whose features and risks you are aware of, andalso None No Yes DPM -Iwould like to delegate themanagementofmyinvestments to thebank each decision Advisory -Iwould like to beassisted inmyinvestment decisions,butIwant to betheonevalidating the bank Execution only services -Iwould like to take myown investment decisionswithoutassistance from assets to aprofessional Discretionary Portfolio Management(“DPM”)services -Ihave delegated themanagementofmy professional Investment Advice services -Ihave traded financialinstruments withtheassistance from a Execution only services -Ihave traded financialinstruments withoutassistance from aprofessional KNOWLEDGE ? Yes

<1 year

HOW LONG HOW ? 1y-5y

>5 years >5 years

NUMBER OF TRANSACTION <10

PERYEAR ? 10 -50

>50

<2 500€ VOLUME OF TRANSACTION

PERYEAR ? 10 000€ 2 500€-

>10 000 € 000 >10

11) Income andSpending term needsyou may have, thenourproposal would typically bemore conservative. investment risks ofyour portfolio. Hence, ifthelevel ofyour liquid assets istoo low to cover anyshort and emergencies. Furthermore, your finances andcommitments should beable to bearthepotential For example, thecurrent level ofyour liquidassets should behighenoughto cover shortterm needs Understanding your current financialsituationisimportant whendeveloping ourinvestment proposal. Section 2:Financial S 13) Assets andLiabilities 12) 14) What isyour annualnetincome? (Please provide thefigures from financialstatements your of theprevious year) (Please provide thefigures from financialstatements your of theprevious year) How doyou expect your future netincome to evolve over thenext 5to 7years? What isyour Equity (Assets –Liabilities)? What istheapproximate value ofyour total financial investment portfolio?

Over 5000 EUR Between 2000 000and5EUR Between 500 000and2EUR Less than500000EUR Over 3000 EUR Between 1000 000and3EUR Between 200000and1EUR Less than200000EUR Over 5000EUR Between 2000and5EUR Between 500000and2EUR Less than 500000EUR It islikely to improve significantly It islikely to improve alittle It islikely to remain muchthesame It islikely to worsen

ituation

11 •••• LI I INVESTING WITH BANQUE HAVILLAND I FOR LEGAL ENTITIES I 502_3 12 •••• LI I INVESTING WITH BANQUE HAVILLAND I FOR LEGAL ENTITIES I 502_3 17) Ability to bearlosses 16) 15) 18) Other Real estate Invested assets (securities,otherfinancialassets) Other Sale oftangible assets Profit/loss from financialoperations Liquid assets (deposits, cash) Income from core activities TOTAL TOTAL Can you afford aloss duringtheinvestment period? What isthecomposition ofyour assets (in%)?Remark: thetotal should be100%. mark itasincome from core activity) (If thecompany’s /organisation’s mainsource of income comes from thenplease financialoperations What isyour source ofyour income (in%)?Remark: thetotal should be 100%. your business continuity? Can you please indicate how muchofyour initialinvestment you could afford to lose withoutchanging

More than25% Between 16to 25% Between 5to 15% Less than5% Yes, ourlegal entityisnotdependentontheinvested amountorpotential annualreturns No, butourlegal entity hastheabilityto compensate apartialloss No, ourlegal entity cannot afford anyloss because we donothave access to otherfunds YOUR SCORE YOUR SCORE % % % % % % % % % % 19) Investment objective andtimehorizon NOTE: Please tickonebox only perquestion. objectives andliquidityneeds. Please take your time to consider the different scenarios and the impact they could have on your extent to whichyou are comfortable withtheriskoflosing money on aninvestment). It isalsooneofthemost important sectionsinthisquestionnaire asitdetermines your risktolerance (i.e.the and othercosts…), your expectations andyour timehorizon. section, you should think about your future liquidityneeds(suchasinvestments, property purchase, The next setofquestions willhelpestablish your investment objective andrisktolerance. Inthis Investment Objective3: andRisk Tolerance Section 20) financial instruments (and risks attached to them)thatare suitable for you. This sectionisimportant to helpassess your attitudeto risk(riskprofile), andtherefore thetypesof Attitude to risk How long isyour investment horizon? What istheprimarygoalofyour investments?

some solidyield. Iamaware thatlow-risk products usually have lower yields. Preservation ofcapital: Iwould notlike to lose anyofthevalue ofmyinvestments butwishto achieve Over 15years 10-15 years 5-10 years 3-5 years 1-3 years I mightbeobligedto pay furtheramounts inadditionto losing thetotal amountinvested. Speculation: Inthehopeofalong-term higherprofit Iconsciously take the riskthatinadverse cases, invested. Performance objective: Inthehopeofalong-term higherprofit Iamwillingto risk thetotal amount the value ofsomeparts ofmyportfolio. risk. However, inthehopeofhigherprofits, Iamwillingto assume risks andtolerate adecrease in Medium term growth: I am aware that purchasing financialinstruments might entail somedegree of a slightdecrease inthevalue ofourportfolio. risk. However, inthehopeofhigherprofits, Iamwillingto assume somedegree ofriskandtolerate Secure investment: Iamaware thatpurchasing financialinstruments mightentail somedegree of 13 •••• LI I INVESTING WITH BANQUE HAVILLAND I FOR LEGAL ENTITIES I 502_3 14 •••• LI I INVESTING WITH BANQUE HAVILLAND I FOR LEGAL ENTITIES I 502_3 21) 24) 23) 22) What best describesyour attitudeto risk? (The example purposes) isonlyfor illustrative given With whichofthehypothetical portfolios below would you feel most comfortable? 1% p.a.considering thatrisks willincrease thehigherexpected return? From the following three options with which would you be satisfied when deposit rates are around One ofthefinancialinvestments you made6monthsagoshows a15%loss. How do you react?

Portfolio A to aloss exceeding theinvested amountunderextreme conditions. Which isexpected to produce returns between -15%and+30%inthenext years andmay even lead Which willproduce returns between -2%and+10%inthenext years. Which willproduce astable 1-2%return inthenext years. This isanopportunityto strengthen myinvestment andlower myaverage purchase price. I understand theriskandwait calmly for thesituationto improve. I amworried butwait for thesituationto improve. I immediately selltheinstrument andinvest inaless riskyone. pursuit ofgreater return. of a substantial loss. I can also easily extend myinvestment horizon and/or top up my investments in I wishto achieve highreturns onmyinvestments. Iamwillingto accept highrisks andtheprobability higher returns orto recoup investment losses. I understand investing andits associated risks. Icould extend myinvestment horizoninpursuit of I am willing to accept moderate risks andprobability ofsomeloss inorder to achieve higherreturns. although Iunderstand itcan occur even withtraditionally low(er) riskinvestments. I am very concerned about taking risks. I prefer lower returns to reduce the probability of loss I donotwant to take anyfinancialriskandwishto preserve mycapital atalltimes. Portfolio C Portfolio B

Performance in % -15 -10 10 15 20 25 30 35 40 -5 0 5 portfolio C portfolio B portfolio A

Information Disclosure andInvestment Advice risks associated withtrading derivatives. The purposeinthesectiononderivatives isto ensure thattheClient fully understands and accepts thehigh the potential risks andhavingadapted hisinvestments to hisassets andneeds. in financialinstruments. TheClientshould notenter into anyinvestment transaction withoutunderstanding all sole objective isto provide basic information andto make clients aware oftherisks inherent to allinvestments The RiskDisclosure documentdoesnotcover allrisks inherent to investments infinancialinstruments. Its client advisorfor furtherinformation. questions orif you are interested inparticularfinancialinstruments, we recommend thatyou contact your that may beassociated withthefinancialinstruments inwhichyou may invest. Should you have anyspecific The purposeoftheriskdisclosure sectionisto give abriefoutlineofthemaincharacteristics andrisks The Clientfully understands (please tick): INFORMATION CONCERNING DERIVATIVES RISK DISCLOSURES CLIENT DECLARATION

or; The Clienthereby declares havingread andspecifically understood theRiskDisclosures section. the Clientmightbeexposed to risks exceeding its risktolerance and/orits financialcapabilities. inform theBankorits clientadvisor ofanychangethatmightoccur inits personal orfinancialsituation, The Clienthasunderstood thatincase theanswers donotreflect its actualsituationorifitshould fail to financial situationthatmakes itnecessary to changetheanswers. The Clientshallinform theBankorits clientadvisorassoonanychangeoccurs inits personal or of information provided inthequestionnaire are trueandcorrect. The Clienthereby declares thatithasunderstood allquestions ofthequestionnaire andallpieces management and/orfinancialinstruments recommendations. Havilland willnotbeinapositionto provide anypersonal investment services, includingportfolio The Clientunderstands andaccepts thatifitchoosesnotto answer thequestionnaire Banque That theconditions for trading withderivatives often changeandmust beconstantly watched. The needto carefully study thoseconditions whichcover trade withderivatives; That alltrading isatits own risk; instruments may carry specialrisks. the trading of options, futures and other derivatives andunderstand that trading with derivative The Clienthereby acknowledges thatithascarefully read theinformation onsectionconcerning The Clientdoesnotwant to trade derivatives. 15 •••• LI I INVESTING WITH BANQUE HAVILLAND I FOR LEGAL ENTITIES I 502_3 16 •••• LI I INVESTING WITH BANQUE HAVILLAND I FOR LEGAL ENTITIES I 502_3 Signature Name (incapitals) Location Signature Name (incapitals) Location The Clientdeclares that REPRESENTATIVE 2 REPRESENTATIVE 1 INVESTING WITH BANQUE HAVILLAND

The Clientrequests thatBanqueHavillandarchives its copy ofthisform. The Clientwishesto receive acopy oftheMiFIDquestionnaire by: The ClientisNOT entitled to enter into thetrading ofderivatives The Clientisentitled to enter into thetrading ofderivatives Date Date

E-mail

Hard Copy

E-banking further information. interested inparticularfinancialinstruments, we recommend thatyou contact your ClientAdvisorfor any with thefinancialinstruments inwhichyou may invest. Should you have anyspecificquestions orifyou are The purposeofthissectionisto give abriefoutlineofthemaincharacteristics andrisks thatmay beassociated Risk defaults onpaymentsfortheinvestors. currency orexchangecontrols mayindeedleadto as political instability. The ensuing unavailability of foreign Government risk includes the danger ofeconomicalas well of foreigncurrency or tocurrencyexchangecontrols. expiration or defaults on theloanduetounavailability although solvent,isunabletorepayitsloanandinterestat 1.3.1. Itmayhappenthatanissuerofdebtsecurities, 1.3. BOND AND GOVERNMENT RISK inflation rate. i.e. thedifferencebetweennominalinterestrateand the yield,realinterestrateshouldbetakenintoaccount, that oughttoberealisedthroughsuchassets.Tocalculate of theexistingassetsportfolioaswellrealyield Therefore, it is importantto take into account the real value 1.2.1. Inflationmaycausefinancialdamagetoaninvestor. 1.2. RISK OF INFLATION an investmentdecisionmayleadtolosses. analysis ofthedevelopmenteconomywhenmaking to takethesefactorsintoaccountaswellamistaken cycles varydependingon the differentcountries.Failure different sectorsoftheeconomy.Inaddition,economic variable, as are the repercussions of those variations on the duration andscopeoftheeconomicupdownturnsare according totherhythmofeconomicactivity.The influence prices of securities.Prices may fluctuate 1.1.1. Changes in theactivityof a marketeconomy always 1.1. ECONOMIC RISK 1. BASIC RISKS D isclosures commerce. delays becauseofmarketpractices orotherlimitationsof for atransactionofregistered shares, longperformance example, becauseofalengthytranscriptionprocedure of the security orto market practicemayoccur,for 1.5.3. Alackofliquidityduetotheinherentcharacteristics transaction costsmayapply. conditions (including as to price). In addition, higher carried outimmediately,oronlypartlyatunfavourable circumstances, purchaseorsellordersmayeithernotbe certain priceisnon-existentorextremelylow.Underthose arises whenthesupplyordemandforonesecurityata 1.5.2. Alackofliquidityduetomarketsupplyanddemand market practice. of liquidityduetothecharacteristicssecurityor of liquidity caused by market supply and demand and a lack Fundamentally, adistinctionhastobemadebetweenlack investors frombeingabletosellsecuritiesatmarketprices. 1.5.1. Insufficientliquidityofthemarketmayprevent 1.5. LIQUIDITY RISK the domesticcurrency. internal politicalcrisesmayweakentheexchangerateof in theworldandsafetyofinvestments.Additionally, the evolution ofthe economic activity, the political situation domestic interest rates and foreign rates, the assessment of currency aretheinflationrateofacountry,gapbetween currency. Materialelementsaffectingtheexchangerateofa exchange rateriskwheneversecuritiesareheldinaforeign 1.4.1. Sincecurrencyexchangeratesfluctuate,thereisan 1.4. EXCHANGE RATE RISK 17 •••• LI I INVESTING WITH BANQUE HAVILLAND I FOR LEGAL ENTITIES I 502_3 18 •••• LI I INVESTING WITH BANQUE HAVILLAND I FOR LEGAL ENTITIES I 502_3 instance, thereare,includingamongotherthings, United States/EuropeanEconomicAreaGovernments.For United States/EuropeanEconomicAreacompaniesorthe not usuallyassociatedwithinvestinginsecuritiesof countries, forthatmatter)involvescertainconsiderations markets thantheU.S.orEuropeanEconomicArea nations orcountrieswithlesswellregulatedsecurities governments) incertaincountries(suchasemerging 1.8.1. Investinginthesecuritiesofcompanies(and 1.8. SPECIFIC SECURITIES according totheimportanceofleverage. 1.7.3. Consequently,therisksofsuchpurchasesrise of losses. a consequence,chancesofgainsincrease,asdotherisks those investments will be proportionally more important. As financed securities,thesensitivitytopricefluctuationsof the leveragefactoraccompanyingpurchaseofcredit- The investorneedstobeawarethat,asaconsequenceof influence thecapacitytorepayloansinanegativeway. 1.7.2. Fluctuationsofpricespledgedsecuritiesmay investment amount. evolution of the price ofa security may exceed the initial the otherhand,lossincurredduetoanunfavourable to selldepositedsecuritiesatanunfavourablemoment.On unable topresentsuchcollateral,thebankmaybeforced limit guaranteedbyapledge.Iftheinvestorturnsouttobe may berequiredifpricesmovesoastoexceedthecredit additional risks.Ontheonehand,supplementarycollateral 1.7.1. Credit-financedpurchasesofsecuritiescontain 1.7. FINANCING RISK prospects oftherelevantissuer. cause significantdropsinpricesdespitetheactualfuture affect theoverallperformanceofsecurities.Theymay 1.6.1. Irrationalfactorssuchasopinionsorrumoursmay 1.6. RISK OF RUMOURS enough bythesaleofsecurities. short-term liquidityneedsthatcannotbecoveredquickly 1.5.4. Suchinsufficientliquiditymayalsocomeupdueto • • and costs associated withcurrency conversion; fluctuations in the rate ofexchange between currencies and inprice volatility; volume oftrading, resulting inpotential lackofliquidity of thesecuritiesmarkets insuchcountries andthelow social, political andeconomic instability; thesmallsize risks ofexpropriation, nationalisationandgeneral political andeconomic considerations, suchasgreater Call depositshavethesamecharacteristics astermdeposits 2.1.2.1.4. Calldeposits a foreigncurrency)andofinsolvency ofthecounterparty. (reinvestment risk), exchange rate (in case of a deposit in These productsaremainlysubjecttotherisksofinflation 2.1.2.1.3. R 2.1.2.1.2. C determined inadvance. deposits remuneratedatafixedmaturitydate at arate 2.1.2.1.1. Definition-Termdeposits:Thesearecash 2.1.2.1. DEPOSITS 2.1.2. Typesofproducts investors withastrongaversiontorisk. but alsobylowreturns.Thesesecuritiesaresuitablefor issued againsttheseloansarecharacterisedbylowrisk financial institutionsandlargecompanies,thesecurities Given thatborrowersonthemoneymarketareingeneral the EurozoneareEONIA,EURIBORandLIBOR. maturity oflessthanoneyear.Themainratesthatapplyin term financing(cashmanagement).Shortreferstoa companies placetheirshorttermassetsandobtainshort- banks, insurancecompanies,fundmanagersandlarge financial institutionssuchascentralbanks,commercial The moneymarketisaninformalonwhich 2.1.1. Definitionandcharacteristics 2.1. MONEY MARKET INSTRUMENTS 2. SPECIFICINVESTMENTRISKS • • • • • the deposit. the interest rate, thenominalamountandlength of INTERESTS: willbepaidatmaturityanddependon long-term (more than8years); short-term (upto 4years), medium-term (4-8years) or MATURITY DATE: Term deposits can beclassified as influence the day count convention. bank to thedepositor. Thecurrency ofthedepositwill INTEREST RATE: rate at which interest is paid by the States ortheEuropean Economic Area. than isthecase withsecuritiesmarkets intheUnited and insomecases less effective government regulation opportunities; certain government policiesthatmay restrict investment haracteristics isks

2.2.2. Characteristics bond (thecreditor)hasaclaimagainsttheissuerdebtor). repayment aredeterminedinadvance.Thepurchaserofa duration oftheloanaswelltermsandconditions payments onbondsmaybeeitherfixedorvariable.The A bondmaybeinbearerorregisteredform.Theinterest length oftime,andtorepaytheloanonexpirationdate. bondholders aspecifiedamountofinterestfor the pay (a company or a governmental body) promises to A bondisacertificate or evidenceofadebtonwhich the issuer 2.2.1. Definition 2.2. BONDS will yieldalowerrateofinterestthanhisinitialinvestment. expiration oftheinstrument,reinvestmentpossibilities investor bearstheriskofreinvestment,i.e.that at As moneymarketinstrumentsareshort-termproducts,the resulting incontagionoftheinternationalbankingsystem. crisis, such as the default of a major financial institution only materialise intheextremecaseofasevere banking risks formoneymarketsofOECDcountriescan Systemic of interestandnon-repaymentpartthecapital. The creditriskconsistsinthepossibilityofnon-payment 2.1.3. Additionalriskslinkedtomoneymarketinstruments by abankorcreditinstitution. A certificateofdepositisanegotiabledebtsecurityissued 2.1.2.4. CERTIFICATESOFDEPOSIT issued byacompany. Commercial paperisanegotiableshort-termdebtsecurity 2.1.2.3. COMMERCIALPAPER which representsareceivabledrawnontheState. by the TreasuryDepartmentofasovereignstateand A treasurynoteisashortormedium-termsecurityissued 2.1.2.2. TREASURYNOTES depositor. They canbeterminatedwitha2days“callnotice”fromthe but differfromtheseastheyhavenospecificmaturitydate. • • value (alsoknown asthe parvalue). Whentheissue The issue/redemption price can differ from the face Issue/redemption price issued. Itisusedasthebasis for calculating interest. amount ofaloan dividedbythetotal numberofbonds The nominalorface value ofabondrepresents thetotal Nominal or‘face’ value 2.2.3. Risks • • • • • • rates. The longer theduration oftheloan andthelower rates. the price ofasecurityincase ofariseinthoseinterest a fixed-rate securitycarries theriskofadecrease of evolution ofmarket rates entails thatthepurchaser of INTEREST RATE RISK:Theuncertainty concerning the influence theprice ofthesecuritiesissued bytheissuer. The deterioration oftheissuer’s cash flow doeslogically political developments witheconomic consequences. economicissuer, sector the oftheissuer and/or the to economy and/orinconsequence ofchangesrelated may changedependingonthe general evolution ofthe back interests and/or the loan. The solvency of an issuer permanent insolvency entailing its incapacity to pay INSOLVENCY RISK:Theissuer risks temporary or Redemption ofbonds that allcoupons are reinvested atthesamerate. interest rate andtime to maturity. Itis also assumed account thecurrent market price, parvalue, coupon the maturitydate. Thecalculation takes ofYTM into The rate ofreturn anticipated onabondifitisheld until Yield to maturity prospectus ofthespecificbond. depends ontheday count convention referred inthe to bepaid.Themethodfor calculating theinterest The coupon rate isthebasisfor calculating theinterest Coupon rate bond can differ significantly from its face value. or ontheprice ontheOTC market. Thefair value ofa The fair value ofabondisthelisted price onthemarket Market price orfair value investor). difference istheredemption premium (infavour ofthe the redemption price is higher than the par value, the subscription premium (against theinvestor). When price ishigherthantheparvalue, thedifference isthe - loan convertible into shares loan, determined byadraw, eachyear; reserved therightto repay agiven portionofits - bondsredeemable bydraw, i.e.theissuer has request ifithasreserved thispossibility (call); holder’s request (put),orattheissuing company’s - bondsthatcan beredeemed early, eitheratthe - redemption atmaturity; There are several typesofredemption: 19 •••• LI I INVESTING WITH BANQUE HAVILLAND I FOR LEGAL ENTITIES I 502_3 20 •••• LI I INVESTING WITH BANQUE HAVILLAND I FOR LEGAL ENTITIES I 502_3 2.3.2. Maincharacteristicsofashare company’s risks. etc.). Inexchangetheshareholderparticipatesfullyin company (financialresults,earnings,annualreports, The shareholderisalsoentitledtoinformationaboutthe dividends, part of theprofit generated by the company. and tovoteaswelltherightreceive,informof participation. Itentitlestheholdertoattendgeneralmeetings The sharegivestheholderpecuniaryrightsandof his entitlementsandcanbeinregisteredorbearerform. deed ofpropertydeliveredtotheshareholdertestify of thecapitalacompany,listedornot.Theshareis A shareisatransferablesecuritythatrepresents a part 2.3.1. Definition 2.3. SHARES • • • incorporation oftheissuing company. These rights are determined bylawandthearticles of Shareholder’s rights bonds, etc. bonds, convertible bonds,indexed bonds,subordinated reverse floating rate notes, zero coupon bonds,foreign bonds may carry, additional risks e.g. floating rate notes, RISKS OFSPECIFICKINDSBONDS: Certain kindsof expected yields may incurmodifications. in case ofadecrease ofthemarket rates. Thus,the include aprovision therepayment ofthebondholder EARLY REPAYMENT RISK:Theissuer ofabondmay a riseinthemarket rates. the interest rate, thehighersensitivityofbondsto securities atmaturity. receive only anamountequivalent to theunderlying the investor willnotbeentirely reimbursed, butwill - Reverse convertible bondsincludetheriskthat creditors. reimbursed after repayment to all higher ranked a bankruptcy oftheissuer, thosebondswillonly be other debentures oftheissuer. Indeed,incase of about the ranking of the debenture compared to For subordinated- bonds,investors oughtto enquire risks involved ofsuchinvestment. such bondsonly onthefullunderstanding ofthe involved insuchinvestment andshould purchase to theissuance prospectus aboutthespecificrisks - For thosetypesofbonds,investors should refer invested amount. which may have asa consequence the complete loss of the would consistinthebankruptcyofissuingcompany, investment cannotbeeasilyforecast.Anextremesituation of profitsandlosses.Therefore,thepreciseyieldsuch in thedevelopmentofcompanyaswellchances becomes aco-ownerofthecorporation.Heisparticipating the company, but makes a capital contribution and, as such, Company risk:Asharepurchaserdoesnotlendfundsto 2.3.4. Additionalriskslinkedtoshares 2.3.3. Typesofshares • • • • • Depositary Receipts (GDR). American Depositary Receipts (ADR)andGlobal comprise FiduciaryDepositary Receipts (FDR), can betraded instead ofshares. Share certificates representing oneormore shares of anissuer. They As its nameimplies,ashare certificate isacertificate Share certificates meetings. exchange for loss/reduction of voting rights atgeneral shares may carry advantages interms ofdividendsin Depending on the issuing company’s by-laws, some Ordinary orpreference shares sold withnoformalities. bearer share isnotregistered andtheshare can be formalities uponsale ofthesecurity. Theowner ofa of shareholders, resulting in the need for certain the owner isregistered inthecompany register The share isaregistered share whenthenameof Bearer/registered shares the company’s register ofshareholders. on sales ofregistered shares, whichare registered in there are often limitations oradministrative constraints can be sold without any specific formalities whereas Barring legal provisions to thecontrary, bearer shares Sale ofashare influence theevolution ofshare prices. the company itself. Bothrisks, together orseparated, be distinguished from the specificriskattached to duration ofthosecycles. Thegeneral market riskmust long-term withoutitbeingpossible to determine the may increase ordecrease intheshort,mediumor fluctuations whichmay lead to ariskofloss. Prices Stock prices may undergo unforeseeable price Return generally followabenchmark. performance oftheunderlyingmarket. Conventionalfunds investment theme, the return is largely dependent on the given financialasset,ageographicregionorspecific once theinvestorhasmadehischoiceofallocationfora to the markets defined in the prospectus. Consequently, no specificriskandthesoleismarketrelating fund’s investmentpolicyissuchthattheinvestorincurs the prospectusandinhalf-yearlyfinancialreports.The professional managementoftheassets,documentedin offers theadvantageofdiversifyingspecificrisksthrough small. Generallyspeaking,investmentinamutualfund are so widely spread that the impact of a default would be the risksspecifictoasovereigncountryand/orcompany notably those governed by part I of the 2002 UCITS III law, For retail investment funds marketed to the general public, 2.4.3. Risks determined inthefund’sprospectus. which investorscansubscribeaccordingtothefrequency is notdefinedorlimitedintheArticlesofassociationandto funds, forwhichthenumberofsharesthatcanbeissued capital. Themajorityoffundsareopen-endedinvestment shareholder sellshissharesorifthefundincreasesits purchase sharesinaclosed-endfundifanexisting defined in its Articles of association. An investor can only the numberofsharesitcanissueislimitedtoafixed An investmentfundisclassifiedasaclosed-endwhen 2.4.2. Characteristics dividend. give righttopaymentofrevenuesintheformanannual a distributionshareinthesamefund.Distributionshares Value (NAV)ofacapitalisationsharediffersfromthat out to investors in the fund. This explains why the Net Asset the fundwillbereinvestedandnodividendispaid by earned investor optsforacapitalisationshare,therevenues form of capitalisation sharesor distribution shares. If the Shares in mutual funds, often known as units, can be in the according totheriskspreadingprinciple. these intransferablesecuritiesorotherfinancialassets, purpose istocollectfundsfromthepublicandinvest An investmentfundisanvehiclewhosesole 2.4.1. Definition 2.4. INVESTMENT FUNDS reduced orpossiblynopaymentsmaybemade. case oflowprofitsorevenloss,dividendpaymentsmaybe on theprofitrealisedbyissuingcompany.Therefore,in DIVIDEND RISK:Thedividendofasharemainlydepends

minimum, theyusuallycontainthe followingspecifications: Option contractsmaybequitecomplicated;however,at 2.6.1.2. Characteristics of theunderlyingasset. remaining untiltheexpirationofoptionandvolatility contract), thestrikeprice,premiumbasedontime asset (commonlyastock,bond,currencyorfutures option derivesamongothersfromthevalueofanunderlying transaction ifsorequestedbythebuyer.Thepriceofan asset, whilethesellerincursobligationtofulfill obligation, toengageinsomespecifictransactiononthe frame, thebuyerofoptiongainsright,butnot price duringaspecifiedtimeframe.Duringthis concerning thebuyingorsellingofanassetatareference instrument thatestablishesacontractbetweentwoparties 2.6.1.1. D 2.6.1. Option a shareorcurrency. to whichitislinked—calledtheunderlyingasset—suchas based on the expected future price movements of the asset simply, anagreementbetweentwo parties) thathas a value, In finance,aderivativeisfinancialinstrument(or,more 2.6. DERIVATIVES 2.5.2. Risks of itsunderlyingassetsoverthecoursetradingday. trades atapproximatelythesamepriceasnetassetvalue holds assetssuchasstocks,commodities,orbondsand fund tradedonstockexchanges,muchlikestocks.AnETF 2.5.1. Definitionandcharacteristics: An ETFisaninvestment 2.5. EXCHANGE TRADED FUNDS • • • • • option) ortherightto sell(aputoption) whether theoption holder hastherightto buy(acall respective index ormarket. the costs ormechanismsusedto gainexposure to the markets itisdesignedto track. Thismay be due to from the price development of the index or targeted Tracking risk: TheETFs price development may diverge investment objective. to track theirrespective index orotherwisefulfill their counterparty risk where ETFs utilize derivatives in order Counterparty risk:ETFs may incuranissuance and/our consulting, amongothers, its prospectus. The investor may getinformation aboutanETFby the underlying asset oftheETF. their prices, thisdrop reflecting the decrease invalue of Market risk:ETFshares supporttheriskofadrop in efinition: An option is a derivative financial

21 •••• LI I INVESTING WITH BANQUE HAVILLAND I FOR LEGAL ENTITIES I 502_3 22 •••• LI I INVESTING WITH BANQUE HAVILLAND I FOR LEGAL ENTITIES I 502_3 avoid aclose-out. his collateral margin in order to maintain his position and unfavourable way,thesellerof optionwillhavetoadapt If marketpricesoftheunderlying assetvaryinan unlimited. premium, thelossesthathemightincurmaybepotentially higher riskthanitspurchase.Evenifthesellerreceivesa The saleofanoptionrequires,generallyspeaking,takinga or thepurchasedeliveryofunderlyingasset. the differencebetweenstrikepriceandmarket The exerciseoftheoptionmayeitherentailpayment as wellcommissionspaidforthepurchaseofoption. value. Inthiscase,theinvestorlosesoptionpremium investment. An option might reachits maturity without any The purchaseofanoptionrepresentsahighlyvolatile 2.6.1.3. Risks in ordertocoverhiscreditrisk. The seller of an option will have to post a collateral margin individually tailoredtomeetanybusinessneed. terms ofanOTCoptionareunrestrictedandmaybe private parties,andarenotlistedonanexchange.The counter options(OTCoptions)aretradedbetweentwo guaranteed bythecreditofexchange.Over-the- and aresettledthroughaclearinghousewithfulfillment Exchange tradedoptionshavestandardisedcontracts, “listed options”)areaclassofexchange-tradedderivatives. Counter Options.Exchange-tradedoptions(alsocalled Options canbeexchange-tradedoptionsorOver-the– • • • • • • unchanged. although theprice oftheunderlying asset remains Consequently, a change in the option’s price may appear option andthevolatility oftheunderlying asset. Other factors may come into play, like thematurityof depend ontheprice modification oftheunderlying asset. for putoptions.Theprice ofanoptiondoesnotsolely underlying asset decreases, whereas theopposite istrue A call optioncould lose value whentheprice ofthe tender theequivalent cash amount must deliver theactualasset onexercise, ormay simply the settlement terms, for instance whetherthewriter option can beexercised the expiration date, orexpiry, whichisthelast date the occur uponexercise is theprice atwhichtheunderlying transaction will the strike price, alsoknown astheexercise price, which shares ofXYZCo.Bstock) the quantityandclass oftheunderlying asset(s) (e.g.100 in percentageofthevalue contract. inception ofthecontract.Thismargin isgenerallyexpressed INITIAL MARGIN:Theinitialmargin isfixedatthemoment asset inthefutureassumesashortposition. assumes a long position, and the party agreeing to sellthe The party agreeing to buy the underlying asset in the future traded onafuturesexchange. futures price).Thearederivativecontractsand quality ataspecifiedfuturedatepriceagreedtoday(the a specifiedasset(eg.oil, gold) ofstandardizedquantityand a standardizedcontractbetweentwopartiestobuyorsell 2.6.3.1. Definitionandcharacteristics:Afuturescontractis 2.6.3. FUTURES 2.6.2.2. Risk called theforwardprice. future assumesashortposition.Thepriceagreeduponis position, andthepartyagreeingtosellassetin to buy the underlying asset in the future assumes along nothing toenteraforwardcontract.Thepartyagreeing which isanagreementtobuyorsellassettoday.Itcosts at apriceagreedtoday.Thisisincontrasttospotcontract, two partiestobuyorsellanassetataspecifiedfuturetime simply aforwardisnon-standardizedcontractbetween 2.6.2.1. Definitionandcharacteristics:Aforwardcontractor 2.6.2. FORWARDCONTRACTS • • • • closed ordisposedofwiththeagreement oftheotherparty. that are notstandardised. Assuch,positionsmay only be done. However, nomarket exists for OTC transactions Therefore, thesellingoffofcontracts can normally be OTC transactions is in general liquid and transparent. Specific risks for OTC: Themarket for standardised therefore themarked-to-market price oftheforward. interest rates willdirectly impactthe cost ofcarry and Interest rate risk: as stated above, the fluctuation of the fair market value oftheforward contract. fluctuation intheunderlying price willhave animpacton depends onthevalue ofits underlying asset any Underlying risk:asthefair value ofaforward contract additional collateral to better secure thepartyatgain. might call for the loss party to pledge collateral or daily margining. Hence, aforward contract arrangement can becustomized andmay includemark-to-market and forward date. However, forward contracts specification the counterparty is unable to meet its obligations at the consideration. Thecounterparty riskcan materialize if instruments, thecounterparty riskhasto betaken into Counterparty risk:asforward transactions are OTC losses totheindicatedamount,buttheywillbeperformed performed duringofficehours. They donotallowtolimit Stop-loss transactions,iftheyare possible,mayonlybe not impossibleinsuchacaseto set offthecontract. price fluctuations. It might therefore become very difficult if fix limitsforcertaincontractsinordertolimitexcessive DIFFICULT ORIMPOSSIBLESETOFF:Sockexchangemay price, whichmaybealotlowerthanthecurrentprice. have todelivertheunderlyingassetatinitiallyagreed the contractorunderlyingasset,forwardsellerwill THE UNDERLYINGASSET:Despiteariseoftheprice MODIFICATION OFTHEVALUECONTRACTOR 2.6.3.2. Risks moment ofthedeliveryispayable. between the contract price and the market price at the whereas for cash settlement contracts, only the difference the contractual provisions need to be performed in full, SETTLEMENT: In caseof an effectivedeliveryof the asset, accumulated arerealised. by engaging inanoppositetransaction.Gainsandlosses the maturityoffutureoffsethisposition before OFFSETTING POSITIONS:Theinvestormay,atanytime broker cansellhissecuritiestomeetthemargincall. close outtheirposition.Ifhedoesnoneofthese,thenthe either hastoincreasethemarginthathedepositedor broker orexchangeissuesamargincall.Theinvestornow account isbelowtheminimummarginrequirement, MARGIN CALL:Whenthemarginpostedin • • • before dueterm. investor defaults thetransaction willbeterminated required from theinvestor atvery shortnotice. Ifthe margin becomes insufficient, a margin call will be a sufficient margin to cover any shortfall. In case the The investor willneedto have constantly athisdisposal underlying asset attheinception price. the purchaser may lose isthenominalvalue ofthe and themarket value atdelivery. Thus,themaximum difference between theprice agreed uponinthecontract market value. Therefore, theseller’s riskconsists ofthe which can bepotentially muchhigherthanthecurrent accept the asset at the price agreed upon in the contract decreases, the forward purchaser will still have to In case thevalue ofthecontract ortheunderlying asset potential for theseller isunlimited. theoretically riseinanunlimited manner, theloss value atthesettlement date. Asthemarket value may the price agreed uponinthecontract andthemarket For the seller, the risk equals the difference between 2.7.2. Risks investment components: A typicalstructuredproductwillhavetwounderlying understanding oftheirstructure. products, sotheinvestmentcanbedoneonlyuponadeep You couldlosesomeorallofthemoneyyouputintothese products mightbeverycomplicated. others offerpartialornocapitalprotection.Structured Some structuredproductsofferfullcapitalprotection,but legal forms(OTCtransaction,note,certificateorfund). broad or specific. Theproductitself can take many different market view:bullishorbearish,volatilerangebound, of derivatives,astructuredproductcanreflectalmostany forwards inonepackage.Byusingtherightcombination several differentinstrumentssuchasoptions,swapsand asset orassets.Atypicalstructuredproductwillcombine at the end of the investmentterm, linked to a particular Whatever theview,investorsreceiveawell-definedpayout view orinvestmentstrategywithinonepackagedproduct. The purposeofstructuredproductsistocaptureaparticular 2.7.1. Characteristics 2.7. STRUCTURED PRODUCTS perform andtoeffectivelydelivertheunderlying. unfavourable marketinordertobeable,atsettlement, seller willhavetobuytheunderlyingassetinanextremely conclusion of the contract (short sale) entails the risk that the ACQUISITION: Selling an asset without owning it at the that momentatbestorders. once the limited amount is attained and might become at • • • understand how thiscollateral istreated andhow safe itis. party fails. If this is the case, you should check that you (additional money inotherassets) incase thethird products tryto mitigate this risk byholding collateral if aproduct iscalled ‘protected’ or‘guaranteed’. Some bankrupt, you could lose someorallofyour money, even generally provided byathird party. Ifthatthird partygoes by a‘planmanager’, butthereturns andguarantees are Credit risk–aproduct may bedesignedandmarketed could getatmaturity. used to provide thepotential growth element thatyou of anotherasset, suchasoilor gold). Thiscomponent is something else,suchasastock market index ortheprice a derivative: (afinancialinstrument linked to thevalue of your originalmoney atmaturity; and specified rate andinterval, andmay repay someorallof to provide capital protection. Itmay pay interest ata a note: (atypeofdebtsecurity).Thiscomponent isused 23 •••• LI I INVESTING WITH BANQUE HAVILLAND I FOR LEGAL ENTITIES I 502_3 24 •••• LI I INVESTING WITH BANQUE HAVILLAND I FOR LEGAL ENTITIES I 502_3 As a class, hedge funds undertake a wider range of investment As aclass,hedgefundsundertake awiderrangeofinvestment these strategiesarehighlyindividual. determines the type of investments it undertakes and Every hedgefundhasitsowninvestmentstrategythat fee tothefund’sinvestmentmanager. open toalimitedrangeofinvestorswhopayperformance A hedgefundisaregulatedinvestmentthattypically 2.8.1. DefinitionandCharacteristics 2.8. HEDGE FUNDS • • • • • • • • which theproduct isheld. on theirlegal structure andonanytax wrapper in Tax: thetax treatment ofstructured products depends of theinvestment. suffer significant erosion byinflationover theterm capital protected’, thereal value ofthecapital can Inflation: even where a product is marketed as ‘100% which they are linked. proportion ofanygainsmadebytheindex orasset to Limited participation:manyproducts only offer a to anygains. level orasset value, itmay alsoprevent fullexposure this can protect you from short-term falls inanindex asset prices duringthelife oftheinvestment. While depend on several measurements of index levels or Averaging: thereturn offered bysomeproducts can not receive additionalreturns. asset price risesabove thelevel ofthatcap, you do level ofthereturn you can receive, soifanindex or Capped returns: many products restrict orcap the lower thanonotherstock-market-linked investments. make upthatindex. Thiscan meanthatreturns are receive any dividend income from the companies which performance ofastock market index, you willnot No dividendincome: even ifaproduct islinked to the investment term. expensive to access your money before theendof the is held for thefullterm. Itmay bedifficultor protection) are usually only available iftheproduct Liquidity risk: the benefits offered (such as capital money dependsontheperformance ofastock market Market orinvestment risk–ifthereturn ofyour original you could lose your originalmoney very quickly. some or allofyour originalmoney. If thishappens, falls duringtheterm oftheinvestment you may lose index orasset, thenifthelevel ofthatindex orasset the short position directly hedges a corresponding long position. the shortpositiondirectlyhedgesa corresponding longposition. can beincurredonalosingbetare intheorylimitless,unless Short selling-duetothenatureof short selling,thelossesthat increasing therisk. times greaterthantheinitialinvestmentandtherefore trade onmargin,withcertainfundsborrowingsumsmany investors, ahedgefundwilltypicallyborrowmoneyor Leverage -inadditiontomoneyinvestedintothefundby characteristics: regulated fund.Manyhedgefundshavesomeofthese fund canbeariskierpropositionthaninvestingin a betorinvestment,investingincertaintypesofhedge Despite a“hedge”beingmeansofreducingtherisk 2.8.3. Risks illiquid orlong-termstrategies. reducing turnoverandallowingtheuseofmorecomplex, is todiscourageshort-terminvestmentinthefund,thereby a specifiedportionofaninvestment.Thepurposethefee the dateofinvestment,oronlytowithdrawalsrepresenting period of time (typically a year) following specified a during money fromthefund.Aredemptionfeeisoftenchargedonly “withdrawal fee”or“surrendercharge”)iftheywithdraw Some fundschargeinvestorsaredemptionfee(or counting bothrealizedandunrealizedprofits. fee iscalculatedasapercentageofthefund’sprofits,usually characteristics ofhedge funds. The manager’s performance Performance fees (or “incentive fees”) are one of the defining calculated asapercentageofthefund’snetassetvalue. As withotherinvestmentfunds,themanagementfeeis incentive fee)fromthefund. management feeandaperformance(alsoknownasan A hedgefundmanagerwilltypicallyreceivebotha 2.8.2. Fee derivatives withhigh-yieldratingsanddistresseddebt. dominate certainspecialtymarketssuchastradingwithin will usuallybehigherstillduetoleverage.Hedgefunds many billionsofdollars,andthegrossassetsfund funds. The net asset value of a hedge fund can run into many oftheregulationsthatgovernordinaryinvestment set byregulators,andareaccordinglyexemptedfrom range ofprofessionalorwealthyinvestorswhomeetcriteria In mostjurisdictions,hedgefundsareopenonlytoalimited methods, notablyshortsellingandderivatives. of therisksinherentintheirinvestmentsusingavariety the name implies,hedge funds often seek to hedge some and shortpositionsinshares,bondscommodities.As funds, and invest in a broaderrangeofassetsincludinglong and tradingactivitiesthantraditionallong-onlyinvestment the marketmaygeneratemajorgains, butalsohighlosses. LEVERAGE EFFECT:Incaseofleverage effect,movementsin several years. or annuallywithcompulsoryholdingperiodsofatleast ended fundsmayprovideliquidityonlymonthly,quarterly, the otherhand,realestateinvestmentssuchasclosed- investing inrealestategenerallyhaveadailymarket.On investment companiesandopen-endedfunds possible torealiseprofitsintheshortterm.Listed Such investmentsareusuallyilliquidanditmaynotbealways of investmentslinkedtorealestatecanvaryagreatdeal. POTENTIALLY LIMITEDLIQUIDITY:Liquidityandtradability 2.9.3. Risks of aprivateequityinvestment. Some realestateinvestments may havethecharacteristics portfolio volatilityandservesasahedgeagainstinflation. of diversification.Suchdiversificationgenerallyreduces different realestateinvestments,thereisacertaindegree investment fundorcompanyholdsanumberof funds or listed investmentcompanies.Wheresuch Such investments are generally made through investment 2.9.2. Characteristics properties, etc. assets, such asresidential housing, office buildings, retail Real estateinvestmentscompriseinto“real” 2.9.1. Definition 2.9. INVESTMENTS IN REAL ESTATE money thefundmaytakelargelosses. out ofthemoneycallorputoptions.Iftheseexpirein Short volatility-certainhedgefundstrategiesinvolvewriting may carryundisclosedstructuralrisks. financial regulatorsasregulatedfunds,andthereforesome jurisdictions, notsubjecttoasmuchoversightfrom Lack ofregulation-hedgefundmanagersare,insome an investmentdecision. diversification oftheportfolio,andotherfactorsrelevantto be difficultforaninvestortoassesstradingstrategies, few public disclosure requirements. It can therefore with Lack oftransparency-hedgefundsareprivateentities sub-prime mortgages. securities, andcollateralizeddebtobligationsbasedon high degreesofrisk,suchasyieldbonds,distressed types offundstotakeonunderlyinginvestmentsthatcarry Appetite forrisk-hedgefundsaremorelikelythanother Ordinary fundsveryrarelyuseshortsellinginthisway.

25 •••• LI I INVESTING WITH BANQUE HAVILLAND I FOR LEGAL ENTITIES I 502_3

Holder(s) fully understand(s) andaccept(s) thehighrisks associated withtrading derivatives. The purposeinthissectionisthatBanqueHavilland(Liechtenstein) Ltd. would like to ensure thattheAccount I be requiredinordertomakean equivalentdealdirectlyin profit oryieldwithasmallercapital investmentthanwould underlying property. They canalso be usedtoachievea anticipated unfavourablepricedevelopmentaffectingthe 2.2. Derivativescanbeusedtocreateahedgeagainstan indicator, forinstanceanindex. example, currencyoracommodity,someforofvalue instrument, someotherassetwithafinancialvalue,for below simplyasproperty)canbecomprisedofafinancial an underlyingvalue.Thispropertyorthisvalue(described market. Thederivativeislinkedtoanunderlyingpropertyor the agreementitselfissubjecttotradingonsecurities 2.1. Aderivativeisaformofagreement(contract)where 2. THE USE OF DERIVATIVE INSTRUMENTS positions) throughthepurchaseorsaleofoffsettingcontracts. placements inderivativecontracts(offsettingorclosingouthis example, byprovidingfurthersecurityorterminatinghis prepared to take swift action should this prove necessary, for 1.2. Furthermore, the Client,inhisowninterests, should be Banque Havilland(Liechtenstein)Ltd. can befoundinthemedia(priceinformation,etc.)andfrom under constant surveillance. Information for surveillance also keephisplacements(positions)insuchinstruments with thecharacteristicsofinstruments.Theclientmust conditions whichapplyfortradewithsuchinstrumentsand management agent,becomeconversantwiththose and mustthereforepersonally,orthroughhiscapital sheet. TheClientbearssoleresponsibilityfortherisks which aredescribedingreaterdetailthisinformation 1.1. Tradewithderivativesisassociatedcertainrisks 1. RISKS WITH DERIVATIVE INSTRUMENTS IN GENERAL nformation Concerning D erivatives both partieshaveequalobligations intermsoftheagreement. the agreement (theclosuredate).Nopremiumsarepaidsince example, cashsettlement,oftheagreementatatimeshownin predetermined priceandwithadeliveryorotherexecution,for and salerespectivelyoftheunderlyingpropertyata binding agreementwitheachotherconcerningpurchase 3.3. Afuturemeansthatthepartiesenterintoamutually the contractifholderwishesit(exercisingoption). obligation todoso.However,theissuerisobligedfulfil receives a right to utilise the contract but does not have any holder paysaconsideration(premium)totheissuerand option) oronlyontheclosingdate(Europeanoption).The utilised atanytimeduringthematurityperiod(American agreement can,dependingonthekindofoption,eitherbe contract) atapredeterminedprice(theexerciseprice).The the underlying property to the other party (the holder of the (the issuer ofthe option contract) undertakes to buy or sell 3.2. Anoptionisanagreementwhichmeansthatoneparty options, futuresandswapagreements. 3.1. Theprincipaltypesofderivativeinstrumentsare 3. DIFFERENT TYPES OF DERIVATIVE INSTRUMENTS instruments. the rightderivativeinstrumentorcombinationofsuch underlying propertytobeexpectedandonthatbasischoose the intendedpurposeandpricedevelopmentin important thattheClientisclearinhisownmindasto 2.3. Beforestartingtotradewithderivatives,itistherefore will developoveracertainperiodoftime. expectation astohowthepriceofunderlyingproperty other purposes.Theuseofderivativesisbasedonacertain the underlying property.Derivatives can also be used for

27 •••• LI I INVESTING WITH BANQUE HAVILLAND I FOR LEGAL ENTITIES I 502_3 28 •••• LI I INVESTING WITH BANQUE HAVILLAND I FOR LEGAL ENTITIES I 502_3 on thecollateralrequirement, which canchangequickly thereafter. Thus, the leverage effect also has its impact shape ofsupplementarycollateralmayberequired derivative increasesordecreases.Furthercoverinthe property withtimeandconsequentlythevalueof or downward movements in the price of the underlying 4.4. Thecollateralrequirementsvaryinstepwithupward provide collateralforsuchobligationtheoutset. option orenteringintoafutureagreementisrequiredto 4.3. Apartyassuminganobligationthroughissuing unfavourable direction. during theday,shouldderivativestartdevelopinginan own interests,shouldbepreparedtoactswiftly,often property is of the utmost importance. The Client, in his price developmentofthederivativeandunderlying construction andmannerofuse.Closesurveillancethe risk oflossrespectively,variesdependingonthederivative’s 4.2. Theleverageeffect,i.e.thepossibilityforprofitand from expectations. development intheunderlyingpropertyturnsoutdifferent change invalueoftheunderlyingproperty,ifprice a greater loss on the derivatives in comparison with the other hand, the leverage effect can just as well result in had beenmadedirectlyintheunderlyingproperty.On larger profitontheinvestedcapitalthanifinvestment to asaleverageeffectand,ontheonehand,canlead underlying property.Thereflectedpriceisthereforereferred invested (paidpremium)thanthechangeinvalueof price isoftenthegreaterimpactinrelationtoamount the rateorpriceofderivative.Thisreflected development oftheunderlyingpropertyisreflectedin of derivativeinstrumentsissuchthattheprice intending tradinginsuchinstruments.Theconstruction instruments haveshouldbecarefullynotedbyanyone 4.1. The following characteristics which derivative 4. CHARACTERISTICS OF DERIVATIVE INSTRUMENTS anticipated pricedevelopmentofunderlyingproperty. in ordertoattainacertainfinancialresultrelationthe against variationsinthepriceofunderlyingproperty,or (strategy) inordertocreate,forinstance,acertainhedge 3.5. Derivativescanalsobecombinedinacertainway of currencies(currencyswap). other atacertainpointintime,forexample,differentkinds (interest swap),ortoswapsomeformofpropertywitheach calculated atafixedandfloatinginterestraterespectively payments toeachotheron a current basis, forexample, 3.4. Aswapagreementmeansthatthepartiesagreetomake

the transaction. you tosubstantiallygreaterrisks thantheinitialvalueof require youtomakeaseriesofpaymentsandmayexpose 5.5. Contingentliabilityinvestmenttransactionsmay amount paidwhenyouenteredthecontract. payments incertaincircumstancesoverandaboveany not margined,itmaystillcarryanobligationtomakefurther responsible fortheresultingdeficit.Evenifatransactionis your positionmaybeliquidatedatalossandyouwill the position.Ifyoufailtodosowithintimelimitrequired, pay substantialadditionalmarginatshortnoticetomaintain If themarketmovesagainstyou,youmaybecalleduponto deposit withyourbrokertoestablishormaintainaposition. options, youmaysustainatotallossofthemargin 5.4. Ifyoutradeinfutures,contractsfordifferencesorsell purchase priceimmediately. against thepurchaseprice,insteadofpayingwhole are margined,requireyoutomakeaseriesofpayments 5.3. Contingentliabilityinvestmenttransactions,which of theimplications. may alsohaveacontingentliabilityandyoushouldbeaware as outlinedabove.Transactionsincontractsfordifferences in afutureoranoptionandyoushouldbeawareofthese contract fordifferencescarriesthesamerisksasinvesting these contractscanonlybesettledincash.Investinga rate swaps.However,unlikeotherfuturesandoptions, the FTSE100indexaswellcurrency,equities,andinterest 5.2. Thesecanbeoptionsandfuturesonanindex,suchas Contracts forDifferences(CFDs). 5.1. Futuresandoptionscontractscanalsobereferredtoas 5. CONTRACTS FOR DIFFERENCES (CFDS) the maturityperiodofderivativeinstruments. decreases. TheClientshouldthereforealsocarefullywatch end ofthematurityperiodduetofactthattimevalue generally decreases more and more quickly towards the maturity period.Thepriceofaheldoption,forexample, changes areoftengreatestforinstrumentswithashort vary fromaveryshortperioduptoseveralyears.Theprice 4.5. Thematurityperiodforderivativeinstrumentscan closing outtheposition. collateral requirementinordertoavoidunintentionally follow thepricedevelopmentandhaveregardto minimise thedamage.AClientshouldthereforecarefully out theposition)withoutreferencetoClientinorder institution hastherighttoterminateplacement(close collateral, asarulethecounterpartyorsecurities and radically.IftheClientfailstoprovideenough

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