Common use of Fixed Income Securities Clause in Contracts

Fixed Income Securities. A Sub-Fund, where stated in Annex A, may invest in bonds or other fixed income securities, including, without limitation, commercial paper and "higher yielding" (including non-investment grade) (and, therefore, higher risk) debt securities. A Sub-Fund may therefore be subject to credit, liquidity and interest rate risks. Higher-yielding debt securities are generally unsecured and may be subordinated to certain other outstanding securities and obligations of the issuer, which may be secured on substantially all of the issuer's assets. The lower rating of debt obligations in the higher-yielding sector reflects a greater probability that adverse changes in the financial condition of the issuer or in general economic conditions or both may impair the ability of the issuer to make payments of principal and interest. Non-investment grade debt securities may not be protected by financial covenants or limitations on additional indebtedness. In addition, evaluating credit risk for debt securities involves uncertainty because credit rating agencies throughout the world have different standards, making comparison across countries difficult. Also, the market for credit spreads is often inefficient and illiquid, making it difficult to accurately calculate discounting spreads for valuing financial instruments. It is likely that a major economic recession could disrupt severely the market for such securities and may have an adverse impact on the value of such securities. In addition, it is likely that any such economic downturn could adversely affect the ability of the issuers of such securities to repay principal and pay interest thereon and increase the incidence of default for such securities. Inflation Risk. Inflation may reduce the asset value of the investment. The purchasing power of the invested capital is reduced if the inflation rate is higher than the income generated by the investments. Leverage. Investments in a Sub-Fund may comprise elements of leverage through the use of derivative instruments which may potentially magnify losses and may result in losses greater than the amount invested in the derivative itself. Hedging. Hedging strategies in general are usually intended to limit or reduce investment risk, but they can also be expected to involve transaction costs, involve a risk of loss, may give rise to liquidity problems or may inherently limit or reduce the potential for profit. Currency Hedging. A Sub-Fund may enter into foreign currency forward contracts for the purpose of hedging underlying exposures. These contracts involve a risk of loss and may give rise to liquidity problems. Timing of Gains and Losses. Sub-Funds may invest in securities that must be held for a significant period before the success or failure of the investment becomes apparent or any gains can be realized. Difficulty of Locating Attractive Investments. Identifying, completing and realizing gain on attractive investments is highly competitive, involves significant uncertainty and offers no guarantee of success. Sub- Funds will compete for gaining access to attractive investments with other investors. The difficulty of finding suitable investments and the competition involved in securing such an investment may result in a failure to meet the investment objectives or strategies of a Sub-Fund. Psychological Market Risk. Market sentiment, opinion and rumour may result in a significant price decline, even if the earnings situation and prospects of the companies in which investments are made might not have changed significantly. The psychological market risk has a particularly strong effect on equities.

Fixed Income Securities. A Sub-Fund, where stated in Annex A, may invest in bonds or other fixed income securities, including, without limitation, commercial paper and "higher yielding" (including non-non- investment grade) (and, therefore, higher risk) debt securities. A Sub-Fund may therefore be subject to credit, liquidity and interest rate risks. Higher-yielding debt securities are generally unsecured and may be subordinated to certain other outstanding securities and obligations of the issuer, which may be secured on substantially all of the issuer's assets. The lower rating of debt obligations in the higher-yielding sector reflects a greater probability that adverse changes in the financial condition of the issuer or in general economic conditions or both may impair the ability of the issuer to make payments of principal and interest. Non-investment grade debt securities may not be protected by financial covenants or limitations on additional indebtedness. In addition, evaluating credit risk for debt securities involves uncertainty because credit rating agencies throughout the world have different standards, making comparison across countries difficult. Also, the market for credit spreads is often inefficient and illiquid, making it difficult to accurately calculate discounting spreads for valuing financial instruments. It is likely that a major economic recession could disrupt severely the market for such securities and may have an adverse impact on the value of such securities. In addition, it is likely that any such economic downturn could adversely affect the ability of the issuers of such securities to repay principal and pay interest thereon and increase the incidence of default for such securities. Inflation Risk. Inflation may reduce the asset value of the investment. The purchasing power of the invested capital is reduced if the inflation rate is higher than the income generated by the investments. Leverage. Investments in a Sub-Fund may comprise elements of leverage through the use of derivative instruments which may potentially magnify losses and may result in losses greater than the amount invested in the derivative itself. Hedging. Hedging strategies in general are usually intended to limit or reduce investment risk, but they can also be expected to involve transaction costs, involve a risk of loss, may give rise to liquidity problems or may inherently limit or reduce the potential for profit. Currency Hedging. A Sub-Fund may enter into foreign currency forward contracts for the purpose of hedging underlying exposures. These contracts involve a risk of loss and may give rise to liquidity problems. Timing of Gains and Losses. Sub-Funds may invest in securities that must be held for a significant period before the success or failure of the investment becomes apparent or any gains can be realized. Difficulty of Locating Attractive Investments. Identifying, completing and realizing gain on attractive investments is highly competitive, involves significant uncertainty and offers no guarantee of success. Sub- Funds will compete for gaining access to attractive investments with other investors. The difficulty of finding suitable investments and the competition involved in securing such an investment may result in a failure to meet the investment objectives or strategies of a Sub-Fund. Psychological Market Risk. Market sentiment, opinion and rumour may result in a significant price decline, even if the earnings situation and prospects of the companies in which investments are made might not have changed significantly. The psychological market risk has a particularly strong effect on equities.