Threadneedle Prospectus - Threadneedle Investments

Threadneedle (Lux) SICAV Prospectus
lower credit rating are generally considered to have a higher
credit risk and a greater possibility of default than more highly
rated securities. In the event that any issuer of bonds or other
debt securities experiences financial or economic difficulties, this
may affect the value of the relevant securities (which may be
zero) and any amounts paid on such securities (which may be
zero). This may in turn affect the Net Asset Value per Share.
Investors in any Portfolio investing in OTC derivatives should be
aware that the assets covering the obligations of such Portfolio
under such OTC derivatives, where applicable, will generally
include bonds or other debt instruments that involve credit risk
that may be retained by such Portfolio.
Counterparty Risk
This risk relates to the quality of the counterparty with whom
the Management Company or the relevant Sub-Advisor does
business, in particular for the settlement/delivery of financial
instruments or the conclusion of financial forward contracts.
The risk reflects the counterparty’s ability to honour its
commitments (payment, delivery, repayment, etc).
instrument. The past performance of an index or sub-index is
not necessarily a guide to its future performance.
When a Portfolio invests in a financial derivative instrument on an
index or a sub-index, the relevant Sub-Advisor will not actively
manage the underlying components of such financial derivative
instrument. The selection of the underlying components will be
made in accordance with the relevant index composition rules
and eligibility criteria and not by reference to any performance
criteria or performance outlook.
Investors should be aware that investments in financial derivative
instruments on indices or sub-indices involve assessing the risk
of an investment linked to the relevant index or sub-index and,
where applicable, the techniques used to link the investment to
the underlying index or sub-index.
The value of the underlying indices or sub-indices and the value
of the techniques used to link the investment to them may
vary over time and may increase or decrease by reference to a
variety of factors which may include, amongst others, corporate
actions, macro economic factors and speculation.
Options and futures on currencies and other assets
The sale of calls on currencies and other assets commits the
relevant Portfolio to supply the underlying asset to the call
purchaser if he or she exercises the option to buy. This gives rise
to the risk that, if the option is exercised, the Portfolio could
either fail to benefit from any significant rise in the value of the
underlying asset or be forced to purchase that asset on the open
market at a higher price in order to supply it to the counterparty
to the contract. In the case of the sale of puts on currencies or
other assets, the risk is that the relevant Portfolio will be forced to
buy those currencies or other assets at the strike price, even
though their market prices may be significantly lower at the
exercise date. The value of fund assets could be more adversely
affected by option leverage than by the direct purchase of
currencies or other assets.
Similar risks accompany financial futures in which the parties to
the contract agree to deliver an agreed asset or currency at an
agreed time at an agreed price. Leverage and its associated risks
exist here too because only one part of the contract (the “margin”)
must be delivered immediately. Sharp price fluctuations in either
direction on the margin can produce major gains or losses. In
private transactions, the duty to make margin payments need not
necessarily apply.
Financial derivatives on indices or sub-indices
Some Portfolios may invest in financial derivative instruments on
indices or sub-indices. When investing in such instruments, there
is no assurance that the underlying index or sub-index will
continue to be calculated and published or that it will not be
amended significantly. Any change to the underlying index or
sub-index may adversely affect the value of the relevant
Investment in warrants
Warrants confer on the investor the right to subscribe a fixed
number of ordinary shares in the relevant company at a
pre-determined price for a fixed period.
The cost of this right will be substantially less than the cost of the
share itself. Consequently, the price movements in the share will
be multiplied in the price movements of the warrant. This
multiplier is the leverage or gearing factor. The higher the leverage
the more attractive the warrant. By comparing, for a selection of
warrants, the premium paid for this right and the leverage, their
relative worth can be assessed. The levels of the premium and
gearing can increase or decrease with investor sentiment.
Warrants are therefore more volatile and speculative than
ordinary shares. Investors should be warned that prices of
warrants are extremely volatile and that furthermore, it may not
always be possible to dispose of them.
The gearing effect of investments in warrants and the volatility of
warrant prices make the risks attached to investment in warrants
higher than is the case with investments in equities.
Mortgage-backed securities
The Portfolios may invest in mortgage derivatives, including
mortgage-backed securities. Mortgage pass-through securities
are securities representing interests in “pools” of mortgages in
which payments of both interest and principal on the securities
are made monthly, in effect “passing through” monthly payments
made by the individual borrowers on the residential mortgage
loans which underlie the securities. Early or late repayment of
principal based on an expected repayment schedule on mortgage
pass-through securities held by such Portfolios (due to early or
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