1. GFI China Select Equity Fund (“Sub-Fund”) is a sub-fund of GFI Unit Trust Series, which is a Hong Kong domiciled umbrella structure unit trust. It is governed by the laws of Hong Kong. The Sub-Fund seeks to achieve its investment objective by investing at least 70% of its NAV in equity securities of Greater China companies. The Sub-Fund may invest more than 70% of its NAV in onshore Mainland Chinese equities securities through the qualified foreign investor (“QFI”) status of the QFI Holder.

2. The Sub-Fund may be subject to: Investment risk, Equity market risk, Risks associated with investment made through the QFI regime, Risks associated with the Stock Connect, Risks associated with the ChiNext Market and/or the STAR Board, Risk associated with small-capitalisation / mid-capitalisation companies, Risks associated with fixed income securities, Concentration risk, Emerging market risk, RMB currency and RMB denominated classes risk, Mainland China tax Risk, Currency and foreign exchange risk, Risks associated with distribution out of capital or effectively out of capital.

3. Investment involves risks, fund value may go up as well as down, past performance information presented are not indicative of future performance. Investors may suffer substantial loss.

4. Investors should not make investment decisions based on this material alone; before making any investment decision, investors should carefully read the Explanatory Memorandum and the Product Key Facts Statement of the Sub-Fund for further details including the risk factors.

5. You should not invest in the Sub-Fund unless the intermediary who sells it to you has explained to you that the Sub-Fund is suitable for you having regard to your financial situation, investment experience and objectives.

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

1.     Investment risk

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

2.     Equity market risk

The Sub-Fund’s investment in equity securities (including, but not limited to, common stocks, preferred stocks, ADR and GDRs) is subject to general market risks, whose value may fluctuate due to various factors, such as changes in investment sentiment, political and economic conditions and issuer-specific factors.

3.     Risks associated with investment made through the QFI regime

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

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

4.     Risks associated with the Stock Connect

The relevant rules and regulations on the Stock Connect are subject to change which may have potential retrospective effect. The Stock Connect is subject to quota limitations. Where a suspension in the trading through the programme is effected, the Sub-Fund’s ability to invest in China securities (including China A-shares) or access the PRC market through the programme will be adversely affected. In such event, the Sub-Fund’s ability to achieve its investment objective could be negatively affected.

5.     Risks associated with the ChiNext Market and/or the STAR Board

Companies listed on boards with generally lower listing eligibility criteria than main boards are usually of emerging nature with a smaller operating scale. The rules and regulations regarding companies listed on such boards may be less stringent in terms of matters such as profitability, track record and share capital than those on the main boards. Hence, investments in such boards may be subject to higher fluctuations in stock prices as well as liquidity, over-valuation and delisting risks, and may result in significant losses for the fund and its investors.

6.     Risk associated with small-capitalisation / mid-capitalisation companies

The stock of small-capitalisation/ mid-capitalisation companies may have lower liquidity and their prices are more volatile to adverse economic developments than those of larger capitalisation companies in general.

7.     Risks associated with fixed income securities

Credit risk

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

Interest rate risk

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

Volatility and liquidity risk

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

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

Below investment grade and unrated securities risk

·       The Sub-Fund does not have requirement on the credit rating of the underlying fixed income securities in which it invests and hence may invest in fixed income securities which are below investment grade or unrated. Such securities are generally subject to lower liquidity, higher volatility and greater risk of loss of principal and interest than higher-rated fixed income securities.

Valuation risk

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

Risk associated with CIBM

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

“Dim Sum” bond market risks

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

Risk associated with urban investment bonds

·       Urban investment bonds are issued by LGFVs, such bonds are typically not guaranteed by local governments in Mainland China or the central government of the People’s Republic of China (“PRC”). In the event that the LGFVs default on payment of principal or interest of the urban investment bonds, the Sub-Fund could suffer substantial loss and the NAV of the Sub-Fund could be adversely affected.

Sovereign debt risk

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

8.     Concentration risk

·       The Sub-Fund’s investments are concentrated in Greater China companies. The value of the Sub-Fund may be more volatile than that of a fund having a more diverse portfolio of investments.

·       The value of the Sub-Fund may be more susceptible to adverse economic, political, policy, foreign exchange, liquidity, tax, legal or regulatory event affecting Greater China.

9.     Emerging market risk

·       The Sub-Fund invests in emerging markets which may involve increased risks and special considerations not typically associated with investment in more developed markets, such as liquidity risks, currency risks/control, political and economic uncertainties, legal and taxation risks, settlement risks, custody risk and the likelihood of a high degree of volatility.

·       Securities exchanges in Mainland China typically have the right to suspend or limit trading in any security traded on the relevant exchange. The government or the regulators may also implement policies that may affect the financial markets. All these may have a negative impact on the Sub-Fund.

10.  RMB currency and RMB denominated classes risk

·         RMB is currently not freely convertible and is subject to exchange controls and restrictions which under exceptional circumstances, may cause a delay in payment of redemptions and/or dividend payments in RMB. Although offshore RMB (CNH) and onshore RMB (CNY) are the same currency, they trade at different rates. Any divergence between CNH and CNY may adversely impact investors.

·         Non-RMB based investors who invest in RMB denominated classes are exposed to foreign exchange risk and there is no guarantee that the value of RMB against the investors’ base currency will not depreciate. Any depreciation of RMB could adversely affect the value of investors’ investment in the RMB denominated classes of Units. Although offshore RMB (CNH) and onshore RMB (CNY) are the same currency, they trade at different rates. Any divergence between CNH and CNY may adversely impact investors.

11.  Mainland China tax Risk

·         There are risks and uncertainties associated with the current Mainland China tax laws, regulations and practice in respect of the Sub-Fund’s investment in Mainland China. Any increased tax liabilities on the Sub-Fund may adversely affect the Sub-Fund’s value.

·         Based on professional and independent tax advice, the Manager will make provisions from the Sub-Fund’s assets for Mainland China withholding income tax (“WIT”) at a rate of 10% in respect of the dividend paid by Mainland China tax resident enterprises where such Mainland China WIT has not been withheld at source. Also, based on professional and independent tax advice, the Manager will not make provision for (i) any Mainland China WIT and value-added tax (“VAT”) in respect of realised and unrealised capital gain derived from the trading of Mainland China securities; and (ii) any Mainland China WIT and VAT in respect of interest income derived from debt securities in the Mainland China debt market.

·         Any shortfall between the provisions and actual tax liabilities, which will be debited from the Sub-Fund’s assets, will be adversely affect the Sub-Fund’s NAV.

12.  Currency and foreign exchange risk

Underlying investments of the Sub-Fund may be denominated in currencies other than the base currency of the Sub-Fund. Also, a class of units may be designated in a currency other than the base currency of the Sub-Fund or the currency of its underlying investment. The NAV of the Sub-Fund may be affected unfavorably by fluctuations in the exchange rates between these currencies and the base currency and by changes in exchange rate controls.

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

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