Guide de l Investisseur En

7/31/2019 Guide de l Investisseur En

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BANKING - INSURANCE - LEASING

Investors Guide


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The aim o this brochure is to provide a brie introduction to the main product types tradable on nancial markets andavailable rom ING Luxembourg. Special emphasis shall be given to the dierent risks inherent in these nancial instruments.When a customer decides to invest on nancial markets, he takes a risk.

Be they shares, bonds, options or investment unds, any investment can carry large risks. It may not be available on allnancial markets, could prove illiquid or may not suit all investors.

An investments value or return can also suer rom volatility and/or be infuenced by fuctuations in exchange rates.

As or the past perormance o a security, the customer should be aware that this oers no guarantee o uture returns.

For any investment decision, it is assumed the investor has at least the necessary general knowledge o related risks.However, the present guide aims to set out the characteristics o the main product types tradable on nancial markets andavailable through ING Luxembourg, in order to ensure that the investor properly understands and recognises the risksinherent in these nancial instruments.

The main product categories covered here are:

- bonds;- UCI vehicles;- equities.

The brochure also describes warrants, rights certicates and allotment rights.

It deliberately omits structured products and derivatives such as options and orward-based contracts, since these are subjectto a specic agreement with ING Luxembourg. A user guide has been developed specically or these, in order to set outcertain agreements o this type. This is also available at our branches on request.

The present guide does not in any case constitute investment advice. Moreover, the guide deliberately does not cover taxand legal aspects, since these depend on the personal situation o the client and are subject to certain changes. Customersseeking inormation on this subject are advised to contact a tax advisor or lawyer.

The present inormation is also available on the Banks internet site at the address: www.ing.lu.For more precise inormation on a product, customers are advised to ask their relationship manager.

I there is any confict between dierent language versions o the same document, the French version will prevail.

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Contents

Description o Main Financial Products

I. Bonds 6

A. General Denition 6B. Bond Characteristics 6

1. Face Value 62. Issue Price 63. Redemption Price 64. Forms o Redemption 65. Nominal Interest Rate 76. Yield 77. Rating 7

C. Main Bond Types 71. Zero-coupon Bond 72. Fixed-rate Bond 73. Floating-rate Bond 74. Warrant Bond 75. Indexed Bond 7

6. Step-up Bond 77. Step-down Bond 78. Subordinated Bond 79. Convertible Bond 710. Equity Note 811. Reverse Convertible Bond 8

D. Risks Relating to Bonds 81. Issuer Insolvency Risk 82. Interest-rate Risk 83. Infation Risk 84. Exchange-rate Risk 95. Prepayment Risk 96. Specic Risks o Certain Bonds 9

II. Shares 9

A. General Denition 9B. Share Types 9

1. Bearer and Registered Shares 92. Ordinary and Preerred Shares 9

C. Share Risks 91. Price Risk 92. Financial Risk 93. Market Liquidity Risk 94. Exchange-rate Risk 105. Share Liquidity Risk 106. Bankruptcy Risk 107. Psychological Risk 10

8. Risk o Shares Relative to Bonds 10


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III. Undertakings or Collective Investment 10

A. General Denition 10B. Legal Forms o UCI 10

1. Contractual-type Fund (FCP) 102. Open or Closed-end Investment Company (Sicav or Sica) 11

C. Distinction between EU UCI and Others 11D. Sicav Types 11

1. Money-market Sicav 122. Bond Sicav 123. Share Sicav 124. Mixed Sicav 125. Capital Guaranteed Sicav 126. Funds o Funds 127. Alternative or Hedge Funds 12

E. UCI Risks 121. Investment Risk 122. Management Risk 133. Risk o Decline in Net Asset Value 134. Liquidity Risk 135. Risks Relating to Country o Domicile 13

IV. Other Products 13

A. Warrants 131. Call / Put 132. Premiums 133. Underlying Asset 134. Exercise Price 145. Ratio 146. Expiry 147. Warrant Investment Summary 14

B. Rights Certicate (French Warrant) 14C. Rights 14D. Allotment Right 14E. Depositary Receipt 15

F. Structured Products 15G. Private Equity 15

V. Reminder o Main Product Risk Types 15

A. General 15B. Liquidity 16C. Credit Risk 16D. Market Risk 16

1. General 162. Foreign Markets 163. Emerging Markets 16

E. Clearing House Protections 16

F. Insolvency 16G. Foreign-exchange Risk 17H. Interest-rate Risk 17I. Regulatory/Legal Risk 17J. Operating Risk 17

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I. Bonds

A. General Denition

A bond is a transerable security issued by a company or public authority (hereinater the issuer) representing an amount

receivable by the lender (hereinater the bondholder) rom the issuer.

It is issued carrying a xed or variable coupon and usually with a xed term (apart rom perpetual bonds) and redemption o

the principle on maturity. Coupons are payable on a xed date based on a predened requency. A bond issue can be private(reserved or a restricted number o institutional investors) or public (when the subscription oer is made to the general

public).

B. Bond Characteristics

1. Face Value

The ace value is the amount o the bond issue divided by the number o bonds issued. The coupons are calculated based on

this value.

Thus, a bond with a EUR 5,000 ace value and 5% coupon shall generate a EUR 250 coupon or the holder (5,000 x 5%).

2. Issue Price

This is the price at which the bond is issued. It can dier rom the ace value or redemption price o the bond. When the

issue price is at a premium against the ace value o the bond, the dierence is called the issue premium. This is paid bythe bondholder on issuance, in addition to the ace value o the bond subscribed.

3. Redemption Price

The redemption price is the value o the bond at the end o its term. It can be less than, equal to or more than the issue

price. When the redemption price exceeds that o issuance, the dierence is called the redemption premium, which is

repaid to the bondholder on redemption o the bond in addition to the amount paid when subscribing.

4. Forms o Redemption

A bond is generally redeemed on maturity but possibly earlier through annual redemptions or by drawing o lots. Certain

bonds present specic orms o redemption, at the discretion o the bonds issuer or holder and under certain conditions.

As examples, here are two methods used by issuers to redeem bonds:

- redemption by equal instalments: in each period, the bondholder receives an identical portion o the principal, that is, the

amount initially subscribed. Assuming a term o ve years, 20% o the principal would be repaid each year. In practice, the

amount o coupon payments shall decrease each year as the table below shows.

Period Principal Coupons Repayment Principal Annuities

at beginning o period (7%) by equal instalments at end o period

1 5.000 350 1.000 4.000 1.350

2 4.000 280 1.000 3.000 1.280

3 3.000 210 1.000 2.000 1.210

4 2.000 140 1.000 1.000 1.140

5 1.000 70 1.000 0 1.070

- redemption on maturity: this orm o redemption guarantees the bondholder steady interest payments throughout the term

o the bond. In act, the principal is repaid on maturity, that is, in ull on the last due date. Meanwhile, the interest is paid

throughout the term o the bond.

Period Principal Coupons Repayment Principal Annuities

at beginning o period (7%) by equal instalments at end o period

1 5.000 350 0 5.000 350

2 5.000 350 0 5.000 350

3 5.000 350 0 5.000 350

4 5.000 350 0 5.000 350

5 5.000 350 5.000 0 5.350


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5. Nominal Interest Rate

The interest rate or the bond, which is applied to its ace value to enable coupon payments to be calculated. A 7% interest

rate and EUR 1,000 ace value should generate coupons equalling 7% x EUR 1,000 = EUR 70.

6. Yield

The yield to maturity o the bond expresses its average annual return.

7. Rating

A rating is an assessment made by a specialised agency, independent o ING Luxembourg (such as Standard & Poors or

Moodys), on the probability o an issuer ully meeting a bond issues principal repayment and interest payments on the

orecast due dates.

The rating is an assessment by this agency o the issuers solvency in relation to a particular issue. ING Luxembourg is not

responsible or this assessment.

The long-term ratings are classied rom AAA (at S&P) or Aaa (Moodys) or the best-quality bonds to D or those or which

the issuer is in deault on payments.

The dierent categories generally indicate the ollowing:

A: good quality;

B: speculative, payment sensitive to the economic context;

C: risk o payment deault; and

D: payment deault.

C. Main Bond Types

1. Zero-coupon Bond

This is a bond with no interest payments and a coupon rate thus equalling 0%. It is generally issued at a very low price but

thereore oers a large redemption premium.

For example, it is issued at 63% o value and redeemed at 100%.

2. Fixed-rate Bond

A bond with an annual interest rate xed on issuance and constant to maturity, being paid with a predened requency.

3. Floating-rate Bond

A bond with an interest rate varying over its term in accordance with money or bond market rates.

4. Warrant Bond

An ordinary bond giving the right to subscribe to a given number o shares or bonds at a xed price (strike price) or a certain

period (the exercise period). The warrant bond includes two clear components: rstly the bond and secondly the warrant,

that is, a subscription right.

5. Indexed Bond

A bond giving the right to redemption o the ace value on maturity and a potential return calculated based on an underlying

assets percentage stock market perormance during the bonds term. The return on the bond is capped at a rate calculated

as a proportion o ace value.

6. Step-up Bond

A bond o which the interest rate increases over its term. The rates and their applicable periods are determined on issuance.

7. Step-down Bond

A bond o which the interest rate decreases over its term. The rates and their applicable periods are determined on issuance.

8. Subordinated Bond

In the event o liquidation or bankruptcy o the issuing company, a subordinated bond is repaid ater the other bonds and

liabilities o the company but beore its shares. It is thus a type o lower-priority bond with larger risk. It is possible that such

bonds are subordinated only to certain well-dened liabilities like bank loans.

9. Convertible Bond

A bond that can be converted into shares by its holder in conditions and on the conversion basis determined on issuance,

either in certain predened periods or at any time in the bond issue.

Its return, however, is less than that o a traditional bond. The interest-rate dierence arises rom the conversion right the

bond carries, enabling the investor to:

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- either convert the bond into a share determined on bond issuance. He or she would then benet rom increases in the

underlying assets price, while enjoying a guarantee against a decline in this by being able to request redemption in cash or

- wait till maturity and redeem the bond in cash i the underlying underperorms. The loss to the bondholder would then

equal the dierence between the coupons paid on a traditional bond higher than on a convertible bond and the

coupons he or she has received.

10. Equity Note

Bonds that must be redeemed in shares on maturity.

The interest rate on this type o bond is generally less than on a standard bond, even i the issuing companys growth

prospects are bright when issued.

The risk or this type o security is that redemption could take place at a time when the share price has allen sharply. The

basic amount invested could thus be sharply reduced.

11. Reverse Convertible Bond

The redemption on maturity o a reverse convertible bond is determined by the issuer, in accordance with conditions

established at the time o the bonds issuance.

On maturity, the bondholder receives:

- either 100% o the bonds ace value (redemption at par) or

- a number o shares established on the issue date, based on the ace value o the bond and the reerence price o the

underlying share.

In both cases, the holder receives a guaranteed coupon.

I the share price is less than the reerence level on maturity, the bondholder risks being repaid in shares worth less than the

bonds ace value. He or she is thus exposed to the possibility o losing all or part o the principal invested. The product does

not thereore oer a capital guarantee. This is why it pays a larger coupon than the return on a traditional bond.

D. Risks Relating to Bonds

1. Issuer Insolvency Risk

The issuer could become temporarily or permanently insolvent. This could result in the risk o deault or one or morecoupons or even the bankruptcy o the issuer, in which case the bond loan may not be redeemed either in ull or in part. The

bondholder is indeed regarded as a simple ordinary creditor and has no payment priority or privilege.

The issuers solvency may in particular depend on its management quality, general developments in its economy or economic

sector and political changes that have economic eects.

Logically, a deterioration in the nancial situation o an issuer infuences the trading price o the bond.

Certain bonds enjoy guarantees (or example, given by the state); deault risk in this case is decreased in accordance with the

quality o the guarantee provided.

Ratings represent inormation that can give a good idea o the issuers ability to meet its commitments.

2. Interest-rate Risk

The bonds price is mathematically linked to the interest rate.

Uncertainty over market interest-rate developments exposes the bondholder to the risk o a alling bond price i interest rates

increase. Meanwhile, this is only the case during the term o the bond and not on maturity.

Furthermore, in the event o an interest-rate decrease, the expected return on maturity may not be achieved, due to

reinvestment o coupons at smaller rates.

3. Infation Risk

A deterioration in the value o money, known as infation, reduces the purchasing power o the total coupons received. The

result is that the value o the purchasing power paid out on maturity no longer corresponds to that on issuance.

This risk is all the greater when maturity is ar away and the intervening payments (coupons) are small.

4. Exchange-rate Risk

Currency fuctuations aect the value o oreign investments when the return on these is converted into local currency.The risk can be reduced by diversiying between local and oreign-currency bonds.


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5. Prepayment Risk

A bonds issuer can include a clause allowing it to repay the bondholder early in the event o a decrease in market rates. In

this case, the expected return to maturity may not be achieved.

6. Specic Risks o Certain Bonds

Another type o risk relates to certain bonds o which the return or redemption methods are linked to another instrument.

This is particularly the case or foating-rate bonds, convertibles, callable bonds, indexed and subordinated bonds and so on.

II. Shares

A. General Denition

A share is a security representing part o the capital in a company. It also represents a set o shareholder rights, such as to the

ability to vote in general meetings, to inormation, to dividends and in the event o liquidation to net assets. On issuance,

a share sometimes has a given ace value. This ace value relates to the portion o share capital that the share represents.

B. Share Types

1. Bearer and Registered Shares

The share is said to be bearer when its owner is not recorded in the companys register, unlike or a registered share.

2. Ordinary and Preerred Shares

A share is described as preerred i its holder is granted any benet in addition to those enjoyed by ordinary shareholders.

This is oten the right to receive a xed sum in the event o liquidation and a xed dividend beore the ordinary shareholders.

The benets granted or preerred shares are included in the articles o association o the company.

C. Share Risks

1. Price Risk

Since the price o a share actors in dierent aspects infuencing the supply and demand or it, changes in this price are the

main risk the investor aces. Yet since upside movements are generally welcome, the risk is more o downward asset pricemovements, which are liable to result in short-term losses.

The risk actors aecting the share price can be o a general market nature or more specic aspects concerning the company

itsel.

Examples o aspects aecting general market prices are political, social and economic changes that investors can both

actor in and ampliy plus economic cycles, o which the impacts can vary rom one economic sector or region to another.

Instances o eatures aecting the price o a specic share are a ailure to achieve expected results, an incapacity to pay

dividends or an inability to withstand competition.

2. Financial Risk

It may happen that the issuing company does not distribute any prots, even i it has made them, or does not report prots

or one or more years. It could also end one or more years with losses, see its nancial situation go downhill and ultimatelybe declared bankrupt.

3. Market Liquidity Risk

A lack o liquidity could arise when the supply or demand or a security is very limited or nonexistent at a certain price. In

these circumstances, sale and purchase order execution may not be immediate or possible only partially or on unavourable

terms. Moreover, there could be large transaction costs.

Liquidity risk is larger or shares o small companies or emerging markets, due to small trading volumes on such markets.

4. Exchange-rate Risk

Currency fuctuations aect the value o oreign investments or returns on these when converted into local currency.

The risk can be reduced by diversiying between local and oreign-currency shares.

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5. Share Liquidity Risk

Liquidity risk may be linked to a securitys characteristics, or example, slowness in a transaction procedure or registered

shares, or practices on certain markets.

6. Bankruptcy Risk

In the event o bankruptcy or liquidation shareholders are repaid ater payment o all creditors, with a larger risk o losing all

the initial investment.

7. Psychological RiskIrrational actors such as rumours, opinions and trends can aect the overall perormance o shares on stock markets. These

may directly infuence the stock market price even when the companys outlook is not negative.

8. Risk o Shares Relative to Bonds

Shares carry larger risk than bonds, as can be seen rom share price volatility against that o bonds.

However, the long-term perormance o share prices and dividends has on most occasions been more avourable than that o

bonds.

The larger equity risk is thus remunerated by better overall perormance or return.

III. Undertakings or Collective Investment

A. General Denition

An undertaking or collective investment (UCI) is an entity collecting unds rom the public or investment in assets (shares,

bonds and others), complying with the principle o risk diversication. It manages these assets in the sole interest o its

investors, based on the UCI investment policy established on its creation, and the legal ramework determined by its country

o domicile.

UCI vehicles apply the principle o diversication, which consists o not putting all ones eggs in the same basket, and so

enabling an investment to be distributed over several types o nancial asset.

The Net Asset Value (NAV) is the amount obtained rom dividing the UCIs overall asset value by the number o units or shares

it has in circulation on the same date.

Apart rom closed UCI vehicles that is, with a xed number o shares or units and or which the acquisition or redemption

price o shares and units is not necessarily linked to the NAV but instead determined by supply and demand the issue orredemption price o a UCI share or unit equals the NAV.

The requency o the NAV calculation varies rom one UCI to another; or an open-end investment company (Socit

dInvestissement Capital Variable, or Sicav) or closed-end investment company (Socit dInvestissement Capital Fixe, or

Sica) this is set out in the prospectus and or a contractual-type investment und (Fonds Commun de Placement, or FCP) in

the management rules.

It should be noted that the expenses and ees paid by the UCI can be passed on via the NAV and so indirectly attributed to

the investor.

B. Legal Forms o UCI

The UCI can have two legal orms:

- the contractual orm: the mutual investment und (FCP);

- the company orm: the open-end investment company (Sicav) or closed-end investment company (Sica).

This distinction is valid or Luxembourg UCI vehicles. The legal orm o a UCI rom another country can be ound by consul-

ting its prospectus.

1. Contractual-type und

The FCP consists o a set o assets invested and held in indivision by the investors: unit holders in the co-ownership o this

entirety in the amount o their investment.

The FCP does not have a legal personality and so is run by a management company in the sole interest o the unit holders.

This is in accordance with the management rules drawn up by the management company, which in particular include the

investment policy, distribution policy and methods o issuing and redeeming the FCP units.

When subscribing to FCP units, the investor is considered to have accepted the management rules in their current and uture

orm. In principle, the unit holder has no ability to amend these, with only the management company being authorised to do

so.


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The unit holders thus have no infuence over the management o the FCPs assets. Furthermore, unless envisaged otherwise

in the management rules, they cannot terminate the appointment o the management company nor cause the co-ownership

constituted by the FCP to be divided.

2. Open or Closed-end Investment Company (Sicav or Sica)

Unlike other UCI types, investment companies have a legal personality. These companies are in principle managed by a board

o directors, appointed by the investors in their capacity as shareholders.

The board o directors denes the companys management policy but can delegate management to managers approved by

Luxembourgs Financial Sector Supervisory Commission (Commission de Surveillance du Secteur Financier).

Investors have voting rights and can participate in the general shareholders meetings.

Among the investment companies, one can highlight:

- The Sicav, o which the capital can vary in accordance with subscriptions and redemptions o shares as well as the valuations

o its assets. For this type o company, no specic ormality is required in case o increasing or decreasing capital.

The capital o the Sicav is at all times equal to the net assets o the company, that is, its assets minus its liabilities.

- The Sica, meanwhile, has capital that equals the amount o contributions by its investors and that in principle varies only

by virtue o a decision by the general meeting. The entry o new shareholders thereore requires a resolution by the general

shareholders meeting and compliance with certain ormalities.

C. Distinction between EU UCI and Others

Part one o the Luxembourg UCI act (the Act) implements European guidelines dening the ramework o an open UCI inves-

ting in securities that benets rom the European passport and so can be marketed reely throughout the EU. Such a UCI can

only invest in securities and other instruments authorised by the guidelines. These are called coordinated UCITS.

A UCI covered by part two o the Act does not benet rom a European passport and so can only be marketed in other EU

countries ater meeting specic conditions established by the authorities o the country concerned. However, they can invest

in securities other than those authorised or the coordinated UCITS.

D. Sicav Types

The Act allows a UCI to split its net assets into various portolios called sub-unds that can in particular ollow dierentinvestment policies or be denominated in various currencies. For example, thereore, the sub-unds can invest in dierent

geographical regions or business sectors.

As rom subscribing to the UCI, each investor choose the sub-und in which he or she would like to buy shares; they only

participate in the prots or losses o this sub-und and not those o the UCI as a whole.

The advantage or the investor is that switches between sub-unds are generally cheaper since the costs o redeeming shares

in one UCI and subscribing to those in another are avoided.

The UCI can also issue dierent types o security, depending on the expected appropriation o returns.

Depending on its legal orm, we can talk o:

- distribution shares or units when the UCI regularly pays the holder a dividend;- capitalisation shares or units when these revenues are ully reinvested by the UCI and the holder only receives the return on

investment when selling the unit or share.

The net asset values refect this dierence.

A typology is presented below or inormation purposes. It is a classication by type o investment corresponding to the pro-

duct types distributed by ING Luxembourg but not necessarily the UCI vehicle types marketed by third parties.

Such a classication does not suce to provide precise inormation on the investment policy o these unds.

The prospectuses and nancial reports can provide more complete inormation on a UCIs investment policy.

1. Money-market Sicav

A money-market Sicav invests mostly in cash and assets with a very short term to maturity, such as term deposits, treasury

bills, bonds with a near-term maturity, certicates o deposit and commercial paper.

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This type o Sicav exists in many currencies. It represents an ideal investment when an investor would like to allocate money

or the very short term while waiting to use it or something else. The return oered by a money-market Sicav is closely

related to short-term interest rates.

2. Bond Sicav

A bond Sicav invests mainly in xed-income securities such as government and corporate bonds. It can invest in one or more

currencies. The rate oered can be xed or variable.

3. Share Sicav

A share Sicav invests mostly in equities. A share Sicav can specialise, or example, by geographical region or sector.

4. Mixed Sicav

A mixed Sicav is one that invests in both shares and bonds. This type o Sicav actively manages the allocation between both

dierent investment categories and markets, individual shares and bonds, in order to benet rom changing conditions in the

investment world.

5. Capital Guaranteed Sicav

This Sicav oers its subscribers a commitment o a minimum return linked to the perormance o an underlying asset, or a

guarantee to repay a minimum amount o capital on a given due date.

A Sicav allowing ull participation over six years in gains by the CAC 40, a benchmark made up o 40 securities rom themonthly settlement market belonging to all economic sectors and among the top 100 market capitalisations. During this

period, the index advances by 150%. On maturity, the investor receives 150% more than the initial investment. I the CAC

40 does not advance, or even declines, the investor shall still recover the initial capital.

It should be noted that this protection is usually conditional and is obtained by buying a type o insurance, also known as a

hedge, or example on the options market.

6. Funds o Funds

This is a und investing in other unds.

7. Alternative or Hedge Funds

A hedge und is an investment und characterised by much more active management than a standard und investing in

shares or bonds.

Hedge unds aim to generate what is known as absolute return, that is, independent o developments on standard nancial

markets. For this reason, they use management methods that dier rom those used in managing traditional unds. They buy

and sell numerous asset types, invest in long and short positions and use leverage or derivatives to benet rom both rising

and declining markets. They thus enjoy more fexible management rules than traditional unds.

Meanwhile, subscription and redemption conditions are generally more restrictive than or traditional unds.

E. UCI Risks

1. Investment Risk

Firstly, a UCI is exposed to all the risks incurred by shares, bonds and other transerable securities used in its portolio

management.

Then the risk depends on the nature o the investments it makes (kinds o securities, issuer types, economic sector,

geographical area, currency, etc.).

The investor has no control over the UCI investment decisions and sometimes the investment policies give the manager the

ability to use derivatives or leverage eects in managing the portolio, in parallel to the main investment in or example

equities or bonds.

Furthermore, the currency used or subscriptions and redemptions o shares or units is not necessarily representative o the

UCI investment positions.

2. Management Risk

Among other actors, the revenue generated by the UCI parts or shares depends on the capabilities and decisions o the

managers. Accordingly, bad management decisions can give rise to losses.


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3. Risk o Decline in Net Asset Value (NAV)

A decline in the NAV or in the currencies making up the und portolio shall be refected in the prices o the UCI shares or

units.

4. Liquidity Risk

It is not always possible to obtain redemption o shares on a daily basis. Certain UCI vehicles only allow or redemption once

weekly or monthly. Moreover, there are UCI vehicles that are completely closed until maturity or have postponement clauses

i redemption orders exceed a certain threshold.

In practice, this results in very little order liquidity.

Open unds, however, generally present little liquidity risk.

5. Risks Relating to Country o Domicile

The unds domiciled in Luxembourg benet rom a legal ramework with appropriate prudential supervision, unlike certain

unds domiciled in other countries.

Furthermore, the money-laundering and investor protection legislation is stricter in certain countries in particular

Luxembourg than in others.

IV. Other Products

A. Warrants

Warrants are more modest equivalents o options and one o the easiest derivative products to access. Understanding them

can then allow the investor to access option markets more condently.

The investor must be aware that with warrants, he or she can suer losses o up to the amount o capital initially invested.

Developments in the warrants value do not depend solely on the perormance o that o the underlying asset. It is thereore

important to take note o the dierent actors infuencing the value o the warrant, as described in the prospectus.

Unlike shares or bonds, which respectively represent a portion o capital or debts, warrants are only an entitlement to buy a

security and so are valued based on the right they grant the holder. Depending on the case, a warrant allows a given quantity

o securities (called the underlying) to be bought (call warrant) or sold (put warrant) at a predetermined price (exercise or

strike price) during a given period. The holder o a call warrant is ree to exercise the subscription right or not. The right can

be sold on the market beore the expiry date.

Example

Name Call X

Strike price: EUR 91.47

Ratio: 100 / 1

Amount: 1,000

Price on 14 April: EUR 0.14

1. Call / Put

On the stock market an investor can either buy or sell shares. In practice, with shares, the investors exposure is the ull

amount o the investment. In contrast, with call warrants which oer a right but not an obligation the initial investment

is limited accordingly. In our example, this is a call (or purchase option). The investor shall thus be able to buy X shares at the

rate o EUR 91.47. In the opposite case, we talk o a put warrant (or sale option).

2. Premiums

The premium corresponds to the initial amount payable to buy the put or call warrants. To calculate this, in addition to the

purchase price, we need to know the trading quantity. Indeed, given quantities must be used in warrant market transactions.

In our example, the quantity is 1,000 warrants with a latest price o EUR 0.14 on 14 April. The minimum premium thereore

corresponds to:

- Quantity x purchase price = total premium

- 1,000 x 0.14 = EUR 140, or 1,000 call warrants

3. Underlying Asset

The underlying is the asset to which the warrant relates, on which the subscription right shall be exercised. Here the underlying is X.

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4. . Exercise Price

The exercise or strike price is the value at which the right attached to the warrant can be exercised, that is, at which the

underlying may be bought or sold.

In our case, the exercise price equals EUR 91.47. The holder o the call warrants can thus buy shares in X at EUR 91.47. I the

exercise price is less than the X shares latest price (EUR 100), the call warrant can be called in the money.

For a call warrant:

in the money indicates that underlyings price exceeds the exercise price o the warrant;

out o the money indicates the underlyings price is less than the warrants strike price; andi it is in the money, the price o the warrants exercise and the underlying are equal.

5. Ratio

A 100/1 ratio means 100 warrants provide entitlement to one underlying security.

6. Expiry

I purchasing shares, these can in principle be held indenitely, unless the company goes bankrupt or is bought. With a

warrant, an expiry date is xed rom the outset. Ater the expiry date the right attached to the warrant is no longer valid: the

warrant is then worthless.

7. Warrant Investment Summary

In EUR Explanations

Purchase o call warrants 140.00 1,000 x 0.14

Purchase o stock X at 91.47 914.70 (1,000 / 100) (1) x 91.47

Total 1,054.70 equals EUR 105.47 / security X

(1) The question is in knowing how many shares in X 1,000 share warrants can buy. The answer lies in the ratio. The ratio is

100 warrants or one share. Thereore, 1,000 / 100 = 10 X shares can be bought at EUR 91.47.

B. Rights Certicate (French Warrant)

A rights certicate is an instrument giving the holder the right to subscribe to a share or bond at a predened price and up to

a certain date. It may happen that the certicate is not exercised but resold beore maturity.

The rights certicate can be attached to a share or bond, or instead be independent.The issue o rights certicates is linked to the issuance o new shares.

Unlike rights, which have a very short term, rights certicates are generally valid or more than a year.

It is a nancial instrument with a strong leverage eect. Indeed, its price is usually less than that o the underlying and

generally fuctuates in accordance with this. Thus, any increase o the underlyings price results in a larger increase in that o

the rights certicate. Conversely, any reduction in the underlyings price incurs all the greater a loss.

These are oten used in capital increases and in this case concern shares with rights certicates.

C. Rights

A right is a share strip giving an ordinary shareholder the right to subscribe to new shares or a given period at a

predetermined price.

It is a nancial instrument with a strong leverage eect. Indeed, its price is usually less than that o the share envisaged and

generally fuctuates in accordance with this. Thus, any increase in the share price results in a larger gain in the rights price.

Conversely, any decrease in the share price results in all the greater a loss.

Until expiry, the rights holder may exercise his or her option at any time particularly i the share price has exceeded the

rights exercise price or sell it on the rights market i one exists.

D. Allotment Right

The allotment right is a tradable right stripped rom a share and giving the holder to receive new shares ree o charge. This

right is stripped on the day the operation begins and can be traded on the market as i it were a separate security.


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In the aim o strengthening shareholder loyalty, some companies make ree share grants. It should be noted that these shares

do not in any way improve the net worth o the shareholder.

Indeed, let us assume the capital o a company consists o 50,000 shares with a EUR 10 ace value and that the rm also has

EUR 500,000 in reserves.

It is entirely oreseeable that these reserves could be included in the capital. The new capital would thus be 100,000 shares.

Every shareholder shall then receive one new share or each old one. Basically, the shareholder is no better o but has twice

as many shares at hal the price, since the market price shall be adjusted accordingly.

At the time o such operations, each existing shareholder ullling its conditions shall receive an allotment right allowing him

or her to benet rom the entitlement to the uture shares. This allotment right is reely transerable, particularly or

shareholders not wishing to receive additional shares.

Beore operation Ater operation

Number o shares 50,000 100,000

Face value EUR 10 EUR 10

Share capital EUR 500,000 EUR 1,000,000

Reserves EUR 500,000 EUR 0

Total equity EUR 1,000,000 EUR 1,000,000 (+0%)

E. Depositary Receipt

The share depositary receipt is issued by nancial rms on the request o the share issuer and is intended, or example, or

circulation abroad. A receipt represents a certain number o shares. It is a bearer instrument. It can happen that the receipt is

tradable in the country where the share it represents is issued.

F. Structured Products

Structured products are investment assets combining money market or bond market investments with operations on

derivatives. These themselves are more specically options or swaps o which the value depends on an underlying in order

to guarantee either a coupon or principal based on well-dened characteristics.

Dierent types o underlying are possible such as shares, equity benchmarks, exchange rates, interest rates, raw materials,infation and UCI vehicles. The risks o structured product relate to the underlying and to whether the principal is guaranteed

on maturity or not. Meanwhile, i the investor wants to redeem the product beore maturity, the capital guarantee does not

apply and the underlyings perormance shall aect the redemption price.

G. Private Equity

Private equity is a broad term reerring to any type o investment in equity not listed on a public market.

Private equity companies are not quoted on a stock exchange but can hold listed companies in their portolios.

Since they are not quoted, these companies must nd a buyer without a traditional market quotation.

The liquidity o such products is thereore limited and the risk o capital losses generally greater than or a direct investment

in listed company shares.

Private equity unds combine capital invested by private equity companies.A private equity und works as ollows: the unds regularly obtain capital commitments to invest a given amount rom

well-inormed or qualied investors such as pension unds, nancial institutions and wealthy individuals. Whenever an

investment opportunity appears in a predetermined period (or example seven years) in the lie o the unds, these investors

are invited to pay in the capital required in proportion to their commitment. A commitment is understood to be the total

amount o investment each investor has irrevocably decided to make. A commitment shall be used as rom when it is called.

The commitment period diers rom one sub-und to another.

V. Reminder o Main Product Risk Types

A. General

The price or value o an investment shall depend on fuctuations in the nancial markets outside anyones control. Past per-

ormance is no indicator o uture perormance.

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The nature and extent o investment risks varies between countries and rom investment to investment. These investment

risks shall vary with, inter alia, the type o investment being made, including how the nancial products have been created

or their terms drated, the needs and objectives o particular investors, the manner in which a particular investment is made

or oered, sold or traded, the location or domicile o the issuer, the diversication or concentration in a portolio (e.g. the

amount invested in any one currency, security, country or issuer), the complexity o the transaction and the use o leverage.

The risk types set out below could have an impact on each type o investment.

B. Liquidity

The liquidity o an instrument is directly aected by the supply and demand or it. Under certain trading conditions it may be

dicult or impossible to liquidate a position. This may occur, or example, at times o rapid price movement i the price

increases or declines to such an extent that under the rules o the relevant exchange trading is suspended or restricted.

Placing a stop-loss order shall not necessarily limit your losses to intended amounts, while market conditions may make it

impossible to execute such an order at the stipulated price. In addition, with the o-exchange products, unless the contract

terms so provide, the counterparty does not have to terminate the contract early or buy back the product.

C. Credit Risk

Credit risk is the risk o loss caused by borrowers, bond obligors, or counterparties ailing to ull their obligations or the risk

o such parties credit quality deteriorating.

D. Market Risk

1. . General

The price o investments goes up and down depending on market supply and demand, investor perception and the prices o

any underlying or allied investments or, indeed, sectoral and economic actors. These can be totally unpredictable.

2. Foreign Markets

Any oreign investment or investment with a oreign element can be subject to the risks o oreign markets which may

involve dierent risks rom the local markets. In some cases the risks shall be greater. The potential or prot or loss rom

transactions on oreign markets or in oreign denominated contracts shall be aected by fuctuations in oreign exchange

rates.

3. Emerging Markets

Price volatility in emerging markets, in particular, can be extreme. Price discrepancies can be common and market dislocation

is not uncommon. Additionally, as news about a country becomes available, the nancial markets may react with dramatic

upswings and/or downswings in prices during a very short period o time. Emerging markets generally lack the level o

transparency, liquidity, eciency and regulation ound in more developed markets. For example, these markets might not

have regulations governing manipulation and insider trading or other provisions designed to level the playing eld with

respect to the availability o inormation and the use or misuse thereo in such markets. They may also be aected by

political risk. It may be dicult to employ certain risk management practices or emerging markets investments, such as

orward currency exchange contracts or derivatives.

E. Clearing House Protections

On many exchanges, the perormance o a transaction is guaranteed by the exchange or clearing house. However, this

guarantee is usually in avour o the exchange or clearing house member and cannot be enorced by this client who may,

thereore, be subject to the credit and insolvency risks o the rm through whom the transaction was executed. There is, in

any event, no clearing house or traditional options, nor normally or o-exchange instruments which are not traded under

the rules o an exchange.

F. Insolvency

The insolvency or deault o the rm with which you are dealing, or o any brokers involved with your transaction, may lead

to positions being liquidated or closed out without your consent or, indeed, investments not being reimbursed to you. There

is also insolvency risk in relation to the investment itsel, or example o the company that issued the bond or o the counter-

party to the o-exchange derivatives (where the risk relates to the derivative itsel and to any collateral or margin held by the

counterparty).


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G. Foreign-exchange Risk

In respect o any oreign exchange operations and transactions in derivatives and securities denominated in a currency other

than that o your account, a movement in exchange rates may have a avourable or an unavourable eect on the gain or

loss obtained on such transactions.

The weakening o a countrys currency relative to a benchmark currency or the currency o your portolio shall negatively

aect the value o an investment denominated in that currency. Currency valuations are linked to a host o economic, socialand political actors and can fuctuate greatly, even during intra-day trading. Some countries have oreign exchange controls

that may include the suspension o the ability to exchange or transer currency, or the devaluation o the currency. Hedging

can increase or decrease the exposure to any one currency, but may not completely eliminate exposure to changing currency

values.

H. Interest-rate Risk

Interest rates can rise as well as all. A risk exists with interest rates that the relative value o a security, especially a bond, shall

worsen due to an interest rate increase. This could impact negatively on other products.

I. Regulatory/Legal Risk

All investments could be exposed to regulatory or legal risk.

Returns on all, and particularly new, investments are at risk rom regulatory or legal actions and changes which can, amongst

other issues, alter the prot potential o an investment. Legal changes could even have the eect that a previously accep-

table investment becomes illegal. Changes to related issues such as tax may also occur and could have a large impact on

protability. Such risk is unpredictable and can depend on numerous political, economic and other actors. For this reason,

this risk is greater in emerging markets but does apply everywhere. In emerging markets, there is generally less government

supervision and regulation o business and industry practices, stock exchanges and over-the-counter markets.

The laws and regulations governing investments in securities may not exist in some places, and where they do, may be

subject to inconsistent or arbitrary application or interpretation and may be changed with retroactive eect. Both the inde-

pendence o judicial systems and their immunity rom economic, political or nationalistic infuences remain largely untested

in many countries. Judges and courts in many countries are generally inexperienced in the areas o business and corporate

law. Companies are exposed to the risk that legislatures shall revise established law solely in response to economic or political

pressure or popular discontent. There is no guarantee that a oreign investor would obtain a satisactory remedy in local

courts in the case o a breach o local laws or regulations or a dispute over ownership o assets. An investor may also en-

counter diculties in pursuing legal remedies or in obtaining and enorcing judgments in oreign courts.

J. Operating Risk

Operational risk, such as o the breakdown or malunctioning o essential systems and controls, including IT systems, can im-

pact on all nancial products, but could have particular eects or holders o shares, which equate to a part o the ownership

o the company. Business risk, especially the risk that the business is run incompetently or poorly, could also impact on this.

Personnel and organisational changes can severely infuence such risks and, in general, operational risk may not be apparent

rom outside the organisation.

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Documents

Guide de l Investisseur En