A.R.T. ABSOLUTE RETURN TARGET FUND

Transcription

1 A.R.T. ABSOLUTE RETURN TARGET FUND PROSPECTUS June 2013 GEDI: v4 VISA 2013/ PC L'apposition du visa ne peut en aucun cas servir d'argument de publicité Luxembourg, le Commission de Surveillance du Secteur Financier

2 NOTE TO INVESTORS A.R.T. ABSOLUTE RETURN TARGET FUND (the "Fund') invests mainly as a "Fund of Funds" in a portfolio of alternative investment funds which are generically known as "Hedge Funds". An investment in the Fund carries substantial risks. The risks inherent to an investment in Hedge Funds are of a nature and degree not typically encountered in investments in securities of companies listed on major securities markets worldwide. There can be no assurance that the Fund's investment objective will be achieved and investment results may vary substantially over time. Investors incur the risk to lose all or part of their investment in the Fund. An investment in the Fund is not intended to be a complete investment program for any investor. Prospective investors should carefully consider whether an investment in shares in the Fund is suitable for them in the light of their own circumstances and financial resources (see "Risk Factors" below). The board of directors of the Fund will, however, endeavour to monitor risks through the selection of the Fund's investments based on a due diligence procedure (see "Due Diligence Process" below). This should reduce the risks but not eliminate them totally. GEDI: v4 2

3 A.R.T. ABSOLUTE RETURN TARGET FUND is registered under Part II of the list of undertakings for collective investment ("UCI") provided by the Luxembourg law of 17 December 2010 relating to undertakings for collective investment, as amended (the "Law of 17 December 2010"). The registration on the official list of UCI cannot be construed as an approval by the controlling authority of the contents of this Prospectus or, of the quality of the securities offered and held by the Fund. Any representation to the contrary would be unauthorized and unlawful. Shares in the Fund are offered on the basis of the information and representations contained in this Prospectus or the documents specified herein and no other information or representation relating thereto is authorised. Neither the delivery of this Prospectus nor the offer, issue or sale of shares in the Fund shall under any circumstances constitute a representation that the information given in this Prospectus is correct as at any time subsequent to the date hereof. The Fund has not been authorised by the Swiss Federal Banking Commission as a foreign investment fund pursuant to Article 45 of the Swiss Mutual Fund Act of 18 March Accordingly, the shares may not be offered or distributed on a professional basis in or from Switzerland and neither this Prospectus nor any other offering material relating to the shares may be distributed in connection with any such offering or distribution. Shares may only be offered and the Prospectus may only be distributed in Switzerland without any public offering. If distributed in Switzerland and Italy, this Prospectus must be supplemented by an appendix containing specific information for Swiss and Italian investors. If distributed in Belgium: In case of an investment through an advisory mandate, shares may only be offered to investors residing in Belgium for a minimum initial subscription amount of Euro 250,000. As a consequence, the offering of the shares does not have a public character pursuant to the Belgian regulations and the Prospectus may be distributed in Belgium without the Fund needing to have an authorization from the Commission Bancaire, Financière et des Assurances or an approval of the Prospectus. The shares of the Fund have not been registered under the United States Securities Act of 1933 and may not be offered or sold directly or indirectly in the United States of America (including its territories and possessions), to residents, citizens thereof or companies or partnerships organized pursuant to the law of the States thereof. GEDI: v4 3

4 This Prospectus does not constitute and may not be used for the purposes of an offer or solicitation by anyone in any jurisdiction in which such offer or solicitation is not authorised or to any person to whom it is unlawful to make such solicitation. It is the responsibility of any person in possession of this Prospectus and of any person wishing to apply for shares to inform himself and to observe all relevant laws and regulations of the relevant jurisdiction. The information contained in this Prospectus is supplemented by the financial statements and further information contained in the latest annual and semi-annual reports of the Fund, copies of which may be requested free of charge at the registered office of the Fund or at the offices of Partners Advisers S.A. or Trendtrust S.A. This Prospectus is not intended to impart individual legal, tax or financial advice; investors should inform themselves of, and when appropriate, consult their own professional advisers on the legal, tax and other consequences of owning shares, including reference to the laws of their country of citizenship or domicile. The board of directors of the Fund (the "Board of Directors" or the "Directors") has taken all reasonable care to ensure that the facts stated herein are true and accurate in all material respects and that there are no other material facts the omission of which makes misleading any statement herein, whether of fact or of opinion. The Directors accept responsibility for the accuracy of the information contained in this Prospectus on the date of publication accordingly. The Fund draws the investors attention to the fact that any investor will only be able to fully exercise his investor rights directly against the Fund, notably the right to participate in general shareholders meetings if the investor is registered himself and in his own name in the shareholders register of the Fund. In cases where an investor invests in the Fund through an intermediary investing into the Fund in his own name but on behalf of the investor, it may not always be possible for the investor to exercise certain shareholder rights directly against the Fund. Investors are advised to take advice on their rights. GEDI: v4 4

5 CONTENTS I. INFORMATION ON THE FUND...6 II. THE FUND III. INVESTMENT OBJECTIVE AND POLICY OF THE FUND IV. INVESTMENT POLICY OF EACH SUB-FUND V. INVESTMENT RESTRICTIONS VI. CO-MANAGEMENT AND POOLING VII. RISK FACTORS VIII. DUE DILIGENCE PROCESS IX. MANAGEMENT OF THE FUND X. THE CUSTODIAN BANK AND CENTRAL ADMINISTRATION XI. THE SHARES XII. DISTRIBUTION XIII. ISSUE, CONVERSION AND REDEMPTION OF SHARES XIV. VALUATION OF SHARES XV. SUSPENSION OF THE CALCULATION OF THE NET ASSET VALUE AND OF THE ISSUE, REDEMPTION AND CONVERSION OF SHARES XVI. FEES AND EXPENSES XVII. TAXATION XVIII. DISSOLUTION OF THE FUND, LIQUIDATION AND MERGER OF SUB-FUNDS XIX. MEETINGS XX. SHAREHOLDERS INFORMATION APPENDIX I: FINANCIAL TECHNIQUES & INSTRUMENTS APPENDIX II: STATUTORY ANTI-MONEY LAUNDERING AND PREVENTION OF TERRORISM FINANCING NOTICE APPENDIX III: SUB-FUNDS DETAILS I. A.R.T. - ABSOLUTE RETURN TARGET FUND A Diversified Portfolio Trendtrust II. A.R.T. - ABSOLUTE RETURN TARGET FUND F Equity Strategy III. A.R.T. - ABSOLUTE RETURN TARGET FUND I Relative Value Strategy GEDI: v4 5

6 I. INFORMATION ON THE FUND A. THE FUND A.R.T. ABSOLUTE RETURN TARGET FUND is a fund of funds organised under the laws of Luxembourg as a société d'investissement à capital variable (SICAV), which offers investors a choice between several Sub-Funds. The Sub-Funds currently existing and their specific features are disclosed in Appendix III "Sub-Funds Details". The Board of Directors may decide at any time to launch other Sub-Funds and the present Prospectus will be updated accordingly. The Board of Directors may decide to create different classes of shares (each, a "Class") within each Sub-Fund, the specific features of which will be more fully described in the Appendix of the relevant Sub-Fund. As more fully described under section "XII. Shares" and in exceptional circumstances, the Board of Directors may, at its discretion, allocate illiquid investments held in a Sub-Fund to one separate Class (a "Side Pocket Class"). B. DIRECTORY Board of Directors Chairman: Mr. Luc Estenne, Director of Partners Advisers S.A., Geneva, Switzerland Directors: Mr. Dominique Dubois, Vice-President of Banque Privée Edmond de Rothschild Europe Mr. Eric Feyereisen, Vice-President of Banque Privée Edmond de Rothschild Europe Mr. Timothée Henry, Director of Partners Advisers S.A., Geneva, Switzerland Mr. Hugues Janssens van der Maelen, Director of Trendtrust S.A., Geneva, Switzerland Mr. Geoffroy Linard de Guertechin, Senior Vice-President of Banque Privée Edmond de Rothschild Europe M. Enrique Bouillot, Deputy Vice-President, Pri Investment S.A. GEDI: v4 6

7 Investment Managers PARTNERS ADVISERS S.A. 100 rue du Rhône CH-1204 GENEVA Tel: + (41) Fax: + (41) contact@partnersadvisers.com TRENDTRUST S.A. 3 rue du Mont-Blanc CH-1201 GENEVA Tel: + (41) Fax: + (41) main@trendtrust.com Custodian Bank, Registrar and Transfer Agent, Domiciliary, Administrative, Paying and Listing Agent Banque Privée Edmond de Rothschild Europe 20, Boulevard Emmanuel Servais L-2535 Luxembourg Tel: + (352) Fax: + (352) Auditors Ernst & Young S.A. 7, rue Gabriel Lippmann L-5365 Munsbach Registered Office Banque Privée Edmond de Rothschild Europe 20, Boulevard Emmanuel Servais L-2535 Luxembourg Tel: + (352) Fax: + (352) GEDI: v4 7

8 Legal Adviser Elvinger, Hoss & Prussen 2, place Winston Churchill B.P. 425 L-2014 Luxembourg C. SUMMARY AND DEFINED TERMS Business Day CHF Dividends and Distributions EUR Financial Year GBP Hedge Fund Investment Fund JPY Any day on which banks in Luxembourg (Grand-Duchy of Luxembourg) are open for business. All references to 'CHF' are to the legal currency of Switzerland. It is not the intention of the Fund to make distributions of net income or capital gains by way of dividends or distributions unless otherwise decided by the General Meeting of Shareholders. Net income and capital gains are, therefore, effectively represented in the value of the shares. All references to 'EUR' in this Prospectus are to the currency of the European Economic and Monetary Union. The financial year of the Fund ends on 31 December. All references to 'GBP' are to the legal currency of the United Kingdom. Investment Fund using non-conventional or alternative asset management strategies. shall mean any undertaking the sole objective of which is the collective investment in securities, financial instruments and other assets. All references to 'JPY' are to the legal currency of Japan. GEDI: v4 8

9 Listing Luxembourg Investment Fund Minimum Subscription and Minimum Holding Multiple Compartment Investment Fund Net Asset Value Redemption Date Redemption fees Application has been made for shares in the Fund to be listed on the Luxembourg Stock Exchange. shall mean any Investment Fund registered under Luxembourg law. The minimum subscription and the minimum holding requirement for shares in each Sub-Fund is disclosed in the Annex of the relevant Sub-Fund and shall be determined by reference to the Subscription Price paid in respect of the shares held. Investment Fund which comprises multiple compartments each of which is represented by one or more classes of shares/units and where each compartment is distinguished by its specific investment policy or any other specific feature. The total assets minus liabilities and accrued expenses valued at current market prices. Date on which shares may be redeemed by a Shareholder which shall fall as at the last Valuation Date in each month or quarter (31 March, 30 June, 30 September and 31 December) or any other date applicable in respect of a Sub-Fund as further disclosed in the Appendix III "Sub-Funds Details". Redemption fee not exceeding 2% of the applicable Net Asset Value of the shares redeemed may be retained by the relevant Sub-Fund. In addition, the Board of Directors may decide, at its discretion, to charge a fee not exceeding 1% of the applicable Net Asset Value and to be retained by the relevant Sub-Fund for any redemption of shares requested within the first year following their subscription date provided that the redemption fees referred to here above may not exceed, in aggregate, 2% of the applicable Net Asset Value. GEDI: v4 9

10 Redemption Price Regulated Market Subscription Price Term Unofficial net asset values USD Valuation Date The Net Asset Value per share computed as at the applicable Valuation Date, less any applicable redemption fee. A market which is regulated, operates regularly and is recognised and open to the public. The Net Asset Value per share computed on the applicable Valuation Date. The Fund has been launched for an unlimited duration. Net asset values which are not generally used for the purposes of subscription and redemption of shares in the underlying Investment Funds as provided by the relevant administrators if more recent than their official net asset values. All references to 'USD' in this Prospectus are to the currency of the United States of America. The Net Asset Value is dated as at the last calendar day of each month or as at any other date as may be specified in the Appendix III "Sub-Fund Details" in respect of a Sub-Fund. However, considering the delay for the reception of the net asset values of the underlying Investment Funds, the Net Asset Value of the Fund will be calculated within 21 calendar days of the following month or within any other timeframe as may be specified in Appendix III "Sub-Fund Details" in respect of a Sub-Fund. GEDI: v4 10

11 II. THE FUND The Fund is a Luxembourg incorporated investment company (société d'investissement à capital variable) which was set up for an unlimited duration in Luxembourg in the form of a "société anonyme" on 20 December 2000, in accordance with the provisions of the Law of 10 August 1915 on Commercial Companies, as amended (the "Law of 10 August 1915") and subject to the Part II of the Law of 17 December The Fund s Articles of Incorporation were published in the Mémorial, Recueil des Sociétés et Associations (the "Mémorial") on 29 January 2001 and were deposited on 28 December 2000 with the Register of Commerce and Companies of Luxembourg. The Fund s Articles of Association were last amended on 2 December 2003 and the Deed was published in the Mémorial on 20 December These documents are available for inspection and copies can be obtained, upon request, on payment of the administrative costs as determined by grand-ducal regulation. Copies may also be obtained at the registered office of the Fund. The Fund is registered with the Register of Commerce and Companies of Luxembourg under number RCS B The Fund's consolidation currency is the USD. The Fund's capital corresponds at all times to the total net asset values of the different Sub-Funds and is represented by shares issued with no face value and fully paid-up. Variations in the capital shall be effected ipso jure and there are no provisions requesting publication and entry of such in the Register of Commerce and Companies as prescribed for increases and decreases of capital of limited companies. The Fund's minimum capital is the equivalent in USD of EUR 1,250,000. The Fund offers investors, within the same investment vehicle, a choice between several Sub-Funds (the "Sub-Funds"). The Board of Directors of the Fund may, at any time, decide the creation of further Sub-Funds in the future, the offering terms and conditions of which will be communicated in due course via an amendment to this Prospectus. III. INVESTMENT OBJECTIVE AND POLICY OF THE FUND The Fund s main objective is to achieve medium and long-term growth of its assets with a risk-adjusted performance better than the market and while protecting the invested capital. The Fund will pursue its objective by investing most of its assets in securities of Investment Funds GEDI: v4 11

12 using non conventional or alternative asset management strategies (generically known as "Hedge Funds"). The Fund cannot guarantee that this objective will be met. IV. INVESTMENT POLICY OF EACH SUB-FUND The objective of each Sub-Fund is to achieve superior risk adjusted returns by investing mainly in Hedge Funds specialising in investing and/or arbitrage strategies. Investing strategies are strategies whereby the said funds invest long and short in a variety of financial instruments which respectively are perceived as being undervalued and overvalued by the manager of the underlying Investment Fund. Arbitrage strategies are strategies where the aim is to exploit, opportunistically, the perceived value discrepancies between equivalent, fungible, or similar groups of securities. The style seeks to exploit the differences in relative value of economically similar investments by simultaneously buying and selling securities. By capturing the "spread" or value differential between securities and any group of investments superior returns can be achieved with less reference to the performance of the underlying market. These strategies are also referred to as market neutral or non market dependent strategies. The specific investment policy of each Sub-Fund is disclosed in the Appendix of the relevant Sub-Fund. The Investment Funds in which each Sub-Fund invests will be carefully selected on the basis of the safeguards offered by the structure of the relevant Investment Funds in which the Sub-Fund proposes to invest like the submission of the manager to an investment management regulatory organisation or the fact that said Investment Funds have a first class depositary bank or a reputed auditor. The Investment Funds in which the Fund invests may invest in any geographical area. Each Sub-Fund may use techniques and instruments, including derivative instruments, on transferable securities or which are intended to hedge exchange risks, and may effect short sales within the limits described in Appendix I "Financial Techniques & Instruments". In exceptional GEDI: v4 12

13 circumstances, when market conditions so require, each Sub-Fund may be fully invested in cash equivalents in order to protect the interests of the investors. A. ALTERNATIVE VS TRADITIONAL ASSET MANAGEMENT Traditional asset management is based on the assumption of market efficiency. According to this principle, it is impossible to achieve long-term returns above the market without having to increase the risks to inappropriate levels. The premise of alternative asset management, however, is that markets are inefficient and that by exploiting market inefficiencies, it is possible to achieve better performances without having to increase the level of risks. The main principles of alternative asset management are the following: Alternative asset management intends to offer the investor the opportunity to capture or participate in market upside while limiting the downside risk. Accordingly, because of this capital protection objective, the alternative asset management should offer better risk-adjusted performance and less volatile returns than the market. Traditional asset management aims at delivering a performance which beats a pre-defined index benchmark while adopting an indexed and/or passive management. Accordingly, the performance is measured in relative terms. Alternative asset management however aims at delivering absolute performance independently of the market (in bull, bear and flat markets) while adopting a dynamic approach to asset management. Accordingly, traditional asset management will tend to produce performances that are correlated to market indices while alternative asset management should produce returns that are less correlated to market indices. Ideally, the returns should be highly correlated in bull markets and not correlated in bear markets. Traditional asset management focuses on creating portfolios of securities by creating long positions, mostly in equities and fixed-income. Alternative asset management not only uses long positions but also short positions. Moreover, the use of derivative financial instruments, either to hedge or to increase market exposure, is not limited in alternative asset management. In traditional asset management, the uses of leverage is banned or limited. In alternative asset management, leverage can be used and may be very important. GEDI: v4 13

14 B. HEDGE FUND: THE BASIC CONCEPT The initial investment vehicle of alternative asset management is the "Hedge Fund", also called "Absolute Return Fund" which was created in the 1940 s by Alfred Winslow who created the A. W. Jones & Co. Partnership. As opposed to some very complex current structures, his was very simple. His fund aimed at limiting the systematic market risk by combining long and short equity positions and using his stock picking skills. Using this approach, Alfred Winslow has been able to achieve better returns than the one produced by a long only approach. C. HEDGE FUND: A CONTEMPORARY DEFINITION Since then, the "Hedge Fund" concept has widened to include a variety of alternative investment strategies. Far from being a homogeneous group, Hedge Funds today cover different styles. Some implement a well-defined investment strategy while others are more opportunistic, some are highly leveraged while others simply do not use any leverage, some are highly risky while others are much more defensive. Among the main hedge fund strategies are the following: Security Selection Strategies These alternative investment strategies implement the founding concepts of hedge fund by exploiting the price movement difference of a basket of long equity positions and a basket of short equity positions. Security Selection managers combine long positions with short sales in order to extract returns on both sides of the portfolio and reduce systematic risk. These managers look for opportunities in under or overvalued equities, generally using bottom up fundamental analysis. Directional Trading Strategies These strategies not only invest in equity markets but also invest a large portion of their assets in government bonds, currencies and commodities, futures or forward contracts, options and other derivative instruments using either fundamental macro-economic analysis or quantitative systematic systems, in order to potentially benefit from macroeconomic trends and imbalances. Accordingly, these strategies implement a "top-down" analysis rather than a "bottom-up" approach and often use a high level of leverage. Relative Value Strategies These strategies are based on the following principle: when there is a price discrepancy between two financial instruments which are closely related, a relative value position can be established through the simultaneous purchase of the undervalued instrument and the GEDI: v4 14

15 sale of the overvalued one. If the relationship between these two financial instruments becomes fairly priced, a profit can be made. Convertible arbitrage, fixed income arbitrage, capital structure arbitrage and equity quantitative strategies are all sub-styles within relative value strategies. Multi-Process Strategies Multi-Process strategies use a combination of other strategies or styles to achieve attractive risk adjusted returns, including relative value strategies, quantitative strategies and event driven strategies. Event Driven Strategies in particular concentrate on securities of companies involved in important transactions such as merger, acquisition, take-over, spin-off, liquidation, restructurings, and other type of similar transactions. Specialist Credit Strategies Specialist Credit strategies focus on opportunities in under or overvalued credit instruments, generally using bottom up fundamental analysis. This strategy combine long positions with short sales in order to extract returns on both sides of the portfolio and reduce systematic risk. Other risks, including interest rate risks are usually hedged. Specialist Credit strategies can have both a long, variable or short market exposure and can be exposed to the whole spectrum of credit quality, from investment grade to bankruptcy. Asset-Based Lending Strategies Asset-Based Lending Strategies are a subset of Specialist Credit Strategies which involve direct lending activity typically structured under the form of a secured (usually first lien) and a well-collateralised loan to small and mid-market companies. The collateral assets would typically be balance sheet items but may also include future cash flows. For example, collateral may include but are not limited to: receivables, inventory, settlements, insurance, purchase and trade financing, sale/leasebacks, etc. The term of the loan will vary from short term i.e. less than 120 days to long term i.e. over 36 months. The borrower may use the proceeds for a variety of purposes including acquisition, business expansion or cash management. In addition, there may also be an equity related component such as warrants, options, equities, etc. V. INVESTMENT RESTRICTIONS The Fund is subject to and will conduct its investment operations in compliance with the following investment restrictions. Subject to the approval of the Board of Directors and other regulatory approval requirements, the investment policy of any Sub-Fund may be subject to different GEDI: v4 15

16 investment restrictions than those provided below, in which case such different restrictions are disclosed in the Appendix of the relevant Sub-Fund. 1 Investments in other Investment Funds 1.1. A Sub-Fund may not invest more than 20% of its net assets in securities issued by any single Investment Fund. For the purpose of this 20% limit, each compartment of a Multiple Compartment Investment Fund is to be considered as a distinct Investment Fund, provided however that the principle of segregation of the commitments of the different compartments vis-à-vis third parties is ensured A Sub-Fund may acquire more than 50% of the securities of any Investment Fund provided however that if the relevant Investment Fund is a Multiple Compartment Investment Fund, the Sub-Fund's investment into the Investment Fund must represent less than 50% of the Sub-Fund s net assets. The restrictions referred to in 1.1 and 1.2 above do not apply to securities issued by any Investment Fund accepting at least quarterly redemptions (actions taken by such Investment Fund to ensure that the stock exchange or market value of its securities does not significantly vary from their net asset value shall be regarded as equivalent to such repurchase or redemption), to the extent, however, that such investment does not, in the judgement of the Board of Directors, lead to an excessive concentration in any such Investment Fund, provided that, for the purpose of this limit, each compartment of a Multiple Compartment Investment Fund is to be considered as a distinct Investment Fund if the principle of segregation of the commitments of the different compartments vis-à-vis third parties is ensured A Sub-Fund may not invest more than 10% of its net assets in Investment Funds the investment policy of which is principally the investment in other funds. The foregoing paragraph shall not apply to Feeder Funds. Feeder Funds are Investment Funds that invest substantially all their assets (except cash) in one other Investment Fund (a Master Fund). In relation to a Master-Feeder structure, the limits referred to in 1.1. and 1.2. above do not apply at the level of the Feeder Fund but shall apply at the level of the Master Fund if investments by the Fund in the Master Fund can only be made through one or more Feeder Funds. However, the Fund may not acquire shares or units carrying voting GEDI: v4 16

17 rights that would enable it to exercise a significant influence over the management of a Feeder Fund. The Fund shall only invest in Master-Feeder structures that would not cause a duplication of fees between the Master and the Feeder. 2 Investments in securities (other than Investment Funds) Each Sub-Fund of the Fund may invest in securities of issuers (other than Investments Funds), provided that the Fund shall not: 2.1. invest more than 20% of the net assets of any Sub-Fund in the securities of a single issuer; 2.2. acquire any securities if, as a result of this acquisition, the Fund or any Sub-Fund would own more than 10% of securities of the same kind issued by the same issuer; 2.3. invest more than 20% of the net assets of any Sub-Fund in securities which are not listed on a stock exchange or dealt in on another Regulated Market. This restriction does not apply to securities for which a listing has been requested and is obtained within one year, in which case they are considered as listed securities. This restriction is not applicable to money market instruments either (i) issued by first class issuers or (ii) which are traded regularly, or (iii) which have a residual maturity of less than 12 months. The average residual maturity of all money market instruments which are not traded regularly may not exceed 120 days. The restrictions referred to in 2.1., 2.2. and 2.3 are not applicable to securities issued or guaranteed by member-states of the Organisation of Economic Co-operation and Development ("OECD") or their local authorities or public international bodies with EU, regional or world-wide scope. 3 Additional investment restrictions 3.1 Each Sub-Fund may borrow up to 25% of its net assets. 3.2 The Sub-Funds may not invest through the use of managed accounts, neither directly, nor indirectly, through a subsidiary of the Fund. 3.3 Each Sub-Fund may acquire any foreign currency by means of a back-to-back loan. GEDI: v4 17

18 3.4 A Sub-Fund may not make investments (other than short sales) which exposes its portfolio to unlimited liability. 3.5 A Sub-Fund may not acquire real estate or invest in physical commodities, precious metals or other physical assets (such as art, antiques etc). 3.6 A Sub-Fund may not grant loans or guarantees in favour of a third party. 4 Excess of ceilings 4.1. The restrictions set forth above shall only be applicable at the time where the relevant investment is made and need not to be complied with when exercising subscription rights attaching to securities, which form part of the assets of the Fund If any of the above percentages are exceeded as a result of the exercise of subscription rights or as a result of any events other than the making of investments, the situation shall be remedied taking due account of the interests of its Shareholders. 5 Currency Hedging Transactions In order to hedge foreign exchange risks, the Fund may have outstanding commitments in currency futures and/or hold currency options provided such futures and options are dealt in on a Regulated Market, or enter into currency forward contracts or currency swaps with first class financial institutions, as further described under point B of Appendix I "Financial Techniques and Instruments". VI. CO-MANAGEMENT AND POOLING To ensure effective management, the Board of Directors may decide to manage all or part of the assets of one or more Sub-Funds with other Sub-Funds in the Fund (technique of pooling) or to co-manage all or part of the assets, except for a cash reserve, if necessary, of one or more Sub-Funds in ART-ABSOLUTE RETURN TARGET FUND with assets of other Luxembourg Investment Funds or of one or more sub-funds of other Luxembourg Investment Funds (hereinafter called "Party(ies) to co-managed assets") for which the Fund's Custodian was appointed the custodian bank. These assets will be managed in accordance with the respective investment policy of the Parties to co-managed assets, each of which pursuing identical or comparable objectives. Parties to co-managed assets will only participate in co-managed assets GEDI: v4 18

19 as stipulated in their respective prospectus and in accordance with their respective investment restrictions. Each Party to co-managed assets will participate in co-managed assets in proportion to the assets contributed thereto by it. Assets will be allocated to each Party to co-managed assets in proportion to its contribution to co-managed assets. The entitlements of each Party to co-managed assets apply to each line of investment in the aforesaid co-managed assets. The aforementioned co-managed assets will be formed by the transfer of cash or, if necessary, other assets from each Party participating in the co-managed assets. Thereafter, the Board of Directors may regularly make subsequent transfers to co-managed assets. The assets can also be transferred back to a Party to co-managed assets for an amount not exceeding the participation of the said Party to co-managed assets. Dividends, interest and other distributions deriving from income generated by co-managed assets will accrue to the Parties to co-managed assets in proportion to their respective investments. Such income may be kept by the Party to co-managed assets or reinvested in the co-managed assets. All charges and expenses incurred in respect of co-managed assets will be applied to these assets. Such charges and expenses will be allocated to each Party to co-managed assets in proportion to its respective entitlement in the co-managed assets. In the case of infringement to investment restrictions affecting a Sub-Fund of the Fund, when such a Sub-Fund takes part in co-management and even though the manager has complied with the investment restrictions applicable to the co-managed assets in question, the Board of Directors of the Fund shall ask the manager to reduce the investment in question proportionally to the participation of the Sub-Fund concerned in the co-managed assets or, if necessary, reduce its participation in the co-managed assets so that investment restrictions for the Sub-Fund are observed. When the Fund is liquidated or when the Board of Directors of the Fund decides - without prior notice - to withdraw the participation of the Fund or a Sub-Fund of the Fund from co-managed assets, the co-managed assets will be allocated to Parties to co-managed assets proportionally to their respective participation in the co-managed assets. GEDI: v4 19

20 The investor must be aware of the fact that such co-managed assets are employed solely to ensure effective management, and provided that all Parties to co-managed assets have the same custodian bank. Co-managed assets are not distinct legal entities and are not directly accessible to investors. However, the assets and liabilities of each Sub-Fund of the Fund will be constantly separated and identifiable. VII. RISK FACTORS A. GENERAL RISKS Prospective investors should be aware that an investment in the Fund involves a high degree of risk, including the risk of loss of the entire amount invested. The managers of the underlying Investment Funds may invest in and actively trade instruments with significant risk characteristics, including risks arising from the volatility of securities, financial futures, derivatives, currency and interest rate markets, the leverage factors associated with trading in such markets and instruments, and the potential exposure to loss resulting from counterparty defaults. There can be no assurance that a Sub-Fund s investment program will be successful or that the investment objective of a Sub-Fund will be achieved. Shares in the Fund may fluctuate in price and value, and the value of the shares may decline below the amount originally invested. Despite a strict Due Diligence procedure used to select and monitor the individual Investment Funds in which the assets of the Fund are invested, there can be no assurance that the past performance information will be indicative of how such investments will perform (either in terms of profitability or correlation) in the future. Upon a redemption of shares or the liquidation of the Fund, investors may receive less than the amount invested. The Fund intends to invest in Investment Funds which pursue a speculative investment policy. These Investment Funds will generally fall in the category commonly known as "Hedge Funds" or "alternative investments". Some investments may also be made in Investment Funds which trade in commodities futures and options, currencies and currency contracts or financial instruments. Thus, such Investment Funds use specific investment and trading techniques such as investments in options, use of futures or short sales of securities. The Fund will seek to achieve risk diversification by selecting Investment Funds managed by different managers with different investment styles or investing in different areas. GEDI: v4 20

21 B. LACK OF REGULATORY SUPERVISION The Fund is permitted to invest in Investment Funds established in jurisdictions where no or less supervision is exercised on such Investment Funds by regulators. Although the Fund will ensure that in any such event other safeguards are provided for the protection of the interest of the shareholders of such Investment Funds, such protection may be less efficient as if a supervision by a regulator was exercised. Further the efficiency of any supervision or of other safeguards may be affected by a lack of precision of investment and risk diversification guidelines applicable to, and the flexibility of the investment policies pursued by, such Investment Funds. However, in order to minimize these risks, a Due Diligence procedure has been put in place setting out various criteria for the selection of Investment Funds (see below "Due Diligence Process"). C. ILLIQUIDITY OF THE INVESTMENT FUNDS Although the Board of Directors will seek to select Investment Funds which offer the opportunity to have their shares or units redeemed within a reasonable time frame, there is no assurance that the liquidity of the investments of such Investment Funds will always be sufficient to meet redemption request as, and when made. Any lack of liquidity may affect the liquidity of the shares of the Fund and the value of its investments. For such reasons the treatment of redemption requests may be postponed in exceptional circumstances including if a lack of liquidity may result in difficulties to determine the Net Asset Value of the shares of the Fund and consequently a suspension of issues and redemptions. D. FEE STRUCTURE The Fund incurs the costs of the fees paid to the Investment Managers and the Custodian Bank and other service providers as well as a pro rata portion of the fees paid by the Investment Funds in which the Fund invests to their advisers or other service providers. As a result the operating expenses of the Fund may constitute a higher percentage of the Net Asset Value than could be found in other investment schemes. Further, some of the strategies employed at the level of the Investment Funds require frequent changes in trading positions and a consequent portfolio turnover. This may involve brokerage commission expenses to exceed significantly those of other investment schemes of comparable size. The Investment Managers will not receive from the underlying Investment Funds any commissions, rebates or soft dollar linked to these investments. If the Investment Managers may GEDI: v4 21

22 negotiate with the underlying Investment Funds any reduction of fees, it will be for the benefit of the Fund. Potential investors should be aware that the management fees and performance fees payable to the Investment Managers are in addition to the fees paid by the invested Investment Funds to their managers and advisers and that, there may be a duplication of fees. However, in any event, there will be no duplication of management fees, should the Fund invest in Investment Funds managed or advised by the Investment Managers and their affiliates. Accordingly, the Fund shall not incur any fee or expense payable to such Investment Funds. E. LEVERAGE Certain Investment Funds in which the Fund invests, operate with substantial degree of leverage and are not limited in the extent to which they either may borrow or engage in margin transactions. The positions maintained by such Investment Funds may in aggregate value be in excess of the Net Asset Value of the Fund. This leverage presents the potential for a rate of total return but also increases the volatility of the Fund, including the risk of a total loss of the amount invested. Potential investors should also be aware that the Fund may borrow or otherwise use leverage up to 25% of each Sub-Fund s net assets, provided that higher risks linked to said borrowing for investment purposes may be borne by the Fund taking into account that the return on investments shall not necessary cover the charges linked to said borrowings. F. SHORT SALES Short sales effected by the Fund Short selling can involve greater risk than investment based on a long position. A short sale of equity involves the risk of a theoretically unlimited increase in the market price of the equity, which could result in an inability to cover the short position and a theoretical loss. Short sales effected by underlying Investment Funds The Investment Funds in which the Fund invests may engage in short selling of securities which may expose the portion of the Investment Funds assets committed to such activities to unlimited risk due the lack of an upper limit on the price to which a security may arise. However, to the extent that the Fund participates in short selling activities through an Investment Fund, the Fund s losses will be limited to the amount invested in the particular Investment Funds. GEDI: v4 22

23 G. ABSENCE OF CUSTODIAN BANKS Some of the Investment Funds in which the assets of the Fund are allocated have a broker as a custodian instead of a bank. In certain cases these brokers may not have the same credit rating as a bank. In addition, contrary to custodian banks in regulated environments, these brokers will perform only safekeeping functions with no statutory supervisory obligations. H. CONFLICTS OF INTERESTS Conflicts of interests may arise between the Fund and the persons or entities involved as advisers in the management of the Fund and/or the managers of the Investment Funds in which the Fund invests. The managers normally manage assets of other clients that make investments similar to those made on behalf of the undertakings in which the Fund invests. Such clients could thus compete for the same trades or investments and whilst available investments or opportunities for each client are generally allocated in a manner to believed equitable to each, some of those allocation procedures may adversely affect the price paid or received for investments or the size of positions obtained or disposed. Conflicts may also arise as a result of the other services provided by the Investment Managers or their affiliates which may provide advisory, custody or other services to the Board of Directors, to other clients and some of the other Investment Funds in which the Fund invests. Similarly the Directors of the Fund as well as the Investment Managers may also be directors of Investment Funds in which the Fund may invest or of companies being active in the sector of alternative strategies and the interests of such Investment Funds or companies and of the Fund could result into conflicts. Furthermore, some managers have an equity stake in their own fund. Conflicts of interest can therefore not be ruled out at the level of the Investment Funds. Should such conflicts of interest arise, a fair solution for all parties must be found and conflicts must be resolved on an arm s length basis. I. NATURE OF THE INVESTMENTS IN THE FUND Although the Investment Managers seek to monitor investments and trading activities of the Investment Funds to which the Fund has allocated assets, investment decisions are normally made independently at the level of such Investment Funds and it is possible that some managers of the underlying Investment Funds will take positions in the same security or in issues of the same GEDI: v4 23

24 industry or country or in the same currency or commodity at the same time. Consequently, the possibility also exists that one Investment Fund purchases an instrument at about the same time when another Investment Fund decides to sell it. There is no guarantee that the selection of the managers of the underlying Investment Funds will actually result in a diversification of investment styles and that the positions taken by the underlying Investment Funds will always be consistent. The assets of the Fund may also be allocated to Investment Funds whose primary investment strategies include speculative trading of commodities futures and/or financial futures contracts and currencies. Commodity and currency futures prices can be highly volatile because of the low margin requirements in futures trading. An extremely high degree of leverage is typical for futures trading accounts. As a result, a relatively small price movement in a futures contract may result in substantial losses or gains to the investor. Similarly some of the Investment Funds may have the majority of their assets invested in options and other geared instruments, where a relatively small price movement in the underlying security or commodity may result in substantial losses or profits. There are only very limited constraints on the investment strategies and techniques that can be employed by the managers of the underlying Investment Funds. As a result of its diversified investments, the Fund may incur other risks, including currency exchange risks in respect of assets held in other currencies, tax risks in respect of assets invested in other jurisdictions, political risks relating to political, social and economic factors which may affect the assets of the Investment Funds in which the Fund invests, which are held in countries which may be subject to economic difficulties, political or social unrest. The foregoing list of risks factors does not purport to be a complete explanation of the risk involved. Prospective investors should read the entire Prospectus and fully evaluate all other information that they deem to be necessary for determining to invest in the Fund. Prospective investors should ensure that they fully understand the content of this Prospectus. ACCORDINGLY, INVESTMENT IN THE SHARES OF THE FUND IS ONLY APPROPRIATE FOR INVESTORS WHO ARE WILLING TO ACCEPT THE RISKS AND REWARDS STEMMING FROM SUCH AN APPROACH. GEDI: v4 24

25 J. SPECIFIC RISKS LINKED TO SECURITIES LENDING, SALE WITH RIGHT OF REPURCHASE AND REPURCHASE AND REVERSE REPURCHASE AGREEMENT TRANSACTIONS The use of such techniques and instruments involves certain risks, some of which are listed in the following paragraphs, and there can be no assurance that the objective sought to be obtained from such use will be achieved. In relation to reverse repurchase transactions and sales with right of repurchase transactions in which the Fund acts as purchaser and in the event of the failure of the counterparty with which securities have been purchased, investors must notably be aware that (A) there is the risk that the value of the securities purchased may yield less than the cash originally paid, whether because of inaccurate pricing of said securities, an adverse market value evolution, a deterioration in the credit rating of the issuers of such securities, or the illiquidity of the market in which these are traded; that (B) (i) locking cash in transactions of excessive size or duration, (ii) delays in recovering cash at maturity may restrict the ability of the Fund to meet repurchase requests, security purchases or, more generally, reinvestment. In relation to repurchase transactions and sales with right of repurchase transactions in which the Fund acts as seller and in the event of the failure of the counterparty to which securities have been sold, investors must notably be aware that (A) there is the risk that the value of the securities sold to the counterparty is higher than the cash originally received, whether because of a market appreciation of the value of said securities or an improvement in the credit rating of their issuer; that (B) (i) locking investment positions in transactions of excessive size or duration, (ii) delays in recovering, at maturity, the securities sold, may restrict the ability of the Fund to meet delivery obligations under security sales or payment obligations arising from repurchase requests. In relation to securities lending transactions, investors must notably be aware that (A) if the borrower of securities lent by the Fund fails to return these there is a risk that the collateral received may be realised at a value lower than the value of the securities lent out, whether due to inaccurate pricing of the collateral, adverse market movements in the value of the collateral, a deterioration in the credit rating of the collateral issuer, or the illiquidity of the market in which the collateral is traded and that (B) delays in the return of securities on loans may restrict the ability of the Fund to meet delivery obligations under security sales or payment obligations arising from repurchase requests. GEDI: v4 25

26 VIII. DUE DILIGENCE PROCESS The Due Diligence Process involves the following two steps: A. QUANTITATIVE ANALYSIS The quantitative analysis focuses on the statistical evaluation of the historical performance of a target Investment Fund s manager over different periods of time. By using a certain number of ratios it allows one to view various measures of risk and reward as well as compare the returns of a target Investment Fund s manager to those of another, or to those of an appropriate set of market indices, in order to determine correlation of returns or perform style analysis. Quantitative analysis alone, however, by focusing on past performance, is an unreliable prognosticator of future results. Moreover, in order to be truly useful, statistical analysis has to cover a reasonable measurement period. The idea is to test a target Investment Fund s manager s skill over a full market cycle, when possible. Quantitative analysis, therefore, has to be combined with a thorough qualitative analysis which will attempt to highlight various factors which may affect the performance of given target Investment Fund s manager and increase, or decrease, ones level of confidence in him. B. QUALITATIVE ANALYSIS The qualitative analysis allows one to differentiate between two apparently identical "statistical profiles" by assessing, among others, the following key points on a given target Investment Fund s manager or Investment Fund: Characteristics and driving forces of the target Investment Fund s manager s investment strategy. Is it well defined, what are the risks and are they efficiently controlled by the target Investment Fund s manager and his organization? In order to answer these questions, one has to go beyond the information contained in the disclosure document of a target Investment Fund s manager and endeavour, among other things, to understand how consistent a target Investment Fund s manager has been in applying his strategy and how susceptible it is to evolve over time both in relation to developments in financial markets and to assets under management. In addition, one will want to assess the type and liquidity of financial instruments used by the target Investment Fund s manager, the diversification of portfolio and concentration of investment positions, the use, if any, of leverage and derivatives and, more broadly, the general structure of the target Investment Fund s manager s current portfolio. GEDI: v4 26