MANAGED PORTFOLIO ACCOUNT WRAP FEE PROGRAM BROCHURE HSBC GLOBAL ASSET MANAGEMENT (USA) INC.

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1 1 Form ADV Part 2A Appendix 1 MANAGED PORTFOLIO ACCOUNT WRAP FEE PROGRAM BROCHURE HSBC GLOBAL ASSET MANAGEMENT (USA) INC. 452 Fifth Avenue, 7 th Floor New York, NY Tel: Website: November 10, 2014 This wrap fee program brochure provides information about the qualifications and business practices of and its Managed Portfolio Account ( MPA ) program that should be considered before investing in MPA. If you have any questions about the contents of this Brochure, please contact us at (212) The information in this Brochure has not been approved or verified by the United States Securities and Exchange Commission ( SEC ) or by any state securities authority. Additional information about also is available on the SEC s website at is a federally registered investment adviser with the SEC. Registration with the SEC or with any state securities authority does not imply a certain level of skill or training.

2 2 Item 2: Material Changes There were material changes to s Form ADV Part 2A Appendix 1 (commonly referred to as the Brochure ) since the last annual update of the Brochure dated July 1, Please find below the Items to which AMUS made changes and a description of the changes therein. Item 4: Services, Fees and Compensation A new standard fee schedule went into effect for the MPA UMA account program. This new fee schedule will apply to client accounts opened on or after November 10, Clients may request a copy of s current Brochure by contacting their client service representative or Premier Advisor.

3 3 Item 3: Table of Contents Item 2: Material Changes...2 Item 3: Table of Contents...3 Item 4: Services, Fees and Compensation...4 Item 5: Account Requirements and Types of Clients...13 Item 6: Portfolio Manager Selection and Evaluation...14 Item 7: Client Information Provided to Portfolio Managers...16 Item 8: Client Contact with Portfolio Managers...17 Item 9: Additional Information...18

4 4 Item 4: Services, Fees and Compensation ( AMUS ) is the sponsor of a wrap fee account program referred to as the Managed Portfolio Account ( MPA ), which is a multi-product, feebased separate account program. MPA offers two investment account options: Separately Managed Accounts ( SMAs ) or Unified Managed Accounts ( UMAs ). MPA is designed to assist clients, including individuals, pension plans, profit sharing plans, and institutions, with their investment needs based on financial objectives, time horizon and risk tolerance. It will also facilitate access to professional asset management and other services provided by AMUS, third party portfolio managers, mutual funds and/or exchange traded funds ( ETFs ) for a single wrap fee. UMA may also provide, at the client s election, tax optimization services, at no additional cost, to U.S. persons, for U.S. taxes only. Investor Profile The client, in consultation with his or her Premier Adviser, who may be a representative of HSBC Securities (USA) Inc. ( HSBC Securities ), may utilize the asset allocation questionnaire or may utilize other means at the Premier Adviser s disposal to evaluate the level of risk and investment preference desired for the client s MPA investment portfolio. As a result of this consultative process, the Premier Adviser facilitates the preparation of an Investment Policy Statement ( IPS ) for the client s MPA investment portfolio. The IPS will contain a recommended asset allocation with consideration of the risk tolerance and other factors pertinent to ascertaining the suitability of MPA and the investment products available through MPA. The client may make adjustments, within certain parameters, to stock and bond asset allocation targets or asset class allocation targets. Subject to client approval, client assets may be invested in accordance with a mix of investment strategies utilizing multiple third party investment advisory firms. The IPS will be prepared with the MPA recommendations and the client s investment portfolio selections which may differ significantly from the recommendations. The client s Premier Adviser will consult with the client periodically, but not less than once each year, to determine whether to update the client s financial information previously provided through the Premierdviser s consultative process with the client and determine whether any changes should be made to the client's IPS, asset allocation, risk tolerance, or other factors pertaining to the continued suitability of MPA and the investments available through MPA. Portfolio Management For UMAs, AMUS recommends an asset allocation based upon a client's responses to the questions in the asset allocation questionnaire. The recommended asset allocation is based on a set of broadly diversified, core investment portfolios through which the client may choose investment managers prescreened and chosen by AMUS to participate in MPA. The MPA investment managers are selected by AMUS through a process involving a variety of qualitative and quantitative criteria. The client may also indicate their own personal preference for an asset allocation in consideration of assets and each client s unique financial circumstances.

5 5 In connection with a UMA, AMUS will serve as overlay manager to coordinate asset allocation, portfolio rebalancing, investment restrictions, and, if selected, tax optimization in each UMA, with consolidated reporting. AMUS is the primary investment manager for UMA portfolios and is responsible for selecting portfolio investments based on non-binding advice provided by the MPA third party investment managers. AMUS may delegate all or part of the overlay management function to an affiliate or third party at its discretion. An MPA client may choose a UMA account in a two-step process: i. AMUS will provide a model portfolio based on the asset allocations selected by the client in the IPS, the client will be presented with the recommended mutual funds, ETFs, and MPA model managers in the investment style of the asset allocation. ii. The client, in consultation with the Premier Advisor, will select one or more of the underlying MPA recommended investment selections to fulfill each of the asset allocation portions of the portfolio selected by the client. The MPA UMA portfolios will be monitored by the overlay manager and may be periodically rebalanced to the model selections. Client adjustments to recommended asset allocation models, investment selections, imposed investment restrictions and preferences may materially affect the composition and performance of investment portfolios. In addition, each client s account may begin investing at different times in different market conditions which may also have an effect on the investment return earned by each account. The timing of contributions to the account or withdrawals from the account initiated by the client may also have an effect on the performance of the portfolio. For these reasons, the performance and investment returns of MPA client portfolios with the same or similar investment objectives may differ. The optional tax optimization service in UMA utilizes client specific portfolio information to evaluate the tax implications of portfolio trades prior to execution. Within a single MPA UMA client s investment portfolio, where possible, gains and losses across multiple investment styles will be selected to minimize the overall tax impact. The tax impact of portfolio rebalancing will also be subject to evaluation. Specific information as to client's tax status and other financial information (including holdings in non-mpa accounts) may not be considered in respect of this service. There can be no assurances that such service will result in the optimal tax consequences for clients. In addition, the tax optimization service may have a negative impact on the investment performance of a UMA portfolio and any such negative impact may not be fully offset by tax benefits, if any. The tax optimization services should not be considered tax advice. Potential clients should consult with their independent tax advisors to assess the tax implications of any investment in the MPA program. Pursuant to the MPA, SMA and UMA client agreements, AMUS is authorized to vote proxies for the securities held in MPA client accounts. AMUS has delegated this authority to the MPA third party managers in SMA accounts. In UMA accounts, where AMUS is acting as overlay manager, AMUS will vote the proxies through a third party voting service on the client s behalf

6 with the guidance, when available and appropriate, from the sub-advisors providing the investment styles utilized in the UMA account. Pursuant to the MPA client agreement, AMUS will not vote proxies in respect of pooled investment vehicles advised or administered by AMUS or its affiliates. AMUS will not advise the client or act for the client in any legal proceedings, including bankruptcies, involving securities held or previously held in the MPA or the issuers of those securities. Performance Evaluation and Monitoring HSBC Securities, or another financial intermediary, may serve as custodian for accounts. Currently, HSBC Securities has entered into an agreement with Pershing LLC to perform as the custodian for the MPA (the Custodian ). The Custodian will generally furnish monthly, but no less frequently than quarterly, account statements summarizing account activity during the period. Clients will also receive trade confirmations for each trade executed for their account unless the client elects to suppress trade confirmations by signing an opt-out form. AMUS will facilitate the production and mailing of quarterly performance statements to clients in the MPA Program. AMUS may utilize a third party service provider to facilitate the production and mailing of the performance statements to clients in the MPA program. The performance statements are intended to inform clients as to how their accounts within the MPA Program have performed during the period and are not intended to replace the statements of the Custodian. AMUS, through its Wealth Portfolio Management division ( WPM ), conducts due diligence based upon both quantitative (e.g., investment performance returns, rankings, tracking errors, etc.) and qualitative (e.g., firm, people, investment strategy and process, idea generation, portfolio construction, etc.) factors to recommend the unaffiliated asset managers and mutual funds ( Recommended List ) available through the MPA and to various wealth management products. WPM also conducts ongoing monitoring of its Recommended List of unaffiliated asset managers and mutual funds using similar criteria as the initial selection process and assistance with operational arrangements and terms for engagement of the investment managers. WPM reviews the asset allocation models on a regular basis and implements any changes. Please see section Item 6: Portfolio Manager Selection and Evaluation for a more detailed description of the WPM services. Discretionary Authority Pursuant to the SMA client agreement, AMUS discretionary authority is limited to evaluating and monitoring the portfolio managers responsible for managing the assets in a client account, including the addition, removal or replacement of such portfolio managers, as well as evaluating and monitoring the pooled investment vehicles (i.e., funds) made available to client. The client will designate third party portfolio managers who will have investment discretion over their account. The portfolio manager will determine the securities to be purchased, held or sold for an account and the weightings thereof, subject to any reasonable investment restrictions or limitations imposed by client, properly communicated in writing to AMUS and accepted by the portfolio manager. Pursuant to the UMA client agreement, the overlay manager will have full discretionary authority, to be exercised in the overlay manager's exclusive judgment and consistent with the 6

7 goals and objectives of client to: (a) determine the rebalancing of assets among investment styles and funds; and (b) select, add, remove and/or replace model managers. The overlay manager will review a client s asset allocation periodically (but at least quarterly). Apart from its overlay management responsibilities, AMUS has discretionary authority to establish and rebalance the asset allocation for a client's accounts, evaluate, select and monitor the model managers and funds and purchase and sell individual securities and fund shares for a client account. In the case of SMA clients, a copy of each selected investment manager s Form ADV Part 2A (known as the Firm Brochure ) will be provided to the client prior to inception of the account. UMA clients will be provided the overlay manager s Part 2A of Form ADV. This disclosure is in addition to having been provided with AMUS ( Wrap Fee Program Brochure ). Best Execution and Brokerage Services Securities execution and related brokerage services will generally be provided by HSBC Securities using the clearing and execution facilities of the Custodian. Each portfolio manager has the discretion to select broker-dealers to execute trades for MPA. Each portfolio manager is responsible for executing MPA trades in a manner consistent with its obligation to obtain best execution, and clients are encouraged to review the each portfolio manager s Firm Brochure regarding its brokerage practices. In evaluating which broker-dealer will provide best execution, the portfolio manager will consider the full range and quality of a broker-dealer s services including, among other things, the value of research provided, execution capability, commission rate, financial responsibility, market making capabilities and responsiveness. If the portfolio manager believes a certain allocation is consistent with the portfolio manager s obligation to seek best execution on a particular transaction, the portfolio manager may allocate a purchase or sale transaction for the client account to a broker-dealer other than the Custodian (referred to as step-out trades ). In making determinations regarding brokerage allocations, the portfolio manager may consider not only available prices and commission rates, but also the other relevant factors described in the previous paragraph. Therefore, the portfolio manager may select broker-dealers that provide research or other transaction-related services and may cause the client account to pay such broker-dealer commissions for effecting transactions in excess of commissions other broker-dealers may have charged. Such research and other services may be used for the portfolio manager s own and for other client and affiliate client accounts to the extent permitted by law. To the extent the portfolio manager directs transactions for execution with or through broker-dealers other than the Custodian, the client may incur additional transaction costs not included in the MPA investment advisory fee. Termination The client agreement may be terminated at any time upon written notice by either party and termination will become effective upon the receipt of the notice. Account termination will not affect: (i) the validity of any action taken previously by AMUS under the client agreement; (ii) liabilities or obligations of the parties from transactions initiated before termination; or (iii) the 7

8 8 client s obligation to pay advisory fees pro-rated through the date of termination. Fees and Other Charges Fees are charged quarterly in advance. Fees will be a percentage of assets in the account based on assets under management at the beginning of the quarter. The fee covers all advisory, administrative, custodial and brokerage services under the MPA program with the exception of any step-out trades and mark-ups or markdowns or certain other fees or costs as described in the MPA program client agreement. Related accounts may be entitled to discounted fees. To determine if a client's related account is eligible for discount, clients should contact their Premier Advisor. In respect of the fees charged by AMUS generally, the client authorizes the Custodian to deduct such fees directly from the client s account, and then Custodian will pay AMUS directly. Fees for each new or terminated account will be pro-rated for the appropriate number of days in the billing period. New client accounts will be charged a fee in advance based on the inception value of the account through the end of the first quarter AUM. Terminated accounts will receive a rebate of fees charged in advance and not earned based on the prorated fee that was charged for the balance of the quarter. In addition, contributions in excess of $25,000 cash or equivalent value of in kind securities would be charged an additional fee at the time the contribution is made to the portfolio pro-rated through the end of the quarter. Withdrawals of cash or equivalent market value of in kind securities in excess of $25,000 would generate a fee refund pro-rated to the end of the quarter. The current MPA Program fee schedules for SMA and UMA are detailed in the following schedule: SMA: All Fixed Income All Equity Total Portfolio Assets Under Management: Fee rate (per annum) on assets: L1 First $500, % 2.50% Next $500, % 2.00% Over $1,000, % 1.50%

9 9 UMA: Standard Fee Schedule for accounts opened on or after November 10, 2014: Model: Conservative Moderately Conservative Moderate Moderately Aggressive Aggressive Total Portfolio Assets Under Management: Fee rate (per annum) on assets: L1 First $500, % 1.60% 1.70% 2.15% 2.50% Next $500, % 1.30% 1.35% 1.70% 2.00% Over $1,000, % 0.95% 1.00% 1.30% 1.50% Standard Fee Schedule for accounts opened on or after December 20, 2013: Model: Moderate Moderately Aggressive Aggressive Total Portfolio Assets Under Management: Fee rate (per annum) on assets: L1 First $500, % 2.15% 2.50% Next $500, % 1.70% 2.00% Over $1,000, % 1.30% 1.50% Standard Fee Schedule for accounts opened prior to December 20, 2013: Model: Conservative Income & Growth Balanced Balanced with Growth Growth & Income Growth All Equity Total Portfolio Assets Under Management: Fee rate (per annum) on assets: L1 First $500, % 1.85% 2.00% 2.15% 2.25% 2.40% 2.50% Next $500, % 1.50% 1.60% 1.70% 1.80% 1.90% 2.00% Over $1,000, % 1.15% 1.20% 1.30% 1.35% 1.50% 1.50% L1 Fiduciaries of ERISA and Tax Qualified Plans should refer to Section 4(f) of the advisory agreement for a discussion of certain credits applicable in the event investments are made in affiliated mutual funds.

10 10 Comparison Cost of Service The MPA program may cost clients more or less than purchasing such services separately depending on the frequency of trading in the client's accounts, commissions charged at other broker-dealers or investment firms for similar products, fees charged for like services by other broker-dealers or investment firms, and other factors. Conflicts of Interest AMUS is an entity within the HSBC Global Asset Management businesses which is made up of a group of companies in many countries and territories throughout the world that engage in investment advisory and fund management activities and which are ultimately owned by HSBC Holdings plc. AMUS may have sub-advisory agreements with these affiliated investment advisers which may or may not be registered in the U.S. with the SEC. In addition, AMUS provides advisory services to clients in several major markets and is a multi-product provider of investment and fund management services. For institutions, AMUS provides active and tailored portfolio management on a global, regional, asset-class and country specific basis. AMUS also serves as investment adviser to U.S. registered investment companies. Domestically, AMUS provides investment advisory services which include U.S. fixed income, emerging markets fixed income and other strategies. Internationally, AMUS may manage accounts pursuant to sub-advisory agreements with affiliated entities or other third parties. WPM provides investment advisory services involving investment manager and fund selection services on a discretionary or non-discretionary basis. The Recommended List of funds available to clients other than MPA clients may not always be identical to those available through the MPA program. As such, WPM services provided by AMUS to clients other than through the MPA program may experience investment returns that are materially different from the returns realized by clients investing in the MPA program. In addition, the funds offered to MPA clients may include funds managed by AMUS and/or its affiliates. In turn, AMUS may provide its WPM services to its affiliates including, HSBC Bank USA N.A. ( HBUS ), the HSBC Funds and HSBC Securities. HSBC Funds is a family of registered investment companies organized in the form of the master-feeder structure: the HSBC Portfolios Trust, HSBC Funds Trust ( HSBC Trust ) and HSBC Advisor Funds Trust. HSBC Securities, a registered broker-dealer and a registered investment adviser is an affiliate of AMUS and may execute trades for clients in the MPA Program. HSBC Securities may recommend to its clients shares in investment companies to which AMUS serves as investment adviser. HSBC Securities may also sell HSBC Spectrum, a mutual fund asset allocation service, or MPA, all of which are sponsored by AMUS. AMUS is a wholly owned direct subsidiary of HBUS, a national bank organized and existing under the laws of the United States and member of the Federal Reserve. HBUS, with which AMUS has entered into investment advisory agreements and sub-advisory agreements, provides certain office space and certain administrative services such as payroll and benefits processing to AMUS. Certain employees and officers of AMUS are officers of HBUS and report into the bank s Fiduciary Committee. The Fiduciary Committee has the authority to review the

11 performance and operations of AMUS as they affect investment performance of assets held in a fiduciary capacity by the bank. AMUS may from time to time, recommend to its clients, securities or other investment products in which AMUS, its affiliates or other Related Persons have a financial interest as the investment manager, general partner or co-investor. Any manager in the MPA program is restricted from the purchase of securities issued directly by HSBC. AMUS has adopted a Code of Ethics and Staff Dealing Policies and Procedures governing employee personal securities transactions ("Code of Ethics") which includes information on insider trading to substantially comply with all relevant securities laws. See Item 9: Additional Information for further detail. An affiliate of AMUS and the affiliate s representatives who recommend the MPA program to the client receives compensation as a result of the client s participation in the program and the amount of this compensation may be more than what the affiliate would receive if the client participated in other programs sponsored by AMUS or paid separately for investment advice, brokerage, and other services; therefore, the affiliate may have a financial incentive to recommend the MPA program over other services. AMUS affiliate, HSBC Securities, may act as the custodian directly for MPA, legacy Spectrum I and HSBC Spectrum or delegate through the appointment of a third party clearing agent or custodian the performance of all or part of its custodial duties herein. Currently, HSBC Securities has an agreement with Pershing LLC to perform as the custodian under the MPA. In addition, registered representatives of HSBC Securities may be located in branches of HBUS and customers of HBUS may be clients of AMUS and/or HSBC Securities. Investments made through AMUS, including MPA are not obligations of AMUS and are not federally insured by SIPC, the FDIC, the Federal Reserve Board or any other government agency. AMUS or its affiliates may purchase or sell the same security for a number of clients at the same time. Because of market fluctuations, the prices obtained on such transactions within a single day may vary substantially. In such a case, to more fairly allocate those market fluctuations among clients, transactions in the same security for a number of customers may be "batched". In these circumstances, the confirmations and statements for each client's transaction may show that the transaction was effected at a price equal to the average execution price for all transactions in that security on that day. In addition, AMUS or its affiliates may buy or sell securities for its own account, including securities that it recommends to clients and may profit from such transactions. In all of these cases, AMUS or its affiliates may receive compensation or other benefits in addition to the MPA program fee it receives from clients and, therefore, may have an incentive to engage in such transactions. Further, AMUS (or its designee) will maintain records of all securities purchased and sold within the MPA program, which will be available for client inspection upon reasonable request. Because the MPA program may cost clients more or less than purchasing the included services separately, AMUS or its affiliates may have an incentive to recommend participation in the MPA 11

12 12 program. Please consult the advisory agreement, accompanying schedule of fees, AMUS Form ADV and fund prospectuses for other terms, conditions, representations and disclosures relating to the MPA program. AMUS encourages clients to review each recommended manager s SEC Form ADV Part 2A for their respective conflicts of interest, privacy policies, codes of ethics, etc.

13 13 Item 5: Account Requirements and Types of Clients AMUS has established a minimum account size of $250,000 for MPA accounts. AMUS may waive this minimum account size at its discretion. MPA is designed to assist clients, including individuals, pension plans, profit sharing plans and institutions, with the fulfillment of their investment objectives. It will also facilitate the access to professional asset management and other services provided by AMUS, third party portfolio managers, mutual funds, and/or ETFs for a convenient single "wrap" fee. UMA may provide, at the client's election, tax optimization services, at no additional cost, to U.S. persons, for U.S. taxes only.

14 14 Item 6: Portfolio Manager Selection and Evaluation AMUS, through WPM, conducts due diligence based upon both quantitative (e.g., investment performance returns, rankings, tracking error, etc.) and qualitative (e.g., firm, people, investment strategy and process, idea generation, portfolio construction, etc.) factors to recommend the unaffiliated asset managers and mutual funds available through MPA. As part of the qualitative review, WPM may send firm and strategy questionnaires, analyze portfolio holdings, review performance attribution and conduct manager meetings. WPM seeks to identify investment strategies that they believe will deliver consistent riskadjusted returns going forward over a market cycle. WPM also conducts ongoing monitoring of its Recommended List of asset managers and mutual funds using similar criteria as the initial selection process. Style analytics, attribution and periodic performance comparisons against representative benchmarks and peers are used as part of the monitoring process. Based upon its findings WPM may place a MPA manager on probation. If the factors that led to the probation remain unresolved, WPM may recommend the removal of the manager from the MPA program and may recommend a new or pre-existing alternative manager to replace the manager removed. In certain cases where there is a significant change at the asset manager, WPM may recommend the removal without a probation period. In the event of an MPA manager change, impacted SMA investors will be notified by their respective Premier Adviser and provided with information on the alternative manager recommendations available by AMUS. The client s portfolio invested with the manager to be removed may be frozen until the replacement manager is established within MPA through consultation by the Premier Adviser with the client. The transition process from one manager to another may result in transactions that will generate realized gains or losses. To the extent the new manager accepts responsibility for the management of specific security positions from the manager being replaced, the positions accepted by the new manager may be transferred from the terminated manager and received by the new manager without incurring a transaction cost. UMA investors are notified via client letter and provided with information on the alternative manager or fund recommendations available by AMUS, including a default replacement option. The client may select, at this time, an alternative manager, mutual fund or ETF to the investment selection specifically recommended to replace the manager, mutual fund or ETF that is being removed from the MPA Recommended List of investment selections. Concurrently, the overlay manager will be notified of the manager or fund change and on a specified date, providing 30 days notice to accountholders, will be responsible for making the applicable investment decisions to transition the account taking into consideration the specifics of the client account, including restrictions, and if tax optimization services have been elected by the client, the tax considerations noted herein in respect of the tax optimization services. WPM reviews the asset allocation models on a regular basis and implements any changes. Both qualitative and quantitative factors are used as inputs to the asset allocation process. From time

15 to time AMUS may also recommend changes to the asset allocation model associated with a given risk profile. When such recommendations are made all SMA and UMA clients who fit the impacted risk profile will receive a notice of the change. The overlay manager for UMA accounts will make the determination whether and when an account should be rebalanced based on market movements resulting in drift from the clients selected asset allocations. Rebalancing is done at the individual account level. Clients who elect automated rebalancing will not be notified prior to the rebalancing. MPA clients may elect not to have their account automatically rebalanced. The overlay manager is also responsible for managing cash for UMA accounts. In managing cash the overlay manager may consider security-specific and systematic cash flows, asset allocation model or other relevant factors. 15

16 16 Item 7: Client Information Provided to Portfolio Managers Normally, a Premier Advisor affiliated with HSBC Securities will assist a client in completing an asset allocation questionnaire and the Premier Advisor will serve as the client s primary liaison with AMUS. The Premier Advisor will assist a client to determine a suitable investment strategy that is then set forth in an IPS that the client approves. Once the client has approved an IPS, the Premier Advisor will assist the client with the selection from a schedule of portfolio managers to manage the client s account, taking into account any reasonable investment restrictions the client has placed upon the account. The Premier Advisor may also assist the client in selecting one or more mutual funds for investment through the account. Each portfolio manager selected by client shall have full discretionary authority to invest the portion of the assets in the client s account that are allocated to the portfolio manager by the client. AMUS or the Premier Advisor is available to the client on an ongoing basis to receive deposit and withdrawal instructions and to communicate to portfolio managers any changes in the client s financial situation or objectives. The Premier Advisor will meet with the client at least annually to discuss the account and any changes to the client s investment objectives or reasonable investment restrictions. AMUS will monitor and regularly evaluate the performance of the portfolio managers selected by the client to determine if they are following their investment philosophy and that there have been no material changes in the business and operations of the portfolio managers.

17 17 Item 8: Client Contact with Portfolio Managers Upon reasonable request, AMUS will make available the appropriate AMUS personnel or ensure a representative of the portfolio manager is made available to the client on an ongoing basis for consultation concerning the management of the client s account in the MPA program.

18 18 Item 9: Additional Information A. DISCIPLINARY INFORMATION There are no legal or disciplinary events that are material to a client s or prospective client s evaluation of or the integrity of AMUS or its management persons. B. BROKER-DEALER REGISTRATION STATUS Some of AMUS management persons are registered with FINRA as representatives of HSBC Securities, a registered broker-dealer and an affiliate of AMUS. C. MATERIAL RELATIONSHIPS OR ARRANGEMENTS WITH INDUSTRY PARTICIPANTS AMUS is part of a large financial services firm. In connection with providing investment advisory services to its clients, AMUS may use the products and services of its affiliates or other Related Persons. A Related Person means any individual or company directly or indirectly controlling or controlled by AMUS, and any individual or company that is under common control with AMUS. HSBC Holdings plc is AMUS ultimate parent and is the ultimate owner of various investment advisers around the world. AMUS may have sub-advisory agreements with these affiliated investment advisers which may or may not be registered in the U.S. with the SEC. AMUS uses the services of HSBC Securities to facilitate the distribution of certain pooled investment funds. In addition, HSBC Securities may offer to its clients, shares in investment companies to which AMUS serves as investment adviser. HSBC Securities may also sell the HSBC Spectrum Program, a mutual fund asset allocation service sponsored by AMUS as well as the MPA wrap program. HBUS provides compliance oversight functions in respect of AMUS. Certain employees and officers of AMUS participate in the HBUS Fiduciary Committee Meeting ( Fiduciary Committee ). The Fiduciary Committee, among other things, reviews the performance and operations of AMUS. AMUS serves as the investment adviser to the HSBC Funds, a series of open-end registered investment companies. D. MATERIAL CONFLICTS OF INTEREST RELATING TO OTHER INVESTMENT ADVISERS As a member of HSBC Holdings plc, AMUS has implemented procedures and arrangements

19 which recognize and manage actual or potential conflicts of interest. The organizational and administrative arrangements are designed with the objective to safeguard the interests of clients and are explained in further detail below. Furthermore, physical and electronic information barriers have been implemented to restrict the flow of confidential information. E. CODE OF ETHICS AND PERSONAL TRADING AMUS has adopted a Code of Ethics. The Code of Ethics is based on the principle that its officers, directors, and employees have a fiduciary duty to place the interests of clients first, and to conduct all personal securities transactions in accordance with the requirements of the Code of Ethics, in compliance with federal securities laws, and in a manner that avoids actual or potential conflicts of interest and does not otherwise take inappropriate advantage of a client relationship or abuse a position of trust and responsibility in respect of a client. The Code of Ethics incorporates, among other items, personal securities transactions of its employees and Access Persons and insider trading, to substantially comply with all relevant federal securities laws and regulations. AMUS requires that each employee and/or access persons submit initial, quarterly and annual reports attesting to their compliance with all aspects of AMUS Code of Ethics. In order to avoid potential conflicts of interest, AMUS has implemented policies and procedures to monitor the personal trading activities of its employees, certain members of their immediate families, and accounts in which employees have a beneficial interest, and accounts which an employee exercises any investment discretion. These personal trading rules require that accounts of the employee and relevant family members be maintained with a broker and that all trades of non-exempt securities for such accounts are pre-cleared and monitored by compliance personnel. In addition, AMUS policies prohibit certain types of trading activity, such as short-term and speculative trades. Employees are subject to minimum holding periods of their personal security holdings. Employees of AMUS generally must obtain express approval prior to engaging in certain security transactions, including those in private placements or IPOs. In addition, certain employees of applicant may not be permitted to buy or sell securities issued by HSBC Holdings plc in certain periods throughout the year prior to and following announcement of quarterly earnings. Generally, Access Persons, as defined by the Investment Advisers Act of 1940, as amended (the Advisers Act ), are prohibited from executing personal trades in a security or similar instrument seven calendar days before and after a client or fund managed by that portfolio manager transacts in that security or similar instrument. Additionally, employees of AMUS, or its Related Persons, may hold the same or similar securities as client portfolios, and from time to time may recommend such securities for purchase or sale in clients portfolios in the normal course of business. Similarly, employees of AMUS and its Related Persons who maintain private equity interests may hold the same or similar interest as client portfolios and may receive a benefit for the public offering of such securities. In addition, the Code of Ethics includes provisions relating to the confidentiality of client information, a prohibition on insider trading, a prohibition of rumor mongering, restrictions on the acceptance of significant gifts and the reporting of certain gifts and business entertainment items, and personal securities trading procedures, among other things. All Access Persons of AMUS must acknowledge the terms of the Code of Ethics, at least annually. A copy of AMUS 19

20 20 Code of Ethics is available upon request. F. SECURITIES THAT AMUS OR A RELATED PERSON HAS A MATERIAL FINANCIAL INTEREST AMUS may purchase or sell for client accounts securities in which it, or Related Persons, has a financial interest. AMUS Related Persons may issue recommendations on securities held by AMUS client portfolios that may be contrary to investment activities of AMUS. Additionally, employees of AMUS, or its Related Persons, may hold the same or similar securities as client portfolios, and from time to time may recommend such securities for purchase or sale in clients portfolios in the normal course of business. Similarly, employees of AMUS and its Related Persons who maintain private equity interests may hold the same or similar interest as client portfolios. AMUS has established informational barriers and has adopted various policies and safeguards in order to address conflicts of interest that may arise from such activities. Principal, Agency and Cross Transactions It is AMUS policy that the firm typically will not affect principal transactions. From time to time, AMUS will make cross trades between client accounts. Principal transactions are generally defined as transactions where an adviser, acting as principal for its own account or the account of an affiliated broker-dealer, buys from or sells any security to any advisory client. An agency cross transaction is defined as a transaction where a person acts as an investment adviser in relation to a transaction in which the investment adviser, or any person controlled by or under common control with the investment adviser acts as broker for both the advisory client and for another person on the other side of the transaction. If permitted in writing by a client, from time to time AMUS may effect client transactions on an agency basis in securities and futures and options through affiliated broker-dealers when, in AMUS judgment, the transactions are consistent with its duty of best execution. In addition, in some instances a security to be sold by one client account may independently be considered appropriate for purchase by another client account. In such cases, AMUS may cause the security to be crossed or transferred directly between the relevant accounts at an independently determined market price and without incurring brokerage commission, although customary custodian fees and transfer fees may be incurred (no part of which will be received by AMUS). No such transactions will be effected unless AMUS determines that the transaction is in the best interest of each client account and permitted by applicable law. Private Company Investments The trading practices of AMUS and its Related Persons may conflict with the trading activities of AMUS clients and/or the clients of its advisory affiliates. For example, AMUS manages separate accounts which may hold securities of private companies, including securities received as a result of direct or indirect investments in private companies. In the course of managing these separate accounts, AMUS may be the recipient of research from AMUS advisory affiliates and possibly Related Persons.

21 21 Underwritings and Other Offerings If permitted by a client s investment objectives, and subject to compliance with applicable law, AMUS may purchase securities for client accounts during an underwriting or other offering of such securities in which a broker-dealer affiliate of AMUS acts as a manager, co-manager, underwriter or placement agent. AMUS affiliate may receive a benefit in the form of management, underwriting or other fees. Affiliates of AMUS may also act in other capacities in such offerings and the affiliate may receive a fee, compensation, or other benefit for such services. If the client s account is subject to ERISA, participation in these offerings may require AMUS or its affiliates to comply with the conditions of one or more class or individual prohibited transaction exemptions issued by the U.S. Department of Labor. Purchases involving affiliated broker-dealers, or other affiliates of AMUS, must comply with the Advisers Act, the Investment Company Act of 1940 and any other applicable laws or prohibited transaction exemptions. In addition, subject to applicable law, AMUS may participate in structured fixed income offerings of securities in which a Related Person may serve as a trustee, depositor, originator, service agent or other service provider, on behalf of issuer in which fees will be paid to such Related Person. A Related Person may act as originator of loans or receivables for the structured fixed income offerings in which AMUS may invest for clients. Participations in such offerings may directly or indirectly relieve obligations of a Related Person. G. CONFLICTS OF INTEREST CREATED BY CONTEMPORANEOUS TRADING AMUS and its Related Persons may recommend securities to clients that AMUS and its Related Persons may also purchase or sell. In order to address potential conflicts of interest arising from such activities, including employee front-running at the expense of client accounts, AMUS restricts employees with access to non-public material information regarding such securities from executing personal trades in a security or similar instrument five business days before and after a client or fund managed by that employee transacts in that security or similar instrument. H. ALLOCATION OF INVESTMENT OPPORTUNITIES Responsibility for managing AMUS client portfolios is organized according to investment strategies with asset classes. Generally, client portfolios with similar strategies are managed by portfolio managers in the same portfolio management group using the same objectives, approach and philosophy. Therefore, portfolio holdings, relative position sizes and industry and sector exposures tend to be similar across similar portfolios, which reduce the potential for conflicts of interest. AMUS may receive more compensation with respect to certain similar accounts or may receive compensation based in part on the performance of some of its similar accounts. Potential conflicts of interest may arise with the allocation of securities transactions and allocation of limited investment opportunities, particularly for accounts that allow for the use of leverage. In certain instances portfolio managers may manage accounts with less restrictive investment guidelines allowing for the use of leverage. In such accounts, the portfolio manager generally

22 will allocate securities based on the accounts market value inclusive of the desired leverage, causing a potential conflict of interest. Allocations of aggregated trades, particularly trade orders that were only partially completed due to limited availability and allocation of investment opportunities generally, could raise a potential conflict of interest, as AMUS may have an incentive to allocate securities that are expected to increase in value to favored accounts. New issue offerings, in particular, are frequently of limited availability. A potential conflict of interest also may be perceived to arise if transactions in one account closely follow related transactions in a different account, such as when a purchase increases the value of securities previously purchased by another account, or when a sale in one account lowers the sale price received in a sale by a second account. If AMUS manages accounts that engage in short sales of securities of the type in which similar accounts invest, AMUS could be seen as harming the performance of one account for the benefit of the accounts engaging in short sales if the short sales cause the market value of the securities to fall. I. INVESTMENTS IN DIFFERENT LEVELS OF THE CAPITAL STRUCTURE On occasion, the situation may arise where one party, such as AMUS or its funds, and another party, such as a particular client may invest in different classes of securities of the same issuer or different tiers of the capital structure of the same issuer. As a result, either one party may take logical investment actions that adversely affect the other party. AMUS is aware of these potential situations and will endeavor and continue to act in the best interest of its clients. AMUS offers sophisticated and tailored investment advice to various clients and accounts. As such, advice may differ from client to client or account to account and investment decisions may also differ. AMUS may, on occasion, advise one client regarding different tiers of the capital structure of the same issuer or classes of securities that may happen to be subordinate or senior to securities in which a particular client already invests. As a result, HSBC Holdings plc may pursue or enforce rights or activities on behalf of accounts (including client accounts), or refrain from pursuing or enforcing rights or activities with respect to a particular issuer in which the client has invested. As an example, AMUS (on behalf of accounts, including client accounts) may seek a liquidation of an issuer, of which it holds debt securities, whereas another particular client may prefer a reorganization of the issuer. Clients may be negatively affected by these activities and decisions, and client account transactions may be affected by prices or terms that are less favorable than they would have been without such actions. Particular clients may sustain losses during periods in which AMUS or other accounts (including client accounts) achieve profits. It should be noted that for client accounts utilizing small capitalization, emerging market, distressed, or less liquid strategies may see a more pronounced impact in connection with these transactions due to the specialized nature of those strategies. J. REVIEW OF ACCOUNTS The Custodian (or a designee) may provide each client with monthly, but in any event no less frequently than quarterly, account statements detailing the activity within the client's account. The statements will be based both on activity provided by the Custodian. 22

23 23 The asset allocation models and third party investment managers will be reviewed by AMUS on a periodic basis. The review will focus on several factors, including the following: i. confirm that the models are being managed in accordance with their investment objectives and mandates; and ii. confirm that the performance information of the investment managers is in line with expectation based on stated investment objective. Annual account reviews may be conducted (in person, if possible) by a client s Premier Advisor in order to determine if the client s profile remains current and accurate and that the performance of the account is consistent with the recommended asset allocation model. An account review may also follow a change in client s investment profile, a change in the securities market or a change in other economic conditions. The monthly statements provided by the Custodian (or a designee) detailing current holdings and account activity are in addition to the quarterly performance reports provided by AMUS for the client s account, which may include internally generated reports provided by WPM or external third party service providers. K. CLIENT REFERRALS AND OTHER COMPENSATION At this time, AMUS does not use third-party solicitors. AMUS may pay its affiliates and nonaffiliates a fee for client referrals in accordance with Rule 206(4)-3 of the Advisers Act. In addition, AMUS does not recommend or select other investment advisers from who compensation is received directly or indirectly. AMUS may from time to time, recommend to its clients, securities or other investment products in which AMUS, its affiliates or other Related Persons have a financial interest as the investment manager, general partner or co-investor. L. FINANCIAL INFORMATION Registered investment advisors are required to provide the client with certain financial information or disclosure about our financial condition. AMUS has no financial commitment that impairs its ability to meet its contractual and fiduciary commitments to clients, and has not been the subject of a bankruptcy proceeding.