Risk Disclosures

RISK FACTORS

The Issuer believes that the following factors may affect its ability to fulfil its obligations. Some of these factors describe potential events which may or may not occur and the Issuer is not in a position to express a view on the likelihood of any such contingency occurring. You should always bear in mind that:

The investment performance of any security referred to on this website can be volatile and can go up or down and you can lose your entire investment.
Past performance is not an indication of future performance.
Rates of exchange may affect the value of investments.
Applications to invest in securities referred to on this website must only be made on the basis of the relevant prospectus.
Tax treatment depends on the individual circumstances of each client and may be subject to change in the future.

Additional factors which the Issuer believes may be material for the purpose of assessing the market risks associated with ETFs are also described below.

The Issuer believes that the factors described below represent the principal risks inherent in investing in ETFs, but the inability of the Issuer to pay any amounts on or in connection with any ETFs may occur for other reasons and the Issuer does not represent that the statements below regarding the risks of holding any ETFs are exhaustive. Before making an investment decision, prospective purchasers of ETFs should consider carefully, in the light of their own financial circumstances and investment objectives, all the detailed information set out elsewhere in this document and, in particular, the considerations set forth below in order to reach their own views prior to making any investment decision.

General

This Base Prospectus identifies in general terms certain information that a prospective investor should consider prior to making an investment in the ETFs. However, a prospective investor should, without any reliance on the Issuer, any Authorised Participant, or any of their respective Affiliates, conduct its own thorough analysis (including its own accounting, legal and tax analysis) prior to deciding whether to invest in any ETFs.

Any evaluation of the suitability for an investor of an investment in ETFs depends upon a prospective investor’s particular financial and other circumstances, as well as on specific terms of the relevant ETF and, if it does not have experience in financial, business and investment matters sufficient to permit it to make such a determination, it should consult with its financial adviser prior to deciding whether or not to make an investment in the ETFs.

The ETFs may not be a suitable investment for all investors

Each potential investor in the ETFs must determine the suitability of that investment in light of its own circumstances and should consult with its legal, business, tax advisers and such other advisers as it deems appropriate to determine the consequences of an investment in the ETFs and to arrive at its own evaluations of the investment.

In particular, each potential investor should:

(a) be financially sophisticated in that it either (i) has the requisite knowledge and experience in financial, business and investment matters and of investing in investments offering a similar economic exposure to the ETFs, and access to, and knowledge of, appropriate resources, to evaluate the information contained in this document and the relevant Final Terms and the merits and risks of an investment in the ETFs in the context of such investors’ financial position and circumstances; or (ii) if it does not have such knowledge, experience and access, have consulted with appropriate advisers who do have such knowledge, experience and access;

(b) have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in the ETFs and the impact the ETFs will have on its overall investment portfolio;

(c) understand thoroughly the terms of the ETFs and any relevant indices;

and

(d) have an asset base sufficiently substantial as to enable it to sustain any loss that they might suffer as a result of an investment in the ETFs and have sufficient financial resources and liquidity to bear all of the risks of an investment in the ETFs including, without limitation, any currency exposure arising from the currency for payments being different to the prospective investor’s currency.

If a prospective investor is in any doubt as to whether the ETFs are a suitable investment for it, it should consult with an appropriate independent financial advisor prior to deciding whether or not to make an investment in the ETFs.

This Base Prospectus is not, and does not purport to be, investment advice, and none of the Issuer or the Authorised Participants makes any recommendation as to the suitability of the ETFs as an investment.

The provision of this Base Prospectus to prospective investors is not based on any prospective investor’s individual circumstances and should not be relied upon as an assessment of suitability for any prospective investor in the ETFs. Even if the Issuer, any of the Authorised Participants, or any of their respective Affiliates possess limited information as to the objectives of any prospective investor in relation to any transaction, series of transactions or trading strategy, this will not be deemed sufficient for any assessment of suitability for such person of the ETFs.

Any trading or investment decisions a prospective investor takes are in reliance on its own analysis and judgment and/or that of its advisers and not in reliance on the Issuer, the Authorised Participants, or any of their respective Affiliates.

In particular, each prospective investor in the ETFs must determine, based on its own independent review and such professional advice as it deems appropriate under the circumstances, that its acquisition of the ETFs (i) is fully consistent with its (or, if it is acquiring the ETFs in a fiduciary capacity, the beneficiary’s) financial needs, objectives and condition, (ii) complies and is fully consistent with all investment policies, guidelines and restrictions applicable to it (whether acquiring the ETFs as principal or in a fiduciary capacity) and (iii) is a fit, proper and suitable investment for it (or, if it is acquiring the ETFs in a fiduciary capacity, for the beneficiary), notwithstanding the clear and substantial risks inherent in investing in or holding the ETFs.

Each prospective investor in ETFs should have sufficient financial resources and liquidity to bear all of the risks of an investment in the relevant ETFs, including, without limitation, where the currency for payments is different from the potential investor’s currency, the associated currency exposure. See “Exchange rate risks and exchange controls” below.

Investment activities of certain investors are subject to investment laws and regulations or review or regulation by certain authorities. Each prospective investor should therefore consult its legal advisers to determine whether and to what extent (i) the ETFs are legal investments for it, (ii) if relevant, the ETFs can be used as underlying securities for various types of borrowing and (iii) other restrictions apply to its purchase or, if relevant, pledge, of any ETFs. Financial institutions should consult their legal advisers or the appropriate regulators to determine the appropriate treatment of ETFs under any applicable risk-based capital or similar rules.

Risk factors relating to the ETFs

Market price of the ETFs

Investors can sell their investments in ETFs at their market price in a secondary transaction. While Market Makers are appointed in respect of the ETFs, no Market Maker is obliged to make a market for any ETF and a Market Maker may discontinue making a market at any time.

General movements in local and international markets and factors that affect the investment climate and investor sentiment could all affect the level of trading and, therefore, the market price of the ETFs. Investors should note that general movements in markets and factors that affect the investor climate and investor sentiment may have different effects on each ETF. The NAV and/or market price of the ETFs may be volatile and may fall rapidly and an investor may not be able to sell its ETFs quickly and/or at a price such that the investor is able to prevent or minimise any loss of its investment.

The market price of the ETFs will be affected by a number of factors, including, but not limited to:

the value and volatility of the Index referenced by each ETF and the assets underlying that Index;
market perception, interest rates, yields and foreign exchange rates;
whether or not any market disruption is subsisting;
the creditworthiness of the Custodian and any Sub-Custodian; and
the liquidity in the ETFs.

Prospective investors should be aware that the NAV and the secondary market price of the ETFs can go down as well as up.

Certain indices may be more volatile than other indices, and the secondary market price of the ETFs may demonstrate similar volatility. Prospective investors should be aware that the NAV and market price of any ETFs on any Valuation Date may not reflect their prior or future performance. There can be no assurance as to the future value and market price of any ETFs.

AN INVESTMENT IN ETFS INVOLVES A SIGNIFICANT DEGREE OF RISK AND AN INVESTOR MAY LOSE THE VALUE OF ITS ENTIRE INVESTMENT OR PART OF IT.

Market-making by Authorised Participants

The price (if any) provided by an Authorised Participant for the purchase or sale of ETFs in the secondary market (whether in an on-exchange or off-exchange transaction), and the number of ETFs subject to any such offer, will be determined at the absolute discretion of that Authorised Participant by reference to such factors as it sees fit.

An Authorised Participant may maintain such bid/offer spread as it determines in its absolute discretion.

The bid/offer spread is the difference between the bid price (i.e. the price at which a holder can sell ETFs to the Authorised Participant) and the offer price (i.e. the price at which a holder can buy ETFs from the Authorised Participant). Any price provided by an Authorised Participant or other secondary market price may take into account fees (including any dealing order fees charged by the Issuer to such Authorised Participant), charges, duties, taxes, commissions, liquidity, market spreads and/or other factors.

Prospective investors should note that:

not all market participants and Authorised Participants will determine the price of the ETFs in the same manner, and the variation between such valuations and prices quoted may be substantial;
the number of ETFs subject to any offer made by an Authorised Participant or otherwise in the secondary market may be affected by market demand for the ETFs, the number of ETFs in issue, whether subscriptions can be processed and prevailing market conditions;
they may not be able to sell their ETFs quickly, easily or at prices that will provide them with a yield comparable to other similar investments;
illiquidity may have an adverse effect on the price of the ETF.

Prospective investors should be aware that ETFs requested for issue and subscribed for by an Authorised Participant may be held on an inventory basis by such Authorised Participant and offered for sale and/or sold over a period of time. Investors should not assume that ETFs will automatically be placed with investors by the relevant Authorised Participant(s) immediately upon issue. To the extent that the Authorised Participants hold ETFs at any time, they may exercise their rights under them in such manner as they see fit in their own interests and need not have regard to the interests of other holders of ETFs or any other person. In particular, an Authorised Participant that is a holder of ETFs may vote at any meeting of holders of such ETFs or approve any resolution of such holders as it sees fit (including with respect to any changes to the terms of the ETFs proposed by the Issuer).

Foreign exchange risk

Prospective investors should be aware that in case any underlying holdings of the relevant Index for a ETF is denominated in a currency other than the currency in which the ETF is listed, correlation risks may apply. These correlation risks depend on the degree of dependency of the currency fluctuations of the foreign currency of the holdings of the relevant Index for a ETF to the currency in which the NAV of the ETF is calculated. Hedging transactions, if any, of the ETFs may not exclude these risks.

Tracking error

At any time, the price at which any ETF trades on the London Stock Exchange (or any other exchange or market on which they may be quoted or traded) may not reflect accurately the implied value of the holdings the ETF intends to track.

The application and redemption procedures for any ETF and the role of the Authorised Participant(s) as market-makers are intended to minimise this potential difference. However, such price at which any ETF trades will be a function of supply and demand amongst investors wishing to buy and sell such ETF and the bid/offer spread that market-makers are willing to quote for such ETF.

Issuer’s right to vary fees

The fees that are taken into account in calculating the NAV in respect of an ETF on any Valuation Date may be varied upon the Issuer giving notice to the ETF shareholders. Potential investors should note that the Issuer is not required to consider the interests of the ETF shareholders in making any such variation.

Index Sponsor’s right to make funding adjustments in the relevant Index

Each ETF references an Index whose methodology may take into account specific funding adjustments. Depending on market conditions, the Index Sponsor for the relevant Index may vary its funding adjustments from time to time without regard to the interests of the ETF shareholders. Potential investors should note that the Issuer shall have no obligation to adjust the NAV, the calculation or the methodology of the relevant ETF so as to eliminate or reduce the impact of the funding adjustments made in the underlying Index of such ETF.

Issuer’s right to replace agents and providers

The Issuer reserves the right to replace the Portfolio Administrator, the Custodian, the Trustee (only in accordance with the Trust Deed), the Issuing and Paying Agent, the Registrar, the CREST Settlement Agent and any other agents or providers herein at its sole discretion in order to ensure the efficient operation of its ETFs.

Risks relating to the Indices

Equity risk

Each ETF provides exposure to the performance of equity securities and therefore is subject to general and specific market movements and changes in the market rates or prices such as interest rates, credit spreads, foreign exchange rates, commodities and equity prices.

Risks associated with indices generally

Factors affecting the performance of indices may adversely affect the value of the ETFs

The performance of an Index in respect of each ETF is dependent upon the macroeconomic factors relating to the share that comprises such Index, which may include interest rates and price levels on the capital markets, currency developments, political factors and company-specific factors such as earnings position, market position, risk situation, shareholder structure and distribution policy.

The returns on the ETF may not reflect a direct investment in the assets comprised in the applicable Index

The return payable on ETFs linked to an Index may not reflect the return an investor would realise if it actually owned the relevant underlying holdings of such Index. For example, holders of the ETFs linked to an Index will not receive any dividends paid on the underlying holdings of the relevant Index and will not participate in the return on those dividends other than through the effect that these dividends might have on the NAV of the ETFs. Similarly, the holders of such ETFs will not have any voting rights in the underlying holdings of such Index.

The actions of the Index Sponsor, including any change in the composition or discontinuance of an Index, could adversely affect the market value of the ETFs referencing such Index

The sponsor of each Index is responsible for the calculation and maintenance of that Index. The sponsor of any Index can make methodological changes that could affect the composition, calculation and/or maintenance of such Index, which would affect the payments made by the Issuer to the investors in the ETFs referencing such Index. The sponsor of any such Index may also alter, discontinue or suspend calculation or dissemination of such Index. The sponsor of an Index will have no involvement in the offer and sale of the ETFs and will have no obligation to any investor in such ETFs. The sponsor of an Index may take any actions in respect of such Index without regard to the interests of the investor in the ETFs, and any of these actions could adversely affect the market value of the ETFs.

The Issuer is not affiliated with the sponsor of any Index in any way (except for the agreements and licensing arrangements described in this Base Prospectus) and has no ability to control or predict their actions, including any errors in or discontinuation of disclosure regarding its methods or policies relating to the calculation of any Index or related Indices. ETF shareholders will have no recourse against the sponsor of any Index, or the underlying components of such Index.

Disruption Events/Adjustment Events/Change in Law

Any Valuation Date of an ETF may become subject to disruption due to occurrence of certain events including, without limitation:

any applicable Exchange or Related Exchange failing to open for its regular trading session, or suspends or limits trading of any components of such index, or an event occurs that impairs trading or valuation on the Exchange of, any components of such index;
the performance of an Index falling overnight by more than the applicable threshold;
the performance of an Index falling within a day by more than the applicable threshold;
the Index Sponsor permanently cancelling the Index;
the Index Sponsor announcing that it will make a material change in the formula for, or the method of, calculating the Index or in any other way materially modifying the Index; or
the Index Sponsor failing to calculate and announce the level of the Index.

The consequences of such events may include, variously, disruptions or delays to pricing of ETFs, the postponement of subscriptions for, and redemptions of, ETFs, adjustments to the terms of the ETFs and the designation of a Successor Index. Ultimately, the occurrence of any such event may trigger the mandatory redemption of the affected ETFs.

‘Brexit’

Pursuant to the European Referendum Act 2015, a referendum on the United Kingdom’s membership of the EU (the “UK’s EU Referendum”) was held on 23 June 2016 with the majority voting to leave the EU. On 29 March 2017, the UK Government exercised its right under Article 50 of the Lisbon Treaty to leave the EU.

Deteriorating business, consumer or investor confidence could lead to (i) reduced levels of business activity; (ii) higher levels of default rates and impairment; and (iii) mark to market losses in trading portfolios resulting from changes in credit ratings, share prices and solvency of counterparties.

No assurance can be given that such matters would not adversely affect the market value and/or the liquidity of the ETFs in the secondary market.

Risk factors relating to the Issuer and the legal structure

Regulation of the Issuer by any regulatory authority

The Issuer is not required to be licensed or authorised under any current securities, commodities or banking laws of its jurisdiction of incorporation and will operate without supervision by any authority in any jurisdiction. There is no assurance, however, that regulatory authorities in one or more jurisdictions would not take a contrary view regarding the applicability of any such laws to the Issuer. The taking of a contrary view by such regulatory authority could have an adverse impact on the Issuer or the holders of the ETFs.

Insolvency

The Issuer has agreed not to engage in activities other than the issue of ETFs and related and incidental matters. Any issue of ETFs must be on terms that provide for the claims of the ETF shareholders and in respect of such ETFs to be limited to the proceeds of the assets on which such ETFs are secured. In addition, there are restrictions on the ETF shareholders bringing insolvency proceedings against the Issuer. If such provisions are upheld, it would be unlikely that the Issuer could become insolvent.

However, notwithstanding the restrictions described in Condition 7 and the limited recourse and nonpetition provisions, should the Issuer have outstanding liabilities to third parties which it is unable to discharge or should the limited recourse or non-petition provisions be found to be non-enforceable in a particular jurisdiction and as a result the Issuer becomes or is declared insolvent according to the law of any country having jurisdiction over it or any of its assets, the insolvency laws of that country may determine the validity of the claims of ETF shareholders and may prevent ETF shareholders from enforcing their rights with respect to any ETFs held by it or delay such enforcement.

In particular, depending on the jurisdiction concerned and the nature of the assets and security, the Security created in favour of the Trustee in respect of such ETFs may be set aside or ranked behind certain other creditors and the assets subject to such Security may be transferred to another person free of such Security.

In addition, certain jurisdictions have procedures designed to facilitate the survival of companies in financial difficulties. In such jurisdictions, the rights of the Trustee or of the Issuer to enforce the Security created pursuant to any Security Document may be limited or delayed by such procedures.

Preferred Creditors under Irish Law and Floating Charges

If the Issuer becomes subject to an insolvency proceeding and the Issuer has obligations to creditors that are treated under Irish law as creditors that are senior relative to its secured creditors including the ETF shareholders, the ETF shareholders (and other secured creditors) may suffer losses as a result of their subordinated status during such insolvency proceedings. In particular, under Irish law, upon an insolvency of an Irish company, such as the Issuer, when applying the proceeds of assets subject to fixed security which may have been realised in the course of a liquidation or receivership, the claims of a limited category of preferential creditors will take priority over the claims of creditors holding the relevant fixed security. These preferred claims include the remuneration, costs and expenses properly incurred by any examiner of the company (which may include any borrowings made by an examiner to fund the company’s requirements for the duration of his appointment) which have been approved by the relevant Irish courts (see “Examinership” below).

The holder of a fixed security over the book debts of an Irish tax resident company (which would include the Issuer) may be required by the Irish Revenue Commissioners, by notice in writing from the Irish Revenue Commissioners, to pay to them sums equivalent to those which the holder received in payment of debts due to it by the company.

Where the holder of the security has given notice to the Irish Revenue Commissioners of the creation of the security within 21 days of its creation, the holder’s liability is limited to the amount of certain outstanding Irish tax liabilities of the company (including liabilities in respect of VAT) arising after the issuance of the Irish Revenue Commissioners’ notice to the holder of fixed security.

The Irish Revenue Commissioners may also attach any debt due to an Irish tax resident company by another person in order to discharge any liabilities of the company in respect of outstanding tax whether the liabilities are due on its own account or as an agent or trustee. The scope of this right of the Irish Revenue Commissioners has not yet been considered by the Irish courts and it may override the rights of holders of security (whether fixed or floating) over the debt in question. In relation to the disposal of assets of any Irish tax resident company which are subject to security, a person entitled to the benefit of the security may be liable for tax in relation to any capital gains made by the company on a disposal of those assets on exercise of the security. The essence of a fixed charge is that the person creating the charge does not have liberty to deal with the assets which are the subject matter of the security in the sense of disposing of such assets or expending or appropriating the moneys or claims constituting such assets and accordingly, if and to the extent that such liberty is given to the Issuer any charge constituted by the Trust Deed may operate as a floating, rather than a fixed charge.

In particular, the Irish courts have held that in order to create a fixed charge on receivables it is necessary to oblige the chargor to pay the proceeds of collection of the receivables into a designated bank account and to prohibit the chargor from withdrawing or otherwise dealing with the moneys standing to the credit of such account without the consent of the chargee. Depending upon the level of control actually exercised by the chargor, there is therefore a possibility that the fixed security over the relevant charged assets would be regarded by the Irish courts as a floating charge.

Floating charges have certain weaknesses, including the following:

(a) they have weak priority against purchasers (who are not on notice of any negative pledge contained in the floating charge) and the chargees of the assets concerned and against lien holders, execution creditors and creditors with rights of set-off;

(b) as discussed above, they rank after certain preferential creditors, such as claims of employees and certain taxes on winding-up;

(d) the examiner of a company has certain rights to deal with the property covered by the floating charge; and

(e) they rank after fixed charges.

Centre of Main Interests

The Issuer has its registered office in Ireland. As a result there is a rebuttable presumption that its centre of main interest (“COMI”) in Ireland and consequently that any main insolvency proceedings applicable to it would be governed by Irish law. In the decision by the Court of Justice of the European Union (“CJEU”) in relation to Eurofood IFSC Limited, the CJEU restated the presumption in Council Regulation (EC) No. 1346/2000 of 29 May 2000 on Insolvency Proceedings, that the place of a company’s registered office is presumed to be the company’s COMI and stated that the presumption can only be rebutted if “factors which are both objective and ascertainable by third parties enable it to be established that an actual situation exists which is different from that which locating it at the registered office is deemed to reflect”. As the Issuer has its registered office in Ireland, has Irish directors, is registered for tax in Ireland and has an Irish corporate services provider, the Issuer does not believe that factors exist that would rebut this presumption, although this would ultimately be a matter for the relevant court to decide, based on the circumstances existing at the time when it was asked to make that decision. If the Issuer’s COMI is not located in Ireland, and is held to be in a different jurisdiction within the European Union, main insolvency proceedings may not be opened in Ireland.

Examinership

Examinership is a court procedure available under the Companies Act 2014 to facilitate the survival of Irish companies in financial difficulties. Where a company, which has its COMI in Ireland is, or is likely to be unable to pay its debts an examiner may be appointed on a petition to the relevant Irish court under Section 509 of the Companies Act 2014.

The Issuer, the directors of the Issuer, a contingent, prospective or actual creditor of the Issuer, or shareholders of the Issuer holding, at the date of presentation of the petition, not less than one-tenth of the voting share capital of the Issuer are each entitled to petition the court for the appointment of an examiner.

The examiner, once appointed, has the power to set aside contracts and arrangements entered into by the company after this appointment and, in certain circumstances, can avoid a negative pledge given by the company prior to this appointment. Furthermore, the examiner may sell assets, the subject of a fixed charge. However, if such power is exercised the examiner must account to the holders of the fixed charge for the amount realised and discharge the amount due to the holders of the fixed charge out of the proceeds of the sale.

During the period of protection, the examiner will formulate proposals for a compromise or scheme of arrangement to assist the survival of the company or the whole or any part of its undertaking as a going concern. A scheme of arrangement may be approved by the relevant Irish court when at least one class of creditors has voted in favour of the proposals and the relevant Irish court is satisfied that such proposals are fair and equitable in relation to any class of members or creditors who have not accepted the proposals and whose interests would be impaired by implementation of the scheme of arrangement.

In considering proposals by the examiner, it is likely that secured and unsecured creditors would form separate classes of creditors. In the case of the Issuer, if the Trustee represented the majority in number and value of claims within the secured creditor class, the Trustee would be in a position to reject any proposal not in favour of the ETF shareholders. The Trustee would also be entitled to argue at the relevant Irish court hearing at which the proposed scheme of arrangement is considered that the proposals are unfair and inequitable in relation to the ETF shareholders, especially if such proposals included a writing down to the value of amounts due by the Issuer to the ETF shareholders.

The fact that the Issuer is a special purpose vehicle and that all of its liabilities should be of a limited recourse nature means that it is unlikely that an examiner would be appointed to the Issuer.

However, if, for any reason, an examiner were appointed while any amounts due by the Issuer under the ETF shareholders were unpaid, the primary risks to the ETF shareholders are as follows:

(a) the potential for a compromise or scheme of arrangement being approved involving the writing down or rescheduling of the debt due by the Issuer to the ETF shareholders as secured by the Trust Deed;

(b) the Trustee, acting for and on behalf of the secured creditors, would not be able to enforce rights against the Issuer during the period of examinership;

(c) the potential for the examiner to seek to set aside any negative pledge in the ETFs prohibiting the creation of security or the incurring of borrowings by the Issuer to enable the examiner to borrow to fund the Issuer during the protection period; and

(d) in the event that a scheme of arrangement is not approved and the Issuer subsequently goes into liquidation, the examiner’s remuneration and expenses (including certain borrowings incurred by the examiner on behalf of the Issuer and approved by the relevant Irish court) will take priority over the moneys and liabilities which from time to time are or may become due, owing or payable by the Issuer to each of the secured creditors under the ETFs.

Tax consequences of an investment in the ETFs

None of the Issuer or any Programme Party make any representation or warranty as to the tax consequences to any investor of the acquisition, holding or disposal of the ETFs. The tax consequences for each investor in the ETFs can be different and therefore investors are advised to consult with their tax advisers as to their specific consequences.

Prospective investors’ attention is also drawn to the section of this Base Prospectus headed “Tax Considerations”.

Taxation and no gross-up

Each ETF shareholder will assume and be solely responsible for any and all Taxes of any jurisdiction or governmental or regulatory authority, including, without limitation, any state or local Taxes or other like assessment or charges that may be applicable to any payment to it in respect of the ETFs. In the event that any withholding or deduction for or on account of Tax is imposed on payments on the ETFs, the ETF shareholders will be subject to such Tax or deduction and will not be entitled to receive amounts to compensate for such withholding or deduction. No Event of Default will occur as a result of any such withholding or deduction.

The Issuer may become liable for Tax charges whether by direct assessment or withholding.

Change of law

The Conditions of the ETFs are governed by English law in effect as at the date of issue of the relevant ETFs. No assurance can be given as to the impact of any possible judicial decision or change to English law or administrative practice after the date of issue of the relevant ETFs.

Legality of purchase

None of the Issuer, the Arranger, the Trustee, the Authorised Participants or any Affiliate of such persons have or assume responsibility for the lawfulness of the acquisition of the ETFs by a prospective purchaser of the ETFs (whether for its own account or for the account of any third party), whether under the laws of the jurisdiction of its incorporation or the jurisdiction in which it operates (if different), or for compliance by that prospective purchaser (or any such third party) with any law, regulation or regulatory policy applicable to it.

Recharacterisation risk

The Issuer has been advised that, for United Kingdom regulatory purposes, the ETFs are treated as debt securities with a minimum repayment amount and do not take the form of a collective investment scheme. The ETFs described in this document are not units in an authorised collective investment scheme for the purposes of the FSMA. There can be no assurance that the courts or regulatory authorities in any jurisdiction would not recharacterise the ETFs as units in a collective investment scheme. Any recharacterisation of the ETFs as units in a collective investment scheme may have adverse consequences (including, without limitation, adverse tax consequences) for an investor.

Prospective investors should consult their professional advisers on the implications, and in particular the tax and accounting implications, of investment in the ETFs and the risk that the ETFs may be recharacterised as contracts for differences for United Kingdom regulatory purposes.

Undertakings for Collective Investment in Transferable Securities (UCITS)

Prospective investors comprising a scheme which is an undertaking for collective investment in transferable securities subject to the Council Directive of 20 December 1985 on the coordination of laws, regulations and administrative provisions relating to Undertakings for Collective Investment in Transferable Securities (No 85/611/EEC) (the “UCITS Directive”), as amended, need to satisfy themselves that an investment in the ETFs would comply with any regulations and/or guidelines applicable to them pursuant to the UCITS Directive and any laws, regulations or guidelines of their jurisdiction of incorporation and would be in line with their individual investment objectives.

Alternative Investment Fund Managers Directive

EU Directive 2011/61/EU on Alternative Investment Fund Managers (“AIFMD”) provides, among other things, that all alternative investment funds (“AIFs”) must have a designated alternative investment fund manager (“AIFM”) with responsibility for portfolio and risk management.

The requirements of AIFMD have, in general, taken effect from 22 July 2013. If, AIFMD were to apply to the Issuer, the Issuer would need to be appropriately regulated. AIFMD and any other changes to the regulation or regulatory treatment of the ETFs for some or all investors may negatively impact the regulatory position of individual investors and, in addition, have a negative impact on the price and liquidity of the ETFs affected by such rules in the secondary market.

Risks relating to the Custodian

Custodian risk

Assets in the form of cash or transferable securities will be held in an account of the Custodian in the name of the Issuer. Assets other than cash or transferable securities may be held in the name of the Issuer or under the control of the Custodian.

The ability of the Issuer to meet its obligations with respect to the ETFs may be dependent upon receipt by the Issuer of payments from the Custodian under the Portfolio Administration Agreement for the ETFs. Consequently, the ETF shareholders are relying not only on the creditworthiness of the Assets, but also on the creditworthiness of the Custodian in respect of the performance of its obligations under the Portfolio Administration Agreement for such ETFs.

Any cash deposited with the Custodian by the Issuer and any cash received by the Custodian for the account of the Issuer in relation to an ETF will be held by the Custodian as broker and not as trustee. Accordingly, such cash will not be held as client money and will represent only an unsecured claim against the Custodian’s assets.

Risks related to other Programme Parties

Other business activities of Authorised Participants

The Authorised Participants and/or their respective Affiliates may be active traders in equities and/or commodities markets, including in the physical markets for commodities, in the futures markets and the over-the-counter markets. These trading activities may present a conflict between the interests of holders of the ETFs and the interests of the Authorised Participants and their respective Affiliates may have in their proprietary accounts, in facilitating transactions, including options and other derivatives transactions, for their customers and in accounts under their management.

These trading activities, if they influence the holdings to which an ETF is linked, could be adverse to the interests of the ETF shareholders. The Authorised Participants and their respective Affiliates may also issue or underwrite additional securities or trade other products the return on which is linked to the value of holdings in the ETFs or other similar strategies. An increased level of investment in these products may negatively affect the level of an ETF and therefore the market value of such ETFs.

These activities could give rise to conflicts of interest which are adverse to the interests of the ETF shareholders and could adversely affect the market value of such ETFs. With respect to any of the activities described above, none of the Authorised Participants or any of their respective Affiliates has any obligation to the Issuer to take the needs of any buyers, sellers or holders of the ETFs into consideration at any time.

Determination Agent

In its role as Determination Agent under the ETFs, SEI Global Services, Inc. will, pursuant to the provisions of the Determination Agency Agreement, the Operating Procedures Agreement and the Conditions, make various non-discretionary calculations, that affect the ETFs, including calculating, among other things, the NAV. The value of the ETFs could be adversely affected by such calculations.

In making such calculations the Determination Agent will depend upon timely and accurate provision of information and certain constituent values of the relevant formulae which are provided to the Determination Agent by various parties, including, but not limited to, the relevant Index Sponsor and the Issuer. Any consequent variation in the value of the amounts required to be calculated by the Determination Agent could result in a change to value of the ETFs.

Trustee

In connection with the exercise of its functions, the Trustee will have regard to the interests of the ETF shareholders as a class and will not have regard to the consequences of such exercise for individual ETF shareholders and the Trustee will not be entitled to require, nor will any ETF shareholder be entitled to claim, from the Issuer any indemnification or payment in respect of any tax consequence of any such exercise upon individual ETF shareholders.

Exchange rate risks and exchange controls

The Issuer will satisfy its payment obligations in respect of the ETFs in the currency of determination of the ETFs. This presents certain risks relating to currency conversions if an investor’s financial activities are denominated principally in a currency or currency unit (the “Investor’s Currency”) other than the specified currency. These include the risk that exchange rates may significantly change (including changes due to devaluation of the specified currency or revaluation of the Investor’s Currency) and the risk that authorities with jurisdiction over the Investor’s Currency may impose or modify exchange controls.

An appreciation in the value of the Investor’s Currency relative to the specified currency would decrease (a) the Investor’s Currency equivalent value of the payment payable on the ETFs and (b) the Investor’s Currency equivalent market value of the ETFs.

Government and monetary authorities may impose (as some have done in the past) exchange controls that could adversely affect an applicable exchange rate. As a result, investors may receive less payment than expected and may receive no payment.