Risks and Costs Associated with Investment Trusts

Risks Associated with Investment Trusts

Price fluctuation risk
Stock prices generally fluctuate according to the activities and performance of individual companies as well as due to market and economic conditions, while the prices of public and corporate bonds fluctuate due to changes in the creditworthiness of issuers, market interest rates, and other factors. Therefore, investment trusts that primarily invest in domestic and foreign stocks as well as public and corporate bonds, are subject to the risk of such price fluctuations and may incur losses.

Liquidity risk
When you try to sell or buy securities, you may not be able to trade with sufficient liquidity due to insufficient demand or supply in the market or due to trading restrictions. Or, you may be forced to trade on unfavorable terms (or may be unable to trade at all). As a result, you may not be able to buy or sell such securities at the expected price, in which case you may incur unforeseen losses.

Credit risk
If the business or financial conditions of a securities issuer or borrower, etc. deteriorate or are expected to deteriorate, or if their external evaluation declines, the prices of securities may fall, they may lose their value, or the issuer or borrower, etc. may default on its obligations to make timely interest or redemption payments. In the event of the company's great cricis, an investment trust may faces a major crisis and may incur significant losses. In addition, if the issuer of the bond may defaults or expected to default, the bond price may fall, and the trust may incur losses.

Currency risk
If foreign currency-denominated assets are included in an investment trust, it may incur losses due to exchange rate fluctuations between the foreign currency and the yen. If the yen interest rate is lower than the foreign interest rate when certain assets are hedged against foreign currency assets, a hedging cost equivalent to the difference in the interest rates will be incurred.

Country risk (emerging market risk)
The prices of securities may fluctuate significantly due to various factors such as the political and economic situation in the country or region being invested in, the performance of the company issuing the shares, and market supply and demand. Investments in emerging markets are subject to the risk of greater fluctuations in securities prices due to political and economic uncertainties, underdeveloped market infrastructure (including payment and settlement systems), the absence of information disclosure systems and regulations implemented by supervisory authorities, large fluctuations in exchange rates, restrictions on remittances to foreign countries, and other factors. In addition to that, the prices of public and corporate bonds in emerging markets are more volatile than those found in developed countries, meaning that the risk of default may also be greater.

Therefore, the principal amount which investors (beneficiaries) invest is not guaranteed, and they may experience losses due to a decline in the principal value of bonds, which may fall below par. See "Investment Risk" in the Investment Trusts Manual (Prospectus) for more information.

Costs Associated with Investment Trusts

Costs borne directly by clients

Sales charge on purchases Up to 3.30% (tax included)
Redemption (cancellation) fees None

There are no sales charges on the purchase of investment trusts sold directly by us, but you are responsible for remittance fees when making spot purchases.

Sales charges on purchases of investment trusts you can buy through sales companies are calculated based on the rate specified by each sales company. Please contact the individual sales companies for more information.

Costs borne indirectly by clients

Trust fees Up to 1.6280% (1.4800% before tax) of the net asset value of the trust per annum
Audit fees The amount obtained by multiplying the net asset value of the trust by an annual percentage rate of 0.0055% (0.005% before tax) or less
Other expenses Brokerage commissions incurred when buying and selling securities in a portfolio (consumption tax on such commissions), expenses for futures and options transactions, expenses for custody of assets denominated in foreign currencies, taxes, various expenses for trust administration, and interest on advances made by trustees, etc. The rate, maximum amount, etc. for these expenses cannot be provided in advance since they are subject to change depending on operating conditions and other factors.

The risks and expense items listed above are for a typical investment trust. The fee rates shown here are the highest among all publicly placed investment trusts managed by Rheos Capital Works. Risks and costs associated with investment trusts vary from one investment trust to another. Please read the investment trusts manual (prospectus), its supplementary documents, etc. carefully before making an investment.