Last Update Date：8 January 2020

Notes, Risk Disclosure and Disclaimer

Independence intermediary

Phillip Securities (Hong Kong) Ltd. is an independent intermediary for the product of bonds because:

1. we do not receive fees, commissions, or any other monetary benefits, provided by any party in relation to the distribution of the investment product to you; and

2. we do not have any close links or other legal or economic relationships with the product of bond issuers, or receive any non-monetary benefits from any party, which are likely to impair its independence to favour any bond product, any class of bond products or any bond issuer.

Key Product Risks

It is crucial to understand the specific forms and risks mentioned in the relevant offering documents (if applicable) before investing. Key risks include but are not limited:

●Credit Risk

Investors assume credit risk of the Issuer and the Guarantor (if applicable). Any changes to the credit rating of them will affect the price and value of the bonds. Bonds are subject to the risk of the issuer defaulting on its obligations, i.e. An issuer fails to make principal and interest payments when due. The worst case such as bankruptcy of the Issuer/Guarantor will result in the loss of your entire investment. Credit ratings assigned by credit rating agencies do not guarantee the creditworthiness of the issuer.

●Liquidity Risk

The bond may have limited liquidity and may not be actively traded and/or quoted by brokers in the market. As such,

(i)The value of bond and/or indicative bid/offer price will depend on market liquidity and conditions and may not be available at all times;

(ii)It may take a longer time or impossible to sell the bond to the market and;

(iii)The executable sale price may be unfavourably different by large amounts from the indicative bid price quoted.

●Interest Rate Risk

Bonds are more susceptible to fluctuations in interest rates and generally prices of bonds will fall when interest rates rise.

●Market Risk

The value of investments may fluctuate due to changing political, legal, economic conditions and change in interest rate. This is common to all markets and asset classes. Investor may get back an amount substantially less than initially invested.

●Currency Risk

For bonds denominated in a foreign currency, there may be an exchange loss when converting the redemption amount back to the local or base currency.

For Product denominated in Renminbi (RMB) or with underlying assets that are denominated in RMB only

Conversion between RMB and foreign currencies, including Hong Kong dollar, subject to PRC regulatory restrictions – RMB is currently not freely convertible and conversion of RMB through banks in Hong Kong is subject to certain restrictions. The PRC government regulates conversion between RMB and foreign currency both in Hong Kong SAR and mainland China, which as a result may affect the liquidity.

Some bonds may contain special features and risks that warrant special attention. These include bonds:

●Risk associated with Subordinated Debentures

Holders of subordinated debentures will bear higher risks than holders of senior debentures of the issuer due to a lower priority of claim in event of the Issuer’s liquidation. Subordinated debentures are unsecured and have lesser priority than that of an additional debt claim of the same asset. They usually have a lower credit rating than senior bonds. Investor’s specific attention is drawn to the credit information of this product, including the respective credit rating of the issuer, the debenture and/or the guarantor, as the case may be.

●Risk associated with Variable Coupon/ Coupon Deferral Features

If the bonds contain variable and/or deferral of interest payment terms and investors would face uncertainty over the amount and time of the interest payments to be received.

●Risk associated with Extendable Maturity Date

If the bonds contain extendable maturity dates terms and investors would not have a definite schedule of principal repayment.

●Risk associated with Convertible or Exchangeable Debentures

They are convertible or exchangeable in nature and investors are subject to both equity and bond investment risk; and/or that have contingent write-down or loss absorption feature and the bond may be written-off fully or partially or converted to common stock on the occurrence of a trigger event.

●Risk associated with High Yield Bond

1.Higher default risk: The bonds with higher yield are usually with a lower investment grading or even no credit rating, therefore their default risk is higher;

2.During the economic recession, the issuers of high yield bonds may be more susceptible to financial difficulties, therefore their default risk is higher;

3.The liquidity of high yield bonds are usually lower, a higher discount may be needed when selling or even cannot sell in the secondary market;

4.When there is adverse news in the market or the issuer, the price or liquidity of the high yield bonds may even drop further.

●Risk associated with Complex Bond

1.Complex bonds are bonds with special features (including, but not limited to, perpetual or subordinated bonds, or those with variable or deferred interest payment terms, extendable maturity dates, or those which are convertible or exchangeable or have contingent write down or loss absorption features, or those with multiple credit support providers and structures) and/or bonds comprising one or more special features;

2.SFC has not audited the related offering documents of the bonds, investors have to understand the terms clearly before taking actions;

3.As the bonds contain complex terms, the past performance of the bonds is less useful for reference and cannot be an indicator of future performance.

●Risk associated with Non-rated Bond

1.Non-rated bonds present additional uncertainties because of the difficulties in determining their comparability to rated bonds;

2.Non-rated bonds are often compared to speculative bonds as they generally carry more uncertainties than investment grade bonds;

3.Non-rated bonds tend to have smaller issue size; these bonds may have less liquidity than rated bonds that have a larger issue size;

4.Bondholders may face significant price volatility, or potential lack of liquidity and investment loss.

●Risk associated with Perpetual Debentures

1.The bondholder may face reinvestment risk when the issuer exercises its right to redeem the bond before it matures. This usually occurs when interest rates have fallen substantially since the issuance date;

2.Reinvestment risk refers to the risk that the rate at which coupon and principal cash flows from a bond are reinvested will be lower than the expected rate in effect when the bond was purchased;

3.The predictability of cash flow pattern of a callable bond may be uncertain due to the embedded option;

4.The price appreciation potential of a callable bond would be limited relative to a comparable option-free bond since the upside of the bond price is capped at the call price;

5.As time passes, uncertainties over the creditworthiness of the issuer increase;

6.Interest rate may rise substantially since the issuance date. Under such situation, the coupon rate paid by the perpetual bond may be significantly lower than the prevailing interest rate.

●Risk associated with Callable Bond

1.The bondholder may face reinvestment risk when the issuer exercises its right to redeem the bond before it matures. This usually occurs when interest rates have fallen substantially since the issuance date;

2.Reinvestment risk refers to the risk that the rate at which coupon and principal cash flows from a bond are reinvested will be lower than the expected rate in effect when the bond was purchased;

3.The predictability of cash flow pattern of a callable bond may be uncertain due to the embedded option;

4.A call schedule for a callable bond may have different call prices depending on the call dates;

5.The price appreciation potential of a callable bond would be limited relative to a comparable option-free bond since the upside of the bond price is capped at the call price;

6.If an investor bought a bond with a premium, a loss may occur when the bond is called back by an issuer before the date of maturity.

●Risk associated with Putable Bond (Special Feature)

1.The bondholder may face reinvestment risk when the issuer exercises its right to redeem the bond before it matures. This usually occurs when interest rates have fallen substantially since the issuance date;

2.Reinvestment risk refers to the risk that the rate at which coupon and principal cash flows from a bond are reinvested will be lower than the expected rate in effect when the bond was purchased;

3.Under a Make-Whole Call provision, the issuer has to make a payment set as a yield spread over a reference rate, or a payment equal to the present value of all future coupon and principal payments that bondholders would have received, had the bond not been called;

4.The predictability of cash flow pattern of a bond with a make-whole call option may be uncertain;

5.Unlike a normal callable bond, there may be no predetermined callable date and callable price for bonds with a make-whole call option.

●Risk associated with Make Whole Call Option (Special Feature)

1.The bondholder may face reinvestment risk when the issuer exercises its right to redeem the bond before it matures. This usually occurs when interest rates have fallen substantially since the issuance date;

2.Reinvestment risk refers to the risk that the rate at which coupon and principal cash flows from a bond are reinvested will be lower than the expected rate in effect when the bond was purchased;

3.Under a Make-Whole Call provision, the issuer has to make a payment set as a yield spread over a reference rate, or a payment equal to the present value of all future coupon and principal payments that bondholders would have received, had the bond not been called;

4.The predictability of cash flow pattern of a bond with a make-whole call option may be uncertain;

5.Unlike a normal callable bond, there may be no predetermined callable date and callable price for bonds with a make-whole call option