In order to achieve the investment objective of the Sub-Fund, the Manager will primarily use a full replication strategy by directly investing all, or substantially all, of the assets of the Sub-Fund in securities constituting the Index (the “Index Securities”) in substantially the same weightings (i.e. proportions) as these Index securities have in the Index.

The Sub-Fund may invest up to 100% of its Net Asset Value directly in equity securities listed on the Prime Market of the Tokyo Stock Exchange.

The Manager may however, in the exceptional circumstances (i.e. due to restrictions, suspensions of trading, limited availability of certain Index Securities, corporate events, or as the Manager believes there is significant market mispricing or foreseeable market turbulence) where it is not feasible or not in the best interest of investors to acquire certain securities which are constituents of the Index and/or it is not cost efficient, by reference to the Sub-Fund’s Net Asset Value, use a representative sampling strategy where the Manager believes will help the Sub-Fund achieve its investment objective.

In pursuing the representative sampling strategy, the Manager may:

• invest in a representative sample whose performance is closely correlated with the Index, but whose constituents may or may not themselves be constituents of the Index;
• invest in other collective investment schemes (“CIS”), each being either an exchange traded fund or an unlisted index tracking fund which tracks an index that has a high correlation with the Index. Such CIS may be authorised by the SFC, eligible schemes under Chapter 7.11A of the Code, or non-eligible schemes. The Sub-Fund’s aggregate investment in other CIS may be up to 10% of the Net Asset Value of the Sub-Fund; and

• invest in financial derivative instruments (“FDIs”) which exhibit high correlation with the Index, including futures and swaps where the Manager believes such investments will help the Sub-Fund achieve its investment objective and are beneficial to the Sub-Fund. The futures which may be invested by the Sub-Fund will be index futures, such as the Nikkei 225 futures. On the other hand, the swaps which may be invested by the Sub-Fund will be funded total return swap transaction(s) whereby the Sub-Fund will pass on the relevant portion of cash to the Swap Counterparty(ies) and in return the Swap Counterparty(ies) will provide the Sub-Fund with an exposure to the economic gain/loss in the performance of the relevant Securities (net of indirect costs). The expected proportion of the Sub-Fund’s Net Asset Value subject to investments in futures and swaps will not exceed 10% and 10% of its Net Asset Value, respectively. For the avoidance of doubt, the aggregate investment in futures and swaps will not exceed 10% of the Net Asset Value of the Sub-Fund.

In pursuing the representative sampling strategy, the Manager may cause the Sub-Fund to deviate from the index weighting on condition that the maximum deviation from the index weighting of any constituent will not exceed 3% or such other percentage as determined by the Manager after consultation with the SFC.

Investors should note that the Manager may switch between the full replication and representative sampling strategies without notice to investors and in its absolute discretion.

Securities lending transactions

The Manager may, on behalf of the Sub-Fund, enter into securities lending transactions , with the maximum level for up to 50% and expected level for approximately 20% of its Net Asset Value, and is able to recall the securities lent out at any time. All securities lending transactions will only be carried out in the best interest of the Sub-Fund and as set out in the relevant securities lending agreement. Such transactions may be terminated at any time by the Manager at its absolute discretion.

As part of the securities lending transactions, the Sub-Fund must receive cash and/or non-cash collateral of at least 100% of the value of the securities lent (interests, dividends and other eventual rights included). The collateral will be marked-to-market on a daily basis and be safekept by the Custodian. The valuation of the collateral generally takes place on trading day T. If the value of the collateral falls below 100% of the value of the securities lent on any trading day T, the Manager will call for additional collateral on trading day T, and the borrower will have to deliver additional collateral to make up for the difference in securities value, with settlement of such delivery expected to occur on or before trading day T+2. Non-cash collateral received may not be sold, re-invested or pledged. Please refer to “Collateral” under the section headed “Investment Objective, Strategy and Restrictions” in Part 1 of this Explanatory Memorandum for details of the requirements in relation to collateral received as part of the securities lending transactions.

In conducting securities lending transactions, the Manager will select independent counterparties approved by the Manager which (i) are incorporated in countries of high credit quality; (ii) have a minimum long-term credit rating of A2 or short-term credit rating of P2 by Moody’s or equivalent assigned by reputable credit rating agencies; or (iii) be a licensed corporation with the SFC or registered institution with the Hong Kong Monetary Authority. All the revenues arising from securities lending transactions, net of direct and indirect expenses as reasonable and normal compensation for the services rendered in the context of the securities financing transactions to the extent permitted by applicable legal and regulatory requirements, shall be returned to the Sub-Fund. Please refer to “Securities financing transactions” under the section headed “Investment Objective, Strategy and Restrictions” in Part 1 of this Explanatory Memorandum for details of the Manager’s policy in relation to securities lending transactions.

The Manager does not currently intend to enter into sale and repurchase transactions, reverse repurchase transactions and other similar over-the-counter transactions on behalf of the Sub-Fund.

The Manager will seek prior approval of the SFC (to the extent required under applicable regulatory requirements) and provide at least one month’s prior notice to Shareholders before the Manager engages in any such transactions.

Ancillary investments

Under exceptional circumstances (e.g. market crash or major crisis) or adverse market conditions, the Sub-Fund may be invested temporarily up to 100% of its Net Asset Value in liquid assets such as bank deposits, certificates of deposit, commercial paper and treasury bills for cash flow management.

The Sub-Fund may also utilise FDIs for hedging and investment purposes to the extent permitted by Chapter 7 of the UT Code. For the avoidance of doubt, the net derivative exposure of the Sub- Fund may be up to 50% of the Sub-Fund’s Net Asset Value.

Investment restrictions

No waivers from the investment restrictions set out in Part 1 of this Explanatory Memorandum have been sought or granted by the SFC.

The Index

This section is a brief overview of the Index. It contains a summary of the principal features of the Index and is not a complete description of the Index. As of the date of this Explanatory Memorandum, the summary of the Index in this section is accurate and consistent with the complete description of the Index. Complete information on the Index appears on the website identified below. Such information may change from time to time and details of the changes will appear on that website.

General Information on the Index

The Index, which is also known as the Nikkei 225 Index, is an adjusted price-weighted equity index with highly liquid and representative stocks that consists of 225 stocks listed on the Prime Market of the Tokyo Stock Exchange. In a price-weighted index, constituents are weighted by their price per share, and the Index is an average of the share prices of all the constituents.

The Index is denominated and quoted in JPY.

The Index is a net total return index, which means that it reflects the reinvestment of dividends or distributions, after deduction of any withholding tax.

The Index was launched on 3 December 2012 and had a base level of 6569.47 as of 28 December 1979. As of 14 March 2024, the Index had a total market capitalisation of JPY 689.15 trillion and 225 constituents.

Index Provider

The Index is compiled and managed by Nikkei Inc. (the “Index Provider”).

The Manager (and each of its Connected Persons) is independent of the Index Provider. Index constituents selection and reviews

Selection of constituents

The Index is calculated with 225 market representative stocks from the Prime Market of the Tokyo Stock Exchange. To be listed on the Prime Market of the Tokyo Stock Exchange, amongst other

listing criteria, companies need to have a market capitalisation of tradable shares of at least JPY10 billion, at least 800 shareholders, tradeable shares of at least 20,000 units, and a tradeable share ratio of at least 35%

However, non-ordinary shares such as ETFs, REITs, preferred stocks, preferred securities or tracking stocks are excluded.

By calculating with highly liquid stocks, the Index is aimed at fulfilling two objectives, one is to maintain its long-term continuity and the other is to reflect the changes in the industry structure of the Japanese stock market.

Constituents of the Index are reshuffled based on two types of changes in the constituents, namely

(i) periodic review (the “Periodic Review”), which is conducted twice a year, and (ii) extraordinary replacement (the “Extraordinary Replacement”), where the vacancies of the constituents created by delisting or other reasons are filled.

Periodic Review

Constituents are reviewed twice a year as evaluated at the end of January and July (the “base dates”) in accordance with the following rules. Results of the review become effective on the first trading day of April and October.

The maximum number of constituents reshuffled at a Periodic Review is 3. However, constituent change due to corporate reorganisation near the time of Periodic Review is not included in the foregoing limit of 3.

• Assessment of liquidity

Highly liquid stocks from the Prime Market of the Tokyo Stock Exchange are selected and grouped as the “High Liquidity Group”.

The measures to assess liquidity are (a) trading value of the preceding 5 years and (b) magnitude of price fluctuation by trading value (defined as (high price / low price) / trading value) in the preceding 5 years. Top 450 (double the constituent count for the Index) of the most liquid stocks ranked in descending order of liquidity in terms of the two measures constitute the “High Liquidity Group”.

• Deletion of low liquidity constituents

Those constituents not in the High Liquidity Group (ranked 451^st or lower) are deleted from the Index.

• Addition of high liquidity stocks

The “High Liquidity Group” stocks which are ranked 75^th or higher and are not currently in the list of the constituents are added to the Index.

• Deletion/Addition based on the sector balance

The 450 most liquid issues will be categorised into six industrial sectors –Technology, Financials, Consumer Goods, Industrial Materials, Capital Goods/Others and Transportation/Utilities.

After considering the results of steps (2) and (3) above, a rebalancing is conducted if any of the sectors are over-represented or under-represented so as to make the total number of the constituents to be 225. Degree of representation is evaluated by comparing the actual number of

constituents in the sector against the “Appropriate number”, which is defined as half of the number of stocks in each sector in the “High Liquidity Group”.

For over-represented sectors, current constituents in the sector are deleted in the order of the liquidity (low liquidity first) to correct the overage. For under-represented sectors, non-constituent stocks are added from the “High Liquidity Group” in the order of the liquidity (high liquidity first) to correct the shortage.

Extraordinary Replacement

Extraordinary Replacement is intended to fill the vacancy made by deletion due to a specific event.

• Deletion for special reasons

Constituents which meet the following criteria are deleted from the Index:

• designated as “Securities to be Delisted” or “Securities on Alert”;
• delisted due to corporate restructuring such as merger, share exchange or share transfer;

• transfer to a market other than the Prime Market.

A constituent designated as a “Security under Supervision” remains to be a constituent at the time of designation. However, the Index Provider may replace such a constituent with a pre- announcement when it is highly inappropriate to keep the stock as a constituent, e.g. probability of delisting is extremely high.

• Procedure to add new constituents

When a constituent is deleted for the reasons in step (1) above, a stock to be added will be selected, in principle, from the same sector in the “High Liquidity Group” in the descending order of liquidity.

Notwithstanding the preceding paragraph, the following rules may apply depending on the timing and circumstances of the deletion where a deletion is known in advance:

• when such deletion is scheduled close to the Periodic Review, additional stocks may be selected in a part of the Periodic Review process;

• when multiple deletions are scheduled in a season other than the Periodic Review, additions may be selected using steps (3) and (4) of the rules for Periodic Review described above by assessing the liquidity and the balance of the sector.

• Special rules for additions

Notwithstanding the above, the procedures as exemplified below may be applied to choose the stocks to be added in case of corporate restructuring. Application of these special rules is determined for each case.

• Under the following cases, a stock of a company which will succeed the substance of the delisting company will be added in principle, provided such company must be listed or will be listed within a short period on the Prime Market of the Tokyo Stock Exchange:

• stock of a surviving company in mergers where a constituent is merged and delisted;

• stock of a newly established parent company by share transfer or a new parent company receiving shares from a constituent by exchange.

• When a company is split and multiple companies maintain listing on the Prime Market of the Tokyo Stock Exchange, a stock of a company which succeeds the major operation will become a constituent.

• Timing of the constituent change

In principle, for each reason under step (1) above, constituents are deleted and added with the effective date as follows:

• designated as “Securities to be Delisted” or “Securities on Alert” – five business days after the designation;

• delisted due to corporate restructuring such as merger, share exchange or share transfer – effective date of the relevant event;
• transfer to the market other than the Prime Market – effective date of the relevant event.

In case that a constituent designated as a “Security under Supervision” is deemed as highly inappropriate and will be deleted, the announcement will be made approximately two weeks before its effective date. Even if such a constituent is designated as a stock to be delisted before the pre- announced effective date, the pre-announced effective date prevails.

Implementation of constituent change

For both Periodic Reviews and Extraordinary Replacements, deletions and additions are made effective on the same day to keep the number of constituents at 225.

However, when necessary, additions are made after the deletions and during such period, the Index may be calculated with less than 225 constituents. Divisor is adjusted at times when constituents are deleted or added to warrant the continuity.

A constituent company may be delisted due to corporate restructuring such as merger, share exchange or share transfer. However, in case that a constituent company is delisted due to a corporate restructuring and the company which succeeds the substance of the delisted constituent company is added, the newly listed company will replace on the date of its listing in principle.

After consultation with academics and market professionals, the Index Provider will decide and announce the list of deleting and adding stocks.

Index calculation method

The Index is calculated as a weighted price average where the sum of the constituent stock prices adjusted by the price adjustment factor is divided by the divisor.

Adjusted stock price = Stock price x Price adjustment factor* The Index = Sum of adjusted stock price / Divisor

* For a constituent to which a capping ratio is applied, price adjustment factor will be replaced by “capped price adjustment factor”.

Selection of the prices

Prices to be used for the calculation are selected in the following order of priority: (1) special quote or sequential trade quote, (2) traded price and (3) base price.

Closing index level is calculated by the last traded price of each constituent. However, if a constituent stock closes trading with special quote, such special quote is used to calculate the closing index even if it had a traded price intraday. Special quote is declared by the Tokyo Stock Exchange. Since the Nikkei 225 is composed of liquid stocks, (1) special quote or sequential trade quote or (2) traded price tend to be used intraday, and usually the traded price, and occasionally the special quote or sequential trade quote are used for the closing index. When there are no (1) special quote or sequential trade quote or (2) traded price during a day, “(3) Base price” is used. This is obtained based on the priority order of ex-rights theoretical price, the last special quote price or sequential trade quote price, and the latest traded price up to the preceding day. In most cases, the price used for the calculation of the closing index on the preceding day becomes the “Base price”. However, the exception case is that there are not any prices and quotes on a day when a stock goes ex-right (split, for example). Since the price on the day of ex-right is significantly changed from the prices on the preceding day for non-market reasons, the “ex-rights theoretical price” is used for the calculation. The theoretical price is calculated based on the price (i.e. special quote or sequential trade quote or closing price) used for the calculation on the preceding day. For example, if the closing price on the preceding day was 1000 yen for a constituent and it goes for 1 to 1.1 split today, the theoretical price for today is 909.1 yen (=1000 / 1.1) and this is the theoretical price for this constituent.

Note that in the case where a newly listed company which succeeds the substance of a constituent stock to be delisted due to a corporate restructuring is added on its listing date, the base price on the first day of addition for the stock to be added shall be the price based on the last price of the stock to be delisted used in the calculation of the Index at the closing of the previous day of its delisting date considering with the integration ratio and other factors. Also note that ex-dividend is not treated as an ex-right for the calculation of the Index.

A special quote is declared by the Tokyo Stock Exchange. It is indicated whenever prices look likely to jump beyond a certain price range (special quote renewal price interval) from the last execution price. It is indicated if there is any likelihood of inappropriate price fluctuations, for example, as a result of a major order imbalance between bids and offers, to prevent short-term wild price fluctuations. Special offer quotes are indicated when the next price is anticipated to be at a price lower than the given renewal price interval and special bid quotes are indicated when the next price is anticipated to be at a price higher than the given renewal price interval.

Special quote described above is indicated when price is anticipated to jump beyond a certain range without execution. In high-speed order matching and executing however, sequential buying-up or selling-down with execution may result in instantaneous and sharp price fluctuations without a special quote being displayed at all. If there is sequential execution that is likely to move beyond twice the special quote renewal price interval from the reference execution price, after execution up to the “reference price + (renewal price interval x 2)” (or in the case of offers, down to the “reference price - (renewal price interval x 2)”), a sequential trade quote will be displayed at this price for one minute.

Following the order of priority mentioned above, if a constituent stock closes trading with special quote, such special quote is used to calculate the closing index even if it had a traded price intraday. Where there are no prices by the definition of “special quote or sequential trade quote” and “traded price”, then the base price is used. Base price is obtained based on the priority order of ex-rights theoretical price, the last special quote price or sequential trade quote price, and the latest traded price up to the preceding day. In most cases, the price used for the calculation of the closing index on the preceding day becomes the “base price”.

Price adjustment factor

Price adjustment factor (“PAF”) is a number which adjusts price of the constituents. PAFs are set and revised as follows.

• Setting PAF

The PAF of a stock to be added to the Index is 1. However, the value other than 1 (0.1 to 0.9) may be assigned provided that the price of such stock on the base dates (i.e. end of January and July) exceeds 1% of the sum of constituent prices. It is set at the highest value which does not exceed 1% of the sum of the prices by 0.1 interval.

PAF = sum of adjusted stock price of the constituents x 1% / the stock price of the new constituent.

Note: PAF is evaluated on the base date and rounded down to the nearest 0.1.

When a stock of a newly established holding company is added replacing the delisting original company, value other than 1 may be set in accordance with the ratio of stock transfer, etc. in the establishment of the holding company.

Also note that if the stock price of the new constituent fluctuates drastically after the base date until the effective date of the change, the PAF may be adjusted. In this case, such an adjustment will be announced at least 5 business days before the effective date in principle.

• Revising PAF

PAF is revised under large-scale stock split or reverse split.

When a constituent goes for a large-scale stock split or reverse stock split, PAF is revised to keep the price level of such a constituent unchanged. However, since the PAF has only 1 digit after the decimal point, the above adjustment calculation might result in a fraction. Also, if a result of calculation is less than 0.1, PAF will be set as 0.1. In these cases, the adjusted price before and after the split/reverse split are different. Such difference will be adjusted by divisor. Revision of PAF under large scale stock split or reverse split will be announced at least 5 business days before the effective date in principle.

• Capping ratio

Capping ratio is a number which is used to temporally decrease the weight of a constituent when such weight exceeds a certain threshold (the “weight cap threshold”). The capping ratio is applied, revised, or cancelled as stipulated below.

Weight cap threshold is 12% upon introduction at the Periodic Review of October 2022. It will be reduced to 11% and 10% respectively at the Periodic Reviews in October 2023 and October 2024.

For a constituent to which a capping ratio is applied, the price of such a constituent is adjusted by “capped price adjustment factor” (“CPAF”) as shown below.

Capped price adjustment factor (CPAF) = Price adjustment factor x Capping ratio

Note: CPAF is rounded down to the nearest 0.1.

If, on the base date of a Periodic Review, the weight of a constituent to which any capping ratio is not yet applied exceeds the weight cap threshold, a capping ratio of 0.9 is applied on the effective date of the constituent change resulting from the Periodic Review. If a capping ratio was already applied to such a constituent, capping ratio will be decreased by 0.1. However, if no change is observed in the CPAF after the application of the new capping ratio, the capping ratio will be decreased further until there is a change in the CPAF.

If, on the base date of a Periodic Review, weight of a constituent to which a CPAF is applied is below 5%, the capping ratio will be increased by 0.1 on the effective date of the constituent change resulting from the Periodic Review. However, if no change is observed in the CPAF after the application of the new capping ratio, the capping ratio will be increased further until there is a change in the CPAF. If the new capping ratio after the increment is 1, capping ratio will be cancelled.

When a constituent to which CPAF is applied goes for a large-scale stock split or reverse split and the PAF is adjusted by the ratio of split or reverse split, the capping ratio may be revised so that the new CPAF does not change the weight of the constituent. For such a constituent, the capping ratio may have fractions after 0.1 and be increased/decreased by the number other than 0.1 in the next revision of the capping ratio.

In principle, the capping ratio is applied, revised, or cancelled on the effective date of the constituent change resulting from the Periodic Review. However, depending on the liquidity of the constituent, changes in the capping ratio may be implemented in two or more steps.

• Divisor

The Index is calculated as adjusted price average where the weight is based on the price adjustment factor. This is basically an arithmetic average and the denominator is a number of constituents initially. There will be changes in the constituents etc., and the denominator, which is the “divisor”, will be adjusted to maintain the continuity of the Index.