The conduct of any securities lending by the Trust shall be for the sole purpose of efficient portfolio management. The Trustee and the Manager consider the conduct of securities lending by the Trust to be in the overall best interest of the Trust's unitholders. The undertaking of securities lending will generate additional income for the Trust with minimal increase in risk to the Trust, and thus is beneficial to the Trust. The Trust's engagement in securities lending transactions will continue to be in line with the investment objectives and policies of the Trust set out in the Prospectus.

The Trust may, for the sole purpose of efficient portfolio management, lend securities from its holdings to brokers, dealers and other financial institutions desiring to borrow securities to complete transactions on their own or their clients' behalf. The Trust may also lend securities to a potential investor wishing to place an order to create Creation / Redemption Units if the potential investor is an eligible counterparty. These loans may not, however, exceed 10% of the NAV of the Trust, including assets derived from such lending activities.

The limit of any securities of the same issue that may be lent at any one time will be determined by the Manager at its absolute discretion, pursuant to a mechanism as agreed between the Trustee and the Manager. In addition, at the time that any securities are lent or proposed to be lent, the amount of securities of that issue being lent must be not more than 50% of the aggregate market holding of securities of that issue available for lending, as determined by a service provider appointed by the securities lending agent and approved by the Trustee (the "Data Service Provider"). Currently, the Data Service Provider is Markit Group Limited. The Data Service Provider receives data from numerous lenders to determine the amount of securities of the same issue that are available for lending (the "Lendable Amount"). The securities lending agent will monitor the securities of that issue lent by the Trust, and track the lending against this data to ensure that the amount of securities of that issue lent by the Trust is not more than 50% of the Lendable Amount (as determined by the data provided by the Data Service Provider). Should a passive breach of any such 50% threshold occur, the securities lending agent will issue sufficient loan recalls to borrowers to ensure the limit requirement is met.


The Trust will only lend securities to a borrower approved by the Trustee. Borrowers will be restricted to persons who satisfy the criteria for a counterparty to a securities lending agreement as required under all applicable laws and regulations (including the Code Investment Guidelines). At present, the Code Investment Guidelines require a counterparty to a securities lending agreement to amongst other things, have a minimum long-term rating of 'A' by Moody's, 'A' by Standard and Poor's, or 'A' by Fitch (including sub-categories or gradations therein).

The Trustee shall not approve (i) any securities lending transaction where the borrower is a Connected Person to or a related corporation (as defined in Section 4(1) of the Companies Act, Chapter 50 of Singapore) of the Manager or the Trustee, or (ii) the appointment of the Manager or any of its Connected Persons as securities lending agent for the Trust.


As part of its securities lending transactions, the Trust will receive collateral, the value of which, during the duration of the securities lending agreement, will exceed 100% of the global valuation of the securities lent, marked to market on a daily basis. Subject to the Code Investment Guidelines, the collateral that is to be acquired in respect of securities lending shall comprise Index Securities, Non-Index Securities and/or other high quality cash equivalent investments approved by the Trustee and permitted under the Trust Deed. The Trust will only accept cash collateral in circumstances where collateral is accepted through the Euroclear SA collateral management system, and the collateral substitution process for the system requires the interstitial acceptance of cash collateral. No interest would be paid on such cash collateral, which would be held by HSBC Bank plc as banker. The Trust will not reinvest collateral received in connection with its securities lending.

The securities lending agent provides borrower default protection to mitigate the risks of borrowers' default. In the event of a borrower default, the securities lending agent, HSBC Bank plc, shall take certain actions which include (i) the purchase of equivalent securities equal to the number of the unreturned loaned securities, to the extent that such equivalent securities are available on the market, (ii) performance of the relevant defaulting borrower's obligations (including redelivery of equivalent securities) in respect of all loans affected by such borrower's default as if the default had not occurred. If the securities lending agent is unable, despite using its best endeavours, to redeliver the equivalent securities as a result of the unavailability of such equivalent securities on the market, the securities lending agent shall redeliver any equivalent securities that it is able to obtain and shall credit to an account nominated by the Trustee a sum of money representing the value of the remaining equivalent securities that it is not able to obtain, on a pro-rata basis based on the relevant value or (default) market value of the remaining equivalent securities, and the value of all distributions on the loaned securities for the relevant record dates which occur before the date on which the securities lending agent starts to purchase the aforementioned equivalent securities.


Currently 70% of the total income received from securities lending will be credited to the account of the Trust. The balance of any securities lending income will be for the account of the securities lending agent, Custodian and/or Administrator. No income from securities lending accrues to the Manager.


Lending of securities. Securities lending transactions may involve the risk that the borrowers may fail to return the securities lent out in a timely manner and the value of the collateral may fall below the value of the securities lent out.

Although the Trust will receive collateral in connection with all loans of its securities, the Trust would be exposed to a risk of loss should a borrower default on its obligation to return the borrowed securities (e.g. the loaned securities may have appreciated beyond the value of the collateral held by the Trust).

If a borrower cannot settle an obligation for the full value when it is due, the Trust's ability to meet its realization obligations and other payment commitments may be affected. A borrower may default on its obligations by becoming insolvent or otherwise by becoming unable to complete a transaction. In addition, following a borrower's default, the Trust can sell its collateral in the market to raise funds to replace the lent securities. However, the Trust will suffer a loss if the value of the collateral falls relative to the lent securities, or the value of the lent securities rises relative to the collateral due to inaccurate pricing of the collateral, adverse market movements in the collateral value, change of values of securities lent, a deterioration in the credit rating of the collateral issuer, and/or illiquidity of the market in which the collateral is traded or otherwise. In addition, delivery risk may occur when (i) securities are lent but collateral is not received at the same time or prior to the loan, or (ii) collateral is returned but the loan is not received. The Trust would also be subject to operational risk such as delay or failure of settlement, where the Custodian or lending agent does not administer the transaction as agreed. This includes the failure to mark to market collateralization levels, call for additional margin, or to return excess margin and to post corporate actions and income including all economic benefits of ownership.