For professional investors onlyHedged shareclasses explained
Columbia Threadneedle Investments offers currency hedged shareclasses within its range of Luxembourg-domiciled Sociétéd’Investissement à Capital Variable (SICAV).
Hedged share classes aim to provide investors with a return moreclosely correlated to the base currency performance of the fund,by reducing, but not completely eliminating, the effect ofexchange rate fluctuations between the hedged currency and thebase currency.

How do hedged share classes perform relative to basecurrency classes?
Although the intention for hedged share classes is to remove theeffect of exchange rate movements and offer shareholders thereturn of the underlying portfolio, there are a number of factors thatcan contribute to a divergence between the performance of hedgedclasses and the corresponding base currency classes:
Why use hedged share classes?
For investors holding assets in currencies other than their own,
currency fluctuations can be a significant contributor to or detractor
from returns, and are therefore an additional source of risk.
For example, an investor in Asia holding US dollars, may wish toinvest in a Japanese equity fund without being exposed to thefluctuations between the Japanese yen and the US dollar. In thisinstance, a USD hedged share class would aim to provide a returnas close as possible to that of the underlying Japanese yen assets,
although there can be no guarantee that the hedge will performperfectly.

Example: USD hedged shares on JPY base currency
JPY-based return
10.0%
JPY interest rate
0.0%
USD interest rate
5.0%
Interest rate differential+5.0%
USD-hedged total return
15.0%

EXAMPLE:For illustrative purposes only. Interest rates may fluctuate and are likely to change.

A client in Asia invests $10,000 in an unhedged share class of aJapanese equity fund. At the time of purchase, the yen is 150 tothe dollar and the investor’s subscription is worth ¥1,500,000.
Assuming the fund returns 10% over the next year, the value of theinvestment then goes up to ¥1,650,000. The investor decides tosell the investment, however the yen has weakened and is now
worth 160 to the dollar. The investor therefore receives $10,313 forthe sale, representing a return of around 3%.
Had the investor purchased hedged shares, the effect of theweakening yen would have been reduced and the returnexperienced would have been closer to that of the fund in yenterms.
Conversely, had the yen strengthened against the dollar, aninvestor in an unhedged share class would have received a greater
return than that of the fund’s returns in yen. Assuming the yen is
now 140 to the dollar, the investor will receive $11,786 for thesale, generating a return of close to 18%. In this scenario, anunhedged share class would have produced a superior return to its
hedged equivalent.

How does the hedge work?
An investor’s subscription is made in the currency of the shareclass. This is converted into the base currency of the fund at theprevailing spot rate. At the same time, the resulting exposure to thebase currency is hedged at the forward foreign exchange rate. The
hedging transaction is ‘rolled’ on at least a monthly basis, which
crystallises any loss or gain on the hedge.
Gains or losses on hedges are included in the daily NAV for therelevant share class only, and such gains and losses are borne
only by the shareholders of such classes, as are any expenses
related to the hedging process.

Interest rate differential: Any difference in interest rates between
the base currency and the hedged currency will lead to adivergence in performance. The hedged class may outperform or
underperform depending on the nature of the differential. The
example below outlines a scenario where the hedged classoutperforms the base currency class, due to a positive interest
rate differential:

Where the interest rate differential is negative, the hedged classwould be expected to underperform the base currency class.
This is because the pricing of the currency forwards used forhedging takes into account the different interest rates thatinvestors would earn holding different currencies. These
relationships are governed by an economic concept known asinterest rate parity, which broadly holds in most marketenvironments.
Unrealised profit or loss: Over the period of the forward currency
contract, unrealised gains or losses are included in the NAV ofthe share class, but are uninvested in the assets of the fund andwill not therefore participate in the performance of those assets.
This can lead to a dilutive effect on the hedged classes versus
the unhedged classes.

Hedging expenses: Any expenses relating to the management of
the currency hedge are accrued only against the hedged shareclasses.

For professional investors only

Important information

For use by Professional and/or Qualified Investors only (not to be used with or passed on to retail clients).
This material is intended for informational purposes only and should not be considered representative of any particular investment. This should
not be considered an offer or solicitation to buy or sell any securities or other financial instruments, or to provide investment advice or services.
Investing involves risk including the risk of loss of principal. Your capital is at risk. Market risk may affect a single issuer, sector of theeconomy, industry or the market as a whole. The value of investments is not guaranteed, and therefore an investor may not get back theamount invested. International investing involves certain risks and volatility due to potential political, economic or currency fluctuations anddifferent financial and accounting standards. The securities included herein are for illustrative purposes only, subject to change and should not
be construed as a recommendation to buy or sell. Securities discussed may or may not prove profitable. The views expressed are as of thedate given, may change as market or other conditions change and may differ from views expressed by other Columbia Threadneedle
Investments (Columbia Threadneedle) associates or affiliates. Actual investments or investment decisions made by Columbia Threadneedle andits affiliates, whether for its own account or on behalf of clients, may not necessarily reflect the views expressed. This information is notintended to provide investment advice and does not take into consideration individual investor circumstances. Investment decisions should
always be made based on an investor’s specific financial needs, objectives, goals, time horizon and risk tolerance. Asset classes describedmay not be suitable for all investors. Past performance does not guarantee future results, and no forecast should be considered a guarantee
either. Information and opinions provided by third parties have been obtained from sources believed to be reliable, but accuracy andcompleteness cannot be guaranteed. This material and its contents have not been reviewed by any regulatory authority.
In Australia: Issued by Threadneedle Investments Singapore (Pte.) Limited [“TIS”], ARBN 600 027 414. TIS is exempt from the requirement tohold an Australian financial services licence under the Corporations Act 2001 (Cth) and relies on Class Order 03/1102 in respect of thefinancial services it provides to wholesale clients in Australia. This material should only be distributed in Australia to “wholesale clients” asdefined in Section 761G of the Corporations Act. TIS is regulated in Singapore (Registration number: 201101559W) by the Monetary Authorityof Singapore under the Securities and Futures Act (Chapter 289), which differ from Australian laws.
In Singapore: Issued by Threadneedle Investments Singapore (Pte.) Limited, 3 Killiney Road, #07-07, Winsland House 1, Singapore 239519,
which is regulated in Singapore by the Monetary Authority of Singapore under the Securities and Futures Act (Chapter 289). Registration
number: 201101559W. This advertisement has not been reviewed by the Monetary Authority of Singapore.
In Hong Kong: Issued by Threadneedle Portfolio Services Hong Kong Limited 天利投資管理香港有限公司. Unit 3004, Two Exchange Square, 8Connaught Place, Hong Kong, which is licensed by the Securities and Futures Commission (“SFC”) to conduct Type 1 regulated activities(CE:AQA779). Registered in Hong Kong under the Companies Ordinance (Chapter 622), No. 1173058.
Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies.