capital protected funds

8/4/2019 Capital Protected Funds

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KBC-Fondsen met kapitaalbescherming

KBC Capital-ProtectedFunds


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Dear reader,

This brochure has been divided up into three

parts, each identified by a different colour.

That way, you will not have to read the entire

brochure if you are only looking for specific

information.

The blue part will clarify how a fund offering

capital protection works. Among other things,

it will explain why the price of such a fund

may fluctuate before maturity.

In the green part, the various fund types and

their specific characteristics will be explained

in detail. If, for instance, you are looking for

more information on click or Equiplus funds,

you will be able to find it here.

The orange part, finally, will provide answers

to frequently asked questions. Take the time

to read it through. Maybe you will find the

answers here to your own questions about

these funds.

We hope that this brochure will help you find

your way around the popular world of capital-

protected investment funds.


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As a result of efforts by the European monetary

authorities in f ighting inflation and the decline in pub-

lic def icits, int erest rates in Europe have become much

lower than they were in, say, the 1980s or 1990s.

Investors, who were getting steadily diminishing

returns on their traditional bonds, started to look for

new sources of income or returns.

In the 1990s, they showed a growing interest in long-

term investments in shares. However, t he bu llish years

were followed by a sharp downturn on the financial

markets, part icularly in certain sectors of industry, such

as telecommunications and t echnology.

Capital-protected funds offer investors an attractive

alternative to direct investment, especially investors

who st ill have to learn t he ropes. They teach them how

to keep track of the financial markets and become

familiar with the risks and not just the potential

return - associated with shares, without putting their

capital at risk.

Since 1993, KBC has systematically launched capital-

protected funds and during the more recent, riskier

years, has even come out wi th numerous new types of

capit al-prot ected funds. As a matt er of fact , KBC is far

and away the market leader in t hese funds. KBC Asset

Management a KBC Bank subsidiary - also designs

and develops these funds for other financial institu-

tions around the globe.

Other advantages, besides capital protection?

Capital-protected funds meet the needs of many

demanding investors. The return they offer approxi-

mates the result s that can be achieved in t he f inancial

markets they track, wit hout the capital invested being

put at risk.

In some cases, capital gains may also be locked in

before maturit y, as wit h the popular click funds .

Capital-protected funds can also offer attractive buy-

in opportunities (through reset or lookback options),

or guarantee a certain minimum rate of return (theBest of range).

Sti ll other funds aim to outperform the underlying

stock markets (EquiPlus funds).

Moreover, investments in capital-protected funds are

liquid before maturity, since prices for transactions in

these funds are set every two weeks.

This brochure aims to provide you, the reader, with a

thorough explanation of the main types, features and

workings of capit al-protected f unds.

I NTRODUCTI ON

Why are capital-protected funds so popular?


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HOW DO CAPITAL-PROTECTED FUNDS WORK? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

First objective: capit al prot ect ion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

The funds f ixed-income component

How does it work?

Interest rates influence the funds fixed-income component

Second object ive: perf ormance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

The funds opt ion component

How does it work?

All kinds of f actors inf luence the fund s opt ion component prior t o maturit y

The workings of capit al-prot ected funds: money flow diagram . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

BASIC TYPES OF CAPITAL-PROTECTED FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Equisafe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Features of the classic Equisafe f ormula

The opt ion component

Interest rates and volatilit y inf luence the part icipation rate when t he fo rmula is designed

Ways to increase the participation rate

Ways to opt imize the start ing value

Click . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

The ladder fo rmula

The cliquet formula

Ways to increase the cap


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EquiPlus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Features of the EquiPlus formula

The opt ion component

Mult isafe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Multisafe Currency X/Currency Y

Multisafe Interest

FREQUENTLY ASKED QUESTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

CONTENCE


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Capital-guaranteed funds and/ or funds off ering a guaranteed return have

two investment objectives:

1. To give the inv

2. To pay the investor any capital gains made by the fund.

estor his starting capital back in full or in part on the

fi nal maturity date ( before charges) .

There are various kinds of fund offering capital protection. Generally,

100% capital protection is available, but sometimes in only a very lim-

it ed number of cases the rate of protection may be lower ( 90%, for

example) . I n any case, all t he capital-protected funds have a fixed maturi-

ty date.

The capital gain these funds make will depend on the change in the value

of the underlying ( i.e., a stock market index, shares, interest rates or

currencies) on the final maturi ty and/ or on interim maturity dates.

HO W DO CAPITAL-PROTECTED FUNDS WORK?


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The funds fixed-income component

In order t o of fer capital prot ection (usually 100%), all

the capital init ially invested is put into ri sk-free, fixed-

income investments. This is the funds fixed-income

component.

Generally, the money is put into six-month time

deposit s that are subsequent ly renew ed. This risk-f ree

investment ensures that you get 100% of your start ing

capital back (before charges) on the final maturity

date. Naturally, these time deposits yield interest in

the meantime, interest that might come to, say, 30%

over the entire term to maturity.

However, this interest is not paid out to the investor.

Instead, it is used to generate a capit al gain.

How does it work?

The term investments are made at optimal rates of

interest: rates that normally apply for very large, pro-

fessional investors. Every six months, the fund manag-

er reinvests the capital. Consequently, there is a six-

month rate of in terest, but it i s a floating rate. Howev-

er, in order t o obt ain greater certainty, a fi xed in terest

rate is needed. Consequently, the floating six-month

rate is exchanged for a fixed rate of interest for the

entire term to maturity (generally more than eight

years). This is what is known as an int erest rate

swap . It yields a f ixed amount of interest, regardless

of changes in the interest rate. The present value ofthis interest amount is determined by discounting

future streams of income. This discounted interest

amount is then used to buy options, and these gener-

ate the return (i.e., the capital gain) on t he final matu-

rit y date. (See part 2).

Interest rates influencethe funds fixed-income component

A capital-protected fund is therefore, to a large

extent , a f ixed-income investment . As is the case wi th

other fixed-income investments, such as bonds, the

value of the fund i s sensit ive to fluctuations in int erest

rates.

Influence of interest rates when

the fund is designed

If interest rates are high when the fund is set up (e.g.,

7%), the interest amount wil l be high.

In this case, there will be more money available for

buying options, and t he fund w ill be able to off er bet-

First objective: capital protection

vastrentendvastrentendfixed-incomecomponent

100%issue p rice

100% on t hefinal maturit ydate

starting date final maturity date

vastrentendvastrentendfixed-incomecomponent

100%issue p ri ce

100% on t hefinal maturit ydate

starting date final maturity date

interest 30%


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ter t erms as far as the return is concerned.

On the other hand, if interest rates are low (e.g.,

4.5%), these terms wi ll be less favourable.

The interest rates prevailing on t he market when the

fund is set up therefore affect the terms, which the

fund can of fer as far as performance is concerned.

Influence of changes in interest rates

prior to the funds maturity

As an investor, you have to remember that the net

asset value of such funds may on occasion fluctuate

considerably prior to maturity. If, for instance, interest

rates head up sharply tw o years aft er the fund was set

up, the value of the underlying fixed-income invest-

ment will go down which is exactly what happens

wi th bonds, too . As a result , the net asset value of the

fund will drop.

This, however, is only temporary, since the effect of

any interim loss in value will have disappeared com-

pletely by t he f inal maturit y date. Consequently, youllget your start ing capit al back, no matter what (before

charges).

The contrary also ho lds t rue, of course. If int erest rates

fall before maturit y, the funds net asset value wil l go

up. But , again, this wil l only be temporary: on the final

maturity date, the value of the fund will be back at

100%.

HOW DO CAPI TAL-PROTECTED FUNDS WORK?

7%

4.5%

final maturity datestarting date

fixed-income

component

100% on t hefinal maturitydate

100%issue price

interest

Market interest rate trend

Change in valuation offixed-income component

8-year rate = 5.50%and sudden rise to 6.50%

100%

Starti ngdate

Finalmaturity

date

100%

6.50%Interest

rate 1.

2.

3.4.

Timeaxis

Explanation of the graph:

1. An increase in interest rates

2. wil l result in a loss in value of

the f ixed-income component

3. but t his loss wi ll be only tem-

porary

4. by the final maturity date,

the fixed-income component

will become less sensitive to

changes in interest rates and it s

value will move back up (dot-

ted line) to the 100% mark.


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- If int erest rates go up, call options wil l also increase

in value.

Note, however, that the effect of the opt ions increase

in value on the funds net asset value is offset in part

by the fact that the increase in in terest rates causes the

fi xed-income component to go dow n in value.

HOW DO CAPI TAL-PROTECTED FUNDS WORK?

Fixed-income

100%issue pr ice

100% on t hefinal maturitydate

interest 30%

Discounted, the st ream of int erest at 30 %is worth 25%; that 25% is investedin call options

Trend, stockmarket index

Value ofthe option

100

25 EUR

Assume that the trend on t he stockmarket is as follows:f irst a period of calmfollow ed by a steep climb above thestart ing value of t he index at 100

In this case, the value of t he call opt ionwou ld develop like this:

Diagram: change in the value of the option component if the stock market goes up


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In a nut shell, t he ent ire mechanism looks like th is:

Explanation of the above graph:

1 the investor invests capital in the f und

2 the f und puts the capital into a f ixed-income investment

3 this generates interest income for t he fund

4 the fund uses th is income to buy (usually call) options

5 on the final maturity date, the fund w ill receive the capital gain realized on t he options and

6 100% of t he capital from the time deposit account

7 the investor will get his capital back on t he final maturity date, along wit h t he capital gain.

The working of capital-protected funds:

money flow diagram

Fixed-incomecomponent

Optioncomponent

Investor

Fund OptionsTime deposit

1

2

3 4

56

7


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There are two main groups of capital-protected funds: equity-linked and

non-equity-linked.

KBC offers three basic types of capital-protected equity-linked funds:

Equisafe

Click ( ladder and cliquet formula)

EquiPlus

KBC also offers a wide variety of capital-protected non-equity-linked

funds under the Multisafe umbrella.

The difference between the above types of fund lies mainly in how the

option component of these funds is constructed. Provided here is a brief

explanation of the basic types of funds, but be advised that there are a

number of variants.

BASIC TYPES OF CAPI TAL-PROTECTED FUND


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Features of the classic Equisafe formula

Equisafe f unds have the simplest st ructure. In addit ion

to your initial investment, you will receive a certain

percentage of the increase in t he value of the underly-

ing on the final maturit y date. This underlying may be:

- a single stock market index or a basket of stock mar-

ket indices;

- a basket of indi vidual shares;

- or some other combinat ion.

How much you ultimately receive will only be known

on the final matur it y date. When the fund is launched,

however, how closely the underlying will be tracked

wi ll be specif ied as a percentage (for instance, 100%).This percentage is called the participation rate.

Example: An Equisafe fund o ff ering 100% capital pro-

tection at maturi ty + 100% of the increase in t he Euro-

pean stock market index, DJ Euro Stoxx 50.

The funds perf ormance depends on t wo variables:

- the part icipation rate, which in t his case is 100%;

- the underlying stock market index; in t his case the DJ

Euro Stoxx 50.

If this index goes up by, say, 80% before the fund

matures (positive scenario), the investor will get a

gross return on the final maturity date of 80% (the

80% increase is tracked at a rate of 100%).

If, by the final maturit y date, the value of t he DJ Euro

Stoxx 50 has fallen below the start ing value, then

there will of course be no capital gain, but your capital

wi ll sti ll be 100% protected.

There are two points of reference in the Equisafe for-

mula: the value of the underlying on t he start ing date

and its value on the closing date. No account is taken

of any increases or decreases in value prior to mat uri -

ty. The situation on the final maturity date is what

determines the ultimate return.

In order to avoid a situation where the final result

wou ld be determined by a large, chance fluctuation in

value at the start or on the final maturity date, the

starting and closing values are generally determined

on t he basis of the average of a number of reference

values.

For instance, the starting value is generally arrived at

by taking the average of the prices for the first ten

Equisafe

100

110

120

130

140

150

160

170

180

90

80

100 % protection

Maturity date

You get 100% of theincrease at maturit y

Positive scenario

Negative scenario

Equisafe formula

100% capital protection at maturity 100% of the increase at maturit y


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days following the close of the subscription period,

and the closing value is determined by taking the aver-

age of the prices fo r t he last ten evaluation days prior

to t he maturit y date.

The option component

In an Equisafe fund, an ordinary call option is pur-

chased wit h a long t erm to maturit y, equal to the term

to maturity of the fund.

A call option will entitle the fund to buy shares for a

fixed price.

Interest rates and volatility influence theparticipation rate when the fund is designed.

Influence of interest rates

If in terest rates are low, the int erest income from t he

fixed-income component will be smaller, and there

wil l therefore be litt le money available to buy options.

This wil l generally mean that there will be a lower par-

ticipation rate. The contrary also holds true, too, of

course. If interest rates are high, the participation rate

may be as high as 130%.

Influence of volatility

Volatility is the degree to which share prices fluctuate.

A high degree of volatility means agitated markets

and strong pr ice fluctuat ions. A high degree of volatil-

it y also means expensive opt ions. In th is case, the int er-

est income available w ill not buy many of these expen-

sive options. The participation rate, in this case too,

may be lower than 100%. Calm financial markets, on

the other hand, have a posit ive influence on t he par-

ticipation rate.

Ways to increase the participation rate

In order to offer an as high as possible participation

rate, despite difficult market conditions, some funds

take a creative approach to make options less expen-

sive and consequent ly increase the part icipation rate.

Asian tail

Here, the closing value and/or starting value of the

underlying is determined on the basis of the average

of prices on various days over a longer period of time.

Such periods may run from six to as much as twelve

months.

This technique not only makes the options cheaper,

but also ensures that the risk of a sudden drop in the

value of the underlying is mit igated t o some extent . If

the start ing/closing value is determined on t he basis of

a single or just a few, consecutive stock market days,

the odds of it s being less favourable are greater.

Light formula

This technique takes the worst performing shares out

of a share basket on an int erim maturi ty date (gener-

ally halfway to the final maturity date). On the final

maturity date, the best performing shares are also

removed. Based on the remaining shares, the percent-

age increase in t he value of the basket is determined.

BASIC TYPES OF CAPI TAL-PROTECTED FUND Equisafe


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Example of the Light formula: KBC Equisafe Telecom

Invest X participation rate 100%.

At the outset, the basket contains 21 telecom shares.

On the int erim evaluation day, the f ive worst perform-

ing shares are removed from the basket. On the final

maturity date, the six best performing shares are like-

wise removed f rom t he basket. A weighting of 10% is

given to each of the ten remaining shares.

The investors capital gain is 100% of the increase in

value of the ten remaining shares.

Without th is technique, which result s in fewer shares

determining the final result, it would not have been

possible to of fer t his sub-fund w ith a participation rate

of 100%.

Point-capped formula

In this case, the price increase per share is limited, or

capped. In other words, to calculate the percentage

increase in t he value of the basket , the increase in t he

price of each share will, for instance, be capped at a

maximum of 100% on each evaluat ion day. These eval-

uation days occur at t he end of t he term to maturi ty.

Ways to optimize the starting value

The performance on the final maturity date is deter-

mined by the difference between the starting value

and the closing value of the underlying. There are for-

mulas for optimizing (read: lowering) the starting

value after the launch of the fund. Formulas like this

are expensive, though, which means the participation

rate of fered w ill be lower. Consequently, they will only

be resorted to if stock market trends are uncertain on

the near term.

Best in or Lookback formula

The performance of the fund on the final maturity

date in this case depends on t he increase in the value

of the share basket relative to t he lookback value. This

is the lowest value of the underlying index/basket dur-

ing a pre-determined period after the launch of the

fund, the so-called lookback period. This is a technique

for optimizing the starting value.

Lookback f ormula

100% capital protection on the f inal maturity date The capital gain = the closing value of the basket less the

lowest value during t he Lookback period if < starti ng value(= 100), divided by t he start ing value

90

100

110

120

130

140

150

80

Investment simulation

Newstarting value

Capit al gain =(150 - 90)/100 = 60%

Lookbackperiod


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Reset formula

This formula also makes it possible to improve the

start ing value. The index wil l get a new (low er) start -

ing value, if it falls by a fixed percentage (the reset

level).

Conclusion

The features of an Equisafe fund can be summarized

as follows:

the investor enjoys the benefit of capital protection

on t he fi nal maturi ty date (before charges); the investment result is linked to movements in a

stock market index, a basket of stock market indices or

a diversified basket of shares;

on t he final maturit y date, the change increase or

decrease in t he value of the underlying index or bas-

ket is measured;

the capital gain the investor receives on the final

maturity date is a certain percentage, 90%, for

instance, of the increase in the value of t he underlying

index or basket;

if, on the other hand, the basket has gone down in

value, the investor will receive his initial capital back,

with no capital gain.

Since the capit al gain depends on a single reference

point, i.e., the change in value on the final maturity

date compared with the starting date, this type of

fund is more suitable for the dynamic investor.

BASIC TYPES OF CAPI TAL-PROTECTED FUND Equisafe


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Some investors find t hat t he final maturit y date is too

far ahead. They also want certain ty regarding t he cap-

ital gains that can be realized before then. The click

formula makes it possible for this need to be met.

Within t he click fund family, there are ladder and cli-

quet f unds.

The Ladder formula

Features of the Ladder formula

The underlying index and/or share basket is tracked

extremely closely during the entire term to maturity.Once the underlying goes up in value by a certain, pre-

determined percentage, that percentage will be

locked i.e., clicked - in. That means that t his gain

wil l accrue to t he investor and be paid out on maturi-

ty, even if the value of the index/basket subsequently

falls below the clicked-in level. If the increase on the

final maturit y date is higher t han the highest percent-

age clicked in, the investor will receive the full

increase. This is referred t o as a ladder structure ,

since each click is a rung up on t he ladder and

means more profit on the final maturity date.

Example: Ladder formula 10/20/30 up to 60%. A click

fund linked t o t he DJ Euro Stoxx 50 index, based on

the 10/20/30 up to 60% formula. Lets assume the DJ

Euro Stoxx 50 index has a fi ct it ious start ing index of

100.

Af ter tw o months, the index has gone up to 110: a

10% capit al gain is locked in.

In the following months, the index falls to 80, but

this does not have any adverse effect on the 10%locked in.

In a subsequent period, the index jumps up to 130,

and an addit ional 20% gain i s locked in (in two stages:

at a level of 120 and 130).

Even if the DJ Euro Stoxx 50 subsequent ly nose-dives,

the investor w ill sti ll receive a gain of 30% at maturi ty

in addition to his initial investment (see the diagram

above).


A click fund w it h a ladder formula makes use of ladder

call options that lock or click in at specif ic levels.

With t he above 10/20/30 up t o 60% formula, one lad-

der call option is bought wit h ladder rungs at 10, 20,

30, 40, 50, and 60%.

Ladder options are more expensive than ordinary call

opt ions wit h t he same term to maturit y (see the Equi-

safe formula).

Moreover, the price goes up as more rungs are built

int o the ladder. This type of st ructure is thus more like-

Click

Ladder formula

100% capital protection at maturity 100% on t he increase in the index on t he maturit y date Clicks at 10, 20, 30, 40, 50, and 60%, if r eached bef ore mat urit y

140

130

120

110

100

90

80

70100% protection

Click: 10%

Click: 20%

Click: 30%


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ly to be created when market conditions are

favourable (i.e., higher interest rates, low volatilit y).

The cliquet formula

Features of the classic cliquet formula

With t he cliquet formula, no gains are locked in when

a certain percentage is attained, rather when certain

dates are reached. These dates generally one a year

are set w hen the fund is launched. On the final matu-

rity date, the investor will receive the sum of all per-

centages locked in during the life of the fund. The per-centage that can be locked in each year is usually l im-

it ed, and th is maximum percentage is referred to as a

cap .

Example (explanation of the diagram):

A fund w ith a cliquet f ormula on t he Dutch stock mar-

ket (AEX index) wi th a 10% cap.

Each year, the level of the index is compared with its

level the preceding year.

If it has gone up, t he increase wil l be locked in. If t he

increase exceeds the pre-determined cap of 10%, 10%

will be locked in (interim periods 1, 3, and 8).

If the index has gone down, this will not count, and

0% will be locked in for this interim period (interim

periods 2 and 7).

If t he index goes down in value during an int erim peri-

od, the next period will start at a lower index value.

This increases the chance of a better percentageincrease being locked in at the close of the new inter-

im period.


Cliquet formula

100% capital protection at maturity t he sum of t he clicks for each interim period any decline in value does not count

-10%

-5%

0%

5%

10%

15%

Clicks perinterim period

1 2 3 4 5 6 7 8

Total1: +10%2: 0%3: +10%4: +4%5: +10%6: +8%7: 0%8: +10%

+52%(5.37%yield tomaturity, beforecharges)

Cap: 10%

KBC DISTRICLICK

A very popular click fund, KBC Dist riclick of fers dis-

tribution shares; i.e., the gains it realizes are paid

out after the close of each interim period in the

form of a coupon.

The maximum coupon is the cap percentage.

The cap for a Dist riclick sub-fund wi ll market con-

dit ions being equal be slight ly lower than t he cap

for a classic Cliquet fund, since paying out gains

on the interim dates is more expensive than paying

gains out on the final maturity date.

Click


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For a cliquet fund, a single option is not purchased as

with the Equisafe funds, rather a series of short-term

options are purchased, i.e., call spread options.

A call spread option is the combination of two ordi-

nary call options.

a call option is purchased with a strike price equal to

the start ing value of the index (e.g., 100 at the start of

each period).

and a call opt ion is sold w ith a str ike price equal to

100 + the cap (e.g., if the cap is 10%, the strike price

wil l be 110%).

The number of call spread options that are concludedwill depend on the term to maturity of the fund and

the number of interim periods. For instance, if a fund

has four interim periods, four options will be pur-

chased.

Interest rates and volatility influence the cap

when the formula is designed.

Influence of interest rates

In this case, too, the level of interest rates plays an

import ant role when the fund is set up.

If the interest income earned throughout the life of

the fund i s limit ed (given the low level of interest rates

at t hat t ime), then there will not be much money avail-

able to buy opt ions. In this case, the cap for click funds

wi ll be somewhat low er (e.g., less than 10% per annu-

al interim period).

Influence of volatility

If volatility is high in the market, options will be

expensive. In that case, it will not be possible to buy

many options with the interest income either, so the

cap will be lower. On the other hand, high interest

rates and calm f inancial markets (wit h a low degree of

volatilit y) will have a posit ive influence on t he cap.

Ways to increase the cap

In order to be able to offer an attractively high cap,

despite a low level of interest rates (or high degree of

volatility in the market), a broad cliquet structure is

sometimes used. Per interim period, any drop in the

value of the underlying index/basket wil l be deducted,

or in other words, a loss may be locked in f or t hat peri-

od. This loss too w ill be limit ed to a so-called f loor

wh ich wi ll be kept as low as possible; for instance, -3%a year. However, the investor w ill still enjoy full capital

protection at maturit y.

Why lock in a loss?

Because if there is a limit ed possibi lit y of a loss being

Broad cliquet formula

100% capital protection at maturity the sum of t he clicks for each int erim period

-10%

-5%

0%

5%

10%

15%


1 2 3 4 5 6 7 8

Total1: +10 %2: - 3%3: +10%4: +4%5: +10%6: +8%7: - 3%8: +10%

+46%(4.84%yield to

maturity beforecharges)

Cap: 10%

Floor: -3%


20/37

incurred, the options will be cheaper, and this will in

turn make it possible to offer a higher cap. This is

referred to as a broad cliquet structure, because the

range within which the return may vary is broader

between a negative 3% and a positive 10%, for

instance instead of between 0 and 7 or 8% as is the

case wit h t he ordinary cliquet fo rmula.


Variant: Best of cliquet formula

The Best of fo rmula is a variant of the ordinary cli-

quet formula. This not only allows investors to bene-

fit from capital protection on t he final maturity date,

it also g ives them

either a pre-determined minimum return;

or t he sum of the percentages locked in annually, ifthis is higher.

In other words, the investor receives the best of two

options, hence the name.

How does it work?

With an ordinary cliquet formula, a series of call

spread opt ions are purchased, so t hat the sum of the

amounts locked in annually can be paid out on the

final maturit y date. However, with t he Best of cli-

quet formula, the interest income is not wholly

invested in call spread opt ions. Some of the int erest

income is used to guarantee the minimum return.

This minimum return offered over and above the

capit al protect ion comes at a pri ce, of course. Since

there is less money left for buying opt ions, funds like

this generally have a cap that is slight ly low er.

Example (explanation of the diagram):

A fund w ith the Best of cliquet f ormula tracking t he

DJ EuroStoxx 50, wit h a 10% cap and a minimum

return of 30%.

Each year, the level of the index is compared wi th it s

level the preceding year.

If it has gone up, t he increase will be locked in. If the

increase exceeds the pre-determined cap of 10%,

10% will be locked in (interim periods 1, 3, and 8).

In this example, a modest risk of loss is factored in

(broad cliquet).

If the index drops in a certain year, a maximum of -3% w ill be locked in (int erim periods 2 and 7).

Since the sum of the percentages that have been

locked in annually in t his example (46%) exceeds the

pre-determined minimum return of 30%, the

investor w ill receive a gain of 46% at maturit y.

Best o f cliquet f ormula

100% capital protection at maturity minimum rate of return of 30%, for example OR the sum of the clicks (i.e., amounts locked in) f or eachinterim period, if higher

-10%

-5%

0%

5%

10%

15%


Minimum30% ortotalclicked in:1: +10%2: - 3%3: +10%4: +4%5: +10%6: +8%7: - 3%8: +10%

+46%(4.84%yield tomaturity beforecharges)

1 2 3 4 5 6 7 8

Cap: 10%

Floor: -3%

Click


21/37

Conclusion

The features of a Click f und can be summarized as fol-

lows:


on t he final maturi ty date (before charges);

the investment result on the final maturity date is

linked to movements in a stock market index, a basket

of stock market indices or a diversified basket of

shares;

in the interim, the gains are locked or clicked in,

which means that t he gains wil l accrue definit ively to

the investor.

The fact that gains are locked in before maturity

makes th is type of fund part icularly well suit ed for t he

more defensive investor.

Advantages of the ladder formula Advantages of the cliquet formula

If the index/basket goes up in value by a certain, Per interim period generally once a year any

pre-determined percentage, that percentage wil l increase in the value of the index/basket wil l be

be locked in. locked in.

Any percentages that are locked in will accrue If the index goes down in value during an interim

defini ti vely to the investor, even if the index/basket period, the next period wil l start at a lower index

subsequent ly falls below t he value that was locked in. value. This increases the chance of a bett er

percentage increase being locked in at the close

of t he new int erim period.

Each percentage locked in (i.e., click ) is a rung The return on the final maturity date is the sum

higher and means a bigger return on the final of the percentages clicked in annually.

maturity date.


22/37

Features of the EquiPlus formula

KBC EquiPlus is different from the Click and Equisafe

formulas. The key feature of the click funds is the fact

that gains are locked in at certain int ervals, whi le the

key feature of the Equisafe formula is the participa-

tion rate. EquiPlus funds, however, concentrate on

outperformance , i.e., on yielding a bett er return

than t he underlying investments (e.g., a share basket).

Hence the name, EquiPlus .


The fund seeks to outperform the underlying by usingexotic options instead of ordinary options. These

opt ions are more complex than ordinary call opt ions.

One of the examples of an exotic option is a digital

option.

Digi-Opport unit y, the most common type of EquiPlus

fund uses such options. A digital option (referring to

comput er digit s 0 and 1) is an all-or-nothing opt ion. If

a specif ic condit ion is met , the investor w ill make a t idy

profit , if t he condition is not met, t here will not be any

(or only a very limit ed) return.

In the Digi-Opportunity type of fund, one digital

option is purchased per share in the basket . So, if a

basket contains twenty shares, for example, twenty

individual opt ions wi ll be purchased. Every day, the

prices of the underlying shares are checked to see if

they are above a certain level.

Example. KBC EquiPlus Digi-Opportunity X

KBC EquiPlus Digi-Opportunity X offers the investor

100% capital protection on the final maturity date

(before charges) and a capital gain that is dependent

on the change in the value of a basket of 20 blue-chip

shares.

The capital gain will be determined at the close of

each int erim period (there are five). It w ill depend on

whether or not one of the f ollowing occurs:

If none of the prices of the shares in the basket falls

below 50% of its starting value during the period, a

return of 20% w ill be locked in for t hat period.

If the price of at least one of the shares in the basket

falls below 50% of it s start ing value during t he period,

a gain of 0% will be locked in for that period. In that

case, the share that has fallen most from its starting

value at the close of the interim period will be

removed f rom the basket . This means that the weakest


EquiPlus

KBC EquiPlus Digi-Opport uni ty Xbasket of 20 blue-chip shares

100% capital prot ection in EUR at maturi ty 5 interim periods + 20% per interim period if none of the prices of t he shares inthe basket < 50% of its starti ng value + 0% per int erim period if the price of at least one share < 50%of its start ing value.

Sum of the gainsper interim period

Periode 1: + 20%Periode 2: + 20%

Periode 3: + 0%Periode 4: + 20%Periode 5: + 20%

Totaal + 80%

Investment simulat ion b ased on a basket of fi ve shares

-70

-60

-50

-40

-30

-20

-10

0

10

20

30

40

50

60

70

Floor-50%

1 2 3 4 5

Equiplus


23/37

share will no longer adversely affect the funds per-

formance in subsequent interim periods.

Conclusion

The features of an EquiPlus fund can be summarized as

follows:



the investment result on the final maturity date is

the sum of the gains achieved f or each in terim period;

these gains wil l depend on w hether or not a certain

condition is met during the interim period; if t hat condition is met, the investor wil l make a tidy

profit, if it is not, there will not be any (or only a very

limited) return.

with formulas such as this, the capital gain realized

on the final maturity date may be higher than the

increase in the value of the underlying index/basket.

Given t he typical all-or-nothing / a lot-or-a litt le

st ructure of these funds, an EquiPlus fund is more suit -

ed for the dynamic investor.


24/37

KBC regularly comes out with capital-protected funds

whose performance is not dependent on shares, but

rather on other financial instruments. Most of these

funds are marketed under the name Multisafe. The

possibilities and variants on this type of fund are

legion.

The most common formulas are those based on the

exchange rate between two currencies (Multisafe cur-

rency X/currency Y) and f ormulas whose perf ormance

depends on t he int erest rate t rend (Mul ti safe Interest).

Mult isafe Currency X/ Currency Y

Features

With this type of fund, the investment result is

dependent on the currency market. Based on move-

ments in t he exchange rate betw een tw o currencies, a

certain percentage gain will be locked in per interim

period. The sum of the gains fo r all int erim periods wil l

be paid out on the final maturity date by way of

return.


Digital optionsare also used for the Multisafe curren-

cy formulas. A digital option is an all-or-nothing op-

tion. If a specific condition is met, the investor will

make a tidy profit, if the condition is not met, there

will not be any (or only a very limited) return. As a

result , the exchange rate is checked periodically t o see

whether the condition has been met. If so, a certain

return wil l accrue to t he investor, otherwise, there will

be no return.

Example. KBC Multisafe USD/EUR XBesides preserving - on the final maturity date - the

value of the init ial amount invested (before charges),

this fund seeks to achieve a gain. which depends on

the movements in t he exchange rat e of the euro (EUR)

relat ive to the US dol lar (USD) during each interim

period.

If the EUR/USD exchange rate is higher than or equal

to 1 USD at the close of an interim period, a gain of 7%

will accrue to the investor on the final maturity date,

regardless of the actual exchange rate trend during

this interim period. If , how ever, the EUR/USD exchange

rate is low er than 1 USD at the close of t he int erim

period, no gain w ill be locked in.

Conclusion

The features of a Multisafe Currency X/Currency Y

fund can be summarized as follows:



the investment result is dependent on movements in

the exchange rate between two currencies;


Multisafe

Multisafe Currency X/Currency Y

100% capital protection at maturity 1 EUR = or > 1 USD: 7%

1 EUR < 1 USD: 0%

Relevantpercentage:

1: + 7%2: + 0%3: + 7%4: + 7%Total + 21%

(4.88% yield tomaturity, beforecharges)

0,97

0,98

0,99

1,00

1,01

1,02

1,03

1,04

1,05

1 2 3 4

Multisafe


25/37

besides his initial investment, the investor will receive

the sum of the gains locked in per interim period on

the f inal maturit y date;

these gains wil l depend on w hether or not a certain

condit ion has been met during t he interim period;

if t he condit ion is not met, no gain will be locked in.

Given the typical all-or-nothing structure of these

funds, a Mult isafe Currency X/Currency Y fund is bet ter

suited for the dynamic investor.

Multisafe Interest

Features

With a M ult isafe Interest fund, the result is dependent

on the interest rate market. For instance, it may be

dependent on movements in the ten-year euro swap

rate (an interest rate used by financial institutions in

their dealings with one another). This formula com-

bines the technique of locking in gains annually wi th

the Best of formula.

At the outset, a minimum percentage or floor is set.

Each year, at t he startof each int erim period, a gain is

locked in . This may be either the floor or t he ten-

year euro swap rate for that moment, whichever is

higher.


The return off ered by a Mult isafe Interest fund comes

from a floor opt ion and a call opt ion on in terest rates.

In other words, two options are purchased! A floor

option is an option designed to limit the risk of a

downtrend in interest rates. This enables the buyer of

the option (the fund) to make sure it earns a minimum

amount of interest, thereby assuring this products

Best of feature.

The second option enables the investor to benefit

from a higher return if the underlying interest rate

goes up. Via a simple call option on the underlying

interest rate, 100% of the increase in that rate can be

of fered. Somet imes the part icipation rate is low er

(90%, for instance), depending on the market condi-

tions that p revail w hen this product is designed.

Example. KBC Multisafe Interest X

The investment result on the final maturity date is

dependent on movements in the ten-year EUR (swap)rate. When the fund is launched, a floor of 6.25% is

fixed. This floor is locked in as the minimum gain that

will accrue to the investor.

Each year, at t he start of each interim period, a certain

return is locked in , i.e., the best of either 6.25% or t he

ten-year euro swap rate in effect at t hat t ime.

Mult isafe Interest X

Per interim p eriod, the underlying int erest Minimu m rate of r eturn f or each int erim period: e.g., 6.25%

Relevantpercentage:

1: + 7.00%2: + 6.25%3: + 10.00%4: + 7.00%5: + 6.25%

6: + 6.25%7: + 6.25%8: + 8.00%9: + 9.00%10: + 12.00%

Totaal + 78.00%

(5.93% yield t o

maturity, before

charges)

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

11%

12%

1 2 3 4 5 6 7 8 9 1 0


26/37

If this interest rate is lower than the pre-determined

floor of 6.25%, the floor w ill sti ll be locked in; in other

words, the investor is sure to receive a return of at

least 6.25%.

The result on t he final maturit y date will be the sum of

all gains locked in f or all t he interim periods.

Conclusion

The features of a Multisafe Interest fund can be sum-

marized as follows:


on t he fi nal maturi ty date (before charges); the investment result is dependent on the interest

rate trend;

the return t he investor receives on t he final maturit y

date is the sum of the percentages locked in per inter-

im period;

the return locked in per int erim period will be either

the pre-determined minimum rate of return or the

interest rate prevailing at t hat t ime (whichever is high-

er); the investor will t herefore always get the bett er

of the two.

thanks to t he minimum rate of return, the investor is

protected in case int erest rates fall;

if interest rates go up, t he investor can benefit from

th is, too.

This formula with a pre-determined minimum rate of

return makes Multisafe Interest particularly suitable

for the highly defensive investor.

BASIC TYPES OF CAPI TAL-PROTECTED FUND Multisafe


27/37

FREQUENTLY ASKED QUESTIONS


28/37


29/37

safe, KBC Click, KBC Equ iPlus).

On the funds final maturit y date, too, you will have to

pay th is stock market t ax.

When income (i.e., dist ribut ion ) shares are sold, no

stock market tax wi ll be due (e.g., KBC Dist riclick).

5. What factors determine the net asset valuefor secondary pricing purposes (valuation ofthe fund prior to maturity)?

The value of a capital-protected f und pr ior t o it s matu-

rity date may fluctuate and may be affected by all

kinds of external f actors. The opt ion component is val-ued prior to maturity at the effective value of the

option. Factors such as the price trend of underlying

shares, market volatil it y, the residual li fe of the opt ion,

etc., all play a part in this.

The value of the fixed-income component is greatly

influenced prior to maturity by interest rate fluctua-

tions. However, the influence of interest rates will

have disappeared completely by the final maturity

date. (See also p. 8).

6 Do banks with their click funds( sometimes involving large sums of money)have any impact on the pricing of theunderlying stock markets/ shares?

Click funds are launched on underlying markets

(exchanges) that are sufficiently liquid. A click fund is

able to offer the terms set out in the prospectus by

entering in to contracts wit h a number of ot her parties.

With click f unds that t rack a stock market index (the DJ

EuroStoxx50 for the EMU/S&P500 fo r t he US, etc.), the

other party buys the shares that make up the stock

market index.

Most markets/exchanges* are suf f icientl y liqu id so

that purchases of th is magnitude will not affect pricing

on those exchanges (in other words, there will be no

marked increase in the index following such purchas-

es). Actually, shares must be sufficiently liquid before

they can be included in a specif ic market index.

Wit h share baskets, only a small percentage of the cap-

it al invested is put int o any one share. The various par-

ties to the contract ensure that all the shares in the

basket are sufficiently liquid.

* On smaller markets, th is could be a problem; as aresult , they are not of ten chosen as the underlying f or

a click fund.

7 How can I be sure that I am getting a fairprice? Could the financial parties not bemanipulating prices?

When a capital-protected fund is designed, KBC Asset

Management will ask for prices from various profes-

sional counterparties. These are major, reliable finan-

cial institutions (so-called investment banks). Of the

prices of fered, the best are of course selected, which is

in the investors interests. By allowing competition

free rein amongst the various counterparties, KBC

Asset Management can get the best terms for its

investors. The net asset value prior to mat uri ty is also

calculated objectively on the basis of market prices.

Every 16th and last day of the month, KBC Asset Man-

agement wil l ask f or pri ces from all t he count erparties

with which it has entered into contracts on behalf of

the funds. The count erparties wil l quot e both a buying

FREQUENTLY ASKED QUESTI ONS


30/37

and a selling pr ice. Since the count erpart ies do not

know whether KBC Asset M anagement p lans to buy or

sell when they quote their prices, they will be objec-

tive. These market prices are used, after being

checked, to determine t he funds net asset value. One

way these prices are checked is by comparing them

with prices calculated by KBC Asset Management

itself, since KBC Asset Management has sophisticated

mathematical models at its disposal that enable it to

come up with a price that is in line with the market.

Consequent ly, pricing is transparent .

8 Who bears the risk of capital protection assuch?

KBC, as the counterpart y for capit al-guaranteed funds,

provides a moral capital guarantee. By bearing the

risks associated w it h t he f unds it self , KBC is requi red t o

develop a whole system of cont rols to keep t hese risks

to a minimum. The main risk for investors is in f act t he

risk they take in respect of KBC Bank a bank with a

high credit rat ing (AA3 f rom Standard & Poor s) and

not the risk run in respect of the underlying fund.

Moreover, the structure of these capital-protected

products is such that the capital guarantee does not

entail a major risk, since the funds portfolio consists

primarily of risk-free time deposits. Only the interest

on those deposits is invested in so-called swaps (see

p. 10). The capital on the time deposits it self i s not

touched. In this way, there are always enough liquid

assets in port fo lio t o provide the protection of fered.

The Belgian Banking and Finance Commission (BFC)

supervises everything closely and requires that such

funds provide capital pro tection of at least 90%.

9 The underlying index/ share basket hasgone up in value, but this is not reflected inthe net asset value of the fund; on the

contrary, the net asset value has actuallygone down. Why is this?

The net asset value of a capital-protected fund does

not depend solely on changes in the value of the

underlying index/share basket . Other factors also p lay

a part, the interest rate trend in particular is very

important.

In order t o ensure that capit al protection can be pro-

vided, the sum invested is put into a fixed-income

investment (= the fixed-income component).Interest income from this fixed-income investment is

not paid out but is used rather to buy options (= the

option component).

The fi xed-income component reacts just l ike a bond t o

any increase in interest rates prior to the maturity

date. It wi ll go down in value, and t his wil l have a neg-

ative eff ect on t he net asset value.

Consequently, it is entirely possible for the underlying

index/share basket to go up, w hile the funds net asset

value goes dow n, owing t o an increase in interest rates

(see p. 8).

10 Why are the gains that are locked inbefore maturity not reflected in the net assetvalue? Will I get the amounts locked in if Iexit the fund before the final maturity date?

Gains locked in are not always immediately reflected

in net asset values calculated prior to the maturity

date. There are three main reasons for this:

the capital protection: in order to make sure the


31/37

nominal capital can be returned to the investor at

maturity, the bulk of the amount invested is put into

fixed-income investments. This component is conse-

quently sensitive to fluctuations in interest rates on

the financial market. When funds are valued before

the maturit y date, the fixed-income component might

be worth less on account of an increase in interest

rates. This decline in value may (partially) offset any

capital gain realized on an interim valuation of the

fund.

the options: in order to ensure an increase in the

value of the underlying by the maturity date, options

are used. These wi ll reflect the increase in t he value of

the underlying perfectly on the final maturity date,but if th is is several years in t he future, the value of the

opt ions wil l only reflect movements in t he value of the

underlying t o a limit ed extent.

the present versus the future value: what will be

worth 100 EUR on the final maturity date, will not of

course be worth that seven years earlier. Because of

the interest income that has st ill to be earned, 85 EUR,

for instance, might be worth 100 EUR in seven years

time.

Before the final maturity date, these factors may

sometimes result in rather unexpected net asset val-

ues. Regardless of whether a capital gain has been

locked in or not, these three factors may prevent it

f rom being ref lected in the net asset value. St ill , the

net asset value always reflects what the individual

components of the fund are worth at that point in

time (before maturity).

If you sell the fund before maturity, you will accord-

ingly receive the net asset value in effect at t hat time;

this does not include the amounts that have already

been locked in. Only on the final maturity date will

you receive the sum of the amounts locked in, in addi-

tion to your starting capital.

11 A low level of interest rates when theproduct is developed means less attractiveterms being offered. Why is this? What canbe done about it?

If interest rates are low, there will be less interest

income available to generate significant capital gains

(participation rate, cap, etc.) via the option compo-

nent.

Under these condit ions, tw o features may be adjusted: Interest income may be increased: the simplest way

to do this is to lengthen the term to maturity so that

the interest income goes up.

The opt ion component may be made cheaper: there

are a number of ways to lower the cost of the option

component, such as an Asian tail, or the light, point-

capped or broad cliquet fo rmulas.

These formulas were explained in detail on p. 17 and

22.

12. What happens to the dividends generatedby the underlying basket of shares?

The investor w ill not receive any dividends f rom shares

in the basket. The dividend income goes to the other

party that set up t he option structure. If t his were not

the case, the st ructure would be more expensive, since

the other party would miss out on this dividend

income and would have to compensate for this by

some other means.



32/37

13 How come some funds can offer aminimum rate of return and others cannot?

Whether or not a fund can offer a minimum rate of

return is decided when the fund is designed. In order

to achieve a minimum rate of return, part of t he inter-

est income from the fixed-income component has to

be used. This of course affects the terms the fund

of fers (part icipat ion rate, cap, etc.). Since there is less

money left f or buying opt ions, funds like this general-

ly have a slight ly lower part icipation rate or cap. St ill ,

these funds meet a real need of many more defen-

sively oriented investors.

14 Why do capital-protected funds generallyhave a long term to maturit y ( more thaneight years) ?

With a long t erm to maturit y, the capital is invested f or

a longer period of time and there is more interest

income. Consequent ly, more money is available fo r t he

option component, making it possible to offer more

attractive conditions than if the t erm to maturity were

shorter.

With funds off ering a minimum rate of return, there is

an additional reason. If the term to maturity of the

fund is longer t han eight years, the capit al gain will be

exempt from w ithholding t ax.

15 Why is the full rise in value not locked inwith cliquet funds; in other words, why isthere a cap and how is the cap percentageset?

With cliquet funds, the increase in the value of the

underlying is seldom fully paid out or locked in. This

would make the options far too expensive. By setting

a cap, the option becomes considerably cheaper, since

the cap limi ts the periodic price increases.

When the fund is designed, the cap percentage is of

course determined by t he condit ions prevailing on t he

market at that time. If interest rates are high and

volatility in the market is low, a higher cap can be

offered than if interest rates were low and volatility

high.

That is why identical products (with the same term to

maturit y, the same underlying index, the same curren-

cy, etc.), which are launched at different times, mayhave a different cap.

16. What about the exchange risk associatedwith the underlying shares ( e.g., US shares) ?

When equit y-linked f unds (those linked t o a basket of

US shares, for instance) are designed, KBC may decide

to accept the exchange risk associated w it h t he under-

lying shares. In that case, the effective return will be

paid out in USD on the f inal maturi ty date, which

means the investor wi ll be t aking a USD risk.

Generally, how ever, KBC wi ll op t for f ormulas that pay

out any increase in value on the final maturity date,

without offsetting the exchange rate effect. In this

case, the exchange risk will be hedged; the investor

will not incur any currency risk. In formulas KBC

designs for (highly) defensive investors, for instance,

exchange risks are generally excluded.

Whether or not the exchange risk associated with the

underlying shares influences the funds performance

on t he f inal mat uri ty date is always expressly stated in


33/37

the prospectus and on the product sheet for the spe-

cif ic fund.

17 What impact do mergers and acquisitionsof companies that are included in the fundsshare basket have?

When mergers or acquisitions occur, in principle we

keep the merged or acquired company in the basket,

unless it is not consistent with one of the features of

the fund (if it belongs to a different sector, for in-

stance).

Described below are two possible scenarios and theeffect they might have on t he composit ion of the bas-

ket:

Merger/takeover of company A, which is included in

the basket wit h/by company B that i s not in t he basket:

the new, listed company C will take the place of com-

pany A that was already included in the basket, and

will be awarded the same weighting as company A.

Merger/takeover of two companies (A and B), both

of which belong to the basket: t he new, listed compa-

ny C wil l t ake the place of the tw o companies A and B

and be awarded the collective weighting of both A

and B.

18 What i f a company in the share basketgoes bankrupt?

If an issuer is suddenly declared bankrupt before the

fund matures, the position in this share will fall to

zero. The share of the bankrupt company will be

removed from the basket. If any sums can be recov-

ered, then these will be invested unti l maturi ty at t he

prevailing market rate. These sums (residual value +

interest) w ill be count ed in on t he maturit y date as the

return on t he (bankrupt) share when t he final increase

in t he value of the basket is calculated.

For certain funds, where movements in the value of

the underlying basket are a factor determining per-

formance at maturity; the share will not be replaced.

In that case, movements in the value of the other

shares will determine the capital gain. For structures

where the price of the individual share plays a role in

determining the funds performance (e.g., EquiPlus

Digi-Opportunity), the share will be replaced by the

share of a similar company.

Because the basket of shares is fixed for the entire

term to maturity and is not actively managed, KBC

chooses companies that are given a positive rating by

our analysts when the fund is set up. In addition,

efforts are made to ensure that the basket is ade-

quately diversified (with risk spread across various

countries and sectors of industry, etc.).



34/37

19 What risk to I run if something goeswrong with the counterparty?

Schematically, the relationship between KBC Bank and

the counterparty of the fund can be depicted as fol-

lows:

The diagram clearly shows that the investor does not

run any risk if something goes wrong with the coun-

terparty; indeed, there is no direct relationship

between the fund and the f inancial instit ution ( bro-

ker ) concerned. KBC Bank actually acts as intermedi-

ary: officially, it is the counterparty for the fund and

for t his broker . One of KBC Asset M anagements

jobs is to find reliable count erparties fo r the fund. The

credit risk that KBC Bank is exposed to here is man-

aged in various ways (via agreements between the

bank and a counterparty on the payment of margin

into a margin account; regular, thorough screening,

etc.).

20 How come a higher minimum rate ofreturn can be offered on Multisafe Interestfunds than the prevailing interest rate?

First of all, a distinction must be made between:

the prevailing market rates: if one were to invest

money at these rates, then this would yield interest

year af ter year, and this interest could be reinvested.

the minimum rate of return of fered by Multisafe Inter-

est : each year, at least this rate of return wi ll be lockedin, but it will only be paid out on the final maturity

date.

In order to make this easier for the investor to com-

pare, the minimum rate of return is also expressed on

a yield-to-matur it y basis.

The yield-to-maturity of a Multisafe Interest fund will

be lower than that of fered on a bond with the same

tenor, because wit h t he Mult isafe Interest product, t he

investor also gets an opt ion on the fut ure interest rate:

if the interest rate goes up above a certain level, a

higher rate of return than the one init ially off ered can

be locked in. In order to be able to offer this option,

part of the interest income from a classic, interest-

bearing investment has to be for feit ed.

A bond, on the other hand, off ers a fixed rate of inter-

est that cannot go up, even if interest rates in t he mar-

ket were subsequent ly to rise.

investor

fund KBC Bankcounter-

party

on the f inal maturit y date

capital gain on t he underlying +

capital guarantee

capital gain

underlying

capital gain

underlying

interest interest


35/37


Structure of charges for capital-protected funds:

Entry fee: 2 % during the issue period, 3% aft erwards.

Exit fee: At maturit y: none

Before the final maturity date:1% (orders of 1.25 million EUR or more: 0.50%).

Stock market tax:

Capitalisation shares: 1% on purchase (max. 375 EUR).

0.50% on sale (max. 375 EUR).

Distribution shares: 0.14% on purchase (max. 250 EUR)

0% on sale


36/37

The funds named in this brochure: KBC Click, KBC Equisafe, KBC

EquiPlus and KBC Mu lt isafe are sub-funds of open-ended

investment companies under Belgian law. KBC Dist riclick is a

sub-fund of an open-ended investment company under Luxem-

bourg law.

If you have any questi ons on banking or i nsurance, feel f ree to

contact your KBC branch. Alternatively, you can call the

KBC-Telecenter on 078 152 154, weekdays between 8 a.m. and

10 p.m. and on Saturdays and bank holidays between 9 a.m.

and 5 p.m.

You can also w rit e, fax, e-mail or surf to :

KBC-Telecenter

Schoenmarkt 35

2000 Antw erpen

fax 03 283 29 50

[email protected]

www.kbc.be

All KBC Bank NV t ransactions are subject to the General

Banking Terms and Conditions, supplement ed by t he Special

Provisions.

Copies of these document s can be obt ained f rom any KBC Bank

branch.

Registered office: KBC Bank NV, Havenlaan 2, 1080 Brussel,

Belgi.

Brussels TR 623 074 VAT BE 462 920 226 Bank account

730-0000000-93

Publisher: KBC Bank and Insurance Holding Company NV,

Havenlaan 2, 1080 Brussel, Belgi.

KBC Bank NV, BISA Regist rat ion No. 26 256. KBC Insurance NV,

company authorized for all classes of insurance under code

0014 (Royal Decree of 4 July 1979; Belgian Of fi cial Gazett e, 14

July 1979).


37/37

capital protected funds

Documents