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Interest Rate Risk – This is the possibility for the Fund to experience losses due to changes in interest rates. The purchase and sale of a debt instrument may result in profits or losses because the value of a debt instrument changes inversely with prevailing interest rates. The Fund’s investment portfolio, being marked-to-market, is affected by the changes in interest rates thereby affecting the values of the fixed-income investments of the Fund such as government securities and corporate bonds. Interest rate changes may affect the prices of fixed income securities inversely, i.e. as interest rates rise, bonds prices fall and when interest rates decline, bond prices rise. As the prices of the bonds held by the Fund adjust to a rise or a drop in interest rates, the Fund’s share price measure by the NAVPU will decline or increase accordingly.

Market/Price Risk – This is the possibility for the Fund to experience losses due to changes in market prices of equities or bonds. It is the exposure to the uncertain market value of these investments due to price fluctuations. It is the risk of the Fund to lose value due to a decline in securities prices, which may sometimes happen rapidly. The value of investments fluctuates over a given time period because of general market conditions, economic changes, or other events that impact large portions of the market such as political events, natural calamities, etc. As a result, the NAVPU may increase to make a profit or decrease to incur a loss.

Liquidity Risk – This is the possibility for the Fund to experience losses due to the inability to sell or convert the investments into cash immediately or in instances where conversion to cash is possible but at a loss. This may be caused by different reasons such as trading in securities with small or few outstanding issues, absence of buyers, limited buy/sell activity or an underdeveloped capital market. Liquidity risk occurs when certain investments in the Fund’s portfolio may be difficult or impossible to sell at a particular time which may prevent allowing withdrawal from the account with until its assets can be converted to cash. Even government securities which are the most liquid fixed income securities may be subjected to liquidity risk particularly when a sizeable volume is involved.

Credit Risk/Default Risk – This is the possibility for the Fund to experience losses due to a borrower’s or issuer’s failure to pay principal and/or interest in a timely manner on instruments such as bonds, loans, or other forms of security which the borrower issued. This inability of the borrower/issuer to make good on its financial obligations may be a result of adverse changes in its financial condition, thus, lowering credit quality of the security, and consequently lowering the price (market/price risk) which contributes to the difficulty in selling such security in the open market (liquidity risk). The decline in the value of the Fund happens when the default/failure of the issuer to pay its obligation would make the price of the security go down and may make the security difficult to sell. When this happens, the Fund’s NAVPU will be affected by a decline in value.

Counterparty Risk – This is the possibility for the Fund to be exposed to risks relating to the credit standing of its counterparties and to their ability to fulfill the conditions of the contracts it enters into with them. In the event of a bankruptcy or insolvency of a counterparty, the Fund could experience delays in liquidating the position and incur losses, including declines in the value of its investment during the period in which the fund seeks to enforce its rights, inability to realize gains on its investment during such period and fees and expenses incurred in enforcing its rights under the contracts. There is also a possibility that the above contracts are terminated due, for instance, to bankruptcy, supervening illegality or change in the tax or accounting laws relative to those at the time the contracts were originated.

Reinvestment Risk – This is the risk associated with the possibility of having lower returns or earnings when maturing funds or the interest earnings of funds are reinvested. Investors in the UITF who redeem and realize their gains run the risk of reinvesting their funds in an alternative investment outlet with lower yields. Similarly, SBC-Trust is faced with the risk of not being able to find good or better alternative investment outlets as some of the securities in the fund matures.