Securities Lending in CS ETFs

The CS ETFs securities lendingprogramme combines a conservativerisk management framework,additional return potential andmarket leading transparency

For institutional investors only

Being both a securities lender and borrower, Credit Suisseunderstands the balance between counterparty risk and value tothe fund. All aspects of the securities lending programme arestrictly controlled and Credit Suisse only authorises lending fromETFs when the return is meaningful to the investor. Where thereis not a sufficient return, measured in absolute or relative terms,the fund will not participate in the securities lending programme.This gives assurance to investors that they are receiving anacceptable return for an acceptable risk.

Investors need clarity on the risks to their investments and theCS ETFs securities lending programme provides just that;simply, comprehensively, and regularly. Credit Suisse providesdaily transparency on the collateral held against securitieslending activity in all of its ETFs.

Investors in CS ETFs have been enjoying risk-controlled securities lendingreturns since the product portfolio launched over a decade ago. In that time,the CS ETFs securities lending programme has expanded from one funddomiciled in Switzerland to 13 funds across the Swiss, Luxembourg, and Irish platforms.

Credit Suisse optimises

investment returns within

a rigorous risk management

framework.

Securities lending is a key value driver for indexed portfolios, enabling investors to achieve additional returns with limited additionalrisk. Since index providers don’t factor in securities lending returns, securities lending revenues can directly contribute alpha, oroutperformance, to an indexed fund. The returns generated from securities lending activity can therefore directly offset some or allof the Total Expense Ratio (TER), helping the fund track the index more closely, after fees.

Borrowers generally find index funds such as ETFs attractive because of the inherently stable pool of assets they provide, as portfoliomanagers do not make daily changes to the constituents of the fund. Borrowers often prefer stable inventory over unstable inventory tominimise their own risks and costs, and will therefore try to borrow from index funds as a priority. As large pools of indexed assets, CSETFs are a preferred first stop for borrowers, which means the funds are well positioned for strong returns. This inherent attractivenessalso allows CS ETFs to maintain strict collateral requirements without significantly impacting securities lending performance.

Although all CS ETFs are index products, some funds are more likely than others to generate strong returns from securities lending.Attractiveness for lending can be driven by a number of fund attributes including its size, number of constituents, tax status and thedividend yield of its constituents. When reviewing an ETF for admission to the securities lending programme, Credit Suisse takes all ofthese factors into consideration, balancing impact for investors against controlled risk. If the return is expected to be limited, Credit Suissewill not authorise lending.

Securities Lending Facts and Figures from CS ETFs

Source: Credit Suisse AG, March 2013

Credit Suisse monitors the credit strength of borrowers. The following counterparties borrowed securities from one or more CS ETFsduring the 12 month period to end March 2013: ABN AMRO Bank N.V., Barclays Capital Securities Ltd, Citigroup Global Markets Ltd,Credit Suisse AG, Credit Suisse Securities (Europe) Ltd, Deutsche Bank AG, Goldman Sachs International, HSBC Bank, ING BankNV, JP Morgan Securities, Plc, Morgan Stanley & Co International Plc, Merrill Lynch International, Natixis, Nomura International Plc,Royal Bank of Scotland, Société Générale, UBS AG.

This table represents securities lending returns data for the 12 months to the end of March 2013. Historical performance indications and financial market scenarios are noguarantee of current or future performance.1 The highest percentage of the fund’s assets on loan at the end of a single day during the 12 month period. Calculated as the value of securities lent out, divided by the total

lendable assets on the day. 2 The total value of securities lent over the period, divided by the total value of assets available for lending (not the fund’s entire NAV).3 The lowest level of collateralisation (value of collateral divided by value of securities on loan) at the end of a single day, during the 12 month period.4 The total value of collateral accepted over the period, divided by the total value of assets lent over the period. 5 Calculated using the unaudited net securities lending revenues received by the fund in the 12 months preceding the period end, divided by the average assets of the fund over

the same period.

“When combined with an adequate collateral strategy,

securities lending has a substantially lower risk profile than

any other method of alpha generation.”

Roel de Groot, Head of Treasury, KAS Bank

(Securities Lending: Your Questions Answered, an International Securities Lending Association publication)

Securities Lending Benefits Investors in CS ETFs

12 Months to end of March 2013On Loan Collateralisation Return5

(bps)Maximum1 % Average2 % Minimum3 % Average4 %CS ETF (Lux) on MSCI EMU Large Cap 44.8 12.8 104.5 105.1 35.1CS ETF (Lux) on MSCI EMU Mid Cap 40.8 23.7 104.3 105.2 34.1CS ETF (Lux) on MSCI Emerging Markets 8.7 3.6 105.0 106.2 2.6CS ETF (IE) on EURO STOXX 50® 40.4 14.7 108.3 112.3 31.7CS ETF (IE) on MSCI EMU 33.5 15.5 107.7 111.9 24.8CS ETF (IE) on MSCI EMU Small Cap 21.0 15.7 105.9 110.2 21.7CS ETF (IE) on MSCI Europe 14.2 7.7 107.5 111.2 13.2CS ETF (IE) on MSCI Canada 45.0 31.4 105.8 111.9 13.7CS ETF (IE) on MSCI Japan 75.0 27.8 107.5 113.0 5.4

2/8 Securities Lending in CS ETFs

Counterparty Risk Management (see also page 4)Credit Suisse’s risk management department is responsible forestablishing and overseeing the eligible borrower list on behalfof all CS ETFs. For the Swiss and Luxembourg funds, CreditSuisse AG is the only eligible borrower, or counterparty. For theIrish funds, the risk management teams at Credit Suisse andBank of New York Mellon (BNY Mellon) work together todefine the set of highly capitalised counterparties eligible toborrow from these funds. Credit Suisse retains the right to vetothe use of a counterparty.

Collateral Risk ManagementCredit Suisse’s risk management department is responsible forestablishing and overseeing the schedule of acceptable collateralon behalf of all CS ETFs, reflecting the regulations in eachjurisdiction. Credit Suisse provides the overarching guidelines tobuild a portfolio of collateral, designed to decrease the potentialfor loss in the event of a counterparty default. The riskmanagement department prioritises liquidity as an attribute foracceptable collateral, which consists of debt instruments fromhighly rated sovereigns, supranationals and companies, as wellas equities from the major developed world indices. Price volatilityis managed by varying the size of the margin (or haircut) requiredagainst a particular type of loan. This provides the best assurancepossible that collateral assets can be favourably sold in themarket conditions that would be encountered in a counterpartydefault scenario. Information about collateral held is available dailyat csetf.com.

Operational Risk ManagementSecurities lending requires a high degree of co-ordination aroundthe movement of assets (loans and collateral). The custodian ofa portfolio normally plays a significant role in the management ofa securities lending programme, either as a securities lendingagent, or as a directed lending service provider. For the Swissand Luxembourg ETFs, Credit Suisse is the custodian as well asthe borrower/securities lending service provider. The ETFsbenefit from the close co-ordination between the custodian andthe borrower, lowering operational friction and risk. For the Irishdomiciled CS ETFs, BNY Mellon is the custodian and securitieslending agent. The Irish ETFs benefit from the mature processesthat are in place between the custody arm of BNY Mellon and thesecurities lending division of BNY Mellon, enabling an efficientoperational model which decreases risk.

Counterparty Default ProcessCredit Suisse has constructed a robust risk managementframework that minimises the possibility of exposure should acounterparty default. On the rare occasions when the fund mightbe exposed to an insolvent counterparty, Credit Suisse hasprocedures in place to limit the risk to investors.

Risk Management Controls

Critical to the long term success of the lending programme is a strong riskmanagement framework aligned with the principles of the investors in the funds.Credit Suisse has constructed a framework over three types of risk – counterparty,collateral, and operational – and combined them in a counterparty default processthat has protected investors throughout the credit crisis.

Managers of risk

Organisationally distinct from the CS ETFs teamand the Credit Suisse securities lendingdepartment, the Credit Suisse risk managementdepartment provides comprehensive oversight ofthe CS ETFs securities lending programmeacross all jurisdictions.

Non-cash collateral

CS ETFs do not take cash as collateral for re-investment purposes due to the additionallayer of complexity and risk this involves. Theremay be limited occasions where cash is pledgedas collateral, but in these cases, the fund takeson no additional investment risk and the cash isgenerally replaced the following day with non-cashcollateral.

Securities Lending in CS ETFs 3/8

Managing Counterparty RiskProviding protection to investors

Credit Suisse’s unique securities lending model provides significant protection toinvestors while enabling access to competitive pricing from market counterparties.Because of the structure of the securities lending model in each jurisdiction, CSETF investors benefit from a strong, well capitalised bank standing between theETF and the counterparty risk.

For the Swiss and Luxembourg domiciled funds, this bank is Credit Suisse itself.Credit Suisse AG borrows from these CS ETFs on a principal basis and then lendsto market counterparties. For a CS ETF investor to suffer a loss from a marketcounterparty default, this market counterparty would have to become insolventconcurrent with Credit Suisse AG becoming insolvent, concurrent with the liabilityto the ETF exceeding the collateral value.

For the Irish domiciled funds, BNY Mellon acts as securities lending agent,negotiating trades on behalf of the CS ETFs which then contract directly with themarket counterparty. In addition to applying their own strict counterpartymanagement controls, BNY Mellon also provides protection to the Irish CS ETFsagainst losses due to collateral shortfall in a counterparty default. Similar to theSwiss and Luxembourg funds, for a CS ETF investor to suffer a loss from ageneral market counterparty default, the market counterparty would have tobecome insolvent concurrent with the collateral value being exceeded by theliability to the ETF, concurrent with BNY Mellon becoming insolvent.

The combination of daily counterparty monitoring and a well capitalised bankstanding between the CS ETFs and any market counterparty gives investors in CSETFs confidence that the securities lending programme is adding value to the fundwithout creating undue exposure to counterparty risk.

4/8 Securities Lending in CS ETFs

Credit Suisse values transparency. There are many facets to thistransparency and investors have access to a wide variety ofinformation about each CS ETF at csetf.com. Alongside standarddata on the reference index, replication method, fund domicile,AUM, NAV, and trading information, investors increasinglyexpect daily access to data that explains exposures resultant fromsecurities lending activity. To create this visibility, Credit Suissehas developed client-friendly tools that allow investors to see therelative weights of collateral constituents held against securitieslending activity every day at csetf.com. Investors can also findquarterly updated securities lending reports that explainperformance (return to the fund from securities lending), averageon-loan levels, average collateralisation levels, and other factsand figures related to the lending programme. Credit Suisse isthe first major ETF issuer to provide this level of transparencyacross its complete range of ETFs.

This transparency builds on the functionality at csetf.com thatallows investors in synthetic CS ETFs to see the constituents ofthe substitute basket held as part of the total return swap.Credit Suisse believes that securities lending in physical fundsand total return swaps in synthetic funds both play an importantrole in achieving the aims of ETF investors. This belief ispredicated on the conditions that these investment tools shouldonly be employed where they add a distinct advantage, wherethe activities are conducted in a rigorous and regularly reviewedrisk framework, and where investors have transparency into theactivities. CS ETFs differentiates themselves through theseprinciples and provide a clear choice for ETF investors.

Transparency

Securities Lending in CS ETFs 5/8

For illustrative purposes only

An ETF is authorised to lend – Credit Suisse Asset Management (CSAM) works with the securitieslending service providers (Credit Suisse AG and the BNY Mellon) to identify CS ETFs that have thepotential to deliver an acceptable return within the established risk framework. The addition of an ETFto the lending program is then reviewed by the relevant Board/Management Company governing thefund.

Collateral – The Credit Suisse risk management department oversees the maintenance of thecollateral schedule and ensures that it is appropriate considering regulatory requirements and riskconditions. This schedule can be changed as market conditions change. CS ETFs take only highlyliquid non-cash instruments as collateral. Cash (for re-investment purposes) is not an acceptableform of collateral, so CS ETFs take on no additional investment risk from securities lending.

Counterparties – The Credit Suisse risk management department screens and approves allcounterparties and provides regular monitoring of financial health. CS ETFs lend securities only tolarge, well-capitalised banks or broker-dealers and benefit from additional default protection from thesecurities lending service providers.

Trading – The securities lending service providers optimise revenue from each fund in the lendingprogramme. Low spread lending is largely automated, enabling traders to focus on identifying andnegotiating high spread trades where their expertise can make a performance difference.

Operations – The securities lending service providers leverage the significant investment each firmmakes in technology to create a straight-through-processing operating model where possible. Theyoversee and maintain positions out on loan as well as the collateral held against the loan and ensurethe fund is always fully collateralised. No loan is delivered to a counterparty before adequatecollateral is received into the collateral account operated on behalf of the CS ETF. Entitlements,such as dividends, are closely monitored and claimed, thereby ensuring that the fund continues toenjoy the economic benefit it is due.

Revenue collection – The securities lending service provider calculates revenue generated fromlending activity on a daily basis and collects income from counterparties on a monthly basis. Thisincome is then shared with the fund according to the fee-sharing arrangement in place.

Closing loans – When a loan needs to be closed, at the request of either Credit Suisse or thecounterparty, the securities lending service provider first takes receipt of the lent security, and onlythen releases collateral back to the counterparty.

Reporting – Credit Suisse provides daily reporting at csetf.com of assets held as collateral on afund by fund basis, as well as regular reporting of other securities lending related information.

Robust and Defined Processes

The operational process for lending securities in CS ETFs is well developed andaligned with industry best practice. Differences between jurisdictions occur due to differences in local regulation, but the underlying structure remains the same.

6/8 Securities Lending in CS ETFs

Q. What is securities lending?A. Securities lending is the temporarytransfer of securities on a collateralisedbasis from a lender (often a fund orseparate securities account) to a borrower(often an investment bank or broker/dealer). The borrower pays the lender afee and is obligated to return the securitieson demand. The borrower is also obligedto pass to the lender dividends, coupons,or other entitlements that would have beendue to the lender had he been holding thesecurities.

Q. How much stock can be lent outat any one time?A. Regulations in all three jurisdictionsrelevant to CS ETFs allow 100% of afund’s assets to be lent out. Credit Suisseapplies a 95% theoretical maximum ceilingto smooth the operational process. Inpractice, however, the assets on loan froma fund at any one time are usually between5% and 20% of the total value of the fund.

Q. Where can I find more informationabout securities lending?A. The Bank of England answers manycommon questions on securities lending atbankofengland.co.uk/markets/Pages/gilts/slrc.aspx.More information can be found on theInternational Securities Lending Associationwebsite, at isla.co.uk.

Q. What is the difference incounterparty risk between aphysical ETF that lends securitiesand a synthetic (or swap) ETF?A. While the type of risk is similar, there isusually a significant difference in the scaleof this risk and how it can be controlled.Some of this difference is driven byregulatory guidelines and some by marketpractice. The counterparty risk of securitieslending is equivalent to the counterpartyrisk of a synthetic ETF only if: 100% of the securities in the physical

portfolio are constantly on loan The lent securities in the physical

portfolio can never recalled

Other factors that affect the relative levelof risk are: Whether the physical fund or the

synthetic fund trades with one or multiplecounterparties

Whether the synthetic fund collateralisesswaps to at least 100% of the exposure

Whether the synthetic fund marks swapexposure to market on a daily basis

The nature of securities accepted intothe swap-based fund’s substitutebasket (synthetically replicating CSETFs hold only European blue chipstocks)

Q. How frequently is the collateralmarked to market?A. Collateral and loans are marked tomarket on a daily basis.

Q. How is securities lendingregulated?A. Securities lending is a regulated activityin all developed markets. Switzerland,Luxembourg, and Ireland (domiciles for

the CS ETFs) all specifically prescribeconditions and constraints on securitieslending in published notices. Credit Suisseand BNY Mellon ensure that the securitieslending activity meets or exceeds allappropriate guidelines in all jurisdictions.

Q. Can the ETF security itself belent?A. Yes. Since an ETF is a tradablesecurity, it can be lent. Depending uponmarket conditions and the attributes of theETF, this can be an attractive option forETF holders. Investors requiring furtherinformation should speak with theircustodian/lending agent for details.

For more information,please visit csetf.comor contact your CS ETFsspecialist.

Frequently Asked Questions

Securities Lending in CS ETFs 7/8

CS ETF (IE) PLC and CS ETF (Lux) are UCITS admitted to offer in Italy to qualified investors only. Their units are traded on Borsa Italiana, wherethe same can be purchased – through authorized participants – both from private and institutional investors. Before taking any investment decision,investors must read the prospectus and the listing document available at www.csetf.com and on the Borsa Italiana’s website. The publication ofthe listing document related to the CS ETFs does not imply any judgment by Consob on the suitability of the investment proposed.This document is addressed to qualified investors and is meant for internal use of the addressee only. It does not contain any offer, recommendation,solicitation or advertisement, addressed to the public or any retail investors, aimed at the sale and subscription of financial instruments. Thedisclosure of this document or any contents hereof is strictly forbidden. Under no circumstances, can CS ETF or CS be considered responsible forthe disclosure to the public and/or any retail investor of this document or for any investment choices made in relation to the information containedherein. This document is not expressly addressed to persons who, by reason of their nationality or place of residence, are not authorized to haveaccess to such information according to the laws applicable in their country/place of residence.

This document was produced by Credit Suisse Asset Management Limited and/or its affiliates (hereafter “CS") with the greatest of care and to thebest of its knowledge and belief. However, CS provides no guarantee with regard to its content and completeness and does not accept any liabilityfor losses which might arise from making use of this information. The opinions expressed in this document are those of CS at the time of writingand are subject to change at any time without notice.

Where nothing is indicated to the contrary, all figures referred to in this document are unaudited. This document is provided for information purposesonly and is for the exclusive use of the recipient. It does not constitute an offer or a recommendation to buy or sell financial instruments or bankingservices and does not release the recipient from exercising his/her own judgment. The recipient is in particular recommended to check that theinformation provided is in line with his/her own circumstances with regard to any legal, regulatory, tax or other consequences, if necessary with thehelp of a professional advisor. This document may not be reproduced either in part or in full without the written permission of CS. It is expresslynot intended for persons who, due to their nationality or place of residence, are not permitted access to such information under local law. Neitherthis document nor any copy thereof may be sent, taken into or distributed in the United States or to any U. S. person. Every investment involvesrisk, especially with regard to fluctuations in value and return. Investments in foreign currencies involve the additional risk that the foreign currencymight lose value against the investor's reference currency. Historical performance indications and financial market scenarios are no guarantee forcurrent or future performance. Performance indications do not consider commissions levied at subscription and/or redemption. Furthermore, noguarantee can be given that the performance of the reference index will be reached or outperformed. The investment funds mentioned in thispublication are domiciled in Luxembourg and Ireland. Representative of the foreign funds registered for public sale in Switzerland is Credit SuisseFunds AG, Zurich. The paying agent in Switzerland is Credit Suisse AG, Zurich.

Subscriptions are only valid on the basis of the current sales prospectus and the most recent annual report (or half-yearly report, if this is morerecent). The prospectus, key investor information, management regulations and the annual and half-yearly reports may be obtained free of chargefrom Credit Suisse Asset Management Limited, London or Credit Suisse AG, Zurich, and from any bank in the Credit Suisse AG in Switzerland.

The indices and the trademarks and servicemarks referenced herein are the intellectual property of the respective index provider and/or its licensorsand are licensed for use by Credit Suisse Fund Management Company (Ireland) Limited. The funds referred to herein are not sponsored, endorsed,or promoted by the respective index provider. THE INDEX PROVIDER MAKES NO WARRANTY AND BEARS NO LIABILITY WITH RESPECTTO THE FUNDS OR ANY INDEX ON WHICH SUCH FUNDS ARE BASED, AND MAKES NO REPRESENTATION REGARDING THEADVISABILITY OF TRADING IN SUCH FUNDS.The prospectus of the funds contains a more detailed description of the relationship between the index provider and Credit Suisse AssetManagement Funds Service (Luxembourg) S.A. and CS ETF (IE) Funds PLC.

Copyright © 2013 Credit Suisse Asset Management Limited and/or its affiliates. All rights reserved.

CREDIT SUISSE (Italy) S.p.A.Exchange Traded Funds (ETFs)Via Santa Margherita 3 20121 Milano Italy

www.csetf.com

ContactsEnrico CameriniHead of Credit Suisse ETFs ItalyTel: +39 02 8855 0813enrico.camerini@credit-suisse.com

Chiara SolazzoCredit Suisse ETFs Product Specialist ItalyTel: +39 02 8855 0173chiara.solazzo@credit-suisse.com