CACEIS Cross Border Distribution of Ucits

Cross-borderdistributionof UCITS

May 2011

Context

UCITS fund distribution channels and business models

Fund sales trends in Europe

Analysis of UCITS cross-border distribution market

Administrative and regulatory requirements

Taxation issues

Information referencing issue

Operational workflow

Distribution networks and trailer fee management

Challenges & opportunities

Regulation references

The CSD and TA models

The global TA model

Players’ roles and responsibilities

Fund distribution models & players

Canada

United States

Bermuda

Ireland

Belgium

France

Switzerland Luxembourg

Germany

Netherlands

Hong Kong

Profile

CACEIS is a global player committed to designing reliable, cutting-edge services and building long-lasting relationships with clients. A member of the Crédit Agricole Group, CACEIS is rated A+/A-1 by S&P, which reflects the financial support of its principal shareholder.

Through offices across Europe, North America and Asia, CACEIS delivers a comprehensive set of high quality services covering depositary/trustee and custody, clearing, transfer agency, fund administration and issuer services. CACEIS also provides a broad range of additional high-value services, notably fund distribution support, middle-office outsourcing, liquidity management & securities financing solutions.

As at 31 December 2010, CACEIS ranked 1st among fund administrators in Europe with €1,150bn in assets under administration and 9th among custodians worldwide with €2,379bn in assets under custody.

CACEIS’s 3,500 highly experienced employees are committed to upholding quality of service in terms of responsiveness, accuracy and expertise.

Our clientsAsset managersMutual fundsInsurance CompaniesPension fundsCentral banks & Sovereign institutions Hedge fundsDistributorsBroker-dealersBanksCorporates

DEPOSITARY/TRUSTEE

No.1 in Europe

€705bn

CUSTODY

No.9 Worldwide

€2,379bn

FUND ADMINISTRATION

No.1 in Europe

€1,150bn

figures as at 31 December, 2010

A top-ranking banking Group specialised in asset servicing

A+/A-1

couverture.indd 1 06/06/11 10:56

Cross-borderdistributionof UCITS

May 2011

Context





Taxation issues



Distribution networks and trailer fee management

Challenges & opportunities

Regulation references


The global TA model

Players’ roles and responsibilities

Fund distribution models & players

Canada

United States

Bermuda

Ireland

Belgium

France

Switzerland Luxembourg

Germany

Netherlands

Hong Kong

Profile

CACEIS is a global player committed to designing reliable, cutting-edge services and building long-lasting relationships with clients. A member of the Crédit Agricole Group, CACEIS is rated A+/A-1 by S&P, which reflects the financial support of its principal shareholder.

Through offices across Europe, North America and Asia, CACEIS delivers a comprehensive set of high quality services covering depositary/trustee and custody, clearing, transfer agency, fund administration and issuer services. CACEIS also provides a broad range of additional high-value services, notably fund distribution support, middle-office outsourcing, liquidity management & securities financing solutions.

As at 31 December 2010, CACEIS ranked 1st among fund administrators in Europe with €1,150bn in assets under administration and 9th among custodians worldwide with €2,379bn in assets under custody.

CACEIS’s 3,500 highly experienced employees are committed to upholding quality of service in terms of responsiveness, accuracy and expertise.

Our clientsAsset managersMutual fundsInsurance CompaniesPension fundsCentral banks & Sovereign institutions Hedge fundsDistributorsBroker-dealersBanksCorporates

DEPOSITARY/TRUSTEE

No.1 in Europe

€705bn

CUSTODY

No.9 Worldwide

€2,379bn

FUND ADMINISTRATION

No.1 in Europe

€1,150bn

figures as at 31 December, 2010

A top-ranking banking Group specialised in asset servicing

A+/A-1


PRIMETA®

REGISTRATION & POST-REGISTRATION

DISTRIBUTION NETWORKS, HOLDINGS & TRAILER FEE MANAGEMENT

ORDER GATEWAY & MIRRORING

SERVICES

DATA TRANSMISSION

& REPORTING SOLUTIONS

Dedicated experts & robust capabilities to serve you

With its international presence - notably in France, Luxembourg, Ireland, Hong Kong and North America -, CACEIS has developed a broad range of services registered under the name of Prime TA® to support cross-border fund distribution and help clients take full advantage of new business opportunities.

An efficient "follow the sun" organisation

CACEIS also uses its presence in Asia, Europe and North America to exploit the differences between time zones by processing information as soon as possible and providing its clients with the best possible service. Furthermore, CACEIS favours local contact with both asset managers/fund promoters and distributors through its different offices, which allows us to circumvent time differences and overcome cultural & language barriers.

> By combining local servicing and global processing, CACEIS can efficiently support its clients in their sales development and global organisation.

CACEIS,your development

partner

International FundDistributionServices CACEIS can assist you

at all stages ofyour funds’ distribution,

in any market

The different services offered can be activated separately and progressively, following your evolving business requirements

CACEIS’s dedicated international fund distribution experts are committed to provide you with the best services across the whole value chain covered. They are supported by solid and integrated back office capabilities to manage all operational aspects, as well as a sophisticated fund distribution IT platform.

At CACEIS, we work hardto help you successfully market your fundscross-border

Distributing funds internationally requires the capacity of asset managers & fund promoters to handle new requirements, should they be legal, operational or even technical.

Geographical coverage with sharpened cultural approach is also a key point to ensure close interaction with local authorities, distributors and end-investors.

Building a strong partnership with a service provider such as CACEIS that demonstrates expertise in these different areas, has a local presence, the financial strenght, enough flexibility to rapidly overcome all these new challenges and the right technical infrastructure to interact with all the industry players is now crucial for asset managers & fund promoters seeking to control their costs while being able to offer high-quality services.


PRIMETA®

REGISTRATION & POST-REGISTRATION

DISTRIBUTION NETWORKS, HOLDINGS & TRAILER FEE MANAGEMENT

ORDER GATEWAY & MIRRORING

SERVICES

DATA TRANSMISSION

& REPORTING SOLUTIONS

Dedicated experts & robust capabilities to serve you

With its international presence - notably in France, Luxembourg, Ireland, Hong Kong and North America -, CACEIS has developed a broad range of services registered under the name of Prime TA® to support cross-border fund distribution and help clients take full advantage of new business opportunities.

An efficient "follow the sun" organisation

CACEIS also uses its presence in Asia, Europe and North America to exploit the differences between time zones by processing information as soon as possible and providing its clients with the best possible service. Furthermore, CACEIS favours local contact with both asset managers/fund promoters and distributors through its different offices, which allows us to circumvent time differences and overcome cultural & language barriers.

> By combining local servicing and global processing, CACEIS can efficiently support its clients in their sales development and global organisation.

CACEIS,your development

partner

International FundDistributionServices CACEIS can assist you

at all stages ofyour funds’ distribution,

in any market

The different services offered can be activated separately and progressively, following your evolving business requirements

CACEIS’s dedicated international fund distribution experts are committed to provide you with the best services across the whole value chain covered. They are supported by solid and integrated back office capabilities to manage all operational aspects, as well as a sophisticated fund distribution IT platform.

At CACEIS, we work hardto help you successfully market your fundscross-border

Distributing funds internationally requires the capacity of asset managers & fund promoters to handle new requirements, should they be legal, operational or even technical.

Geographical coverage with sharpened cultural approach is also a key point to ensure close interaction with local authorities, distributors and end-investors.

Building a strong partnership with a service provider such as CACEIS that demonstrates expertise in these different areas, has a local presence, the financial strenght, enough flexibility to rapidly overcome all these new challenges and the right technical infrastructure to interact with all the industry players is now crucial for asset managers & fund promoters seeking to control their costs while being able to offer high-quality services.


FOREWORD

Since the introduction of the UCITS (Undertakings for Collective Investments in Transferable

Securities) Directive in 1985, UCITS funds have become widely used by asset management

companies looking to distribute fund products outside their national borders. Today cross-

border distribution of UCITS spreads to a broad range of domiciliations and not only Luxem-

bourg and Irish-domiciled funds.

Furthermore, although UCITS were developed originally to harmonise Europe’s fund struc-

tures and promote fund distribution between Member States, nowadays they have also be-

come a “gold standard” recognised by a host of countries worldwide. Their flexibility for cross-

border investment and their highly regulated nature has firmly established their popularity

among investors. The UCITS IV Directive is set to intensify the attractiveness of this fund

brand even further.

The new business opportunities arising in regions outside of Europe, such as Asia, Latin

America and the Middle East, will enable European management companies to continue their

expansion in both financial and geographic terms. More than ever, cross-border distribution

is now a strategic issue for CACEIS’s clients. They have to face new challenges, notably in the

context of a fast changing environment, in terms of geographic areas of distribution, technol-

ogy and regulation.

As an experienced player in the domain, CACEIS has a thorough understanding of this rapidly

changing fund distribution environment, including sales and market opportunities, players’

roles and responsibilities, tax and regulatory issues, information and operational workflow

complexity, and management of complex third-party distribution networks. It is this experi-

ence, expertise and know-how, gained through supporting many clients over the years that

we share in this document.

The combination of a fund distribution environment that is continuously increasing in com-

plexity and a significant rise in the number of clients seeking support for their cross-border

distribution plans have led CACEIS to develop this comprehensive document which covers the

many different aspects of cross-border UCITS distribution (the first edition was published in

November 2008). Herein, you will find a detailed assessment of the current market environ-

ment, the industry players and the challenges and opportunities faced, as well as copies of,

or references to the principal legal texts regulating the activity. This publication also gives

details of our support services, explaining how CACEIS can facilitate the administrative side

of your operations and ensure your business complies with the rules and regulations in place

in each country of distribution.

We trust you will find this publication both relevant and informative.

Laurent Majchrzak,Global Head of Fund Distribution Services

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EXECUTIVE SUMMARY

UCITS have become both a European standard and a respected global brand. The number of UCITS

launched continues to grow at an unparalleled pace across Europe, with Luxembourg and Ireland out

front and other national domiciled UCITS (such as German, French and British) also increasingly open-

ing to cross-border distribution. Pan-European distribution develops in line with changing distribution

models from the predominance of a vertically integrated value-chain to third party distribution, and to-

day’s most valued distribution model is guided architecture. Further afield, cross-border distribution of

UCITS continues to expand worldwide, with new countries opening to UCITS every year.Furthermore the

industry is currently eying distribution opportunities in a few big economies that are still closed to distri-

bution.

Within the European domestic markets, two main competitive fund distribution models coexist: The

Transfer Agent model and the Central Security Depository model. Each Member State has developed

the model best suited to its national financial industry requirements, however despite functioning well at

a domestic level, the fragmentation causes barriers to efficient order routing, settlement and custody

in a cross-border environment. Since a few years, a new fund distribution model has emerged to facili-

tate cross-border distribution: The global TA model.

Although the UCITS Directive’s objective of developing a unified regulatory framework for mutual funds

across Europe is largely achieved, asset managers looking to market their funds beyond domestic bor-

ders continue to face a number of key issues in terms of:

• Administrative and regulatory requirements, as registration and post-registration duties can be oner-

ous and time-consuming in certain countries;

• Taxation, as they have to ensure compliance with all fiscal obligations in countries where they distribute

their products;

• Access to reliable and updated information, as there is no pan-European fund database;

• Operational workflow, as the growing cross-border business and open architecture trend tends to in-

crease operational complexity in an industry where manual processes and lack of standardisation re-

main widespread;

• Distribution agreements and trailer fee management, as their distribution networks are increasingly

complex.

However, major initiatives have emerged which aim to tackle these issues, at least at the EU level:

• European regulations are constantly adapted to steadily knock down barriers and favour the develop-

ment of cross-border distribution, with the recent UCITS IV Directive being a prime example;

• Major tax discrimination against foreign UCITS has disappeared in the EU due to pressure from the

European authorities;

• Under the guidance of the EFAMA, the development of the Fund Processing Passport is opening the

way for the electronic communication of operational information on funds;

• Numerous steps have been taken over the past years by market place groups, such as SWIFT, ICSDs

and other players including transfer agents, to increase the levels of automation and uptake of stand-

ards, which has in turn given rise to a broad range of automated fund platforms;

• Some service providers have started to position themselves as intermediaries between distributors

and promoters/management companies.

One of the major challenges to come is putting the theoretical model of full-STP processes for the fund

industry into practice. The key benefits for the industry are greater efficiency, reduced operational risk

and enhanced service. Industry players must continue working closely together in order to develop and

implement the necessary standards and best practices.

guide_mai_2011-01-06-2011.indd 3 06/06/11 10:57

CONTEXT ................................................................................................................................................................... 7

1.1 UCITS fund distribution channels and business models............................................................. 7

1.1.1 Evolution of fund distribution channels in Europe and current trends .................... 7

1.1.2 Open and guided architecture ................................................................................................ 10

1.2 Fund sales trends in Europe ................................................................................................................. 15

1.2.1 Fund sales to insurers, pension funds and other financial intermediaries ........ 15

1.2.2 Fund sales to the retail sector ................................................................................................ 17

1.2.3 Direct sales of funds to the retail sector, an analysis by distribution channel ....... 18

1.3 Analysis of UCITS cross-border distribution market ................................................................. 21

1.3.1 The leadership of Luxembourg and Irish hubs ............................................................... 22

1.3.2 The cross-border distribution of domestic products .................................................. 26

1.3.3 Top target markets for cross-border distribution in Europe ................................... 27

1.3.4 Distribution perspectives outside Europe ........................................................................ 28

FUND DISTRIBUTION MODELS & PLAYERS ......................................................................................... 33

2.1 The CSD and TA models ......................................................................................................................... 33

2.1.1 The CSD model: The French example .................................................................................. 33

2.1.2 The TA model: The Luxembourg example .......................................................................... 34

2.1.3 Comparative analysis of both models .................................................................................. 35

2.2 The global TA model ................................................................................................................................. 37

2.3 Players’ roles and responsibilities for the principal distribution markets ....................... 37

2.3.1 Players shared by both CSD and TA models .................................................................... 37

2.3.2 Players specific to the CSD model ........................................................................................ 39

2.3.3 Players specific to the TA model ............................................................................................ 39

CHALLENGES & OPPORTUNITIES .............................................................................................................. 41

3.1 Administrative and regulatory requirements ............................................................................... 41

3.1.1 Registration requirements for foreign funds ................................................................... 41

3.1.2 Post-registration requirements ..................................................................................................... 44

3.2 Taxation issues ............................................................................................................................................ 47

3.2.1 Taxation of funds and investors .............................................................................................. 47

3.2.2 Tax representative appointment and reporting to local fiscal authorities ......... 48

3.3 Information referencing issue .............................................................................................................. 49

3.3.1 The lack of a pan-European fund database penalises cross-border distribution .. 49

3.3.2 The Fund Processing Passport, an EFAMA initiative ................................................... 49

3.4 Operational workflow ............................................................................................................................... 53

3.4.1 The growth in cross-border business and open/guided architecture tends

to exacerbate operational complexity ................................................................................... 53

3.4.2 Various initiatives have emerged to increase automation and standardisation ...55

3.4.2.1 Market place groups’ initiatives ............................................................................ 56

3.4.2.2 Electronic messaging initiatives ............................................................................ 57

3.4.2.3 Fund platforms .............................................................................................................. 58

3.5 Distribution networks & agreements and trailer fee management .................................. 65

3.5.1 Open architecture has resulted in ever more complex distribution networks ...... 65

3.5.2 The lack of standardisation in distribution agreements creates inefficiencies ..... 66

3.5.3 Trailer fee management has become a key issue ............................................................ 66

3.5.4 Recent initiatives to improve fund sales agreements ...................................................... 67

3.5.4.1 Recommandations issued by EFAMA ................................................................... 68

3.5.4.2 DMFSA’s initiative ......................................................................................................... 68

BIBLIOGRAPHY .................................................................................................................................................... 71

APPENDIX: REGULATION REFERENCES ........................................................................................................... 75

• Regulation at the European Union level

• Regulation at domestic level as at April 2011

1.

2.

3.

Cross-border distribution of UCITS | page 5

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INDEX OF TABLES AND GRAPHS

FIGURE TITLE PAGE

Graph 1 Weight of the banking distribution channel in Europe over time (including funds of funds) 7

Graph 2 Key drivers contributing to the development of the open architecture business model 10

Graph 3Total European mutual fund assets under management by distribution channel,2008-September 2010

12

Graph 4Total cross-border mutual fund assets under management by distribution channel, 2008-September 2010

12

Graph 5Cross-border distribution channels’ growth potential as viewed by Cerulli Associates survey respondents, January 2011

13

Graph 6 Main financial assets of insurers and pension funds 15

Graph 7 Main financial assets of other financial intermediaries 16

Graph 8 Main financial assets of households in the Euro area 17

Graph 9 Household direct investment fund ownership in Europe in 2009 17

Table 1 European assets by distribution channel 18

Graph 10 Number of true cross-border funds registered 21

Graph 11 Evolution of Luxembourg and Ireland market share for cross-border fund registration 23

Graph 12 Evolution of asset classes in the Luxembourg UCITS industry 1997-2009 23

Graph 13 Evolution of total net assets of Irish domiciled funds (2000-2010) 24

Graph 14 Country of domiciliation of sophisticated UCITS 25

Table 2Overview of the overall openness of European fund markets to the cross-border activityas at 31/12/2010

26

Graph 15 Top 25 target markets for cross-border fund distribution in Europe 27

Graph 16 Luxembourg domiciled funds breakdown by distribution regions (in number of funds) 28

Table 3 Top countries for registration of foreign funds by region outside Europe in 2010 29

Graph 17 Asian markets maturity levels overview 30

Graph 18 The French CSD model 33

Graph 19 The Luxembourg TA model and the investment fund distribution process 34

Graph 20 The global TA model 37

Table 4 Major issues faced by asset managers distributing their funds cross-border 41

Table 5 Comparison of registration requirements in the top 7 target countries as at January 2011 42

Table 6 Comparison of post-registration requirements in the top 7 target countries 45

Table 7 Fiscal requirements for the top 7 target markets 48

Graph 21 FPP initial principles 50

Table 8 FPP benefits for fund managers and fund distributors 50

Graph 22 Operational challenges of third-party distribution 54

Table 9 Key drivers and benefits of automation 55

Graph 23 Actors, processes and components at stake for streamlining fund processing 55

Graph 24 Overview of commercial offerings and market initiatives 59

Graph 25 Illustration of a distribution network with 4 levels 66

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CONTEXT


A CACEIS PRODUCT DEVELOPMENT PUBLICATION - 2011

CONTEXT


Evolution of fund distribution channels1 in Europe and current trends

Years ago, the fund management industry was a fully integrated value chain, with the majority

of players covering both the manufacturing side (fund management) and the sell side (fund

distribution). In most major markets a handful of big names, large international fund houses and

local companies, often part of larger banking groups, dominated the marketplace and shared

the high revenues of this money-spinning market.

However, more than fifteen years ago, market experts predicted that the days when distribu-

tion of investment funds in Europe was the preserve of banks and financial institutions may be

drawing to an end, as investors would switch to buying fund products at “the supermarket, the

petrol station or through the internet”2. Clearly, already back then the traditional distribution

model was seen as outdated and in need of a rebirth. Some experts went as far as stating that

“It wouldn’t surprise if Microsoft became the best partner for asset managers or Walt Disney

where you could invest through an ‘investortainment’ channel”2. It was the time when the well-

known expression “third-party funds” started to be replaced or accompanied by the newly

coined “open architecture”.

Indeed, much has changed over the following decade, and there are examples of direct sell-

ing and fund platforms’ success stories. Yet, these still remain few and far between and the

much-announced widespread success is yet to come: Today, the main distribution channels

remain retail and private banks, Independent Financial Advisors (IFAs) and insurance wrap-

pers, followed by fund platforms and direct selling. Graph 1 displays the weight of the banking

distribution channel in Europe over time.

1.

1.1

1.1.1

Captive distribution channel: This business model allows clients to choose only from the in-house fund range.

Open architecture: This business model allows clients to choose from an extensive range of funds, manufactured by competing asset management groups.

Guided open architecture or Guided architecture: This business model allows clients to choose from in-house funds as well as a complementary selection of external funds from a limited number of partners.

1.1

0%

20%

40%

60%

80%

100%

80

2000 2005

75

2009

75

90

1995

wei

ght o

f the

ban

king

dis

tribu

tion

chan

nel (

%)

Source: CACEIS analysis on Lipper FMI, data as reported by ZEW/OEE and Oxera, 2011

Graph 1: Weight of the banking distribution channel in Europe over time (including fund of funds3)

1Excluding funds distributed via stock exchanges (e.g. German, Luxembourg or Dutch markets)2Source: Reuters Limited, “Euro funds look beyond traditional distributors” by Andrew Priest, 2 July 19983Note on the data used: The funds of funds channel is considered as a subset of the banking channel

guide_mai_2011-01-06-2011.indd 7 06/06/11 10:57

CONTEXT

page 8 | Cross-border distribution of UCITS


�

Only a handful of firms study and analyse the evolution of distribution patterns, as it is a hard

task to achieve given the European distribution structure, unclear to most and often opaque to

scrutiny.

Over the last three years, the financial crisis boosted change in fund distribution trends and the

respective weight of each channel in different European countries. Before the crisis hit the fund

sector so strongly, trends became clear only over a time-span of a few years. However, during

2008, at the peak of the crisis, when redemptions reached very worrying levels for the indus-

try as a whole, each distribution channel tended to retain clients using any available means.

Banks, the largest channel by far in Continental Europe, with a total share of 75% of European

fund distribution (including retail and private banks4), had the biggest client retention power by

being able to shift investors’ savings from funds to bank deposits; And they did this even more

after retail clients were reassured by several Continental European governments confirming

that bank saving accounts would be state-protected in case of bank default.

Such trends will be analysed in more depth in order to avoid making misleading conclusions on

the dynamics of investment funds sales to the retail sector.

Further to the fund industry revival in 2009, the distribution mix followed a slightly different path

than during the pre-crisis years. However, the predominance of banks among all distribution

channels still remains to be beaten.

European fund management houses for the most part still have their own workforce selling

only in-house products and, in several Continental European markets, this old-style integrated

distribution model still represents the vast majority of total distribution. For example, the Econo-

mist claimed back in 2008 that in Italy 92% of assets were “gathered directly by salesmen tied

to, or employed by, the fund management group”5. According to Lipper FMI data as reported

for 2007 and 2010, a certain reshuffle in distribution did take place, but not so much in favour

of independent distribution, with Italian IFAs even loosing ground over the last 4 years (-4%).

Already back in 2008, “fears were mounting that the open-architecture distribution model

would disappear and become a victim of ongoing banking consolidation”6. Today, it is still true

that open architecture’s success depends on growing markets, when money pours into funds.

On the contrary, in times when the fund market is dominated by redemptions, instability rocks

the financial landscape and confidence is lost, banks do not need to make the effort of offering

more and more diversified ranges and focus on selling at least in-house products. Furthermore,

the recent insatiable investor appetite for transparency, coupled with regulators shifting to-

ward a tougher disclosure on products, may slow down the path to a real open architecture,

as distributors do not want to be held responsible for third-party products that they are not able

to fully control.

Over the last three years, the financial crisis boosted change in fund distribution

trends and the respective weight of each channel in

different European countries.

4 According to Lipper FMI, not only private banks and retail banks should be included in the banking distribution channel,

but also the fund of fund sector, excluding a minimal part, and the institutional/corporate sales. In this case, the total Euro-

pean estimated distribution market share of the banking sector would reach 72.8%5 Source: The Economist, “We make, you sell”, 1 March 20086 Source: Ignites Europe, FT,“Open-architecture threatened by banking collapse” by Baptiste Aboulian, 9 October 2008

guide_mai_2011-01-06-2011.indd 8 06/06/11 10:57

CONTEXT



The true “open architecture” distribution model also presents some limits: How can a non-

experienced retail investor surf the web and choose from the thousands of products that he/

she can purchase at any on-line fund supermarket? The discussion was on, as mentioned,

during the late nineties when internet became mainstream, and it is on again in the early 2010’s

with the surge of huge, new, web-based retail platforms such as Amazon or I-Tunes. What will

happen to the “traditional” distribution channels if all of a sudden these platforms open up to

selling funds to differentiate product offerings? Will retail investors be sent emails explaining

what fellow buyers bought and suggesting certain funds only on the pure basis of peers’ past

sales, without any advice?

Europe is a very fragmented market when it comes to distribution models. Spain and Italy are

the strongholds of powerful banks whereas the UK is dominated by IFAs.

Although most European investors are not accustomed to directly paying for advice, with the

notable exception of the UK and to a certain extent Germany, most Continental European inves-

tors are however accustomed to buying investment funds through retail banking channels or

insurance products, and hence having the impression of receiving free advice from the bank

employee. In both cases, distribution fees are quite often not presented in a transparent man-

ner to the end-investor, but are rather included into a more general fee (e.g. “management

fee”). In the UK, where IFAs account for a big portion of fund distribution, they are directly

remunerated and thus retail investors are used to the concept of paying for receiving financial

advice. This also applies to Germany, a mature market, where investment funds are directly

held by as much as 57% of households7 and where the IFA market has been rising in influence

over the past years. This trend seems to be continuing as investors still need guidance. Hence,

the third step in the evolution of fund distribution, toward the so-called “guided architecture”.

Guided architecture allows fund distributors such as IFAs to offer a pre-selected range of

funds, targeting the choice given to the final investor.

It should be noted that distribution is soon to be profoundly changed in Great Britain when the

new Retail Distribution Review (RDR) regulation comes into play. Set to be enforced at the end

of 2012, it will apply to all advisers in the retail investment market, regardless of the type of firm

they work for (e.g. banks, product providers, IFAs or wealth managers). “To improve the inter-

actions between consumers and the industry, (…) the RDR is set in three measures: Improve

the clarity with which firms describe their services to consumers; Address the potential for

adviser remuneration to distort consumer outcomes; And increase the professional standards

of investment advisers”8. The extent to which RDR will reshape the distribution pattern in the

UK is a much-talked-about subject and yet there is still not a preferred outcome for it, if not that

IFAs will have a much harder job if they still want to be qualified for distributing all products.

This may, in our point of view, bring the IFA market to a standstill for the first months after RDR

comes into play.

It should be noted that distribution is soon to be profoundly changed in Great Britain when the new Retail Distribution Review (RDR) regulation comes into play.

1.1

7Source : Ignites Europe “Germany: A hot spot for managers”, 05/01/20118Source : FSA, for further reference, please see http://www.fsa.gov.uk/Pages/About/What/rdr/index.shtml

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Source: CACEIS, 2008

CONTEXT



Open and guided architecture

Open and guided architecture models allow retail investors to access a broader range of fi-

nancial products.

Over the years, most distributors shifted from the integrated old model to the much-talked-

about “open architecture” model, which allows clients to choose from a whole range of funds,

manufactured by competing asset management groups. Private banks and fund supermarkets

were the first to offer a whole range of products thanks to open architecture. In the early 2000’s,

even retail banks, at first reluctant to adopt an open-architecture distribution model, started to

add third-party funds to their in-house ranges. A McKinsey study published in 2006, showed

that penetration of third-party products was as high as 79% for IFAs already back then, going

down to 35% for private banks and 10% for retail banks.

Gradually, however, private banks, retail banks and IFAs shifted toward the guided architecture

model and put in place distribution agreements with a few selected asset management houses

which they trust. According to a survey conducted in 2007 by PricewaterhouseCoopers on 270

private banks worldwide, nearly three quarters stated that third-party products make up over

40% of their product range9.

A certain number of key drivers are influencing third-party distribution and in turn affect the

development of open and guided architecture models, as illustrated in the graph below.

1.1.2

Graph 2: Key drivers contributing to the development of the open architecture business model

Regulators

Asset Managers

Investors

Distrib

utors

Asset managers have used UCITS III to increase the range of funds available to European investors, including funds of funds

Development of new distributionstrategies: third-party fund distribution/ selection, fund of funds sale, multi-managers fund sale, white-labelling

Regulatory developments (UCITS III, IV…) help to remove barriers and favour cross-border distribution development

Better access to information, which has enabled investors to improve their understanding and knowledge of fund products

Investors increasingly looking for the best products availablestrong request for external funds

Distributors are seeking opportunities for differentiation

Increased expertise in theselection of funds

9Source : PricewaterhouseCoopers, “Global Private Banking & Wealth Management Survey”, 2007

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CONTEXT



Open and guided architecture’s future will be more and more linked to cross-border distribution of funds.

Today, there are uncertainties with regards to the future of open or guided architecture if the

regulators further strengthen controls and disclosure requirements, in which case distributors

may want to concentrate selling efforts only toward those products that they can be held re-

sponsible for. Nevertheless, open and guided architecture’s future will be more and more linked

to cross-border distribution of funds: Most European asset managers expect an increase in the

penetration rate for both new models as they represent an easy way of penetrating new mar-

kets, especially for those asset managers that enjoy a strong, reputable brand.

Open and guided architecture models may result from a wave of merger & acquisition activ-

ity in the asset management sector. Further to the financial crisis and the widespread lack of

liquidity of the banking sector, many European banks hurriedly put their fund management units

on the market. Given the insufficient capital available in the financial industry as a whole, not

many deals actually took place, but those that did, according to a 2010 Ignites Europe survey,

were priced very low, most probably, too low, and will in all likelihood be regretted by sellers10.

When commenting on survey results, a Morgan Stanley analyst reported that “as parent banks

grapple with the challenge of open architecture as investors seek best-of-breed capabilities,

and in view of conflicting demand for group funding which has damaged mutual fund fran-

chises in Southern Europe, we see pressures on captives likely driving additional scale deals

– similar to Amundi – as banks look to rationalise costs for lower growth businesses”10.

Furthermore, on the positive side, open architecture can potentially lead to an increase in fund

performance, as fund managers can focus purely on their core business, i.e. managing assets,

while being exposed to a potentially higher number of investors. However, on the negative side,

distribution through a third-party sales force means, for a lot of fund manufacturers, loosing the

ownership of client relation, potential revenues (distribution and trailer fees), direct contact

with their clients and therefore possibly client loyalty as a whole. Recent experience shows

that this can lead to rapid losses for those asset managers that cannot beat the markets and

whose client-base, gained through an external sales network, is not particularly attached to

them; This also applies to those that have been chosen for the presence in their teams of “star

managers” and that see clients follow those “stars” when they move to another fund house

or set up on their own. Furthermore, in case of non-integrated distribution models, the recent

crisis has created a need for extra reporting efforts to distributors and investors.

Notwithstanding these issues, both open and guided architecture represent a great opportunity

for foreign asset managers to gain market share over local players in European and interna-

tional markets. For this reason, while national open architecture development seems to remain

steady , third-party distribution of funds is strengthening, as shown by the two following graphs.

1.1

10Source: Ignites Europe “Banks too quick to sell fund ops: survey” by David Ricketts, 08/11/2010

guide_mai_2011-01-06-2011.indd 11 06/06/11 10:57

Source: Cerulli Associates, 2011

Graph 3: Total European mutual fund assets under management

by distribution channel, 2008–September 2010

0%

20%

40%

60%

80%

100%

2009 Sept-2010

71.4

28.6

2008

Captive channelThird-party distribution channel

Legend

69.5

30.5

66.7

33.3

Graph 4: Total cross-border mutual fund assets under management

by distribution channel, 2008–September 2010

0%

20%

40%

60%

80%

100%

2009 Sept-2010

68.1

31.9

2008

Captive channelThird-party distribution channel

Legend

65.9

34.1

54.8

45.2


CONTEXT



In France, Spain, Switzerland and Italy, open architecture has developed so far mainly via mul-

ti-management (funds of funds) through which banks or insurance companies manage fund

wraps that include a broad range of in-house products as well as products from the competi-

tion. This enables banks to better control the products they distribute (products’ risk/perform-

ance ratios, brand) while providing their customers with a broader range of products and with

optimised asset allocation. Industry players also consider that this model limits risks related to

a totally open architecture model, namely the difficulty and cost of providing appropriate advice

for a large range of products and the difficulty to determine responsibilities of asset managers

and distributors toward the investor.

A May 2011 Cerulli proprietary survey, however, found that some of these “bank-centred”

countries may now be ready for opening to new channels in their historical patterns. Indeed,

when asked to evaluate the foreseen most important distribution channel for future French as-

set management industry growth, survey players reported that IFAs and fund platforms have

guide_mai_2011-01-06-2011.indd 12 06/06/11 10:57

CONTEXT



by far the highest momentum. And such momentum is not limited to France, IFAs scored well in

Italy as well, being second only to discretionary accounts, which tend to remain Italy’s favourite

so far. More conservative, Spanish players still bet on a further development of bank-driven

distribution of funds, but surprisingly enough they also predict a substantial growth for direct

sales11.

In Germany the predominant model is guided architecture, through which banks distribute

their own funds as well as selected external fund products from a limited number of partners;

Guided architecture was initially the banks’ answer to the growing market share of IFAs. They

first opened their doors, slightly, to third-party products through the use of German funds of

funds, which allowed them to meet the growing demands for third parties’ products within their

channels. Then, under the pressure of growing demand from customers for a more extensive

choice of funds, many banks widened their distribution activities by using open architecture

and opened up to third-party (non-German) products by establishing fund-platforms. The non-

German funds also became more and more reluctant to accept fund orders directly from IFAs in

light of the transfer agent requirements imposed on them (many thousand individual investors

instead of just one bank). These developments led to the creation of fund platforms catering for

the needs of IFAs and fund managers alike12.

To conclude, graph 5 clearly summarises for all European cross-border distribution channels

their importance in future industry developments, as rated by survey respondents and hence

sends a clear message that the predominance of banks (and local banks) is not yet over.


Graph 5: Cross-border distribution channels’ growth potential as viewed by Cerulli Associ-

ates survey respondents, January 2011

0

1

2

3

4

5

5 =

Mos

t im

porta

nt

1 =

Lea

st im

porta

nt

4.3

Retail banks

3.3

Fund of funds

3.3

Bancassurance

3.0

Private banks/discretionary

accounts

3.0

Independent financial

advisors/platforms

1.5

Direct

1.1

11Source : “European Distribution Dynamics 2011”, Cerulli Associates, May 201112Source : Norton Rose, “Selling investment funds to German private investors - legal and regulatory issues”,

July 2008

guide_mai_2011-01-06-2011.indd 13 06/06/11 10:57

CONTEXT



guide_mai_2011-01-06-2011.indd 14 06/06/11 10:57

CONTEXT




When analysing fund sales, one has to take into consideration the different fund investors. By

definition, investors are the parties whose money is invested in funds and who benefit from the

performance of such investments.

An investor can either be retail – an individual who purchases small amounts of fund shares/

units for him/herself – or institutional, i.e. an entity with large amounts to invest in funds, such

as banks, mutual funds, insurance companies, pension funds, foundations and so forth. Institu-

tional investors account for the majority of overall volume. Retail and institutional investors dif-

fer of course by nature, but also in terms of the sales and marketing approach, reporting needs,

and long term investment views. This guide focuses on the distribution of UCITS, which are the

retail investment fund product by definition: Since their creation they have been representing

the highest investor protection tool worldwide.

Having said so, in the fund distribution context, one must distinguish between public distribution

and private placement. The first one is the sale of units/shares of funds to the retail investors,

while the latter is the sale directly to an institutional investor of funds’ units/shares. Provided

that the units/shares of funds are bought for investment purposes rather than resale, private

placement does not require the registration of foreign funds with local authorities.

In the following chapters we will analyse the whole spectrum of fund sales by dealing sepa-

rately with sales to the institutional sector and the private sector.

Fund sales to insurers, pension funds and other financial intermediaries

According to the European Fund and Asset Management Association (EFAMA) and the Euro-

pean Central Bank (ECB), investment funds account for more than a quarter of total financial

assets of insurers and pension funds in Europe, as displayed in graph 6.

1.2

1.2.1

1.2

0%

20%

40%

60%

80%

100%

22.4

2005 2006

23.4

2007

24.0

2008

22.3

2009

25.919.5

14.1 14.68.7 7.914.3

44.7 43.1 42.847.2 46.646.2

14.8 15.2 15.7 17.9 16.015.8

2004

Investment funds

Debt securitiesQuoted shares

Currency & deposits

Legend

14.0

shar

e in

per

cent

of t

otal

Graph 6: Main financial assets of insurers and pension funds

Source: EFAMA fact book 2010, ECB, 2009

guide_mai_2011-01-06-2011.indd 15 06/06/11 10:57

Their penetration share increased by more than 5% over the 2004-2009 interval and this,

despite the crisis. When analysing this trend, it seems clear that investment funds earned

extra exposure thanks to a decrease of direct share holding in insurers’ portfolios.

There seems, however, to be room for further modifications and hope from the asset mana-

gement industry to gain extra exposure in insurance and pension fund portfolios, seen as

tomorrow’s likely winners.

In a continent that is quickly ageing and that should reach the worrisome barrier of 50%

of population aged 55 and over by 2050, pensions and life insurance products have mar-

ket share to gain in households savings. Moreover, most European countries have a pay-

as-you-go state-based pension system, and the recent crisis of some Southern European

countries created the fear that Member States may not be able to pay off state pensions,

or will have to diminish drastically their real value. Hence, the expected rise of pillar 2 and

3 pensions in most European countries. In the Cerulli Associates survey mentioned above,

respondents viewed “investing for retirement” as the main source of growth for the fund

management industry in the next years.

Besides, according to EFAMA, other financial intermediaries (OFIs) held EUR 6.8bn financial

assets at the end of 2009, of which 9.9% was invested in funds, as shown by graph 7. The

analysis of OFIs’ holdings of funds assets is of particular interest as they include funds of

funds, whose distribution patterns are still quite vague.

In the 2005-2009 interval, OFIs, insurance and pension funds clearly contributed for the tota-

lity of the investment fund asset growth, reporting respectively a positive net flow of €235bn

and €489bn.

CONTEXT



In the 2005-2009 interval, OFIs, insurance and pension funds clearly contributed for the totality of the investment

fund asset growth.

0%

20%

40%

60%

80%

100%

34.7

2005 2006

33.9

2007

31.8

2008

34.5

2009

35.141.3

10.0 10.6 9.9 9.98.9

33.0 33.3 32.821.8

26.328.7

22.4 22.2 24.6 33.7 28.721.2

2004

Debt securities

Quoted sharesInvestment funds

Currency & deposits

Legend

10.9

shar

e in

per

cent

of t

otal

Graph 7: Main financial assets of other financial intermediaries

Source: EFAMA fact book, 2010

guide_mai_2011-01-06-2011.indd 16 06/06/11 10:57

CONTEXT

0%

20%

40%

60%

80%

100%

2005 2006 2007 2008 2009

12.0 11.5 10.9 8.9 9.011.6

33.6 33.9 34.3 34.7 35.432.8

38.0 37.5 38.2 42.5 41.638.7

9.2 9.2 9.29.8 9.310.3

7.2 7.9 7.44.1 4.76.6

2004

Currency & deposits

Quoted sharesDebt securities

Investment fundsInsurance & pension fund reserve

Legend

shar

e in

per

cent

of t

otal

Graph 8: Main financial assets of households in the Euro area




1.2.2 Fund sales to the retail sector

We reported previously that at the peak of the crisis, savings shifted away from funds, but

the crisis simply destroyed a lot of wealth, including a lot of financial wealth of European

households.

As EFAMA reports in its 8th Fact Book published in 2010, up to the end of 2006, that is to

say before the crisis began, the average Euro zone holding of investment funds was stable

around 11 to 12 % of the total financial wealth of households. At the end of 2009, that is to

say when the industry slowly recovered from its worst days, investment fund penetration

in financial wealth was still at 9%, downward from previous years, but not tragically down.

Graph 8 shows details of the financial asset holdings by asset type for the Euro zone.

However, the situation must be put in context as it varies widely across Euro zone members,

as shown in graph 9. Understanding the local fund distribution channels is critical before

marketing funds in any given country.

Understanding the local fund distribution channels is critical before marketing funds in a given country.

Graph 9: Household direct investment fund ownership in Europe in 2009

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

SWED

EN

GERM

ANY

BELG

IUM

FINAL

ND

SLOV

AKIA

EURO

PE

AUST

RIA

FRAN

CE

SPAIN

UNITE

D KIN

GDOM

DENM

ARK

HUNG

ARY

POLA

ND

SLOV

ENIA

ITALY

CZEC

H REP

UBLIC

TURK

EY

NORW

AY

PORT

UGAL

GREE

CE

BULG

ARIA

Share

in to

tal fin

ancia

l asse

ts

Countries

8.0 8.0

6.9 6.8 6.7

5.85.96.2

5.2 5.2 5.04.7

1.81.2

Country

11.611.9

10.9

9.5 9.4

8.1 8.1

Shar

e in

tota

l fina

ncia

l ass

ets


12%

10%

8%

6%

4%

2%

0%

1.2

guide_mai_2011-01-06-2011.indd 17 06/06/11 10:57

CONTEXT



1.2.3

The European fund distribution landscape today

is very different from one country to another.

This situation has evolved substantially since the pre-crisis era. Many countries, including

those in the Nordic region, have decreased the proportion of funds in their household fi-

nancial wealth in recent years. Swedish households held 26.1% of their wealth in funds in

2006, the highest proportion in Europe, and are now down to 11.6%. Similarly, French house-

holds currently hold 8% of their assets in funds, losing more than half their penetration rate

(which was 20.4% at the end of 2006). Taking the American mature mutual fund market as a

reference for comparison, US households invested 18% of their wealth directly into funds in

2006, and are now down “only” by 3 to 4%, stabilising around 15%.

The leitmotiv among all European countries is that the direct fund investment ratio de-

creased in most of them. This can be seen as a direct short-term consequence of the finan-

cial turmoil. And thus, even though cumulated investment fund acquisitions in the 2005-2009

period remains negative (- €139bn), it may be not so daring to predict, when new data flows

are available for the end of 2010, that the private households’ demand for investment funds

will be tending to reach its previous levels of 11 to 12% share of funds within households’

total financial portfolios in the Euro zone. Furthermore, if the USA stabilise around 15% of

total financial households assets held directly in funds, European penetration levels for in-

vestment funds may also tend to converge to the American ones in a few years time.

Direct sales of funds to the retail sector, an analysis by distribution channel

Today the European fund distribution landscape is very different from one country to ano-

ther as seen in the previous analysis of penetration of open architecture. Table 1 displays

the weight of the different distribution channels in France, Germany, Italy, Spain, Switzer-

land and the UK.

13Note on the data used: Lipper FMI’s data displays the proportion of fund distribution controlled by each

channel, with the retail banking channel split out further to show funds of funds sales and institutional or

corporate sales separately. The category of insurance wrapper also includes sales through bancassurance.

Therefore the figure for retail banks includes only funds offered by the bank itself as such.

DISTRIBUTION CHANNEL FRANCE GERMANY ITALY SPAIN SWITZERLAND UK

Retail Bank 21.3% 44.4% 54.3% 63.3% 11.6% 2.3%

Private Bank/Discretionary 10.9% 13.5 % 13 % 8% 51% 6%

Insurance 13.5% 16.4 % 13.5% 5% 8% 12.4%

IFA/Advised 8.3% 7.4 % 6% 4.3% 6% 55.6%

Supermarket 0.3% 0.5% 0.3% 0.2% 1.5% 1.5%

Direct 0.5% 0.2% 0.2% 0% 1.5% 0.5%

Funds of Funds 11.2% 13.6% 5.1% 7.2% 6.4% 9.2%

Institution/Corporate 34% 4% 7.6% 12% 14% 12.5%

Total 100% 100% 100% 100% 100% 100%

Source: Lipper FMI data digest, 2010

Table 1: European assets by distribution channel13

guide_mai_2011-01-06-2011.indd 18 06/06/11 10:57

CONTEXT



Only common point, the banking distribution channel occupies a dominant position in much of

Continental Europe, due to their extensive existing customer base and the broad range of funds

they offer. Besides, as explained earlier on, most Continental European retail investors are un-

used to directly paying for financial advice, which explains the low market penetration of IFAs,

who need to convince investors to pay extra fees -although fees paid to the banking sector are

unclear. Nonetheless, a direct consequence of the banks’ behaviour during the crisis is indeed

their losing ground: From 42% of total European fund sales in 2007 to 33%14 in 2010.

The UK is a well-known exception, as retail banks are almost insignificant while IFAs account

for more that 55% of fund distribution; Their importance rising year after year. We previously

talked about RDR and the effect that it may potentially have on IFAs in the country, leading to

uncertainty with regards to future development of such a channel. IFAs also rose in Germany

in previous years, reaching a very respectable 11% of market share in 2007 before being hit by

a setback in 2009.

The French market still presents the most widespread use of different channels with banks,

insurance companies, funds of funds and corporates, all having a significant market share.

The large market share of the institution/corporate channel in France (34% of all distribution)

can be explained by the widespread company savings plans (“Plans d’Epargne Entreprise”)

introduced in 1967, which are a French specificity.

On the contrary, other national particularities come as no surprise, such as Spain and Italy

still primarily linked to distribution via banks, as well as the predominance of private banks in

Switzerland.

As already mentioned, fund supermarkets and the direct channel are relatively insignificant in

Europe and are not today in a position to challenge other fund distribution channels. Is this low

penetration going to remain stable? The debate is on and it raises attention.

Only common point, the banking distribution channel occupies a dominant position in much of Continental Europe, due to their extensive existing customer base and the broad range of funds they offer.

1.2

14Data Source: CACEIS analysis on data Lipper FMI Data Digest 2007 and 2010

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CONTEXT



guide_mai_2011-01-06-2011.indd 20 06/06/11 10:57

CONTEXT


The UCITS Directive was originally designed to allow each European investment fund to

obtain a passport granting pan-European distribution. Albeit a slow start, over the past de-

cades UCITS have come to being increasingly recognised as a “brand” of excellence for

retail funds. UCITS funds are today widely sold and highly valued worldwide; Very often,

they are no longer set up to target only distribution in Europe, and even many are set up with

the intention of cross-border distribution alone.

Graph 10 displays the growth of the number of UCITS registered for cross-border distribu-

tion over the past decade.

International UCITS distribution currently represents 40% of UCITS assets, with sales taking

place all over the world. EFAMA, in strict cooperation with other local associations, such

as ALFI (Association of the Luxembourg Fund Industry), have been actively promoting the

UCITS brand outside of Europe for a few years.

UCITS seem to have gone far beyond their initial goal. Still, that initial objective of a truly

integrated pan-European fund distribution model is yet to come, with open architecture

slightly setting back and (given recent financial turmoil in Europe) Member States’ fears

raising when it comes to other European financial institutions they cannot control.

Nevertheless, UCITS IV will certainly impact the cross-border distribution of UCITS; It is

foreseen and waited for from many industry players as a booster to their national, European

and international distribution. There is no doubt that from 1st July 2011, managers of UCITS

funds will have far greater flexibility to market and manage their products throughout the

European Union and that most intend to capitalise on these opportunities to drive efficien-

cies. The new UCITS IV directive will simplify the distribution of UCITS products throughout

Europe, making it possible to set up cross-border master-feeder structures, have more effi-

cient passporting and a reduced time to market. The number of countries of distribution can

therefore be expected to increase.

Yet, there seems not to be any rush toward taking advantage of UCITS IV: Market players

appear to be adopting the wait-and-see strategy to make sure no distribution opportunities

are missed by any too rushed manoeuvres, such as rationalising the number of funds they

provide via fund mergers or pooling of assets.

Source: Lipper & PwC 2011

45% growth in past 4 years

UCITS I UCITS III

24,900

62,812

15,000

25,000

35,000

45,000

55,000

65,000

1998 2000 2002 2004 2006 20062008 2010

Num

ber o

f fun

ds re

gist

ered

Graph 10: Number of true cross-border funds registered



The UCITS Directive texts are available in the appendix.

UCITS (Undertakings for Collective Investment in Transferable Securities) are investment funds established and authorised in conformity with the requirements of Directive 85/611/EEC.

UCITS I (“The 1985 UCITS Directive”) - Council Directive no 85/611/EEC of 20 Dec. 1985: Principles for harmonisation.

UCITS II: Never implemented due to lack of common understanding.

UCITS III - Council Directives 2001/107/EC (“The Management Directive”) and 2001/108/EC (“The Product Directive”) of 21 Jan. 2002 amending the Council Directive no 85/611/EEC: Broadening of investment possibilities, management company and simplified prospectus.

UCITS IV - Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009: Introduction of an European Management Company passport, cross-border master-feeder structures and mergers.

UCITS V - The EC is currently consulting on proposed changes to the current UCITS Directive. UCITS V is targeted at issues such as clarifying the roles and responsibilities of depositaries and establishing a governance structure for asset managers’ remuneration.

1.3

1.3

guide_mai_2011-01-06-2011.indd 21 06/06/11 10:57

CONTEXT



The evolution of UCITS is set to continue with the advent of UCITS V, which has been desig-

ned with the lessons of the financial crisis, including the Lehman Brothers collapse and the

Madoff scandal, firmly in mind. The speed with which UCITS IV is set to follow the imple-

mentation of UCITS IV underscores the accelerated pace of regulatory change.

Processes like UCITS IV can only set the pace for an even higher penetration of UCITS in

all of those countries that believe in the passport and in the solidity behind this world-class

brand. However, discussion is on internationally that the setting up of more and more UCITS

funds investing in hedge fund like strategies, so-called sophisticated UCITS or “Newcits“

may eventually stain the reputation of the brand. Indeed, fears are mounting that if anything

were to go wrong to any Newcits fund, many foreign countries would consequently cool to

the reputation of the brand as a whole, i.e. even with regards to those plain vanilla funds that

represent most of the total UCITS assets. According to EFAMA, at the end of 2009, Newcits

funds assets were up to €52bn, which represented just below 1% of total UCITS assets;

Newcits numbers are increasing steadily and there are many news reports of new fund

launches for such strategies.

Given the success of such products and the attention they receive from the international

media, EFAMA, acting as the centralised European investment funds’ body, calls for the in-

dustry to discard the Newcits acronym as it may be confusing: “Newcits are UCITS that can

be described as aiming actively to manage the risk-return trade-off. They are subject to and

are managed in compliance with the UCITS framework. As such they offer the same level of

investor protection as other UCITS“15. EFAMA also openly calls for the newly created Euro-

pean Securities and Markets Authority (ESMA) and all Member States’ national regulators

to strictly comply with those rules16.

The leadership of Luxembourg and Irish hubs

Since the emergence of the cross-border distribution of investment funds decades ago,

Luxembourg established itself as a hub for European cross-border distribution. In 1988, the

Grand Duchy was the first European Member State to adapt its legislation to the European

Directive governing UCITS, thus propelling the country into its current leading position. The

competitive advantage of being the first to offer the European passport for cross-border

distribution to investment funds, as well as the continuous adaptation of the country’s legal

and fiscal environment, gradually attracted fund promoters from all around the world to

Luxembourg.

Today, newcomers to the Grand Duchy know that they have access to highly qualified and

highly professional specialists who have many years of experience with UCITS and invest-

ment funds. Moreover, as the graph below shows, they can rely on the leader in terms

of predominance for the set-up of cross-border funds. Although Luxembourg lost ground,

shifting from being the domicile of choice for 81% of all worldwide investment funds in 2001

to 75% of those in 2010, the proportion still remain so impressive that will unlikely be beaten.

1.3.1

15Source : EFAMA, press release, 16 th May 2 01116Sources : FSR, “Supporting cross-border fund distribution in a global market-place”, October 2 010 ; Strategic In-

sight, “Alternative and Hedge Fund UCITS through the Next Decade”, 2 010 ; HFM Week “Newcits Uncovered”, Ja-

nuary 2 011 ; FTfm “Creativity’may tarnish Ucits brand”, 15 th May 2 011 ; EFAMA “The evolving investment strategies

of UCITS - EFAMA report on the so-called “Newcits” phenomenon”, May 2 011 ; Ignites Europe “Newcits tag must be

scrapped : EFAMA”, 16 th May 2011

Since the emergence of the cross-border distribution

of investment funds decades ago, Luxembourg established itself as a hub for European cross-border

distribution.

guide_mai_2011-01-06-2011.indd 22 06/06/11 10:57

CONTEXT

At the end of 2010, according to PwC analysis on Lipper data, foreign registrations of Luxem-

bourg funds amounted to almost 47,000. Graph 12 shows that Luxembourg-based funds re-

present a good balance of all asset types.

The emergence of Dublin as the second largest European hub for investment funds be-

gan during the late eighties, with the launch of the IFSC (1987), in “part of the dilapidated

docklands district said to have been so run-down it was avoided by even the city’s rats.

Today, however, the area plays host to a cosmopolitan array of financial services players”,

as quoted from a 2008 FT article17. Dublin has become the home of choice for many UCITS

funds, Europe’s leading domicile for money market funds and the largest administration

centre for exchange traded funds in Europe.



0

10,000

20,000

50,000

40,000

30,000

60,000

70,000

2002 2003 2004 2005 2006 2007 2008 2009 20102001

Luxembourg

OtherIreland

Legend

75%

14%

11%

num

ber o

f cro

ss-b

orde

r fun

d re

gist

ered

Source: PWC, 2011

Graph 11: Evolution of Luxembourg and Ireland market share for

cross-border fund registration

1.3

Others (including fund of funds)

Money Market

Bond

Balanced

Equity

0

250,000

500,000

1,000,000

1,250,000

750,000

1,500,000

1,750,000

2,000,000

in € m

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 20082007 2009

Source: EFAMA, 2010

€1,592,370 mas at 31/12/09

Graph 12: Evolution of asset classes in the Luxembourg UCITS industry (1997-2009)

Luxembourg and Ireland currently account for nearly 90% of all worldwide cross-border funds.

17Source: Financial Times Fund Management, “Dublin shrugs off downturn blues”, by Ian Fraser, July 20 2008

guide_mai_2011-01-06-2011.indd 23 06/06/11 10:57

The breakdown by assets classes in the Irish fund industry is not available

CONTEXT



Graph 13 displays the evolution of total net assets of Irish-domiciled funds over the last

decade.

Nonetheless, the international banking crisis was not the only thing to strike Ireland since

then: The country suffered from an over-dependence on property revenues, domestic credit

expansion and so forth, up to the point when, at the end of November 2010, the Irish govern-

ment set a four-year austerity plan in motion named “National Recovery Plan” to reduce

Ireland’s deficit to 3% of GDP by the end of the year 201418. The national emergency seems

not to have impacted the fund industry so far as the government was smart to quickly imple-

ment regulation facilitating local business, among which the welcome re-domiciliation law,

attracting a significant number of funds from offshore domiciles. This legislation coupled

with the low Corporate Tax rate continues to attract business to the country and recent

statistics show that Ireland is still up and running as a state-of-the-art financial centre.

A few factors have historically boosted the fund servicing activities of Luxembourg and

Ireland, such as their membership of the European Union and the Euro zone, the countries’

legal and fiscal framework and their strong attractiveness for well-educated young gra-

duates coming from all over Europe and willing to relocate in those two countries offering

high standard of living.

Luxembourg benefits from its well-known reputation of being an attractive place to work,

with low unemployment rates, stable government, stimulating financial sector environment

“grounded in the principle of investor protection”19. Hence, the success of the country at-

tracts a multi-lingual workforce, employed by many international promoters from 42 dif-

ferent countries20 worldwide that set up their funds in the Grand Duchy. According to the

CSSF21, at the end of March 2011, the United States accounted for 22.7% of total assets, from

Germany 17.2%, from Switzerland 15.1%, United Kingdom 12.9%, France 8.3% and so forth.

Italian, Belgian, Dutch and Swedish promoters all have a good proportion of total assets

domiciled.

Graph 13: Evolution of total net assets of Irish domiciled funds (2000-2010)

Source: Central Bank of Ireland

0

100

200

500

400

300

600

700

800

900

1,000

in € bn

2001 2002 2003 2004 2005 2006 2007 2008 2009 20102000

963

749

647

808730

587

435363

285208

304

18For more details on the “National Recovery Plan 2011-2014” please refer to the website www.budget.gov.ie 19Source http://www.lff.lu/legal-environment/legal-and-regulatory-environment/20Source: ALFI, August 201021“Commission de Surveillance du Secteur Financier”, the prudential supervisory authority in Luxembourg

guide_mai_2011-01-06-2011.indd 24 06/06/11 10:57

CONTEXT

Dublin relies on its use of English to become the domicile of choice of Anglo-Saxon fund

houses: According to Lipper’s “Ireland Fund Encyclopaedia”, published in June 2010, Ame-

rican and British promoters total 84% of domiciled assets, 52% and 32% respectively. Of the

€963bn in Irish funds, €759bn, equivalent to almost 80%, are UCITS funds.

Moreover, both financial centres have specialised, or at least focused on different areas of

expertise: Luxembourg was traditionally the place for long-only or plain vanilla fund as well

as the stronghold of the German asset management industry.

On the other hand, Dublin has been developing offshore products administered in Dublin

and other hedge funds in general.

Today, these characteristics tend to blend significantly as indicated in graph 14 that shows

the widespread use of Luxembourg as domicile for sophisticated UCITS, with more and

more hedge funds set up in Luxembourg and long-only UCITS set up in Dublin.

Both are European “centres of excellence” for the set up of funds aimed at being sold

worldwide. They currently account for nearly 90% of all worldwide cross-border funds

(Luxembourg 75% and Ireland 14% - see Graph 11 “Evolution of Luxembourg and Ireland

market share for cross-border funds registration”).

LU 51%MT 1%AT 2%DE 3%ES 2%FR 13%GB 8%IE 20%IT 1%



Graph 14: Country of domiciliation of sophisticated UCITS

Source: EFAMA “The evolving investment strategies of UCITS - EFAMA report on the so‐called “Newcits”

phenomenon”, May 2011

1.3

Both financial centres have specialised, or at least focused on different areas of expertise. Today, these characteristics tend to blend significantly.

guide_mai_2011-01-06-2011.indd 25 06/06/11 10:57

The cross-border distribution of domestic products

As seen above, the leadership of the Luxembourg and Irish hubs is still undoubted but in-

ternational distribution is also expanding from funds domiciled in major domestic markets

in Europe, such as the United Kingdom, France, Germany and to a lesser extent, Belgium.

Indeed, latest trends confirm that fund houses from all over the world wanting to launch pro-

ducts designed for the international market are likely to set up UCITS domiciled in Luxem-

bourg or Dublin. In parallel, however, the emergence of UCITS domiciled in domestic mar-

kets mirrors the slow yet constant decline of national European funds.

Table 2 shows this phenomenon and gives an overview of the overall openness of European

fund markets to the cross-border activity by adding the number of international UCITS re-

gistered for sale in each country.

Hence, not all European fund houses aiming at distributing beyond borders are necessarily

moving toward one of the two hubs, and sometimes decide to register their domestic UCITS

in other countries for international distribution. France represents the strongest centre

among all domestic European countries, in terms of funds registered for sale internatio-

nally. At the end of 2010, there were 1,878 true cross-border French-domiciled UCITS, most

of which being distributed within the European Union borders, but some go as far as the

Americas and Asia; It should be noted that they were only 757 at the end of 2007, i.e. a 148%

increase over the past 3 years, whereas the number of true cross-border Luxembourg-do-

miciled funds only grew by 26% over the same period.

As at 31/12/2010, there were also 1,561 British funds sold internationally in as much as 39

countries in every continent. Similarly, the German fund market is also raising its selling

goals, with 493 locally domiciled international UCITS distributed in 22 countries worldwide

at the end of 2010, against only 385 funds distributed in 18 countries at the end of 2007.

Generally speaking, the trend of opening local UCITS funds to pan-European and even in-

ternational distribution emerged a few years ago, partially slowed down during the years of

financial turmoil and yet seems today to be speeding up again.

CONTEXT



1.3.2

The international distribution of funds is also expanding

from funds domiciled in domestic markets, such as

the United Kingdom, France and Germany.

# of true cross-border UCITS domiciled

in the country

Evolution in %between 31/12/2007

and 31/12/2010

# of foreign countries where local UCITS

are distributed

# of true cross-border foreign UCITS

registered for sale

Luxembourg 46,846 +26% 55 911

Ireland 8,843 +29% 37 918

France 1,878 +148% 20 3,793

United Kingdom 1,561 +28% 39 3,852

Belgium 781 +6% 15 2,186

Germany 493 +28% 22 5,848

Source: PwC, 2008 & 2011

Table 2: Overview of the overall openness of European fund markets to

the cross-border activity as at 31/12/2010

guide_mai_2011-01-06-2011.indd 26 06/06/11 10:57

CONTEXT

Top target markets for cross-border distribution in Europe

If more and more UCITS funds get distributed internationally and as much as 36% of total

cross-border UCITS are registered in more than ten countries22, which are the target distri-

bution countries?

Graph 15 displays the top 25 target markets for cross-border distribution in Europe in terms

of number of funds registered for distribution in each country at the end of 2010.

Clearly, there is a bulk of eight markets open to more than 3,000 foreign fund registrations

each. They are the most open markets; Germany is far ahead of all others, with almost 6,000

foreign fund registrations, two thirds of which are domiciled in Luxembourg. The second

most open European market is Austria, while the third one, Switzerland, is not a member of

the European Community.

According to the annual PwC study on cross-border distribution, in 2010 alone 4,485 new re-

gistrations of UCITS were made in European countries, with Switzerland being the country

that received the highest number of new registrations (532 within the year 2010).

Both the Netherlands and Spain moved up in the hierarchy of the target markets receiving

high numbers of new registrations, illustrating the interest from international asset mana-

gers of these two countries in terms of potential new money flow.

Then come the United Kingdom and France, with around 3,800 funds registered for distri-

bution in each country. They are closely followed by Italy, with 3,600 funds registered at the

end of December 2010.

Wealthy Scandinavia should be carefully watched by foreign European asset managers

as a target market for fund distribution, especially Sweden, which ranks 9th in terms of

number of cross-border funds registered for distribution in the country. Between December

2007 and December 2010, this number increased by 71%. Over the same period, the number

of cross-border funds registered for distribution grew by 49% in Denmark and by 27% in

Finland and Norway.

Source: PwC, March 2011

1 - G

ERM

ANY

2- -

AUST

RIA

3 - S

WIT

ZERL

AND

4 - F

RAN

CE

5 - S

PAIN

6 - N

ETHE

RLAN

DS

7 - I

TALY

8 - U

NIT

ED K

INGD

OM

9 - F

INLA

ND

10 -

SWED

EN

11 -

BELG

IUM

12 -

NOR

WAY

13 -

PORT

UGAL

14 -

DEN

MAR

K

15 -

IREL

AND

16 -

CZEC

H RE

PUBL

IC

17 -

LUXE

MBO

URG

18 -

GREE

CE

19 -

LIEC

HTEN

STEI

N

20 -

JERS

EY

21 -

SLOV

AKIA

22 -

POLA

ND

23 -

GUER

NSE

Y

24 -

EST

ONIA

25 -

LATV

IA

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

6,000

Num

ber o

f cro

ss-b

orde

r fun

ds

Graph 15: Top 25 target markets for cross-border fund distribution in Europe



1.3

1.3.3

Germany ranks first in terms of cross-border funds registered for distribution in the country. It is followed by Austria and Switzerland.

22Source: PwC, March 2011. 35% of cross-border funds are distributed to 3 or 4 markets only, 29% to 5 to 9

countries and 36% to 10 or more countries.

guide_mai_2011-01-06-2011.indd 27 06/06/11 10:57

In 2010, the Czech Republic was the most attractive destination for registrations of foreign

funds among new European Member States, with 739 new registrations during the year. The

country is very active in the distribution of investment funds, mostly provided through the

banking system. More generally, the region of Eastern and Central European countries had

been foreseen by Western European players as a territory of easy access and expected

huge money flows, corresponding to the high growth of a region that has been opening

to investment funds just recently. The region continues to expand its foreign funds sales,

although has not yet experienced the huge boom that had been foreseen. Once again, the fi-

nancial crisis and consequent insecurity are surely to be blamed in this respect. The growth

is still there, though, and steady too. Hungary had 414 foreign registrations at the end of

2010, 165 of which were made during the previous 12 months alone.

Distribution perspectives outside Europe

Further afield, worldwide distribution of UCITS continues to grow. The level of penetration

in international investment markets means that UCITS are beyond doubt recognised as the

world’s most internationally distributed investment fund product for a few years. Already

back three years ago, an article published by The Banker began with these words “They

[UCITS] are advertised on the sides of buses in Hong Kong. They are widely promoted in

the newspapers of Sao Paulo and Cape Town”23. Their success is actually so marked that

jealousy is mounting. Rumours spread about as many as four on-going different initiatives to

create an Asian equivalent of UCITS granting local products the same distribution opportu-

nities that UCITS can today benefit from. One of those, driven by the Australians, appears as

the most serious attempt to get all Asian countries organised around a single UCITS equiva-

lent. A few years ago, it was reported that the SEC had foreseen a project to create an Ame-

rican equivalent of UCITS, in order to be able to market US-domiciled funds internationally

as freely as UCITS funds. Such project seems to be abandoned since. East or West, many

fund market regulators and industry bodies witness the explosion of UCITS distribution and

try to plan solutions to mirror such success locally.

UCITS distribution outside the European Union is now focused predominately on three key

international regions – Asia, Latin America and the Middle East. Graph 16 illustrates the

weight of Luxembourg fund distribution in these regions at the end of 2010.

Europe 86.3%Asia Pacific 8.9%Americas 3.1%Middle East 1.4%Africa 0.3%

Source: PwC, March 2011

Graph 16: Luxembourg domiciled funds breakdown by distribution regions(in number of funds)

CONTEXT



1.3.4

23Source: The Banker, “UCITS break out to conquer the world”, 2 June 2008

East or West, many fund market regulators and

industry bodies witness the explosion of UCITS

distribution and try to plan solutions to mirror such

success locally.

guide_mai_2011-01-06-2011.indd 28 06/06/11 10:57

CONTEXT

In 2008, EFAMA conducted a survey assessing the relative importance of Europe, Asia, Latin

America and the Middle East in the net sales and promotion of cross-border UCITS. 82%

of the participants in the survey believed that the proportion of UCITS held by investors in

Asia would grow in the coming years. Additionally most fund managers agreed that UCITS

would increasingly source assets in the Middle East and in Latin America. Retrospectively,

this prediction has not yet occured and actually the proportion of UCITS distributed in their

home territory (that is Europe) even increased slightly since24. Having said so, one should

take into account the extent to which worldwide economies have been hit by the financial

crisis since the EFAMA report was published. The table hereafter shows the total number

of cross-border funds registered in the top country of each continent and last year’s varia-

tion. All four of these top countries experienced negative net new registrations for the year,

which should not drive to the hasty conclusion that cross-border distribution as such is in

decline. It should actually be analysed more in depth, by taking into account that tail effects

of the financial crisis are still there.

Distribution of UCITS funds in the Asia Pacific regions has been central and much talked

about over the years. A cross-border distribution study by Lipper dating back to 1995 already

stated that Hong Kong was the UCITS target of choice outside of the EU as it was a central

point from which to hit many different Asian markets, at the time not yet open to distribution

of foreign funds, or not at all open to the fund industry25.

More than fifteen years later, the picture has not changed much. Certainly, there are today

more UCITS distributed in Singapore than in Hong Kong, but both countries are high prio-

rity as they act as hubs for distribution in Mainland China and other, less developed Asian

fund markets; Hong Kong still being the frontrunner. Nonetheless, despite UCITS funds still

having to go through a lengthy full registration procedure to be able to be marketed in Hong

Kong, and given the brand power of UCITS, more and more Asian local regulators recognise

the product and facilitate its penetration in local markets. Hence, preserving their confi-

dence in the UCITS structure is critical to future success.

Macau is a recent success story: UCITS sold in Macau increased by 56% in 2010, to reach

906 registrations.

Region Top country for registration of foreign fundsin the region

New registrationsof foreign fundsin the countryin 2010

Total registrationsof foreign fundsin the countryas at 31/12/2010

Total registrationsof foreign fundsin the countryas at 31/12/2007

Africa 1. South Africa -16 214 112

Americas 1. Chile -175 1,262 1,213

Asia Pacific 1. Singapore -263 2,064 1,824

Middle East 1. Bahrain -62 739 908

Source: PwC, 2011 and 2008

Table 3: Top countries for registration of foreign funds by region outside Europe in 2010



1.3

Distribution of UCITS funds in the Asia Pacific regions has been central and much talked about over the years.

24Source: PwC, Taking Luxembourg as a proxy, cross-border UCITS marketed in Europe were accounting

for 85.2% of the total cross-border UCITS in 2008 and are now up to 86.3% at the end of 2011. 25Source: Lipper, “Cross-border marketing”, 1995

guide_mai_2011-01-06-2011.indd 29 06/06/11 10:57

The attention of the European regulators today, when tackling the Asian distribution issue,

shifts toward two crucial points: The proposals of the creation of a pan-Asian fund product

and socio-demographic trends in the region. International asset managers as well as Eu-

ropean regulators and industry bodies currently question themselves: What would happen

to the distribution pattern if a truly pan-Asian product were to be launched? Would it be the

end of UCITS distribution in the region? Experts tend to predict that most probably, such a

product, if and when it would become available, will take time to make its way to success

as UCITS endured many years ago. In any case, should this happen in a relatively short ti-

meframe, competition would be fiercer in the region and most probably also back in Europe,

as European regulators would allow the pan-Asian funds to be distributed in the European

Union as well.

Secondly, asset managers tend to analyse the macro-economic and socio-demographic

changes currently happening in the region to try and capture growth where it is happening

or foreseen to happen. Asia accounts for more than 4 billion people, and forecasts predict

a further 25% increase by the end of 2050. This alone should already drive the attention of

most asset managers. However, achieving a deep understanding of the region is a hard task

as Asian markets are far from being at the same development stage, on quite a few sides:

From regulatory, to demographical, fiscal, legal, economic aspects and so forth.

Graph 17 is a NICSA’s summary of numerous factors influencing investing in many Asian

markets, which have been classified by their level of maturity.

Although the sales of UCITS in Asia are already strong in the more mature markets and

Taiwan, there are still many other national markets to target, among which the two big and

booming Eastern economies: China and India.

Across the Pacific, distribution in the American continent is also very dynamic, particularly

in South America. In countries such as Chile and Peru, UCITS are considered the foreign

CONTEXT



Graph 17: Asian markets maturity levels overview

Source: NICSA, 2011

Emerging

Developing

Mature

JapanSingapore

Most MatureLeast Mature

HongKong

India

China

Indonesia

Taiwan

SouthKorea

> High wealth density

> Highly developed capital markets

> Complex wealth management needs

> Wealth increasing rapidly

> Heavily populated countries

> Developing capital markets

> Currency inconvertibility

> Entrepreneurs have the ability to invest abroad

> Established base of wealth and strengthening capital markets

> Selectively restrictive regulations

> More experienced investors

> Emergence of 2nd generation HNWIs

> HNWIs seek wealth accumulation onshore and wealth preservation offshore

Achieving a deep understanding of the region

is a hard task as Asian markets are far from being

at the same development stage, on quite a few

sides: From regulatory, to demographical, fiscal, legal,

economic aspects and so forth.

guide_mai_2011-01-06-2011.indd 30 06/06/11 10:57

CONTEXT

investment of choice for local pension funds. In 1981, the Chilean Social Security System

was reformulated from a defined-benefit program to a defined-contribution one. Then in

March 2008, the new Pension Reform Law No.20,255 was enforced improving social pro-

tection by re-defying the three pillars of Chilean pension system. Today, there are 5 pension

funds in the Chilean market, heavily invested in foreign assets. Hence, UCITS registrations

in the country summed up to 1,262 at the end of 2010. Those are mostly invested in the local

pension funds. During 2010, as fears were mounting on the solvency of Ireland, Chile ques-

tioned itself if it would maintain Irish domiciled UCITS eligible for investment in the local

pension funds. The whole of the industry feared but thankfully Chilean authorities finally did

not rule Irish funds out of the eligibility program.

Peru is one of the South American countries that followed Chile in reforming the pension

fund system. Currently, Peruvians have the choice between investing into a public (State)

or a private pension fund. The private pension system, SPP, was created in 1992, modelled

on the Chilean one and experienced very positive inflows over the past years, and this trend

is set to continue, as on average 60 to 70 thousand new workers join these programs each

quarter26 and this number is set to grow as estimates account as much as 71% of Peruvians

working in an informal economy, “which means they pay no taxes, have no bank accounts

and have no access to credit”27 or – may we add–pension. As more people enrol into the

real economic system, more and more will also join pension schemes and money will even-

tually continue to pour in. At the end of December 2010, foreign investment funds represen-

ted 7.4% of total SPP26 assets, most of which were UCITS.

Regular business missions of industry representative bodies and continuous exchange al-

low UCITS to keep developing in the region at an uninterrupted path.

UCITS distribution ambitions in the continent, though, are not limited to those few Ameri-

can countries. Fund houses eye those countries that are still closed and look forward to

regulation change as their selling potential is huge. Thus, Brazil is today’s hot topic given

the country’s population (193.7 million28) and the huge growth of its economy (GDP USD

1,594bn at the end of 200929, +171% in ten years). All industry international players want

to make sure to capture their market share, should the country open to foreign funds’

distribution.

As previously mentioned, UCITS are also well established and fast developing in the Middle

East. The region – and its wealth – represents a target that is highly valued and closely

watched these days. Bahrain is today the financial centre in the region where UCITS are

best integrated into local market, with 739 funds sold. Given the specificities of the Middle

East region, most fund houses launched or planned to launch specific products to target

the region.



In countries such as Chile and Peru, UCITS are considered the foreign investment of choice for local pension funds.

1.3

26Source: Superintendencia de Banca, Seguros y AFP, ‘’Evolución del Sistema Privado de Pensiones‘’,

Cuarto Trimestre de 201027Source: International Business Times, “Bargain Shopping in Peru, Chile and Brazil”, December 21, 201028Source: World Bank, World Development Indicators - Last updated Apr 26, 2011, data at end 200929Source: World Bank, World Development Indicators - Last updated Apr 26, 2011 GDP in current U.S. dollars. Not

adjusted for inflation.

guide_mai_2011-01-06-2011.indd 31 06/06/11 10:57

CONTEXT




As European markets continue to open to cross-border distribution of funds, opportunities arise for foreign asset managers to

win market share from local players. As a result, cross-border third party distribution is in a strong growth phase.

Moreover, the highly valued UCITS brand favours their international distribution both within Europe and globally. UCITS’

investor protection and the ability of these products to use certain derivative instruments gives them a major advantage over

local and other international products.

Following recent market trends, UCITS sales in other continents have partially slowed down, but the reversing trend is al-

ready there, particularly in Asia, Latin America and the Middle East.

guide_mai_2011-01-06-2011.indd 32 06/06/11 10:57

FUND DISTRIBUTIONMODELS & PLAYERS


Investors

DistributorFund Management

Company

Centralising AgentFinancial Intermediary

Distributor’s Custodian(CSD Member)

Issuer account keeper(gestionnaire du passif)

CSD(Euroclear France)

Fund’s Custodian (CSD Member)

Graph 18: The French CSD model



FUND DISTRIBUTION MODELS & PLAYERS


In some European domestic fund markets such as Belgium and Italy, cross-border fund mar-

kets such as Luxembourg and Ireland, and Asian domestic fund markets, orders and settlement

are typically handled through bilateral arrangements between the distributors/aggregators and

the fund-side institutions: Registrars and transfer agents (TA) which is known as the TA model.

Whilst in other domestic fund markets such as France, Germany and Switzerland, the order

and settlement infrastructure is provided almost totally by Central Security Depositaries (CSDs)

which is known as the CSD model. CSDs’ offers however differ from one another in terms of

specific aspects of fund transaction services from order execution through to settlement and

custody of the fund’s units/shares.

However, it is important to note that in cross-border fund markets, the two models may

coexist through the use of an International Central Security Depositary (ICSD) such as

Clearstream or Euroclear.

Due to the complexity of the subject, in the following section, this paper focuses its analysis on

two fund distribution models, the French CSD model and the Luxembourg TA model.

The CSD model: The French example

Graph 18 displays the generic model of players involved in France’s fund distribution industry.

There are 2 main characteristics of fund order processing in France:

• Funds must appoint a centralising agent to handle the receipt and execution of subscrip-

tion and redemption orders in the name of and on behalf of the fund,

• Fund’s shares/units in Euroclear France (the French CSD) are bearer securities, which

means that the identity of the final beneficiary is unknown to the centralising agent. There

is no register of shareholders in a fund as this is the case elsewhere in Europe. Instead,

2.1

2.

2.1

2.1.1

guide_mai_2011-01-06-2011.indd 33 06/06/11 10:57


Investors

Transfer Agent Transfer Agent Transfer Agent Transfer Agent

DistributorFund supermarket

Custodian/Broker

Bank

Fund Fund Fund Fund Fund Fund Fund Fund

Graph 19a: The Luxembourg TA model


Investor Distributor 1. Account opening

2. Order placement

5. Statement of holdings & reconciliation

3. Order confirmation

CC Bank CC Bank

TA FUND

4. Cash instruction 4. Cash instruction




2.1.2

an issuer account, managed by the issuer account keeper also known as the “gestionnaire

du passif”, is held in Euroclear France and reflects the total number of shares in the market.

The French CSD model, as opposed to the TA model, does not allow distributors/investors to

be easily identified, which makes distributor activity monitoring and trailer fee management

processes more complex for the management companies.

Most orders are placed by a financial intermediary which must be a member of Euroclear Fran-

ce, and which represents the distributor/investor in France as a custodian. This can be the same

entity as the fund’s custodian. Once an order is executed and/or confirmed by the centralising

agent, both the centralising agent and the financial intermediary instruct Euroclear France to

clear and settle on their respective accounts held with Euroclear France through a DVP (delivery

versus payment) process, while the financial intermediary updates the custody accounts of the

entity for whom they have dealt.

Note that whilst this process is representative of the vast majority of fund order processing in

France, it is nevertheless possible to keep registers for a fund (i.e. no Euroclear France account).

However, with the exception of the settlement process, the overall principles remain the same.

The TA model: The Luxembourg example

Graph 19 displays the generic model of players involved in Luxembourg’s fund distribution industry

and the investment fund distribution process.

Graph 19b: The investment fund distribution process

guide_mai_2011-01-06-2011.indd 34 06/06/11 10:57





The majority of orders in Luxembourg are placed by appointed distributors or aggregators.

The process is nearly the same for pure institutional investors or private investors dealing

directly, but volumes are generally lower.

The transfer agent keeps the official register of the fund and is the only entity appointed by the

fund to receive and process the orders and issue confirmations. This model is well adapted

to the specific needs of fund management companies regarding distributor activity monitor-

ing and trailer fee management as it allows distributors’ and investors’ positions to be easily

identified.

It is to be noted that, to the contrary of the French CSD model, the distributor is not required

to open neither a security nor a cash account with the fund’s tranfer agent. Having received

confirmation of the order from the TA, the client or client-side institution instructs the bank or

custodian to credit the fund account (for retail investors, the cash payment is a prerequisite to

the order processing). This account is generally maintained directly with the fund custodian, al-

though in certain cases the TA may hold dedicated accounts at an intermediary bank. In either

case, the TA reconciles the cash flows with the transactions they have executed. As opposed

to the CSD model, cash settlement is made through the normal banking system, separately from

the settlement of shares. There is no DVP process.

Comparative analysis of both models

Historically, Luxembourg had no choice but to develop a cross-border model for fund distribu-

tion as its domestic market was too small.

On the contrary, France with its large domestic market for fund distribution, decided to take

the other approach and develop a domestic model. However, in an environment where cross-

border fund distribution has become increasingly important, the current French CSD model is

reaching its limits and must adapt in order to be able to offer the following three factors:

• The inherent security of its model - DVP settlement,

• The efficiency of a single automated routing platform, and

• The tools and organisational structure necessary for handling fund distribution efficiently,

such as the ability to mark orders and match them with distributors to simplify commission

calculation.

The routing platform and the follow-up of stocks and flows are just the first of many steps

that need to be taken in the development of the cross-border distribution of funds domiciled

in France.

Although TA models, such as the one in place in Luxembourg, offer more flexibility and greater

efficiency in fund distribution management, they also need to adapt in the following ways:

• Standardise and automate process flows,

• Provide greater levels of security in settlement procedures.

The current wave of standardisation initiatives at a European level is a positive indication that

both the TA and CSD models are moving in the same direction.

2.1.3

2.1

In an environment where cross-border fund distribution has become increasingly important, the current French CSD model is reaching its limits.

guide_mai_2011-01-06-2011.indd 35 06/06/11 10:57

guide_mai_2011-01-06-2011.indd 36 06/06/11 10:57




The global TA model

For a few years a new fund distribution model has emerged to facilitate cross-border distri-

bution: The global TA model, illustrated in graph 20.

Graph 20: The global TA model

The global TA pre-centralises the subscriptions and redemptions coming from the various

distributors appointed by a given fund management company in the different countries of

distribution and then routes orders to the target centralising or transfer agents. It acts as a

global hub, facilitating the fund distribution process in a cross-border environment. As the

global TA uses registers, orders can be easily marked.

This model enables fund management companies to export their funds in numerous coun-

tries while benefitting from an efficient order marking process and a centralised view of the

distribution activity all over the world.

Players’ roles & responsibilities for the principal distribution markets

Players shared by both CSD and TA models

Investors

Investors are the parties whose money is invested in funds and who stand to benefit from

the positive performance of that investment. There are two types of investor - retail inves-

tors and institutional investors.

LocaL authorItIes

Local authorities are the regulatory bodies which define the rules for fund distribution play-

ers operating in the domestic market, for example the AMF in France, the BaFin in Germany,

the CBFSAI in Ireland, the CNMV in Spain, the CONSOB in Italy, the CSSF in Luxembourg

or the SFC in Hong Kong. In the framework of the European fund passport, they ensure that

fund distribution complies with the rules in force in the country of distribution. Out of this

framework, they ensure that the product complies with all the rules relating to the distribu-

tion of foreign funds in the country. The local authorities play an important role in initial fund

registration and post-registration processes.

2.2

2.3

2.3.1

The global TA acts as a global hub, facilitating the fund distribution process in a cross-border environment.


Distributorsin country D

Distributorsin country C

Distributorsin country B

Distributorsin country A

Target centralising agentor TA 1



Investors

Fund 1

Investors InvestorsInvestors

Fund 2 Fund 3

GLOBAL TA

2.2

/3

guide_mai_2011-01-06-2011.indd 37 06/06/11 10:57




Fund management company

The fund management company is the financial institution that launches the fund, determines

the investment strategy, appoints the service providers, and makes all major decisions for and

on behalf of the fund. It is responsible for the fund distribution and marketing.

commIssIon caLcuLatIon agent

The commission calculation agent is responsible for the calculation and payment of commis-

sions to distributors. This role is generally held by the fund management company or can be

held by an entity appointed for that purpose (e.g. transfer agent).

Investment manager

The investment manager executes the investment strategy, selects the securities of the portfo-

lio in accordance with the fund objectives, as reflected in the fund prospectus. He or she places

buy and sell orders for securities and other financial products in accordance with the fund’s net

inflows and outflows resulting from subscription and redemption orders.

dIstrIbutor

The distributor promotes the sale of units/shares issued by funds of one or more fund manage-

ment companies to his or her clients and acts as the clients’ agent in the order input/placement

process. The distributor can provide fund information to potential investors and implement or-

der transfer as well as flow of information between the fund and the investors. Distributors

can be remunerated through entry fees and trailer fees. There are several different types of

distributor, such as retail banks, private banks, insurance companies, independent financial

advisors, fund supermarkets, funds of funds, corporates and institutions.

aggregator

An aggregator is either a neutral infrastructure provider such as FundSettle, Vestima+ and

AllFunds, which receives orders from multiple distributors/intermediaries and transmits them

to the relevant transfer agent/registrar, or a distributor/intermediary that collects orders from

multiple clients and places them with the relevant transfer agent/registrar.

custodIan/deposItary banks

The custodian/depository bank safeguards the assets of the fund. The depository therefore has

a supervisory mission, which requires it to be able to monitor how the assets of the fund have

been invested and where there are invested and how they can be accessed.

Icsd (InternatIonaL centraL securIty deposItory)An ICSD is an entity which holds securities and other assets in order that cross-border trans-

actions may be executed for beneficial owners and settled by way of entries on its own books

(e.g.: Clearstream, Euroclear Bank).

LocaL agent

Some countries of distribution such as Austria, Germany, Italy, Singapore and Switzerland

require the fund management company to appoint a local representative and/or local pay-

ing agent. Depending on the country, the role may simply involve transmission of information

to investors, or may cover more complex duties including centralising subscriptions and

redemptions, the payment of investment income, and even the payment of the supervisory

authority’s fees.

guide_mai_2011-01-06-2011.indd 38 06/06/11 10:57




Players specific to the CSD model

FInancIaL IntermedIary (donneur d’ordres)In France, most orders are placed by a financial intermediary, who is the custodian of the

entity (end investor or investment manager, distributor or aggregator) for whom the order

is being placed. The financial intermediary must be a Euroclear France member and is not

required to identify the distributor or investor when placing an order.

centraLIsIng agent

Funds distributed in France must appoint a centralising agent. The centralising agent acts

as a central hub for receipt of subscription and redemption orders sent by financial interme-

diaries, and controls that conditions mentioned in the fund prospectus relating to subscrip-

tions and redemptions are respected. The centralising agent is also in charge of informing

the fund management company, the fund administrator and the fund issuer account keeper

of the total amount and/or number of shares/units collected for each fund. The centralising

agent is therefore equivalent to the transfer agent in countries following the TA model, but

does not maintain a register.

Fund Issuer account keeper (gestIonnaIre du passIF)The fund issuer account keeper is appointed by the fund management company and is often

performed by the same entity as the centralising agent in France.

The role consists of updating the fund account open in its books to reflect the daily unit/shares

subscriptions/redemptions and transfers, as well as reconciling positions with Euroclear

France. The entity is also in charge of subscriptions/redemptions settlement, public and share-

holder information and process concerning corporate actions.

For funds not registered with Euroclear France, the fund issuer account keeper maintains a

nominative shareholder register.

csd (centraL securIty deposItory)A CSD is an entity which holds securities and other assets in order that domestic transactions

may be carried out for beneficial owners and settled by way of entries on its own books (e.g.

Euroclear France).

Players specific to the TA model

transFer agent/regIstrar

The traditional services offered by the transfer agent are maintaining the register, transaction

processing, settlement and shareholder reporting:

• Updating fund accounts to reflect the daily unit sales and redemptions, switches, transfers

and changes of registrations,

• Ensuring prompt settlement of orders and provision of tax information to the investor and its

intermediaries,

• Calculation and payment of commissions,

• Preparation and sending of order confirmations and the resulting cash account statements to

the investor or its intermediary,

• Responding to requests concerning securities account holdings and undertaking a control

function,

• Executing payments.

2.3.2

2.3.3

As the fund industry is shaping itself as a global distribution model, in addition to the traditional services, the transfer agent is required to provide other added-value services.

2.3

guide_mai_2011-01-06-2011.indd 39 06/06/11 10:57

Nevertheless, as the fund industry is moving toward a global distribution model, in addition to

the traditional services, the transfer agent is required to provide other added-value services

such as maintaining investor holdings data across complex distribution networks and trailer fee

calculation based on consolidated holdings (see global TA model).




Today, despite harmonisation initiatives, the cross-border funds landscape is suffering from

a high level of fragmentation at both trading and post-trading levels. In the transaction value

chain, fund processing by EU Member States has evolved in a manner that best serves the

needs of the domestic markets. As a result, there are significant national differences in

fund processing procedures across the EU, and two competitive models have emerged: the

CSD model and the TA model. A third model, called global TA model, is increasingly used for

cross-border fund distribution. It notably enables French funds to be successfully distributed

abroad and remedy to the absence of register in the French CSD model.

Some of the differences between the various models create barriers to efficient cross-

border order routing, settlement and custody to the extent that they generate additional

risks and costs for investors operating in more than one market. Furthermore, the diversity of

national regulations within Europe adds another layer of complexity to the process of cross-

border fund distribution despite an on-going harmonisation.

guide_mai_2011-01-06-2011.indd 40 06/06/11 10:57

CHALLENGES& OPPORTUNITIES



CHALLENGES & OPPORTUNITIES

The 1985 UCITS Directive, also known as UCITS I, introduced the European fund passport con-

cept, which allows a fund domiciled in one European jurisdiction to be marketed in all other EU

jurisdictions, provided that the notification requirements mentioned in the Directive are fulfilled.

However, the drive toward a UCITS single market in Europe is not yet over and while a signifi-

cant journey has been completed, notably with the simplified notification procedure introduced

by UCITS IV, further work needs to be done to remove all the remaining barriers in a growing

cross-border fund distribution environment, in particular in terms of taxation.

The following table sums up the major challenges faced by management companies to market

their funds beyond borders:

Table 4: Major issues faced by asset managers distributing their funds cross-border


Registration requirements for foreign funds

Today when an asset manager seeks to market funds to investors in other countries, each fund

or sub-fund must be registered for sale with the national regulator of that country, except for

private placement.

So far, this process could be extremely time-consuming, costly and difficult, as asset man-

agers had to comply with a range of requirements such as transmission of numerous docu-

ments (original and/or self-certified) often translated to the local language, appointment of local

agents and payment of fees, etc., differing from one country to another. In Italy for example, two

parallel registrations had to be carried out: One addressed to the CONSOB and the other to the

Banca d’Italia. The significant differences in time and cost of registration between countries

made it difficult for management companies to launch funds simultaneously across different

markets.

Table 5 provides a comparison of these various local distribution requirements, lead times and

fees as at January 2011 for the initial registration of a foreign fund in the top 7 target markets,

namely Germany, Austria, Switzerland, the Netherlands, Spain, the United Kingdom and France

(please refer to graph 15).

3.

3.1

3.1.1

Notice

Through its registration and post-registration services, CACEIS can assist you in meeting all the administrative and regulatory requirements faced when distributing internationally.

3.1


Country approval requirements

Maintaining registration

Taxation issuesTaxation of funds and investors

Various fiscal requirements

Information referencing issueDifficulties to access information on a cross-border basis

Difficulties to access updated and reliable information

Operational workflowManual processes

Lack of standardisation

Distribution agreements and trailer fee management

Lack of standardisation of distribution agreements

Increasing complexity of distribution networks


guide_mai_2011-01-06-2011.indd 41 06/06/11 10:57




Table 5: Comparison of registration requirements in the top 7 target countries

as at January 2011

Please note that some information may be no longer valid from 1st July 2011, depending on the transposition of

the UCITS IV Directive in each Member State

Information requirementat first registration

Translationrequirement

in locallanguage

Timing to obtain

initial regist.

Local agent requirement

Initial registration & annual fees

Germany

• Latest full & simplified prospectus with visa stamp, self-certified• UCITS Certificate, self-certified• Latest constitutional documents, self-certified• Original confirmation of credit institution acting asInformation/Paying Agent• Copy of latest annual & semi-annual reports• Original of POA/mandate for submission of notification by 3rd party• Proof of fees payment• Original of notification form (including marketing and distribution arrangements in Germany)• Additional information for Shareholders as internal part of the German language full & simplified prospectus

All documents to be submitted in the original

language + in German

(except UCITS certificate and

notification form accepted in

English)

Max 2 months

Paying Agent (“Zahlstelle”) andInformationAgent (“Informa-tionsstelle”)

• Initial reg.: EUR 1,500 for a single-fund structure or for each sub-fund

• Annual fee: EUR 500 for a single-fund structure or for each sub-fund

Austria

• Latest full & simplified prospectus with visa stamp, self-certified• UCITS Certificate, self-certified• Latest constitutional documents, self-certified• Original confirmation of credit institution acting as Paying Agent• Copy of latest annual & semi-annual reports• Original of POA/mandate for submission of notification by 3rd party• Copy of proof of fees payment• Original of notification form (incl. marketing and distribution arrangements in Austria)• Additional information for Shareholders as integral part of the German language full prospectus

All documents to be submitted in the original

language + in German

(except UCITS certificate and

notification form accepted in

English)

Within 2-4 weeks

Paying Agent (“Zahlstelle”) and InformationAgent (“Informa-tionsstelle”)

• Initial reg.: EUR 1,100 per structure• Launch of new sub-funds: EUR 220

per sub-fund• Annual fee: EUR 600 per structure

(additional fee of EUR 200 for each sub-fund starting from the 2nd sub-fund)

Switzerland

• Latest Swiss version of full & simplified prospectus signed by custodian, Swiss representative & management company/fund• Original of UCITS Certificate• Copy of the articles of incorporation (SICAV) or management regulations (FCP) signed by the Fund/ManCo• Signed copy of Representative & Paying Agent Agreement• Mandate to the Lawyers (if appointed)• Latest annual and semi-annual reports

Yes, all documents must

be submitted in one of

the official languages

(French, German or Italian)

2 to 6 months

LocalrepresentativeandLocal Paying Agent

• Initial reg.: CHF 2,000 to 20,000 per structure depending on the time spent by the FINMA’s agent

• Approval of changes made to prospectus: CHF 1,000 to 10,000 depending on the time spent by the FINMA’s agent

• Annual fee: “Taxe de surveillance” (CHF 1,250 for the funds without sub-funds, CHF 1,250 for the first sub-fund of an umbrella-fund and CHF 750 for each subsequent fund) + “Taxe d’assujetissement” (CHF 1,000 per structure and CHF 500 for the first sub-fund and each additional sub-fund) - Total of annual fees = Max CHF 20,000

Netherlands

• Latest full & simplified prospectus with visa stamp• Latest articles of incorporation• UCITS Certificate• Latest annual & semi-annual reports (if available)• Explanation of the envisaged manner of providing information, of marketing units, of paying out distribution on units and of the repurchasing or redemption of units in the Netherlands• Application form for a Collective Investment Scheme with a European passport

All documents can be

submitted in English or in

Dutch, except the simplified prospectus which shall always be

translated into Dutch

Max 2 months

None

• Initial reg.: EUR 2,350 per structure• No fee for the subsequent

registration of additional sub-funds• No annual fee

guide_mai_2011-01-06-2011.indd 42 06/06/11 10:57




Information requirementat first registration

Translationrequirement

in locallanguage

Timing to obtain

initial regist.

Local agent requirement

Initial registration & annual fees

Spain

• Original version of latest full & simplified prospectus with visa stamp• Original version of latest UCITS Certificate• Self-certified notarised copy of latest articles of incorporation• Copy of latest annual & semi-annual reports• Appointment by the fund or the management company of a contact person with CNMV to act as representative of the fund in order to submit the information by means of CIFRADOC system• Appointment of a contact person among the Spanish distributors for the tax and statistical reporting

All documents to be submitted in the original language + in

Spanish exceptfor the UCITS

certificate (sworn

translation)

Max 2 months

One distribu-tor must be designated to act as repre-sentative of the fund

• Initial reg.: 0.14‰ on the volume estimated to be commercialised in Spain subject to minimum fees as determined by the CNMV (EUR 1,760.21 in 2011)

• No annual fee

UK

• Self-certified copy of latest full & simplified prospectus with visa stamp• Self-certified copy of UCITS Certificate• Self-certified copy of latest constitutional documents• Self-certified copy of latest annual & semi-annual reports• Signed notification letter• FSA reference number of the distributor• Additional information for UK investors

All documents to be submitted in the original language + in

English

Max 2months

UK Repre-sentative and Paying Agent

• Initial reg.: GBP 600 per single UCITS and GBP 1,200 per umbrella structure

• Annual fee: GBP 560 for 1-2 sub-funds GBP 1,400 for 3-6 sub-funds GBP 2,800 for 7-15 sub-funds GBP 6,160 for 16-50 sub-funds GBP 12,320 for >50 sub-funds

France

• Latest full & simplified prospectus with visa stamp• UCITS Certificate• Copy of constitutional documents• Latest annual & semi-annual reports• Proof of fees payment• Additional information/Addendum for Shareholders• Details of UCITS (Annex III-A part A)• Details of marketing arrangements (Annex III-A part B)• Annex III-C• Copy of Centralising Agent agreement

YesMax 2months

CentralisingAgent

• Annual fee: EUR 2,000 for each sub-fund

As at 1st July 2011, funds will still require host country approval to be distributed cross-border

according to Article 93 of the recast UCITS Directive but UCITS IV will introduce a simplified

notification procedure, designed to increase cross-border registration efficiency, streamline

the cross-border authorisation process across EU Member States and provide a shorter time

to market, from 2 months to 10 working days. However, it should be noted that asset managers

will still have to comply with local marketing and distribution laws in the host Member State.

As such, they might have to cope with various local distribution requirements if they intend to

market their funds in several countries in Europe: Mandatory translation of KIIDs (Key Inves-

tor Information Documents) into the language(s) of each country of distribution, appointment

of local agents in some countries of distribution, payment of annual fees for registration, etc.

As distribution spreads beyond Europe, the issue of fund registration is even more complex;

The demand from Asia and Latin America remains extensively constrained by local regula-

tions. Thus, Asian investors buying Luxembourg or Ireland domiciled funds are mainly located

in Singapore, Hong Kong and Taiwan while Latin American investors are mainly located in Chile


3.1

As at 1st July 2011, the UCITS IV Directive should considerably streamline the notification process for cross-border fund sales in the European Union and reduce costs and marketing delays for asset managers.

guide_mai_2011-01-06-2011.indd 43 06/06/11 10:57




and Peru. Many countries still maintain their borders closed to foreign-domiciled funds, such

as China, India, Indonesia or Brazil.

Even in hospitable countries, distribution of foreign funds, including UCITS, is not that simple.

Asia is a fragmented market where each jurisdiction has a different investment fund regulatory

and tax regime, culture, language, industry stage and the cross-regional relationship amongst

local regulators is complex. There the challenge comes in dealing with different rapidly evolving

regulations and registration process (often involving translation requirements in local language

of disclosure documents and long lead times to obtain a license) in each separate jurisdiction.

• As an illustration, one of the main complaints among asset managers wishing to register their

UCITS funds for distribution in Hong Kong is the lack of a clear timeline for the regulatory ap-

proval. Furthermore, the Hong Kong regulatory authority has recently introduced new require-

ments for funds authorised for distribution in Hong Kong and reformed existing Securities and

Futures Commission (SFC) codes regarding unit trusts, mutual funds and investment-linked

assurance schemes. Overall, these initiatives coincide with a global trend towards a more

stringent regulatory approach to ensure greater investor protection as pursued also in the US

and European jurisdictions30. Consequently, asset managers must now provide a Key Facts

Statement (KFS) for structured products distributed to retail investors in Hong Kong, similar to

the European UCITS Key Investor Information Document (KIID) introduced by UCITS IV as at

1st July 2011. Therefore UCITS funds distributed in Hong Kong will have to produce two sets

of documents (the KFS and the KIID). The situation is similar in Singapore, where both the

Product Highlight Sheet (PHS) and the KIID will be required.

• With regard to Taiwan, a partnership with a master agent is required to do business there. The

Taiwanese regulator has put in place further administrative measures which make it more

difficult to sell foreign funds and registration can take a long time. Increased reporting require-

ments, together with demand for product information and market advice has added strain to

budgets31.

3.1.2 Post-registration requirements

Once registration has been obtained, another key issue is to maintain the registered status

in the various countries of distribution. Asset managers have to cope with financial report-

ing, statistical reporting and publication requirements, with specific formats and translation

requirements differing from one country to another. The post-registration duties can be very

cumbersome and time-consuming.

Again, table 6 provides a comparison of the various post-registration duties for foreign funds in

the top 7 target markets as at January 2011. It should be noted that UCITS IV has no impact on

these post-registration requirements.

In all EU countries, updated prospectus and UCITS certificates must also be transmitted to the

local authorities to maintain registered status.

3.1

30Source: Citi, “Key regulatory reforms for asset managers”, January 201131Source: Ignites Asia, “Managers confront stalled flows, rising costs”, 29 March 2011

guide_mai_2011-01-06-2011.indd 44 06/06/11 10:57




Table 6: Comparison of post-registration requirements in the top 7 target countries

3.1


Financial ReportingStatisticalReporting

Publication Requirements

Germany

Annual & Semi-annual reports (1 copy of the original report + 1 translation in German) must be submitted to the BaFin twice a year, with the inclusion of the German paying and information agent

No statistical reporting obligations imposed on foreign funds

• NAV: The law requires publication of NAV to be done according to the laws and regulations of the home country of the fund, but in German. The BaFin’s regulations (Merkblatt 2008) state that it is sufficient that the NAV publication toward German investors is made via electronic information media, e.g. website (therefore it is no longer mandatory to publish NAV in a German newspaper). Other appropriate publication media are: German newspaper, individual letter to German investors, Electronic Federal Gazette.

• Shareholder information: The law states that all information and documentation that the EU Home State requires to be published must be published in German. The manner in which such publications are to be done is according to the rules in force in the EU Home State. However, in their regulations (Merkblatt 2008) the BaFin states that notifications to shareholders are required to be published in an appropriate publication medium, explicitly stated as acceptable by the BaFin are the following: German newspaper, individual letter to German investors, Electronic Federal Gazette (publication in electronic information media is not acceptable).

Austria

Annual & Semi-annual reports in German must be submitted twice a year to the FMA, with the name of the local representative/paying agent (market practice)

No statistical reporting obligations imposed on foreign funds

• NAV: Publication requirement identical to the requirements in the home country of the fund.

• Shareholder information: Publication requirements identical to the requirements in the home country of the fund.

Switzerland

Annual & Semi-annual reports in French, German or Italian – with additional requirements to those in force in the home country - must be submitted twice a year by the local representative

Statistical reporting obligations imposed on foreign funds suspended since 31/12/07

• NAV: The fund management company shall publish jointly the issue & redemption prices every time shares are issued or repurchased and at least twice a month in daily newspaper(s) or in electronic platform(s) mentioned in the prospectus.

• Shareholder information: Foreign UCITS shall comply with the same publication obligations in Switzerland, with the same frequency and in the same number of publications as prescripted by the law of the country of origin of the UCITS.

Netherlands

Annual & Semi-annual reports shall be made available to the investors. Access to these documents through the fund’s website is acceptable.

No statistical reporting required• Shareholder information: Publications shall be made in the same way as what is made in

the home country, in English or in Dutch.

Spain

Annual & Semi-annual reports in Spanish (sworn translation) must be made available for consultation and should be kept at the fund’s representative (must be supplied to CNMV upon request only).

Each distributur must report statistical information electronicaly via CIFRADOC to the CNMV on a quaterly basis.

• NAV: At least one of the fund distributors/the representative or the management company must make available for consultation the NAVs corresponding to the shares marketed in Spain via electronic means.

• Shareholder information: All events of which investors in the original country are notified have to be communicated to the investors in Spain at the same time and in the same format.

UK

Annual & Semi-annual reports must be submitted by email to the FSA and to be made available to shareholders in English at the UK representative and paying agent.

No statistical reporting required

• NAV: Has to be published in UK in a manner which is disclosed in the UCITS’s prospectus (e.g. national newspaper, internet, mail to the existing unitholders).

• Shareholder information: Publications shall be done in accordance with the rules in force in the UCITS’s EU home country.

France

Annual & Semi-annual reports must be submitted to the AMF twice a year (copy of the originals + reports translated in French) with no additional requirements to those in force in the home country.

Information on NAV of the fund at the end of the period, volume of units sold to investors in France and gross subscriptions during the period must be transmitted to the AMF twice a year by the centralising agent.

• Shareholder information: Foreign UCITS shall comply with the same publication obligations in France, with the same frequency and in the same number of publications as prescribed by the law of the UCITS country of origin.

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guide_mai_2011-01-06-2011.indd 46 06/06/11 10:57




Taxation issues

Luxembourg and Irish tax regimes are viewed more favourably than many other jurisdictions

across most fund types. However, taxation remains a major issue for cross-border fund distri-

bution due to the existence of multiple taxation regimes for investment funds and investors. As

the European Commission stated in its Green Paper published in July 2005 on ”the enhance-

ment of the EU framework for investment funds”, “tax constraints often generate additional ad-

ministrative requirements and are powerful financial disincentives”. In Asia as well, each juris-

diction has developed its own tax requirements. Taxation of foreign funds, taxation of residents

investing in funds domiciled abroad and various fiscal requirements depending on jurisdictions

are significant factors asset managers must consider before marketing a fund cross-border,

via public distribution or private placement. The main taxation issues are described hereafter.

Taxation of funds and investors

Depending on the country of domiciliation, funds can be subject to taxation of income/capital

gains, withholding taxes on income received and/or other taxation (e.g. composition duty in

Luxembourg). With regard to unit-holders/investors, they may be subject to taxation on income/

capital gains realised. Within a country, several tax regimes can apply depending on the status

of the unit-holder/investor (resident or non-resident) and depending on the domiciliation of the

fund (domestic or foreign fund) in which investments are made.

While in Europe major tax discrimination measures against foreign funds and residents invest-

ing in non-resident funds have progressively been abolished under pressure from the European

Commission and the European Court of Justice (as an example, since January 2005 the PEA

regime in France allows investors to hold foreign funds), outside Europe many countries still

have tax regimes in place which favour domestic funds, such as in South Korea where a tax

barrier penalises foreign funds against local products.

Within the European Union, even though there is still a way to go before the net revenue of the

various investments made by UCITS is equal everywhere, taxation of UCITS is today basically

identical whether UCITS are marketed domestically or on a cross-border basis. However, you

should not ignore that a number of EU Member States have legislated for foreign UCITS to

provide tax reporting in order to benefit from the same taxation as domestic UCITS. Thus, in

countries such as Germany and Austria, foreign funds will have to obtain a specific tax status to

be attractive to local investors (“fully transparent” status in Germany, “white” or “extra-white”

status in Austria). Hence the ability of the fund to calculate the relevant figures, such as the

publication at each NAV date of the “Aktiengewinn” (equity gain), “Zwischengewinn” (interim

profit) and “Immobiliengewinn” (real estate profit) in Germany for fully transparent funds, and

deliver the relevant tax information to investors via financial data providers and financial news-

papers is crucial to avoid huge taxation of investors. To get the preferential tax treatment, the

tax information delivered may be certified to ensure that the determination of the published data

is compliant with the local tax requirements. Again, the need to comply with these local rules

imposes an additional cost and administrative burden on funds distributed in these countries.

In terms of taxation, another constraint lies in the EU Savings Directive application, implement-

ed in July 2005. Indeed, UCITS (and a lot of other savings products) are covered by this Direc-

tive, which requires paying agents making cross-border interest payments to EU individuals to

obtain and verify certain information about those individuals and either to report information

about the interest payments to their domestic tax authorities (among jurisdictions committed

to the exchange of information are Denmark, France, Germany, Italy, the Netherlands, Spain

3.2

3.2.1

Tax constraints often generate additional administrative requirements and are powerful financial disincentives.

Notice

Through its post-registration services, CACEIS can ensure you that all tax obligations are satisfied when distributing internationally.


3.2

guide_mai_2011-01-06-2011.indd 47 06/06/11 10:57




and Belgium) or levy withholding taxes (among jurisdictions committed to withholding tax are

Austria, Belgium, Luxembourg and Switzerland). In this framework, a Taxable Income per Share

(TIS), corresponding to the taxable value of each share for EUSD purposes in the event of a sale

or redemption payment, and a Taxable Income at Distribution (TID), corresponding to the tax-

able portion of each distribution for EU Savings Directive purposes, will have to be calculated

and published via financial data providers or local financial newspapers when foreign funds

are distributed to individuals in Austria, Luxembourg or Switzerland. The EU Savings Directive

application proves particularly burdensome for UCITS as fund management companies are re-

sponsible for accurate TIS and TID calculations for the various jurisdictions.

Future tax changes should be carefully watched, in particular the US Foreign Account Tax

Compliance Act (FATCA), with which asset managers will have to comply by the start of 2013.

FATCA is designed to force foreign financial institutions – including investment funds and hedge

funds - which engage in business in the United States, to enter into agreements with the US

tax authority (IRS) to identify and report on US taxpayers annually. It will therefore generate ad-

ditional tax reporting constraints. All intermediaries that distribute funds will need to be FATCA

compliant or the funds themselves will face 30 per cent tax32.

Tax representative appointment and reporting to local fiscal authorities

Finally, in some countries foreign funds may have to face additional and onerous administrative

requirements such as the mandatory appointment of a tax representative and/or reporting to

local fiscal authorities. These requirements are listed below for the top 7 target markets as at

January 2011:

Table 7: Fiscal requirements for the top 7 target markets

3.2.2

32Source: Ignites Europe, “US rules big issue for European managers”, 20 September 2010

Countryof distribution

Fiscal representative requirement Local tax authority’s reporting requirements

Germany No

For fully and partly transparent funds, publication of:• the annual Deemed Distributed Income with certification of Certified Public Accountant

(CPA) or tax consultant within 4 months following the fiscal year end;• the Dividend Distributed Income with certification of CPA or tax consultant within 4 months

following the fiscal year end.

Austria Yes unless “black funds” status For white and extra-white funds, submission of the annual Deemed Distribution Income.

Switzerland NoFinancial reporting submission to Banque Nationale Suisse.The fund has to report details of the amount and description of income accumulated using equalisation, for inclusion in the annual accounts.

Netherlands No No tax reporting required

Spain

One distributor must be deisignated to act as representative of the fund and will be responsible for submitting the required information to the CNMV.

Fiscal reporting at fund level to apply the roll-over relief for income tax (IRPF).

UK NoIn order to achieve maximum tax efficiency, UCITS distributed to retail investors in UK should benefit from the “UK fund reporting regime”.

France No No tax reporting required


guide_mai_2011-01-06-2011.indd 48 06/06/11 10:57





The lack of a pan-European fund database penalises cross-border distribution

In the context of cross-border fund distribution, access to reliable and updated informa-

tion is a key factor in the success of controlling operational risk relating to execution and

settlement of subscription and redemption orders. Indeed, these funds have often different

characteristics (dealing frequency, NAV frequency, pricing, settlement details, cut off times

etc.) that require careful attention before placing an order.

To date, unfortunately, it is very difficult to obtain in a relatively easy way operational infor-

mation on the various products which can be the object of a cross-border public distribution

as there is no pan-European fund database and the existing fund databases are deficient;

Most of them give only access to fund prospectus consultation and not to the information

necessary to place and process orders correctly.

Hence, fund trade processing tends to be more complex when clients want to purchase

third-party funds, especially when they are domiciled abroad.

The Fund Processing Passport, an EFAMA initiative

In light of this, the concept of a Fund Processing Passport (FPP) was developed by EFAMA’s

Fund Processing Standardisation Group (FPSG) in 2007-2008 and was drawn up from the

viewpoint of all relevant professional players involved in the operational aspects of invest-

ment funds distribution: Investor intermediaries, distributors, distribution platforms, fund

management companies and their service providers (transfer agents/registrars, fund ac-

counting agents, trustees, custodians, portfolio managers).

objectIve, content and InItIaL prIncIpLes

The FPP is a short, single and fully harmonised document made of 105 standard fields which

aims at solving the information problems faced by banks, other distributors and their serv-

ices providers when processing third-party fund transactions, by providing them, at class

level, with all the information required to initiate and process orders correctly, such as con-

tact details of a local fund order desk in a given country, cut off time, currency, order forms

required, etc.

Each FPP is composed of a “core data” section describing the most common arrangements

handled by the “main fund order desk” in the fund home market and of annexes describing

the country-specific information concerning the dealing/settlement arrangements for other

markets where the class of unit/share is also distributed.

The FPP initial principles defined by EFAMA are presented hereafter:

3.3

3.3.1

3.3.2

The FPP aims at solving the information problems faced by banks, other distributors and their services providers when processing third-party fund transactions.Despite its many advantages, a few years after its launch, the FPP concept is still far from being an operational reality within the investment fund industry. 3

.3

guide_mai_2011-01-06-2011.indd 49 06/06/11 10:57




Graph 21: FPP initial principles

beneFIts For Fund managers and Fund dIstrIbutors

Concurrently, the FPP helps fund managers servicing a wide-ranging client base or striving to

distribute their funds more broadly, to address in a cost-effective way the numerous informa-

tion requests they typically face from investors and fund distributors interested in their funds.

The FPP benefits for fund managers and fund distributors can be summed up as follows:

Table 8: FPP benefits for fund managers and fund distributors

a concept stILL Far From beIng an operatIonaL reaLIty More than two years after the launch of the FPP, even though it is widely recognised that such

a standard is useful and brings many benefits (information communicated electronically, less

time spent collecting information, reduced operational risks, faster order processing), one has

to admit that in practice its development in Europe has been less successful than expected. At

the time of writing, the common format for fund processing data defined by EFAMA is progres-

sively being rolled out but with a relatively slow uptake.

Fund manager

FPP service provider

Single European FPPdirectory/database

Single local golden copy FPPrepository operated by a « repository administrator »

4 INITIAL PRINCIPLES1 - AccountabilityFund managers initiate the process, possibly with the help of a service provider,and guarantee the FPP content accuracy2 - FlexibilityNo one size fits all solution3 - CentralisationIdeally FPP should be collected in one single and central access point at national and European level4 - StandardisationFPP content should be distributed through automated standardised feed

Source: EFAMA, 2007

FPP benefits for fund managers FPP benefits for fund distributors

• Allows fund managers to deliver higher quality service

• Speeds up the order processing• Drives down processing costs• Provides a ready-made solution for addressing

distributors’ queries about funds• Opens the way to electronic communications

of operational information about funds• Facilitates order placement, thereby

satisfying customer needs and enhancing their loyalty

• Reduces redundant checks• Reduces processing transactions delays• Reduces errors in executing orders• Ultimately reduces cost

Source: EFAMA, 2007

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Nevertheless, it should be pointed out that last year two initiatives relaunched the concept of

the FPP to facilitate cross-border fund distribution:

• On 28 June 2010, EFAMA announced the launch of a pan-European web portal on its web-

site33, providing a central access point for all existing FPPs in order to facilitate their use.

The end objective was to make the use of the FPP more widespread among all professional

players involved in the fund processing procedure, in particular distributors, fund platforms,

asset management companies and their service providers. The existing FPPs are made

available by fund managers, national associations and the so-called FPP Primary Providers,

i.e. Finesti, France FPP (AFG), FundConnect, KNEIP, OeKB and WM Datenservice, with whom

fund managers have special arrangements for the distribution, and possibly the distribution,

of their FPPs. At December 2010, the EFAMA’s FPP portal was given access to 4,318 FPPs

from 69 asset managers34.

• In addition, in France, the final report of the asset management stakeholders’ committee

entitled “Implementation into French law of the UCITS IV Directive: Situation and Outlook

for Asset Management”, published by the AMF on 26 July 2010, suggested that it should be

compulsory to provide an FPP for all French UCITS seeking to be distributed internation-

ally - the first step towards the creation of a product reference system over the long term.

Furthermore, the committee encouraged asset management companies to use the web

portal set up by the AFG in order to make their completed FPPs available to distributors.

Notice

A firm believer in the FPP’s usefulness for improving and standardising the information required for order processing in an increasingly open environment, CACEIS has supported this initiative since the beginning and has actively participated in working groups in France and Luxembourg. Furthermore, since 2008, within the framework of its support services offer for fund distributors, CACEIS in Paris has offered its services to asset management companies for the collection and management of FPP data concerning their UCITS, although the validation and publication of this data remain their responsibility.

3.3

33http://fpp.efama.org34Source: EFAMA, “FPP Portal briefing Q1 2011”, Q1 2011

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guide_mai_2011-01-06-2011.indd 52 06/06/11 10:57





The inefficiencies of fund processing are obviously more apparent in a cross-border fund dis-

tribution context.

The importance of a global approach to fund processing remains as high as ever. If standards

such as SWIFT ISO 20022 are progressively being rolled out for order execution, standardisa-

tion remains insufficient in settlement, asset servicing and commission handling.

The growth in cross-border business and open/guided architecture tends to exac-

erbate operational complexity

As a custodian and/or administrator of UCITS product, the challenge was previously more lim-

ited to supporting managers residing in various countries but in broadly similar time zones. As

products have become increasingly distributed on a global basis – in particular in Asia, in Latin

America and in the wider EMEA region -, a more sophisticated approach is required to service

both managers and distributors, as well as investors, stretching from the start of the Asian day

to the end of the American day.

Cultural differences and in particular the local service quality culture in Asia should not be ne-

glected. Language differences also need to be considered for both reporting, data aggregation

and client servicing aspects, including integration with existing IT infrastructure.

Fund distribution support is now a complex activity, which may require operational teams lo-

cated in the region of distribution, especially in Asia. Indeed, local employees, in the same time

zone and with the industry knowledge and understanding of local cultural issues, play a key role

in servicing local distributors and investors.

Besides, beyond the worldwide commercial success of UCITS - which emerges as a global and

top quality brand in the universe of savings products - the fund industry keeps on suffering from

operational inefficiencies (manual processes, lack of standardisation, etc.) and risk exposure

in its trading, settlement and custody processes.

One should keep in mind that signing agreements is one thing but processing successfully

operations is another. More than ever, one of the key challenges facing the fund industry is

automation of fund related transactions. Unlike other asset classes such as stocks and bonds

which rely on electronic tools, the fund industry still widely uses faxes and telephone calls to

communicate.

As a result, transfer agents in Luxembourg and Ireland have to manually re-key many orders

and other data, which generates costs, risks, lowers service levels and makes the market less

efficient.

The importance of open/guided architecture also exacerbates the ensuing operational costs

for industry players and investors. Due to the structure of the industry today, there are mul-

tiple relationships between distributors and their transfer agencies, each relationship being

technically different and expensive to manage and maintain. The graph below illustrates these

numerous relationships:

3.4

3.4.1

3.4

Unlike other asset classes such as stocks and bonds which rely on electronic tools, the fund industry still widely uses faxes and telephone calls to communicate.

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Graph 22: Operational challenges of third-party distribution

In 2007, Deloitte conducted a study on cross-border fund distribution in Europe35, which found

that the overall level of straight-through processing (STP) in the industry was as low as 47

percent and that manual processing for one non-STP transaction took, on average, 10 minutes.

In Asia STP levels are much lower, with less than 12 percent of STP rate today. Fax remains the

most common mode of communication there. This can be explained by several factors:

• The low appetite of distributors for automation; Fund distribution in the region is controlled

by retail banks, which are driven by commission and trailer fees and think that the benefits of

automation are greater for transfer agents and fund managers than for them;

• The culture of the paper;

• Relatively cheap labour cost (although the labour cost is rapidly increasing in some Asian

countries), which make manual labour more profitable than investments in technology.

Therefore, as trade volumes from Asia have exploded, the processing and operational chal-

lenges also mount, all the more as the region remains a very fragmented market with different

languages, currencies and payment systems that makes it difficult to put standardised proc-

esses in place across the region.

Manual processes and lack of standardisation in communication processes are obviously ex-

pensive for industry players and investors. The Deloitte study mentioned above looked at the

number of errors and found that 0.11% of transactions led to an error, resulting in financial

compensation averaging about EUR 1,000. According to the report, if the fund industry would

go 100% STP, it would save up to EUR 307 million each year - on a total of EUR 1 billion of total

processing costs - representing 30% of savings, for cross-border fund distribution in the Lux-

embourg and Irish industries. In the first quarter 2008, within the framework of a market con-

sultation on SWIFT Alliance LITE specifications for funds (see § 3.4.2.2), SWIFT also calculated

estimated costs of non automated fund processes in Europe and in Asia, making the distinction

between manual processing with and without fax server: SWIFT conclusions were that when

no fax server is used, the manual cost is double in Europe as in Asia. SWIFT also outlined that

fax server is not a cheap solution; As an example, for a distributor with 10 orders a day, they

estimated the annual cost of order processing with fax server in Europe at a total cost of EUR

76,000.00 (with direct cost estimated at EUR 19,000.00)36.

3.3

FRONT-END SERVICES BACK-END SERVICES

BROKER

CUSTODIAN

IFA/CONSOLIDATOR

SUPERMARKET

BANK BRANCH

Institutional Investors

PrivateInvestors

TRANSFER AGENT/CENTRALISING AGENT





FUND CUSTODYFUND ACCOUNTING





AUTOMATE PROCESS AUTOMATE PROCESS

RisksService levels

Operating costs

MANUAL PROCESS


Manual processes and lack of standardisation of communication processes are obviously expensive for industry players and investors.

Notice

CACEIS reaches an average STP rate of 84.96% on its

transfer agent and Prime TA® OGS & Mirroring activities

in 2011.

35Source: Deloitte, “Cross-border fund distribution in Europe”, September 200736Source: SWIFT, “Funds automation for low volume users - Lite”, February 2008

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Various initiatives have emerged to increase automation and standardisation

In the past years, various initiatives have been taken by market place groups, SWIFT, ICSDs and

other players such as transfer agents to automate processes so that the fund industry can cope

with the massive increase in dealing volumes and operational risks reduction requirements. Im-

proved response times and standardised interfaces also result in enhanced services.

The key drivers and benefits of automation can be summed up as follows:

Table 9: Key drivers and benefits of automation

The rationalisation of fund processing involves numerous actors, processes and components,

as illustrated by graph 23:

Graph 23: Actors, processes and components at stake for streamlining fund processing

Much has been achieved already but more can be done and the efforts must continue. In-

deed, only when the necessary changes are implemented by all industry players, will the

benefits truly be delivered to the market as a whole.

3.4.2

3.4

Source: SWIFT, 2008

Key drivers Benefits

• Improve risk control• Improve customer service and satisfaction• Improve scalability and processing speed• Improve corporate image• Improve corporate IT infrastructure• Reduce manual labour & improve

cost efficiency

• Guaranteed delivery (e.g. missing fax/page)• Reduce human errors (e.g. mistyping, blurred fax)• Audit trail• More flexible dealing window (cut-off times extension)• Detailed reporting allowing efficient reconciliation• 24/7 system availability• Reduce administration time & error handling time• Reduce manual faxing & administration cost/risk• Allow labour flexibility & improve efficiency

Management companies

Other fund promoters

Account opening

Pricing

Settlement&

custody

Transfer agents

Routing

Personnel

Trading

Risk

Distributors

Technology

ACTO

RSPR

OCES

SES

COM

PON

ENTS

Source: SWIFT, 2008

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Market place groups’ initiatives

Among the market place groups actively working for more automation and standardisation in

the fund industry in Europe and Asia, we can quote the following initiatives:

• For several years, standardisation and automation of fund processing have been at the top of

EFAMA’s agenda; The Fund Processing Standardisation Group (FPSG) established in 2003 to

identify obstacles to efficiency in back-office procedures and to outline possible actions for

removing them is still very active, as previously seen in the “Information referencing issue”

chapter with the Fund Processing Passport. EFAMA’s FSPG has focused upon practical rec-

ommendations on fund processing since its inception and the latest version of its report37 re-

leased in March 2011 was once again in this spirit. EFAMA disseminates its recommendations

at national levels through domestic associations. EFAMA, in association with SWIFT, is now

regularly publishing data obtained from the Irish and Luxembourg markets38 to illustrate the

growth in automation of fund order processing and the adoption of ISO standards in that field.

• The TA Forum Steering Committee (TASC), an ALFI subcommittee, liaises with the Luxembourg

TA & Distribution Forum, a neutral discussion platform and sounding board, bringing together

industry participants to share experiences and discuss issues related to fund distribution op-

erations. It aims at building a bridge between fund distributors and Luxembourg’s operational

community, focusing on fund administration services, particularly the transfer agent as a key

partner to support and enhance the global fund distribution of Luxembourg domiciled funds.

Its main objective is to enhance the ease of doing business with Luxembourg domiciled prod-

ucts from a global cross-border distribution perspective.

• A EUROFI working group of fund industry representatives has made complementary propos-

als to accelerate the automation and standardisation of cross-border fund order execution,

settlement and commissions tracking at an EU level: Setting up automated notification and

authorisation processes, optimising processes to access and maintain key prospectus and

processing data, standardising settlement deadlines, implementing industry-wide incentives

to encourage small and medium sized distributors to adopt automated order input solutions,

developing commonly agreed distributor codification at the right level of granularity, encour-

aging further standardisation of legal terms and formats of distributor agreements. Evolutions

in some existing practices of CSDs and in the risk monitoring and position keeping processes

of some fund agents were also proposed to facilitate the handling of an increasing number of

third-party cross-border orders with increasing amounts.

• In France, the French Association of Asset Managers (AFG) and the French Association of

Custodians (AFTI) have also been working together on this issue since a few years, issu-

ing recommendations to enhance the whole fund order process. Furthermore, in July 2010

the AMF French regulator published a final report39 of the asset management stakeholders’

committee including recommendations to favour the cross-border distribution of French

funds, in particular:

> Give distributors, investors (especially foreign investors) and order collectors access to

3.4.2.1

Notice

CACEIS supports the efforts of the fund industry

to move toward greater standardisation, harmonisation

and automation and actively participates in various market

place groups in Luxembourg and France:

> FPSG (EFAMA),> TASC (ALFI),

> EUROFI Group,> ISSA Fund Working Group,

> AFTI’s Investment Fund Stocks and Flows Group,

> AFG’s FPP Portal Group,> Euroclear France UCITS

order routing platform Group,> AFG’s product reference

database Group,> Asset Management

Stakeholders’ Committee (Haut Comité de Place).

37Source : EFAMA, “Standardisation of funds processing in Europe”, March 201138Source : EFAMA & SWIFT, “Fund processing standardisation, tracking industry progress”, Mid-year and full year reports39Source : AMF, “Report of the Asset Management Stakeholders’ Committee – Implementation into French Law of UCITS

IV : Situation and outlook for asset management regulation”, 26 July 2010

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standardised, complete information on French collective investment schemes marketed out-

side France. In this framework, a project aiming at setting up a product reference database

has been initiated by AFG in early 2011.

> Provide management companies with better information about the liabilities of the funds un-

der their management, notably through systematic order marking.

> Promote direct ordering under a secure legal framework in which foreign investors and dis-

tributors can deal directly with the management company, thereby benefiting from a system

similar to the transfer agent system.

• Efforts are also being made by the Asian Fund Automation Consortium (AFAC), a group of

global fund managers in Asia created in September 2006 seeking to increase automation with

distributors by defining a common STP strategy for each country. They notably encourage the

mutual fund industry to use SWIFT ISO 20022 messaging standards.

Electronic messaging initiatives

Mandated by the fund industry to develop standardised messages for the subscription/redemp-

tion process - leveraging the MT messages used for securities transactions -, SWIFT has been

extending its electronic messaging offer to the fund industry since 2002, with 2 main objectives:

1. To improve data quality, as getting reliable data is an essential prerequisite before improving

workflow automation. SWIFT has taken part in France’s BIC1 code implementation, allowing

centralising agents to accurately identify distributors.

2. To improve workflow automation, through the ISO 20022 and Alliance LITE initiatives pre-

sented hereafter.

ISO 20022 standard In 2002, SWIFT launched its first practical solution based on ISO 15022, followed in 2004 by

the SWIFTNet Funds solution ISO 20022, which covers domestic and cross-border distribution.

The objective was to provide the investment fund industry with a set of messages specifically

designed to address their needs.

The adoption of the SWIFTNet Funds ISO 20022 messaging solution enables the investment

fund industry to move toward a common standard based on modern and flexible XML technol-

ogy as recommended by EFAMA in 2005.

Today firms are encouraged by SWIFT and EFAMA to adopt ISO 20022 as their electronic mes-

saging standard and where other domestic message standards still tend to be used, to imple-

ment solutions to facilitate the necessary interoperability between those standards and ISO

20022.

Indeed, using ISO 20022 single open market standard for all fund processes means enhanced

quality, regulatory compliance and insensitivity to volumes, which facilites business growth. It

also means minimised operational risks and costs and higher competitiveness. The full 20022

migration is expected at the end of 2012. At this point, SWIFT will turn off ISO 15022 MT mes-

sage use on the SWIFT network for investment funds orders traffic and will support this actively

entirely through ISO 20022 MX fund messages.

3.4.2.2

3.4

Notice

CACEIS has been an active participant in the SWIFT “Early adopter” group of the new SWIFT XML format ISO 20022.

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SWIFT XML ISO 20022 standard is also increasingly adopted by larger players in Asia, which

will drive standardisation among the smaller players, facilitating interoperability and interfac-

ing.

SWIFT is also looking, via the SWIFT’s hedge funds HARmonisation Project (SHARP), to extend

its influence into the hedge fund sector with the introduction of a new set of messages based

on ISO 20022 standards for automating communications in the transaction chain between cus-

todian banks, administrators and transfer agents.

sWIFt aLLIance LIte

Aware that low volume fund players were reluctant to implement the SWIFT Funds solution due

to the initial and recurring SWIFT infrastructure costs, implementation complexity and project

resources requirements – and that fax servers remained consequently their favourite com-

munication tool in spite of high costs and risks generated -, SWIFT launched its Alliance LITE

solution for funds in April 2010, in close collaboration with transfer agents and clearing houses,

in order to make automation attractive to small players.

SWIFT Alliance LITE targets institutions that exchange less than 200 messages per day and

that need quick and easy connectivity to SWIFT. This is an internet-based service that provides

direct, secure and low cost access to SWIFT since users can access Alliance LITE using a

standard internet connection with a SWIFT-issued security token.

Fund platforms

In the past years, the quest for automation drove numerous players to implement automated

fund platforms providing front-end and/or back-end services, often organised by geographical

areas such as AllFunds Bank, Prime TA®, MFEX, FundSettle, Vestima+, etc. It is not possible to

quote and review in detail all of them but we wish to highlight their existence and current im-

portance on the fund market as these platforms have become key players in the fund distribu-

tion process and enjoy international connections with asset managers, promoters, distributors,

investors, transfer agents, etc.

Besides, some service providers such as Fund Channel and Axeltis started to position them-

selves as “intermediaries” between distributors and management companies. They now of-

fer a panel of services allowing the open architecture players to develop their activities in a

simplified operational and legal context, while taking advantage of the commercial agreements

negotiated by these service providers.

Fund platforms can be split in three categories:

• Negotiation platforms, specialised in the negotiation and management of dealers agreements

and trailer fee management;

• Execution platforms, specialised in order routing and settlement;

• Global platforms, which cover both negotiation and execution.

The chart below provides a non-exhaustive overview of these commercial and market initia-

tives.

3.4.2.3

In the past years, the quest for automation

drove numerous players to implement automated fund platforms providing

front-end and/or back-end services.

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Graph 24: Overview of commercial offerings and market initiatives

Fund Channel40

Established in May 2005 by the Crédit Agricole Group, Fund Channel is now a joint venture

owned by Amundi (50.04%) and BNP Paribas Investment Partners (49.96%). Fund Channel solu-

tion is designed for institutional clients distributing open architecture funds, such as multi-man-

agers, private banks, insurance companies, banking groups and online distribution platforms.

This platform currently gives access to 220 fund promoters and 13,529 funds and enjoys strong

growth. It is structured around two complementary, integrated services:

• A purchasing platform that allows its clients to benefit from the fee agreements that Fund

Channel has established with management companies;

• The calculation and collection of distribution fees.

Fund Channel has proven expertise in all areas of fund distribution and uses a high-perform-

ance proprietary information system.

Axeltis41

Axeltis, a subsidiary of the Natixis Group formed in 2002, is a European third-party fund distribu-

tion platform initially based in London and relocated in Paris in 2010.

Axeltis offers the following services to fund providers, multi-managers and third-party fund dis-

tributors: Negotiation and centralisation of distribution agreements, negotiation of trailer fees

payable by fund providers, monitoring of legal and regulatory requirements regarding counter-

parts, calculation and reconciliation of positions, invoicing and payment of trailer fees. Since

3.4

Trailer fee management/payment

Negociation and management of distribution agreements

Order routing and confirmation Settlement

Front-end services

COMMERCIAL OFFERINGS

MARKET INITIATIVES

Back-end services

Prop

rieta

ry S

yste

ms

Mul

ti-m

arke

ts

initi

ativ

esDo

mes

tic

initi

ativ

es

SWIFT NetFunds (SWIFT)

FUNDSETTLE (Euroclear Bank)

CALASTONE

EMX

NSCC

EUROCLEAR France Order Routing Platform

ALLFUNDS BANK (Grupo Santander and Intesa Sanpaolo Group)

VESTIMA+ (Clearstream)

FUND CHANNEL (Crédit Agricole & BNP Paribas Groups)

AXELTIS (Natixis Group)

MFEX

CFF (Clearstream)

ESES

EMXCo Euroclear UK & Ireland

PRIME TA®


40Source : Fund Channel, About Fund Channel (www.fund-channel.com), 201141Source : Axeltis, Axeltis at a glance (www.axeltis.com), 2011

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June 2010, Axeltis has launched a specific investment solution targeted for distributors, by set-

ting up selections of funds suitable to them.

Axeltis currently counts 113 distributors, 134 asset managers as counterparts and provides ac-

cess to 12,800 funds.

AllFunds Bank42

Since its inception in 2000 and backed by the financial strength of Spain’s Grupo Santander and

Italy’s Intesa Sanpaolo Group, AllFunds has successfully launched operations in Spain, Italy,

Portugal, Latin America and the UK and has achieved a leading position in the distribution of

third-party funds in these markets. Its business model is based on providing clients with com-

prehensive fund distribution solutions (intermediation, analysis and information). AllFunds Bank

currently offers distribution services comprising 400 fund managers and over 20,000 funds, and

an extensive network of more than 300 clients spread over more than 16 countries, including

commercial banks, private banking institutions, fund managers, insurance companies and fund

supermarkets.

MFEX43

MFEX is an investment firm licensed by the Swedish Financial Supervisory Authority and au-

thorises to operate throughout the EU. It is an independent mutual funds wholesaler offering

financial institutions and fund companies a platform enabling them to get online information on

funds, tracking, computation and payment of trailer fee as well as online execution and set-

tlement of funds. 374 fund companies from 18 legal domiciles have decided to distribute their

mutual funds through MFEX platform. MFEX currently distributes funds in 10 different countries:

Sweden, Finland, Norway, Denmark, Belgium, Luxembourg, the Netherlands, Austria, Switzer-

land and France.

EMX44

EMXCo was established in 1999 to automate the European fund industry. In 2000, they launched

the EMX message system, and electronic messaging solutions for automating the purchase,

sale, valuation and settlement of mutual funds in the UK, by connecting fund providers with

UK intermediaries and fund supermarkets. EMX routed a record 37 million messages in 2010.

In January 2007, EMXCo became part of the Euroclear Group. By connecting the EMX message

system to Euroclear’s settlement system, the Brussels-based ICSD recently launched Euro-

clear UK & Ireland funds settlement – a fully electronic and integrated order routing and settle-

ment solution for fund transactions.

Calastone45

Founded in 2007, EMX’s rival in the UK, Calastone, is an independent cross-border transac-

tion network for the fund industry based in London and Luxembourg. Today its technology is

used by over 200 clients around the world - fund managers, distributors and transfer agents,

for which they process over 400,000 messages per month. Services provided are order routing,

settlement services, reconciliation services and SWIFT BIC hosting. Calastone notably enables

buyers and sellers of mutual funds and hedge funds to communicate orders electronically by

providing a universal message communication and ‘translation’ service, giving its clients ac-

42Source : AllFunds Bank, Who we are (www.allfundsbank.com), 201143Source : MFEX, About MFEX (www.mfe.se), 201144Source : Euroclear UK & Ireland, Services/EMX message system (www.euroclear.com), 2011 45Source : Calastone, What we do (www.calastone.com), 2011

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cess to the whole of the global funds market through a single connection. Mutual fund dealing

volumes carried on the Calastone transaction network have risen by 8.9% compound every

month since November 2009 and continue to do so. Calastone currently work with major asset

servicing players to boost investment fund automation in Asia.

NSCC46

DTCC’s subsidiary, National Securities Clearing Corporation (NSCC), was established in 1976

and is regulated by the US Securities and Exchange Commission (SEC). It provides clearing,

settlement, risk management, central counterparty services and a guarantee of completion for

certain transactions for virtually all broker-to-broker trades involving equities, corporate and

municipal debt, American depositary receipts, exchange-traded funds, and unit investment

trusts. Today NSCC completes over 190 million annual transactions.

In the United States, more than 95% of mutual fund transactions transit through the NSCC plat-

form. NSCC is also opened to the distributors based in Latin America. As a consequence, being

connected to this platform is crucial for any European asset manager wishing to market its

funds in America.

Prime TA®

Operational since 2002 and dedicated to management companies, Prime TA® is CACEIS’ hub

platform, based on full transfer agency services and capable of capturing transactions re-

ceived from distributors using various means of communication, routing transactions to the

official transfer agent of the target fund and performing the settlement as the case may be.

This central platform acts as a single access point between distributors and transfer agents

for both order processing and settlement, thereby streamlining the entire transaction process.

CACEIS offers two distinct services: The “routing service” designed for distributors who settle

through clearing platforms and the “nominee service” for those who do not use any clearing

platform.

In 2010, nearly 270,000 transactions were processed. CACEIS Prime TA® has direct contacts

with more than 1,000 distributors.

Vestima + and CFF (Clearstream)47

Euroclear’s main competitor, Clearstream, has taken a more segregated approach, offering

separate systems to deal with order routing and settlement.

The Vestima+ system, launched in 2005, is an automated order-routing service that offers a

single point of access to order issuers for in-house domestic, third-party, cross-border and off-

shore funds. Today it allows access to more than 80,000 funds and handles the whole pre-trade

process from order through to execution.

In 2007, Clearstream launched the Central Facility for Funds (CFF) as a settlement service to

complement Vestima+. CFF offers Delivery Versus Payment (DVP) settlement services for the

simultaneous exchange of cash and securities between fund distributors and transfer agents,

operating as a central platform.

In addition, VestimaLINK48, a new service designed to help Asian-based fund distributors ben-

efit from a more efficient infrastructure to deal in European investment funds, was created by

Notice

CACEIS can help you streamline the entire transaction process when distributing internationally through its Prime TA® - Order gateway & Mirroring services.

3.4

46Source : NSCC, About DTCC / NSCC (www.dtcc.com), 201147Source : Clearstream, Investment fund services product information (www.clearstream.com), 201148Source: Asia Asset Management, “Clearstream launches new service for Asian investment fund distributors”,

13 February 2009

guide_mai_2011-01-06-2011.indd 61 06/06/11 10:57




Clearstream in February 2009. With the VestimaLINK processing service, distributors benefit

from one single access to place their fund orders, using one single communication channel.

FundSettle (Euroclear Bank)49

Launched in 2000, FundSettle is Euroclear Bank’s dedicated platform for automated offshore,

cross-border and domestic fund transaction processing. It is a fully integrated fund transaction

platform where order routing, settlement and custody processing are centralised in a single

location. FundSettle has proven itself with major funds players around the world and has a

dedicated presence in Europe, especially in France and in the United Kingdom. FundSettle cur-

rently gives access to over 52,000 offshore, domestic and cross-border funds from 26 legal

domiciles and links up to 520 transfer agents.

Euroclear France UCITS order routing platform50

Euroclear France is currently the first European CSD to offer a fully STP solution for the funds

channel. This solution can process all Euroclear France eligible domestic and foreign funds,

from execution through settlement. Launched in 2006, the UCITS order routing platform has

been designed in close collaboration with the main French market players - the French As-

sociation of Custodians (AFTI) and the French Association of Asset Managers (AFG) - and is

now a market solution that enables users to automate and standardise order execution, set-

tlement, reporting & reconciliation, identification of distributors & management of trailer fees.

Today around 3,000 funds are eligible for processing on the platform, including about 25% of all

French funds.

CURRENT TRENDS

Two different market initiatives have been recently observed:

• The interconnection of various platforms to cover additional markets and services.

Thus, in the second half of 2010, Euroclear Bank and EMXCo put in place a structure al-

lowing the EMX message system to route orders from UK fund distributors to the Fund-

Settle platform, providing seamless access to the most active fund promoters worldwide.

As a result, UK fund distributors are now able to provide many new investment opportuni-

ties for their clients while continuing to use the existing EMX order routing service. Inter-

national fund promoters, in turn, have now an easy and automated channel to reach fund

investors in the UK. This new development eases the often complex and costly challenge

to process cross-border fund transactions51.

• The creation of order routing platforms in new markets such as Hong Kong, South Korea

and Taiwan.

> Thus, in August 2009 the Hong Kong Monetary Authority launched the CMU fund order

routing and settlement service with a view to developing the necessary infrastructure to

help standardise and automate often complex and fragmented investment fund proces-

sing. Establishing a standardised platform in Hong Kong was also strategically important

to attract investment funds from Mainland China. The platform serves as a hub between

the players on the buy side of the processing chain (distributors, investment houses, cus-

3.4

49Source : Euroclear Bank,Services/FundSettle (www.euroclear.com), 201150Source : Euroclear France, Services/UCITS order routing (www.euroclear.com), 201151Source : Euroclear, “Euroclear and EMXCo team on cross-border fund processing”, 17 June 2010

guide_mai_2011-01-06-2011.indd 62 06/06/11 10:57




todians) and those on the sell side (transfer agents and fund houses)52. It should be noted

that the CMU is only an order routing system at the time being, no settlement process is

available.

> Besides, in February 2010, Korea Securities Depository (KSD) – the transfer agent for all

Korean domiciled investment funds connecting to local distributors - and Euroclear Bank

signed a bilateral agreement whereby KSD will establish a link to Euroclear Bank’s Fund-

Settle platform by the third quarter of 2011, adopting this platform as part of its fund pro-

cessing infrastructure. The link with FundSettle will enable Korean investors to use KSD

as the centralised access point to invest in international funds53.

> Euroclear Bank also works to help improve fund distribution in Taiwan. Together with

Dimerco Data System Corporation, they have developed a low-cost solution to provide

seamless, automated access to FundSettle through local back-office applications54.

3.4

52Source: Hong Kong Monetary Authority, “The CMU fund order routing and settlement service” – HKMA

quaterly bulletin, September 200953Source : Asset Management News, “Korea Securities Depository connects to Euroclear Bank’s FundSettle

platform”, 17 February 201054Source : Euroclear, Focus FundSettle, “Supporting Asia’s funds markets”, Issue n°15 June 2010

guide_mai_2011-01-06-2011.indd 63 06/06/11 10:57

guide_mai_2011-01-06-2011.indd 64 06/06/11 10:57




Distribution networks & agreements and trailer fee management

In the context of cross-border distribution, trailer fee management is an inescapable aspect. As

a reminder, distribution agreements are established between a management company and its

partners in the field of distribution, the distributors, who will then have the objective to sell the

management company products. Then, the greater the distributors’ activity is, the greater their

incomes or trailer fees are. This type of commission is generally paid monthly or quarterly by the

management company to the distributors.

In these aspects, regulatory changes should be carefully monitored. The Markets in Financial

Instruments Directive (MiFID) implemented on 1st November 2007 affected fund distribution by

introducing new transparency requirements on trailer fees in order to regulate conflicts of in-

terest and inducements and enhance final investors’ protection; If trailer fees are planned, this

must be disclosed to final investors. The ongoing review of MiFID might further impact rebates

in Europe. Moreover, in the UK, the FSA’s new Retail Distribution Review (RDR) regime, which

aims to improve the quality of advice given to retail investors by removing all commissions, is

expected to profoundly change the way fund providers work with intermediaries when intro-

duced in 2012. New fee disclosure rules are also emerging in Asia. Thus, the Taiwan’s Financial

Supervisory Commission (FSC) requires from March 2011 onwards existing funds to disclose all

commission fees they award to bank distributors. That move aims to improve the transparency

of distribution because offshore fund managers have been providing higher commission fees

for banks compared with onshore fund managers55.

Mutual fund sales agreements and the associated commission processing activities are some

of the less efficient aspects of the mutual fund industry. The difficulty of this process originates

from two sources: The increasing complexity of distribution networks and the lack of stand-

ardisation of the related distribution agreements (and consequently the possible absence of

mandatory information to identify distributors or calculate fees). Agreements are very often

customised legal documents, which take time to prepare and are expensive. Standardisation

is uncommon except insofar as large financial groups insist that agreements must be on their

own terms. The transposition of agreements into the back office and the commission calcu-

lation and payment process is inefficient and a source of operational and financial risk. It is

a commonly-held view that industry practice is so fragmented that there is little prospect of

improvement.

Open architecture has resulted in ever more complex distribution networks

The multiplication of distribution channels means that management companies have to deal

with ever more complex distribution networks, which makes the distributors’ identification, the

monitoring of their activity by country and trailer fee management much more difficult than

before.

In practice, the distribution network definition and set-up can take a considerable amount of

time. Moreover, we should keep in mind that a distribution network is constantly changing (e.g.

new distributors, modification relating to existing distributors, removal of a node/branch).

Graph 25 illustrates a distribution network with four levels.

3.5

3.5.1

3.5

Notice

CACEIS can help you manage complex distribution networks efficiently, to get a consolidated view of holdings and to handle global trailer fee calculation & payment when distributing internationally.

55Source : Ignites Asia, “Taiwan fee disclosure rule to hurt offshore funds”, 31 March 2011

guide_mai_2011-01-06-2011.indd 65 06/06/11 10:57




Graph 25: Illustration of a distribution network with 4 levels

The lack of standardisation in distribution agreements creates inefficiencies

With regard to the distribution agreements, the main constraint is their administrative and legal

management (content definition, commission rates negotiation, maintenance, dissemination).

Indeed, it is important to note that a well drafted distribution agreement (in terms of exactness,

comprehensiveness and clarity) will not only facilitate the relation between the stakeholders

but also the whole transactional process, in particular the remuneration process. As such,

adapted content will be beneficial for the management company, distributors, the centralising

agent, the commission calculation agent, the transfer agent and the distributor’s correspondent

bank.

In addition to the points usually mentioned in all types of financial agreements, the following

notions should ideally be integrated into any distribution agreement:

• Payment and invoicing,

• Transaction and/or centralisation process,

• Duties and responsibilities of the parties involved,

• Agreement duration and effectiveness,

• Revision modalities, termination and suspension,

• Election of domicile,

• And finally applicable law and competent jurisdiction.

Trailer fee management has become a key issue

Difficulties resulting from trailer fee management are numerous. The following points of con-

cern can be mentioned:

Holdings calculation methods

Determining the basis of calculation (e.g. holdings by distributor by country) is a prerequisite

before calculating trailer fees.

4 5 86 7

IntermediaryLevel 4

InvestorAccount

IntermediaryLevel 3

IntermediaryLevel 2

IntermediaryLevel 1

Example of a distribution network.In this distribution network, the sequence P, I1, I3 and I6represents a branch of the network whereas P, I1, I3 represent nodes of the branch.The combination of nodes and branches allows the transfer agent to set up any type of distribution network and to define specific rate per level.

I1 I2

I11

I4

P

1

I6 I7

3

I8 I9 I10 I12

2

I3 I5

IntermediaryLevel 4

InvestorAccount

IntermediaryLevel 3

IntermediaryLevel 2

IntermediaryLevel 1

1

I7

3 4 52

I9I8 I10 I11 I12 I13

I1 I2

I4 I6

6 7 8

I5I3

P

Commissions parametrised at intermediarylevel

Network must reflect consolidation nodes for clearing houses such as Euroclear and Clearstream

INVESTORS

Institutional investor

Retail investor


3.5.2

3.5.3

A well drafted distribution agreement will not only

facilitate the relation between the stakeholders

but also the whole transactional process,

in particular the remuneration process.

guide_mai_2011-01-06-2011.indd 66 06/06/11 10:57




This calculation can be made as follows:

• Daily average holdings over a defined period or end of period holdings,

• On the basis of trade date or settlement date.

Trailer fee calculation methods

Once the holdings are determined, various calculation methods can be applied for trailer fees,

including elements such as:

• Calculation rate: Real rate or rate based on a percentage of the management fee,

• Calculation basis: Presence or absence of ranges with thresholds,

• Calculation frequency: Monthly, quarterly or yearly.

Process management

Beyond the holdings and trailer fee calculation methods, you should not ignore the complex-

ity of the process management, depending on the various requirements of the management

company such as:

• The calculation frequency,

• The deadline required for reporting delivery,

• The obligation to carry out reconciliations with many players, namely ICSDs and custodians,

in order to obtain accurate positions before calculating trailer fees,

• The demand for transmitting an estimated calculation of trailer fees to centralising agents,

transfer agents, clearers or even account keepers (bank statements), etc.,

• The payment of trailer fees to distributors to finalise the whole process.

It is worthwhile mentioning that the points expressed above become more difficult to man-

age when there is increasing complexity in the distribution network the management company

wishes to set up, namely:

• The number of distributors,

• The number of levels of distribution,

• The frequency, extent and dissemination of the distribution network modifications, as trailer

fee calculation should take any update during the calculation period into account.

Reporting

Finally, it is a real challenge for management companies to obtain a quality report in terms of

comprehensiveness, clarity and accuracy, as these reports constitute the core basis on which

intermediaries are remunerated. Hence they are a prerequisite to remunerate intermediaries

in an efficient way.

From a commercial point of view, quality reports can be used as dashboards, enabling manage-

ment companies to adapt and optimise their distribution networks according to the perform-

ance of the various distributors.

Recent initiatives to improve fund sales agreements

If the calculation formulae to be used cannot be harmonised as these are a matter for mar-

ket competition, on the contrary, the context and format of the distribution agreements can

be harmonised. Several initiatives have emerged to improve fund sales agreements in the

past years.

3.5

3.5.4

guide_mai_2011-01-06-2011.indd 67 06/06/11 10:57




3.5.4.1

3.5.4.2

Recommendations issued by EFAMA

In September 2008, the EFAMA’s Fund Processing Standardisation Group (FPSG) issued re-

commendations regarding distribution agreements and the tracking of distributor commis-

sions, drawing on initiatives already underway in certain countries such as France56.

In particular, the FPSG recommends:

• That distribution agreements adopt a common framework, contain certain standard infor-

mation and describe a clear process to ensure that the correct and complete commission

entitlement information with respect to holdings, transactions and transfers is available to

the commission calculation agent,

• To identify distributors by way of a BIC code plus an extension where required or by an

additional reference agreed by the contracting parties if necessary,

• That orders carry the relevant distributor’s reference throughout the process chain in or-

der to facilitate the correct allocation and payment of renumeration.

As a next step, the FPSG will undertake further work to define a standard for the minimum

information necessary to identify the individual distributors to whom trail commission is

payable and calculate the amount they are entitled to, as well as how this might be annexed

to distribution agreements.

DMFSA’s initiative57

The Dematerialised Mutual Fund Sales Agreement (DMFSA) is an initiative launched and

led by Schroders Luxembourg since 2007, which has now reached pilot stage. It is based

on a belief that the negotiation process for mutual fund sales agreements should be simpler

and faster, and that the back-office processing of commissions should be more accurate

and more efficient.

The objective is to develop a way to improve how the industry creates sales agreements

and how it processes the associated commissions. It proposes a legal framework within

which fund sales agreements may be made, and a technical framework in which their com-

mercial terms may be defined.

The technical framework defines the commercial term sheet that firms would append to

their legal terms. These commercial parameters are capable of being put into an agreement

database by a sales assistant in the front office or a commission officer in the back office.

In effect, the term sheet is transformed from a legal document into an operational document

with legal foundation.

It can be produced quickly, cheaply, and very accurately. It can be printed and signed if

the parties to the agreement wish to keep physical records or it can be exchanged using

electronic messages over a trusted network such as SWIFT. If electronic messages are

exchanged on the basis of an unmodified model agreement, there should be no need to print

anything and firms will have made their agreement in “dematerialised” form. The term sheet

makes it possible for companies to reconcile holdings, report and pay commissions and

maintain distribution networks much more easily than today. It also makes it possible to do-

cument and apply changes in commercial terms without delay once they have been agreed.

56Source : EFAMA, “Standardisation of fund processing in Europe”, September 200857Source : DMFSA, http://www.dmfsa.info/

guide_mai_2011-01-06-2011.indd 68 06/06/11 10:57




Progress is required in automation and standardisation of cross-border fund processing to

face up to the increasing volumes of the market.

Major initiatives have emerged to overcome the numerous difficulties faced in a

crossborder fund distribution environment. These initiatives have already resulted

in a broader harmonisation of fund regulation at the EU level, the suppression of tax

discrimination against foreign funds at an EU level, simplified access to fund information and

last but not least, higher levels of STP in the fund industry.

Although progress is being made, the level of automation and standardisation of cross-

border fund processing needs to be optimised to improve efficiency, scalability and risk

management with rising volumes. Optimisation should cover all processing activities: Order

execution, settlement of transactions and also commissions handling.

Despite the fact that the theoretical full-STP model is widely-known in the industry, the

principal obstacle to uptake lies in the difficulty and cost of implementation. Asset managers

must do all they can to persuade distributors, in particular small and medium sized ones, to

automate processes. However, progress is likely to be slow, especially in Asia.

In the future, industry players will have to continue working closely together to develop and

implement the right industry standards and best practices.

guide_mai_2011-01-06-2011.indd 69 06/06/11 10:57

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AFG. Recommendations for Distribution Agreements, September 2007. Point sur l'industrialisation de la circulation des OPCVM, February 2008

ALLFUNDS BANK, Who we are (www.allfundsbank.com), 2011

AMF, Report of the Asset Management Stakeholders’ Committee – Implementation into French Law of UCITS IV: Situation and outlook for asset management regulation, 26 July 2010

ASIA ASSET MANAGEMENT, Clearstream launches new service for Asian investment fund distributors, 13 February 2009

ASSET MANAGEMENT NEWS, Korea Securities Depository connects to Euroclear Bank’s FundSettle platform, 17 February 2010

AXELTIS, Axeltis at a glance (www.axeltis.com), 2011

CALASTONE, What we do (www.calastone.com), 2011

CERULLI ASSOCIATES, European Distribution Dynamics 2011, May 2011

CITI, Key regulatory reforms for asset managers, January 2011

CLEARSTREAM, Investment fund services Product information (www.clearstream.com), 2011

DELOITTE, Cross-border fund distribution in Europe, September 2007

DMFSA, http://www.dmfsa.info/, 2011

EFAMA. Automating fund distribution: The business case for ISO 20022, July 2006. The Fund Processing Passport: A new tool for enhancing efficiency in the European investment fund, June 2007 . EFAMA fact book – Trends in European investment funds, 2007. UCITS as a Global Brand – an industry survey by EFAMA, July 2008. Trends in the European investment fund industry in the second quarter of 2008, September 2008. Standardisation of funds processing in Europe, September 2008. Press release - CESR's advice on the management company passport: A very good basis for fine-tuning, 31 October 2008. EFAMA fact book, 2010. FPP portal briefing, Q1 2011. Standardisation of funds processing in Europe, March 2011. EFAMA Press release, 16 th May 2011. The evolving investment strategies of UCITS - EFAMA report on the so-called Newcits phenomenon, May 2011

EFAMA & SWIFT, Fund processing standardisation, tracking industry progress (Mid-year and full year reports), 2011

EUROCLEAR BANK. Achieving STP in fund transaction processing, December 2004

. Services/FundSettle (www.euroclear.com), 2011

. Euroclear and EMXCo team on cross-border fund processing, 17 June 2010

. Focus FundSettle, Supporting Asia’s funds markets, Issue n°15 June 2010

EUROCLEAR FRANCE, Services/UCITS order routing (www.euroclear.com), 2011

EUROCLEAR UK & IRELAND, Services/EMX message system (www.euroclear.com), 2011

EUROFI, Press release: Optimising cross-border distribution and processing of investment funds in the EU, December 2007

BIBLIOGRAPHY

guide_mai_2011-01-06-2011.indd 71 06/06/11 10:57



BIBLIOGRAPHY

EUROPEAN COMMISSION . Green paper on the enhancement of the EU framework for investment funds, 12 July 2005. Financial services: Commission proposes improved EU framework for investment funds, 16 July 2008

FSR, Supporting cross-border fund distribution in a global market-place, October 2010

FINANCIAL TIMES fund management. Dublin shrugs off downturn blues, by Ian Fraser, 20 July 2008. Creativity may tarnish Ucits brand, 15 May 2011

FSA, About RDR (www.fsa.gov.uk/Pages/About/What/rdr/index.shtml), 2011

FUND CHANNEL, About Fund Channel (www.fund-channel.com), 2011

HFM WEEK, Newcits Uncovered, January 2011

HONG KONG MONETARY AUTHORITY, The CMU fund order routing and settlement service – HKMA quaterly bulletin, September 2009

IGNITES ASIA. Managers confront stalled flows, rising costs, 29 March 2011. Taiwan fee disclosure rule to hurt offshore funds, 31 March 2011

IGNITES EUROPE, FT . Open architecture threatened by banking collapse, by Baptiste Aboulian, 9 October 2008. US rules big issue for European managers, 20 September 2010. Banks too quick to sell fund ops: survey, by David Ricketts, 8 November 2010. Germany: A hot spot for managers, 5 January 2011. Newcits tag must be scrapped: EFAMA, 16 May 2011

INTERNATIONAL BUSINESS TIMES, Bargain Shopping in Peru, Chile and Brazil, 21 December 2010

INVESTOR SERVICES JOURNAL, ISJ Panel debate – Tales from transfer agency, Volume 5 no. 27, 2008

IRISH FUNDS INDUSTRY ASSOCIATION, Industry statistics (www.irishfunds.ie), 2011

LIPPER FMI. Cross-border marketing, 1995. European Fund Market Data Digest 2006, 2006. European Fund Market Data Digest 2008, March 2008. Fund Market monitor, October 2008. European Fund Market Data Digest 2010, 2010

MFEX, About MFEX (www.mfex.se), 2011

NORTON ROSE, Selling investment funds to German private investors - legal and regulatory issues, July 2008

NSCC, About DTCC/NSCC (www.dtcc.com), 2011

PRICEWATERHOUSECOOPERS & EFAMA, Tax discrimination against foreign funds: Light at the end of the tunnel, December 2005

PRICEWATERHOUSECOOPERS

. EU Savings Directive Health Check, 2006 (www.pwc.com)

. Global distribution of UCITS – Trends, challenges and strategies, April 2007 (www.pwc.com)

. Global Private Banking & Wealth Management Survey, 2007

. Global fund distribution 2008, July 2008

. Asia Region Funds Passport: The Future of the Funds Management Industry in Asia, November 2010

. Global fund distribution 2010, March 2011

guide_mai_2011-01-06-2011.indd 72 06/06/11 10:57



REUTERS LIMITED, Euro funds look beyond traditional distributors by Andrew Priest, 2 July 1998

STRATEGIC INSIGHT, Alternative and Hedge Fund UCITS through the next decade, 2010

SUPERINTENDENTIA DE BANCA, Seguros y AFP, Evolución del Sistema Privado de Pensiones, Cuarto Trimestre de 2010

SWIFT. Fund distribution costs: The Billion EUR question, SIBOS 2007. Funds automation for low volume users – Lite, February 2008. Innovations dans le monde des fonds, May 2008

THE BANKER, UCITS break out of Europe to conquer the world, 2 June 2008

THE ECONOMIST, We make, you sell, 1 March 2008

THE TRADE NEWS, Euroclear buys UK mutual fund order routing network EMXCO, 11 December 2006

WORLD BANK, World Development Indicators - Last updated Apr 26, 2011

BIBLIOGRAPHY

guide_mai_2011-01-06-2011.indd 73 06/06/11 10:57

1. Regulation at the European Union level

APPENDIX 1A Consolidated Directive 85/611/EEC on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) (includes amendments from directives 2001/107/EC and 2001/108/EC – UCITS III)

APPENDIX 1B Directive 2009/65/EC on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS IV – implementation date 1 July 2011)

ASSOCIATED MATERIAL • Commission Regulation (EU) No 583/2010 of 1 July 2010

regarding key investor information and conditions to be met when providing key investor information or the prospectus in a durable medium other than paper or by means of a website

• Commission Regulation (EU) No 584/2010 of 1 July 2010 regarding the form and content of the standard notification letter and UCITS attestation, and other matters

• Commission Directive 2010/42/EU of 1 July 2010 regarding certain provisions concerning fund mergers, master-feeder structures and notification procedure

• Commission Directive 2010/43/EU of 1 July 2010 regarding organisational requirements, conflicts of interest, conduct of business, risk management and content of the agreement between a depositary and a management company

2. Regulation at domestic level as at April 2011

APPENDIX 2 References to the main legal texts regarding cross-border distribution of UCITS for:

Germany FranceAustria Belgium Switzerland IrelandNetherlands LuxembourgSpain Hong KongUnited Kingdom

APPENDICES

REGULATION REFERENCES

12

intercalaire_annexes.indd 1 06/06/11 11:00

APPENDIX 1A

UCITS I & UCITS III

CONSOLIDATED DIRECTIVE 85/611/EECon the coordination of laws, regulations and administrative provisions relating toundertakings for collective investmentin transferable securities (UCITS)

Source: http://ec.europa.eu

annexes-1A.indd 1 06/06/11 10:57

1

page 3

►

� B

M1

M2

M3

M4

M5

M6

M7

C1

| Cross-border distribution of UCITS | Appendices

This document is meant purely as a documentation tool and the institutions do not assume any liability for its contents

COUNCIL DIRECTIVE

of 20 December 1985

on the coordination of laws, regulations and administrative provisions relating to undertakings for

collective investment in transferable securities (UCITS)

(85/611/EEC)

(OJ L 375, 31.12.1985, p. 3)

Amended by:

Official Journal

No page date

Council Directive 88/220/EEC of 22 March 1988 L 100 31 19.4.1988

►M2 European Parliament and Council Directive 95/26/EC of 29 June 1995 L 168 71 8.7.1995

M3 Directive 2000/64/EC of the European Parliament and of the Council L 290 27 17.11.2000

of 7 November 2000

Directive 2001/107/EC of the European Parliament and of the Council L 41 20 13.2.2002

of 21 January 2002


of 21 January 2002


of 21 April 2004

Directive 2005/1/EC of the European Parliament and of the Council of L 79 9 24.3.2005

9 March 2005

Corrected by:

Corrigendum, OJ L 45, 16.2.2005, p. 18 (2004/39/EC)

page 3

1

annexes-1A.indd 3 06/06/11 10:57

page 5

B


COUNCIL DIRECTIVE of 20 December 1985

on the coordination of laws, regulations and administrative provisions relating to

undertakings for collective investment in transferable securities (UCITS)

(85/611/EEC)

THE COUNCIL OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Economic Community, and in particular Article 57 (2) thereof,

Having regard to the proposal from the Commission (1),

Having regard to the opinion of the European Parliament (2),

Having regard to the opinion of the Economic and Social Committee (3),

Whereas the laws of the Member States relating to collective investment undertakings differ appreciably from one state

to another, particularly as regards the obligations and controls which are imposed on those undertakings; Whereas those

differences distort the conditions of competition between those undertakings and do not ensure equivalent protection for

unit-holders;

Whereas national laws governing collective investment undertakings should be coordinated with a view to approximating the

conditions of competition between those undertakings at Community level, while at the same time ensuring more effective and

more uniform protection for unit-holders; Whereas such coordination will make it easier for a collective investment undertak-

ing situated in one Member State to market its units in other Member States;

Whereas the attainment of these objectives will facilitate the removal of the restrictions on the free circulation of the units

of collective investment undertakings in the Community, and such coordination will help to bring about a European capital

market;

Whereas, having regard to these objectives, it is desirable that common basic rules be established for the authorization, super-

vision, structure and activities of collective investment undertakings situated in the Member States and the information they

must publish;

Whereas the application of these common rules is a sufficient guarantee to permit collective investment undertakings situated

in Member States, subject to the applicable provisions relating to capital movements, to market their units in other Member

States without those Member States’ being able to subject those undertakings or their units to any provision whatsoever

other than provisions which, in those states, do not fall within the field covered by this Directive; Whereas, nevertheless, if a

collective investment undertaking situated in one Member State markets its units in a different Member State it must take all

necessary steps to ensure that unit-holders in that other Member State can exercise their financial rights there with ease and

are provided with the necessary information,

Whereas the coordination of the laws of the Member States should be confined initially to collective investment undertak-

ings other than of the closed-ended type which promote the sale of their units to the public in the Community and the sole

object of which is investment in transferable securities (which are essentially transferable securities of ficially listed on stock

exchanges or similar regulated markets); Whereas regulation of the collective investment undertakings not covered by the

Directive poses a variety of problems which must be dealt with by means of other provisions, and such undertakings will ac-

cordingly be the subject of coordination at a later stage; Whereas pending such coordination any Member State may, inter

alia, prescribe those categories of undertakings for collective investment in transferable securities (UCITS) excluded from this

Directive’s scope on account of their investment and borrowing policies and lay down those specific rules to which such UCITS

are subject in carrying on their business within its territory;

1

(1) OJ No C 171, 26. 7. 1976, p. 1.(2) OJ No C 57, 7. 3. 1977, p. 31.(3) OJ No C 75, 26. 3. 1977, p. 10.

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Whereas the free marketing of the units issued by UCITS authorized to invest up to 100% of their assets in transferable

securities issued by the same body (State, local authority, etc.) may not have the direct or indirect effect of disturbing the

functioning of the capital market or the financing of the Member States or of creating economic situations similar to those

which Article 68 (3) of the Treaty seeks to prevent;

Whereas account should be taken of the special situations of the Hellenic Republic’s and Portuguese Republic’s financial

markets by allowing those countries and additional period in which to implement this Directive,

HAS ADOPTED THIS DIRECTIVE:

Section I

General provisions and scope

Article 1

1. The Member States shall apply this Directive to undertakings for collective investment in transferable securities (hereinafter

referred to as UCITS) situated within their territories.

2. For the purposes of this Directive, and subject to Article 2, UCITS shall be undertakings:

— The sole object of which is the collective investment in transferable securities and/or in other liquid financial assets referred

to in Article 19(1) of capital raised from the public and which operates on the principle of risk-spreading and

— The units of which are, at the request of holders, re-purchased or redeemed, directly or indirectly, out of those undertakings’

assets. Action taken by a UCITS to ensure that the stock exchange value of its units does not significantly vary from their net

asset value shall be regarded as equivalent to such re-purchase or redemption.

3. Such undertakings may be constituted according to law, either under the law of contract (as common funds managed by

management companies) or trust law (as unit trusts) or under statute (as investment companies).

For the purposes of this Directive ‘common funds’ shall also include unit trusts.

4. Investment companies the assets of which are invested through the intermediary of subsidiary companies mainly otherwise

than in transferable securities shall not, however, be subject to this Directive.

5. The Member States shall prohibit UCITS which are subject to this Directive from transforming themselves into collective

investment undertakings which are not covered by this Directive.

6. Subject to the provisions governing capital movements and to Articles 44, 45 and 52 (2) no Member State may apply any other

provisions whatsoever in the field covered by this Directive to UCITS situated in another Member State or to the units issued

by such UCITS, where they market their units within its territory.

7. Without prejudice to paragraph 6, a Member State may apply to UCITS situated within its territory requirements which are

stricter than or additional to those laid down in Article 4 et seq. of this Directive, provided that they are of general application

and do not conflict with the provisions of this Directive.

8. For the purposes of this Directive, ‘transferable securities’ shall mean:

— Shares in companies and other securities equivalent to shares in companies (‘shares’),

— Bonds and other forms of securitised debt (‘debt securities’),

— Any other negotiable securities which carry the right to acquire any such transferable securities by subscription or

exchange,

excluding the techniques and instruments referred to in Article 21.

9. For the purposes of this Directive ‘money market instruments’ shall mean instruments normally dealt in on the money market

which are liquid, and have a value which can be accurately determined at any time.

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Article 1a

For the purposes of this Directive:

1. ‘Depositary’ shall mean any institution entrusted with the duties mentioned in Articles 7 and 14 and subject to the other provi-

sions laid down in Sections IIIa and IVa;

2. ‘Management company’ shall mean any company, the regular business of which is the management of UCITS in the form

of unit trusts/common funds and/or of investment companies (collective portfolio management of UCITS); This includes the

functions mentioned in Annex II;

3. A ‘management company’s home Member State’ shall mean the Member State, in which the management company’s reg-

istered office is situated;

4. A ‘management company’s host Member State’ shall mean the Member State, other than the home Member State, within the

territory of which a management company has a branch or provides services;

5. A ‘UCITS home Member State’ shall mean:

(a) With regard to a UCITS constituted as unit trust/common fund, the Member State in which the management company’s

registered office is situated,

(b) With regard to a UCITS constituted as investment company, the Member State in which the investment company’s regis-

tered office is situated;

6. A ‘UCITS host Member State’ shall mean the Member State, other than the UCITS home Member State, in which the units of

the common fund/unit trust or of the investment company are marketed;

7. ‘Branch’ shall mean a place of business which is a part of the management company, which has no legal personality and

which provides the services for which the management company has been authorised; All the places of business set up in

the same Member State by a management company with headquarters in another Member State shall be regarded as a

single branch;

8. ‘Competent authorities’ shall mean the authorities which each Member State designates under Article 49 of this Directive;

9. ‘Close links’ shall mean a situation as defined in Article 2(1) of Directive 95/26/EC (1);

10. ‘Qualifying holdings’ shall mean any direct or indirect holding in a management company which represents 10 % or more of

the capital or of the voting rights or which makes it possible to exercise a significant influence over the management of the

management company in which that holding subsists.

For the purpose of this definition, the voting rights referred to in Article 7 of Directive 88/627/EEC (1) shall be taken into

account;

11. ‘ISD’ shall mean Council Directive 93/22/EEC of 10 May 1993 on investment services in the securities field (2);

12. ‘Parent undertaking’ shall mean a parent undertaking as defined in Articles 1 and 2 of Directive 83/349/EEC (3);

13. ‘Subsidiary’ shall mean a subsidiary undertaking as defined in Articles 1 and 2 of Directive 83/349/EEC; Any subsidiary of a

subsidiary undertaking shall also be regarded as a subsidiary of the parent undertaking which is the ultimate parent

of those undertakings;

14. ‘Initial capital’ shall mean capital as defined in items 1 and 2 of Article 34(2) of Directive 2000/12/EC (4);

15. ‘Own funds’ shall mean own funds as defined in Title V, Chapter 2, Section 1 of Directive 2000/12/EC; This definition may,

however, be amended in the circumstances described in Annex V of Directive 93/6/EEC (5).

1

(1) OJ L 168, 18.7.1995, p. 7.(2) OJ L 141, 11.6.1993, p. 27. Directive as last amended by Directive 2000/64/ EC (OJ L 290, 17.11.2000, p. 27).(3) OJ L 193, 18.7.1983, p. 1. Directive as last amended by the 1994 Act of Accession.(4) OJ L 126, 26.5.2000, p. 1. Directive as amended by Directive 2000/28/EC of the European Parliament and of the Council (OJ L 275, 27.10.2000, p. 37).(5) OJ L 141, 11.6.1993, p. 1. Directive as last amended by Directive 98/33/EC of the European Parliament and of the Council (OJ L 204, 21.7.1998, p. 29).

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Article 2

1. The following shall not be UCITS subject to this Directive:

— UCITS of the closed-ended type;

— UCITS which raise capital without promoting the sale of their units to the public within the Community or any part of it;

— UCITS the units of which, under the fund rules or the investment company’s instruments of incorporation, may be sold only

to the public in non-member countries;

— Categories of UCITS prescribed by the regulations of the Member States in which such UCITS are situated, for which the

rules laid down in Section V and Article 36 are inappropriate in view of their investment and borrowing policies.

2. Five years after the implementation of this Directive the Commission shall submit to the Council a report on the imple-

mentation of paragraph 1 and, in particular, of its fourth indent. Ifnecessary, it shall propose suitable measures to extend

the scope.

Article 3

For the purposes of this Directive, a UCITS shall be deemed to be situated in the Member State in which the investment com-

pany or the management company of the unit trust has its registered office; The Member States must require that the head

office be situated in the same Member State as the registered office.

SECTION II

Authorization of UCITS

Article 4

1. No UCITS shall carry on activities as such unless it has been authorized by the competent authorities of the Member State

in which it is situated, hereinafter referred to as ‘the competent authorities’.

Such authorization shall be valid for all Member States.

2. A unit trust shall be authorized only If the competent authorities have approved the management company, the fund rules and

the choice of depositary. An investment company shall be authorized only If the competent authorities have approved both

its instruments of incorporation and the choice of depositary.

3. The competent authorities may not authorise a UCITS If the management company or the investment company do not comply

with the preconditions laid down in this Directive, in Sections III and IV respectively.

Moreover the competent authorities may not authorise a UCITS if the directors of the depositary are not of sufficiently

good repute or are not sufficiently experienced also in relation to the type of UCITS to be managed. To that end, the

names of the directors of the depositary and of every person succeeding them in office must be communicated forthwith

to the competent authorities.

Directors shall mean those persons who, under the law or the instruments of incorporation, represent the depositary, or who

effectively determine the policy of the depositary.

3a. The competent authorities shall not grant authorisation If the UCITS is legally prevented (e.g. through a provision in the fund

rules or instruments of incorporation) from marketing its units or shares in its home Member State.

4. Neither the management company nor the depositary may be replaced, nor may the fund rules or the investment company’s

instruments of incorporation be amended, without the approval of the competent authorities.

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SECTION III

Obligations regarding management companies

Title A

Conditions for taking up business

Article 5

1. Access to the business of management companies is subject to prior of ficial authorisation to be granted by the home Mem-

ber State’s competent authorities. Authorisation granted under this Directive to a management company shall be valid for

all Member States.

2. No management company may engage in activities other than the management of UCITS authorised according to this Direc-

tive except the additional management of other collective investment undertakings which are not covered by this Directive

and for which the management company is subject to prudential supervision but which cannot be marketed in other Member

States under this Directive.

The activity of management of unit trusts/common funds and of investment companies includes, for the purpose of this

Directive, the functions mentioned in Annex II which are not exhaustive.

3. By way of derogation from paragraph 2, Member States may authorise management companies to provide, in addition to the

management of unit trusts/common funds and of investment companies, the following services:

(a) Management of portfolios of investments, including those owned by pension funds, in accordance with mandates given

by investors on a discretionary, client-by-client basis, where such portfolios include one or more of the instruments listed

in Section B of the Annex to the ISD,

(b) As non-core services:

— Investment advice concerning one or more of the instruments listed in Section B of the Annex to the ISD,

— Safekeeping and administration in relation to units of collective investment undertakings.

Management companies may in no case be authorised under this Directive to provide only the services mentioned in this

paragraph or to provide non-core services without being authorised for the service referred to in point (a).

4. Articles 2(2), 12, 13 and 19 of C1 Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on

markets in financial instruments (C1 JO L 145 of 30.4.2004, p. 1), shall apply to the provision of the services referred to in

paragraph 3 of this Article by management companies.

Article 5a

1. Without prejudice to other conditions of general application laid down by national law, the competent authorities shall not

grant authorisation to a management company unless:

(a) The management company has an initial capital of at least EUR 125 000:

— When the value of the portfolios of the management company, exceeds EUR 250 000 000, the management company

shall be required to provide an additional amount of own funds. This additional amount of own funds shall be equal to

0,02 % of the amount by which the value of the portfolios of the management company exceeds EUR 250 000 000. The

required total of the initial capital and the additional amount shall not, however, exceed EUR 10 000 000.

— For the purpose of this paragraph, the following portfolios shall be deemed to be the portfolios of the management

company:

(i) Unit trusts/common funds managed by the management company including portfolios for which it has delegated the

management function but excluding portfolios that it is managing under delegation;

1

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(iii) Other collective investment undertakings managed by the management company including portfolios for which it

has delegated the management function but excluding portfolios that it is managing under delegation.

— Irrespective of the amount of these requirements, the own funds of the management company shall never be less than

the amount prescribed in Annex IV of Directive 93/6/EEC.

— Member States may authorise management companies not to provide up to 50 % of the additional amount of own

funds referred to in the first indent if they benefit from a guarantee of the same amount given by a credit institution or

an insurance undertaking. The credit institution or insurance undertaking must have its registered office in a Member

State, or in a non-Member State provided that it is subject to prudential rules considered by the competent authorities

as equivalent to those laid down in Community law.

— No later than 13 February 2005, the Commission shall present a report to the European Parliament and the Council on

the application of this capital requirement, accompanied where appropriate by proposals for its revision;

(b) The persons who effectively conduct the business of a management company are of sufficiently good repute and

are sufficiently experienced also in relation to the type of UCITS managed by the management company. To that end,

the names of these persons and of every person succeeding them in office must be communicated forthwith to the

competent authorities. The conduct of a management company’s business must be decided by at least two persons

meeting such conditions;

(c) The application for authorisation is accompanied by a programme of activity setting out, inter alia, the organisational

structure of he management company;

(d) Both its head office and its registered office are located in the same Member State.

2. Moreover where close links exist between the management company and other natural or legal persons, the competent

authorities shall grant authorisation only if those do not prevent the effective exercise of their supervisory functions.

The competent authorities shall also refuse authorisation if the laws, regulations or administrative provisions of a non-mem-

ber country governing one or more natural or legal persons with which the management company has close links, or difficul-

ties involved in their enforcement, prevent the effective exercise of their supervisory functions.

The competent authorities shall require management companies to provide them with the information they require to moni-

tor compliance with the conditions referred to in this paragraph on a continuous basis.

3. An applicant shall be informed, within six months of the submission of a complete application, whether or not authorisation

has been granted. Reasons shall be given whenever an authorisation is refused.

4. A management company may start business as soon as authorisation has been granted.

5. The competent authorities may withdraw the authorisation issued to a management company subject to this Directive only

where that company:

(a) Does not make use of the authorisation within 12 months, expressly renounces the authorisation or has ceased the

activity covered by this Directive more than six months previously unless the Member State concerned has provided for

authorisation to lapse in such cases;

(b) Has obtained the authorisation by making false statements or by any other irregular means;

(c) No longer fulfils the conditions under which authorisation was granted;

(d) No longer complies with Directive 93/6/EEC ifits authorisation also covers the discretionary portfolio management service

referred to in Article 5(3)(a) of this Directive;

(e) Has seriously and/or systematically infringed the provisions adopted pursuant to this Directive; or

(f) Falls within any of the cases where national law provides for withdrawal.

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Article 5b

1. The competent authorities shall not grant authorisation to take up the business of management companies until they have

been informed of the identities of the shareholders or members, whether direct or indirect, natural or legal persons, that have

qualifying holdings and of the amounts of those holdings.

The competent authorities shall refuse authorisation if, taking into account the need to ensure the sound and prudent

management of a management company, they are not satisfied as to the suitability of the aforementioned shareholders

or members.

2. In the case of branches of management companies that have registered offices outside the European Union and are starting

or carrying on business, the Member States shall not apply provisions that result in treatment more favourable than that ac-

corded to branches of management companies that have registered offices in Member States.

3. The competent authorities of the other Member State involved shall be consulted beforehand on the authorisation of any

management company which is:

(a) A subsidiary of another management company, an investment firm, a credit institution or an insurance undertaking au-

thorised in another Member State,

(b) A subsidiary of the parent undertaking of another management company, an investment firm, a credit institution or an

insurance undertaking authorised in another Member State, or

(c) Controlled by the same natural or legal persons as control another management company, an investment firm, a credit

institution or an insurance undertaking authorised in another Member State.

Title B

Relations with third countries

Article 5c

1. Relations with third countries shall be regulated in accordance with the relevant rules laid down in Article 7 of the ISD.

For the purpose of this Directive, the expressions ‘firm/investment firm’ and ‘investment firms’ contained in Article 7 of the

ISD shall be construed respectively as ‘management company’ and ‘management companies’; The expression ‘providing

investment services’ in Article 7(2) of the ISD shall be construed as ‘providing services’.

2. The Member States shall also inform the Commission of any general difficulties which UCITS encounter in marketing their

units in any third country.

Title C

Operating conditions

Article 5d

1. The competent authorities of the management company’s home Member State shall require that the management company

which they have authorised complies at all times with the conditions laid down in Article 5 and Article 5a(1) and (2) of this

Directive. The own funds of a management company may not fall below the level specified in Article 5a(1)(a). If they do, how-

ever, the competent authorities may, where the circumstances justify it, allow such firms a limited period in which to rectify

their situations or cease their activities.

2. The prudential supervision of a management company shall be the responsibility of the competent authorities of the home

Member State, whether the management company establishes a branch or provides services in another Member State or

not, without prejudice to those provisions of this Directive which give responsibility to the authorities of the host country.

1

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M4Article 5e

1. Qualifying holdings in management companies shall be subject to the same rules as those laid down in Article 9 of the ISD.

2. For the purpose of this Directive, the expressions ‘firm/investment firm’ and ‘investment firms’ contained in Article 9 of the

ISD shall be construed respectively as ‘management company’ and ‘management companies’.

Article 5f

1. Each home Member State shall draw up prudential rules which management companies, with regard to the activity of man-

agement of UCITS authorised according to this Directive, shall observe at all times.

In particular, the competent authorities of the home Member State having regard also to the nature of the UCITS managed

by a management company, shall require that each such company:

(a) Has sound administrative and accounting procedures, control and safeguard arrangements for electronic data process-

ing and adequate internal control mechanisms including, in particular, rules for personal transactions by its employees

or for the holding or management of investments in financial instruments in order to invest own funds and ensuring, inter

alia, that each transaction involving the fund may be reconstructed according to its origin, the parties to it, its nature,

and the time and place at which it was effected and that the assets of the unit trusts/common funds or of the investment

companies managed by the management company are invested according to the fund rules or the instruments of incor-

poration and the legal provisions in force;

(b) Is structured and organised in such a way as to minimise the risk of UCITS’ or clients’ interests being prejudiced by con-

flicts of interest between the company and its clients, between one of its clients and another, between one of its clients

and a UCITS or between two UCITS. Nevertheless, where a branch is set up, the organisational arrangements may not

conflict with the rules of conduct laid down by the host Member State to cover conflicts of interest.

2. Each management company the authorisation of which also covers the discretionary portfolio management service men-

tioned in Article 5(3)(a):

— Shall not be permitted to invest all or a part of the investor’s portfolio in units of unit trusts/common funds or of investment

companies it manages, unless it receives prior general approval from the client,

— Shall be subject with regard to the services referred to in Article 5(3) to the provisions laid down in Directive 97/9/EC of the

European Parliament and of the Council of 3 March 1997 on investorcompensation schemes (1).

Article 5g

1. If Member States permit management companies to delegate to third parties for the purpose of a more efficient conduct of

the companies’ business to carry out on their behalfone or more of their own functions the following preconditions have to

be complied with:

(a) The competent authority must be informed in an appropriate manner;

(b) The mandate shall not prevent the effectiveness of supervision over the management company, and in particular it

must not prevent the management company from acting, or the UCITS from being managed, in the best interests of

its investors;

(c) When the delegation concerns the investment management, the mandate may only be given to undertakings which are

authorised or registered for the purpose of asset management and subject to prudential supervision; The delegation must

be in accordance with investment-allocation criteria periodically laid down by the management companies;

(1) OJ L 84, 26.3.1997, p. 22..

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(d) Where the mandate concerns the investment management and is given to a third-country undertaking, cooperation

between the supervisory authorities concerned must be ensured;

(e) A mandate with regard to the core function of investment management shall not be given to the depositary or to any other

undertaking whose interests may conflict with those of the management company or the unit-holders;

(f) Measures shall exist which enable the persons who conduct the business of the management company to monitor ef-

fectively at any time the activity of the undertaking to which the mandate is given;

(g) The mandate shall not prevent the persons who conduct the business of the management company to give at any time

further instructions to the undertaking to which functions are delegated and to withdraw the mandate with immediate

effect when this is in the interest of investors;

(h) Having regard to the nature of the functions to be delegated, the undertaking to which functions will be delegated must

be qualified and capable of undertaking the functions in question, and

(i) The UCITS’ prospectuses list the functions which the management company has been permitted to delegate.

2. In no case shall the management company’s and the depositary’s liability be affected by the fact that the management com-

pany delegated any functions to third parties, nor shall the management company delegate its functions to the extent that it

becomes a letter box entity.

Article 5h

Each Member State shall draw up rules of conduct which management companies authorised in that Member State shall

observe at all times. Such rules must implement at least the principles set out in the following indents. These principles shall

ensure that a management company:

(a) Acts honestly and fairly in conducting its business activities in the best interests of the UCITS it manages and the integrity

of the market;

(b) Acts with due skill, care and diligence, in the best interests of the UCITS it manages and the integrity of the market;

(c) Has and employs effectively the resources and procedures that are necessary for the proper performance of its busi-

ness activities;

(d) Tries to avoid conflicts of interests and, when they cannot be avoided, ensures that the UCITS it manages are fairly treated,

and

(e) Complies with all regulatory requirements applicable to the conduct of its business activities so as to promote the best

interests of its investors and the integrity of the market.

Title D

The right of establishment and the freedom to provide services

Article 6

1. Member States shall ensure that a management company, authorised in accordance with this Directive by the competent

authorities of another Member State, may carry on within their territories the activity for which it has been authorised, either

by the establishment of a branch or under the freedom to provide services.

2. Member States may not make the establishment of a branch or the provision of the services subject to any authorisation

requirement, to any requirement to provide endowment capital or to any other measure having equivalent effect.

1

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M4Article 6a

1. In addition to meeting the conditions imposed in Articles 5 and 5a, any management company wishing to establish a branch

within the territory of another Member State shall notify the competent authorities of its home Member State.

2. Member States shall require every management company wishing to establish a branch within the territory of another Mem-

ber State to provide the following information and documents, when effecting the notification provided for in paragraph 1:

(a) The Member State within the territory of which the management company plans to establish a branch;

(b) A programme of operations setting out the activities and services according to Article 5(2) and (3) envisaged and the

organisational structure of the branch;

(c) The address in the host Member State from which documents may be obtained;

(d) The names of those responsible for the management of the branch.

3. Unless the competent authorities of the home Member State have reason to doubt the adequacy of the administrative struc-

ture or the financial situation of a management company, taking into account the activities envisaged, they shall, within three

months of receiving all the information referred to in paragraph 2, communicate that information to the competent authorities

of the host Member State and shall inform the management company accordingly. They shall also communicate details of

any compensation scheme intended to protect investors.

Where the competent authorities of the home Member State refuse to communicate the information referred to in paragraph

2 to the competent authorities of the host Member State, they shall give reasons for their refusal to the management com-

pany concerned within two months of receiving all the information. That refusal or failure to reply shall be subject to the right

to apply to the courts in the home Member State.

4. Before the branch of a management company starts business, the competent authorities of the host Member State shall,

within two months of receiving the information referred to in paragraph 2, prepare for the supervision of the management

company and, ifnecessary, indicate the conditions, including the rules mentioned in Articles 44 and 45 in force in the host

Member State and the rules of conduct to be respected in the case of provision of the portfolio management service men-

tioned in Article 5(3) and of investment advisory services and custody, under which, in the interest of the general good, that

business must be carried on in the host Member State.

5. On receipt of a communication from the competent authorities of the host Member State or on the expiry of the period pro-

vided for in paragraph 4 without receipt of any communication from those authorities, the branch may be established and

start business. From that moment the management company may also begin distributing the units of the unit trusts/common

funds and of the investment companies subject to this Directive which it manages, unless the competent authorities of the

host Member State establish, in a reasoned decision taken before the expiry of that period of two months — to be commu-

nicated to the competent authorities of the home Member State – that the arrangements made for the marketing of the units

do not comply with the provisions referred to in Article 44(1) and Article 45.

6. In the event of change of any particulars communicated in accordance with paragraphs 2(b), (c) or (d), a management com-

pany shall give written notice of that change to the competent authorities of the home and host Member States at least one

month before implementing the change so that the competent authorities of the home Member State may take a decision on

the change under paragraph 3 and the competent authorities of the host Member State may do so under paragraph 4.

7. In the event of a change in the particulars communicated in accordance with the first subparagraph of paragraph 3, the

authorities of the home Member State shall inform the authorities of the host Member State accordingly.

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Article 6b

1. Any management company wishing to carry on business within the territory of another Member State for the first time un-

der the freedom to provide services shall communicate the following information to the competent authorities of its home

Member State:

(a) The Member State within the territory of which the management company intends to operate;

(b) A programme of operations stating the activities and services referred to in Article 5(2) and (3) envisaged.

2. The competent authorities of the home Member State shall, within one month of receiving the information referred to in

paragraph 1, forward it to the competent authorities of the host Member State.

They shall also communicate details of any applicable compensation scheme intended to protect investors.

3. The management company may then start business in the host Member State notwithstanding the provisions of Article 46.

When appropriate, the competent authorities of the host Member State shall, on receipt of the information referred to in

paragraph 1, indicate to the management company the conditions, including the rules of conduct to be respected in the case

of provision of the portfolio management service mentioned in Article 5(3) and of investment advisory services and custody,

with which, in the interest of the general good, the management company must comply in the host Member State.

4. Should the content of the information communicated in accordance with paragraph 1(b) be amended, the management com-

pany shall give notice of the amendment in writing to the competent authorities of the home Member State and of the host

Member State before implementing the change, so that the competent authorities of the host Member State may, ifneces-

sary, inform the company of any change or addition to be made to the information communicated under paragraph 3.

5. A management company shall also be subject to the notification procedure laid down in this Article in cases where it en-

trusts a third party with the marketing of the units in a host Member State.

Article 6c

1. Host Member States may, for statistical purposes, require all management companies with branches within their ter-

ritories to report periodically on their activities in those host Member States to the competent authorities of those host

Member States.

2. In discharging their responsibilities under this Directive, host Member States may require branches of management compa-

nies to provide the same particulars as national management companies for that purpose.

Host Member States may require management companies, carrying on business within their territories under the free-

dom to provide services, to provide the information necessary for the monitoring of their compliance with the standards

set by the host Member State that apply to them, although those requirements may not be more stringent than those

which the same Member State imposes on established management companies for the monitoring of their compliance

with the same standards.

3. Where the competent authorities of a host Member State ascertain that a management company that has a branch or

provides services within its territory is in breach of the legal or regulatory provisions adopted in that State pursuant to those

provisions of this Directive which confer powers on the host Member State’s competent authorities, those authorities shall

require the management company concerned to put an end to its irregular situation.

4. If the management company concerned fails to take the necessary steps, the competent authorities of the host Member

State shall inform the competent authorities of the home Member State accordingly. The latter shall, at the earliest opportu-

nity, take all appropriate measures to ensure that the management company concerned puts an end to its irregular situation.

The nature of those measures shall be communicated to the competent authorities of the host Member State.

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5. If, despite the measures taken by the home Member State or because such measures prove inadequate or are not avail-

able in the Member State in question, the management company persists in breaching the legal or regulatory provisions

referred to in paragraph 2 in force in the host Member State, the latter may, after informing the competent authorities

of the home Member State, take appropriate measures to prevent or to penalise further irregularities and, insof ar as

necessary, to prevent that management company from initiating any further transaction within its territory. The Member

States shall ensure that within their territories it is possible to serve the legal documents necessary for those measures

on management companies.

6. The foregoing provisions shall not affect the powers of host Member States to take appropriate measures to prevent or to

penalise irregularities committed within their territories which are contrary to legal or regulatory provisions adopted in the

interest of the general good. This shall include the possibility of preventing of fending management companies from initiating

any further transactions within their territories.

7. Any measure adopted pursuant to paragraphs 4, 5 or 6 involving penalties or restrictions on the activities of a management

company must be properly justified and communicated to the management company concerned. Every such measure shall

be subject to the right to apply to the courts in the Member State which adopted it.

8. Before following the procedure laid down in paragraphs 3, 4 or 5 the competent authorities of the host Member State may, in

emergencies, take any precautionary measures necessary to protect the interests of investors and others for whom services

are provided. The Commission and the competent authorities of the other Member States concerned must be informed of

such measures at the earliest opportunity.

After consulting the competent authorities of the Member States concerned, the Commission may decide that the Member

State in question must amend or abolish those measures.

9. In the event of the withdrawal of authorisation, the competent authorities of the host Member State shall be informed and

shall take appropriate measures to prevent the management company concerned from initiating any further transactions

within its territory and to safeguard investors’ interests. M7 Every two years the Commission shall issue a report on such

cases. ►

10. The Member States shall inform the Commission of the number and type of cases in which there have been refusals pursu-

ant to Article 6a or measures have been taken in accordance with paragraph 5. ►. M7 Every two years the Commission

shall issue a report on such cases. ► ►

SECTION IIIa

Obligations regarding the depositary

Article 7

1. A unit trust’s assets must be entrusted to a depositary for safekeeping.

2. A depositary’s liability as referred to in Article 9 shall not be affected by the fact that it has entrusted to a third party all or

some of the assets in its safe-keeping.

3. A depositary must, moreover:

(a) Ensure that the sale, issue, re-purchase, redemption and cancellation of units effected on behalf of a unit trust or by a

management company are carried out in accordance with the law and the fund rules;

(b) Ensure that the value of units is calculated in accordance with the law and the fund rules;

(c) Carry out the instructions of the management company, unless they conflict with the law or the fund rules;

(d) Ensure that in transactions involving a unit trust’s assets any consideration is remitted to it within the usual time limits;

(e) Ensure that a unit trust’s income is applied in accordance with the law and the fund rules.

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Article 8

1. A depositary must either have its registered office in the same Member State as that of the management company or be

established in that Member State if its registered office is in another Member State.

2. A depositary must be an institution which is subject to public control. It must also furnish sufficient financial and prof essional

guarantees to be able effectively to pursue its business as depositary and meet the commitments inherent in that function.

3. The Member States shall determine which of the categories of institutions referred to in paragraph 2 shall be eligible to

be depositaries.

Article 9

A depositary shall, in accordance with the national law of the State in which the management company’s registered office is

situated, be liable to the management company and the unit-holders for any loss suffered by them as a result of its unjustifiable

failure to perform its obligations or its improper performance of them. Liability to unit-holders may be invoked either directly

or indirectly through the management company, depending on the legal nature of the relationship between the depositary, the

management company and the unit-holders.

Article 10

1. No single company shall act as both management company and depositary.

2. In the context of their respective roles the management company and the depositary must act independently and solely in

the interest of the unit-holders.

Article 11

The law or the fund rules shall lay down the conditions for the replacement of the management company and the depositary

and rules to ensure the protection of unit-holders in the event of such replacement.

SECTION IV

Obligations regarding investment companies

Title A


Article 12

Access to the business of investment companies shall be subject to prior of ficial authorisation to be granted by the home

Member States competent authorities.

The Member States shall determine the legal form which an investment company must take.

Article 13

No investment company may engage in activities other than those referred to in Article 1 (2).

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M4Article 13a

1. Without prejudice to other conditions of general application laid down by national law, the competent authorities shall not

grant authorisation to an investment company that has not designated a management company unless the investment com-

pany has a sufficient initial capital of at least EUR 300 000.

In addition, when an investment company has not designated a management company authorised pursuant to this

Directive:

— The authorisation shall not be granted unless the application for authorisation is accompanied by a programme of activity

setting out, inter alia, the organisational structure of the investment company;

— The directors of the investment company shall be of sufficiently good repute and be sufficiently experienced also in

relation to the type of business carried out by the investment company. To that end, the names of the directors and of

every person succeeding them in office must be communicated forthwith to the competent authorities. The conduct of

an investment company’s business must be decided by at least two persons meeting such conditions. Directors shall

mean those persons who, under the law or the instruments of incorporation, represent the investment company, or who

effectively determine the policy of the company;

— Moreover, where close links exist between the investment company and other natural or legal persons, the competent

authorities shall grant authorisation only if those do not prevent the effective exercise of their supervisory functions.

The competent authorities shall also refuse authorisation if the laws, regulations or administrative provisions of a non-mem-

ber country governing one or more natural or legal persons with which the investment company has close links, or difficul-

ties involved in their enforcement, prevent the effective exercise of their supervisory functions.

The competent authorities shall require investment companies to provide them with the information they require.

2. An applicant shall be informed, within six months of the submission of a complete application, whether or not authorisation

has been granted. Reasons shall be given whenever an authorisation is refused.

3. An investment company may start business as soon as authorisation has been granted.

4. The competent authorities may withdraw the authorisation issued to an investment company subject to this Directive only

where that company:

(a) Does not make use of the authorisation within 12 months, expressly renounces the authorisation or has ceased the

activity covered by this Directive more than 6 months previously unless the Member State concerned has provided for

authorisation to lapse in such cases;

(b) Has obtained the authorisation by making false statements or by any other irregular means;

(c) No longer fulfils the conditions under which authorisation was granted;

(d) Has seriously and/or systematically infringed the provisions adopted pursuant to this Directive; Or

(e) Falls within any of the cases where national law provides for withdrawal.

Title B


Article 13b

Articles 5g and 5h shall apply to investment companies that have not designated a management company authorised pursuant

to this Directive. For the purpose of this Article ‘management company’ shall be construed as ‘investment company’.

Investment companies may only manage assets of their own portfolio and may not, under any circumstances, receive any

mandate to manage assets on behalfof a third party.

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Article 13c

Each home Member State shall draw up prudential rules which shall be observed at all times by investment companies that

have not designated a management company authorised pursuant to this Directive.

In particular, the competent authorities of the home Member State, having regard also to the nature of the investment company,

shall require that the company has sound administrative and accounting procedures, control and safeguard arrangements for

electronic data processing and adequate internal control mechanisms including, in particular, rules for personal transactions

by its employees or for the holding or management of investments in financial instruments in order to invest its initial capital

and ensuring, inter alia, that each transaction involving the company may be reconstructed according to its origin, the parties

to it, its nature, and the time and place at which it was effected and that the assets of the investment company are invested

according to the instruments of incorporation and the legal provisions in force.

SECTION IVa


Article 14

1. An investment company’s assets must be entrusted to a depositary for safe-keeping.

2. A depositary’s liability as referred to in Article 16 shall not be affected by the fact that it has entrusted to a third party all or

some of the assets in its safe-keeping.

3. A depositary must, moreover:

(a) Ensure that the sale, issue, re-purchase, redemption and cancellation of untis effected by or on behalf of a company are

carried out in accordance with the law and with the company’s instruments of incorporation;

(b) Ensure that in transactions involving a company’s assets any consideration is remitted to it within the usual time limits;

(c) Ensure that a company’s income is applied in accordance with the law and its instruments of incorporation.

4. A Member State may decide that investment companies situated within its territory which market their units exclusively

through one or more stock exchanges on which their units are admitted to of ficial listing shall not be required to have de-

positaries within the meaning of this Directive.

Articles 34, 37 and 38 shall not apply to such companies. However, the rules for the valuation of such companies’ assets must

be stated in law or in their instruments of incorporation.

5. A Member State may decide that investment companies situated within its territory which market at least 80 % of their-units

through one or more stock exchanges designated in their instruments of incorporation shall not be required to have deposi-

taries within the meaning of this Directive provided that their units are admitted to of ficial listing on the stock exchanges of

those Member States within the territories of which the units are marketed, and that any transactions which such a company

may effect outwith stock exchanges are effected at stock exchange prices only. A company’s instruments of incorporation

must specify the stock exchange in the country of marketing the prices on which shall determine the prices at which that

company will effect any transactions outwith stock exchanges in that country.

A Member State shall avail itselfof the option provided for in the preceding subparagraph only ifit considers that unit-holders

have protection equivalent to that of unit-holders in UCITS which have depositaries within the meaning of this Directive.

In particular, such companies and the companies referred to in paragraph 4, must:

(a) In the absence of provision in law, state in their instruments of incorporation the methods of calculation of the net asset

values of their units;

(b) Intervene on the market to prevent the stock exchange values of their units from deviating by more than 5 % from their net

asset values;

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B (c) Establish the net asset values of their units, communicate them to the competent authorities at least twice a week and

publish them twice a month.

At least twice a month, an independent auditor must ensure that the calculation of the value of units is effected in ac-

cordance with the law and the company’s instruments of incorporation. On such occasions, the auditor must make sure

that the company’s assets are invested in accordance with the rules laid down by law and the company’s instruments of

incorporation.

6. The Member States shall inform the Commission of the identities of the companies benefiting from the derogations provided

for in paragraphs 4 and 5.

The Commission shall report to the Contact Committee on the application of paragraphs 4 and 5 within five years of the

implementation of this Directive. After obtaining the Contact Committee’s opinion, the Commission shall, ifneed be, propose

appropriate measures.

Article 15

1. A depositary must either have its registered office in the same Member State as that of the investment company or be estab-

lished in that Member State if its registered office is in another Member State.

2. A depositary must be an institution which is subject to public control. It must also furnish sufficient financial and prof essional

guarantees to be able effectively to pursue its business as depositary and meet the commitments inherent in that function.

3. The Member States shall determine which of the categories of institutions referred to in paragraph 2 shall be eligible to

be depositaries.

Article 16

A depositary shall, in accordance with the national law of the State in which the investment company’s registered office is

situated, be liable to the investment company and the unit-holders for any loss suffered by them as a result of its unjustifiable

failure to perform its obligations, or its improper performance of them.

Article 17

1. No single company shall act as both investment company and depositary.

2. In carrying out its role as depositary, the depositary must act solely in the interests of the unit-holders.

Article 18

The law or the investment company’s instruments of incorporation shall lay down the conditions for the replacement of the

depositary and rules to ensure the protection of unit-holders in the event of such replacement.

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SECTION V

Obligations concerning the investment policies of UCITS

Article 19

1. The investments of a unit trust or of an investment company must consist solely of:

(a) Transferable securities and money market instruments admitted to or dealt in on a regulated market within the meaning

of Article 1(13) of the ISD and/or;

(b) Transferable securities M5 and money market instruments dealt in on another regulated market in a Member State

which operates regularly and is recognized and open to the public and/or;

(c) Transferable securities M5 and money market instruments admitted to of ficial listing on a stock exchange in a

non-member State or dealt in on another regulated market in a non-member State which operates regularly and is recog-

nized and open to the public provided that the choice of stock exchange or market has been approved by the competent

authorities or is provided for in law or the fund rules or the investment company’s instruments of incorporation and/or;

(d) Recently issued transferable securities, provided that:

— The terms of issue include an undertaking that application will be made for admission to of ficial listing on a stock

exchange or to another regulated market which operates regularly and is recognized and open to the public, provided

that the choice of stock exchange or market has been approved by the competent authorities or is provided for in law

or the fund rules or the investment company’s instruments of incorporation;

— Such admission is secured within a year of issue M5 and/ or; ►

(e) Units of UCITS authorised according to this Directive and/or other collective investment undertakings within the meaning

of the first and second indent of Article 1(2), should they be situated in a Member State or not, provided that:

— Such other collective investment undertakings are authorised under laws which provide that they are subject to

supervision considered by the UCITS’ competent authorities to be equivalent to that laid down in Community law, and

that cooperation between authorities is sufficiently ensured;

— The level of protection for unit-holders in the other collective investment undertakings is equivalent to that provided

for unitholders in a UCITS, and in particular that the rules on assets segregation, borrowing, lending, and uncovered

sales of transferable securities and money market instruments are equivalent to the requirements of this Directive;

— The business of the other collective investment undertakings is reported in half-yearly and annual reports to enable

an assessment to be made of the assets and liabilities, income and operations over the reporting period;

— No more than 10 % of the UCITS’ or the other collective investment undertakings’ assets, whose acquisition is con-

templated, can, according to their fund rules or instruments of incorporation, be invested in aggregate in units of other

UCITS or other collective investment undertakings and/or;

(f) Deposits with credit institutions which are repayable on demand or have the right to be withdrawn, and maturing in no

more than 12 months, provided that the credit institution has its registered office in a Member State or, if the registered

office of the credit institution is situated in a non-Member State, provided that it is subject to prudential rules considered

by the UCITS’ competent authorities as equivalent to those laid down in Community law and/or;

(g) Financial derivative instruments, including equivalent cash-settled instruments, dealt in on a regulated market referred

to in subparagraphs (a), (b) and (c); And/or financial derivative instruments dealt in over-the-counter (‘OTC derivatives’),

provided that:

— The underlying consists of instruments covered by this paragraph, financial indices, interest rates, foreign exchange

rates or currencies, in which the UCITS may invest according to its investment objectives as stated in the UCITS’ fund

rules or instruments of incorporation;

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— The counterparties to OTC derivative transactions are institutions subject to prudential supervision, and belonging to

the categories approved by the UCITS’ competent authorities and;

— The OTC derivatives are subject to reliable and verifiable valuation on a daily basis and can be sold, liquidated or

closed by an of fsetting transaction at any time at their fair value at the UCITS’ initiative, and/or;

(h) Money market instruments other than those dealt in on a regulated market, which fall under Article 1(9), if the issue

or issuer of such instruments is itselfregulated for the purpose of protecting investors and savings, and provided that

they are:

— Issued or guaranteed by a central, regional or local authority or central bank of a Member State, the European Central

Bank, the European Union or the European Investment Bank, a non-Member State or, in the case of a Federal State, by

one of the members making up the federation, or by a public international body to which one or more Member States

belong or;

— Issued by an undertaking any securities of which are dealt in on regulated markets referred to in subparagraphs (a),

(b) or (c), or;

— Issued or guaranteed by an establishment subject to prudential supervision, in accordance with criteria defined by

Community law, or by an establishment which is subject to and complies with prudential rules considered by the com-

petent authorities to be at least as stringent as those laid down by Community law or;

— Issued by other bodies belonging to the categories approved by the UCITS’ competent authorities provided that invest-

ments in such instruments are subject to investor protection equivalent to that laid down in the first, the second or the

third indent and provided that the issuer is a company whose capital and reserves amount to at least EUR 10 million

and which presents and publishes its annual accounts in accordance with Directive 78/ 660/EEC (1), is an entity which,

within a group of companies which includes one or several listed companies, is dedicated to the financing of the group

or is an entity which is dedicated to the financing of securitisation vehicles which benefit from a banking liquidity line.

2. However:

(a) A UCITS may invest no more than 10 % of its assets in transferable securities M5 and money market instruments ►

other than those referred to in paragraph 1;

(c) An investment company may acquire movable and immovable property which is essential for the direct pursuit

of its business;

(d) A UCITS may not acquire either precious metals or certificates representing them.

3. Unit trusts and companies may hold ancillary liquid assets.

(1) Fourth Council Directive 78/660/EEC of 25 July 1978 based on Article 54(3)(g) of the Treaty on the annual accounts of certain types of companies (OJ L 222, 14.8.1978, p. 11). Directive as last amended by Directive 1999/60/ EC (OJ L 162, 26.6.1999, p. 65).

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Article 21

1. The management or investment company must employ a riskmanagement process which enables it to monitor and measure

at any time the risk of the positions and their contribution to the overall risk profile of the portfolio; It must employ a process

for accurate and independent assessment of the value of OTC derivative instruments. It must communicate to the competent

authorities regularly and in accordance with the detailed rules they shall define, the types of derivative instruments, the

underlying risks, the quantitative limits and the methods which are chosen in order to estimate the risks associated with

transactions in derivative instruments regarding each managed UCITS.

2. The Member States may authorise UCITS to employ techniques and instruments relating to transferable securities and

money market instruments under the conditions and within the limits which they lay down provided that such techniques and

instruments are used for the purpose of efficient portfolio management. When these operations concern the use of deriva-

tive instruments, these conditions and limits shall conform to the provisions laid down in this Directive.

Under no circumstances shall these operations cause the UCITS to diverge from its investment objectives as laid down in

the UCITS’ fund rules, instruments of incorporation or prospectus.

3. A UCITS shall ensure that its global exposure relating to derivative instruments does not exceed the total net value of

its portfolio.

The exposure is calculated taking into account the current value of the underlying assets, the counterparty risk, future mar-

ket movements and the time available to liquidate the positions. This shall also apply to the following subparagraphs.

A UCITS may invest, as a part of its investment policy and within the limit laid down in Article 22(5), in financial derivative in-

struments provided that the exposure to the underlying assets does not exceed in aggregate the investment limits laid down

in Article 22. The Member States may allow that, when a UCITS invests in index-based financial derivative instruments, these

investments do not have to be combined to the limits laid down in Article 22.

When a transferable security or money market instrument embeds a derivative, the latter must be taken into account when

complying with the requirements of this Article.

4. The Member States shall send the Commission full information and any subsequent changes in their regulation concerning

the methods used to calculate the risk exposures mentioned in paragraph 3, including the risk exposure to a counterparty

in OTC derivative transactions, no later than 13 February 2004. The Commission shall forward that information to the other

Member States. M7 Such information shall be the subject of exchanges of views within the European Securities Com-

mittee.

Article 22

1. A UCITS may invest no more than 5 % of its assets in transferable securities or money market instruments issued by the same

body. A UCITS may not invest more than 20 % of its assets in deposits made with the same body.

The risk exposure to a counterparty of the UCITS in an OTC derivative transaction may not exceed:

— 10 % of its assets when the counterpart is a credit institution referred to in Article 19(1)(f), or

— 5 % of its assets, in other cases.

2. Member States may raise the 5 % limit laid down in the first sentence of paragraph 1 to a maximum of 10 %. However, the

total value of the transferable securities and the money market instruments held by the UCITS in the issuing bodies in each

of which it invests more than 5 % of its assets must not then exceed 40 % of the value of its assets. This limitation does not

apply to deposits and OTC derivative transactions made with financial institutions subject to prudential supervision.

Notwithstanding the individual limits laid down in paragraph 1, a UCITS may not combine:

— Investments in transferable securities or money market instruments issued by,

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M5 — Deposits made with, and/or

— Exposures arising from OTC derivative transactions undertaken with a single body in excess of 20 % of its assets.

3. The Member States may raise the 5 % limit laid down in the first sentence of paragraph 1 to a maximum of 35 % If the trans-

ferable securities or money market instruments are issued or guaranteed by a Member State, by its local authorities, by a

non-member State or by public international bodies to which one or more Member States belong.

4. Member States may raise the 5 % limit laid down in the first sentence of paragraph 1 to a maximum of 25 % in the case of cer-

tain bonds when these are issued by a credit institution which has its registered office in a Member State and is subject by

law to special public supervision designed to protect bond-holders. In particular, sums deriving from the issue of these bonds

must be invested in conformity with the law in assets which, during the whole period of validity of the bonds, are capable of

covering claims attaching to the bonds and which, in the event of failure of the issuer, would be used on a priority basis for

the reimbursement of the principal and payment of the accrued interest.

When a UCITS invests more than 5 % of its assets in the bonds referred to in the first subparagraph and issued by one issuer,

the total value of these investments may not exceed 80 % of the value of the assets of the UCITS.

The Member States shall send the Commission a list of the aforementioned categories of bonds together with the categories

of issuers authorised, in accordance with the laws and supervisory arrangements mentioned in the first subparagraph, to

issue bonds complying with the criteria set out above. A notice specifying the status of the guarantees of fered shall be at-

tached to these lists. The Commission shall immediately forward that information to the other Member States together with

any comments which it considers appropriate, and shall make the information available to the public. M7 Such commu-

nication shall be the subject of exchanges of views within the European Securities Committee.

5. The transferable securities and money market instruments referred to in paragraphs 3 and 4 shall not be taken into account

for the purpose of applying the limit of 40 % referred to in paragraph 2.

The limits provided for in paragraphs 1, 2, 3 and 4 may not be combined, and thus investments in transferable securities or

money market instruments issued by the same body or in deposits or derivative instruments made with this body carried out

in accordance with paragraphs 1, 2, 3 and 4 shall under no circumstances exceed in total 35 % of the assets of the UCITS.

Companies which are included in the same group for the purposes of consolidated accounts, as defined in accordance with

Directive 83/349/ EEC (1) or in accordance with recognised international accounting rules, are regarded as a single body for

the purpose of calculating the limits contained in this Article.

Member States may allow cumulative investment in transferable securities and money market instruments within the same

group up to a limit of 20 %.

Article 22a

1. Without prejudice to the limits laid down in Article 25, the Member States may raise the limits laid down in Article 22 to a

maximum of 20 % for investment in shares and/or debt securities issued by the same body when, according to the fund rules

or instruments of incorporation, the aim of the UCITS’ investment policy is to replicate the composition of a certain stock or

debt securities index which is recognised by the competent authorities, on the following basis:

— Its composition is sufficiently diversified,

(1) Seventh Council Directive 83/349/EEC of 13 June 1983 based on the Article 54(3)(g) of the Treaty on consolidated accounts (OJ L 193, 18.7.1983, p. 1). Directive as last amended by the 1994 Act of Accession.

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— The index represents an adequate benchmark for the market to which it refers,

— It is published in an appropriate manner.

2. Member States may raise the limit laid down in paragraph 1 to a maximum of 35 % where that proves to be justified by

exceptional market conditions in particular in regulated markets where certain transferable securities or money market

instruments are highly dominant. The investment up to this limit is only permitted for a single issuer.

Article 23

1. By way of derogation from Article 22 and without prejudice to Article 68 (3) of the Treaty, the Member States may authorize

UCITS to invest in accordance with the principle of risk-spreading up to 100 % of their assets in different transferable securi-

ties M5 and money market instruments issued or guaranteed by any Member State, its local authorities, a non-member

State or public international bodies of which one or more Member States are members.

The competent authorities shall grant such a derogation only If they consider that unit-holders in the UCITS have protection

equivalent to that of unit-holders in UCITS complying with the limits laid down in Article 22.

Such a UCITS must hold securities from at least six different issues, but securities from any one issue may not account for

more than 30 % of its total assets.

2. The UCITS referred to in paragraph 1 must make express mention in the fund rules or in the investment company’s instru-

ments of incorporation of the States, local authorities or public international bodies issuing or guaranteeing securities in

which they intend to invest more than 35 % of their assets; Such fund rules or instruments of incorporation must be approved

by the competent authorities.

3. In addition each such UCITS referred to in paragraph 1 must include a prominent statement in its prospectus and any promo-

tional literature drawing attention to such authorization and indicating the States, local authorities and/or public international

bodies in the securities of which it intends to invest or has invested more than 35 % of its assets.

Article 24

1. A UCITS may acquire the units of UCITS and/or other collective investment undertakings referred to in Article 19(1)(e), pro-

vided that no more than 10 % of its assets are invested in units of a single UCITS or other collective investment undertaking.

The Member States may raise the limit to a maximum of 20 %.

2. Investments made in units of collective investment undertakings other than UCITS may not exceed, in aggregate, 30 % of the

assets of the UCITS.

The Member States may allow that, when a UCITS has acquired units of UCITS and/or other collective investment under-

takings, the assets of the respective UCITS or other collective investment undertakings do not have to be combined for the

purposes of the limits laid down in Article 22.

3. When a UCITS invests in the units of other UCITS and/or other collective investment undertakings that are managed, directly

or by delegation, by the same management company or by any other company with which the management company is

linked by common management or control, or by a substantial direct or indirect holding, that management company or other

company may not charge subscription or redemption fees on account of the UCITS’s investment in the units of such other

UCITS and/or collective investment undertakings.

4. A UCITS that invests a substantial proportion of its assets in other UCITS and/or collective investment undertakings shall

disclose in its prospectus the maximum level of the management fees that may be charged both to the UCITS itselfand to the

other UCITS and/or collective investment undertakings in which it intends to invest. In its annual report it shall indicate the

maximum proportion of management fees charged both to the UCITS itself and to the UCITS and/or other collective invest-

ment undertaking in which it invests.

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Article 24a

1. The prospectus shall indicate in which categories of assets a UCITS is authorised to invest. It shall mention iftransactions in

financial derivative instruments are authorised; In this event, it must include a prominent statement indicating If these opera-

tions may be carried out for the purpose of hedging or with the aim of meeting investment goals, and the possible outcome

of the use of financial derivative instruments on the risk profile.

2. When a UCITS invests principally in any category of assets defined in Article 19 other than transferable securities and money

market instruments or replicates a stock or debt securities index in accordance with Article 22a, its prospectus and, where

necessary, any other promotional literature must include a prominent statement drawing attention to the investment policy.

3. When the net asset value of a UCITS is likely to have a high volatility due to its portfolio composition or the portfolio manage-

ment techniques that may be used, its prospectus and, where necessary, any other promotional literature must include a

prominent statement drawing attention to this characteristic.

4. Upon request of an investor, the management company must also provide supplementary information relating to the quanti-

tative limits that apply in the risk management of the UCITS, to the methods chosen to this end and to the recent evolution of

the main instrument categories’ risks and yields.

►

Article 25

1. An investment company or a management company acting in connection with all of the unit trusts which it manages and

which fall within the scope of this Directive may not acquire any shares carrying voting rights which would enable it to exer-

cise significant influence over the management of an issuing body.

Pending further coordination, the Member States shall take account of existing rules defining the principle stated in the first

subparagraph under other Member States’ legislation.

2. Moreover, an investment company or unit trust may acquire no more than:

— 10 % of the non-voting shares of any single issuing body;

— 10 % of the debt securities of any single issuing body;

— 25 % of the units of any single UCITS and/or other collective investment undertaking within the meaning of the first and

second indent of Article 1(2);

— 10 % of the money market instruments of any single issuing body.

The limits laid down in the second, third and fourth indents may be disregarded at the time of acquisition if at that time the

gross amount of the debt securities or of the money market instruments, or the net amount of the securities in issue, cannot

be calculated.

3. A Member State may waive application of paragraphs 1 and 2 as regards:

(a) Transferable securities M5 and money market instruments issued or guaranteed by a Member State or its local

authorities;

(b) Transferable securities M5 and money market instruments issued or guaranteed by a non-member State;

(c) Transferable securities M5 and money market instruments issued by public international bodies of which one or

more Member States are members;

(d) Shares held by a UCITS in the capital of a company incorporated in a non-member State investing its assets mainly in the

securities of issuing bodies having their registered offices in that State, where under the legislation of that State such

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a holding represents the only way in which the UCITS can invest in the securities of issuing bodies of that State. This

derogation, however, shall apply only ifin its investment policy the company from the non-member State complies with

the limits laid down in Articles 22, 24 and 25 (1) and (2). Where the limits set in Articles 22 and 24 are exceeded. Article 26

shall apply mutatis mutandis;

(e) Shares held by an investment company or investment companies in the capital of subsidiary companies carrying on only

the business of management, advice or marketing in the country where the subsidiary is located, in regard to the repur-

chase of units at unitholders’ request exclusively on its or their behalf.

Article 26

1. UCITS need not comply with the limits laid down in this section when exercising subscription rights attaching to transferable

securities or money market instruments which form part of their assets.

While ensuring observance of the principle of risk spreading, the Member States may allow recently authorised UCITS to

derogate from Articles 22, 22a, 23 and 24 for six months following the date of their authorisation.

2. If the limits referred to in paragraph 1 are exceeded for reasons beyond the control of a UCITS or as a result of the exercise

of subscription rights, that UCITS must adopt as a priority objective for its sales transactions the remedying of that situation,

taking due account of the interests of its unit-holders.

SECTION VI

Obligations concerning information to be supplied to unitholders

A. Publication of a prospectus and periodical reports

Article 27

1. An investment company and, for each of the unit trusts and common funds it manages, a management company,

must publish:

— A simplified prospectus,

— A full prospectus,

— An annual report for each financial year, and

— A half-yearly report covering the first six months of the financial year.

2. The annual and half-yearly reports must be published within the following time limits, with effect from the ends of the periods

to which they relate:

— Four months in the case of the annual report,

— Two months in the case of the half-yearly report.

Article 28

1. Both the simplified and the full prospectuses must include the information necessary for investors to be able to make an

informed judgement of the investment proposed to them, and, in particular, of the risks attached thereto. The latter shall

include, independent of the instruments invested in, a clear and easily understandable explanation of the fund’s risk profile.

2. The full prospectus shall contain at least the information provided for in Schedule A, Annex I to this Directive, in so far as

that information does not already appear in the fund rules or instruments of incorporation annexed to the full prospectus in

accordance with Article 29(1).

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3. The simplified prospectus shall contain in summary form the key information provided for in Schedule C, Annex I to this

Directive. It shall be structured and written in such a way that it can be easily understood by the average investor. Member

States may permit that the simplified prospectus be attached to the full prospectus as a removable part of it. The simplified

prospectus can be used as a marketing tool designed to be used in all Member States without alterations except translation.

Member States may therefore not require any further documents or additional information to be added.

4. Both the full and the simplified prospectus may be incorporated in a written document or in any durable medium having an

equivalent legal status approved by the competent authorities.

5. The annual report must include a balance-sheet or a statement of assets and liabilities, a detailed income and expenditure

account for the financial year, a report on the activities of the financial year and the other information provided for in Sched-

ule B, Annex I to this Directive, as well as any significant information which will enable investors to make an informed judg-

ment on the development of the activities of the UCITS and its results.

6. The half-yearly report must include at least the information provided for in Chapters I to IV of Schedule B, Annex I to this

Directive; Where a UCITS has paid or proposes to pay an interim dividend, the figures must indicate the results after tax for

the half-year concerned and the interim dividend paid or proposed.

Article 29

1. The fund rules or an investment company’s instruments of incorporation shall form an integral part of the full prospectus and

must be annexed thereto.

2. The documents referred to in paragraph 1 need not, however, be annexed to the full prospectus provided that the unit-holder

is informed that on request he or she will be sent those documents or be apprised of the place where, in each Member State

in which the units are placed on the market, he or she may consult them.

Article 30

The essential elements of the simplified and the full prospectuses must be kept up to date.

Article 31

The accounting information given in the annual report must be audited by one or more persons empowered by law to audit

accounts in accordance with Council Directive 84/253/EEC of 10 April 1984 based on Article 54 (3) (g) of the EEC Treaty on the

approval of persons responsible for carrying out the statutory audits of accounting documents (1). The auditor’s report, includ-

ing any qualifications, shall be reproduced in full in the annual report.

Article 32

UCITS must send their simplified and full prospectuses and any amendments thereto, as well as their annual and half-yearly

reports, to the competent authorities.

Article 33

1. The simplified prospectus must be of fered to subscribers free of charge before the conclusion of the contract.

In addition, the full prospectus and the latest published annual and halfyearly reports shall be supplied to subscribers free of

charge on request.

(1) OJ No L 126, 12. 5. 1984, p. 20.

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The annual and half-yearly reports shall be supplied to unit-holders free of charge on request.

The annual and half-yearly reports must be available to the public at the places, or through other means approved by the com-

petent authorities, specified in the full and simplified prospectus.

B. Publication of other information

Article 34

A UCITS must make public in an appropriate manner the issue, sale, repurchase or redemption price of its units each time it

issues, sells, repurchases or redeems them, and at least twice a month. The competent authorities may, however, permit a

UCITS to reduce the frequency to once a month on condition that such a derogation does not prejudice the interests of the

unit-holders.

Article 35

All publicity comprising an invitation to purchase the units of UCITS must indicate that prospectuses exist and the places where

they may be obtained by the public or how the public may have access to them.

SECTION VII

The general obligations of UCITS

Article 36

1. Neither:

— An investment company, nor

— A management company or depositary acting on behalfof a unit trust, may borrow.

However, a UCTIS may acquire foreign currency by means of a ‘backto-back’ loan.

2. By way of derogation from paragraph 1, a Member State may authorize a UCITS to borrow:

(a) Up to10%

— Of its assets, in the case of an investment company, or

— Of the value of the fund, in the case of a unit trust, provided that the borrowing is on a temporary basis;

(b) Up to 10 % of its assets, in the case of an investment company, provided that the borrowing is to make possible the acqui-

sition of immovable property essential for the direct pursuit of its business; In this case the borrowing and that referred to

in subparagraph (a) may not in any case in total exceed 15 % of the borrower’s assets.

Article 37

1. A UCITS must re-purchase or redeem its units at the request of any unit-holder.

2. By way of derogation from paragraph 1:

(a) A UCITS may, in the cases and according to the procedures provided for by law, the fund rules or the investment com-

pany’s instruments of incorporation, temporarily suspend the re-purchase or redemption of its units. Suspension may be

provided for only in exceptional cases where circumstances so require, and suspension is justified having regard to the

interests of the unit-holders;

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(b) The Member States may allow the competent authorities to require the suspension of the re-purchase or redemption of

units in the interest of the unit-holders or of the public.

3. In the cases mentioned in paragraph 2 (a), a UCITS must without delay communicate its decision to the competent authorities

and to the authorities of all Member States in which it markets its units.

Article 38

The rules for the valuation of assets and the rules for calculating the sale or issue price and the re-purchase or redemp-

tion price of the units of a UCITS must be laid down in the law, in the fund rules or in the investment company’s instru-

ments of incorporation.

Article 39

The distribution or reinvestment of the income of a unit trust or of an investment company shall be effected in accordance with

the law and with the fund rules or the investment company’s instruments of incorporation.

Article 40

A UCITS unit may not be issued unless the equivalent of the net issue price is paid into the assets of the UCITS within the usual

time limits. This provision shall not preclude the distribution of bonus units.

Article 41

1. Without prejudice to the application of Articles 19 and 21, neither:


— A management company or depositary acting on behalfof a unit trust

may grant loans or act as a guarantor on behalfof third parties.

2. Paragraph 1 shall not prevent such undertakings from acquiring transferable securities, money market instruments or other

financial instruments referred to in Article 19(1)(e), (g) and (h) which are not fully paid.

Article 42

Neither:


— A management company or depositary acting on behalfof a unit trust

may carry out uncovered sales of transferable securities, money market instruments or other financial instruments referred to

in Article 19(1)(e), (g) and (h).

Article 43

The law or the fund rules must prescribe the remuneration and the expenditure which a management company is empowered

to charge to a unit trust and the method of calculation of such remuneration.

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The law or an investment company’s instruments of incorporation must prescribe the nature of the cost to be borne by

the company.

SECTION VIII

Special provisions applicable to UCITS which market their units in Member States

other than those in which they are situated

Article 44

1. A UCITS which markets its units in another Member State must comply with the laws, regulations and administrative provi-

sions in force in that State which do not fall within the field governed by this Directive.

2. Any UCITS may advertise its units in the Member State in which they are marketed. it must comply the provisions governing

advertising in that State.

3. The provisions referred to in paragraphs 1 and 2 must be applied without discrimination.

Article 45

In the case referred to in Article 44, the UCITS must, inter alia, in accordance with the laws, regulations and administrative

provisions in force in the Member State of marketing, take the measures necessary to ensure that facilities are available in

that State for making payments to unit-holders, re-purchasing or redeeming units and making available the information which

UCITS are obliged to provide.

Article 46

If a UCITS proposes to market its units in a Member State other than that in which it is situated, it must first inform the compe-

tent authorities of that other Member State accordingly. It must simultaneously send the latter authorities:

— An attestation by the competent authorities to the effect that it fulfils the conditions imposed by this Directive,

— Its fund rules or its instruments of incorporation,

— Its full and simplified prospectuses,

— Where appropriate, its latest annual report and any subsequent halfyearly report, and

— Details of the arrangements made of the marketing of its units in that other Member State.

An investment company or a management company may begin to market its units in that other Member State two months after

such communication, unless the authorities of the Member States concerned establish, in a reasoned decision taken before

the expiry of that period of two months, that the arrangements made for the marketing of units do not comply with the provisions

referred to in Article 44(1) and Article 45.

Article 47

If a UCITS markets its units in a Member State other than that in which it is situated, it must distribute in that other Member

State, in accordance with the same procedures as those provided for in the home Member State, the full and simplified pro-

spectuses, the annual and half-yearly reports and the other information provided for in Articles 29 and 30.

These documents shall be provided in the or one of the of ficial languages of the host Member State or in a language approved

by the competent authorities of the host Member State.

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Article 48

For the purpose of carrying on its activities, a UCITS may use the same generic name (such as investment company or unit

trust) in the Community as it uses in the Member State in which it is situated. In the event of any danger of confusion, the host

Member State may, for the purpose of clarification, require that the name be accompanied by certain explanatory particulars.

SECTION IX

Provisions concerning the authorities responsible for authorization and supervision

Article 49

1. The Member States shall designate the authorities which are to carry out the duties provided for in this Directive. They shall

inform the Commission thereof, indicating any division of duties.

2. The authorities referred to in paragraph 1 must be public authorities or bodies appointed by public authorities.

3. The authorities of the State in which a UCITS is situated shall be competent to supervise that UCITS. However, the authorities

of the State in which a UCITS markets its units in accordance with Article 44 shall be competent to supervise compliance

with Section VIII.

4. The authorities concerned must be granted all the powers necessary to carry out their task.

►

Article 50

1. The authorities of the Member States referred to in Article 49 shall collaborate closely in order to carry out their task and

must for that purpose alone communicate to each other all information required.

2. Member States shall provide that all persons who work or who have worked for the competent authorities, as well as audi-

tors and experts instructed by the competent authorities, shall be bound by the obligation of prof essional secrecy. Such

secrecy implies that no confidential information which they may receive in the course of their duties may be divulged to

any person or authority whatsoever, save in summary or aggregate form such that Ucits and management companies and

depositaries (hereinafter referred to as undertakings contributing towards their business activity) cannot be individually

identified, without prejudice to cases covered by criminal law.

Nevertheless, when an Ucits or an undertaking contributing towards its business activity has been declared bankrupt or is

being compulsorily wound up, confidential information which does not concern third parties involved in rescue attempts may

be divulged in civil or commercial proceedings.

3. Paragraph 2 shall not prevent the competent authorities of the various Member States from exchanging information in ac-

cordance with this Directive or other Directives applicable to Ucits or to undertakings contributing towards their business

activity. That information shall be subject to the conditions of prof essional secrecy imposed in paragraph 2.

4. Member States may conclude cooperation agreements providing for exchange of information with the competent authorities

of third countries or with authorities or bodies of third countries as defined in paragraphs 6 and 7 only If the information dis-

closed is subject to guarantees of prof essional secrecy at least equivalent to those referred to in this Article. Such exchange

of information must be intended for the performance of the supervisory task of the authorities or bodies mentioned.

Where the information originates in another Member State, it may not be disclosed without the express agreement of the

competent authorities which have disclosed it and, where appropriate, solely for the purposes for which those authorities

gave their agreement.

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5.

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Competent authorities receiving confidential information under paragraphs 2 or 3 may use it only in the course of

their duties:

— To check that the conditions governing the taking-up of the business of Ucits or of undertakings contributing towards their

business activity are met and to facilitate the monitoring of the conduct of that business, administrative and accounting

procedures and internalcontrol mechanisms,

— To impose sanctions,

— In administrative appeals against decisions by the competent authorities, or

— In court proceedings initiated under Article 51 (2).

6. Paragraphs 2 and 5 shall not preclude the exchange of information:

(a) Within a Member State, where there are two or more competent authorities; Or

(b) Within a Member State or between Member States, between competent authorities; And

— Authorities with public responsibility for the supervision of credit institutions, investment undertakings, insurance un-

dertakings and other financial organizations and the authorities responsible for the supervision of financial markets,

— Bodies involved in the liquidation or bankruptcy of Ucits and other similar procedures and of undertakings contributing

towards their business activity,

— Persons responsible for carrying out statutory audits of the accounts of insurance undertakings, credit institutions,

investment undertakings and other financial institutions,

in the performance of their supervisory functions, or the disclosure to bodies which administer compensation schemes of

information necessary for the performance of their functions. Such information shall be subject to the conditions of prof es-

sional secrecy imposed in paragraph 2.

7. Notwithstanding paragraphs 2 to 5, Member States may authorize exchanges of information between the competent

authorities and:

— The authorities responsible for overseeing the bodies involved in the liquidation and bankruptcy of undertakings for col-

lective investment in transferable securities (Ucits) or undertakings contributing towards their business activity and other

similar procedures, or

— The authorities responsible for overseeing persons charged with carrying out statutory audits of the accounts of insur-

ance undertakings, credit institutions, investment firms and other financial institutions.

Member States which have recourse to the option provided for in the first subparagraph shall require at least that the follow-

ing conditions are met:

— The information shall be for the purpose of performing the task of overseeing referred to in the first subparagraph,

— Information received in this context shall be subject to the conditions of prof essional secrecy imposed in paragraph 2,

— Where the information originates in another Member State, it may not be disclosed without the express agreement of the



Member States shall communicate to the Commission and to the other Member States the names of the authorities which

may receive information pursuant to this paragraph.

8. Notwithstanding paragraphs 2 to 5, Member States may, with the aim of strengthening the stability, including integrity, of the

financial system, authorize the exchange of information between the competent authorities and the authorities or bodies

responsible under the law for the detection and investigation of breaches of company law.

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ing conditons are met:

— The information shall be for the purpose of performing the task referred to in the first subparagraph,

— Information received in this context shall be subject to the conditions of prof essional secrecy imposed in paragraph 2,

— Where the information originates in another Member State, it may not be disclosed without the express agreement of the



Where, in a Member State, the authorities or bodies referred to in the first subparagraph perform their task of detection or

investigation with the aid, in view of their specific competence, of persons appointed for that purpose and not employed in

the public sector the possibility of exchanging information provided for in the first subparagraph may be extended to such

persons under the conditions stipulated in the second subparagraph.

In order to implement the final indent of the second subparagraph, the authorities or bodies referred to in the first subpara-

graph shall communicate to the competent authorities which have disclosed the information the names and precise respon-

sibilities of the persons to whom it is to be sent.

Member States shall communicate to the Commission and to the other Member States the names of the authorities or bodies

which may receive information pursuant to this paragraph.

Before 31 December 2000, the Commission shall draw up a report on the application of this paragraph.

9. This Article shall not prevent a competent authority from transmitting to central banks and other bodies with a similar func-

tion in their capacity as monetary authorities information intended for the performance of their tasks, nor shall it prevent such

authorities or bodies from communicating to the competent authorities such information as they may need for the purposes

of paragraph 5. Information received in this context shall be subject to the conditions of prof essional secrecy imposed in

this Article.

10. This Article shall not prevent the competent authorities from communicating the information referred to in paragraphs 2 to 5

to a clearing house or other similar body recognized under national law for the provision of clearing or settlement services

for one of their Member State’s markets If they consider that it is necessary to communicate the information in order to

ensure the proper functioning of those bodies in relation to defaults or potential defaults by market participants. The infor-

mation received in this context shall be subject to the conditions of prof essional secrecy imposed in paragraph 2. Member

States shall, however, ensure that information received under paragraph 3 may not be disclosed in the circumstances

referred to in this paragraph without the express consent of the competent authorities which disclosed it.

11. In addition, notwithstanding the provisions referred to in paragraphs 2 and 5, Member States may, by virtue of provisions laid

down by law, authorize the disclosure of certain information to other departments of their central government administra-

tions responsible for legislation on the supervision of Ucits and of undertakings contributing towards their business activity,

credit institutions, financial institutions, investment undertakings and insurance undertakings and to inspectors instructed

by those departments.

Such disclosures may, however, be made only where necessary for reasons of prudential control.

Member States shall, however, provide that information received under paragraphs 3 and 6 may never be disclosed in

the circumstances referred to in this paragraph except with the express agreement of the competent authorities which

disclosed the information.

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Article 50a

1. Member States shall provide at least that:

(a) Any person authorized within the meaning of Directive 84/253/ EEC (1), performing in an undertaking for collective invest-

ment in transferable securities (Ucits) or an undertaking contributing towards its business activity the task described in

Article 51 of Directive 78/ 660/EEC (2), Article 37 of Directive 83/349/EEC or Article 31 of Directive 85/611/EEC or any other

statutory task, shall have a duty to report promptly to the competent authorities any fact or decision concerning that

undertaking of which he has become aware while carrying out that task which is liable to:

— Constitute a material breach of the laws, regulations or administrative provisions which lay down the conditions gov-

erning authorization or which specifically govern pursuit of the activities of undertakings for collective investment in

transferable securities (Ucits) or undertakings contributing towards their business activity, or

— Affect the continuous functioning of the undertaking for collective investment in transferable securities (Ucits) or an

undertaking contributing towards its business activity, or

— Lead to refusal to certify the accounts or to the expression of reservations;

(b) That person shall likewise have a duty to report any facts and decisions of which he becomes aware in the course of

carrying out a task as described in (a) in an undertaking having close links resulting from a control relationship with the

undertaking for collective investment in transferable securities (Ucits) or an undertaking contributing towards its busi-

ness activity within which he is carrying out the abovementioned task.

2. The disclosure in good faith to the competent authorities, by persons authorized within the meaning of Directive 84/253/EEC,

of any fact or decision referred to in paragraph 1 shall not constitute a breach of any restriction on disclosure of information

imposed by contract of by any legislative, regulatory or administrative provision and shall not involce such persons in liability

of any kind.

Article 51

1. The authorities referred to in Article 49 must give reasons for any decision to refuse authorization, and any negative

decision taken in implementation of the general measures adopted in application of this Directive, and communicate

them to applicants.

2. The Member States shall provide that decisions taken in respect of a UCITS pursuant to laws, regulations and administrative

provisions adopted in accordance with this Directive are subject to the right to apply to the courts; The same shall apply ifno

decision is taken within six months of its submission on an authorization application made by a UCITS which includes all the

information required under the provisions in force.

Article 52

1. Only the authorities of the Member State in which a UCITS is situated shall have the power to take action against it ifit

infringes any law, regulation or administrative provision or any regulation laid down in the fund rules or in the investment

company’s instruments of incorporation.

2. Nevertheless, the authorities of the Member State in which the units of a UCITS are marketed may take action against it ifit

infringes the provisions referred to in Section VIII.

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(1) OJ No L 126, 12. 5. 1984, p. 20.(2) OJ No L 222, 14. 8. 1978, p. 11. Directive as last amended by Directive 90/ 605/EEC (OJ No L 317, 16. 11. 1990, p. 60).

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3. Any decision to withdraw authorization, or any other serious measure taken against a UCITS, or any suspension of re-pur-

chase or redemption imposed upon it, must be communicated without delay by the authorities of the Member State in which

the UCITS in question is situated to the authorities of the other Member States in which its units are marketed.

Article 52a

1. Where, through the provision of services or by the establishment of branches, a management company operates in one or

more host Member States, the competent authorities of all the Member States concerned shall collaborate closely.

They shall supply one another on request with all the information concerning the management and ownership of such man-

agement companies that is likely to facilitate their supervision and all information likely to facilitate the monitoring of such

companies. In particular, the authorities of the home Member State shall cooperate to ensure that the authorities of the host

Member State collect the particulars referred to in Article 6c(2).

2. nsof ar as it is necessary for the purpose of exercising their powers of supervision, the competent authorities of the home

Member State shall be informed by the competent authorities of the host Member State of any measures taken by the host

Member State pursuant to Article 6c(6) which involve penalties imposed on a management company or restrictions on a

management company’s activities.

Article 52b

1. Each host Member State shall ensure that, where a management company authorised in another Member State carries on

business within its territory through a branch, the competent authorities of the management company’s home Member State

may, after informing the competent authorities of the host Member State, themselves or through the intermediary of persons

they instruct for the purpose, carry out on-the-spot verification of the information referred to in Article 52a.

2. The competent authorities of the management company’s home Member State may also ask the competent authorities of the

management company’s host Member State to have such verification carried out. Authorities which receive such requests

must, within the framework of their powers, act upon them by carrying out the verifications themselves, by allowing the

authorities who have requested them to carry them out or by allowing auditors or experts to do so.

3. This Article shall not affect the right of the competent authorities of the host Member State, in discharging their responsibili-

ties under this Directive, to carry out on-the-spot verifications of branches established within their territory.

SECTION X

European Securities Committee

Article 53a

The technical amendments to be made to this Directive in the following areas shall be adopted in accordance with the proce-

dure referred to in Article 53b(2):

(a) Clarification of the definitions in order to ensure uniform application of this Directive throughout the Community;

(b) Alignment of terminology and the framing of definitions in accordance with subsequent acts on UCITS and related matters.

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Article 53b

1. The Commission shall be assisted by the European Securities Committee instituted by Commission Decision 2001/528/EC (1),

hereinafter ‘the Committee’.

2. Where reference is made to this paragraph, Articles 5 and 7 of Decision 1999/468/EC (2) shall apply, having regard to the

provisions of Article 8 thereof.

The period laid down in Article 5(6) of Decision 1999/468/EC shall be set at three months.

3. The Committee shall adopt its rules of procedure.

SECTION XI

Transitional provisions, derogations and final provisions

Article 54

Solely for the purpose of Danish UCITS, pantebreve issued in Denmark shall be treated as equivalent to the transferable securi-

ties referred to in Article 19 (1) (b).

Article 55

By way of derogation from Articles 7 (1) and 14 (1), the competent authorities may authorize those UCITS which, on the date

of adoption of this Directive, had two or more depositaries in accordance with their national law to maintain that number of

depositaries ifthose authorities have guarantees that the functions to be performed under Articles 7 (3) and 14 (3) will be per-

formed in practice.

Article 56

1. By way of derogation from Article 6, the Member States may authorize management companies to issue bearer certificates

representing the registered securities of other companies.

2. The Member States may authorize those management companies which, on the date of adoption of this Directive, also carry

on activities other than those provided for in Article 6 to continue those other activities for five years after that date.

Article 57

1. The Member States shall bring into force no later than 1 October 1989 the measures necessary for them to comply with this

Directive. They shall forthwith inform the Commission thereof.

2. The Member States may grant UCITS existing on the date of implementation of this Directive a period of not more than 12

months from that date in order to comply with the new national legislation.

3. The Hellenic Republic and the Portuguese Republic shall be authorized to postpone the implementation of this Directive until

1 April 1992 at the latest.

One year before that date the Commission shall report to the Council on progress in implementing the Directive and on any

difficulties which the Hellenic Republic or the Portuguese Republic may encounter in implementing the Directive by the date

referred to in the first subparagraph.

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(1) OJ L 191, 13.7.2001, p. 45. Decision as amended by Decision 2004/8/EC (OJ L 3, 7.1.2004, p. 33).(2) OJ L 184, 17.7.1999, p. 23.

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Article 58

The Member States shall ensure that the Commission is informed of the texts of the main laws, regulations and administrative

provisons which they adopt in the field covered by this Directive.

Article 59

This Directive is addressed to the Member States.

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11. Information concerning the unit trust 1. Information concerning the management company

1. Information concerning the investment company

1.1 Name 1.1 Name or style, form in law, registered office and head office if different from the registered office

1.1 Name or style, form in law, registered office and head office if different from the registered office

1.2 Date of establishment of the common fund. Indication of duration, if limited

1.2 Date of incorporation of the company. Indication of duration, if limited.

1.2 Date of the incorporation of the company. Indication of duration, if limited.

1.3 If the company manages other common funds , indication of those other funds

M4 1.3 In the case of investment companies having different investment compartments, the indication of the compartments.

1.4 Statement of the place where the fund rules, if they are not annexed, and periodic reports may be obtained.

1.4 Statement of the place where the instruments of incorporation, if they are not annexed, and periodical reports may be obtained.

1.5 Brief indications relevant to unit-holders of the tax system applicable to the common fund. Details of whether deductions are made at source from the income and capital gains paid by the common fund to unit-holders.

1.5 Brief indications relevant to unit-holders of the tax system applicable to the company. Details of whether deductions are made at source from the income and capital gains paid by the company to unit-holders.

1.6 Accounting and distribution dates 1.6. Accounting and distribution dates.

1.7 Names of the persons responsible for auditing the accounting information referred to in Article 31.


1.8 Names and positions in the company of the members of the administrative, management and supervisory bodies. Details of their main activities outside the company where these are of significance with respect to that company

1.8 Names and positions in the company of the members of the administrative, management and supervisory bodies. Details of their main activities outside the company where these are of significance with respect to that company.

1.9 Amount of the subscribed capital with an indication of the capital paid-up

1.9 Capital

1.10 Details of the types and main characteristics of the units and in particular:

. The nature of the right (real, personal or other) represented by the unit,

. Original securities or certificates providing evidence of title; entry in a register or in an account,

. Characteristics of the units: Registered or bearer. Indication of any denominations which may be provided for,

. Indication of unit-holders’ voting rights if these exist,

. Circumstances in which winding-up of the common fund can be decided on and winding-up procedure, in particular as regards the rights of unit-holders.


. Original securities or certificates providing evidence of title; entry in a register or in an account,


. Indication of unit-holders’ voting rights,

. Circumstances in which winding-up of the investment company can be decided on and winding-up procedure, in particular as regards the rights of unit-holders.

1.11 Where applicable, indication of stock exchanges or markets where the units are listed or dealt in.

1. 11 Where applicable, indication of stock exchanges or markets where the units are listed or dealt in.

1.12 Procedures and conditions of issue and sale of units


ANNEX M4 1 SCHEDULE A

B

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1.13 Procedures and conditions for re-purchase or redemption of units, and circumstances in which re-purchase or redemption may be suspended.


M4 In the case of investment companies having different investment compartments, information on how a unit-holder may pass from one compartment into another and the charges applicable in such cases.

1.14 Description of rules for determining and applying income.


1.15 Description of the unit trust’s investment objectives, including its financial objectives (e.g. capital growth or income), investment policy (e.g. specialisation in geographical or industrial sectors), any limitations on that investment policy and an indication of any techniques and instruments or borrowing powers which may be used in the management of the unit trust

1.15 Description of the company’s investment objectives, including its financial objectives (e.g. capital growth or income), investment policy (e.g. specialisation in geographical or industrial sectors), any limitations on that investment policy and an indication of any techniques and instruments or borrowing powers which may be used in the management of the company

1.16 Rules for the valuation of assets 1.16 Rules for the valuation of assets

1.17 Determination of the sale or issue price and the re-purchase or redemption price of units, in particular:

- The method and frequency of the calculation of those prices,

- Information concerning the charges relating to the sale or issue and the re-purchase or redemption of units,

- The means, places and frequency of the publication of those prices.




- The means, places and frequency of the publication of those prices(1)

1.18 Information concerning the manner, amount and calculation of remuneration payable by the common fund to the management company, the depositary or third parties, and reimbursement of costs by the common fund to the management company, to the depositary or to third parties.

1.18 Information concerning the manner, amount and calculation of remuneration paid by the company to its directors, and members of the administrative, management and supervisory bodies, to the depositary, or to third parties, and reimbursement of costs by the company to its directors, to the depositary or to third parties.

(1) Investment companies within the meaning of Article 29 (5) of the Directive shall also indicate:- The method and frequency of calculation of the net asset value of units, - The means, place and frequency of the publication of that value, - The stock exchange in the country of marketing the price on which determines the price of transactions effected outwith stock exchanges in

that country.

B

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page 41

1


2. Information concerning the depositary: 2.1. Name or style, form in law, registered office and head office if different from the registered office; 2.2. Main activity.

3. Information concerning the advisory firms or external investment advisers who give advice under contract which is paid for out of the assets of the UCITS:

3.1. Name or style of the firm or name of the adviser; 3.2. Material provisions of the contract with the management company or the investment company which may be relevant to the unit-

holders, excluding those relating to remuneration; 3.3. Other significant activities.

4. Information concerning the arrangements for making payments to unit-holders, re-purchasing or redeeming units and making available information concerning the UCITS. Such information must in any case be given in the Member State in which the UCITS is established. In addition, where units are marketed in another Member State, such information shall be given in respect of that Member State in the prospectus published there.

5. Other investment information: 5.1. Historical performance of the common fund or of the investment company (where applicable) — such information may be either

included in or attached to the prospectus; 5.2. Profile of the typical investor for whom the common fund or the investment company is designed.

6. Economic information: 6.1. Possible expenses or fees, other than the charges mentioned in point 1.17., distinguishing between those to be paid by the unit-holder

and those to be paid out of the common fund’s or of the investment company’s assets.

1

B

M4

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SCHEDULE B

Information to be included in the periodic reports

I. Statement of assets and liabilities -transferable securities,

-debt instruments of the type referred to in Article 19 (2) (b),

-bank balances,

-other assets,

-total assets,

-liabilities,

-net asset value.

II. Number of units in circulation

III. Net asset value per unit

IV. Portfolio, distinguishing between:

(a) Transferable securities admitted to official stock exchange listing;

(b) Transferable securities dealt in on another regulated market;

(c) Recently issued transferable securities of the type referred to in Article 19 (1) (d);

(d) Other transferable securities of the type referred to in Article 19 (2) (a);

(e) Debt instruments treated as equivalent in accordance with Article 19 (2) (b);

And analyzed in accordance with the most appropriate criteria in the light of the investment policy of the UCITS (e. g. in accordance

with economic, geographical or currency criteria) as a percentage of net assets; For each of the above investments the proportion it

represents of the total assets of the UCITS should be stated.

Statement of changes in the composition of the portfolio during the reference period.

V. Statement of the developments concerning the assets of the UCITS during the reference period including the following:

- Income from investments,

- Other income,

- Management charges,

- Depositary’s charges,

- Other charges and taxes,

- Net income,

- Distributions and income reinvested,

- Changes in capital account,

- Appreciation or depreciation of investments,

- Any other changes affecting the assets and liabilities of the UCITS.

VI. A comparative table covering the last three financial years and including, for each financial year, at the end of the financial year:

- The total net asset value,

- The net asset value per unit.

VII. Details, by category of transaction within the meaning of Article 21 carried out by the UCITS during the reference period, of the resulting

amount of commitments.

B

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SCHEDULE C

Contents of the simplified prospectus

Brief presentation of the UCITS

- when the unit trust/common fund or the investment company was created and indication of the Member State where the unit trust/common

fund or the investment company has been registered/incorporated,

- in the case of UCITS having different investment compartments, the indication of this circumstance,

- management company (when applicable),

- expected period of existence (when applicable),

- depositary,

- auditors,

- financial group (e.g. a bank) promoting the UCITS.

Investment information

- short definition of the UCITS’ objectives,

- the unit trust’s/common fund’s or the investment company’s investment policy and a brief assessment of the fund’s risk profile (including, if

applicable, information according to Article 24a and by investment compartment),

- historical performance of the unit trust/common fund/investment company (where applicable) and a warning that this is not an indicator of

future performance - such information may be either included in or attached to the prospectus,

- profile of the typical investor the unit trust/common fund or the investment company is designed for.

Economic information

- tax regime,

- entry and exit commissions,

- other possible expenses or fees, distinguishing between those to be paid by the unit-holder and those to be paid out of the unit trust’s/

common fund’s or the investment company’s assets.

Commercial information

- how to buy the units,

- how to sell the units,

- in the case of UCITS having different investment compartments how to pass from one investment compartment into another and the

charges applicable in such cases,

- when and how dividends on units or shares of the UCITS (if applicable) are distributed,

- frequency and where/how prices are published or made available.

Additional information

- statement that, on request, the full prospectus, the annual and half-yearly reports may be obtained free of charge before the conclusion of

the contract and afterwards,

- competent authority,

- indication of a contact point (person/department, timing, etc.) where additional explanations may be obtained if needed,

- publishing date of the prospectus.»

ANNEX II

Functions included in the activity of collective portfolio management:

- Investment management.

- Administration:

(a) Legal and fund management accounting services;

(b) Customer inquiries;

(c) Valuation and pricing (including tax returns);

(d) Regulatory compliance monitoring;

e) Maintenance of unit-holder register;

(f) Distribution of income;

(g) Unit issues and redemptions;

(h) Contract settlements (including certificate dispatch);

(i) Record keeping.

- Marketing.

M4

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APPENDIX 1B

UCITS IV

DIRECTIVE 2009/65/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCILOF 13 JULY 2009on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS)(recast - text with EEA relevance)

Source: http://ec.europa.eu

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page 2 - Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009

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THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,,

Having regard to the Treaty establishing the European Community, and in particular Article 47(2) thereof,

Having regard to the proposal from the Commission,

Acting in accordance with the procedure laid down in Article 251 of the Treaty(1)

Whereas:

(1) Council Directive 85/611/EEC of 20 December 1985 on the coordination of laws, regulations and administrative provisions relating to

undertakings for collective investment in transferable securities (UCITS)(2) has been substantially amended several times(3). Since

further amendments are to be made, it should be recast in the interests of clarity.

(2) Directive 85/611/EEC has largely contributed to the development and success of the European investment funds industry. However,

despite the improvements introduced since its adoption, in particular in 2001, it has steadily become clear that changes need to be

introduced into the UCITS legal framework in order to adapt it to the financial markets of the twenty-first century. The Commission

Green Paper of 12 July 2005 on the enhancement of the EU framework for investment funds launched a public debate on the way in

which Directive 85/611/EEC should be amended in order to meet those new challenges. That intense consultation process led to the

largely shared conclusion that substantial amendments to that Directive are needed.

(3) National laws governing collective investment undertakings should be coordinated with a view to approximating the conditions of

competition between those undertakings at Community level, while at the same time ensuring more effective and more uniform pro-

tection for unit-holders. Such coordination facilitates the removal of the restrictions on the free movement of units of UCITS in the

Community.

(4) Having regard to those objectives, it is desirable to provide for common basic rules for the authorisation, supervision, structure and

activities of UCITS established in the Member States and the information that they are required to publish.

(5) The coordination of the laws of the Member States should be confined to UCITS other than of the closed-ended type that promote the

sale of their units to the public in the Community. It is desirable that UCITS be permitted, as part of their investment objective, to invest

in financial instruments, other than transferable securities, which are sufficiently liquid. The financial instruments which are eligible

to be investment assets of the portfolio of the UCITS should be listed in this Directive. The selection of investments for a portfolio by

means of an index is a management technique.

(6) Where a provision of this Directive requires that UCITS take action, that provision should be understood to refer to the management

company in cases where the UCITS is constituted as a common fund managed by a management company and where a common fund

is not in a position to act by itself because it has no legal personality of its own.

(7) Units of UCITS are considered to be financial instruments for the purposes of Directive 2004/39/EC of the European Parliament and of

the Council of 21 April 2004 on markets in financial instruments(4).

(1)OpinionoftheEuropeanParliamentof13January2009(notyetpublishedintheOfficialJournal)andCouncilDecisionof22June2009.(2)OJL375,31.12.1985,p.3.(3)SeeAnnexIII,PartA.(4)OJL145,30.4.2004,p.1.

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(8) An authorisation granted to the management company in its home Member State should ensure investor protection and the

solvency of management companies, with a view to contributing to the stability of the financial system. The approach adopted in

this Directive is to ensure the essential harmonisation necessary and sufficient to secure the mutual recognition of authorisation

and of prudential supervision systems, making possible the grant of a single authorisation valid throughout the Community and

the application of the principle of home Member State supervision.

(9) In order to ensure that the management company will be able to fulfil the obligations arising from its activities and thus to ensure

its stability, initial capital and an additional amount of own funds are required. To take account of developments, particularly

those pertaining to capital charges on operational risk, within the Community and other international forums, those requirements,

including the use of guarantees, should be reviewed.

(10) It is necessary, for the protection of investors, to guarantee the internal overview of every management company in particular

by means of a two-person management system and by adequate internal control mechanisms.

(11) By virtue of the principle of home Member State supervision, management companies authorised in their home Member States

should be permitted to provide the services for which they have received authorisation throughout the Community by establish-

ing branches or under the freedom to provide services.

(12) With regard to collective portfolio management (management of unit trusts/common funds or investment companies), the au-

thorisation granted to a management company in its home Member State should permit the company to pursue in host Member

States the following activities, without prejudice to Chapter XI: to distribute, through the establishment of a branch, the units of

the harmonised unit trusts/common funds managed by that company in its home Member State; to distribute, through the estab-

lishment of a branch, the shares of the harmonised investment companies, managed by that company; to distribute the units of

the harmonised unit trusts/common funds or shares of the harmonised investment companies managed by other management

companies; to perform all the other functions and tasks included in the activity of collective portfolio management; to manage

the assets of investment companies incorporated in Member States other than its home Member State; to perform, on the basis

of mandates, on behalf of management companies incorporated in Member States other than its home Member State, the func-

tions included in the activity of collective portfolio management. Where a management company distributes the units of its own

harmonised unit trusts/common funds or shares of its own harmonised investment companies in host Member States, without

the establishment of a branch, it should be subject only to rules regarding cross-border marketing.

(13) With regard to the scope of activity of management companies and in order to take into account national law and permit such

companies to achieve significant economies of scale, it is desirable to permit them also to pursue the activity of management

of portfolios of investments on a client-by-client basis (individual portfolio management), including the management of pension

funds as well as some specific non-core activities linked to the main business without prejudicing the stability of such compa-

nies. However, specific rules should be laid down in order to prevent conflicts of interest when management companies are

authorised to pursue the business of both collective and individual portfolio management.

(14) The activity of management of individual portfolios of investments is an investment service covered by Directive 2004/39/EC.

In order to ensure a homogeneous regulatory framework in this area, it is desirable to subject management companies, the

authorisation of which also covers that service, to the operating conditions laid down in that Directive.

(15) A home Member State should be able, as a general rule, to establish rules stricter than those laid down in this Directive, in

particular as regards authorisation conditions, prudential requirements and the rules on reporting and the prospectus.

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(16) It is desirable to lay down rules defining the preconditions under which a management company may delegate, on the basis of

mandates, specific tasks and functions to third parties so as to increase the efficiency of the conduct of its business. In order

to ensure the correct functioning of the principle of the home Member State supervision, Member States permitting such del-

egations should ensure that the management company to which they granted authorisation does not delegate the totality of its

functions to one or more third parties, so as to become a letter-box entity, and that the existence of mandates does not hinder

an effective supervision over the management company. However, the fact that the management company has delegated its

functions should not affect the liabilities of that company or of the depositary vis-à-vis the unit-holders and the competent

authorities.

(17) In order to ensure a level playing field and appropriate supervision in the long term, it should be possible for the Commission to

examine the possibilities for harmonising delegation arrangements at Community level.

(18) The principle of home Member State supervision requires that the competent authorities withdraw or refuse to grant authori-

sation where factors, such as the content of programmes of operations, the geographical distribution or the activities in fact

pursued indicate clearly that a management company has opted for the legal system of one Member State for the purpose

of evading the stricter standards in force in another Member State within the territory of which it intends to pursue or does

pursue the greater part of its activities. For the purposes of this Directive, a management company should be authorised in the

Member State in which it has its registered office. In accordance with the principle of home Member State supervision, only

the competent authorities of the management company’s home Member State should be considered competent to supervise

the organisation of the management company, including all procedures and resources to perform the function of administration

referred to in Annex II, which should be subject to the law of the management company’s home Member State.

(19) Where the UCITS is managed by a management company authorised in a Member State other than the UCITS home Member

State, that management company should adopt and establish appropriate procedures and arrangements to deal with investor

complaints, such as through appropriate provisions in distribution arrangements or through an address in the UCITS home

Member State, which should not need to be an address of the management company itself. Such a management company

should also establish appropriate procedures and arrangements to make information available at the request of the public or

the competent authorities of the UCITS home Member State, such as through the designation of a contact person, from among

the employees of the management company, to deal with requests for information. However, such a management company

should not be required by the law of the UCITS home Member State to have a local representative in that Member State in order

to fulfil those duties.

(20) The competent authorities that authorise the UCITS should take into account the rules of the common fund or the instruments of

incorporation of the investment company, the choice of the depositary and the ability of the management company to manage

the UCITS. Where the management company is established in another Member State, the competent authorities should be able

to rely on an attestation, issued by the competent authorities of the management company’s home Member State, regarding

the type of UCITS that the management company is authorised to manage. Authorisation of a UCITS should not be subject to an

additional capital requirement at the level of the management company, the location of the management company’s registered

office in the UCITS home Member State, or the location of any activity of the management company in the UCITS home Member

State.

(21) The competent authorities of the UCITS home Member State should be competent to supervise compliance with the rules

regarding the constitution and functioning of the UCITS, which should be subject to the law of the UCITS home Member State.

To this end, the competent authorities of the UCITS home Member State should be able to obtain information directly from the

management company. In particular, the competent authorities of the management company’s host Member State may require

management companies to provide information on transactions concerning the investments of the UCITS authorised in that

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Member State, including information contained in books and records of those transactions and fund accounts. To remedy any

breach of the rules under their responsibility, the competent authorities of the management company’s host Member States should

be able to rely on the cooperation of the competent authorities of the management company’s home Member State and, if necessary,

should be able to take action directly against the management company.

(22) It should be possible for the UCITS home Member State to provide for rules regarding the content of the unit-holder register of the

UCITS. The organisation of the maintenance and the location of that register should, however, remain part of the organisational ar-

rangements of the management company.

(23) It is necessary to provide the UCITS home Member State with all means to remedy any breach in the rules of the UCITS. To that

end, the competent authorities of the UCITS home Member State should be able to take preventive measures and adopt penalties

as regards the management company. As a last resort, the competent authorities of the UCITS home Member State should have

the possibility to require the management company to cease managing the UCITS. Member States should provide for the necessary

provisions in order to arrange for an orderly management or liquidation of the UCITS in such a case.

(24) In order to prevent supervisory arbitrage and promote confidence in the effectiveness of supervision by the home Member State’s

competent authorities, authorisation should be refused where a UCITS is prevented from marketing its units in its home Member

State. Once authorised, UCITS should be free to choose the Member State(s) where its units are to be marketed, in accordance with

this Directive.

(25) To safeguard shareholders’ interests and secure a level playing field in the market for harmonised collective investment undertak-

ings, initial capital is required for investment companies. Investment companies which have designated a management company

will, however, be covered through the management company’s additional amount of own funds.

(26) Where there are applicable rules on the conduct of business and the delegation of functions and where such delegation by a man-

agement company is allowed under the law of its home Member State, authorised investment companies should comply with such

rules, mutatis mutandis, either directly, where they have not designated a management company authorised in accordance with this

Directive, or indirectly, where they have designated such a management company.

(27) Despite the need for consolidation between UCITS, mergers of UCITS encounter many legal and administrative difficulties in the

Community. It is therefore necessary, in order to improve the functioning of the internal market, to lay down Community provisions

facilitating mergers between UCITS (and investment compartments thereof). Although some Member States are likely to authorise

only contractual funds, cross-border mergers between all types of UCITS (contractual, corporate and unit trusts) should be permitted

and recognised by each Member State without the need for Member States to provide for new legal forms of UCITS in their national

law.

(28) This Directive concerns those merger techniques which are most commonly used in Member States. It does not require all Member

States to introduce all three techniques into their national law, but each Member State should recognise a transfer of assets result-

ing from those merger techniques. This Directive does not prevent UCITS from using other techniques on a purely national basis,

in situations where none of the UCITS concerned by the merger has been notified for cross-border marketing of its units. Those

mergers will remain subject to the relevant provisions of national law. National rules on quorum should neither discriminate between

national and cross-border mergers, nor be more stringent than those laid down for mergers of corporate entities.

(29) In order to safeguard investors’ interests, Member States should require proposed domestic or cross-border mergers between

UCITS to be subject to authorisation by their competent authorities. For cross-border mergers, the competent authorities of the

merging UCITS should authorise the merger so as to ensure that the interests of the unit-holders who effectively change UCITS

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are duly protected. If the merger involves more than one merging UCITS and such UCITS are domiciled in different Member States,

the competent authorities of each merging UCITS will need to authorise the merger, in close cooperation with each other, including

through appropriate information-sharing. Since the interests of the unit-holders of the receiving UCITS also need to be adequately

safeguarded, they should be taken into account by the competent authorities of the receiving UCITS home Member State.

(30) Unit-holders of both the merging and the receiving UCITS should also be able to request the repurchase or redemption of their units

or, where possible, to convert them into units in another UCITS with similar investment policies and managed by the same man-

agement company or by a linked company. That right should not be subject to any additional charge, save for fees, to be retained

exclusively by the respective UCITS, to cover disinvestment costs in all situations, as set out in the prospectuses of the merging and

the receiving UCITS.

(31) Third-party control of mergers should also be ensured. The depositaries of each of the UCITS involved in the merger should verify the

conformity of the common draft terms of the merger with the relevant provisions of this Directive and of the UCITS fund rules. Either

a depositary or an independent auditor should draw-up a report on behalf of all the UCITS involved in the merger validating the valu-

ation methods of the assets and liabilities of such UCITS and the calculation method of the exchange ratio as set out in the common

draft terms of merger as well as the actual exchange ratio and, where applicable, the cash payment per unit. In order to limit costs

connected with cross-border mergers, it should be possible to draw up a single report for all UCITS involved and the statutory audi-

tor of the merging or the receiving UCITS should be enabled to do so. For investor protection reasons, unit-holders should be able to

obtain a copy of such report on request and free of charge.

(32) It is particularly important that the unit-holders are adequately informed about the proposed merger and that their rights are suf-

ficiently protected. Although the interests of the unit-holders of the merging UCITS are most concerned by the merger, those of the

unit-holders of the receiving UCITS should also be safeguarded.

(33) The provisions on mergers laid down in this Directive are without prejudice to the application of the legislation on control of concen-

trations between undertakings, in particular Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations

between undertakings (the EC Merger Regulation)(1)

(34) The free marketing of the units issued by UCITS authorised to invest up to 100 % of their assets in transferable securities issued by

the same body (State, local authority, etc.) should not have the direct or indirect effect of disturbing the functioning of the capital

market or the financing of the Member States.

(35) The definition of transferable securities included in this Directive applies only for the purposes of this Directive and does not affect

the various definitions used in national legislation for other purposes such as taxation. Consequently, shares and other securities

equivalent to shares issued by bodies such as building societies and industrial and provident societies, the ownership of which can-

not, in practice, be transferred except by the issuing body buying them back, are not covered by this definition.

(36) Money market instruments comprise transferable instruments which are normally dealt in on the money market rather than on the

regulated markets, for example treasury and local authority bills, certificates of deposit, commercial papers, medium-term notes and

bankers’ acceptances.

(37) The concept of regulated market in this Directive corresponds to that in Directive 2004/39/EC.

(38) It is desirable to permit a UCITS to invest its assets in units of UCITS and other collective investment undertakings of the open-ended

type which also invest in liquid financial assets referred to in this Directive and which operate on the principle of risk spreading. It is

necessary that UCITS or other collective investment undertakings in which a UCITS invests be subject to effective supervision.

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(39) The development of opportunities for a UCITS to invest in UCITS and in other collective investments undertakings should be

facilitated. It is therefore essential to ensure that such investment activity does not diminish investor protection. Because of the

enhanced possibilities for UCITS to invest in the units of other UCITS and collective investment undertakings, it is necessary to

lay down certain rules on quantitative limits, the disclosure of information and prevention of the cascade phenomenon.

(40) In order to take into account market developments and in consideration of the completion of economic and monetary union it

is desirable to permit UCITS to invest in bank deposits. To ensure adequate liquidity of investments in deposits, those deposits

should be repayable on demand or have the right to be withdrawn. If the deposits are made with a credit institution the regis-

tered office of which is located in a third country, the credit institution should be subject to prudential rules equivalent to those

laid down in Community law.

(41) In addition to the case in which a UCITS invests in bank deposits in accordance with its fund rules or instruments of incorpora-

tion, it should be possible to allow all UCITS to hold ancillary liquid assets, such as bank deposits at sight. The holding of such

ancillary liquid assets may be justified, inter alia, in order to cover current or exceptional payments; in the case of sales, for

the time necessary to reinvest in transferable securities, money market instruments or in other financial assets provided for

in this Directive; or for a period of time strictly necessary when, because of unfavourable market conditions, the investment in

transferable securities, money market instruments and in other financial assets is suspended.

(42) For prudential reasons it is necessary to avoid excessive concentration by a UCITS in investments which expose it to counter-

party risk to the same entity or to entities belonging to the same group.

(43) UCITS should be expressly permitted, as part of their general investment policy or for hedging purposes in order to reach a set

financial target or the risk profile indicated in the prospectus, to invest in financial derivative instruments. In order to ensure

investor protection, it is necessary to limit the maximum potential exposure relating to derivative instruments so that it does not

exceed the total net value of the UCITS’ portfolio. In order to ensure constant awareness of the risks and commitments arising

from derivative transactions and to check compliance with investment limits, those risks and commitments should be measured

and monitored on an ongoing basis. Finally, in order to ensure investor protection through disclosure, UCITS should describe

their strategies, techniques and investment limits governing their derivative operations.

(44) It is necessary for measures to address the potential misalignment of interests in products where credit risk is transferred by

securitisation, as envisaged with regard to Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006

relating to the taking up and pursuit of the business of credit institutions(1) and Directive 2006/49/EC of the European Parliament

and of the Council of 14 June 2006 on the capital adequacy of investment firms and credit institutions(2), to be consistent and co-

herent in all relevant financial sector regulation. The Commission will put forward the appropriate legislative proposals, includ-

ing as regards this Directive, to ensure such consistency and coherence, after duly considering the impact of such proposals.

(45) With regard to over-the-counter (OTC) derivatives, requirements should be set in terms of the eligibility of counterparties and

instruments, liquidity and ongoing assessment of the position. The purpose of such requirements is to ensure an adequate level

of investor protection, close to that which they obtain when they acquire derivatives dealt in on regulated markets.

(46) Operations in derivatives should never be used to circumvent the principles or rules set out in this Directive. With regard to

OTC derivatives, additional risk-spreading rules should apply to exposures to a single counterparty or group of counterparties.

(1)OJL177,30.6.2006,p.1.(2)OJL177,30.6.2006,p.201.

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(47) Some portfolio management techniques for collective investment undertakings investing primarily in shares or debt securities are

based on the replication of stock indices or debt-security indices. It is desirable to permit UCITS to replicate well-known and recog-

nised stock indices or debt-security indices. It may therefore be necessary to introduce more flexible risk-spreading rules for UCITS

investing in shares or debt securities to this end.

(48) Collective investment undertakings falling within the scope of this Directive should not be used for purposes other than the collec-

tive investment of the capital raised from the public according to the rules laid down in this Directive. In the cases identified by this

Directive, it should be possible for a UCITS to have subsidiaries only when necessary to pursue effectively, on its own behalf, certain

activities, also defined in this Directive. It is necessary to ensure effective supervision of UCITS. The establishment of a subsidiary of

a UCITS in a third country should therefore be permitted only in the cases identified and in accordance with the conditions laid down

in this Directive. The general obligation to act solely in the interests of unit-holders and, in particular, the objective of increasing cost

efficiencies, never justify a UCITS undertaking measures that could hinder the competent authorities from effectively exercising their

supervisory functions.

(49) The original version of Directive 85/611/EEC contained a derogation from the restriction on the percentage of its assets that a UCITS

can invest in transferable securities issued by the same body, which applied in the case of bonds issued or guaranteed by a Member

State. That derogation allowed UCITS to invest, in particular, up to 35 % of their assets in such bonds. A similar but more limited

derogation is justified with regard to private sector bonds which, even in the absence of a State guarantee, offer special guarantees

to the investor under the specific rules applicable thereto. It is necessary, therefore, to extend the derogation to the totality of private

sector bonds which fulfil jointly fixed criteria, while leaving it to the Member States to draw up the list of bonds to which they intend,

where appropriate, to grant a derogation.

(50) Several Member States have enacted provisions that enable non-coordinated collective investment undertakings to pool their as-

sets in one so-called master fund. In order to allow UCITS to make use of those structures, it is necessary to exempt feeder UCITS

wishing to pool their assets in a master UCITS from the prohibition to invest more than 10 % of their assets or, as the case may be,

20 % of their assets in a single collective investment undertaking. Such an exemption is justified as the feeder UCITS invests all or

almost all of its assets into the diversified portfolio of the master UCITS, which itself is subject to UCITS diversification rules.

(51) In order to facilitate the effective operation of the internal market and to ensure the same level of investor protection throughout the

Community, master-feeder structures should be allowed both where the master and the feeder are established in the same Member

State and where they are established in different Member States. In order to allow investors better to understand master-feeder-

structures and regulators to supervise them more easily, notably in a cross-border situation, no feeder UCITS should be able to invest

into more than one master. In order to ensure the same level of investor protection throughout the Community the master should

itself be an authorised UCITS. In order to avoid an undue administrative burden, provisions on notification of cross-border marketing

should not apply if a master UCITS does not raise capital from the public in a Member State other than that in which it is established,

but has only one or more feeder UCITS in that other Member State.

(52) In order to protect the feeder UCITS’ investors, the feeder UCITS’ investment into the master UCITS should be subject to prior ap-

proval by the competent authorities of the feeder UCITS home Member State. Only the initial investment into the master UCITS, by

which the feeder UCITS exceeds the limit applicable for investing into another UCITS, requires approval. In order to facilitate the

effective operation of the internal market and to ensure the same level of investor protection throughout the Community, the condi-

tions which must be met and the documents and information which are to be provided for approving the feeder UCITS’ investment

into the master UCITS should be exhaustive.

(53) In order to allow the feeder UCITS to act in the best interests of its unit-holders and notably place it in a position to obtain from the

master UCITS all information and documents necessary to perform its obligations, the feeder and the master UCITS should

annexes-1B.indd 9 06/06/11 10:58


enter into a binding and enforceable agreement. If both feeder and master UCITS are managed by the same management company,

however, it should be sufficient that the latter establish internal conduct of business rules. Information-sharing agreements between

the depositaries or the auditors respectively of the feeder UCITS and the master UCITS should ensure the flow of information and

documents that is needed for the feeder UCITS’ depositary or auditor to fulfil its duties. This Directive should ensure that, when

complying with those requirements, the depositaries or the auditors are not to be found in breach of any restriction on disclosure of

information or of data protection.

(54) In order to ensure a high level of protection of the interests of the feeder UCITS’ investors, the prospectus, the key investor informa-

tion, as well as all marketing communications should be adapted to the specificities of master-feeder structures. The investment of

the feeder UCITS into the master UCITS should not affect the ability of the feeder UCITS itself either to repurchase or redeem units

at the request of its unit-holders or to act in the best interests of its unit-holders.

(55) Under this Directive, unit-holders should be protected from being charged unjustified additional costs by a prohibition against master

UCITS charging feeder UCITS subscription and redemption fees. The master UCITS should, however, be able to charge subscription

or redemption fees to other investors in the master UCITS.

(56) The conversion rules should enable an existing UCITS to convert into a feeder UCITS. At the same time they should sufficiently

protect unit-holders. As conversion is a fundamental change of the investment policy, the converting UCITS should be required

to provide its unit-holders with sufficient information in order to enable them to decide whether to maintain their investment. The

competent authorities should not require the feeder UCITS to provide more or information other than that specified in this Directive.

(57) Where the competent authorities of the master UCITS home Member State are informed of an irregularity with regard to the master

UCITS or detect that the master UCITS does not comply with the provisions of this Directive, they may decide, where appropriate, to

take relevant action to ensure that unit-holders of the master UCITS are informed accordingly.

(58) Member States should make a clear distinction between marketing communications and obligatory investor disclosures provided

for under this Directive. Obligatory investor disclosure includes key investor information, the prospectus and annual and half-yearly

reports.

(59) Key investor information should be provided as a specific document to investors, free of charge, in good time before the subscrip-

tion of the UCITS, in order to help them to reach informed investment decisions. Such key investor information should contain only

the essential elements for making such decisions. The nature of the information to be found in the key investor information should

be fully harmonised so as to ensure adequate investor protection and comparability. Key investor information should be presented

in a short format. A single document of limited length presenting the information in a specified sequence is the most appropriate

manner in which to achieve the clarity and simplicity of presentation that is required by retail investors, and should allow for useful

comparisons, notably of costs and risk profile, relevant to the investment decision.

(60) The competent authorities of each Member State may make available to the public, in a dedicated section of their website, key inves-

tor information concerning all UCITS authorised in that Member State.

(61) Key investor information should be produced for all UCITS. Management companies or, where applicable, investment companies

should provide key investor information to the relevant entities, in accordance with the distribution method used (direct sales or

intermediated sales). Intermediaries should provide key investor information to clients and potential clients.

(62) UCITS should be able to market their units in other Member States subject to a notification procedure based on improved com-

munication between the competent authorities of the Member States. Following transmission of a complete notification file by the

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competent authorities of the UCITS home Member State, it should not be possible for the UCITS host Member State to oppose ac-

cess to its market by a UCITS established in another Member State or challenge the authorisation given by that other Member State.

(63) UCITS should be able to market their units subject to their taking the necessary measures to ensure that facilities are available

for making payments to unit-holders, repurchasing or redeeming units and making available the information which UCITS are

required to provide.

(64) In order to facilitate cross-border marketing of units of UCITS, control of compliance of arrangements made for marketing of

units of UCITS with laws, regulations and administrative procedures applicable in the UCITS host Member State, should be per-

formed after the UCITS has accessed the market of that Member State. That control could cover the adequacy of arrangements

made for marketing, in particular the adequacy of distribution arrangements and the obligation for marketing communications

to be presented in a manner that is fair, clear and not misleading. This Directive should not prevent the competent authorities

of the host Member State from verifying that marketing communications, not including key investor information, the prospectus

and annual and half-yearly reports, comply with national law before the UCITS can use them, subject to such control being non-

discriminatory and not preventing that UCITS from accessing the market.

(65) For the purpose of enhancing legal certainty there is a need to ensure that a UCITS which markets its units on a cross-border

basis has easy access, in the form of an electronic publication and in a language customary in the sphere of international

finance, to complete information on the laws, regulations and administrative provisions applicable in the UCITS host Member

State, which specifically relate to the arrangements made for marketing of units of UCITS. Liabilities relating to such publica-

tions should be subject to national law.

(66) To facilitate access of UCITS to the markets of other Member States, the UCITS should be required to translate only the key

investor information into the official language or one of the official languages of a UCITS host Member State or a language

approved by its competent authorities. Key investor information should specify the language(s) in which other obligatory dis-

closure documents and additional information are available. Translations should be produced under the responsibility of the

UCITS, which should decide whether a simple or a sworn translation is necessary.

(67) To facilitate the access to the markets of other Member States, it is important that notification fees are disclosed.

(68) Member States should take the necessary administrative and organisational measures to enable cooperation between national

authorities and competent authorities of other Member States, including through bilateral or multilateral agreements between

those authorities, which could provide for the voluntary delegation of tasks.

(69) It is necessary to enhance convergence of powers at the disposal of competent authorities so as to bring about the equal en-

forcement of this Directive throughout the Member States. A common minimum set of powers, consistent with those conferred

upon competent authorities by other Community financial services legislation should guarantee supervisory effectiveness. In

addition, Member States should lay down rules on penalties, which may include criminal or administrative penalties, and ad-

ministrative measures, applicable to infringements of this Directive. Member States should also take the measures necessary

to ensure that those penalties are enforced.

(70) It is necessary to reinforce provisions on exchange of information between national competent authorities and to strengthen

the duties of assistance and cooperation between them.

(71) For the purpose of cross-border provision of services, clear competences should be assigned to the respective competent

authorities so as to eliminate any gaps or overlaps, in accordance with the applicable law.

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(72) The provisions in this Directive relating to the competent authorities’ effective exercise of their supervisory functions covers super-

vision on a consolidated basis which must be exercised over a UCITS or an undertaking contributing towards its business activity

where the provisions of Community law so provide. In such cases, the authorities applied to for authorisation must be able to identify

the authorities competent to exercise supervision on a consolidated basis over that UCITS or an undertaking contributing towards

its business activity.

(73) The principle of home Member State supervision requires that the competent authorities withdraw or refuse to grant authorisation

where factors such as the content of programmes of operations, the geographical distribution or the activities actually pursued indi-

cate clearly that a UCITS or an undertaking contributing towards its business activity has opted for the legal system of one Member

State for the purpose of evading the stricter standards in force in another Member State within whose territory it pursues or intends

to pursue the greater part of its activities.

(74) Certain behaviour, such as fraud or insider offences, is liable to affect the stability, including integrity, of the financial system, even

when involving undertakings other than UCITS or undertakings contributing towards their business activity.

(75) It is appropriate to provide for the possibility of exchanges of information between the competent authorities and authorities or

bodies which, by virtue of their function, help to strengthen the stability of the financial system. In order to preserve the confidential

nature of the information forwarded, however, the addressees of such exchanges should remain within strict limits.

(76) It is necessary to specify the conditions under which such exchanges of information are authorised.

(77) Where it is stipulated that information may be disclosed only with the express agreement of the competent authorities, these may,

where appropriate, make their agreement subject to compliance with strict conditions.

(78) Exchanges of information between the competent authorities on the one hand and central banks, bodies with a function similar to

central banks, in their capacity as monetary authorities, or, where appropriate, other public authorities responsible for supervising

payment systems on the other, should also be authorised.

(79) The same obligation of professional secrecy on the authorities responsible for authorising and supervising UCITS and the undertak-

ings contributing towards such authorising and supervising and the same possibilities for exchanging information as those granted

to the authorities responsible for authorising and supervising credit institutions, investment firms and insurance undertakings, should

be included in this Directive.

(80) For the purpose of strengthening the prudential supervision of UCITS or of undertakings contributing towards their business activ-

ity and protection of clients of UCITS or of undertakings contributing towards their business activity, auditors should have a duty to

report promptly to the competent authorities, wherever, as provided for by this Directive, they become aware, while carrying out their

tasks, of facts which are likely to have a serious effect on the financial situation or the administrative and accounting organisation of

a UCITS, or an undertaking contributing towards its business activity.

(81) Having regard to the aim in this Directive, it is desirable for Member States to provide that such a duty should apply in all circum-

stances where such facts are discovered by an auditor during the performance of his tasks in an undertaking which has close links

with a UCITS or an undertaking which contributes towards its business activity.

(82) The duty of auditors to communicate, where appropriate, to the competent authorities certain facts and decisions concerning a

UCITS or an undertaking contributing towards its business activity which they discover during the performance of their tasks in an

annexes-1B.indd 12 06/06/11 10:58


entity which is neither a UCITS nor an undertaking contributing towards the business activity of a UCITS does not, alone, change the

nature of their tasks in that entity nor the manner in which they must perform those tasks in that entity.

(83) This Directive should not affect national rules on taxation, including arrangements that may be imposed by Member States to

ensure compliance with those rules in their territory.

(84) The measures necessary for the implementation of this Directive should be adopted in accordance with Council Decision 1999/468/

EC of 28 June 1999 laying down the procedures for the exercise of implementing powers conferred on the Commission(1)

(85) In particular, the Commission should be empowered to adopt the following implementing measures. As regards management

companies, the Commission should be empowered to adopt measures specifying the details of organisational requirements,

risk management, conflicts of interest and rules of conduct. As regards depositaries, the Commission should be empowered to

adopt measures specifying the measures to be taken by depositaries in order to fulfil their duties in regard to UCITS managed

by a management company, established in a Member State other than the UCITS home Member State and the particulars of the

agreement between the depositary and the management company. Those implementing measures should facilitate a uniform

application of the obligations of management companies and depositaries but should not be a precondition for implementing

the right of management companies to pursue the activities for which they have been authorised in their home Member State

throughout the Community by establishing branches or under the freedom to provide services including the management of

UCITS in another Member State.

(86) As regards mergers, the Commission should be empowered to adopt measures designed to specify detailed content, format and

way to provide information to unit-holders.

(87) As regards master-feeder structures, the Commission should be empowered to adopt measures designed to specify the content

of the agreement between master and feeder UCITS or of the internal conduct of business rules, the content of the information-

sharing agreement between either their depositaries or their auditors, the definition of measures appropriate to coordinate the

timing of their net asset value calculation and publication in order to avoid market timing, the impact of the merger of the master

on the authorisation of the feeder, the type of irregularities originating from the master to be reported to the feeder, the format

and the way to provide information to unit-holders in case of conversion from a UCITS to a feeder UCITS, the procedure for

valuing and auditing the transfer of assets from a feeder to a master, and the role of the depositary of the feeder in this process.

(88) As regards the provisions on disclosure, the Commission should be empowered to adopt measures designed to specify the

specific conditions to be met when the prospectus is provided in a durable medium other than paper or by means of a website

which does not constitute a durable medium, the detailed and exhaustive content, form and presentation of the key investor

information taking into account the different nature or components of the UCITS concerned, and the specific conditions for

providing key investor information in a durable medium other than paper or by means of a website which does not constitute a

durable medium.

(89) As regards notification, the Commission should be empowered to adopt measures designed to specify the scope of the infor-

mation on the applicable local rules to be published by host Member State competent authorities and the technical details on

access by host Member State competent authorities to stored and updated UCITS documents.

(90) The Commission should also be empowered, inter alia, to clarify definitions and align terminology and framing definitions in

accordance with subsequent acts on UCITS and related matters.

(1)OJL184,17.7.1999,p.23.

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(91) Since the measures referred to in Recitals 85 to 90 are of general scope and are designed to amend non-essential elements of

this Directive, by supplementing it with new non-essential elements, they must be adopted in accordance with the regulatory

procedure with scrutiny provided for in Article 5a of Decision 1999/468/EC.

(92) Since the objectives of this Directive cannot be sufficiently achieved by the Member States in so far as they involve the adop-

tion of rules with common features applicable at Community level and can therefore, by reason of the scale and effects of

those rules, be better achieved at Community level, the Community may adopt measures, in accordance with the principle of

subsidiarity as set out in Article 5 of the Treaty. In accordance with the principle of proportionality, as set out in that Article, this

Directive does not go beyond what is necessary to achieve those objectives.

(93) The obligation to transpose this Directive into national law should be confined to those provisions that represent a substantive

change as compared with the directives that it recasts. The obligation to transpose the provisions which are unchanged arises

under the earlier directives.

(94) This Directive should be without prejudice to the obligations of the Member States relating to the time limits for transposition

into national law and application of the Directives set out in Annex III, Part B.

(95) In accordance with point 34 of the Interinstitutional Agreement on better law-making(1), Member States are encouraged to draw

up, for themselves and in the interest of the Community, their own tables illustrating, as far as possible, the correlation between

this Directive and the transposition measures, and to make them public.

(1)OJC321,31.12.2003,p.1.

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CHAPTER I SUBJECT MATTER, SCOPE AND DEFINITIONS Articles 1 to 4

CHAPTER II AUTHORISATION OF UCITS Article 5

CHAPTER III OBLIGATIONS REGARDING MANAGEMENT COMPANIES

SECTION 1 Conditions for taking up business Articles 6 to 8

SECTION 2 Relations with third countries Article 9

SECTION 3 Operating conditions Articles 10 to 15

SECTION 4 Freedom of establishment and freedom to provide services Articles 16 to 21

CHAPTER IV OBLIGATIONS REGARDING THE DEPOSITARY Articles 22 to 26

CHAPTER V OBLIGATIONS REGARDING INVESTMENT COMPANIES

SECTION 1 Conditions for taking up business Articles 27 to 29

SECTION 2 Operating conditions Articles 30 and 31

SECTION 3 Obligations regarding the depositary Articles 32 to 36

CHAPTER VI MERGERS OF UCITS

SECTION 1 Principle, authorisation and approval Articles 37 to 40

SECTION 2 Third party control, information of unit-holders and other rights of unit-holders Articles 41 to 45

SECTION 3 Costs and entry into effect Articles 46 to 48

CHAPTER VII OBLIGATIONS CONCERNING THE INVESTMENT POLICIES OF UCITS Articles 49 to 57

CHAPTER VIII MASTER-FEEDER STRUCTURES

SECTION 1 Scope and approval Articles 58 and 59

SECTION 2 Common provisions for feeder UCITS and master UCITS Article 60

SECTION 3 Depositaries and auditors Articles 61 and 62

SECTION 4 Compulsory information and marketing communications by the feeder UCITS Article 63

SECTION 5 Conversion of existing UCITS into feeder UCITS and change of master UCITS Article 64

SECTION 6 Obligations and competent authorities Articles 65 to 67

CHAPTER IX OBLIGATIONS CONCERNING INFORMATION TO BE PROVIDED TO INVESTORS

SECTION 1 Publication of a prospectus and periodical reports Articles 68 to 75

SECTION 2 Publication of other information Articles 76 and 77

SECTION 3 Key investor information Articles 78 to 82

CHAPTER X GENERAL OBLIGATIONS OF UCITS Articles 83 to 90

CHAPTER XI SPECIAL PROVISIONS APPLICABLE TO UCITS WHICH MARKET THEIR

UNITS IN MEMBER STATES OTHER THAN THOSE IN WHICH

THEY ARE ESTABLISHED Articles 91 to 96

CHAPTER XII PROVISIONS CONCERNING THE AUTHORITIES RESPONSIBLE

FOR AUTHORISATION AND SUPERVISION Articles 97 to 110

CHAPTER XIII EUROPEAN SECURITIES COMMITTEE Articles 111 and 112

CHAPTER XIV DEROGATIONS, TRANSITIONAL AND FINAL PROVISIONS

SECTION 1 Derogations Articles 113 and 114

SECTION 2 Transitional and final provisions Articles 115 to 119

ANNEXI SchedulesAandB

ANNEXII Functionsincludedintheactivityofcollectiveportfoliomanagement

ANNEXIII

PartA RepealedDirectivewithlistofitssuccessiveamendments

PartB Listoftimelimitsfortranspositionintonationallawandapplication

ANNEXIV Correlationtable

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CHAPTER ISUBJECT MATTER, SCOPE AND DEFINITIONS

Article 11. This Directive applies to undertakings for collective investment in transferable securities (UCITS) established within the territories

of the Member States.

2. For the purposes of this Directive, and subject to Article 3, UCITS means an undertaking:

(a) with the sole object of collective investment in transferable securities or in other liquid financial assets referred to in Article

50(1) of capital raised from the public and which operate on the principle of risk-spreading; and

(b) with units which are, at the request of holders, repurchased or redeemed, directly or indirectly, out of those undertakings’

assets. Action taken by a UCITS to ensure that the stock exchange value of its units does not significantly vary from their net

asset value shall be regarded as equivalent to such repurchase or redemption.

Member States may allow UCITS to consist of several investment compartments.

3. The undertakings referred to in paragraph 2 may be constituted in accordance with contract law (as common funds managed by

management companies), trust law (as unit trusts), or statute (as investment companies).

For the purposes of this Directive:

(a) ‘common funds’ shall also include unit trusts;

(b) ‘units’ of UCITS shall also include shares of UCITS.

4. Investment companies, the assets of which are invested through the intermediary of subsidiary companies, mainly other than in

transferable securities, shall not be subject to this Directive.

5. The Member States shall prohibit UCITS which are subject to this Directive from transforming themselves into collective invest-

ment undertakings which are not covered by this Directive.

6. Subject to the provisions in Community law governing capital movements and subject to Articles 91 and 92 and the second

subparagraph of Article 108(1), no Member State shall apply any other provisions in the field covered by this Directive to UCITS

established in another Member State or to the units issued by such UCITS, where those UCITS market their units within the ter-

ritory of that Member State.

7. Without prejudice to this Chapter, a Member State may apply to UCITS established within its territory requirements which are

stricter than or additional to those laid down in this Directive, provided that they are of general application and do not conflict

with the provisions of this Directive.

Article 21. For the purposes of this Directive the following definitions apply:

(a) depositary’ means an institution entrusted with the duties set out in Articles 22 and 32 and subject to the other provisions laid

down in Chapter IV and Section 3 of Chapter V;

(b) ‘management company’ means a company, the regular business of which is the management of UCITS in the form of common

funds or of investment companies (collective portfolio management of UCITS);

(c) ‘management company’s home Member State’ means the Member State in which the management company has its registered

office;

(d) ‘management company’s host Member State’ means a Member State, other than the home Member State, within the territory

of which a management company has a branch or provides services;

annexes-1B.indd 16 06/06/11 10:58


(e) ‘UCITS home Member State’ means the Member State in which the UCITS is authorised pursuant to Article 5;

(f) ‘UCITS host Member State’ means a Member State, other than the UCITS home Member State, in which the units of the UCITS

are marketed;

(g) ‘branch’ means a place of business which is a part of the management company, which has no legal personality and which

provides the services for which the management company has been authorised;

(h) ‘competent authorities’ means the authorities which each Member State designates under Article 97;

(i) ‘close links’ means a situation in which two or more natural or legal persons are linked by either:

(i) ‘participation’, which means the ownership, direct or by way of control, of 20 % or more of the voting rights or capital of an

undertaking; or

(ii) ‘control’, which means the relationship between a ‘parent undertaking’ and a ‘subsidiary’, as defined in Articles 1 and 2 of

Seventh Council Directive 83/349/EEC of 13 June 1983 based on the Article 54(3)(g) of the Treaty on consolidated accounts(1)

and in all the cases referred to in Article 1(1) and (2) of Directive 83/349/EEC, or a similar relationship between any natural

or legal person and an undertaking;

(j) ‘qualifying holding’ means a direct or indirect holding in a management company which represents 10 % or more of the capital

or of the voting rights or which makes it possible to exercise a significant influence over the management of the management

company in which that holding subsists;

(k) ‘initial capital’ means the funds as referred to in Article 57(a) and (b) of Directive 2006/48/EC;

(l) ‘own funds’ means own funds as referred to in Title V, Chapter 2, Section 1 of Directive 2006/48/EC;

(m) ‘durable medium’ means an instrument which enables an investor to store information addressed personally to that investor

in a way that is accessible for future reference for a period of time adequate for the purposes of the information and which

allows the unchanged reproduction of the information stored;

(n) ‘transferable securities’ means:

(i) shares in companies and other securities equivalent to shares in companies (shares);

(ii) bonds and other forms of securitised debt (debt securities);

(iii) any other negotiable securities which carry the right to acquire any such transferable securities by subscription or ex-

change;

(o) ‘money market instruments’ means instruments normally dealt in on the money market which are liquid and have a value which

can be accurately determined at any time;

(p) ‘mergers’ means an operation whereby:

(i) one or more UCITS or investment compartments thereof, the ‘merging UCITS’, on being dissolved without going into liquida-

tion, transfer all of their assets and liabilities to another existing UCITS or an investment compartment thereof, the ‘receiving

UCITS’, in exchange for the issue to their unit-holders of units of the receiving UCITS and, if applicable, a cash payment not

exceeding 10 % of the net asset value of those units;

(ii) two or more UCITS or investment compartments thereof, the ‘merging UCITS’, on being dissolved without going into liquida-

tion, transfer all of their assets and liabilities to a UCITS which they form or an investment compartment thereof, the ‘receiv-

ing UCITS’, in exchange for the issue to their unit-holders of units of the receiving UCITS and, if applicable, a cash payment

not exceeding 10 % of the net asset value of those units;

(iii) one or more UCITS or investment compartments thereof, the ‘merging UCITS’, which continue to exist until the liabilities

have been discharged, transfer their net assets to another investment compartment of the same UCITS, to a UCITS which

they form or to another existing UCITS or an investment compartment thereof, the ‘receiving UCITS’;

(q) ‘cross-border merger’ means a merger of UCITS:

(i) at least two of which are established in different Member States; or

(ii) established in the same Member State into a newly constituted UCITS established in another Member State;

(r) ‘domestic merger’ means a merger between UCITS established in the same Member State where at least one of the involved

UCITS has been notified pursuant to Article 93.

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2. For the purposes of paragraph 1(b), the regular business of a management company shall include the functions referred to in

Annex II.

3. For the purposes of paragraph 1(g), all the places of business established in the same Member State by a management company

with its head office in another Member State shall be regarded as a single branch.

4. For the purposes of point (i)(ii) of paragraph 1, the following shall apply:

(a) a subsidiary undertaking of a subsidiary undertaking shall also be considered to be a subsidiary of the parent undertaking

which is at the head of those undertakings;

(b) situations in which two or more natural or legal persons are permanently linked to the same person by a control relationship

shall also be regarded as constituting a close links between such persons.

5. For the purposes of paragraph 1(j), the voting rights referred to in Articles 9 and 10 of Directive 2004/109/EC of the European Parlia-

ment and of the Council of 15 December 2004 on the harmonisation of transparency requirements in relation to information about

issuers whose securities are admitted to trading on a regulated market(1) shall be taken into account.

6. For the purposes of paragraph 1(l), Articles 13 to 16 of Directive 2006/49/EC shall apply mutatis mutandis.

7. For the purposes of paragraph 1(n), transferable securities shall exclude the techniques and instruments referred to in Article 51.

Article 3The following undertakings are not subject to this Directive:

(a) collective investment undertakings of the closed-ended type;

(b) collective investment undertakings which raise capital without promoting the sale of their units to the public within the Com-

munity or any part of it;

(c) collective investment undertakings the units of which, under the fund rules or the instruments of incorporation of the investment

company, may be sold only to the public in third countries;

(d) categories of collective investment undertakings prescribed by the regulations of the Member States in which such collective

investment undertakings are established, for which the rules laid down in Chapter VII and Article 83 are inappropriate in view of

their investment and borrowing policies.

Article 4For the purposes of this Directive, a UCITS shall be deemed to be established in its home Member State.

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(1)OJL390,31.12.2004,p.38

CHAPTER IIAUTHORISATION OF UCITS

Article 51. No UCITS shall pursue activities as such unless it has been authorised in accordance with this Directive.

Such authorisation shall be valid for all Member States.

2. A common fund shall be authorised only if the competent authorities of its home Member State have approved the application

of the management company to manage that common fund, the fund rules and the choice of depositary. An investment company

shall be authorised only if the competent authorities of its home Member State have approved both its instruments of incorpora-

tion and the choice of depositary, and, where relevant, the application of the designated management company to manage that

investment company.

3. Without prejudice to paragraph 2, if the UCITS is not established in the management company’s home Member State, the com-

petent authorities of the UCITS home Member State shall decide, on the application of the management company, to manage the

UCITS pursuant to Article 20. Authorisation shall not be subject either to a requirement that the UCITS be managed by a manage-

ment company having its registered office in the UCITS home Member State or that the management company pursue or delegate

any activities in the UCITS home Member State.

4. The competent authorities of the UCITS home Member State shall not authorise a UCITS if:

(a) they establish that the investment company does not comply with the preconditions laid down in Chapter V; or

(b) the management company is not authorised for the management of UCITS in its home Member State.

Without prejudice to Article 29(2), the management company or, where applicable, the investment company, shall be informed,

within two months of the submission of a complete application, whether or not authorisation of the UCITS has been granted.

The competent authorities of the UCITS home Member State shall not authorise a UCITS if the directors of the depositary are not

of sufficiently good repute or are not sufficiently experienced also in relation to the type of UCITS to be managed. To that end, the

names of the directors of the depositary and of every person succeeding them in office shall be communicated forthwith to the

competent authorities.

Directors shall mean those persons who, under the law or the instruments of incorporation, represent the depositary, or who ef-

fectively determine the policy of the depositary.

5. The competent authorities of the UCITS home Member State shall not grant authorisation if the UCITS is legally prevented (for

example, through a provision in the fund rules or instruments of incorporation) from marketing its units in its home Member State.

6. Neither the management company nor the depositary shall be replaced, nor shall the fund rules or the instruments of incorpora-

tion of the investment company be amended, without the approval of the competent authorities of the UCITS home Member State.

7. The Member States shall ensure that complete information on the laws, regulations and administrative provisions implementing

this Directive which relate to the constitution and functioning of the UCITS are easily accessible at a distance or by electronic

means. Member States shall ensure that such information is available at least in a language customary in the sphere of interna-

tional finance, provided in a clear and unambiguous manner, and kept up to date.

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CHAPTER IIIOBLIGATIONS REGARDING MANAGEMENT COMPANIES

SECTION 1


Article 61. Access to the business of management companies shall be subject to prior authorisation to be granted by the competent authorities

of the management company’s home Member State. Authorisation granted under this Directive to a management company shall be

valid for all Member States.

2. No management company shall engage in activities other than the management of UCITS authorised under this Directive, with the

exception of the additional management of other collective investment undertakings which are not covered by this Directive and for

which the management company is subject to prudential supervision but the units of which cannot be marketed in other Member

States under this Directive.

The activity of management of UCITS shall include, for the purpose of this Directive, the functions referred to in Annex II.

3. By way of derogation from paragraph 2, Member States may authorise management companies to provide, in addition to the manage-

ment of UCITS, the following services:

(a) management of portfolios of investments, including those owned by pension funds, in accordance with mandates given by inves-

tors on a discretionary, client-by-client basis, where such portfolios include one or more of the instruments listed in Annex I, Sec-

tion C to Directive 2004/39/EC; and

(b) as non-core services:

(i) investment advice concerning one or more of the instruments listed in Annex I, Section C to Directive 2004/39/EC;

(ii) safekeeping and administration in relation to units of collective investment undertakings.

Management companies shall not be authorised under this Directive to provide only the services referred to in this paragraph, or to

provide non-core services without being authorised for the services referred to in point (a) of the first subparagraph.

4. Article 2(2) and Articles 12, 13 and 19 of Directive 2004/39/EC shall apply to the provision of the services referred to in paragraph 3 of

this Article by management companies.

Article 71. Without prejudice to other conditions of general application laid down by national law, the competent authorities shall not grant au-

thorisation to a management company unless the following conditions are met:

(a) the management company has an initial capital of at least EUR 125 000, taking into account the following:

(i) when the value of the portfolios of the management company exceeds EUR 250 000 000, the management company must be

required to provide an additional amount of own funds which is equal to 0,02 % of the amount by which the value of the portfolios

of the management company exceeds EUR 250 000 000 but the required total of the initial capital and the additional amount must

not, however, exceed EUR 10 000 000;

(ii) for the purposes of this paragraph, the following portfolios must be deemed to be the portfolios of the management company:

- common funds managed by the management company including portfolios for which it has delegated the management func-

tion but excluding portfolios that it is managing under delegation,

- investment companies for which the management company is the designated management company,

- other collective investment undertakings managed by the management company including portfolios for which it has del-

egated the management function but excluding portfolios that it is managing under delegation;

(iii) irrespective of the amount of those requirements, the own funds of the management company must at no time be less than the

amount prescribed in Article 21 of Directive 2006/49/EC;

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(b) the persons who effectively conduct the business of a management company are of sufficiently good repute and are suffi-

ciently experienced also in relation to the type of UCITS managed by the management company, the names of those persons

and of every person succeeding them in office being communicated forthwith to the competent authorities and the conduct of

the business of a management company being decided by at least two persons meeting such conditions;

(c) the application for authorisation is accompanied by a programme of activity setting out, at least, the organisational structure

of the management company; and

(d) the head office and the registered office of the management company are located in the same Member State.

For the purposes of point (a) of the first subparagraph, Member States may authorise management companies not to provide up to

50 % of the additional amount of own funds referred to in point (i) of point (a) if they benefit from a guarantee of the same amount

given by a credit institution or an insurance undertaking which has its registered office in a Member State, or in a third country

where it is subject to prudential rules considered by the competent authorities as equivalent to those laid down in Community law.

2. Where close links exist between the management company and other natural or legal persons, the competent authorities shall

grant authorisation only if those close links do not prevent the effective exercise of their supervisory functions.

The competent authorities shall also refuse authorisation if the laws, regulations or administrative provisions of a third country

governing one or more natural or legal persons with which the management company has close links, or difficulties involved in

their enforcement, prevent the effective exercise of their supervisory functions.

The competent authorities shall require management companies to provide them with the information they require to monitor

compliance with the conditions referred to in this paragraph on a continuous basis.

3. The competent authorities shall inform the applicant within six months of the submission of a complete application whether or not

authorisation has been granted. Reasons shall be given where an authorisation is refused.

4. A management company may start business as soon as authorisation has been granted.

5. The competent authorities may withdraw the authorisation issued to a management company subject to this Directive only where

that company:

(a) does not make use of the authorisation within 12 months, expressly renounces the authorisation or has ceased the activity

covered by this Directive more than six months previously, unless the Member State concerned has provided for authorisation

to lapse in such cases;

(b) has obtained the authorisation by making false statements or by any other irregular means;

(c) no longer fulfils the conditions under which authorisation was granted;

(d) no longer complies with Directive 2006/49/EC if its authorisation also covers the discretionary portfolio management service

referred to in Article 6(3)(a) of this Directive;

(e) has seriously or systematically infringed the provisions adopted pursuant to this Directive; or

(f) falls within any of the cases where national law provides for withdrawal.

Article 81. The competent authorities shall not grant authorisation to take up the business of management companies until they have been

informed of the identities of the shareholders or members, whether direct or indirect, natural or legal persons, that have qualifying

holdings and of the amounts of those holdings.

The competent authorities shall refuse authorisation if, taking into account the need to ensure the sound and prudent manage-

ment of a management company, they are not satisfied as to the suitability of the shareholders or members referred to in the first

subparagraph.

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2. In the case of branches of management companies that have registered offices outside the Community and are taking up or

pursuing business, the Member States shall not apply provisions that result in treatment more favourable than that accorded to

branches of management companies that have registered offices in Member States.

3. The competent authorities of the other Member State involved shall be consulted beforehand in relation to the authorisation of

any management company which is one of the following:

(a) a subsidiary of another management company, an investment firm, a credit institution or an insurance undertaking authorised

in another Member State;

(b) a subsidiary of the parent undertaking of another management company, an investment firm, a credit institution or an insur-

ance undertaking authorised in another Member State; or

(c) a company controlled by the same natural or legal persons as control another management company, an investment firm, a

credit institution or an insurance undertaking authorised in another Member State.

SECTION 2

Relations with third countries

Article 91. Relations with third countries shall be regulated in accordance with the relevant rules laid down in Article 15 of Directive 2004/39/EC.

For the purposes of this Directive, the terms ‘investment firm’ and‘investment firms’ referred to in Article 15 of Directive 2004/39/EC

shall mean, respectively, ‘management company’ and‘management companies’; the term ‘providing investment services’ referred

to in Article 15(1) of Directive 2004/39/EC shall mean ‘providing services’.

2. Member States shall inform the Commission of any general difficulties which UCITS encounter in marketing their units in any third

country.

SECTION 3


Article 101. The competent authorities of the management company’s home Member State shall require that the management company which

they have authorised complies at all times with the conditions laid down in Article 6 and Article 7(1) and (2).

The own funds of a management company shall not fall below the level specified in Article 7(1)(a). If they do, however, the com-

petent authorities may, where the circumstances so justify, allow such firms a limited period in which to rectify their situations or

cease their activities.

2. The prudential supervision of a management company shall be the responsibility of the competent authorities of the management

company’s home Member State, whether the management company establishes a branch or provides services in another Mem-

ber State or not, without prejudice to those provisions of this Directive which confer responsibility to the competent authorities of

a management company’s host Member State.

Article 111. Qualifying holdings in management companies shall be subject to the same rules as those laid down in Articles 10, 10a and 10b

of Directive 2004/39/EC.

2. For the purposes of this Directive, the terms ‘investment firm’ and ‘investment firms’ referred to in Article 10 of Directive 2004/39/

EC, mean, respectively, ‘management company’ and‘management companies’.

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Article 121. Each Member State shall draw up prudential rules which management companies authorised in that Member State, with regard

to the activity of management of UCITS authorised according to this Directive, shall observe at all times.

In particular, the competent authorities of the management company’s home Member State, having regard also to the nature of

the UCITS managed by a management company, shall require that each such company:

(a) has sound administrative and accounting procedures, control and safeguard arrangements for electronic data processing

and adequate internal control mechanisms including, in particular, rules for personal transactions by its employees or for the

holding or management of investments in financial instruments in order to invest on its own account and ensuring, at least, that

each transaction involving the UCITS may be reconstructed according to its origin, the parties to it, its nature, and the time and

place at which it was effected and that the assets of the UCITS managed by the management company are invested according

to the fund rules or the instruments of incorporation and the legal provisions in force;

(b) is structured and organised in such a way as to minimise the risk of UCITS’ or clients’ interests being prejudiced by conflicts of

interest between the company and its clients, between two of its clients, between one of its clients and a UCITS, or between

two UCITS.

2. Each management company the authorisation of which also covers the discretionary portfolio management service referred to

in Article 6(3)(a) shall:

(a) not be permitted to invest all or a part of the investor’s portfolio in units of collective investment undertakings it manages, un-

less it receives prior general approval from the client;

(b) be subject with regard to the services referred to in Article 6(3) to the provisions laid down in Directive 97/9/EC of the European

Parliament and of the Council of 3 March 1997 on investor-compensation schemes(1)

3. Without prejudice to Article 116, the Commission shall adopt, by 1 July 2010, implementing measures specifying the procedures

and arrangements as referred to under point (a) of the second subparagraph of paragraph 1 and the structures and organisational

requirements to minimise conflicts of interests as referred to under point (b) of the second subparagraph of paragraph 1.

Those measures, designed to amend non-essential elements of this Directive by supplementing it, shall be adopted in accordance

with the regulatory procedure with scrutiny referred to in Article 112(2).

Article 131. If the law of the management company’s home Member State allows management companies to delegate to third parties for the

purpose of a more efficient conduct of the companies’ business, to carry out on their behalf one or more of their own functions,

all of the following preconditions shall be complied with:

(a) the management company must inform the competent authorities of its home Member State in an appropriate manner; the

competent authorities of the management company’s home Member State must, without delay, transmit the information to the

competent authorities of the UCITS home Member State;

(b) the mandate must not prevent the effectiveness of supervision over the management company, and, in particular, must not

prevent the management company from acting, or the UCITS from being managed, in the best interests of its investors;

(c) when the delegation concerns the investment management, the mandate must be given only to undertakings which are au-

thorised or registered for the purpose of asset management and subject to prudential supervision; the delegation must be in

accordance with investment-allocation criteria periodically laid down by the management companies;

(d) where the mandate concerns the investment management and is given to a third-country undertaking, cooperation between

the supervisory authorities concerned must be ensured;

(e) a mandate with regard to the core function of investment management must not be given to the depositary or to any other

undertaking whose interests may conflict with those of the management company or the unit-holders;

(1)OJL84,26.3.1997,p.22.

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(f) measures must exist which enable the persons who conduct the business of the management company to monitor effectively at

any time the activity of the undertaking to which the mandate is given;

(g) the mandate must not prevent the persons who conduct the business of the management company from giving further instruc-

tions to the undertaking to which functions are delegated at any time or from withdrawing the mandate with immediate effect

when this is in the interest of investors;

(h) having regard to the nature of the functions to be delegated, the undertaking to which functions will be delegated must be quali-

fied and capable of undertaking the functions in question; and

(i) the UCITS’ prospectuses must list the functions which the management company has been allowed to delegate in accordance

with this Article.

2. The liability of the management company or the depositary shall not be affected by delegation by the management company of

any functions to third parties. The management company shall not delegate its functions to the extent that it becomes a letter-box

entity.

Article 141. Each Member State shall draw up rules of conduct which management companies authorised in that Member State shall ob-

serve at all times. Such rules shall implement at least the principles set out in this paragraph. Those principles shall ensure that

a management company:

(a) acts honestly and fairly in conducting its business activities in the best interests of the UCITS it manages and the integrity of

the market;

(b) acts with due skill, care and diligence, in the best interests of the UCITS it manages and the integrity of the market;

(c) has and employs effectively the resources and procedures that are necessary for the proper performance of its business

activities;

(d) tries to avoid conflicts of interests and, when they cannot be avoided, ensures that the UCITS it manages are fairly treated; and

(e) complies with all regulatory requirements applicable to the conduct of its business activities so as to promote the best inter-

ests of its investors and the integrity of the market.

2. Without prejudice to Article 116, the Commission shall adopt, by 1 July 2010, implementing measures, with a view to ensuring that

the management company complies with the duties set out in paragraph 1, in particular to:

(a) establish appropriate criteria for acting honestly and fairly and with due skill, care and diligence in the best interests of the

UCITS;

(b) specify the principles required to ensure that management companies employ effectively the resources and procedures that

are necessary for the proper performance of their business activities; and

(c) define the steps that management companies might reasonably be expected to take to identify, prevent, manage or disclose

conflicts of interest as well as to establish appropriate criteria for determining the types of conflicts of interest whose exist-

ence may damage the interests of the UCITS.



Article 15Management companies or, where relevant, investment companies shall take measures in accordance with Article 92 and establish

appropriate procedures and arrangements to ensure that they deal properly with investor complaints and that there are no restric-

tions on investors exercising their rights in the event that the management company is authorised in a Member State other than the

UCITS home Member State. Those measures shall allow investors to file complaints in the official language or one of the official

languages of their Member State.

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Management companies shall also establish appropriate procedures and arrangements to make information available at the re-

quest of the public or the competent authorities of the UCITS home Member State.

SECTION 4

Freedom of establishment and freedom to provide services

Article 161. Member States shall ensure that a management company, authorised by its home Member State, may pursue within their territo-

ries the activity for which it has been authorised, either by the establishment of a branch or under the freedom to provide services.

Where a management company so authorised proposes, without establishing a branch, only to market the units of the UCITS it

manages as provided for in Annex II in a Member State other than the UCITS home Member State, without proposing to pursue

any other activities or services, such marketing shall be subject only to the requirements of Chapter XI.

2. Member States shall not make the establishment of a branch or the provision of the services subject to any authorisation require-

ment, to any requirement to provide endowment capital or to any other measure having equivalent effect.

3. Subject to the conditions set out in this Article, a UCITS shall be free to designate, or to be managed by a management company

authorised in a Member State other than the UCITS home Member State in accordance with the relevant provisions of this Direc-

tive, provided that such a management company complies with the provisions of:

(a) Article 17 or Article 18; and

(b) Articles 19 and 20.

Article 171. In addition to meeting the conditions imposed in Articles 6 and 7, a management company wishing to establish a branch within the

territory of another Member State to pursue the activities for which it has been authorised shall notify the competent authorities

of its home Member State accordingly.

2. Member States shall require every management company wishing to establish a branch within the territory of another Member

State to provide the following information and documents, when effecting the notification provided for in paragraph 1:

(a) the Member State within the territory of which the management company plans to establish a branch;

(b) a programme of operations setting out the activities and services according to Article 6(2) and (3) envisaged and the organisa-

tional structure of the branch, which shall include a description of the risk management process put in place by the manage-

ment company. It shall also include a description of the procedures and arrangements taken in accordance with Article 15;

(c) the address in the management company’s host Member State from which documents may be obtained; and

(d) the names of those responsible for the management of the branch.

3. Unless the competent authorities of the management company’s home Member State have reason to doubt the adequacy of the

administrative structure or the financial situation of a management company, taking into account the activities envisaged, they

shall, within two months of receiving all the information referred to in paragraph 2, communicate that information to the compe-

tent authorities of the management company’s host Member State and shall inform the management company accordingly. They

shall also communicate details of any compensation scheme intended to protect investors.

Where the competent authorities of the management company’s home Member State refuse to communicate the information

referred to in paragraph 2 to the competent authorities of the management company’s host Member State, they shall give reasons

for such refusal to the management company concerned within two months of receiving all the information. The refusal or any

failure to reply shall be subject to the right to apply to the courts in the management company’s home Member State.

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Where a management company wishes to pursue the activity of collective portfolio management referred to in Annex II, the

competent authorities of the management company’s home Member State shall enclose with the documentation sent to the

competent authorities of the management company’s host Member State an attestation that the management company has been

authorised pursuant to the provisions of this Directive, a description of the scope of the management company’s authorisation and

details of any restriction on the types of UCITS that the management company is authorised to manage.

4. A management company which pursues activities by a branch within the territory of the host Member State shall comply with the

rules drawn up by the management company’s host Member State pursuant to Article 14.

5. The competent authorities of the management company’s host Member State shall be responsible for supervising compliance

with paragraph 4.

6. Before the branch of a management company starts business, the competent authorities of the management company’s host

Member State shall, within two months of receiving the information referred to in paragraph 2, prepare for supervising the compli-

ance of the management company with the rules under their responsibility.

7. On receipt of a communication from the competent authorities of the management company’s host Member State or on the expiry

of the period provided for in paragraph 6 without receipt of any communication from those authorities, the branch may be estab-

lished and start business.

8. In the event of change of any particulars communicated in accordance with paragraph 2(b), (c) or (d), a management company

shall give written notice of that change to the competent authorities of the management company’s home Member State and

of the management company’s host Member State at least one month before implementing the change so that the competent

authorities of the management company’s home Member State may take a decision on the change under paragraph 3 and the

competent authorities of the management company’s host Member State may do so under paragraph 6.

9. In the event of a change in the particulars communicated in accordance with the first subparagraph of paragraph 3, the compe-

tent authorities of the management company’s home Member State shall inform the competent authorities of the management

company’s host Member State accordingly.

The competent authorities of the management company’s home Member State shall update the information contained in the at-

testation referred to in the third subparagraph of paragraph 3 and inform the competent authorities of the management company’s

host Member State whenever there is a change in the scope of the management company’s authorisation or in the details of any

restriction on the types of UCITS that the management company is authorised to manage.

Article 181. Any management company wishing to pursue the activities for which it has been authorised within the territory of another Mem-

ber State for the first time under the freedom to provide services shall communicate the following information to the competent

authorities of the management company’s home Member State:

(a) the Member State within the territory of which the management company intends to operate; and

(b) a programme of operations stating the activities and services referred to in Article 6(2) and (3) envisaged which shall include

a description of the risk management process put in place by the management company. It shall also include a description of

the procedures and arrangements taken in accordance with Article 15.

2. The competent authorities of the management company’s home Member State shall, within one month of receiving the informa-

tion referred to in paragraph 1, forward it to the competent authorities of the management company’s host Member State.

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The competent authorities of the management company’s home Member State shall also communicate details of any applicable

compensation scheme intended to protect investors.

Where a management company wishes to pursue the activity of collective portfolio management as referred to in Annex II, the

competent authorities of the management company’s home Member State shall enclose with the documentation sent to the

competent authorities of the management company’s host Member State an attestation that the management company has been

authorised pursuant to the provisions of this Directive, a description of the scope of the management company’s authorisation and

details of any restriction on the types of UCITS that the management company is authorised to manage.

Notwithstanding Articles 20 and 93, the management company may then start business in the management company’s host Mem-

ber State.

3. A management company which pursues activities under the freedom to provide services shall comply with the rules drawn up by

the management company’s home Member State pursuant to Article 14.

4. Where the content of the information communicated in accordance with paragraph 1(b) is amended, the management company

shall give notice of the amendment in writing to the competent authorities of the management company’s home Member State

and of the management company’s host Member State before implementing the change. The competent authorities of the man-

agement company’s home Member State shall update the information contained in the attestation referred to in paragraph 2 and

inform the competent authorities of the management company’s host Member State whenever there is a change in the scope of

the management company’s authorisation or in the details of any restriction on the types of UCITS that the management company

is authorised to manage.

Article 191. A management company which pursues the activity of collective portfolio management on a cross-border basis by establishing a

branch or under the freedom to provide services shall comply with the rules of the management company’s home Member State

which relate to the organisation of the management company, including delegation arrangements, risk-management procedures,

prudential rules and supervision, procedures referred to in Article 12 and the management company’s reporting requirements.

Those rules shall be no stricter than those applicable to management companies conducting their activities only in their home

Member State.

2. The competent authorities of the management company’s home Member State shall be responsible for supervising compliance

with paragraph 1.

3. A management company which pursues the activity of collective portfolio management on a cross-border basis by establishing a

branch or in accordance with the freedom to provide services shall comply with the rules of the UCITS home Member State which

relate to the constitution and functioning of the UCITS, namely the rules applicable to:

(a) the setting up and authorisation of the UCITS;

(b) the issuance and redemption of units and shares;

(c) investment policies and limits, including the calculation of total exposure and leverage;

(d) restrictions on borrowing, lending and uncovered sales;

(e) the valuation of assets and the accounting of the UCITS;

(f) the calculation of the issue or redemption price, and errors in the calculation of the net asset value and related investor com-

pensation;

(g) the distribution or reinvestment of the income;

(h) t he disclosure and reporting requirements of the UCITS, including the prospectus, key investor information and periodic re-

ports;

(i) the arrangements made for marketing;

annexes-1B.indd 27 06/06/11 10:58


(j) the relationship with unit-holders;

(k) the merging and restructuring of the UCITS;

(l) the winding-up and liquidation of the UCITS;

(m) where applicable, the content of the unit-holder register;

(n) the licensing and supervision fees regarding the UCITS; and

(o) the exercise of unit-holders’ voting rights and other unit-holders’ rights in relation to points (a) to (m).

4. The management company shall comply with the obligations set out in the fund rules or in the instruments of incorporation, and

the obligations set out in the prospectus, which shall be consistent with the applicable law as referred to in paragraphs 1 and 3.

5. The competent authorities of the UCITS home Member State shall be responsible for supervising compliance with paragraphs 3

and 4.

6. The management company shall decide and be responsible for adopting and implementing all the arrangements and organisa-

tional decisions which are necessary to ensure compliance with the rules which relate to the constitution and functioning of the

UCITS and with the obligations set out in the fund rules or in the instruments of incorporation, and with the obligations set out in

the prospectus.

7. The competent authorities of the management company’s home Member State shall be responsible for supervising the adequacy

of the arrangements and organisation of the management company so that the management company is in a position to comply

with the obligations and rules which relate to the constitution and functioning of all the UCITS it manages.

8. Member States shall ensure that any management company authorised in a Member State is not subject to any additional re-

quirement established in the UCITS home Member State in respect of the subject matter of this Directive, except in the cases

expressly referred to in this Directive.

Article 201. Without prejudice to Article 5, a management company which applies to manage a UCITS established in another Member State

shall provide the competent authorities of the UCITS home Member State with the following documentation:

(a) the written agreement with the depositary referred to in Articles 23 and 33; and

(b) information on delegation arrangements regarding functions of investment management and administration referred to in Annex II.

If a management company already manages other UCITS of the same type in the UCITS home Member State, reference to the

documentation already provided shall be sufficient.

2. In so far as it is necessary to ensure compliance with the rules for which they are responsible, the competent authorities of the

UCITS home Member State may ask the competent authorities of the management company’s home Member State for clarifica-

tion and information regarding the documentation referred to in paragraph 1 and, based on the attestation referred to in Articles

17 and 18, as to whether the type of UCITS for which authorisation is requested falls within the scope of the management com-

pany’s authorisation. Where applicable, the competent authorities of the management company’s home Member State shall

provide their opinion within 10 working days of the initial request.

3. The competent authorities of the UCITS home Member State may refuse the application of the management company only if:

(a) the management company does not comply with the rules falling under their responsibility pursuant to Article 19;

(b) the management company is not authorised by the competent authorities of its home Member State to manage the type of

UCITS for which authorisation is requested; or

(c) the management company has not provided the documentation referred to in paragraph 1.

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Before refusing an application, the competent authorities of the UCITS home Member State shall consult the competent authori-

ties of the management company’s home Member State.

4. Any subsequent material modifications of the documentation referred to in paragraph 1 shall be notified by the management

company to the competent authorities of the UCITS home Member State.

Article 211. A management company’s host Member State may, for statistical purposes, require all management companies with branches

within its territory to report periodically on their activities pursued in that host Member State to the competent authorities of that

host Member State.

2. A management company’s host Member State may require management companies pursuing business within its territory through

the establishment of a branch or under the freedom to provide services, to provide the information necessary for the monitoring

of their compliance with the rules under the responsibility of the management company’s host Member State that apply to them.

Those requirements shall not be more stringent than those which the same Member State imposes on management companies

authorised in that Member State for the monitoring of their compliance with the same standards.

Management companies shall ensure that the procedures and arrangements referred to in Article 15 enable the competent

authorities of the UCITS home Member State to obtain directly from the management company the information referred to in this

paragraph.

3. Where the competent authorities of a management company’s host Member State ascertain that a management company that

has a branch or provides services within its territory is in breach of one of the rules under their responsibility, those authorities

shall require the management company concerned to put an end to that breach and inform the competent authorities of the man-

agement company’s home Member State thereof.

4. If the management company concerned refuses to provide the management company’s host Member State with information

falling under its responsibility, or fails to take the necessary steps to put an end to the breach referred to in paragraph 3, the com-

petent authorities of the management company’s host Member State shall inform the competent authorities of the management

company’s home Member State accordingly. The competent authorities of the management company’s home Member State shall,

at the earliest opportunity, take all appropriate measures to ensure that the management company concerned provides the infor-

mation requested by the management company’s host Member State pursuant to paragraph 2 or puts an end to the breach. The

nature of those measures shall be communicated to the competent authorities of the management company’s host Member State.

5. If, despite the measures taken by the competent authorities of the management company’s home Member State or because such

measures prove to be inadequate or are not available in the Member State in question, the management company continues to

refuse to provide the information requested by the management company’s host Member State pursuant to paragraph 2, or per-

sists in breaching the legal or regulatory provisions, referred to in the same paragraph, in force in the management company’s

host Member State, the competent authorities of the management company’s host Member State may, after informing the com-

petent authorities of the management company’s home Member State, take appropriate measures, including under Articles 98

and 99, to prevent or penalise further irregularities and, in so far as necessary, to prevent that management company from initiat-

ing any further transaction within its territory. Member States shall ensure that within their territories it is possible to serve the

legal documents necessary for those measures on management companies. Where the service provided within the management

company’s host Member State is the management of a UCITS, the management company’s host Member State may require the

management company to cease managing that UCITS.

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6. Any measure adopted pursuant to paragraphs 4 or 5 involving measures or penalties shall be properly justified and communicated

to the management company concerned. Every such measure shall be subject to the right to apply to the courts in the Member

State which adopted it.

7. Before following the procedure laid down in paragraphs 3, 4 or 5 the competent authorities of the management company’s host

Member State may, in emergencies, take any precautionary measures necessary to protect the interests of investors and others

for whom services are provided. The Commission and the competent authorities of the other Member States concerned shall be

informed of such measures at the earliest opportunity.

After consulting the competent authorities of the Member States concerned, the Commission may decide that the Member State

in question must amend or abolish those measures.

8. The competent authorities of the management company’s home Member State shall consult the competent authorities of the

UCITS home Member State before withdrawing the authorisation of the management company. In such cases, the competent

authorities of the UCITS home Member State shall take appropriate measures to safeguard investors’ interests. Those measures

may include decisions preventing the management company concerned from initiating any further transactions within its territory.

Every two years the Commission shall issue a report on such cases.

9. Member States shall inform the Commission of the number and type of cases in which they refuse authorisation under Article 17

or an application under Article 20 and of any measures taken in accordance with paragraph 5 of this Article.

Every two years the Commission shall issue a report on such cases.

CHAPTER IVOBLIGATIONS REGARDING THE DEPOSITARY

Article 221. The assets of a common fund shall be entrusted to a depositary for safe-keeping.

2. A depositary’s liability as referred to in Article 24 shall not be affected by the fact that it has entrusted to a third party all or some

of the assets in its safe-keeping.

3. A depositary shall:

(a) ensure that the sale, issue, repurchase, redemption and cancellation of units effected on behalf of a common fund or by a

management company are carried out in accordance with the applicable national law and the fund rules;

(b) ensure that the value of units is calculated in accordance with the applicable national law and the fund rules;

(c) carry out the instructions of the management company, unless they conflict with the applicable national law or the fund rules;

(d) ensure that in transactions involving a common fund’s assets any consideration is remitted to it within the usual time limits;

(e) ensure that a common fund’s income is applied in accordance with the applicable national law and the fund rules.

Article 231. A depositary shall either have its registered office or be established in the UCITS home Member State.

2. A depositary shall be an institution which is subject to prudential regulation and ongoing supervision. It shall also furnish suffi-

cient financial and professional guarantees to be able effectively to pursue its business as depositary and meet the commitments

inherent in that function.

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3. Member States shall determine which of the categories of institutions referred to in paragraph 2 shall be eligible to be depositaries.

4. The depositary shall enable the competent authorities of the UCITS home Member State to obtain, on request, all information

that the depositary has obtained while discharging its duties and that is necessary for the competent authorities to supervise the

UCITS compliance with this Directive.

5. Where the management company’s home Member State is not the UCITS home Member State, the depositary shall sign a written

agreement with the management company regulating the flow of information deemed necessary to allow it to perform the func-

tions set out in Article 22 and in other laws, regulations or administrative provisions which are relevant for depositaries in the

UCITS home Member State.

6. The Commission may adopt implementing measures in relation to the measures to be taken by a depositary in order to fulfil its

duties regarding a UCITS managed by a management company established in another Member State, including the particulars

that need to be included in the standard agreement to be used by the depositary and the management company in accordance

with paragraph 5.



Article 24A depositary shall, in accordance with the national law of the UCITS home Member State, be liable to the management company

and the unit-holders for any loss suffered by them as a result of its unjustifiable failure to perform its obligations or its improper

performance of them.

Liability to unit-holders may be invoked directly or indirectly through the management company, depending on the legal nature of

the relationship between the depositary, the management company and the unit-holders.

Article 251. No company shall act as both management company and depositary.

2. In the context of their respective roles, the management company and the depositary shall act independently and solely in the

interest of the unit-holders.

Article 26The law or the fund rules shall lay down the conditions for the replacement of the management company and the depositary and

rules to ensure the protection of unit-holders in the event of such replacement.

CHAPTER VOBLIGATIONS REGARDING INVESTMENT COMPANIES

SECTION 1


Article 27Access to the business of an investment company shall be subject to prior authorisation to be granted by the competent authorities

of the investment company’s home Member State.

Member States shall determine the legal form which an investment company must take.

The registered office of the investment company shall be situated in the investment company’s home Member State.

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Article 28No investment company may engage in activities other than those referred to in Article 1(2).

Article 291. Without prejudice to other conditions of general application laid down by national law, the competent authorities of the invest-

ment company’s home Member State shall not grant authorisation to an investment company that has not designated a manage-

ment company unless the investment company has a sufficient initial capital of at least EUR 300 000.

In addition, when an investment company has not designated a management company authorised pursuant to this Directive, the

following conditions shall apply:

(a) the authorisation must not be granted unless the application for authorisation is accompanied by a programme of operations

setting out, at least, the organisational structure of the investment company;

(b) the directors of the investment company must be of sufficiently good repute and be sufficiently experienced also in relation to

the type of business pursued by the investment company and, to that end: the names of the directors and of every person suc-

ceeding them in office must be communicated forthwith to the competent authorities; the conduct of an investment company’s

business must be decided by at least two persons meeting such conditions; and ‘directors’ shall mean those persons who,

under the law or the instruments of incorporation, represent the investment company, or who effectively determine the policy

of the company; and

(c) where close links exist between the investment company and other natural or legal persons, the competent authorities must

grant authorisation only if those close links do not prevent the effective exercise of their supervisory functions.

The competent authorities of the investment company’s home Member State shall also refuse authorisation if the laws, regula-

tions or administrative provisions of a third country governing one or more natural or legal persons with which the investment

company has close links, or difficulties involved in their enforcement, prevent the effective exercise of their supervisory functions.

The competent authorities of the investment company’s home Member State shall require investment companies to provide them

with the information they need.

2. Where an investment company has not designated a management company, the investment company shall be informed, within

six months of the submission of a complete application, whether or not authorisation has been granted. Reasons shall be given

whenever an authorisation is refused.

3. An investment company may start business as soon as authorisation has been granted.

4. The competent authorities of the investment company’s home Member State may withdraw the authorisation issued to an invest-

ment company subject to this Directive only where that company:

(a) does not make use of the authorisation within 12 months, expressly renounces the authorisation or has ceased the activity

covered by this Directive more than six months previously, unless the Member State concerned has provided for authorisation

to lapse in such cases;

(b) has obtained the authorisation by making false statements or by any other irregular means;

(c) no longer fulfils the conditions under which authorisation was granted;

(d) has seriously or systematically infringed the provisions adopted pursuant to this Directive; or

(e) falls within any of the cases where national law provides for withdrawal.

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SECTION 2


Article 30Articles 13 and 14 shall apply mutatis mutandis to investment companies that have not designated a management company author-

ised pursuant to this Directive.

For the purpose of the Articles referred to in the first paragraph,‘management company’ means ‘investment company’.

Investment companies shall manage only assets of their own portfolio and shall not, under any circumstances, receive any mandate

to manage assets on behalf of a third party.

Article 31Each investment company’s home Member State shall draw up prudential rules which shall be observed at all times by investment

companies that have not designated a management company authorised pursuant to this Directive.

In particular, the competent authorities of the investment company’s home Member State, having regard also to the nature of the

investment company, shall require that the company has sound administrative and accounting procedures, control and safeguard

arrangements for electronic data processing and adequate internal control mechanisms including, in particular, rules for personal

transactions by its employees or for the holding or management of investments in financial instruments in order to invest its initial

capital and ensuring, at least, that each transaction involving the company may be reconstructed according to its origin, the parties

to it, its nature, and the time and place at which it was effected and that the assets of the investment company are invested accord-

ing to the instruments of incorporation and the legal provisions in force.

SECTION 3


Article 321. The assets of an investment company shall be entrusted to a depositary for safe-keeping.

2. A depositary’s liability as referred to in Article 34 shall not be affected by the fact that it has entrusted to a third party all or some

of the assets in its safe-keeping.

3. A depositary shall ensure the following:

(a) that the sale, issue, repurchase, redemption and cancellation of units effected by or on behalf of an investment company are

carried out in accordance with the law and with the investment company’s instruments of incorporation;

(b) that in transactions involving an investment company’s assets any consideration is remitted to it within the usual time limits;

and

(c) that an investment company’s income is applied in accordance with the law and its instruments of incorporation.

4. An investment company’s home Member State may decide that investment companies established on its territory which market

their units exclusively through one or more stock exchanges on which their units are admitted to official listing are not required

to have depositaries within the meaning of this Directive.

Articles 76, 84 and 85 shall not apply to such investment companies. However, the rules for the valuation of such investment com-

panies’ assets shall be stated in the applicable national law or in their instruments of incorporation.

5. An investment company’s home Member State may decide that investment companies established on its territory which market

at least 80 % of their units through one or more stock exchanges designated in their instruments of incorporation are not required

to have depositaries within the meaning of this Directive provided that their units are admitted to official listing on the stock ex-

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changes of those Member States within the territories of which the units are marketed, and that any transactions which such an

investment company may effect outwith stock exchanges are effected at stock exchange prices only.

The instruments of incorporation of an investment company shall specify the stock exchange in the country of marketing the pric-

es on which shall determine the prices at which that investment company will effect any transactions outwith stock exchanges

in that country.

A Member State shall avail itself of the derogation provided for in the first subparagraph only if it considers that unit-holders have

protection equivalent to that of unit-holders in UCITS which have depositaries within the meaning of this Directive.

Investment companies referred to in this paragraph and in paragraph 4, shall, in particular:

(a) in the absence of national law to this effect, state in their instruments of incorporation the methods of calculation of the net

asset values of their units;

(b) intervene on the market to prevent the stock exchange values of their units from deviating by more than 5 % from their net

asset values;

(c) etablish the net asset values of their units, communicate them to the competent authorities at least twice a week and publish

them twice a month.

At least twice a month, an independent auditor shall ensure that the calculation of the value of units is effected in accordance

with the law and the instruments of incorporation of the investment company.

On such occasions, the auditor shall ensure that the investment company’s assets are invested in accordance with the rules laid

down by law and the instruments of incorporation of the investment company.

6. Member States shall inform the Commission of the identities of the investment companies benefiting from the derogations pro-

vided for in paragraphs 4 and 5.

Article 331. A depositary shall either have its registered office or be established in the same Member State as that of the investment company.

2. A depositary shall be an institution which is subject to prudential regulation and ongoing supervision.

3. Member States shall determine which of the categories of institutions referred to in paragraph 2 shall be eligible to be depositaries.

4. The depositary shall enable the competent authorities of the UCITS home Member State to obtain, on request, all information that

the depositary has obtained while discharging its duties and that is necessary for the competent authorities to supervise compli-

ance of the UCITS with this Directive.

5. Where the management company’s home Member State is not the UCITS home Member State, the depositary shall sign a written

agreement with the management company regulating the flow of information deemed necessary to allow it to perform the func-

tions set out in Article 32 and in other laws, regulations or administrative provisions which are relevant for depositaries in the


6. The Commission may adopt implementing measures in relation to the measures to be taken by a depositary in order to fulfil its

duties regarding a UCITS managed by a management company established in another Member State, including the particulars

that need to be included in the standard agreement to be used by the depositary and the management company in accordance

with paragraph 5.



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Article 34A depositary shall, in accordance with the national law of the investment company’s home Member State, be liable to the invest-

ment company and the unit-holders for any loss suffered by them as a result of its unjustifiable failure to perform its obligations, or

its improper performance of them.

Article 351. No company shall act as both investment company and depositary.

2. In carrying out its role as depositary, the depositary shall act solely in the interests of the unit-holders.

Article 36The law or the instruments of incorporation of the investment company shall lay down the conditions for the replacement of the

depositary and rules to ensure the protection of unit-holders in the event of such replacement.

CHAPTER VIMERGERS OF UCITS

SECTION 1

Principle, authorisation and approval

Article 37For the purposes of this Chapter, a UCITS shall include investment compartments thereof.

Article 381. Member States shall, subject to the conditions set out in this Chapter and irrespective of the manner in which UCITS are constituted

under Article 1(3), allow for cross-border and domestic mergers as defined in Article 2(1)(q) and (r) in accordance with one or more of

the merger techniques provided for in Article 2(1)(p).

2. The merger techniques used for cross-border mergers as defined in Article 2(1)(q) must be provided for under the laws of the merging


The merger techniques used for domestic mergers as defined in Article 2(1)(r) must be provided for under the laws of the Member

State, in which the UCITS are established.

Article 391. Mergers shall be subject to prior authorisation by the competent authorities of the merging UCITS home Member State.

2. The merging UCITS shall provide the following information to the competent authorities of its home Member State:

(a) the common draft terms of the proposed merger duly approved by the merging UCITS and the receiving UCITS;

(b) an up-to-date version of the prospectus and the key investor information, referred to in Article 78, of the receiving UCITS, if estab-

lished in another Member State;

(c) a statement by each of the depositaries of the merging and the receiving UCITS confirming that, in accordance with Article 41, they

have verified compliance of the particulars set out in points (a), (f) and (g) of Article 40(1) with the requirements of this Directive and

the fund rules or instruments of incorporation of their respective UCITS; and

(d) the information on the proposed merger that the merging and the receiving UCITS intend to provide to their respective unit-holders.

That information shall be provided in such a manner as to enable the competent authorities of both the merging and the receiving

UCITS home Member State to read them in the official language or one of the official languages of that Member State or those Member

States, or in a language approved by those competent authorities.

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3. Once the file is complete, the competent authorities of the merging UCITS home Member State shall immediately transmit copies of

the information referred to in paragraph 2 to the competent authorities of the receiving UCITS home Member State. The competent

authorities of the merging and the receiving UCITS home Member State shall, respectively, consider the potential impact of the pro-

posed merger on unit-holders of the merging and the receiving UCITS to assess whether appropriate information is being provided to

unit-holders.

If the competent authorities of the merging UCITS home Member State consider it necessary, they may require, in writing, that the

information to unit-holders of the merging UCITS be clarified.

If the competent authorities of the receiving UCITS home Member State consider it necessary, they may require, in writing, and no later

than 15 working days of receipt of the copies of the complete information referred to in paragraph 2, that the receiving UCITS modify

the information to be provided to its unit-holders.

In such a case, the competent authorities of the receiving UCITS home Member State shall send an indication of their dissatisfaction

to the competent authorities of the merging UCITS home Member State. They shall inform the competent authorities of the merging

UCITS home Member State whether they are satisfied with the modified information to be provided to the unit-holders of the receiving

UCITS within 20 working days of being notified thereof.

4. The competent authorities of the merging UCITS home Member State shall authorise the proposed merger if the following conditions

are met:

(a) the proposed merger complies with all of the requirements of Articles 39 to 42;

(b) the receiving UCITS has been notified, in accordance with Article 93, to market its units in all Member States where the merging

UCITS is either authorised or has been notified to market its units in accordance with Article 93; and

(c) the competent authorities of the merging and the receiving UCITS home Member State are satisfied with the proposed informa-

tion to be provided to unit-holders, or no indication of dissatisfaction from the competent authorities of the receiving UCITS home

Member State has been received under the fourth subparagraph of paragraph 3.

5. If the competent authorities of the merging UCITS home Member State consider that the file is not complete, they shall request ad-

ditional information within 10 working days of receiving the information referred to in paragraph 2.

The competent authorities of the merging UCITS home Member State shall inform the merging UCITS, within 20 working days of sub-

mission of the complete information, in accordance with paragraph 2, whether or not the merger has been authorised.

The competent authorities of the merging UCITS home Member State shall also inform the competent authorities of the receiving

UCITS home Member State of their decision.

6. Member States may, in accordance with the second subparagraph of Article 57(1), provide for a derogation from Articles 52 to 55 for

receiving UCITS.

Article 401. Member States shall require that the merging and the receiving UCITS draw up common draft terms of merger.

The common draft terms of merger shall set out the following particulars:

(a) an identification of the type of merger and of the UCITS involved;

(b) the background to and rationale for the proposed merger;

(c) the expected impact of the proposed merger on the unit-holders of both the merging and the receiving UCITS;

(d) the criteria adopted for valuation of the assets and, where applicable, the liabilities on the date for calculating the exchange ratio

as referred to in Article 47(1);

(e) the calculation method of the exchange ratio;

(f) the planned effective date of the merger;

(g)the rules applicable, respectively, to the transfer of assets and the exchange of units; and

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(h) in the case of a merger pursuant to point (p)(ii) of Article 2(1) and, where applicable, point (p)(iii) of Article 2(1), the fund rules or

instruments of incorporation of the newly constituted receiving UCITS.

The competent authorities shall not require that any additional information is included in the common draft terms of mergers.

2. The merging UCITS and the receiving UCITS may decide to include further items in the common draft terms of merger.

SECTION 2

Third-party control, information of unit-holders and other rights of unit-holders

Article 41Member States shall require that the depositaries of the merging and of the receiving UCITS verify the conformity of the particulars set

out in points (a), (f) and (g) of Article 40(1) with the requirements of this Directive and the fund rules or instruments of incorporation of

their respective UCITS

Article 421. The law of the merging UCITS home Member States shall entrust either a depositary or an independent auditor, approved in accord-

ance with Directive 2006/43/EC of the European Parliament and of the Council of 17 May 2006 on statutory audits of annual accounts

and consolidated accounts(1) to validate the following:

(a) the criteria adopted for valuation of the assets and, where applicable, the liabilities on the date for calculating the exchange ratio,

as referred to in Article 47(1);

(b) where applicable, the cash payment per unit; and

(c) the calculation method of the exchange ratio as well as the actual exchange ratio determined at the date for calculating that ratio,

as referred to in Article 47(1).

2. The statutory auditors of the merging UCITS or the statutory auditor of the receiving UCITS shall be considered independent auditors

for the purposes of paragraph 1.

3. A copy of the reports of the independent auditor, or, where applicable, the depositary shall be made available on request and free of

charge to the unit-holders of both the merging UCITS and the receiving UCITS and to their respective competent authorities.

Article 431. Member States shall require merging and receiving UCITS to provide appropriate and accurate information on the proposed merger

to their respective unit-holders so as to enable them to make an informed judgement of the impact of the proposal on their investment.

2. That information shall be provided to unit-holders of the merging and of the receiving UCITS only after the competent authorities of the

merging UCITS home Member State have authorised the proposed merger under Article 39.

It shall be provided at least 30 days before the last date for requesting repurchase or redemption or, where applicable, conversion

without additional charge under Article 45(1).

3. The information to be provided to unit-holders of the merging and of the receiving UCITS, shall include appropriate and accurate infor-

mation on the proposed merger such as to enable them to take an informed decision on the possible impact thereof on their investment

and to exercise their rights under Articles 44 and 45.

(1)OJL157,9.6.2006,p.87.

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It shall include the following:

(a) the background to and the rationale for the proposed merger;

(b) the possible impact of the proposed merger on unit-holders, including but not limited to any material differences in respect of in-

vestment policy and strategy, costs, expected outcome, periodic reporting, possible dilution in performance, and, where relevant,

a prominent warning to investors that their tax treatment may be changed following the merger;

(c) any specific rights unit-holders have in relation to the proposed merger, including but not limited to the right to obtain additional

information, the right to obtain a copy of the report of the independent auditor or the depositary on request, and the right to request

the repurchase or redemption or, where applicable, the conversion of their units without charge as specified in Article 45(1) and the

last date for exercising that right;

(d) the relevant procedural aspects and the planned effective date of the merger; and

(e) a copy of the key investor information, referred to in Article 78, of the receiving UCITS.

4. If the merging or the receiving UCITS has been notified in accordance with Article 93, the information referred to in paragraph 3 shall be

provided in the official language, or one of the official languages, of the relevant UCITS host Member State, or in a language approved

by its competent authorities. The UCITS required to provide the information shall be responsible for producing the translation. That

translation shall faithfully reflect the content of the original.

5. The Commission may adopt implementing measures specifying the detailed content, format and method by which to provide the infor-

mation referred to in paragraphs 1 and 3.

Those measures, designed to amend non-essential elements of this Directive by supplementing it, shall be adopted in accordance with

the regulatory procedure with scrutiny referred to in Article 112(2).

Article 44Where the national laws of Member States require approval by the unit-holders of mergers between UCITS, Member States shall ensure

that such approval does not require more than 75 % of the votes actually cast by unit-holders present or represented at the general

meeting of unit-holders.

The first paragraph shall be without prejudice to any presence quorum provided for under national laws. Member States shall impose

neither more stringent presence quorums for cross-border than for domestic mergers nor more stringent presence quorums for UCITS

mergers than for mergers of corporate entities.

Article 451. The laws of Member States shall provide that unit-holders of both the merging and the receiving UCITS have the right to request,

without any charge other than those retained by the UCITS to meet disinvestment costs, the repurchase or redemption of their units

or, where possible, to convert them into units in another UCITS with similar investment policies and managed by the same manage-

ment company or by any other company with which the management company is linked by common management or control, or by a

substantial direct or indirect holding. That right shall become effective from the moment that the unit-holders of the merging UCITS and

those of the receiving UCITS, have been informed of the proposed merger in accordance with Article 43 and shall cease to exist five

working days before the date for calculating the exchange ratio referred to in Article 47(1).

2. Without prejudice to paragraph 1, for mergers between UCITS and by way of derogation from Article 84(1), Member States may al-

low the competent authorities to require or to allow the temporary suspension of the subscription, repurchase or redemption of units

provided that such suspension is justified for the protection of the unit-holders.

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SECTION 3

Costs and entry into effect

Article 46Except in cases where UCITS have not designated a management company, Member States shall ensure that any legal, advisory or ad-

ministrative costs associated with the preparation and the completion of the merger shall not be charged to the merging or the receiving

UCITS, or to any of their unit-holders.

Article 471. For domestic mergers, the laws of the Member States shall determine the date on which a merger takes effect as well as the date for

calculating the exchange ratio of units of the merging UCITS into units of the receiving UCITS and, where applicable, for determining

the relevant net asset value for cash payments.

For cross-border mergers, the laws of the receiving UCITS home Member State shall determine those dates. Member States shall

ensure that, where applicable, those dates are after the approval of the merger by unit-holders of the receiving UCITS or the merging

UCITS.

2. The entry into effect of the merger shall be made public through all appropriate means in the manner prescribed by the laws of the

receiving UCITS home Member State, and shall be notified to the competent authorities of the home Member States of the receiving

and the merging UCITS.

3. A merger which has taken effect as provided for in paragraph 1 shall not be declared null and void.

Article 481. A merger effected in accordance with point (p)(i) of Article 2(1) shall have the following consequences:

(a) all the assets and liabilities of the merging UCITS are transferred to the receiving UCITS or, where applicable, to the depositary of

the receiving UCITS;

(b) the unit-holders of the merging UCITS become unit-holders of the receiving UCITS and, where applicable, they are entitled to a cash

payment not exceeding 10 % of the net asset value of their units in the merging UCITS; and

(c) the merging UCITS cease to exist on the entry into effect of the merger.

2. A merger effected in accordance with point (p)(ii) of Article 2(1) shall have the following consequences:

(a) all the assets and liabilities of the merging UCITS are transferred to the newly constituted receiving UCITS or, where applicable, to

the depositary of the receiving UCITS;

(b) the unit-holders of the merging UCITS become unit-holders of the newly constituted receiving UCITS and, where applicable, they

are entitled to a cash payment not exceeding 10 % of the net asset value of their units in the merging UCITS; and

(c) the merging UCITS cease to exist on the entry into effect of the merger.

3. A merger effected in accordance with point (p)(iii) of Article 2(1) shall have the following consequences:

(a) the net assets of the merging UCITS are transferred to the receiving UCITS or, where applicable, the depositary of the receiving

UCITS;

(b) the unit-holders of the merging UCITS become unit-holders of the receiving UCITS; and

(c) the merging UCITS continues to exist until the liabilities have been discharged.

4. Member States shall provide for the establishment of a procedure whereby the management company of the receiving UCITS confirms

to the depositary of the receiving UCITS that transfer of assets and, where applicable, liabilities is complete. Where the receiving

UCITS has not designated a management company, it shall give that confirmation to the depositary of the receiving UCITS.

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CHAPTER VIIOBLIGATIONS CONCERNING THE INVESTMENT POLICIES OF UCITS

Article 49Where UCITS comprise more than one investment compartment, each compartment shall be regarded as a separate UCITS for the

purposes of this Chapter.

Article 501. The investments of a UCITS shall comprise only one or more of the following:

(a) transferable securities and money market instruments admitted to or dealt in on a regulated market as defined in Article 4(1)

(14) of Directive 2004/39/EC;

(b) transferable securities and money market instruments dealt in on another regulated market in a Member State, which oper-

ates regularly and is recognised and open to the public;

(c) transferable securities and money market instruments admitted to official listing on a stock exchange in a third country or dealt

in on another regulated market in a third country which operates regularly and is recognised and open to the public provided

that the choice of stock exchange or market has been approved by the competent authorities or is provided for in law or the

fund rules or the instruments of incorporation of the investment company;

(d) recently issued transferable securities, provided that:

(i) the terms of issue include an undertaking that an application will be made for admission to official listing on a stock ex-

change or to another regulated market which operates regularly and is recognised and open to the public, provided that the

choice of stock exchange or market has been approved by the competent authorities or is provided for in law or the fund

rules or the instruments of incorporation of the investment company; and

(ii) the admission referred to in point (i) is secured within a year of issue;

(e) units of UCITS authorised according to this Directive or other collective investment undertakings within the meaning of Article 1(2)

(a) and (b), whether or not established in a Member State, provided that:

(i) such other collective investment undertakings are authorised under laws which provide that they are subject to supervision

considered by the competent authorities of the UCITS home Member State to be equivalent to that laid down in Community

law, and that cooperation between authorities is sufficiently ensured;

(ii) the level of protection for unit-holders in the other collective investment undertakings is equivalent to that provided for

unit-holders in a UCITS, and in particular that the rules on asset segregation, borrowing, lending, and uncovered sales of

transferable securities and money market instruments are equivalent to the requirements of this Directive;

(iii) the business of the other collective investment undertakings is reported in half-yearly and annual reports to enable an as-

sessment to be made of the assets and liabilities, income and operations over the reporting period; and

(iv) no more than 10 % of the assets of the UCITS or of the other collective investment undertakings, whose acquisition is

contemplated, can, according to their fund rules or instruments of incorporation, be invested in aggregate in units of other

UCITS or other collective investment undertakings;

(f) deposits with credit institutions which are repayable on demand or have the right to be withdrawn, and maturing in no more

than 12 months, provided that the credit institution has its registered office in a Member State or, if the credit institution has its

registered office in a third country, provided that it is subject to prudential rules considered by the competent authorities of the

UCITS home Member State as equivalent to those laid down in Community law;

(g) financial derivative instruments, including equivalent cash-settled instruments, dealt in on a regulated market referred to in

points (a), (b) and (c) or financial derivative instruments dealt in over-the-counter (OTC) derivatives, provided that:

(i) the underlying of the derivative consists of instruments covered by this paragraph, financial indices, interest rates, foreign

exchange rates or currencies, in which the UCITS may invest according to its investment objectives as stated in its fund

rules or instruments of incorporation;

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(ii) the counterparties to OTC derivative transactions are institutions subject to prudential supervision, and belonging to the

categories approved by the competent authorities of the UCITS home Member State; and

(iii) the OTC derivatives are subject to reliable and verifiable valuation on a daily basis and can be sold, liquidated or closed by

an offsetting transaction at any time at their fair value at the UCITS’ initiative; or

(h) money market instruments other than those dealt in on a regulated market, which fall under Article 2(1)(o), if the issue or issuer

of such instruments is itself regulated for the purpose of protecting investors and savings, provided that they are:

(i) issued or guaranteed by a central, regional or local authority or central bank of a Member State, the European Central Bank,

the Community or the European Investment Bank, a third country or, in the case of a Federal State, by one of the members

making up the federation, or by a public international body to which one or more Member States belong;

(ii) issued by an undertaking any securities of which are dealt in on regulated markets referred to in points (a), (b) or (c);

(iii) issued or guaranteed by an establishment subject to prudential supervision, in accordance with criteria defined by Com-

munity law, or by an establishment which is subject to and complies with prudential rules considered by the competent

authorities to be at least as stringent as those laid down by Community law; or

(iv) issued by other bodies belonging to the categories approved by the competent authorities of the UCITS home Member

State provided that investments in such instruments are subject to investor protection equivalent to that laid down in points

(i), (ii) or (iii) and provided that the issuer is a company whose capital and reserves amount to at least EUR 10 000 000 and

which presents and publishes its annual accounts in accordance with Fourth Council Directive 78/660/EEC of 25 July 1978

based on Article 54(3)(g) of the Treaty on the annual accounts of certain types of companies(1), is an entity which, within

a group of companies which includes one or several listed companies, is dedicated to the financing of the group or is an

entity which is dedicated to the financing of securitisation vehicles which benefit from a banking liquidity line.

2. A UCITS shall not, however:

(a) invest more than 10 % of its assets in transferable securities or money market instruments other than those referred to in

paragraph 1; or

(b) acquire either precious metals or certificates representing them.

UCITS may hold ancillary liquid assets.

3. An investment company may acquire movable or immovable property which is essential for the direct pursuit of its business.

Article 511. A management or investment company shall employ a risk-management process which enables it to monitor and measure at any

time the risk of the positions and their contribution to the overall risk profile of the portfolio.

It shall employ a process for accurate and independent assessment of the value of OTC derivatives.

It shall communicate to the competent authorities of its home Member State regularly in regard to the types of derivative instru-

ments, the underlying risks, the quantitative limits and the methods which are chosen in order to estimate the risks associated

with transactions in derivative instruments regarding each managed UCITS.

2. Member States may authorise UCITS to employ techniques and instruments relating to transferable securities and money market

instruments under the conditions and within the limits which they lay down provided that such techniques and instruments are

used for the purpose of efficient portfolio management.

When those operations concern the use of derivative instruments, the conditions and limits shall conform to the provisions laid

down in this Directive.

Under no circumstances shall those operations cause the UCITS to diverge from its investment objectives as laid down in the

UCITS’ fund rules, instruments of incorporation or prospectus.

(1)OJL222,14.8.1978,p.11.

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3. A UCITS shall ensure that its global exposure relating to derivative instruments does not exceed the total net value of its portfolio.

The exposure is calculated taking into account the current value of the underlying assets, the counterparty risk, future market move-

ments and the time available to liquidate the positions. This shall also apply to the third and fourth subparagraphs.

A UCITS may invest, as a part of its investment policy and within the limit laid down in Article 52(5), in financial derivative instruments

provided that the exposure to the underlying assets does not exceed in aggregate the investment limits laid down in Article 52. Member

States may provide that, when a UCITS invests in index-based financial derivative instruments, those investments are not required to

be combined for the purposes of the limits laid down in Article 52.

When transferable securities or money market instruments embed a derivative, the derivative shall be taken into account when com-

plying with the requirements of this Article.

4. Without prejudice to Article 116, the Commission shall adopt, by 1 July 2010, implementing measures specifying the following:

(a) criteria for assessing the adequacy of the risk management process employed by the management company in accordance with

the first subparagraph of paragraph 1;

(b) detailed rules regarding the accurate and independent assessment of the value of OTC derivatives; and

(c) detailed rules regarding the content of and procedure to be followed for communicating the information referred to in the third

subparagraph of paragraph 1 to the competent authorities of the management company’s home Member State.



Article 521. A UCITS shall invest no more than:

(a) 5 % of its assets in transferable securities or money market instruments issued by the same body; or

(b) 20 % of its assets in deposits made with the same body.

The risk exposure to a counterparty of the UCITS in an OTC derivative transaction shall not exceed either:

(a) 10 % of its assets when the counterparty is a credit institution referred to in Article 50(1)(f); or

(b) 5 % of its assets, in other cases.

2. Member States may raise the 5 % limit laid down in the first subparagraph of paragraph 1 to a maximum of 10 %. If they do so, however,

the total value of the transferable securities and the money market instruments held by the UCITS in the issuing bodies in each of which

it invests more than 5 % of its assets shall not exceed 40 % of the value of its assets. That limitation shall not apply to deposits or OTC

derivative transactions made with financial institutions subject to prudential supervision.

Notwithstanding the individual limits laid down in paragraph 1, a UCITS shall not combine, where this would lead to investment of more

than 20 % of its assets in a single body, any of the following:

(a) investments in transferable securities or money market instruments issued by that body;

(b) deposits made with that body; or

(c) exposures arising from OTC derivative transactions undertaken with that body.

3. Member States may raise the 5 % limit laid down in the first subparagraph of paragraph 1 to a maximum of 35 % if the transferable

securities or money market instruments are issued or guaranteed by a Member State, by its local authorities, by a third country or by

a public international body to which one or more Member States belong.

4. Member States may raise the 5 % limit laid down in the first subparagraph of paragraph 1 to a maximum of 25 % where bonds are issued

by a credit institution which has its registered office in a Member State and is subject by law to special public supervision designed to

protect bond-holders. In particular, sums deriving from the issue of those bonds shall be invested in accordance with the law in assets

which, during the whole period of validity of the bonds, are capable of covering claims attaching to the bonds and which, in the event

of failure of the issuer, would be used on a priority basis for the reimbursement of the principal and payment of the accrued interest.

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Where a UCITS invests more than 5 % of its assets in the bonds referred to in the first subparagraph which are issued by a single is-

suer, the total value of these investments shall not exceed 80 % of the value of the assets of the UCITS.

Member States shall send to the Commission a list of the categories of bonds referred to in the first subparagraph together with the

categories of issuers authorised, in accordance with the laws and supervisory arrangements mentioned in that subparagraph, to issue

bonds complying with the criteria set out in this Article. A notice specifying the status of the guarantees offered shall be attached to

those lists. The Commission shall immediately forward that information to the other Member States together with any comments which

it considers appropriate and shall make the information available to the public. Such communications may be the subject of exchanges

of views within the European Securities Committee referred to in Article 112(1).

5. The transferable securities and money market instruments referred to in paragraphs 3 and 4 shall not be taken into account for the

purpose of applying the limit of 40 % referred to in paragraph 2.

The limits provided for in paragraphs 1 to 4 shall not be combined, and thus investments in transferable securities or money market

instruments issued by the same body or in deposits or derivative instruments made with this body carried out in accordance with

paragraphs 1 to 4 shall not exceed in total 35 % of the assets of the UCITS.

Companies which are included in the same group for the purposes of consolidated accounts, as defined in Directive 83/349/EEC or in

accordance with recognised international accounting rules, shall be regarded as a single body for the purpose of calculating the limits

contained in this Article.

Member States may allow cumulative investment in transferable securities and money market instruments within the same group up

to a limit of 20 %.

Article 531. Without prejudice to the limits laid down in Article 56, Member States may raise the limits laid down in Article 52 to a maximum of 20 %

for investment in shares or debt securities issued by the same body when, according to the fund rules or instruments of incorporation,

the aim of the UCITS’ investment policy is to replicate the composition of a certain stock or debt securities index which is recognised

by the competent authorities, on the following basis:

(a) its composition is sufficiently diversified;

(b) the index represents an adequate benchmark for the market to which it refers; and

(c) it is published in an appropriate manner.

2. Member States may raise the limit laid down in paragraph 1 to a maximum of 35 % where that proves to be justified by exceptional

market conditions in particular in regulated markets where certain transferable securities or money market instruments are highly

dominant. The investment up to that limit shall be permitted only for a single issuer.

Article 541. By way of derogation from Article 52, Member States may authorise UCITS to invest in accordance with the principle of risk-spreading

up to 100 % of their assets in different transferable securities and money market instruments issued or guaranteed by a Member State,

one or more of its local authorities, a third country, or a public international body to which one or more Member States belong.

The competent authorities of the UCITS home Member State shall grant such a derogation only if they consider that unit-holders in the

UCITS have protection equivalent to that of unit-holders in UCITS complying with the limits laid down in Article 52.

Such a UCITS shall hold securities from at least six different issues, but securities from any single issue shall not account for more than

30 % of its total assets.

2. The UCITS referred to in paragraph 1 shall make express mention in the fund rules or in the instruments of incorporation of the invest-

ment company of the Member States, local authorities, or public international bodies issuing or guaranteeing securities in which they

intend to invest more than 35 % of their assets.

Such fund rules or instruments of incorporation shall be approved by the competent authorities.

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3. Each UCITS referred to in paragraph 1 shall include a prominent statement in its prospectus and marketing communications

drawing attention to such authorisation and indicating the Member States, local authorities, or public international bodies in the

securities of which it intends to invest or has invested more than 35 % of its assets.

Article 551. A UCITS may acquire the units of UCITS or other collective investment undertakings referred to in Article 50(1)(e), provided that

no more than 10 % of its assets are invested in units of a single UCITS or other collective investment undertaking. Member States

may raise that limit to a maximum of 20 %.

2. Investments made in units of collective investment undertakings other than UCITS shall not exceed, in aggregate, 30 % of the

assets of the UCITS.

Member States may, where a UCITS has acquired units of another UCITS or collective investment undertakings, provide that the

assets of the respective UCITS or other collective investment undertakings are not required to be combined for the purposes of

the limits laid down in Article 52.

3. Where a UCITS invests in the units of other UCITS or collective investment undertakings that are managed, directly or by delega-

tion, by the same management company or by any other company with which the management company is linked by common

management or control, or by a substantial direct or indirect holding, that management company or other company shall not

charge subscription or redemption fees on account of the UCITS’ investment in the units of such other UCITS or collective invest-

ment undertakings.

A UCITS that invests a substantial proportion of its assets in other UCITS or collective investment undertakings shall disclose in

its prospectus the maximum level of the management fees that may be charged both to the UCITS itself and to the other UCITS

or collective investment undertakings in which it intends to invest. It shall indicate in its annual report the maximum proportion of

management fees charged both to the UCITS itself and to the other UCITS or collective investment undertaking in which it invests.

Article 561. An investment company or a management company acting in connection with all of the common funds which it manages and

which fall within the scope of this Directive shall not acquire any shares carrying voting rights which would enable it to exercise

significant influence over the management of an issuing body.

Pending further coordination, Member States shall take account of existing rules defining the principle stated in the first subpara-

graph in the law of other Member States.

2. A UCITS may acquire no more than:

(a) 10 % of the non-voting shares of a single issuing body;

(b) 10 % of the debt securities of a single issuing body;

(c) 25 % of the units of a single UCITS or other collective investment undertaking within the meaning of Article 1(2)(a) and (b); or

(d) 10 % of the money market instruments of a single issuing body.

The limits laid down in points (b), (c) and (d) may be disregarded at the time of acquisition if at that time the gross amount of the

debt securities or of the money market instruments, or the net amount of the securities in issue, cannot be calculated.

3. A Member State may waive the application of paragraphs 1 and 2 as regards:

(a) transferable securities and money market instruments issued or guaranteed by a Member State or its local authorities;

(b) transferable securities and money market instruments issued or guaranteed by a third country;

(c) transferable securities and money market instruments issued by a public international body to which one or more Member

States belong;

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(d) shares held by a UCITS in the capital of a company incorporated in a third country investing its assets mainly in the securities of

issuing bodies having their registered offices in that country, where under the legislation of that country such a holding represents

the only way in which the UCITS can invest in the securities of issuing bodies of that country; or

(e) shares held by an investment company or investment companies in the capital of subsidiary companies pursuing only the business

of management, advice or marketing in the country where the subsidiary is established, in regard to the repurchase of units at unit-

holders’ request exclusively on its or their behalf.

The derogation referred to in point (d) of the first subparagraph of this paragraph shall apply only if in its investment policy the company

from the third country complies with the limits laid down in Articles 52 and 55 and in paragraphs 1 and 2 of this Article. Where the limits

set in Articles 52 and 55 are exceeded, Article 57 shall apply mutatis mutandis.

Article 571. UCITS are not required to comply with the limits laid down in this Chapter when exercising subscription rights attaching to transferable

securities or money market instruments which form part of their assets.

While ensuring observance of the principle of risk spreading, Member States may allow recently authorised UCITS to derogate from

Articles 52 to 55 for six months following the date of their authorisation.

2. If the limits referred to in paragraph 1 are exceeded for reasons beyond the control of a UCITS or as a result of the exercise of subscrip-

tion rights, that UCITS shall adopt as a priority objective for its sales transactions the remedying of that situation, taking due account

of the interests of its unit-holders.

CHAPTER VIIIMASTER-FEEDER STRUCTURES

SECTION 1

Scope and approval

Article 581. A feeder UCITS is a UCITS, or an investment compartment thereof, which has been approved to invest, by way of derogation from

Article 1(2)(a), Articles 50, 52 and 55, and Article 56(2)(c), at least 85 % of its assets in units of another UCITS or investment compartment

thereof (the master UCITS).

2. A feeder UCITS may hold up to 15 % of its assets in one or more of the following:

(a) ancillary liquid assets in accordance with the second subparagraph of Article 50(2);

(b) financial derivative instruments, which may be used only for hedging purposes, in accordance with Article 50(1)(g) and Article 51(2)

and (3);

(c) movable and immovable property which is essential for the direct pursuit of the business, if the feeder UCITS is an investment

company.

For the purposes of compliance with Article 51(3), the feeder UCITS shall calculate its global exposure related to financial derivative

instruments by combining its own direct exposure under point (b) of the first subparagraph with either:

(a) the master UCITS’ actual exposure to financial derivative instruments in proportion to the feeder UCITS’ investment into the master

UCITS; or

(b) the master UCITS’ potential maximum global exposure to financial derivative instruments provided for in the master UCITS’ fund

rules or instruments of incorporation in proportion to the feeder UCITS investment into the master UCITS.

3. A master UCITS is a UCITS, or an investment compartment thereof, which:

(a) has, among its unit-holders, at least one feeder UCITS;

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(b) is not itself a feeder UCITS; and

(c) does not hold units of a feeder UCITS.

4. The following derogations for a master UCITS shall apply:

(a) if a master UCITS has at least two feeder UCITS as unit-holders, Article 1(2)(a) and Article 3(b) shall not apply, giving the master

UCITS the choice whether or not to raise capital from other investors;

(b) If a master UCITS does not raise capital from the public in a Member State other than that in which it is established, but only

has one or more feeder UCITS in that Member State, Chapter XI and the second subparagraph of Article 108(1) shall not apply.

Article 591. Member States shall ensure that the investment of a feeder UCITS into a given master UCITS which exceeds the limit applicable

under Article 55(1) for investments into other UCITS be subject to prior approval by the competent authorities of the feeder UCITS

home Member State.

2. The feeder UCITS shall be informed within 15 working days following the submission of a complete file, whether or not the com-

petent authorities have approved the feeder UCITS’ investment into the master UCITS.

3. The competent authorities of the feeder UCITS home Member State shall grant approval if the feeder UCITS, its depositary and

its auditor, as well as the master UCITS, comply with all the requirements set out in this Chapter. For such purposes, the feeder

UCITS shall provide to the competent authorities of its home Member State the following documents:

(a) the fund rules or instruments of incorporation of the feeder UCITS and the master UCITS;

(b) the prospectus and the key investor information referred to in Article 78 of the feeder and the master UCITS;

(c) the agreement between the feeder and the master UCITS or the internal conduct of business rules referred to in Article 60(1);

(d) where applicable, the information to be provided to unit-holders referred to in Article 64(1);

(e) if the master UCITS and the feeder UCITS have different depositaries, the information-sharing agreement referred to in Article 61(1)

between their respective depositaries; and

(f) if the master UCITS and the feeder UCITS have different auditors, the information-sharing agreement referred to in Article 62(1)

between their respective auditors.

Where the feeder UCITS is established in a Member State other than the master UCITS home Member State, the feeder UCITS

shall also provide an attestation by the competent authorities of the master UCITS home Member State that the master UCITS is

a UCITS, or an investment compartment thereof, which fulfils the conditions set out in Article 58(3)(b) and (c). Documents shall be

provided by the feeder UCITS in the official language, or one of the official languages, of the feeder UCITS home Member State or

in a language approved by its competent authorities.

SECTION 2

Common provisions for feeder and master UCITS

Article 601. Member States shall require that the master UCITS provide the feeder UCITS with all documents and information necessary for

the latter to meet the requirements laid down in this Directive. For this purpose, the feeder UCITS shall enter into an agreement

with the master UCITS.

The feeder UCITS shall not invest in excess of the limit applicable under Article 55(1) in units of that master UCITS until the agree-

ment referred to in the first subparagraph has become effective. That agreement shall be made available, on request and free of

charge, to all unit-holders.

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In the event that both master and feeder UCITS are managed by the same management company, the agreement may be replaced by

internal conduct of business rules ensuring compliance with the requirements set out in this paragraph.

2. The master and the feeder UCITS shall take appropriate measures to coordinate the timing of their net asset value calculation and

publication in order to avoid market timing in their units, preventing arbitrage opportunities.

3. Without prejudice to Article 84, if a master UCITS temporarily suspends the repurchase, redemption or subscription of its units, wheth-

er at its own initiative or at the request of its competent authorities, each of its feeder UCITS is entitled to suspend the repurchase,

redemption or subscription of its units notwithstanding the conditions laid down in Article 84(2) within the same period of time as the

master UCITS.

4. If a master UCITS is liquidated, the feeder UCITS shall also be liquidated, unless the competent authorities of its home Member State

approve:

(a) the investment of at least 85 % of the assets of the feeder UCITS in units of another master UCITS; or

(b) the amendment of its fund rules or instruments of incorporation in order to enable the feeder UCITS to convert into a UCITS which

is not a feeder UCITS.

Without prejudice to specific national provisions regarding compulsory liquidation, the liquidation of a master UCITS shall take place

no sooner than three months after the master UCITS has informed all of its unit-holders and the competent authorities of the feeder

UCITS home Member State of the binding decision to liquidate.

5. If a master UCITS merges with another UCITS or is divided into two or more UCITS, the feeder UCITS shall be liquidated, unless the

competent authorities of the feeder UCITS home Member State grant approval to the feeder UCITS to:

(a) continue to be a feeder UCITS of the master UCITS or another UCITS resulting from the merger or division of the master UCITS;

(b) invest at least 85 % of its assets in units of another master UCITS not resulting from the merger or the division; or

(c) amend its fund rules or its instruments of incorporation in order to convert into a UCITS which is not a feeder UCITS.

No merger or division of a master UCITS shall become effective, unless the master UCITS has provided all of its unit-holders and the

competent authorities of its feeder UCITS home Member States with the information referred to, or comparable with that referred to,

in Article 43 by 60 days before the proposed effective date.

Unless the competent authorities of the feeder UCITS home Member State has granted approval pursuant to point (a) of the first sub-

paragraph, the master UCITS shall enable the feeder UCITS to repurchase or redeem all units in the master UCITS before the merger

or division of the master UCITS becomes effective.

6. The Commission may adopt implementing measures specifying:

(a) the content of the agreement or of the internal conduct of business rules referred to in paragraph 1;

(b) which measures referred to in paragraph 2 are deemed appropriate; and

(c) the procedures for the required approvals pursuant to paragraphs 4 and 5 in the event of a liquidation, merger or division of a master

UCITS.



SECTION 3

Depositaries and auditors

Article 611. Member States shall require that, if the master and the feeder UCITS have different depositaries, those depositaries enter into an

information-sharing agreement in order to ensure the fulfilment of the duties of both depositaries.

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The feeder UCITS shall not invest in units of the master UCITS until such agreement has become effective.

Where they comply with the requirements laid down in this Chapter, neither the depositary of the master UCITS nor that of the feeder

UCITS shall be found to be in breach of any rules that restrict the disclosure of information or relate to data protection where such

rules are provided for in a contract or in a law, regulation or administrative provision. Such compliance shall not give rise to any

liability on the part of such depositary or any person acting on its behalf.

Member States shall require that the feeder UCITS or, when applicable, the management company of the feeder UCITS be in

charge of communicating to the depositary of the feeder UCITS any information about the master UCITS which is required for the

completion of the duties of the depositary of the feeder UCITS.

2. The depositary of the master UCITS shall immediately inform the competent authorities of the master UCITS home Member State,

the feeder UCITS or, where applicable, the management company and the depositary of the feeder UCITS about any irregularities

it detects with regard to the master UCITS which are deemed to have a negative impact on the feeder UCITS.

3. The Commission may adopt implementing measures further specifying the following:

(a) the particulars that need to be included in the agreement referred to in paragraph 1; and

(b) the types of irregularities referred to in paragraph 2 which are deemed to have a negative impact on the feeder UCITS.



Article 621. Member States shall require that if the master and the feeder UCITS have different auditors, those auditors enter into an informa-

tion-sharing agreement in order to ensure the fulfilment of the duties of both auditors, including the arrangements taken to comply

with the requirements of paragraph 2.

The feeder UCITS shall not invest in units of the master UCITS until such agreement has become effective.

2. In its audit report, the auditor of the feeder UCITS shall take into account the audit report of the master UCITS. If the feeder and

the master UCITS have different accounting years, the auditor of the master UCITS shall make an ad hoc report on the closing

date of the feeder UCITS.

The auditor of the feeder UCITS shall, in particular, report on any irregularities revealed in the audit report of the master UCITS

and on their impact on the feeder UCITS.

3. Where they comply with the requirements laid down in this Chapter, neither the auditor of the master UCITS nor that of the feeder

UCITS shall be found to be in breach of any rules that restrict the disclosure of information or relate to data protection where such

rules are provided for in a contract or in a law, regulation or administrative provision. Such compliance shall not give rise to any

liability on the part of such auditor or any person acting on its behalf.

4. The Commission may adopt implementing measures specifying the content of the agreement referred to in the first subparagraph

of paragraph 1.



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SECTION 4

Compulsory information and marketing communications by the feeder UCITS

Article 631. Member States shall require that, in addition to the information provided for in Schedule A of Annex I, the prospectus of the feeder

UCITS contains the following information:

(a) a declaration that the feeder UCITS is a feeder of a particular master UCITS and as such permanently invests 85 % or more of

its assets in units of that master UCITS;

(b) the investment objective and policy, including the risk profile and whether the performance of the feeder and the master UCITS

are identical, or to what extent and for which reasons they differ, including a description of investment made in accordance

with Article 58(2);

(c) a brief description of the master UCITS, its organisation, its investment objective and policy, including the risk profile, and an

indication of how the prospectus of the master UCITS may be obtained;

(d) a summary of the agreement entered into between the feeder UCITS and the master UCITS or of the internal conduct of busi-

ness rules pursuant to Article 60(1);

(e) how the unit-holders may obtain further information on the master UCITS and the agreement entered into between the feeder

UCITS and the master UCITS pursuant to Article 60(1);

(f) a description of all remuneration or reimbursement of costs payable by the feeder UCITS by virtue of its investment in units of

the master UCITS, as well as of the aggregate charges of the feeder UCITS and the master UCITS; and

(g) a description of the tax implications of the investment into the master UCITS for the feeder UCITS.

2. In addition to the information provided for in Schedule B of Annex I, the annual report of the feeder UCITS shall include a state-

ment on the aggregate charges of the feeder UCITS and the master UCITS.

The annual and the half-yearly reports of the feeder UCITS shall indicate how the annual and the half-yearly report of the master

UCITS can be obtained.

3. In addition to the requirements laid down in Articles 74 and 82, the feeder UCITS shall send the prospectus, the key investor infor-

mation referred to in Article 78 and any amendment thereto, as well as the annual and half-yearly reports of the master UCITS, to

the competent authorities of its home Member State.

4. A feeder UCITS shall disclose in any relevant marketing communications that it permanently invests 85 % or more of its assets in

units of such master UCITS.

5. A paper copy of the prospectus, and the annual and half-yearly reports of the master UCITS shall be delivered by the feeder UCITS

to investors on request and free of charge.

SECTION 5

Conversion of existing UCITS into feeder UCITS and change of master UCITS

Article 641. Member States shall require that a feeder UCITS which already pursues activities as a UCITS, including those of a feeder UCITS

of a different master UCITS, shall provide the following information to its unit-holders:

(a) a statement that the competent authorities of the feeder UCITS home Member State approved the investment of the feeder

UCITS in units of such master UCITS;

(b) the key investor information referred to in Article 78 concerning the feeder and the master UCITS;

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(c) the date when the feeder UCITS is to start to invest in the master UCITS or, if it has already invested therein, the date when its invest-

ment will exceed the limit applicable under Article 55(1); and

(d) a statement that the unit-holders have the right to request within 30 days the repurchase or redemption of their units without any

charges other than those retained by the UCITS to cover disinvestment costs; that right shall become effective from the moment

the feeder UCITS has provided the information referred to in this paragraph.

That information shall be provided at least 30 days before the date referred to in point (c) of the first subparagraph.

2. In the event that the feeder UCITS has been notified in accordance with Article 93, the information referred to in paragraph 1 shall be

provided in the official language, or one of the official languages, of the feeder UCITS host Member State or in a language approved by

its competent authorities. The feeder UCITS shall be responsible for producing the translation. That translation shall faithfully reflect

the content of the original.

3. Member States shall ensure that the feeder UCITS does not invest into the units of the given master UCITS in excess of the limit ap-

plicable under Article 55(1) before the period of 30 days referred to in the second subparagraph of paragraph 1 has elapsed.

4. The Commission may adopt implementing measures specifying:

(a) the format and the manner in which to provide the information referred to in paragraph 1; or

(b) in the event that the feeder UCITS transfers all or parts of its assets to the master UCITS in exchange for units, the procedure for

valuing and auditing such a contribution in kind and the role of the depositary of the feeder UCITS in that process.



SECTION 6

Obligations and competent authorities

Article 651. The feeder UCITS shall monitor effectively the activity of the master UCITS. In performing that obligation, the feeder UCITS may rely on

information and documents received from the master UCITS or, where applicable, its management company, depositary and auditor,

unless there is reason to doubt their accuracy.

2. Where, in connection with an investment in the units of the master UCITS, a distribution fee, commission or other monetary benefit is

received by the feeder UCITS, its management company, or any person acting on behalf of either the feeder UCITS or the management

company of the feeder UCITS, the fee, commission or other monetary benefit shall be paid into the assets of the feeder UCITS.

Article 661. The master UCITS shall immediately inform the competent authorities of its home Member State of the identity of each feeder UCITS

which invests in its units. If the master UCITS and the feeder UCITS are established in different Member States, the competent au-

thorities of the master UCITS home Member State shall immediately inform those of the feeder UCITS home Member State of such

investment.

2. The master UCITS shall not charge subscription or redemption fees for the investment of the feeder UCITS into its units or the divest-

ment thereof.

3. The master UCITS shall ensure the timely availability of all information that is required in accordance with this Directive, other Com-

munity law, the applicable national law, the fund rules or the instruments of incorporation to the feeder UCITS or, where applicable, its

management company, and to the competent authorities, the depositary and the auditor of the feeder UCITS.

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Article 671. If the master UCITS and the feeder UCITS are established in the same Member State, the competent authorities shall immediately

inform the feeder UCITS of any decision, measure, observation of non-compliance with the conditions of this Chapter or of any

information reported pursuant to Article 106(1) with regard to the master UCITS or, where applicable, its management company,

depositary or auditor.

2. If the master UCITS and the feeder UCITS are established in different Member States, the competent authorities of the master

UCITS home Member State shall immediately communicate any decision, measure, observation of non-compliance with the

conditions of this Chapter or information reported pursuant to Article 106(1) with regard to the master UCITS or, where applicable,

its management company, depositary or auditor, to the competent authorities of the feeder UCITS home Member State. The latter

shall then immediately inform the feeder UCITS.

CHAPTER IXOBLIGATIONS CONCERNING INFORMATION TO BE PROVIDED TO INVESTORS

SECTION 1

Publication of a prospectus and periodical reports

Article 681. An investment company and, for each of the common funds it manages, a management company, shall publish the following:

(a) a prospectus;

(b) an annual report for each financial year; and

(c) a half-yearly report covering the first six months of the financial year.

2. The annual and half-yearly reports shall be published within the following time limits, with effect from the end of the period to

which they relate:

(a) four months in the case of the annual report; or

(b) two months in the case of the half-yearly report.

Article 691. The prospectus shall include the information necessary for investors to be able to make an informed judgement of the investment

proposed to them, and, in particular, of the risks attached thereto.

The prospectus shall include, independent of the instruments invested in, a clear and easily understandable explanation of the

fund’s risk profile.

2. The prospectus shall contain at least the information provided for in Schedule A of Annex I, in so far as that information does

not already appear in the fund rules or instruments of incorporation annexed to the prospectus in accordance with Article 71(1).

3. The annual report shall include a balance-sheet or a statement of assets and liabilities, a detailed income and expenditure ac-

count for the financial year, a report on the activities of the financial year and the other information provided for in Schedule B of

Annex I as well as any significant information which will enable investors to make an informed judgement on the development of

the activities of the UCITS and its results.

4. The half-yearly report shall include at least the information provided for in Sections I to IV of Schedule B of Annex I. Where a

UCITS has paid or proposes to pay an interim dividend, the figures must indicate the results after tax for the half-year concerned

and the interim dividend paid or proposed.

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Article 701. The prospectus shall indicate in which categories of assets a UCITS is authorised to invest. It shall mention if transactions in

financial derivative instruments are authorised, in which case it shall include a prominent statement indicating whether those

operations may be carried out for the purpose of hedging or with the aim of meeting investment goals, and the possible outcome

of the use of financial derivative instruments on the risk profile.

2. Where a UCITS invests principally in any category of assets defined in Article 50 other than transferable securities or money mar-

ket instruments, or where a UCITS replicates a stock or debt securities index in accordance with Article 53, its prospectus and,

where necessary, marketing communications shall include a prominent statement drawing attention to the investment policy.

3. Where the net asset value of a UCITS is likely to have a high volatility due to its portfolio composition or the portfolio management

techniques that may be used, its prospectus and, where necessary, marketing communications shall include a prominent state-

ment drawing attention to that characteristic.

4. Upon request of an investor, the management company shall also provide supplementary information relating to the quantitative

limits that apply in the risk management of the UCITS, to the methods chosen to this end and to the recent evolution of the main

risks and yields of the instrument categories.

Article 711. The fund rules or instruments of incorporation of an investment company shall form an integral part of the prospectus and shall

be annexed thereto.

2. The documents referred to in paragraph 1 are not, however, required to be annexed to the prospectus provided that the investor

is informed that, on request, he or she will be sent those documents or be apprised of the place where, in each Member State in

which the units are marketed, he or she may consult them.

Article 72The essential elements of the prospectus shall be kept up to date.

Article 73The accounting information given in the annual report shall be audited by one or more persons empowered by law to audit accounts

in accordance with Directive 2006/43/EC. The auditor’s report, including any qualifications, shall be reproduced in full in the annual

report.

Article 74UCITS shall send their prospectus and any amendments thereto, as well as their annual and half-yearly reports, to the competent

authorities of the UCITS home Member State. UCITS shall provide that documentation to the competent authorities of the manage-

ment company’s home Member State on request.

Article 751. The prospectus and the latest published annual and half-yearly reports shall be provided to investors on request and free of

charge.

2. The prospectus may be provided in a durable medium or by means of a website. A paper copy shall be delivered to the investors

on request and free of charge.

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3. The annual and half-yearly reports shall be available to investors in the manner specified in the prospectus and in the key inves-

tor information referred to in Article 78. A paper copy of the annual and half-yearly reports shall be delivered to the investors on

request and free of charge.

4. The Commission may adopt implementing measures which define the specific conditions which need to be met when providing

the prospectus in a durable medium other than paper or by means of a website which does not constitute a durable medium.

Those measures, designed to amend non-essential elements of this Directive, shall be adopted in accordance with the regulatory

procedure with scrutiny referred to in Article 112(2).

SECTION 2

Publication of other information

Article 76A UCITS shall make public in an appropriate manner the issue, sale, repurchase or redemption price of its units each time it issues,

sells, repurchases or redeems them, and at least twice a month.

The competent authorities may, however, permit a UCITS to reduce the frequency to once a month on condition that such derogation

does not prejudice the interests of the unit-holders.

Article 77All marketing communications to investors shall be clearly identifiable as such. They shall be fair, clear and not misleading. In par-

ticular, any marketing communication comprising an invitation to purchase units of UCITS that contains specific information about

a UCITS shall make no statement that contradicts or diminishes the significance of the information contained in the prospectus and

the key investor information referred to in Article 78. It shall indicate that a prospectus exists and that the key investor information

referred to in Article 78 is available. It shall specify where and in which language such information or documents may be obtained

by investors or potential investors or how they may obtain access to them.

SECTION 3

Key investor information

Article 781. Member States shall require that an investment company and, for each of the common funds it manages, a management company

draw up a short document containing key information for investors. That document shall be referred to as ‘key investor infor-

mation’ in this Directive. The words ‘key investor information’ shall be clearly stated in that document, in one of the languages

referred to in Article 94(1)(b).

2. Key investor information shall include appropriate information about the essential characteristics of the UCITS concerned, which

is to be provided to investors so that they are reasonably able to understand the nature and the risks of the investment product

that is being offered to them and, consequently, to take investment decisions on an informed basis.

3. Key investor information shall provide information on the following essential elements in respect of the UCITS concerned:

(a) identification of the UCITS;

(b) a short description of its investment objectives and investment policy;

(c) past-performance presentation or, where relevant, performance scenarios;

(d) costs and associated charges; and

(e) risk/reward profile of the investment, including appropriate guidance and warnings in relation to the risks associated with

investments in the relevant UCITS.

Those essential elements shall be comprehensible to the investor without any reference to other documents.

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4. Key investor information shall clearly specify where and how to obtain additional information relating to the proposed investment,

including but not limited to where and how the prospectus and the annual and half-yearly report can be obtained on request and

free of charge at any time, and the language in which such information is available to investors.

5. Key investor information shall be written in a concise manner and in non-technical language. It shall be drawn up in a common

format, allowing for comparison, and shall be presented in a way that is likely to be understood by retail investors.

6. Key investor information shall be used without alterations or supplements, except translation, in all Member States where the

UCITS is notified to market its units in accordance with Article 93.

7. The Commission shall adopt implementing measures which define the following:

(a) the detailed and exhaustive content of the key investor information to be provided to investors as referred to in paragraphs 2,

3 and 4;

(b) the detailed and exhaustive content of the key investor information to be provided to investors in the following specific cases:

(i) for UCITS having different investment compartments, the key investor information to be provided to investors subscribing

to a specific investment compartment, including how to pass from one investment compartment into another and the costs

related thereto;

(ii) for UCITS offering different share classes, the key investor information to be provided to investors subscribing to a specific

share class;

(iii) for fund of funds structures, the key investor information to be provided to investors subscribing to a UCITS, which invests

itself in other UCITS or other collective investment undertakings referred to in Article 50(1)(e);

(iv) for master-feeder structures, the key investor information to be provided to investors subscribing to a feeder UCITS; and

(v) for structured, capital protected and other comparable UCITS, the key investor information to be provided to investors in

relation to the special characteristics of such UCITS; and

(c) the specific details of the format and presentation of the key investor information to be provided to investors as referred to in

paragraph 5.



Article 791. Key investor information shall constitute pre-contractual information. It shall be fair, clear and not misleading. It shall be consist-

ent with the relevant parts of the prospectus.

2. Member States shall ensure that a person does not incur civil liability solely on the basis of the key investor information, including

any translation thereof, unless it is misleading, inaccurate or inconsistent with the relevant parts of the prospectus. Key investor

information shall contain a clear warning in this respect.

Article 801. Member States shall require that an investment company and, for each of the common funds it manages, a management com-

pany, which sells UCITS directly or through another natural or legal person who acts on its behalf and under its full and uncondi-

tional responsibility provides investors with key investor information on such UCITS in good time before their proposed subscrip-

tion of units in such UCITS.

2. Member States shall require that an investment company and, for each of the common funds it manages, a management com-

pany, which does not sell UCITS directly or through another natural or legal person who acts on its behalf and under its full and

unconditional responsibility to investors provides key investor information to product manufacturers and intermediaries selling

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or advising investors on potential investments in such UCITS or in products offering exposure to such UCITS upon their request.

Member States shall require that the intermediaries selling or advising investors on potential investments in UCITS, provide key

investor information to their clients or potential clients.

3. Key investor information shall be provided to investors free of charge.

Article 811. Member States shall allow investment companies and, for each of the common funds they manage, management companies, to

provide key investor information in a durable medium or by means of a website. A paper copy shall be delivered to the investor

on request and free of charge.

In addition, an up-to-date version of the key investor information shall be made available on the website of the investment com-

pany or management company.

2. The Commission may adopt implementing measures which define the specific conditions which need to be met when providing

key investor information in a durable medium other than on paper or by means of a website which does not constitute a durable

medium.



Article 821. UCITS shall send their key investor information and any amendments thereto, to the competent authorities of their home Member

State.

2. The essential elements of key investor information shall be kept up to date.

CHAPTER XGENERAL OBLIGATIONS OF UCITS

Article 831. The following shall not borrow:

(a) a investment company;

(b) a management company or depositary acting on behalf of a common fund.

A UCITS may, however, acquire foreign currency by means of a‘back-to-back’ loan.

2. By way of derogation from paragraph 1, a Member State may authorise a UCITS to borrow provided that such borrowing is:

(a) on a temporary basis and represents:

- in the case of an investment company, no more than 10 % of its assets, or

- in the case of a common fund, no more than 10 % of the value of the fund; or

(b) to enable the acquisition of immovable property essential for the direct pursuit of its business and represents, in the case of

an investment company, no more than 10 % of its assets.

Where a UCITS is authorised to borrow under points (a) and (b), such borrowing shall not exceed 15 % of its assets in total.

Article 841. A UCITS shall repurchase or redeem its units at the request of any unit-holder.

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2. By way of derogation from paragraph 1:

(a) a UCITS may, in accordance with the applicable national law, the fund rules or the instruments of incorporation of the invest-

ment company, temporarily suspend the repurchase or redemption of its units;

(b) a UCITS home Member State may allow its competent authorities to require the suspension of the repurchase or redemption

of units in the interest of the unit-holders or of the public.

The temporary suspension referred to in point (a) of the first subparagraph shall be provided for only in exceptional cases where

circumstances so require and where suspension is justified having regard to the interests of the unit-holders.

3. In the event of a temporary suspension under paragraph 2(a), a UCITS shall, without delay, communicate its decision to its home

Member State competent authorities and to the competent authorities of all Member States in which it markets its units.

Article 85The rules for the valuation of assets and the rules for calculating the sale or issue price and the repurchase or redemption price of

the units of a UCITS shall be laid down in the applicable national law, in the fund rules or in the instruments of incorporation of the

investment company.

Article 86The distribution or reinvestment of the income of a UCITS shall be effected in accordance with the law and with the fund rules or

the instruments of incorporation of the investment company.

Article 87A UCITS unit shall not be issued unless the equivalent of the net issue price is paid into the assets of the UCITS within the usual time

limits. This shall not preclude the distribution of bonus units.

Article 881. Without prejudice to the application of Articles 50 and 51, the following shall not grant loans or act as a guarantor on behalf of

third parties:

(a) an investment company;


2. Paragraph 1 shall not prevent the undertakings referred to therein from acquiring transferable securities, money market instru-

ments or other financial instruments referred to in points (e), (g) and (h) of Article 50(1) which are not fully paid.

Article 89The following shall not carry out uncovered sales of transferable securities, money market instruments or other financial instru-

ments referred to in points (e), (g) and (h) of Article 50(1):

(a) an investment company;


Article 90The law of the UCITS home Member State or the fund rules shall prescribe the remuneration and the expenditure which a manage-

ment company is empowered to charge to a common fund and the method of calculation of such remuneration.

The law or the instruments of incorporation of an investment company shall prescribe the nature of the cost to be borne by the

company.

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CHAPTER XISPECIAL PROVISIONS APPLICABLE TO UCITS WHICH MARKET THEIR UNITS IN MEMBER STATES OTHER THAN THOSE IN

WHICH THEY ARE ESTABLISHED

Article 911. UCITS host Member States shall ensure that UCITS are able to market their units within their territories upon notification in ac-

cordance with Article 93.

2. UCITS host Member States shall not impose any additional requirements or administrative procedures on UCITS as referred to in

paragraph 1 in respect of the field governed by this Directive.

3. Member States shall ensure that complete information on the laws, regulations and administrative provisions which do not fall

within the field governed by this Directive and which are specifically relevant to the arrangements made for the marketing of

units of UCITS, established in another Member State within their territories, is easily accessible from a distance and by electronic

means. Member States shall ensure that that information is available in a language customary in the sphere of international

finance, is provided in a clear and unambiguous manner and is kept up to date.

4. For the purposes of this Chapter, a UCITS shall include investment compartments thereof.

Article 92UCITS shall, in accordance with the laws, regulations and administrative provisions in force in the Member State where their units

are marketed, take the measures necessary to ensure that facilities are available in that Member State for making payments to unit-

holders, repurchasing or redeeming units and making available the information which UCITS are required to provide.

Article 931. If a UCITS proposes to market its units in a Member State other than its home Member State, it shall first submit a notification

letter to the competent authorities of its home Member State.

The notification letter shall include information on arrangements made for marketing units of the UCITS in the host Member State,

including, where relevant, in respect of share classes. In the context of Article 16(1), it shall include an indication that the UCITS

is marketed by the management company that manages the UCITS.

2. A UCITS shall enclose with the notification letter, as referred to in paragraph 1, the latest version of the following:

(a) its fund rules or its instruments of incorporation, its prospectus and, where appropriate, its latest annual report and any sub-

sequent half-yearly report translated in accordance with the provisions of Article 94(1)(c) and (d); and

(b) its key investor information referred to in Article 78, translated in accordance with Article 94(1)(b) and (d).

3. The competent authorities of the UCITS home Member State shall verify whether the documentation submitted by the UCITS in

accordance with paragraphs 1 and 2 is complete.

The competent authorities of the UCITS home Member State shall transmit the complete documentation referred to in paragraphs

1 and 2 to the competent authorities of the Member State in which the UCITS proposes to market its units, no later than 10 working

days of the date of receipt of the notification letter accompanied by the complete documentation provided for in paragraph 2. They

shall enclose with the documentation an attestation that the UCITS fulfils the conditions imposed by this Directive.

Upon the transmission of the documentation, the competent authorities of the UCITS home Member State shall immediately notify

the UCITS about the transmission. The UCITS may access the market of the UCITS host Member State as from the date of that

notification.

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4. Member States shall ensure that the notification letter referred to in paragraph 1 and the attestation referred to in paragraph 3 are

provided in a language customary in the sphere of international finance, unless the UCITS home and host Member States agree

to that notification letter and that attestation being provided in an official language of both Member States.

5. Member States shall ensure that the electronic transmission and filing of the documents referred to in paragraph 3 is accepted

by their competent authorities.

6. For the purpose of the notification procedure set out in this Article, the competent authorities of the Member State in which a

UCITS proposes to market its units shall not request any additional documents, certificates or information other than those pro-

vided for in this Article.

7. The UCITS home Member State shall ensure that the competent authorities of the UCITS host Member State have access, by

electronic means, to the documents referred to in paragraph 2 and, if applicable, to any translations thereof. It shall ensure that

the UCITS keeps those documents and translations up to date. The UCITS shall notify any amendments to the documents referred

to in paragraph 2 to the competent authorities of the UCITS host Member State and shall indicate where those documents can

be obtained electronically.

8. In the event of a change in the information regarding the arrangements made for marketing communicated in the notification

letter in accordance with paragraph 1, or a change regarding share classes to be marketed, the UCITS shall give written notice

thereof to the competent authorities of the host Member State before implementing the change.

Article 941. Where a UCITS markets its units in a UCITS host Member State, it shall provide to investors within the territory of such Member

State all information and documents which it is required pursuant to Chapter IX to provide to investors in its home Member State.

Such information and documents shall be provided to investors in compliance with the following provisions:

(a) without prejudice to the provisions of Chapter IX, such information or documents shall be provided to investors in the way

prescribed by the laws, regulations or administrative provisions of the UCITS host Member State;

(b) key investor information referred to in Article 78 shall be translated into the official language, or one of the official languages,

of the UCITS host Member State or into a language approved by the competent authorities of that Member State;

(c) information or documents other than key investor information referred to in Article 78 shall be translated, at the choice of the

UCITS, into the official language, or one of the official languages, of the UCITS host Member State, into a language approved

by the competent authorities of that Member State or into a language customary in the sphere of international finance; and

(d) translations of information or documents under points (b) and (c) shall be produced under the responsibility of the UCITS and

shall faithfully reflect the content of the original information.

2. The requirements set out in paragraph 1 shall also be applicable to any changes to the information and documents referred

therein.

3. The frequency of the publication of the issue, sale, repurchase or redemption price of units of UCITS according to Article 76 shall

be subject to the laws, regulations and administrative provisions of the UCITS home Member State.

Article 951. The Commission may adopt implementing measures specifying:

(a) the scope of the information referred to in Article 91(3);

(b) the facilitation of access for the competent authorities of the UCITS host Member States to the information or documents

referred to in Article 93(1), (2) and (3) in accordance with Article 93(7).

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2. The Commission may also adopt implementing measures specifying:

(a) the form and contents of a standard model notification letter to be used by a UCITS for the purpose of notification referred to

in Article 93(1), including an indication as to which documents the translations refer to;

(b) the form and contents of a standard model attestation to be used by competent authorities of Member States referred to in

Article 93(3);

(c) the procedure for the exchange of information and the use of electronic communication between competent authorities for the

purpose of notification under the provisions of Article 93.

Those measures shall be adopted in accordance with the regulatory procedure referred to in Article 112(3).

Article 96For the purpose of pursuing its activities, a UCITS may use the same reference to its legal form (such as investment company or

common fund) in its designation in a UCITS host Member State as it uses in its home Member State.

CHAPTER XIIPROVISIONS CONCERNING THE AUTHORITIES RESPONSIBLE FOR AUTHORISATION AND SUPERVISION

Article 971. Member States shall designate the competent authorities which are to carry out the duties provided for in this Directive. They

shall inform the Commission thereof, indicating any division of duties.

2. The competent authorities shall be public authorities or bodies appointed by public authorities.

3. The authorities of the UCITS home Member State shall be competent to supervise that UCITS including, where relevant, pursu-

ant to Article 19. However, the authorities of the UCITS host Member State shall be competent to supervise compliance with the

provisions falling outside the field governed by this Directive and requirements set out in Articles 92 and 94.

Article 981. The competent authorities shall be given all supervisory and investigatory powers that are necessary for the exercise of their

functions. Such powers shall be exercised:

(a) directly;

(b) in collaboration with other authorities;

(c) under the responsibility of the competent authorities, by delegation to entities to which tasks have been delegated; or

(d) by application to the competent judicial authorities.

2. Under paragraph 1, competent authorities shall have the power, at least, to:

(a) access any document in any form and receive a copy thereof;

(b) require any person to provide information and, if necessary, to summon and question a person with a view to obtaining infor-

mation;

(c) carry out on-site inspections;

(d) require existing telephone and existing data traffic records;

(e) require the cessation of any practice that is contrary to the provisions adopted in the implementation of this Directive;

(f) request the freezing or the sequestration of assets;

annexes-1B.indd 59 06/06/11 10:58


(g) request the temporary prohibition of professional activity;

(h) require authorised investment companies, management companies or depositaries to provide information;

(i) adopt any type of measure to ensure that investment companies, management companies or depositaries continue to comply

with the requirements of this Directive;

(j) require the suspension of the issue, repurchase or redemption of units in the interest of the unit-holders or of the public;

(k) withdraw the authorisation granted to a UCITS, a management company or a depositary;

(l) refer matters for criminal prosecution; and

(m) allow auditors or experts to carry out verifications or investigations.

Article 991. Member States shall lay down the rules on measures and penalties applicable to infringements of the national provisions adopted

pursuant to this Directive and shall take all measures necessary to ensure that those rules are enforced. Without prejudice to

the procedures for the withdrawal of authorisation or to the right of Member States to impose criminal penalties, Member States

shall, in particular, ensure, in conformity with their national law, that the appropriate administrative measures can be taken or

administrative penalties be imposed against the persons responsible where the provisions adopted in the implementation of this

Directive have not been complied with.

The measures and penalties provided for shall be effective, proportionate and dissuasive.

2. Without precluding rules on measures and penalties applicable to infringements of the other national provisions adopted pursu-

ant to this Directive, Member States shall, in particular, lay down effective, proportionate and dissuasive measures and penalties

concerning the duty to present key investor information in a way that is likely to be understood by retail investors according to

Article 78(5).

3. Member States shall allow competent authorities to disclose to the public any measure or penalty that will be imposed for in-

fringement of the provisions adopted in the implementation of this Directive, unless such disclosure would seriously jeopardise

the financial markets, be detrimental to the interests of investors or cause disproportionate damage to the parties involved.

Article 1001. Member States shall ensure that efficient and effective complaints and redress procedures are in place for the out-of-court set-

tlement of consumer disputes concerning the activity of UCITS using existing bodies where appropriate.

2. Member States shall ensure that the bodies referred to in paragraph 1 are not prevented by legal or regulatory provisions from

cooperating effectively in the resolution of cross-border disputes.

Article 1011. The competent authorities of the Member States shall cooperate with each other whenever necessary for the purpose of carrying

out their duties under this Directive or of exercising their powers under this Directive or under national law.

Member States shall take the necessary administrative and organisational measures to facilitate the cooperation provided for in

this paragraph.

Competent authorities shall use their powers for the purpose of cooperation, even in cases where the conduct under investigation

does not constitute an infringement of any regulation in force in their Member State.

2. The competent authorities of the Member States shall immediately provide each other with the information required for the pur-

poses of carrying out their duties under this Directive.

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3. Where a competent authority of one Member State has good reason to suspect that acts contrary to the provisions of this Direc-

tive, are being or have been carried out by entities not subject to that competent authority’s supervision on the territory of another

Member State, it shall notify the competent authorities of the other Member State thereof in as specific a manner as possible. The

recipient authorities shall take appropriate action, shall inform the notifying competent authority of the outcome of that action

and, to the extent possible, of significant interim developments. This paragraph shall be without prejudice to the competences of

the notifying competent authority.

4. The competent authorities of one Member State may request the cooperation of the competent authorities of another Member

State in a supervisory activity or for an on-the-spot verification or in an investigation on the territory of the latter within the frame-

work of their powers pursuant to this Directive. Where a competent authority receives a request with respect to an on-the-spot

verification or investigation, it shall:

(a) carry out the verification or investigation itself;

(b) allow the requesting authority to carry out the verification or investigation; or

(c) allow auditors or experts to carry out the verification or investigation.

5. If the verification or investigation is carried out on the territory of one Member State by a competent authority of the same Mem-

ber State, the competent authority of the Member State which has requested cooperation may request that its own officials ac-

company the officials carrying out the verification or investigation. The verification or investigation shall, however, be subject to

the overall control of the Member State on whose territory it is conducted.

If the verification or investigation is carried out on the territory of one Member State by a competent authority of another Member

State, the competent authority of the Member State on whose territory the verification or investigation is carried out may request

that its own officials accompany the officials carrying out the verification or investigation.

6. The competent authorities of the Member State where the verification or investigation is carried out may refuse to exchange

information as provided for in paragraph 2 or to act on a request for cooperation in carrying out an investigation or on-the-spot

verification as provided for in paragraph 4, only where:

(a) such an investigation, on-the-spot verification or exchange of information might adversely affect the sovereignty, security or

public policy of that Member State;

(b) judicial proceedings have already been initiated in respect of the same persons and the same actions before the authorities

of that Member State;

(c) final judgment in respect of the same persons and the same actions has already been delivered in that Member State.

7. The competent authorities shall notify the requesting competent authorities of any decision taken under paragraph 6. That notifi-

cation shall contain information about the motives of their decision.

8. Competent authorities may bring to the attention of the Committee of European Securities Regulators, established by Commission

Decision 2009/77/EC(1), situations where a request:

(a) to exchange information as provided for in Article 109 has been rejected or has not been acted upon within a reasonable time;

(b) to carry out an investigation or on-the-spot verification as provided for in Article 110 has been rejected or has not been acted

upon within a reasonable time; or

(c) for authorisation for its officials to accompany those of the competent authority of the other Member State has been rejected

or has not been acted upon within a reasonable time.

(1)OJL25,29.1.2009,p.18.

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9. The Commission may adopt implementing measures concerning procedures for on-the-spot verifications and investigations.


Article 1021. Member States shall provide that all persons who work or who have worked for the competent authorities, as well as auditors and

experts instructed by the competent authorities, be bound by the obligation of professional secrecy. Such obligation implies that

no confidential information which those persons receive in the course of their duties shall be divulged to any person or authority

whatsoever, save in summary or aggregate form such that UCITS, management companies and depositaries (undertakings con-

tributing towards UCITS’ business activity) cannot be individually identified, without prejudice to cases covered by criminal law.

However, when a UCITS or an undertaking contributing towards its business activity has been declared bankrupt or is being com-

pulsorily wound up, confidential information which does not concern third parties involved in rescue attempts may be divulged in

the course of civil or commercial proceedings.

2. Paragraph 1 shall not prevent the competent authorities of the Member States from exchanging information in accordance with

this Directive or other Community law applicable to UCITS or to undertakings contributing towards their business activity. That

information shall be subject to the conditions of professional secrecy laid down in paragraph 1.

The competent authorities exchanging information with other competent authorities under this Directive may indicate at the time

of communication that such information must not be disclosed without their express consent, in which case such information may

be exchanged solely for the purposes for which those authorities gave their consent.

3. Member States may conclude cooperation agreements providing for exchange of information with the competent authorities of

third countries, or with authorities or bodies of third countries, as determined in paragraph 5 of this Article and Article 103(1) only

if the information disclosed is subject to guarantees of professional secrecy at least equivalent to those referred to in this Article.

Such exchange of information shall be intended for the performance of the supervisory task of those authorities or bodies.

Where the information originates in another Member State, it shall not be disclosed without the express consent of the competent

authorities which have disclosed it and, where appropriate, solely for the purposes for which those authorities gave their consent.

4. The competent authorities receiving confidential information under paragraphs 1 or 2 may use the information only in the course

of their duties for the purposes of:

(a) checking that the conditions governing the taking-up of business of UCITS or of undertakings contributing towards their busi-

ness activity are met and facilitating the monitoring of the conduct of that business, administrative and accounting procedures

and internal-control mechanisms;

(b) imposing penalties;

(c) conducting administrative appeals against decisions by the competent authorities; and

(d) pursuing court proceedings initiated under Article 107(2).

5. Paragraphs 1 and 4 shall not preclude the exchange of information within a Member State or between Member States, where that

exchange is to take place between a competent authority and:

(a) authorities with public responsibility for the supervision of credit institutions, investment undertakings, insurance undertak-

ings or other financial organisations, or authorities responsible for the supervision of financial markets;

(b) bodies involved in the liquidation or bankruptcy of UCITS or undertakings contributing towards their business activity, or bod-

ies involved in similar procedures; or

(c) persons responsible for carrying out statutory audits of the accounts of insurance undertakings, credit institutions, investment

undertakings or other financial institutions.

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In particular, paragraphs 1 and 4 shall not preclude the performance by the competent authorities listed above of their supervisory

functions, or the disclosure to bodies which administer compensation schemes of information necessary for the performance of

their functions.

Information exchanged pursuant to the first subparagraph shall be subject to the conditions of professional secrecy imposed in

paragraph 1.

Article 1031. Notwithstanding Article 102(1) to (4), Member States may authorise exchanges of information between a competent authority and:

(a) authorities responsible for overseeing bodies involved in the liquidation and bankruptcy of UCITS or undertakings contributing

towards their business activity, or bodies involved in similar procedures;

(b) authorities responsible for overseeing persons responsible for carrying out statutory audits of the accounts of insurance

undertakings, credit institutions, investment firms or other financial institutions.

2. Member States which have recourse to the derogation provided for in paragraph 1 shall require that at least the following condi-

tions are met:

(a) the information is used for the purpose of performing the task of overseeing referred to in paragraph 1;

(b) the information received is subject to the conditions of professional secrecy imposed in Article 102(1); and

(c) where the information originates in another Member State, it is not disclosed without the express consent of the competent

authorities which have disclosed it and, where appropriate, solely for the purposes for which those authorities gave their

consent.

3. Member States shall communicate to the Commission and to the other Member States the names of the authorities which may

receive information pursuant to paragraph 1.

4. Notwithstanding Article 102(1) to (4), Member States may, with the aim of strengthening the stability, including the integrity, of the

financial system, authorise the exchange of information between the competent authorities and the authorities or bodies respon-

sible under the law for the detection and investigation of breaches of company law.

5. Member States which have recourse to the derogation provided for in paragraph 4 shall require that at least the following condi-

tions are met:

(a) the information is used for the purpose of performing the task referred to in paragraph 4;

(b) the information received is subject to the conditions of professional secrecy provided for in Article 102(1); and

(c) where the information originates in another Member State, it is not disclosed without the express consent of the competent

authorities which have disclosed it and, where appropriate, solely for the purposes for which those authorities gave their

consent.

For the purposes of point (c), the authorities or bodies referred to in paragraph 4 shall communicate to the competent authorities

which have disclosed the information the names and precise responsibilities of the persons to whom it is to be sent.

6. Where, in a Member State, the authorities or bodies referred to in paragraph 4 perform their task of detection or investigation

with the aid, in view of their specific competence, of persons appointed for that purpose and not employed in the public sector

the possibility of exchanging information provided for in that paragraph may be extended to such persons under the conditions

stipulated in paragraph 5.

7. Member States shall communicate to the Commission and to the other Member States the names of the authorities or bodies

which may receive information pursuant to paragraph 4.

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Article 1041. Articles 102 and 103 shall not prevent a competent authority from transmitting to central banks and other bodies with a similar

function in their capacity as monetary authorities information intended for the performance of their tasks, nor shall those articles

prevent such authorities or bodies from communicating to the competent authorities such information as they may need for the

purposes of Article 102(4). Information received in this context shall be subject to the conditions of professional secrecy imposed

in Article 102(1).

2. Articles 102 and 103 shall not prevent the competent authorities from communicating the information referred to in Article 102(1)

to (4) to a clearing house or other similar body recognised under national law for the provision of clearing or settlement services

for one of their Member State’s markets if they consider that it is necessary to communicate the information in order to ensure the

proper functioning of those bodies in relation to defaults or potential defaults by market participants.

The information received in this context shall be subject to the conditions of professional secrecy imposed in Article 102(1).

Member States shall, however, ensure that information received under Article 102(2) is not disclosed in the circumstances referred

to in the first subparagraph of this paragraph without the express consent of the competent authorities which disclosed it.

3. Notwithstanding Article 102(1) and (4), Member States may, by virtue of provisions laid down by law, authorise the disclosure of

certain information to other departments of their central government administrations responsible for legislation on the supervi-

sion of UCITS and of undertakings contributing towards their business activity, credit institutions, financial institutions, investment

undertakings and insurance undertakings and to inspectors instructed by those departments.

Such disclosures may, however, be made only where necessary for reasons of prudential control.

Member States shall, however, provide that information received under Article 102(2) and (5) is never disclosed in the circum-

stances referred to in this paragraph except with the express consent of the competent authorities which disclosed the information.

Article 105The Commission may adopt implementing measures relating to the procedures for exchange of information between competent authori-

ties.


Article 1061. Member States shall provide at least that any person approved in accordance with Directive 2006/43/EC, performing in a UCITS, or in

an undertaking contributing towards its business activity, the statutory audit referred to in Article 51 of Directive 78/660/EEC, Article 37

of Directive 83/349/EEC or Article 73 of this Directive or any other statutory task, shall have a duty to report promptly to the competent

authorities any fact or decision concerning that undertaking of which he has become aware while carrying out that task and which is

liable to bring about any of the following:

(a) a material breach of the laws, regulations or administrative provisions which lay down the conditions governing authorisation or

which specifically govern pursuit of the activities of UCITS or undertakings contributing towards their business activity;

(b) the impairment of the continuous functioning of the UCITS or an undertaking contributing towards its business activity; or

(c)a refusal to certify the accounts or the expression of reservations.

That person shall have a duty to report any facts and decisions of which he becomes aware in the course of carrying out a task as

described in point (a) in an undertaking having close links resulting from a control relationship with the UCITS or an undertaking con-

tributing towards its business activity, within which he is carrying out that task.

2. The disclosure in good faith to the competent authorities, by persons approved in accordance with Directive 2006/43/EC of any fact or

decision referred to in paragraph 1 shall not constitute a breach of any restriction on disclosure of information imposed by contract or

by any legislative, regulatory or administrative provision and shall not subject such persons to liability of any kind.

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Article 1071. The competent authorities shall give written reasons for any decision to refuse authorisation, or any negative decision taken in the

implementation of the general measures adopted in application of this Directive, and communicate them to applicants.

2. Member States shall provide that any decision taken under the laws, regulations or administrative provisions adopted in accordance

with this Directive is properly reasoned and subject to a right of appeal in the courts, including where no decision is taken within six

months of submission of an application for authorisation which provides all the information required.

3. Member States shall provide that one or more of the following bodies, as determined by national law, may, in the interests of consum-

ers and in accordance with national law, take action before the courts or competent administrative bodies to ensure that the national

provisions for the implementation of this Directive are applied:

(a) public bodies or their representatives;

(b) consumer organisations having a legitimate interest in protecting consumers; or

(c) professional organisations having a legitimate interest in protecting their members.

Article 1081. Only the authorities of the UCITS home Member State shall have the power to take action against that UCITS if it infringes any law,

regulation or administrative provision or any regulation laid down in the fund rules or in the instruments of incorporation of the invest-

ment company.

However, the authorities of the UCITS host Member State may take action against that UCITS if it infringes the laws, regulations and

administrative provisions in force in that Member State that fall outside the scope of this Directive or the requirements set out in Arti-

cles 92 and 94.

2. Any decision to withdraw authorisation, or any other serious measure taken against a UCITS, or any suspension of the issue, repur-

chase or redemption of its units imposed upon it, shall be communicated without delay by the authorities of the UCITS home Member

State to the authorities of the UCITS host Member States and, if the management company of a UCITS is established in another Mem-

ber State, to the competent authorities of the management company’s home Member State.

3. The competent authorities of the management company’s home Member State or those of the UCITS home Member State may take

action against the management company if it infringes rules under their respective responsibility.

4. In the event that the competent authorities of the UCITS host Member State have clear and demonstrable grounds for believing that

a UCITS, the units of which are marketed within the territory of that Member State is in breach of the obligations arising from the

provisions adopted pursuant to this Directive which do not confer powers on the competent authorities of the UCITS host Member

State, they shall refer those findings to the competent authorities of the UCITS home Member State, which shall take the appropriate

measures

5. If, despite the measures taken by the competent authorities of the UCITS home Member State or because such measures prove to

be inadequate, or because the UCITS home Member State fails to act within a reasonable timeframe, the UCITS persists in acting

in a manner that is clearly prejudicial to the interests of the UCITS host Member State’s investors, the competent authorities of

the UCITS host Member State, may, as a consequence, take either of the following actions:

(a) after informing the competent authorities of the UCITS home Member State, take all the appropriate measures needed in order

to protect investors, including the possibility of preventing the UCITS concerned from carrying out any further marketing of its

units within the territory of the UCITS host Member State; or

(b) if necessary, bring the matter to the attention of the Committee of European Securities Regulators.

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The Commission shall be informed without delay of any measure taken pursuant to point (a) of the first subparagraph.

6. Member States shall ensure that within their territories it is legally possible to serve the legal documents necessary for the meas-

ures which may be taken by the UCITS host Member State in regard to UCITS pursuant to paragraphs 2 to 5.

Article 1091. Where, through the provision of services or by the establishment of branches, a management company operates in one or more

management company’s host Member States, the competent authorities of all the Member States concerned shall collaborate

closely.

They shall supply one another on request with all the information concerning the management and ownership of such manage-

ment companies that is likely to facilitate their supervision and all information likely to facilitate the monitoring of such companies.

In particular, the authorities of the management company’s home Member State shall cooperate to ensure that the authorities of

the management company’s host Member State collect the particulars referred to in Article 21(2).

2. In so far as it is necessary for the purpose of exercising the powers of supervision of the home Member State, the competent

authorities of the management company’s host Member State shall inform the competent authorities of the management com-

pany’s home Member State of any measures taken by the management company’s host Member State pursuant to Article 21(5)

which involve measures or penalties imposed on a management company or restrictions on a management company’s activities.

3. The competent authorities of the management company’s home Member State shall, without delay, notify the competent authori-

ties of the UCITS home Member State of any problem identified at the level of the management company which may materially

affect the ability of the management company to perform its duties properly with respect to the UCITS or of any breach of the

requirements under Chapter III.

4. The competent authorities of the UCITS home Member State shall, without delay, notify the competent authorities of the manage-

ment company’s home Member State of any problem identified at the level of the UCITS which may materially affect the ability of

the management company to perform its duties properly or to comply with the requirements of this Directive which fall under the

responsibility of the UCITS home Member State.

Article 1101. Each management company’s host Member State shall ensure that where a management company authorised in another Mem-

ber State pursues business within its territory through a branch the competent authorities of the management company’s home

Member State may, after informing the competent authorities of the management company’s host Member State, themselves or

through the intermediary they instruct for the purpose, carry out on-the-spot verification of the information referred to in Article

109.

2. Paragraph 1 shall not affect the right of the competent authorities of the management company’s host Member State, in discharg-

ing their responsibilities under this Directive, to carry out on-the-spot verifications of branches established within the territory of

that Member State.

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CHAPTER XIIIEUROPEAN SECURITIES COMMITTEE

Article 111The Commission may adopt technical amendments to this Directive in the following areas:

(a) clarification of the definitions in order to ensure uniform application of this Directive throughout the Community; or

(b) alignment of terminology and the framing of definitions in accordance with subsequent acts on UCITS and related matters.

Those measures, designed to amend non-essential elements of this Directive, shall be adopted in accordance with the regulatory

procedure with scrutiny referred to in Article 112(2).

Article 1121. The Commission shall be assisted by the European Securities Committee established by Commission Decision 2001/528/EC(1).

2. Where reference is made to this paragraph, Article 5a(1) to (4) and Article 7 of Decision 1999/468/EC shall apply, having regard to the

provisions of Article 8 thereof.

3. Where reference is made to this paragraph, Articles 5 and 7 of Decision 1999/468/EC shall apply, having regard to the provisions of

Article 8 thereof.

The period laid down in Article 5(6) of Decision 1999/468/EC shall be set at three months.

CHAPTER XIVDEROGATIONS, TRANSITIONAL AND FINAL PROVISIONS

SECTION 1

Derogations

Article 1131. Solely for the purpose of Danish UCITS, pantebreve issued in Denmark shall be treated as equivalent to the transferable securities

referred to in Article 50(1)(b).

2. By way of derogation from Articles 22(1) and 32(1), the competent authorities may authorise those UCITS which, on20 December 1985,

had two or more depositaries in accordance with their national law to maintain that number of depositaries if those authorities have

guarantees that the functions to be performed under Article 22(3) and Article 32(3) will be performed in practice.

3. By way of derogation from Article 16, the Member States may authorise management companies to issue bearer certificates repre-

senting the registered securities of other companies.

Article 1141. Investment firms, as defined in Article 4(1)(1) of Directive 2004/39/EC, authorised to carry out only the services provided for in Section

A(4) and (5) of the Annex to that Directive, may obtain authorisation under this Directive to manage UCITS as management companies.

In that case, such investment firms shall give up the authorisation obtained under Directive 2004/39/EC.

2. Management companies already authorised before 13 February 2004 in their home Member State under Directive 85/611/EEC to man-

age UCITS shall be deemed to be authorised for the purposes of this Article if the laws of that Member State provide that to take up

such activity they must comply with conditions equivalent to those imposed in Articles 7 and 8.

(1)OJL191,13.7.2001,p.45.

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SECTION 2

Transitional and final provisions

Article 115By 1 July 2013, the Commission shall submit to the European Parliament and to the Council a report on the application of this Directive.

Article 1161. Member States shall adopt and publish by 30 June 2011, the laws, regulations and administrative provisions necessary to comply

with the second subparagraph of Article 1(2), Article 1(3)(b), points (e), (m), (p), (q) and (r) of Article 2(1), Article 2(5), Article 4,

Article 5(1) to (4), (6) and (7), Article 6(1), Article 12(1), the introductory phase of Article 13(1), Article 13(1)(a) and (i), Article 15,

Article 16(1), Article 16(3), Article 17(1), Article 17(2)(b), the first and third subparagraphs of Article 17(3), Article 17(4) to (7), the

second subparagraph of Article 17(9), the introductory part of Article 18(1), Article 18(1)(b), the third and fourth subparagraphs

of Article 18(2), Article 18(3) and (4), Articles 19 and 20, Article 21(2) to (6), (8) and (9), Article 22(1), points (a), (d) and (e) of Article

22(3), Article 23(1), (2), (4), and (5), the third paragraph of Article 27, Article 29(2), Article 33(2), (4), and (5), Articles 37 to 42, Article

43(1) to (5), Articles 44 to 49, the introductory phrase of Article 50(1), Article 50(3), the third subparagraph of Article 51(1), Article

54(3), Article 56(1), the introductory phrase of the first subparagraph of Article 56(2), Articles 58 and 59, Article 60(1) to (5), Article

61(1) and (2), Article 62(1), (2) and (3), Article 63, Article 64(1), (2) and (3), Articles 65, 66 and 67, the introductory phrase and Article

68(1)(a), Article 69(1) and (2), Article 70(2) and (3), Articles 71, 72 and 74, Article 75(1), (2) and (3), Articles 77 to 82, Article 83(1)(b),

the second indent of Article 83(2)(a), Article 86, Article 88(1)(b), Article 89(b), Articles 90 to 94, Articles 96 to 100, Article 101(1) to

(8), the second subparagraph of Article 102(2), Article 102(5), Articles 107 and 108, Article 109(2), (3) and (4), Article 110 and Annex

I. They shall forthwith inform the Commission thereof.

They shall apply those measures from 1 July 2011.

When Member States adopt those measures, they shall contain a reference to this Directive or be accompanied by such a refer-

ence on the occasion of their official publication. They shall also include a statement that references in existing laws, regulations

and administrative provisions to Directive 85/611/EEC shall be construed as references to this Directive. Member States shall

determine how such reference is to be made and how that statement is to be formulated.

2. Member States shall communicate to the Commission the text of the main provisions of national law which they adopt in the field

covered by this Directive.

Article 117Directive 85/611/EEC, as amended by the Directives listed in Annex III, Part A, is repealed with effect from 1 July 2011, without

prejudice to the obligations of the Member States relating to the time limits for transposition into national law and application of the

Directives set out in Annex III, Part B.

References to the repealed Directive shall be construed as references to this Directive and shall be read in accordance with the

correlation table in Annex IV.

References to the simplified prospectus shall be construed as references to the key investor information referred to in Article 78.

Article 1181. This Directive shall enter into force on the 20th day following its publication in the Official Journal of the European Union.

Article 1(1), the first subparagraph of Article 1(2), Article 1(3)(a), Article 1(4) to (7), points (a) to (d), (f) to (l), (n) and (o) of Article

2(1), Article 2(2), (3) and (4), Article 2(6) and (7), Article 3, Article 5(5), Article 6(2), (3) and (4), Articles 7 to 11, Article 12(2), Article

13(1)(b) to (h), Article 13(2), Article 14(1), Article 16(2), points (a), (c) and (d) of Article 17(2), the second subparagraph of Article

17(3), Article 17(8), the first subparagraph of Article 17(9), Article 18(1) except the introductory phrase and point (a), the first and

second subparagraphs of Article 18(2), Article 21(1)and (7), Article 22(2), Article 22(3)(b) and (c), Article 23(3), Article 24, Articles

annexes-1B.indd 68 06/06/11 10:58


25 and 26, the first and second paragraphs of Article 27, Article 28, Article 29(1), (3), and (4), Articles 30, 31 and 32, Article 33(1) and

(3), Articles 34, 35 and 36, Article 50(1)(a) to (h), Article 50(2), the first and second subparagraphs of Article 51(1), Article 51(2) and

(3), Articles 52 and 53, Article 54(1) and (2), Article 55, the first subparagraph of Article 56(2), the second subparagraph of Article

56(2), Article 56(3), Article 57, Article 68(2), Article 69(3) and (4), Article 70(1) and (4), Articles 73 and 76, Article 83(1) except point

(b), Article 83(2)(a) except the second indent, Articles 84, 85 and 87, Article 88(1) except point (b), Article 88(2), Article 89 except

point (b), Article 102(1), the first subparagraph of Article 102(2), Article 102(3) and (4), Articles 103 to 106, Article 109(1), Articles

111, 112, 113, and 117 and Annexes II, III and IV shall apply from 1 July 2011.

2. Member States shall ensure that UCITS replace their simplified prospectus drawn up in accordance with the provisions of Direc-

tive 85/611/EEC with key investor information drawn up in accordance with Article 78 as soon as possible and in any event no later

than 12 months after the deadline for implementing, in national law, all the implementing measures referred to in Article 78(7) has

expired. During that period, the competent authorities of the UCITS host Member States shall continue to accept the simplified

prospectus for UCITS marketed on the territory of those Member States.

Article 119This Directive is addressed to the Member States.

Done at Brussels, 13 July 2009.

For the European Parliament For the Council

The President The President

H.-G. PÖTTERING E. ERLANDSSON

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1. Information concerning the common fund 1. Information concerning the management company1

1. Information concerning the investment company

1.1 Name 1.1 Name or style, form in law, registered office and head office if different from the registered office

1.1 Name or style, form in law, registered office and head office if different from the registered office

1.2 Date of establishment of the common fund. Indication of duration, if limited

1.2 Date of incorporation of the company. Indication of duration, if limited.

1.2 Date of the incorporation of the company. Indication of duration, if limited.

1.3 If the company manages other common funds, indication of those other funds

1.3 In the case of investment companies having different investment compartments, the indication of the compartments.

1.4 Statement of the place where the fund rules, if they are not annexed, and periodic reports may be obtained.

1.4 Statement of the place where the instruments of incorporation, if they are not annexed, and periodical reports may be obtained.

1.5 Brief indications relevant to unit-holders of the tax system applicable to the common fund. Details of whether deductions are made at source from the income and capital gains paid by the common fund to unit-holders.

1.5 Brief indications relevant to unit-holders of the tax system applicable to the company. Details of whether deductions are made at source from the income and capital gains paid by the company to unit-holders.

1.6 Accounting and distribution dates 1.6. Accounting and distribution dates.



1.8 Names and positions in the company of the members of the administrative, management and supervisory bodies. Details of their main activities outside the company where these are of significance with respect to that company

1.8 Names and positions in the company of the members of the administrative, management and supervisory bodies. Details of their main activities outside the company where these are of significance with respect to that company.

1.9 Amount of the subscribed capital with an indication of the capital paid-up

1.9 Capital


. The nature of the right (real, personal or other) represented by the unit,

. Original securities or certificates providing evidence of title; Entry in a register or in an account,


. Indication of unit-holders’ voting rights if these exist,

. Circumstances in which winding-up of the common fund can be decided on and winding-up procedure, in particular as regards the rights of unit-holders.


. Original securities or certificates providing evidence of title; Entry in a register or in an account,


. Indication of unit-holders’ voting rights, . Circumstances in which winding-up of the investment company can be decided on and winding-up procedure, in particular as regards the rights of unit-holders.

1.11 Where applicable, indication of stock exchanges or markets where the units are listed or dealt in.

1. 11 Where applicable, indication of stock exchanges or markets where the units are listed or dealt in.



ANNEX I - SCHEDULE A

1includinganindicationwhetherthemanagementcompanyisdomiciledinanotherMemberStatethanintheUCITShomeMemberState

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1.13 Procedures and conditions for re-purchase or redemption of units, and circumstances in which re-purchase or redemption may be suspended. In the case of investment companies having different investment compartments, information on how a unit-holder may pass from one compartment into another and the charges applicable in such cases.



1.15 Description of the common fund’s investment objectives, including its financial objectives (e.g. capital growth or income), investment policy (e.g. specialisation in geographical or industrial sectors), any limitations on that investment policy and an indication of any techniques and instruments or borrowing powers which may be used in the management of the common fund

1.15 Description of the company’s investment objectives, including its financial objectives (e.g. capital growth or income), investment policy (e.g. specialisation in geographical or industrial sectors), any limitations on that investment policy and an indication of any techniques and instruments or borrowing powers which may be used in the management of the company

1.16 Rules for the valuation of assets 1.16 Rules for the valuation of assets









1.18 Information concerning the manner, amount and calculation of remuneration payable by the common fund to the management company, the depositary or third parties, and reimbursement of costs by the common fund to the management company, to the depositary or to third parties.

1.18 Information concerning the manner, amount and calculation of remuneration paid by the company to its directors, and members of the administrative, management and supervisory bodies, to the depositary, or to third parties, and reimbursement of costs by the company to its directors, to the depositary or to third parties.

1 Investment companies within the meaning of Article 32 (5) of the Directive shall also indicate: - The method and frequency of calculation of the net asset value of units, - The means, place and frequency of the publication of that value, - The stock exchange in the country of marketing the price on which determines the price of transactions effected outwith stock exchanges in that

country.

2. Information concerning the depositary: 2.1. Name or style, form in law, registered office and head office if different from the registered office; 2.2. Main activity.

3. Information concerning the advisory firms or external investment advisers who give advice under contract which is paid for out of the assets of the UCITS:

3.1. Name or style of the firm or name of the adviser; 3.2. Material provisions of the contract with the management company or the investment company which may be relevant to the unit-holders,

excluding those relating to remuneration; 3.3. Other significant activities.

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4. Information concerning the arrangements for making payments to unit-holders, re-purchasing or redeeming units and making available information concerning the UCITS. Such information must in any case be given in the Member State in which the UCITS is established. In addition, where units are marketed in another Member State, such information shall be given in respect of that Member State in the prospectus published there.

5. Other investment information: 5.1. Historical performance of the common fund or of the investment company (where applicable) — such information may be either included in or

attached to the prospectus; 5.2. Profile of the typical investor for whom the common fund or the investment company is designed.

6. Economic information: 6.1. Possible expenses or fees, other than the charges mentioned in point 1.17., distinguishing between those to be paid by the unit-holder and those

to be paid out of the common fund’s or of the investment company’s assets.

ANNEX I - SCHEDULE BInformationtobeincludedintheperiodicreports

I. Statement of assets and liabilities: - Transferable securities, - Bank balances, - Other assets, - Total assets, - Liabilities, - Net asset value.

II. Number of units in circulation

III. Net asset value per unit

IV. Portfolio, distinguishing between: (a) Transferable securities admitted to of ficial stock exchange listing; (b) Transferable securities dealt in on another regulated market; (c) Recently issued transferable securities of the type referred to in Article 50 (1) (d); (d) Other transferable securities of the type referred to in Article 50 (2) (a); and analysed in accordance with the most appropriate criteria in the light of the investment policy of the UCITS (e.g. in accordance with

economic, geographical or currency criteria) as a percentage of net assets; for each of the above investments the proportion it represents of the total assets of the UCITS should be stated.

Statement of changes in the composition of the portfolio during the reference period.

V. Statement of the developments concerning the assets of the UCITS during the reference period including the following: Income from investments, Other income, Management charges, Depositary’s charges, Other charges and taxes, Net income, Distributions and income reinvested, Changes in capital account, Appreciation or depreciation of investments, Any other changes affecting the assets and liabilities of the UCITS, Transaction costs, which are costs incurred by a UCITS in connection with transactions on its portfolio.

VI. A comparative table covering the last three financial years and including, for each financial year, at the end of the financial year: The total net asset value, The net asset value per unit.

VII. Details, by category of transaction within the meaning of Article 46 carried out by the UCITS during the reference period, of the resulting amount of commitments.

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ANNEX I I

Functions included in the activity of collective portfolio management:

Investment management.

Administration:

(a) Legal and fund management accounting services;

(b) Customer inquiries;

(c) Valuation and pricing (including tax returns);

(d) Regulatory compliance monitoring;

(e) Maintenance of unit-holder register;

(f) Distribution of income;

(g) Unit issues and redemptions;

(h) Contract settlements (including certificate dispatch);

(i) Record keeping.

Marketing.

ANNEX I II - PART A

Repealed Directive with list of its successive amendments (referred to in Article 117)

Council Directive 85/611/EEC (OJ L 375, 31.12.1985, p. 3) Council Directive 88/220/EEC (OJ L 100, 19.4.1988, p. 31) Directive 95/26/EC of the European Parliament and of the Council (OJ L 168, 18.7.1995, p. 7) Article 1 fourth indent, Article 4(7) and Article 5 fifth indent onlyDirective 2000/64/EC of the European Parliament and of the Council (OJ L 290, 17.11.2000, p. 27) Article 1 onlyDirective 2001/107/EC of the European Parliament and of the Council (OJ L 41, 13.2.2002, p. 20) Directive 2001/108/EC of the European Parliament and of the Council (OJ L 41, 13.2.2002, p. 35) Directive 2004/39/EC of the European Parliament and of the Council (OJ L 145, 30.4.2004, p. 1) Article 66 onlyDirective 2005/1/EC of the European Parliament and of the Council (OJ L 79, 24.3.2005, p. 9) Article 9 onlyDirective 2008/18/EC of the European Parliament and of the Council (OJ L 76, 19.3.2008, p.42)

ANNEX I II - PART B

List of time-limits for transposition into national law and application (referred to in Article 78)

Directive Time-limit for transposition Date of application

85/611/EEC 1 October 1989 -

88/220/EEC 1 October 1989 -

95/26/EC 18 July 1996 -

2000/64/EC 17 November 2002 -

2001/107/EC 13 August 2003 13 February 2004

2001/108/EC 13 August 2003 13 February 2004

2004/39/EC - 30 April 2006

2005/1/EC 13 May 2005 -

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Regulation at domestic level as at April 2011

You will find hereafter the references to the main legal texts regarding cross-border distribution of UCITS for the top 7 target markets in terms of foreign fund registration as per PwC figures at the end of 2010, as well as for the other countries where CACEIS is established.

Germany FranceAustria Belgium Switzerland IrelandNetherlands LuxembourgSpain Hong KongUnited Kingdom

APPENDIX 2

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Germany • Investmentgesetz (German Investment Act)

- Chapter 5 – Marketing provisions - art. 121 to 142

- Chapter 6 - Penal provisions, provisions on administrative fines and transitional provisions - art. 144

Source: www.bafin.de and www.freshfields.com/locations/germany/briefings/

Austria • Federal Act on Investment Funds [Investment Funds Act (Investmentfondsgesetz/invFG) 1993]

- Chapter II - Rules concerning the marketing of units of foreign investment funds - section 24 to 32

- Chapter IIa - Freedom to provide services and freedom of establishment - section 32a

- Chapter III - Rules concerning the marketing of units of an EEA investment fund - section 33 to 39a

• FMA’s instructions for notifications under Article 30 of the Investment Funds Act (InvFG)

• Guidelines for notifications under Section 36 of the Investment Funds Act (InvFG) – Notification of UCITS

Source: www.fma.gv.at

Switzerland • Collective Investment Schemes Act (« Loi fédérale sur les placements collectifs de capitaux » - LPCC RS 951.31)

Titre 1 - Dispositions générales

- Chapitre 1 - But et champ d’application - Art. 2

- Chapitre 3 - Autorisation et approbation - Art. 13 to Art. 17

Titre 4 - Placements collectifs étrangers

- Chapitre 1 - Définition et approbation - Art. 119 to Art. 122

- Chapitre 2 - Représentant de placements collectifs étrangers - Art. 123 to Art. 125

• Collective Investment Scheme Ordinance (« Ordonnance sur les placements collectifs de capitaux » -

OPCC RS 951.311)

Titre 4 - Placements collectifs étrangers

- Chapitre 1 - Approbation - Art. 127 to Art. 130

- Chapitre 2 - Représentant de placements collectifs étrangers - Art. 131 to Art. 133

• Guidelines on the Distribution of Collective Investment Schemes (self regulation)

• SFBC Circular 03/1 relating to public advertising within the meaning of the Collective Investment Schemes

legislation

Sources: www.sfa.ch and www.admin.ch

Netherlands • Act on Financial Supervision [Wet financieel toezicht] (Wft)

Chapter 2 – Market access of financial enterprises

- Part 2.2.7. Offering units in collective investment schemes - Section 2:65 to 2:74

2

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Appendix 2 - Regulation at domestic levels - page 4

• Act of 12 May 2005, containing rules for the provision of financial services (Financial Services Act)

• Decree of 15 December 2005, containing rules for the provision of financial services (Financial Services

Decree)

Chapter 7 - Provision of information - sections 38 to 49

• Decree of 12 October 2006, containing rules relating to the supervision of the conduct of financial

enterprises (Decree on the Supervision of the Conduct of Financial Enterprises pursuant to the Act on

Financial Supervision)

Source: www.afm.nl

Spain • Law 35/2003 on the regulation of Collective Investment Schemes

Título II - Disposiciones comunes

- Capítulo II - Comercialización transfronteriza de acciones y participaciones de IIC - Artículo 15 y 16

• Real decreto 1309/2005 (enforcement decree of Law 35/2003)

• Circular 2/2006 regarding information of the foreign collective investment schemes registered at the

CNMV relevant registries

• Memorandum relating to methods of fund distribution in Spain

Source: www.cnmv.es/

United Kingdom • The Financial Services and Markets Act 2000 (FSMA)

• The Collective Investment Scheme Information Guide (COLLG), February 2009

• The Perimeter Guidance Manual (PERG)

Source: www.fsa.gov.uk

France • General regulation of the Autorité des Marchés Financiers (AMF)

Book IV - Collective investment products

- Title I - Collective investment schemes

Chapter I - Common provisions for collective investment schemes

Section 4 - Marketing foreign collective investment schemes in France

- Sub-section 1 - Undertakings for collective investment in transferable securities (UCITS) - Article 411-57 to

411-59

- Sub-section 2 - Other foreign collective investment schemes - Article 411-60

- Sub-section 3 - Common requirements - Article 411-61

• AMF instruction n0 2005-01 of 25 January 2005 defining the fund registration procedure in France and the

centralizing agent’s role

Titre IV - OPCVM étrangers désirant être commercialisés en France

- Chapitre 1 - OPCVM européens coordonnés

. Section 1 - Procédure d’autorisation de commercialisation en France - Article 42 to 45

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. Section 2 - Correspondant(s) en France de l’OPCVM et obligations d’information - Article 46 to 48

- Chapitre 2 - Autres OPCVM étrangers- Article 49

• CMF (Code Monétaire et Financier) General regulation

Art. L621-5-3 and D621-27

Source: www.amf-france.org

Belgium • Circulaire CBFA OPC 1/2007 relative à la procédure de notification pour les OPC relevant du droit d’un

autre Etat membre de l’Espace Economique Européen et répondant aux conditions

de la Directive 85/611/CEE

• Circulaire CBFA OPC 2/2007 relative à la procédure de notification pour les organismes de placement

collectif de droit belge qui répondent aux conditions de la Directive 85/611/CE

• Circulaire CBFA OPC 4/2007 relative à la détention de titres d’organismes de placement collectif par

l’entremise d’un intermédiaire (nominee)

• Loi du 20 juillet 2004 relative à certaines formes de gestion collective de portefeuilles d’investissement

• Royal Decree of 4 March 2005 relating to certain public undertakings for collective investment

Source: www.cbfa.be

Ireland • UCITS Notices issued by the Central Bank of Ireland relating to Undertakings for Collective Investment

in Transferable Securities authorised under European Communities (Undertakings for Collective

Investment in Transferable Securities) Regulations 2003, October 2010

• Marketing requirements: UCITS 15 Notice relating to supervisory requirements for UCITS authorised in

another Member State intending to market units in Ireland, October 2010

• Investment funds, companies & miscellaneous provisions Act 2006

Source: www.financialregulator.ie/ and www.entemp.ie

Luxembourg • Law of 20 December 2002 relating to undertakings for collective investment and amending the law of 12

February 1979 concerning the value added tax as amended:

Part I - UCITS

- Chapter 6: UCITS situated in Luxembourg which market their units in other Member States of the

European Union - Articles 53 to 58

- Chapter 7: UCITS situated in other Member States of the European Union which market their units in

Luxembourg - Articles 59 to 64

• Circular CSSF 07/277 relating to the new notification procedure in line with the guidelines of CESR

regarding the simplification of the UCITS notification procedure

Source: www.cssf.lu


2

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Appendix 2 - Regulation at domestic levels - page 6

HongKong • The Unit Trust Code, 25 June 2010

Part I: General matters

Part II: Authorisation requirements

Part III: Post-authorization requirements

• Circular to management companies / product issuers of SFC-authorised schemes - Implementation

arrangements to the Code on Unit Trusts and Mutual Funds, December 2010

• Circular to issuers of advertisements relating to SFC - authorised Collective Investment Schemes,

December 2008

• Circular to issuers of retail investment products, October 2008

Source: www.sfc.hk

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