investment managementundertakings for collective investmentin transferable securities (UCITS)

investment managementundertakings for collective investment in transferable securities (UCITS)

Table of contents

Introduction 5

I. Key features 6

II. Available structures 7

III. Umbrella funds/share classes 8

IV. UCITS ETFs 9

V. Substance requirements 10

1. Designation of a management company 10

2. Self-managed SICAV/SICAF 12

VI. Service providers 13

1. Luxembourg-based service providers 13

2. Other service providers (not necessarily based in Luxembourg) 14

3. Conditions for authorisation to delegate activities 14

VII. Eligible assets 15

1. Overview 15

2. Eligibility 15

3. Investment restrictions 18

VIII. Efficient portfolio management techniques 22

IX. Collateral management 25

X. Risk management 27

1. Governance and organisation of the permanent risk management function 27

2. Risk profile determination 27

3. Global exposure 28

4. Liquidity risk 28

5. Counterparty risk 29

6. Concentration risk and monitoring of cover rules 29

7. Risk disclosure/Leverage 29

8. Risk Management Process 30

XI. Key Investor Information Document 31

1. Definition 31

2. Legal and regulatory provisions 31

3. Features and Content 31

XII. UCITS Marketing 33

1. Luxembourg UCITS marketing their units in another Member State 33

2. UCITS established in another Member State marketing their units in Luxembourg 34

XIII. Master-feeder structures 36

XIV. National and cross-border mergers 37

XV. Regulatory supervision 38

XVI. Taxation 40

XVII. Once-off and ongoing costs at a glance 41

Definitions 42

Arendt & Medernach UCITS team 47

About Arendt & Medernach 48

A broad range of practice areas 49

5

Introduction

Luxembourg investment funds may be set up either under the law of 13 February 2007 on specialised investment funds (“SIFs”) or the law of 17 December 2010 on undertakings for collective investment, which is divided into two parts (the “2010 Law”).

The present document focuses on Luxembourg UCITS, which fall under the regime of Part I of the 2010 Law (the “UCITS regime”). Part II of the 2010 Law applies to non-UCITS.

The evolution of the UCITS legislation at EU level from UCITS I to UCITS IV may be summarised as follows:

The demand for UCITS comes from both retail and institutional investors.

The attractiveness of Luxembourg as a business place for UCITS is evidenced by the EFAMA and ICI statistics showing that as of September 2012, Luxembourg is ranked first in Europe with 31.4% of the total of nets assets of UCITS managed in Europe and this represents 9.6% of the UCITS managed worldwide.

According to the CSSF statistics as of 31 January 2013, the number of Luxembourg UCITS amounted to 1803 so that UCITS represented about 47% of the number of undertakings for collective investments and 80% of the assets under management of undertakings for collective investments. Overall, as of 31 January 2013, Luxembourg UCITS managed 1.936,513 billion Euros.

The present brochure outlines the main characteristics of UCITS and the requirements imposed by the CSSF for both the setting-up and the corporate life of UCITS.

UCITS IDecember 1985

The objective was to create an integrated EU market for investment funds withthe following features:- Harmonised investor protection rules through product regulation;- Simplified notification process allowing the marketing of UCITS in Member

States.UCITS I stands for the birth of the UCITS passport (see below) and the creation of a “UCITS brand”.

UCITS IIIJanuary 2002

As a result of the industry call for enlargement of eligible investments available to UCITS and the need to enlarge the scope of activities of UCITS management companies, UCITS III created the following achievements:- On the management side, the scope of activities of UCITS management

companies was enlarged to encompass individual portfolio management, safekeeping of fund units and investment advice on an ancillary basis;

- On the product side, the scope of investment opportunities of UCITS was enlarged by extending the range of eligible instruments.

UCITS IVJune 2009

The objective was to gain efficiency by implementing six principal amendments to the UCITS regime:- Implementation of a management company passport;- Creation of a framework for cross-border UCITS mergers;- Creation of master-feeder UCITS structures;- Introduction of a key investor information document;- Introduction of a simplified notification procedure;- Implementation of an enhanced supervisory cooperation.

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I. Key features

Scope of the 2010 Law Scope of Part I of the 2010 Law

Criteria to be cumulatively met in order to be subject to the 2010 Law and more specifically to Part I of the 2010 Law

The savings must be invested on a collective basis;

The savings used for collective investment must have been collected from the public;

The investments which form the object of the collective investment must be made in accordance with the principle of risk- spreading.

The assets are invested in transferable securities and other liquid financial assets;

The shares/units are promoted to the public in the EU and the EEA;

The redemption of shares/units is effected at the request of the investors;

The UCITS is not excluded from the coordinated UCITS status by reason of its investment or borrowing policy.

Sponsorship For several years, the CSSF required that any UCITS must be promoted by a reputable institution who commits its name and reputation to the proper functioning of the UCITS to be created.

The CSSF now considers that the concept of promoter is no longer necessary for UCITS having taken the form of a SIAG or having designated a management company where these meet the requirements of Circular 12/546 (CSSF Press Release 12/45).

Accordingly, any new UCITS whose date of authorisation fails between the publication date of the Circular 12/546 (i.e. 24 October 2012) and 1 July 2013 must either designate a management company subject to Chapter 15 of the 2010 Law which meets the requirements of the Circular 12/546, or have a promoter.

After this transitory period, the concept of promoter will not exist anymore except for UCI subject to Part II of the 2010 Law.

According the Circular 12/546, the CSSF may from now on request a letter of intent by which the issuer of the letter undertakes, vis-à-vis the CSSF, that the sponsored entity complies/will comply with prudential requirements imposed by the applicable law, particularly regarding the requirements relating to own funds. The letter may be requested:

- At the time of authorisation of the management company or self-managed SICAV,

- At the time of a change of the shareholding, and

- When during the lifetime of the management company or self-managed SICAV, the financial soundness of the existing shareholder(s) is not ensured anymore.

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II. Available structures

The 2010 Law permits the creation of UCITS in the form of FCPs or of investment companies. The latter may either be established as SICAVs or as SICAFs1.

1 In practice, UCITS are not set up in the form of SICAFs.

FCP SICAV SICAF

Legal form of vehicle Contractual vehicle. Corporate vehicle. Corporate vehicle.

Key features Undivided co-ownership of assets;

Has no legal personality;

Very flexible vehicle, because it is not subject to any specific corporate law requirements.

Variable share capital equal to the net assets;

Has a legal personality;

No need to formally increase or reduce the share capital.

Fixed share capital;

Has a legal personality;

Formal decision to increase or reduce the share capital is necessary and is subject to specific corporate law requirements.

Management Managed by a management company subject to Chapter 15 of the 2010 Law.

Managed by a board of directors or a management board/ supervisory board.

Designation of a management company possible. (see Chapter V)

Depending on legal form, managed by a board of directors, a management board/ supervisory board, or general partner(s).

Designation of a management company possible. (see Chapter V)

Shareholders/unitholders

Several unitholders;

Liability of unitholders limited to the amount committed to the FCP;

Possibility to be protected from hostile takeovers, since investors usually do not have voting rights;No voting rights for unitholders except if otherwise provided in the prospectus and the management regulations.

Several shareholders;

Liability of shareholders limited to the amount committed to the SICAV;

Shareholders are entitled to voting rights.

Several shareholders;

Liability of shareholders in principle limited to the amount committed to the SICAF;

Shareholders are entitled to voting rights.

Availablecompany forms

N/A. Public limited company (société anonyme, S.A.).

Public limited company (société anonyme, S.A.);

Corporate partnership limited by shares (société en commandite par actions, S.C.A.).

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Umbrella funds/share classes

III.

The 2010 Law permits the creation of UCITS as stand-alone funds or as umbrella funds with different sub- funds where each sub-fund corresponds to a distinct portfolio of assets and liabilities of the UCITS.

One or more classes of shares/units that match various characteristics may be created in the stand-alone UCITS or in each sub-fund of the umbrella fund. The classes of shares/units may e.g. have the following distinguishing features:

n Distribution policy (distribution or capitalisation shares/units);n Currency (different currencies for the shares/units may be accommodated, e.g. USD, EUR, JPY, etc);n Investors targeted (either retail, professional or institutional investors, investors of a different nationality, etc);n Structure of fees (different fee structures may be accommodated, such as e.g. in relation to the subscription

fee, redemption fee, conversion fee, deferred sales charge, distribution fee, management fee, performance fee, etc.);

n Currency hedging (hedged classes or not);n Minimum subscription and holding requirements;n Etc.

Applicable provisions Article 181 of the 2010 Law (constitutional documents must provide for the possibility).

Chapter J of Circular 91/75 sets out the conditions for FCPs and investment companies in the form of umbrella funds.

Objective May accommodate various needs, such as:- Different investment policies;- Different reference currencies;- Different categories of investors;- Different distribution channels.

One single entity A UCITS may not comprise simultaneously sub-funds governed by Part I and Part II of the 2010 Law (in such case, the entire umbrella fund would be subject to Part II of the 2010 Law).

Ring fencing Each sub-fund is only responsible for its own debts, commitments and other obligations, unless its constitutional documents provide otherwise.

Conversion In principle, possibility to convert from one sub-fund to another.

Possibility for a sub-fund to invest in another sub-fund

Under the 2010 Law, a sub-fund may invest in another sub-fund of the same UCITS provided that:- The target sub-fund does not, in turn, invest in the sub-fund invested in this target sub-fund;

and- No more than 10% of the assets of the target sub-funds whose acquisition is contemplated

may, pursuant to their management regulations or their articles of incorporation, be invested in aggregate in units of other target sub-funds of the same UCI; and

- Voting rights, if any, attaching to the relevant securities are suspended for as long as they are held by the sub-fund concerned and without prejudice to the appropriate processing in the ac- counts and the periodic reports; and

- In any event, for as long as these securities are held by the UCI, their value will not be taken into consideration for the calculation of the net assets of the UCI for the purposes of verifying the minimum threshold of the net assets imposed by this Law; and

- There is no duplication of management/subscription or repurchase fees between those at the level of the sub-fund of the UCI having invested in the target sub-fund, and the target sub-fund.

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UCITS ETFsIV.

ESMA Guidelines 2012/832 impose a number of new requirements on UCITS ETFs, which are defined as any UCITS at least one unit or share class of which is traded throughout the day on at least one regulated market or Multilateral Trading Facility with at least one market maker which takes action to ensure that the stock exchange value of its units or shares does not significantly vary from its net asset value and where applicable its Indicative Net Asset Value. These requirements are summarised below.

Disclosure rules apply immediately to any new UCITS ETF created after 18 February 2013. For existing UCITS ETFs created before that date, disclosure rules apply at the earlier of the first update of the prospectus, KIID or marketing material (as applicable) or 18 February 2014. Other requirements are immediately applicable to any UCITS ETFs, as specified below.

Use of ‘UCITS ETF’ identifier in name of fund or sub-fund

A UCITS ETF should use the identifier ‘UCITS ETF’ which identifies it as an exchange-traded fund. This identifier should be used in its name, fund rules or instrument of incorporation, prospectus, key investor information document and marketing communications. The identifier ‘UCITS ETF’ should be used in all EU languages.

A UCITS which is not a UCITS ETF (as defined in these guidelines) should use neither the ‘UCITS ETF’ identifier nor ‘ETF’ nor ‘exchange-traded fund’.

This requirement applies to existing UCITS ETFs at the earlier of 18 February 2014 of the first name change for other reason.

Clear disclosure of portfolio transparency policy

A UCITS ETF should disclose clearly in its prospectus, key investor information document and marketing communications the policy regarding portfolio transparency and where information on the portfolio may be obtained, including where the indicative net asset value, if applicable, is published.

Clear disclosure of indicative NAV calculation and publication

A UCITS ETF should also disclose clearly in its prospectus how the indicative net asset value is calculated, if applicable, and the frequency of calculation.

Actively-managed UCITS ETFs

An actively-managed UCITS ETF should inform investors clearly in its prospectus, key investor information document and marketing communications of that fact.

An actively-managed UCITS ETF should disclose clearly in its prospectus, key investor information document and marketing communications how it will meet the stated investment policy including, where applicable, its intention to outperform an index.

Secondary market warning disclosure

Where units of a UCITS ETF purchased on a secondary market are generally not redeemable from the fund, the prospectus and marketing communications of the fund should include the following warning: ‘UCITS ETF’s units / shares purchased on the secondary market cannot usually be sold directly back to UCITS ETF. Investors must buy and sell units / shares on a secondary market with the assistance of an intermediary (e.g. a stockbroker) and may incur fees for doing so. In addition, investors may pay more than the current net asset value when buying units / shares and may receive less than the current net asset value when selling them.’

Exceptional redemption right on primary market and prospectus

If the stock exchange value of the units or shares of the UCITS ETF significantly varies from its net asset value, investors who have acquired their units or shares (or, where applicable, any right to acquire a unit or share that was granted by way of distributing a respective unit or share) on the secondary market should be allowed to sell them directly back to the UCITS ETF. For example, this may apply in cases of market disruption such as the absence of a market maker. In such situations, information should be communicated to the regulated market indicating that the UCITS ETF is open for direct redemptions at the level of the UCITS ETF.

A UCITS ETF should disclose in its prospectus the process to be followed by investors who purchased their units/shares on the secondary market should the circumstances described above arise, as well as the potential costs involved. The costs should not be excessive.

This requirement is immediately applicable to all UCITS ETFs.

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Designation of a management company1.

In order to comply with the substance requirements of the 2010 Law, UCITS set up as FCPs must be managed by a management company subject to Chapter 15 of the 2010 Law.

UCITS set up as a SICAV or SICAF subject to Part I of the 2010 Law may either be self-managed (see point 2 below) or designate a management company subject to Chapter 15 of the 2010 Law in order to fulfil the substance requirements.

CSSF Circular 12/546 further specifies the substance requirements.

V. Substance requirements

Chapter 15 of the 2010 Law

Scope of application Applies to management companies managing at least one UCITS;

Benefits from the European passport.

Permitted activities Core services: provision of collective portfolio management services (including asset management, administration and marketing);

Additional services:- Management of individual portfolios on a discretionary and individual basis;- On an ancillary basis, investment advice concerning one or more of the instruments listed in

Annex II, Section B of the 1993 Law;- On an ancillary basis, safekeeping and administration of shares/units of UCIs.

Shareholding The shareholding structure must be transparent and conflicts of interests must be mitigated and controlled.

Identity of shareholders and the amount of the relevant holdings, as well as any changes therein must be communicated to the CSSF. The relevant shareholders must be of good repute and perform their duties in a manner to ensure the good and prudent management of the management company.

The share capital of the shareholders must be sufficient to allow them to take a participation in the management company.

Specific requirements may arise where one shareholder or member who has a qualifying holding in the management company is a depositary bank of one of the investment funds managed by the management company. In addition, the board of directors of the management company shall not be predominantly composed of representatives of the business line “depositary bank”.

Circular 12/546 also provides that the CSSF may now require a letter of intent (please see chapter I above).

Own funds/Share capital requirements

Minimum capital requirements: initial capital of at least EUR 125,000. If the value of the portfolios managed by a management company exceeds EUR 250 million, the capital must be increased by an additional amount equal to 0.02% of the amount by which the value of the managed portfolios exceeds EUR 250 million, provided that a management company is not required to have a capital of more than EUR 10 million.

The portfolios of the following entities are deemed to be the portfolios of a management company:- The portfolios of the common funds managed by the management company (including the

portfolios for which the management has been delegated to third parties); and- The portfolios of the investment companies for which the management company is the

designated management company;- The portfolios of other UCIs managed by the management company (including the ones for

which the management is delegated to third parties).Portfolios managed under delegation from third parties are not taken into consideration.

No requirement to provide up to 50% of the additional amount of own funds if a guarantee of the same amount is granted by a credit institution or an insurance undertaking, having its registered office in a Member State or in a non-Member State, provided it is subject to prudential rules considered by the CSSF as equivalent to the EU prudential rules.

Management companies authorised to carry out management of individual portfolios on a discretionary and individual basis have to comply with additional capital requirements set forth in Circular 07/290.

Board of directors Directors must be of good repute and have adequate professional experience.

They must dedicate the required time and attention to their duties and so limit the number of other professional engagements as may be necessary.

Where a bank is shareholder of a management company and where this bank assumes the function of depositary bank for one or more fund(s) managed by the management company, it must be ensured that the board of directors of the management company is not predominantly composed of representatives of the business line “depositary bank”.

Where the SICAV has designated a management company, it is recommended that the board of directors of both the SICAV and the management company are not predominantly composed of the same individuals.

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IV. Substance requirements

Conducting persons/ Management Committee

The business of the management company must be conducting by at least two persons of good repute and having the adequate professional experience, who must, in principle, reside on a permanent basis in Luxembourg (possibility of derogation depending on the nature, scale and complexity of the activities of the management company). Each conducting person is assigned specific areas of responsibilities.

The conducting persons form a management committee and shall hold periodic meetings formalised in written minutes available at the premises of the management company in Luxembourg.

The conducting persons act under the ultimate responsibility of the board of directors of the management company.

Central administration Each management company must have a head office in Luxembourg consisting of a “decision-making centre” and an “administrative centre”.

Technical and humaninfrastructure

- Permanent staff, which is suitable for the contemplated activities;- Systems and procedures to safeguard the security, integrity and confidentiality of information;- Adequate business continuity policy to ensure the preservation of essential data and functions

and the maintenance of services and activities.

Administrativeand accountingrequirements

Adequate technical infrastructure, including i.a. sound administrative and accounting procedures, control and safeguard arrangements for electronic data processing and adequate internal control mechanisms.

- Adequate and orderly maintenance of records relating to the management company’s business and internal organisation;

- Accounting policies and procedures (to ensure the proper and accurate valuation of assets);- A person in charge of the accounting function must be designated and his/her name must be

communicated to the CSSF.

Complaint handling - Implementation of procedures for the prompt handling of investors complaints;- Investors must have access to this information free of charge;- Communication to the CSSF of the name of a person responsible for the complaints handling

process.

Permanent compliance function

- The purpose of the compliance is a regular control associated with an on-going and close monitoring of the management company’s operations and related risks;

- Drafting of a compliance charter and a compliance policy;- Establishment of a permanent compliance function and designation of a compliance officer

whose name will be communicated to the CSSF;- Possibility for delegation to third-parties;- Annual report on compliance to be submitted to the CSSF.

Permanent internal audit function

- Establishment of a permanent internal audit function and designation of a responsible person whose name will be communicated to the CSSF.

Permanent risk management function and risk management process

- A management company must establish and maintain operational a permanent risk manage-ment function and employ a risk management process which enables it to control and measure at any time the risk of the position and their contribution to the overall risk profile;

- Please refer to chapter IX below.

Personal transactions - Procedure relating to personal transactions;- List of all personal transactions available at the registered office of the management company.

Conflicts of interest - Identification of potential conflicts of interest;- Establishment of a conflicts of interest policy;- Record and management of activities leading to conflicts of interest entailing a material risk of

damage;- Strategy for the exercise of voting rights.

Rules of conduct Management companies must comply with a certain number of rules of conduct (article 111 of the 2010 Law and Regulation 10-4):

- Action in the best interests of UCITS and unit-holders: fair treatment of unit-holders; prevention of practices affecting the stability and integrity of markets; use of fair, correct and transparent pricing models and valuation systems; prevention of undue costs;

- Due diligence requirements: high level of diligence in the selection and ongoing monitoring of investments; adequate knowledge and understanding of invested assets; compliance of investment decisions with investment objectives and strategies as well as with risk limits; due skill, care and diligence in the performance of risk management;

- Reporting of subscription and redemption orders: executed orders must be notified to unit-holders; notification of transactions executed periodically for a unit-holder may be made every six months; information to unit-holders, upon request, as to the status of pending orders;

- Best execution: establishment and implementation of effective arrangements for complying with best execution (directly or with other entities for execution); monitoring and review of the execution policy;

- Handling of orders: procedures for the prompt, fair and expeditious execution of portfolio transactions, policy for the aggregation and allocation of trading orders;

- Inducements: prohibition on fees, commissions and non-monetary benefits paid or provided by or to management companies, except where: Paid or provided to or by UCITS or on behalf of UCITS;

- Paid or provided to or by a third party (other than the UCITS), if there is appropriate disclosure and enhanced service quality, or Fees properly due.

Prudential supervision Subject to the prudential supervision of the CSSF.

Delegation of activities Possibility to delegate activities to third parties, subject to stringent conditions disclosed in article 110 of the 2010 Law and Circular 12/546. Such delegation must not affect the management company’s and the custodian bank’s liability.

The management company must verify and monitor that the delegates have taken suitable measures so as to comply with the requirements in the areas of organisation, conflicts of interest and rules of conduct.

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Programme of activities/business plan

The request for authorisation includes a programme of activities which notably provides a description of the business development plan in terms of:

- Scope of proposed services for the next three financial years;- Investment policies, instruments and financial markets concerned- Risk management process;- Provisional accounts for the three following years, and - Development strategy;- Programme of operations and management information system.

Supervision Supervision of annual accounts of the management company must be effected by an authorised external auditor (réviseur d’entreprises agréé) with adequate professional experience.

MiFID Management companies exercising collective portfolio management (investment management, administration and/or marketing) are excluded from MiFID provisions;

Management companies providing additional services (as described above) must comply with certain MiFID provisions such as the organisational requirements and conduct of business rules.

2. Self-managed SICAV/SICAF

As an alternative to the designation of a management company subject to Chapter 15 of the 2010 Law, aSICAV or SICAF may opt for the status of self-managed SICAV/SICAF.

Status A self-managed SICAV/SICAF may only manage its own assets.

Own funds/Share capital requirements EUR 300,000 upon creation;

Minimum capital requirement of EUR 1,250,000 to be reached within 6 months as from authorisation date.

Board of directors Idem as for the management company.

Conducting persons Idem as for the management company.

Central administration Idem as for the management company.

Technical and human infrastructure Idem as for the management company.

Administrative and accounting requirements

Not required for self-managed SICAV/SICAF.

Complaints handling Idem as for the management company.

Permanent compliance function Not required for self-managed SICAV/SICAF.

Permanent internal control function Not required for self-managed SICAV/SICAF.

Permanent risk management function Idem as for the management company.

Personal transactions Not required for self-managed SICAV/SICAF.

Conflicts of interest Idem as for the management company.

Rules of conduct Idem as for the management company.

Delegation of activities Idem as for the management company.

Programme of activities/business plan Idem as for the management company.

Prudential supervision Idem as for the management company.

MiFID Self-managed SICAV/SICAF is excluded from MiFID provisions.

IV. Substance requirements

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Custodian Any UCITS must appoint a custodian which must be approved by the CSSF. The custodian must either have its registered office in Luxembourg or be established in Luxembourg if its registered office is in another Member State of the EU.

The custodian of a UCITS is entrusted with the following duties:- Safekeeping of the assets of the UCITS;- Monitoring of the assets of the UCITS (i.e. know at any time where the assets of the UCITS

have been invested and where and how such assets are available).

The custodian is vested with additional supervisory functions depending on the type of UCITS concerned. It must ensure: (i) that the sale, issue, repurchase and cancellation of shares/ units effected by or on behalf of the UCITS are carried out in accordance with the law and the constitutive documents of the UCITS; (ii) that the consideration for transactions involving the assets of the UCITS is remitted to the UCITS within the usual time limits; and (iii) that the income of the UCITS is applied in accordance with its constitutive documents.

For an FCP, the custodian must also ensure that (i) the instructions of the management company comply with the applicable laws and regulations and with the management regulations of the FCP, and (ii) the value of units is calculated in accordance with the law and the management regulations.

In case of an FCP, the custodian carries out the day-to-day administration of the assets (collection of dividends, interests, exercise of option rights etc.).

Central administration The central administration must be situated in Luxembourg. This means that (i) the accounts of the UCITS have to be kept and be available in Luxembourg; (ii) the issues and redemptions have to be processed in Luxembourg; (iii) the register of shares/units has to be kept in Luxembourg; (iv) the prospectus, KIIDs, financial reports and other documents intended for investors have to be established in co-operation with the central administration agent in Luxembourg; (v) the dispatch of correspondence, notices and reports to unitholders/shareholders has to be made from Luxembourg; and (vi) the calculation of the net asset value has to be performed in Luxembourg. Due to the technical and human infrastructure necessary to perform these duties, Luxembourg UCITS almost systematically appoint a central administration agent in Luxembourg, subject to CSSF approval, in order to perform these duties.

The central administration functions are in practice often splitted between different service providers: issues and redemptions as well as the register of shares/units are handled by the registrar and transfer agent, any aspects regarding the domiciliation (i.e. provision of a registered office to the UCITS and services of any kind connected therewith) are handled by the domiciliary agent, whereas the other functions are handled by the administrative agent.

Auditor The UCITS’ accounts must be audited at least once a year by an authorised external auditor (réviseur d’entreprises agréé) designated by the UCITS, with the approval of the CSSF.

Luxembourg-based service providers1.

VI. Service providers

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2. Other service providers (not necessarily based in Luxembourg)

Investment manager The investment manager is in charge of the intellectual management of the UCITS. The investment manager is subject to CSSF prior approval. It does not need to be located in Luxembourg, but must be subject to regulatory supervision. For investment managers located in third countries, there must be a cooperation between the CSSF and the supervisory authority of the investment manager.

Investment advisor The investment advisor is a professional providing investment advice to a UCITS, either at the initiative of the investment manager, or upon the UCITS’ request, in respect of transactions relating to financial instruments. The investment advisor is not authorised to intervene directly or indirectly in the implementation of the investment advice provided.

There is no requirement as regards prior approval by the CSSF.

Distributor The distributor is an intermediary who is part of the distribution process set up by the promoter either actively participating in the marketing of the shares/units issued by a UCITS or appointed in the prospectus or in any other document as being authorised to receive subscription and redemption orders on behalf of the UCITS.

Paying agent The paying agent is the professional who receives the monies from investors and pays investors (in case of repurchases or dividend payments). There is usually a paying agent per country of registration of the UCITS.

Market maker The market maker is an intermediary participating for its own account and at its own risk in subscription and redemption transactions on shares/units issued by UCITS.

Nominee The nominee is an intermediary who intervenes between the investors and the UCITS for the purpose of effecting subscriptions of shares/units in the UCITS in its own name but on behalf of the underlying investors.

3. Conditions for authorisation to delegate activities

Where the management company or the self-managed SICAV decides to delegate to third parties one or more of its functions, it shall comply with the requirements of the Circular 12/546 and in particular with the following conditions:- Prior authorisation by the CSSF,- Monitoring of delegated activities may not be delegated,- Extent of delegation may not reduce the management company/self-managed SICAV to a letter-box

entity,- Any delegation arrangements do not affect the management company/self-managed SICAV liability,- Notification to the CSSF of a possible sub-delegation,- Written initial and ongoing due diligence on the service provider,- Written agreement between the management company/self-managed SICAV and the service provider,- Delegation must not prevent effectiveness of supervision by the CSSF,- Delegation must not prevent the management company/self-managed SICAV from acting in the best

interests of investors,- Implementation of control arrangements to access data documenting the activities of the delegate,- Possibility for the conducting persons to give additional instructions to the delegate and to withdraw the

mandate with immediate effect if investor’s interests so require,- Disclosure of the delegation within the prospectus.Specific conditions for the delegation of the investment management and of the administrative function are set out in the Circular 12/546.

V. Service providers

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VII. Eligible assets

1. Overview

Legal and regulatoryprovisions/CESR’sguidelines

- UCITS Directive;- Directive 2007/16/EC;- 2010 Law;- Grand-Ducal Regulation on eligible assets;- CESR’s Guidelines 07-044b;- CESR’s Guidelines 07-434;- ESMA Guidelines 2012/832;- Circular 08/380;- Circular 08/356.

Eligible assets for UCITS - TS and structured financial instruments;- MMI;- Units of UCITS and other eligible UCIs;- Deposits with credit institutions;- FDI based on eligible underlying assets.

2. Eligibility

A. Transferable Securities (“TS”)Yes No

Listing

1 Is the TS listed? Continue with 2. Not eligible except within the 10% trash ratio: continue with 3.

Liquidity

2 Presumption of liquidity and negotiability but:

is there any reason to believe that the liquidity of the TS is not guaranteed?

Continue with 3. Continue with 4.

3 Is the liquidity of the TS satisfied? The following parameters have to be considered:

- Volume and turnover in the security;- Issue size/portion to buy/timeframe to buy/sell;- Independent analysis of bid/offer prices;- Quality/number of intermediaries dealing in the security.

Continue with 4. Continue with 3bis.

3 bis Is there a potential impact on the ability of the UCITS to ensure redemption requests of its investors?

Not eligible. Continue with 4.

Potential loss

4 Is there a risk for the UCITS to incur potential losses beyond the amount paid to purchase the TS?

Not eligible. Continue with 5.

Available information

5 Are there accurate, reliable and regular prices available for the TS? Continue with 6. Not eligible.

6 Is there regular, accurate and comprehensive information available on the TS? Continue with 7. Not eligible.

Negotiability

7 Is the TS negotiable? Continue with 8. Not eligible.

16

VI. Eligible assets

A. Transferable Securities (“TS”)Yes No

Investment objective of the TS

8 Is an investment in the TS consistent with the investment objectives of the UCITS?

Continue with 9. Not eligible.

TS embedding FDI

9 Does the TS embed a FDI i.e. is the TS a host contract for a variable component which (all criteria have to be met):

- Modifies the cash flows of the TS in a similar way to a stand-alone FDI- Has economic characteristics and risks not closely related to that of

the host contract- Has an impact on the risk profile and pricing of the TS

Continue with 9 bis. Continue with 10.

9 bis Is the embedded FDI eligible? (see point C. “FDI”) Continue with 9 ter. Not eligible.

9 ter Is the embedded FDI:

- Included in the risk management process of the UCITS?- Included in the UCITS’ global exposure?- Combined with issuer limits? (all criteria have to be met)

Continue with 10. N/A.

Adequate risk management process

10 Is the TS duly covered by the risk management process of the UCITS? Eligible. Not eligible.

B. Money Market Instruments (“MMI”)

Yes No

A. Is the instrument admitted to trading or normally dealt in on the money market?

1 Is its maturity at issuance of up to and including 397 days? The instrument is normally dealt in on the money market: continue with B.

Continue with 2.

2 Is its residual maturity of up to and including 397 days? The instrument is normally dealt in on the money market: continue with B.

Continue with 3.

3 Are there at least every 397 days yield adjustments in line with money market conditions?

The instrument is normally dealt in on the money market: continue with B.

Continue with 4.

4 Can it be demonstrated that the instrument has the risk profile of a MMI? The instrument is normally dealt in on the money market: continue with B.

Not a MMI.

B. Can the value of the instrument be accurately determined at any time?

5 Is there a market price? The value of the instrument can be accurately determined at any time:

continue with C.

Continue with 6.

6 Can its value be determined using a model?

Under CESR’s Guidelines 07-044b, an amortization method can be used under certain conditions (in particular, that this will not result in a material discrepancy between the market value of the MMI and the value calculated according to the amortization method).

Continue with C. Not eligible.

C. Is the instrument liquid?

7 Is the instrument admitted to trading on a regulated market? The instrument is presumed to be liquid: continue with D.

Continue with 8.

8 Is the liquidity at issue level sufficiently assessed, based on the following criteria:

- Frequency of trades;- Number of dealers;- Size of issuance;- Possibility to convert into cash within 7 days.

Continue with 9. Not eligible.

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VI. Eligible assets

B. Money Market Instruments (“MMI”)

Yes No

9 Is the liquidity at fund level sufficiently assessed, based on the following criteria:

- Unitholder structure/concentration;- Purpose of funding;- Good information on cash flows;- Prospectus guidelines in relation to limitation on redemptions.

The instrument is liquid:

continue with D.

Not eligible.

D. Under which caption is the MMI eligible?

10 Is the MMI eligible under one of the following:

- Admitted or dealt in on a regulated market? - Dealt in on another market in the EU, regulated, recognised and open

to the public?- Admitted to official listing outside the EU, recognised and open to the

public and indicated in the prospectus?- A recently issued MMI?

Eligible. Continue with 11.

- Issued by an issuer which is regulated for the purpose of protecting investors and savings and the MMI is:(i) Issued or guaranteed by a central, regional or local authority or by

a central bank of a Member State, the European Central Bank, the EU or the European Investment Bank, a non-Member State or, in 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

(ii) Issued by an undertaking any securities of which are dealt in on regulated markets? or

(iii) 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 CSSF 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 CSSF provided that investments 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 10,000,000 and which presents and publishes its annual accounts in accordance with the fourth Directive 78/660/EEC, or 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?

Eligible. Not eligible.

C. Financial Derivative Instruments ("FDI")

Yes No

1 Is the underlying of the FDI eligible? Continue with 2 or 3. Not eligible.

2 For over-the-counter FDI (“OTC FDI”):

- Is the counterparty of such OTC FDI eligible (subject to prudential supervision/approved by the CSSF)? and

- Is there a reliable and verifiable valuation of the OTC FDI which can be sold at any time at its fair value?

“Fair value” is to be understood as a valuation which does not rely only on market quotations by the counterparty and which fulfils the following criteria:

- The basis for the valuation is either a reliable up-to-date market value of the instrument, or, if such a value is not available, a pricing model using an adequate recognised methodology;

- Verification of the valuation is carried out by one of the following:

n An appropriate third party which is independent from the counterparty of the OTC FDI, at an adequate frequency and in such a way that the UCITS is able to check it;

n A unit within the UCITS which is independent from the department in charge of managing the assets and which is adequately equipped for such purpose.

Eligible. Not eligible.

3 For listed FDI: is the FDI listed on a regulated market? Eligible. Not eligible.

18

VI. Eligible assets

3. Investment restrictions

A. Type of instruments

Rule of 10% Exception of 25% Exception of 35% Exception of 100%TS and MMI Maximum 10% of the

UCITS’ net assets in TS or MMI issued by the same issuer.

Maximum 25% of the UCITS’ net assets in debt securities issued by a credit institution which has its registered office in a Member State of the EU and which, under applicable law, is submitted to specific public supervision in order to protect the holders of such qualifying debt securities.

Note: If the UCITS invests more than 5% of its net assets in this type of debt securities issued by one single issuer, the total value of such investments may not exceed 80% of its net assets.

Maximum 35% of the UCITS’ net assets in TS or MMI issued or guaranteed by a Member State of the EU, by its local authorities, by a non-Member State of the EU or by public international bodies of which one or more Member States of the EU are members.

Upon authorisation from the CSSF, up to 100% of the UCITS’ net assets in TS and MMI issued or guaranteed by a Member State of the EU, by its local authorities, by a non- Member State of the EU or by public international bodies of which one or more Member States of the EU are members, provided that (i) such securities are part of at least six different issues and (ii) the securities from any such issue do not account for more than 30% of the total amount.

B. Risk-spreading obligation

The aggregate value of TS and MMI held by a UCITS in the issuers in which it invests more than 5% islimited to 40% of its net assets (‘5/10/40’ rule).Are not taken into account in the 40% limit:■ Deposits and OTC FDI made with financial institutions subject to prudential supervision, and■ TS and MMI acquired by virtue of the 25% and 35% exceptions above.

C. Financial indices

Eligibility The composition of the index must be sufficiently diversified;The index must represent an adequate benchmark for the market to which it refers;The index must be published in an appropriate manner.

Diversification criteria Maximum 20% for investments in shares and/or debt securities issued by the same body when 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 regulatory authority. The limit of 20% is raised to 35% when justified by exceptional market conditions, in particular in regulated markets where certain TS or MMI are highly dominant. The investment up to this limit is only permitted for a single issuer.

ESMA Guidelines 2012/832: additional conditions for financial indices

ESMA Guidelines 2012/832 impose a number of additional conditions on financial indices.

These conditions apply immediately to all new UCITS created after 18 February 2013. Existing UCITS created before that date benefit from a 1-year transition period; in addition, existing UCITS benefit from a transition period for disclosure rules, which apply at the earlier of the first update of the prospectus or 18 February 2014. These conditions can be summarised as follows:- Use of 20/35% diversification limits clearly disclosed in the prospectus;- Impact of a single component on the overall index return limited to 20/35%;- All commodity indices to comply with diversification limits, taking into account correlation (this

modifies CESR’s Guidelines 07-044b which allowed the use of single commodity indices and non-diversified indices for diversification purposes);

- Benchmark test reinforced (index objective and design process are specifically considered);- Disclosure of rebalancing frequency and costs in the prospectus. No daily or intraday rebalancing

(except technical adjustments);- Disclosure of full index calculation methodology. Retrospective publication of components and

weightings;- Rules-based methodology for the selection and rebalancing of components;- Assessment of the quality of the index and due diligence process;- Independent valuation of the index.

19

VI. Eligible assets

C. Financial indices

ESMA Guidelines 2012/832: additional conditions for index-tracking and index-tracking leveraged UCITS

ESMA Guidelines 2012/832 impose a number of additional conditions on index-tracking and index-tracking leveraged UCITS (as defined in the guidelines). These conditions are essentially disclosure rules which apply immediately to any new UCITS created after 18 February 2013. For existing UCITS created before that date, disclosure rules apply at the earlier of the first update of the prospectus or KIID (as applicable) or 18 February 2014. These conditions can be summarised as follows:- Additional information in the prospectus and the KIID on the index, replication method and tracking

error;- Additional information in the annual and half-yearly reports on the tracking error and annual tracking

difference;- Index-tracking leveraged UCITS: rules and limits on global exposure and additional information in

the prospectus and KIID on leverage or short exposure.

D. Limitation of control

Principle The UCITS shall not acquire any shares carrying voting rights which would enable it to exercise significant influence over the management of an issuing body.

Limit of 10% The UCITS shall not acquire more than 10% of:- Non-voting shares of the same issuer;- Debt securities of the same issuer;- MMI from the same issuer.

Are not included in the 10%:- TS and MMI issued or guaranteed by a Member State or by its local authorities, by a non-Member

State or by public international bodies of which one or more Member States are members;- Shares held by UCITS in the capital of a company incorporated in a non-Member State which invests

its assets mainly in the securities of issuing bodies having their registered office in that State, where under the legislation of that State, such a holding represents the only way in which the UCITS can invest in the securities of issuing bodies of that State (provided that some conditions are met);

- Shares held by one or more investment companies in the capital of subsidiary companies which, exclusively on its or their behalf carry on only the business of management, advice or marketing in the country where the subsidiary is located, with regard to the redemption of units at the request of unitholders.

Limit of 25% The UCITS shall not acquire more than 25% of the units issued by a single UCITS and/or other UCI.

E. Borrowing

Principle Limits Borrowing not permitted, except:

Limits - Up to 10% of net assets if on a temporary basis;- Up to 10% of net assets to acquire immovable property essential for the direct pursuit of the business.

The regulatory interpretation of the 10% rule is as follows:- The 10% limit may be used to meet redemptions;- The 10% limit may be used to anticipate subscriptions of shares/units, provided that the subscriber is

obliged to pay within a reasonable delay and that his commitment is written and definite;- The borrowing entitlement cannot be used for the financing of additional investments or for investment

purposes;- The management of the UCITS must ensure that the borrowing is reimbursed within a reasonable delay

(i.e. remains temporary).For the purpose of calculation of the aforementioned 10% limit, the current account positions (i.e. the credit and debit positions, whatever the currency) of the UCITS with the same legal counterparty may be netted in the currency of the UCITS, provided that the following conditions are met:

- The current accounts of the UCITS are free of charge (accounts held for collateral purposes, e.g. margin accounts may not be included);

- The netting must be permitted in the agreement governing the current account concluded between the UCITS and the relevant counterparty;

- The netting is not prohibited by the law under which the relevant agreement has been concluded.

Global borrowing limitation: maximum 15% of the net assets.

20

VI. Eligible assets

F. FDI

Counterparty risk No limit for FDI traded on a regulated market.

For OTC FDI:- Maximum 10% of the net assets when the counterparty is a credit institution established in a Member

State or in a non-Member State and is subject to prudential rules equivalent to those provided for by Community legislation;

- 5% of the net assets for other counterparties.

Pursuant to ESMA Guidelines 2012/832 this 5/10% limit applies on a combined basis to counterparty exposure resulting from OTC FDI as well as efficient portfolio management techniques (see Collateral Management Chapter IX below). A 12-month transition period applies to UCITS created before 18 February 2013.

Limits applicable to the FDI underlying assets

Both the direct position and the indirect exposure obtained through the FDI must be aggregated to calculate the investment limits.

However, no look-through principle when the underlying is an eligible financial index.

ESMA Guidelines 2012/832 impose a number of additional conditions on total return swaps and other FDI with similar characteristics. These conditions apply immediately to all UCITS, except that existing UCITS created before 18 February 2013 benefit from transition period for disclosure rules, which apply at the earlier of the first update of the prospectus or 18 February 2014. These conditions can be summarized as follows:

Unfunded swaps: investment portfolio to comply with UCITS investment limits

Where a UCITS enters into a total return swap or invests in other financial derivative instruments with similar characteristics, the assets held by the UCITS should comply with the investment limits set out in Articles 52, 53, 54, 55 and 56 of the UCITS Directive. For example, when a UCITS enters into an unfunded swap, the UCITS’ investment portfolio that is swapped out should comply with the aforementioned investment limits.

Additional information in the prospectus

The prospectus of a UCITS using total return swaps or other financial derivative instruments with the same characteristics should include the following:

- Information on the underlying strategy and composition of the investment portfolio or index;

- Information on the counterparty(ies) of the transactions;

- A description of the risk of counterparty default and the effect on investor returns;

- The extent to which the counterparty assumes any discretion over the composition or or management of the UCITS’ investment portfolio or over the underlying of the financial derivative instruments, and whether the approval of the counterparty is required in relation to any UCITS investment portfolio transaction; and

- Subject to the provisions immediately below, identification of the counterparty as an investment manager.

Swap counterparty treated as investment manager if discretion

Where the counterparty has discretion over the composition or management of the UCITS’ investment portfolio or of the underlying of the financial derivative instrument, the agreement between the UCITS and the counterparty should be considered as an investment management delegation arrangement and should comply with the UCITS requirements on delegation.

Information in the annual report

The UCITS’ annual report should contain details of the following:

- The underlying exposure obtained through financial derivative instruments;

- The identity of the counterparty(ies) to these financial derivative transactions; and

- The type and amount of collateral received by the UCITS to reduce counterparty exposure.

These requirements apply for the first accounting period ending after 18 February 2013.

G. Cash and other liquid investments

Only on an ancillary basis (i.e. maximum 49% of its net assets) except for monetary UCITS.

H. Bank deposits

Maximum 20% of net assets in deposits with the same entity.

21

VI. Eligible assets

I. Units in UCITS and/or UCIs

Limits Up to 100% of net assets in other UCITS authorised according to the UCITS III Directive.

Up to 30% of net assets in other UCIs within the meaning of the first and second indent of Article 1, paragraph (2) of the UCITS III Directive which:

- Are subject to equivalent supervision;- Offer equivalent level of protection for unitholders (as regards assets segregation, borrowing, lending

and uncovered sales of TS and MMI), and- Issue annual and semi-annual reports.

But:- Maximum 20% of net assets in a single UCITS or in a single UCI (or in a single sub-fund in case of

segregation);- No fund of fund of fund structure: target UCITS/UCI may not invest more than 10% of its net assets

in other UCITS and/or UCIs.

Exceptions under the 2010 Law for master-feeder structures (see Chapter XIV below).

J. Combined limits per issuer

Limit of 20% Maximum 20% of the UCITS’ net assets for:- Investments in TS or MMI issued by a single body, and- Deposits made with a single body, and- Exposures arising from OTC FDI transactions and efficient portfolio management techniques

undertaken with a single body, and- Investments in TS and MMI issued by entities belonging to the same group.

Limit of 35% When a UCITS invests more than 10% of its net assets in TS and MMI of a single issuer (exceptions up to 25% or even 35% under certain circumstances, see above) it cannot invest more than 35% of its net assets in a combination of TS, MMI, deposits or OTC FDI whose counterparty is the same issuer.

The above limit does not apply when the UCITS is authorised to invest up to 100% of its net assets in TS and MMI issued or guaranteed by a Member State of the EU, by its local authorities, by a non-Member State of the EU or by public international bodies of which one or more Member States of the EU are members.

K. Trash ratio

Maximum 10% of net assets in aggregate in non-listed TS and MMI.Following ESMA’s formal opinion on its interpretation of Article 50(2)(a) of the UCITS Directive (the trash ratio) dated 20 November 2012 (2012/721) the former CSSF administrative practice of admitting into the trash ratio units of regulated open-ended real estate funds, hedge funds and funds of hedge funds or private equity funds subject to equivalent supervision is no longer applicable. ESMA expects that UCITS will adjust their portfolios, taking into account the best interest of investors, at the latest by 31 December 2013.

22

Efficient portfolio management techniques

VIII.

Legal and regulatory provisions

Article 42 (2) of the 2010 Law allows UCITS to employ techniques and instruments relating to TS and MMI under the conditions and within the limits laid down by the CSSF.

Circular 08/356 provides the conditions and the limits relating to the use of such techniques and instruments.

ESMA Guidelines 2012/832 imposes additional conditions in relation with the use of efficient portfolio management techniques (see below) and the management of the related collateral (see Collateral Management, Chapter IX below).

Techniques and instruments covered by this section (the “techniques and instruments”)

- Securities lending transactions;

- Sale with right of repurchase transactions;

- Reverse repurchase transactions/repurchase transactions.

Criteria to be fulfilled by the techniques and instruments

Techniques and instruments must be used for efficient portfolio management (“EPM”) purposes. In this respect, they have to fulfil the following criteria:- They must be economically appropriate in that they are realised in a cost-effective way;- They are entered into for one or more of the following specific aims:

- Reduction of risk;- Reduction of cost;- Generation of additional capital or income for the UCITS, with a level of risk which is

consistent with its risk profile and the risk diversification rules applicable to it;

- The risks they entail are adequately captured by the risk management process of the UCITS.

The use of the techniques and instruments must not result in a change of the investment objective of the UCITS or entail additional risks higher than the risk profile of the UCITS.

UCITS employing efficient portfolio management techniques should make sure that the risks arising from these activities are adequately captured by the risk management process of the UCITS.

Disclosure of information The types of envisaged transactions, the purpose of the transactions, the conditions and limits applicable to the relevant transactions as well as information on the reinvestment of the cash collateral, conditions and limits thereof as well as the risks associated therewith must be disclosed.

Quality of the lending system/counterparty

Concerning securities lending transactions, the lending system which the UCITS uses for securities lending purposes as well as the counterparty to these transactions need to be subject to prudential supervision rules which are considered by the CSSF as equivalent to those provided by Community law.

Concerning sales with right of repurchase transactions and repurchase/reverse repurchase transactions, only the requirement regarding the quality of the counterparty is applicable.

23

VII. Efficient portfolio management techniques

Limitation of the counterparty risk/provision of collateral

The value of the collateral received by the UCITS in securities lending transactions must equal at any time at least 90% of the value of the securities lent during the lifetime of the agreement;

The net exposures (i.e. the exposures of the UCITS less the collateral received by the UCITS) to a counterparty arising from securities lending transactions or reverse repurchase / repurchase agreement transactions shall be taken into account in the combined 20% limit provided for in Article 43(2) of the 2010 Law (Circular 11/512).

The collateral must be valued on a daily basis. If the value of the collateral received is insufficient, additional collateral must be promptly provided by the counterparty;

Assets admitted as collateral:- Liquid assets (cash, short term bank deposits, money market instruments, letters of credit,

guarantees on first demand issued by a first class financial institution);- Sovereign OECD bonds;- Shares or units issued by certain types of money market UCIs;- Shares or units issued by UCITS investing in bonds issued or guaranteed by first class

issuers offering an adequate liquidity;- Shares or units issued by UCITS investing in shares listed or dealt in on a regulated market

of the European Union or on a stock exchange of a Member State of the OECD, provided they are concluded in a main index;

- Direct investments in bonds or shares with the characteristics mentioned in the two preceding items listed above.

The UCITS must at any time be able to realise the collateral received.

Reinvestment of cash pro-vided as collateral

The cash provided as collateral may be reinvested in:- Shares or units of certain types of money market UCIs;- Short-term bank deposits;- MMI;- Short-term bonds issued or guaranteed by a Member State, Switzerland, Canada,

Japan, the United States or by their local authorities or by supranational institutions and undertakings of a community, regional and worldwide nature;

- Bonds issued or guaranteed by first class issuers offering adequate liquidity, and- Reverse repurchase transactions.

As a general rule, short-term bank deposits, MMI and short-term bonds into which the UCITS reinvests the collateral must constitute eligible assets within the meaning of article 41 (1) of the 2010 Law.

The reinvestment of cash received as collateral is not subject to the diversification rules applicable to UCITS. However, excessive concentration must be avoided (with respect to either the issuers or the relevant instruments).

There are no diversification rules with respect to reinvestment in shares/units of money market UCIs and reinvestment in short-term bonds.

Reinvestments are to be taken into account for the calculation of the UCITS’ global exposure.

Common rules applicable to receipt of collateral and reinvestment of cash provided as collateral

With respect to the issuer:

- Collateral given in a form other than cash or shares/units of funds and the financial assets other than bank assets and shares/units of UCIs purchased through the reinvestment of cash received as collateral must be issued by an entity which is not an affiliate of the counterparty.

With respect to safekeeping:- Collateral in a form other than cash shall not be safekept with the counterparty, except if it

is adequately segregated from the counterparty’s assets (the same rule applies in case of reinvestment of the collateral in assets other than bank assets);

- Collateral in the form of cash shall not be safekept with the counterparty, except if it is legally protected from the consequences of default by the counterparty. Bank assets acquired through the reinvestment of collateral are subject to the same rule.

Regarding collateral in the form of cash and reinvestment of collateral in bank assets, the credit risk of the UCITS vis-à-vis the trustee of the collateral shall be taken into account for the limits regarding deposits set out in article 43 (1) of the 2010 Law.

ESMA Guidelines 2012/832 modify the above regime and impose additional conditions on efficient portfolio management techniques. The new requirements are summarised below. These requirements are immediately applicable to any UCITS, except where a transitional period applies to UCITS created before 18 February 2013, as specified below. In addition, modifications to the above provisions on counterparty risk and collateral are summarised under Collateral Management, see Chapter IX below.

24

Revenue sharing arrangements: transparency requirements. All net revenues from EPM techniques to be returned to the UCITS

The UCITS should disclose in the prospectus the policy regarding direct and indirect operational costs/fees arising from efficient portfolio management techniques that may be deducted from the revenue delivered to the UCITS. These costs and fees should not include hidden revenue. The UCITS should disclose the identity of the entity(ies) to which the direct and indirect costs and fees are paid and indicate if these are related parties to the UCITS management company or the depositary.

All the revenues arising from efficient portfolio management techniques, net of direct and indirect operational costs, should be returned to the UCITS.

A 1-year transitional period applies, ending on 18 February 2014.

Right to recall securities or terminate securities lending arrangements at any time

A UCITS should ensure that it is able at any time to recall any security that has been lent out or terminate any securities lending agreement into which it has entered.

Right to recall cash or terminate reverse repos at any time (exception for short fixed-term agreements)

A UCITS that enters into a reverse repurchase agreement should ensure that it is able at any time to recall the full amount of cash or to terminate the reverse repurchase agreement on either an accrued basis or a mark-to-market basis. When the cash is recallable at any time on a mark-to-market basis, the mark-to-market value of the reverse repurchase agreement should be used for the calculation of the net asset value of the UCITS.

Fixed-term reverse repurchase agreements that do not exceed seven days should be considered as arrangements on terms that allow the assets to be recalled at any time by the UCITS.

Right to recall securities or terminate repos at any time (exception for short fixed-term agreements)

A UCITS that enters into a repurchase agreement should ensure that it is able at any time to recall any securities subject to the repurchase agreement or to terminate the repurchase agreement into which it has entered.

Fixed-term repurchase agreements that do not exceed seven days should be considered as arrangements on terms that allow the assets to be recalled at any time by the UCITS.

Liquidity risk management process

UCITS entering into efficient portfolio management transactions should take into account these operations when developing their liquidity risk management process in order to ensure they are able to comply at any time with their redemption obligations.

Information in the annual report: exposure, counterparties, collateral, revenues from EPM techniques

The UCITS’ annual report should also contain details of the following:

- The exposure obtained through efficient portfolio management techniques;

- The identity of the counterparty(ies) to these efficient portfolio management techniques;

- The type and amount of collateral received by the UCITS to reduce counterparty exposure; and

- The revenues arising from efficient portfolio management techniques for the entire reporting period together with the direct and indirect operational costs and fees incurred.

Applies to the first accounting period ending after 18 February 2013.

VII. Efficient portfolio management techniques

25

IX. Collateral management

ESMA Guidelines 2012/832 impose additional/different conditions on collateral received by UCITS in the context of OTC FDI and efficient portfolio management techniques. These requirements apply immediately to any new UCITS created after 18 February 2013. A 12-month transition period applies to UCITS created before that date, except that any reinvestment of cash collateral must comply with the new requirements immediately. These new requirements are summarised below.

Calculation of counterparty risk limits: 5/10% to include combined exposure from OTC derivatives and EPM techniques

The risk exposures to a counterparty arising from OTC financial derivative transactions and efficient portfolio management techniques should be combined when calculating the counterparty risk limits of Article 52 of UCITS Directive (this provision modified CESR’s Guidelines 10-788 and Circular 11/512).

Collateral received in the context of efficient portfolio management (“EPM”) techniques defined

All assets received by UCITS in the context of efficient portfolio management techniques should be considered as collateral for the purpose of these guidelines and should comply with the criteria laid down below.

New qualitative and quantitative criteria for collateral received (including 20% limit per issuer)

Where a UCITS enters into OTC financial derivative transactions and efficient portfolio management techniques, all collateral used to reduce counterparty risk exposure should comply with the following criteria at all times:

- Liquidity – any collateral received other than cash should be highly liquid and traded on a regulated market or multilateral trading facility with transparent pricing in order that it can be sold quickly at a price that is close to pre-sale valuation. Collateral received should also comply with the provisions of Article 56 of the UCITS Directive;

- Valuation – collateral received should be valued on at least a daily basis and assets that exhibit high price volatility should not be accepted as collateral unless suitably conservative haircuts are in place;

- Issuer credit quality – collateral received should be of high quality;- Correlation – the collateral received by the UCITS should be issued by an entity that is

independent from the counterparty and is expected not to display a high correlation with the performance of the counterparty;

- Collateral diversification (asset concentration) – collateral should be sufficiently diversified in terms of country, markets and issuers. The criterion of sufficient diversification with respect to issuer concentration is considered to be respected if the UCITS receives from a counterparty of efficient portfolio management and over-the-counter financial derivative transactions a basket of collateral with a maximum exposure to a given issuer of 20% of its net asset value. When UCITS are exposed to different counterparties, the different baskets of collateral should be aggregated to calculate the 20% limit of exposure to a single issuer;

- Risks linked to the management of collateral, such as operational and legal risks, should be identified, managed and mitigated by the risk management process;

- Where there is a title transfer, the collateral received should be held by the depositary of the UCITS. For other types of collateral arrangement, the collateral can be held by a third party custodian which is subject to prudential supervision, and which is unrelated to the provider of the collateral;

- Collateral received should be capable of being fully enforced by the UCITS at any time without reference to or approval from the counterparty;

- Non-cash collateral received should not be sold, re-invested or pledged;- Cash collateral received should only be:n Placed on deposit with entities prescribed in Article 50(f) of the UCITS Directive;n Invested in high-quality government bonds;n Used for the purpose of reverse repo transactions provided the transactions are with credit

institutions subject to prudential supervision and the UCITS is able to recall at any time the full amount of cash on accrued basis;

n Invested in short-term money market funds as defined in the Guidelines on a Common Definition of European Money Market Funds.

Reinvestment of cash collateral received

Re-invested cash collateral should be diversified in accordance with the diversification requirements applicable to non-cash collateral.

Reinvestment of cash collateral must comply with the guidelines immediately.

26

Stress testing policy and detailed haircut policy

A UCITS receiving collateral for at least 30% of its assets should have an appropriate stress testing policy in place to ensure regular stress tests are carried out under normal and exceptional liquidity conditions to enable the UCITS to assess the liquidity risk attached to the collateral. The liquidity stress testing policy should at least prescribe the following:

- Design of stress test scenario analysis including calibration, certification & sensitivity analysis;- Empirical approach to impact assessment, including back-testing of liquidity risk estimates;- Reporting frequency and limit/loss tolerance threshold/s; and- Mitigation actions to reduce loss including haircut policy and gap risk protection.

A UCITS should have in place a clear haircut policy adapted for each class of assets received as collateral. When devising the haircut policy, a UCITS should take into account the characteristics of the assets such as the credit standing or the price volatility, as well as the outcome of the stress tests performed in accordance with the above. This policy should be documented and should justify each decision to apply a specific haircut, or to refrain from applying any haircut, to a certain class of assets.

Additional information in the prospectus

The prospectus should also clearly inform investors of the collateral policy of the UCITS. This should include permitted types of collateral, level of collateral required and haircut policy and, in the case of cash collateral, re-investment policy (including the risks arising from the re-investment policy).

VIII. Collateral management

27

X. Risk management

1. Governance and organisation of the permanent risk management function

■ Requirement to establish and maintain a permanent risk management function.■ The permanent risk management function needs to be hierarchically and functionally independent from

operating units.■ The permanent risk management function cannot be exercised by a member of the board of directors of

the management company or of the self-managed SICAV and the conducting person responsible for the oversight of the risk management may not be responsible for the oversight of the portfolio management at the same time.

■ The permanent risk management function shall be in charge, in particular of implementing the risk management policy and procedures, which identify the risks which the UCITS are or might be exposed to, as well as ensuring compliance with the UCITS risk-limit system.

■ Periodic review of the compliance with, as well as the effectiveness and adequacy of, the risk management policy.

■ The permanent risk management function shall report on its duties and provide advice to the board of directors in relation thereto as well as on the adequacy and possible remedial actions to be taken in relation to the risk management process. The permanent risk management function shall also regularly report to the relevant conducting persons on the level of risk incurred by each managed UCITS and on any breaches to their limits.

■ Possibility to delegate part or all of the risk management to specialised third parties under certain conditions while the permanent risk management function must be appointed among the staff of the management company or self-managed SICAV.

■ By virtue of the principle of proportionality, one conducting person may be appointed to be directly responsible for the permanent risk management function.

■ Incompatible with the internal audit function but may be combined with the compliance function.

2. Risk profile determination

Classification and measurement method

No classification.

Subjective choice of calculation method.

Subjective classification

Subjective choice of calculation method:

- Must be appropriate, taking into account the investment strategy and the types/complexity of financial derivative instruments used;

- UCITS should also consider the proportion of their portfolio comprising financial derivative instruments.

28

3. Global exposure

■ A UCITS must ensure that its global exposure relating to financial derivative instruments does not exceed the total net value of its portfolio

■ The calculation of the global exposure refers to the market risk; specific (OTC) counterparty risk limits also exist

■ Minimum calculation frequency: at least on daily basis; no distinction between calculating methods anymore

■ Techniques and instruments (securities lending, repurchase transactions, reverse repurchase transactions) must be taken into consideration when calculating the global exposure

A. Commitment approach

Calculation frequency At least on a daily basis

Calculation formulas More extensive list of calculation formulas and slightly different calculation methodologies as compared to UCITS III

Netting Netting may be applied subject to rules contained in ESMA Guidelines and CSSF Circular 11/512

Hedging Hedging may be applied subject to rules contained in ESMA Guidelines and CSSF Circular 11/512

B. VaR approach

Calculation parameters

VaR calculation parameters: Confidence level: 99% Holding period: 1 month (20 days) Observation period: at least 250 days (1 year)

Other parameters may be used, but more standardised

VaR method to be supplemented by measurement methods, such as stress testing and back-testing

Stress testing At least on a monthly basis except for index-replicating UCITS

Back-testing At least on a monthly basis

C. Internal risk model

Other advanced risk measurement methodologies permissible if recognised by ESMA (currently the case for certain types of structured UCITS, ESMA/2011-112, 14 April 2011).

4. Liquidity risk

■ Liquidity risk means the risk that a position in the UCITS portfolio cannot be sold, liquidated or closed at a limited cost in an adequately short timeframe

■ Management companies and self-managed UCITS shall employ an appropriate liquidity RMP so as to ensure that the managed UCITS is, at any time, in a position to satisfy the redemption obligation laid down by the 2010 Law. To that extent, the liquidity RMP shall be in conformity with the redemption policy as laid down in the UCITS documentation

■ Where management companies or self-managed UCITS deem it appropriate, a stress test shall be conducted in order to assess the liquidity risk of the UCITS concerned

■ The liquidity risk management policy has to be disclosed in the RMP submitted to the CSSF, together with a description as to how the above requirements are complied with

IX. Risk management

29

5. Counterparty risk

■ The OTC counterparty risk must be limited to 5% (10% for credit institutions) of UCITS assets ■ Scope for reducing risk via financial collateral

Approach Only based on positive mark-to-market value of OTC contract (no add-on for future credit exposure)

Mitigation techniques Netting, reduction by financial collateral, subject to rules contained in the ESMA Guidelines and CSSF Circular 11/512

Look-through Look-through for issuer concentration limits

■ The counterparty risk management policy in respect of OTC financial derivative instruments has to be disclosed in the RMP submitted to the CSSF, which shall also include:- A description of the process for selecting counterparties- A confirmation of the method for calculating the counterparty risk- A description of the policy in connection with mitigation techniques relating to the counterparty risk

6. Concentration risk and monitoring of cover rules

■ As regards a UCITS’ investment in financial derivative instruments, when calculating the concentration risk limits, the following elements have to be taken into account:- The financial derivative instruments through the commitment approach, where appropriate, or through

the maximum potential loss approach- Units of UCIs and UCITS as underlying assets of financial derivative instruments- Exposures created through the reinvestment of collateral within OTC derivative transactions- Exposures created through the reinvestment of collateral in the context of securities lending

transactions, repurchase transactions and reverse repurchase transactions■ UCITS should at any given time be in a position to meet all their payment and delivery obligations

incurred by transactions involving financial derivative instruments■ The cover rules for transactions involving financial derivative instruments should form part of the RMP.

Where appropriate, the management of the cover rules by high-leveraged UCITS in order to avoid default risks shall be specified

7. Risk disclosure/Leverage

■ UCITS shall disclose in their prospectus and annual report:- The method used to calculate the global exposure (i.e. the commitment approach, the relative VaR

approach or the absolute VaR approach)- The expected level of leverage employed during the relevant period (for those UCITS using the VaR)- When using the relative VaR approach, information on the reference portfolio

■ Leverage calculation method: ESMA Q&A 2012/429 states that the leverage to be included in the prospectus and the annual report for UCITS determining the global exposure using VaR approach is to be calculated on the basis of the sum of the notionals of derivative instruments. The UCITS is allowed to supplement this information using leverage figure(s) calculated through the commitment approach.

IX. Risk management

30

■ In addition to the above information to be contained in the prospectus, the annual reports must in¬clude, if the VaR is applied, the lowest, the highest and the average VaR during the financial year. The model and inputs used for calculation (calculation model, confidence level, holding period, length of data history) should be displayed.

8. Risk Management Process

General

An updated RMP shall be filed with the CSSF at least once a year and at the latest one month after the financial year end of the management company or the self-managed UCITS. A revised RMP shall also be submitted to the CSSF in case of significant amendments to the risk management policy. If a new UCITS under management or a new sub-fund is created, the management company or the self-managed UCITS is required to provide an updated RMP to the CSSF or to confirm in writing that the existing RMP adequately applies to the new UCITS under management or sub-fund.

A regular report assessing the adequacy and effectiveness of the risk management must be submitted to the CSSF at least once a year and at the latest one month after the ordinary general meeting having approved the annual accounts of the management company or self-managed SICAV. In addition, CSSF must be provided with the information report that the permanent risk management function has sent throughout the financial year to the conducting persons/board of directors on a regular basis.

The CSSF must also be provided at least once a year at the closing date of its financial year with a report detailing the financial derivative instruments used, the underlying risks, the quantitative limits and the methodologies chosen for evaluating the risks linked to these transactions.

Under the UCITS IV Law, newly created management companies and self-managed UCITS shall file a RMP in line with CSSF Circular 11/512 as part of their application file.

Content of the RMP - main sections

■ Governance and organisation of the risk management function

■ Determination and monitoring of global exposure

■ Determination and monitoring of liquidity risk

■ Determination and monitoring of the counterparty risk arising from OTC derivatives

■ Determination and monitoring of the counterparty risk arising from techniques and instruments (efficient portfolio management)

■ Determination and monitoring of operational risk

■ Determination and monitoring of concentration limits

■ Determination and monitoring of the valuation risk

■ Determination and monitoring of legal risks

■ Valuation of OTC derivatives

■ Monitoring of cover rules

■ Management companies and individual management

■ List of UCITS

■ Concluding chapter

IX. Risk management

31

XI. Key Investor Information Document

1. Definition

■ The KIID is a short document containing key information for investors, i.e. information about the essential characteristics of the UCITS enabling the investors to understand the nature and the risks of the investment and, consequently, to make investment decisions on an informed basis.

■ The use of the KIID without modification all across the European Union should reduce the operational costs previously associated with the former simplified prospectus. The KIID is also the only document that must be compulsorily translated into (one of) the official language(s) of the host Member State or a language accepted by its competent authorities.

2. Legal and regulatory provisions

■ In addition to the rules laid down in the UCITS IV Directive, Commission Regulation 583/2010 provides detailed rules on the format and presentation of the KIID, the content of the KIID, and the review and revision of the KIID. Furthermore, ESMA issued the following level 3 guidelines with respect to the KIID:

- CESR guidelines on the methodology for the calculation of the synthetic risk and reward indicator in the KIID (CESR/10-673, 1 July 2010)

- CESR guidelines on the methodology for calculation of the ongoing charges figure in the KIID (CESR/10- 674, 1 July 2010)

- CESR guidelines on the selection and presentation of performance scenarios in the KIID for structured UCITS (CESR/10-1318, 20 December 2010)

- CESR guide to clear language and layout for the KIID (CESR/10-1320, 20 December 2010)- CESR template for the KIID (CESR/10-1321, 20 December 2010)- CSSF Q&A concerning the KIID published on 15 May 2012- ESMA Questions and Answers document 2012/592 issued on 25 September 2012 relating to the Key

Investor Information Document (KIID) for UCITS

3. Features and Content

■ The KIID 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 presented in a way that is likely to be understood by retail investors.

■ Similarly, the essential elements of the KIID need to be kept up to date.

■ UCITS (and/or their management companies) need to provide investors (or intermediaries) with the KIID free of charge prior to their investment in the UCITS.

32

X. Key Investor Information Document

The ESMA Q&A document as described below is particularly useful:

Question 1: Preparation of KIID by UCITS that are no longer marketed to the public or by UCITS in liquidation

■ Even if a UCITS is no longer marketed to the public, an up-to-date version of the KIID should be available to the existing investors;

■ When a UCITS is in liquidation, there is no obligation to prepare a KIID as many of the man-agement company powers will be assumed by the liquidator;

■ Even if it is no longer marketed within the public, a structured UCITS (for example with matu-rity date) needs to keep its KIID up to date.

Question 2: Communication of KIID to investors

■ Where existing investors have the intention to make additional investments within the same UCITS, they have to be provided with a KIID, except in the case of automatic subscriptions in the context of regular savings plan;

■ Existing investors within a UCITS umbrella fund, who switch or exchange units/shares of one sub-fund for units/shares within another one must receive the KIID related to the sub-fund in which they will invest;

■ Amended KIID does not need to be provided to existing investors unless they are making additional subscriptions or request it. In this respect, please kindly note that it was previously confirmed that material changes to a fund (e.g., investment objective, management fee, dealing frequency) must in any event be notified to investors in writing prior to the change taking effect;

■ Even professional investors must be provided with a KIID.

Question 3: Treatment of UCITS with share or unit classes

■ ESMA gives some guidelines as to the choice of the representative share class. Firstly, where charging structures differ between classes, the share class with the highest overall charge should be the most appropriate representative share class in order to avoid the risk of under-stating charges. Then in general, the UCITS must consider the characteristics of the relevant sub-fund, the nature of the differences between share classes and the range of choices on offer to each investor in order to identify the appropriate representative share class in a responsible manner.

Question 4: Past performance

■ If a UCITS does not have yet performance data for one complete calendar year and is not a UCITS which may provide simulated data for past performance, a statement that there is insufficient data to provide a useful indication of past performance should be included but it is not necessary to accompany such statement with a blank performance chart;

■ Where a UCITS refers to an index in its investment objectives and policies as a benchmark and measures the performance against this index without tracking it, a bar showing the performance of the benchmark must be included in the bar chart but it should be made clear in the past performance section of the KIID that the performance is not tracking the index;

■ Where a UCITS refers to an index in its investment objectives and policies but does not intent to measure performance against that index, it is not necessary to refer to such index in the past performance section of the KIID;

■ When no data is available for years in the bar chart, the years concerned shall be shown as blank with no annotation other than the date;

■ If the benchmark is changed, the bar chart should display the performance of the previ-ous benchmark for the period preceding the change as according to article 17 of Regula-tion 583/2010, the UCITS’ past performance prior to material change shall continue to be shown. Moreover a statement indicating this change should also be included in the past performance section;

■ When several versions of a benchmark are available, which differ in the approach taken to reinvestment of revenues, the performance of the benchmark with reinvestment of revenues should be used in the bar chart alongside the UCITS’ past performance. However, where such benchmark does not exist, an appropriate disclosure highlighting that the benchmark does not take into account the reinvestment of revenues should be include in the KIID.

Question 5: Clear language ■ The KIID may contain few cross-references to a glossary;

■ Once the name of the Fund or of the share classes for the funds has been entirely men-tioned, references to “the Fund” or to “the share class of the fund” are sufficient.

Question 6: Identification of the UCITS

■ The name of the investment manager cannot be mentioned in the KIID. Only the name of the UCITS management company may be indicated.

33

XII. UCITS Marketing

1. Luxembourg UCITS marketing their units in another Member State

a. Home regulator (CSSF) to host regulator notification (new UCITS or sub-fund(s))

Required steps for notifying a new UCITS or sub-fund(s)

■ Submission of notification documents to the CSSF

■ Electronic transmission of the notification letter and notification documents within 10 working days by the CSSF to the host Member State’s competent authorities, after performance of the relevant checks for completeness

■ Immediate information by the CSSF to the UCITS upon transmission to the host Member State’s competent authorities: the UCITS may start marketing its units in the host Member State as of that date

■ Within 5 working days of receipt of the file, the host Member State’s competent authorities must check whether the file is complete and whether the documents can be viewed or printed

Notification documents

■ Standard notification letter

■ Fund rules or instruments of incorporation (i.e. management regulations or articles of incorporation) UCITS compliance attestation issued by the CSSF Prospectus Financial reports

■ KIID(s)/simplified prospectus(es), as applicable Information on the marketing arrangements in the host Member State Confirmation of payment of registration fees if requested No further documents or information may be required by the host Member State’s competent authorities The documentation shall be filed with the CSSF using specific document nomenclature and electronic channels

Language requirements

Notification letter and UCITS compliance attestation

In a language customary in international finance (unless there is an agreement between the CSSF and the host Member State to use a common official language)

KIID In the official language of the host Member State or a language approved by the host Member State’s competent authorities

Other information to be provided to investors (i.e. prospectus, financial reports and information on issue and sale of units)

In a language customary in international finance, the official language of the host Member State, or a language approved by the host Member State’s competent authorities

Information to be made accessible by Member States

■ Local definition of the term “marketing of units of UCITS” or equivalent legal term

■ Specific requirements for the content, format and manner of presentation of marketing communications

■ Details of any additional information required to be disclosed to investors

34

■ Requirements for communication of any information, any fees to be paid to the competent authorities, and facilities to be made available to investors for making payments

■ Conditions for the termination of marketing

Procedures for facilitating the host Member States’ access to information relating to UCITSThe UCITS must ensure that the prospectus, KIID, fund rules and, if appropriate, its latest financial reports are made available to the host Member State’s competent authorities on the UCITS website (or that of its management company, as the case may be) and provided in an electronic format in common use.

b. UCITS to host regulator notification (further modification to the notification file)

Notification of any change made to the prospectus, KIID, fund rules and/or financial reports must be sent to the host Member State’s competent authorities directly by the UCITS (not through the CSSF).Prior written notice shall be sent to the host Member State’s competent authorities in the case of changes regarding the marketing arrangements detailed in the notification letter and/or the classes of units to be marketed, including marketing of new classes of units. In the latter case, some host Mem¬ber State’s competent authorities may request to be informed thereof in accordance with the home regulator to host regulator notification.

The host Member State’s competent authorities must provide an e-mail address for receipt of notifica¬tions of updates and amendments to the documents.

2. UCITS established in another Member State marketing their units in Luxembourg

a. Home regulator to host regulator (CSSF) notification (new UCITS or sub-fund(s))

The UCITS established in another Member State intending to market its units in Luxembourg must deliver to its home Member State’s competent authorities the equivalent documentation mentioned under A. 1. above, in accordance with local procedures.

The KIID and other documents must be submitted in one of the following languages: French, German, English or Luxemburgish. Translations are deemed to be made under the responsibility of the UCITS and must truly reflect the original information.

The information on the marketing arrangements in Luxembourg include:■ Information on the credit institution acting as paying agent in Luxembourg making dividend payments

and payments in relation to subscription and redemption of units;

■ The place where the investors may present subscription, redemption and conversion requests of units;

■ The place where Luxembourg investors may obtain the net asset values, issue and redemption prices, the latest prospectus, financial reports, the fund rules/instruments of incorporation and, as far as possible, access to the agreements arranged with the UCITS;

■ The name of the local newspaper where any notice to investors will be published in Luxembourg;

■ The UCITS must ensure that the prospectus, KIID, fund rules and, if appropriate, its latest financial reports are made available to the CSSF on the UCITS website (or that of its management company, as the case may be) and provided in an electronic format in common use;

■ The UCITS shall take the measures necessary to ensure that the information which it is obliged to provide in its home Member State is made available to investors in Luxembourg either in French, German, English or Luxemburgish;

XI. UCITS Marketing

35

■ There is no need to include the confirmation of payment of the registration fees in the notification file. A list of provisions governing advertising, payments to investors, redemption of units and communication of information is available on the CSSF website.

b. UCITS to the host regulator (CSSF) notification (further modification to the notification file)

In the event of an amendment having an impact on the notification letter or of a change of the classes of units (including marketing of new classes of units) to be marketed in Luxembourg, the UCITS shall directly inform the CSSF before implementing this amendment. The CSSF must be informed of any cessation of marketing units.

Notice of such an amendment or change shall be transmitted by electronic channels.

XI. UCITS Marketing

36

XIII. Master-feeder structures■ Master-Feeder structures created under UCITS IV offer new opportunities to rationalise and expand

product lines.

■ Master-feeder structures are allowed with a minimum investment of 85% of the assets of the feeder UCITS invested in the master UCITS (or one of its sub-funds).

■ The remaining 15% can be invested in liquid assets, FDI for hedging purposes, and movable and immovable property which is essential for the direct pursuit of the business (if the feeder UCITS is an investment company).

■ The efficiency of operational aspects and the adequacy of the monitoring of the master UCITS by the feeder UCITS should be ensured through appropriate drafting of information-sharing agreements, service agreements, constitutive documents and sales documents.

■ The risk management process of the feeder UCITS must ensure that the master UCITS exposure to derivatives is taken into account in the calculation of the feeder UCITS global exposure related to derivatives.

■ The common organisation for master-feeder structures is the following:

Feeder 1Member State A

Auditorof Feeder 1

Depositaryof Feeder 1

Information-sharing

Information-sharing agreement

Information-sharing

Information-sharing

Information-sharing

Auditorof Master

Depositaryof Master

MasterMember State C

ManCoof Feeder 2 and Master

(Internal Conduct of Business rules)

Feeder 2Member State B

Auditorof Feeder 2

Depositaryof Feeder 2

37

XIV. National and cross-border mergers

■ According to the 2010 Law, UCITS established in Luxembourg may, either as a merging UCITS or as a receiving UCITS, be subject to cross-border and domestic mergers.

■ Where a cross-border merger is envisaged, the following process shall be followed:

Merging UCITS home Member

Receiving UCITS home Member State

Application for prior authorisation of merger by the competent authorities of the merging UCITS home Member State

Documents to be submitted by the merging UCITS (see below):

– Merger Project

– Prospectus and KIID

– Depositaries statements

– Notices to unitholders of both UCITS

If the file is not complete, the competent authorities of the merging UCITS home Member State may request additional information within 10 working days of receipt

Competent authorities of the merging UCITS home Member State may require clarification of the notice to unitholders of the merging UCITS

Immediate transmission of the complete file to the competent authorities of the receiving UCITS home Member State

The competent authorities of the merging UCITS home Member State must authorise the merger if:

– The conditions imposed by the UCITS IV Directive are satisfied;

– The receiving UCITS has been notified in all Member States where the merging UCITS is authorised or has been notified for distribution; and

– The competent authorities of the merging and receiving UCITS home Member States are satisfied with the notices to be provided to unitholders, or no notification of dissatisfaction has been issued by the competent authorities of the receiving UCITS home Member State within the required timeframe

A priori, competent authorities cannot prevent the merger of UCITS having different investment objectives and policies if the above conditions are met

Competent authorities of the receiving UCITS home Member State may require a modification of the notice to be provided to the receiving UCITS unitholders and send a notification of dissatisfaction to the competent authorities of the merging UCITS home Member State within 15 working days of transmission

Competent authorities of the receiving UCITS home Member State must then inform the competent authorities of the merging UCITS home Member State within 20 working days of notification of whether they are satisfied with the modified notice

The competent authorities of the merging UCITS home Member State must inform the merging UCITS and the competent authorities of the receiving UCITS home Member State of their decision within 20 working days of submission of the complete file

38

XV. Regulatory supervision

Entity in charge of the supervision

CSSF.

Approval procedure (short overview)

A written application must be filed with the CSSF for the UCITS approval and if applicable, the approval of the management company (in this case, a specific application for approval must be filed with the CSSF).

A CSSF application questionnaire and its appendices must be submitted to the CSSF per e-file or per e-mail in French, English or German.

The CSSF must be provided with, in particular, the following documents:

- Constitutive documents (i.e. management regulations of an FCP and articles of incorporation of an investment company);

- Prospectus (which must contain at least the information provided for in Schedule A of Annex I of the 2010 Law, in so far as such information does not already appear in the constitutive documents);

- KIID;

- Dated and signed curriculum vitae, declaration of honour, copy of passport and extract from crimi-nal records of all board members and conducting persons;

- Letter of intent/engagement from external audit firm;

- Certificate of supervisory authority of the person launching the fund and/or of the investment man-ager;

- Financial reports over last three years of the person launching the fund and/or of the investment manager;

- Description of the risk management process;

- The management company agreement, if any;

- The agreements to be entered into between the UCITS, respectively the management company, as appropriate, and its service providers (i.e. custodian and, if applicable, central administration agent, investment manager, investment adviser, domiciliation agent, paying agent, distributor, etc);

- Program of activities/business plan.

The CSSF will acknowledge receipt of the application file within two working days and will inform on the responsible officer in charge of examination of the application file.

The CSSF may ask to be provided with further information and/or supporting documentation and explain specific features of the investment fund. In most cases, further details regarding the corporate structure of the investment company, its investment strategy as well as its technical and administrative infrastructure will be requested by the CSSF.

This stage lasts more or less longer depending on various elements.

After completion of this phase, the approval of a UCITS is formalised by the inscription on the official list of Luxembourg UCIs (published in the Mémorial).

39

Approval procedure The approval process of the CSSF to set up a Luxembourg undertaking for collective investment follows a 5-step approach.

1. Initial submission of the questionnaire to request for authorisation (available on the homepage of the CSSF under www.cssf.lu)

- Application questionnaire for the set up of an undertaking

- Application questionnaire for additional sub-fund(s)

Any application file constituted of the duly completed application questionnaire and appended

documents, shall be submitted in one pile:

- per e-file (a secured and tailored tool to exchange with the CSSF - further information can be viewed here) or

- per e-mail to setup.uci@cssf.lu.

Applicants are advised only to file an application once all constituents of the project are fully

fixed and stable.

2. Acknowledge of receipt of the application file

The CSSF will acknowledge receipt of the application file within 2 working days and will inform on the responsible officer in charge of examination of the application file by means of:

- an automated reply message from e-file (as far as feature activated by user, else information viewable in tool) respectively

- an e-mail to the e-mail address of the contact person stated in the application questionnaire.

3. Transmission of comments and possibly further requests of information after initial examination

The CSSF seeks to contact the applicant (or contact person designated in the application questionnaire) within 10 working days after receipt by the CSSF of the application file for feedback. The contact person may be asked to provide further information and/or supportive documents to complete the file or explain specific considerations of the application.

Complementary information or documents shall be remitted through the communication channel used at step 1.

This step may be subject to reiteration until satisfactory completion of the examination phase.

In case the applicant faces difficulties to provide further information on specific considerations of the application and does not feedback on information requests from the CSSF within a reasonable delay not exceeding 3 months, the CSSF will contact the applicant to question if the application is to be continued or to be withdrawn.

4. Advice after completion of examination phase of application and invitation to submit final version of compulsory documents

The CSSF will inform the applicant about the completion of the examination phase of the application.

From this point, applicants are advised that the application does no longer permit changes of scope or alterations of the last draft versions of constitutive documents on the basis of which the examination has been terminated. Any transgression of this understanding will imply a reopening of the examination phase at step 2.

The confirmation of a satisfactory completion of examination phase allows to remit the final clean version of any compulsory documents as agreed upon and retained during examination in order to finalise the approval process of the undertaking for collective investment in step 5 by the entry on the official list.

5. Entry of the undertaking for collective investment on the official list

Formal accreditation and entry on the official list is contingent to the remittance of all compulsory documents in a final version without alteration from the latest draft versions as agreed upon and retained in step 4. Prospectuses have to be submitted following the terms of the circular of the CSSF 08/371 in relation to the electronic transmission of documents. Management Regulations, Articles of Incorporation and Agreements have to be remitted in signed form.

Upon satisfactory receipt of all prospectuses and compulsory documents as requested, the CSSF will proceed to the registration of the undertaking for collective investment on the official list.

In parallel, the CSSF will issue the official accreditation letters, the related attestations and identification codes, will register the documentation and return a visa stamped version of the full prospectus within 5 working days after the date of receipt by the CSSF.

XIV. Regulatory supervision

40

XVI. Taxation

Subscription tax (levied on a quarterly basis)

■ Generally rate of 0.05% per annum calculated on the net asset value (valued on the last day of each quar-ter);

■ Exemptions:- Portion of assets represented by shares/units in other funds already subject to subscription tax;- Funds or individual compartments investing in certain money market instruments or mainly in

microfinance;- Exchange-traded funds;- Pension pooling vehicles.

■ Reduced rate of 0.01% per annum:- Certain money market and cash funds;- Individual compartments or classes of shares designed for institutional investors.

Corporate income tax, net wealth tax and municipal business tax

No.

Registration tax Contributions in cash against shares to a corporate investment fund structure (SICAV/SICAF) or to a management company of an FCP are subject to a fixed registration duty of EUR 75. This amount is also due in case of any amendment to the articles of incorporation.

Double tax treaty benefits FCP: the FCP is transparent for taxation purposes and is thus not entitled to double tax treaty benefits;

SICAV or SICAF: in principle yes, unless excluded under a double tax treaty. The following double tax treaties are generally applicable to SICAVs or SICAFs: Armenia, Austria, Azerbaijan, Bahrain, China, Denmark, Finland, Georgia, Germany, Hong Kong, Indonesia, Ireland, Israel, Malaysia, Malta, Moldova, Monaco, Mongolia, Morocco, Poland, Portugal, Qatar, Romania, San Marino, Singapore, Slovakia, Slovenia, Spain, Thailand, Trinidad and Tobago, Tunisia, Turkey, United Arab Emirates, Uzbekistan and Vietnam.

Taxation of investors Investors are not subject to capital gains or income tax in Luxembourg, except for those residing or having a permanent establishment/permanent representative in Luxembourg.

Withholding tax on distributions

None (except in limited cases regarding i) interest payments falling within the scope of the EU Savings Directive where the beneficiary of the income has not opted for an exchange of information and ii) interest payments made to Luxembourg resident individuals).

VAT VAT taxable persons: UCITS are considered as taxable persons; they are deemed to carry out economic activities in the sense of the VAT Law; the FCPs form together with the management company a single taxable person. The Luxembourg VAT authorities consider the activities performed by UCITS as VAT exempt with no right of input VAT deduction.

Management services: in Luxembourg, management services rendered to Luxembourg UCITS under the supervision of the CSSF are VAT exempt (article 44, paragraph 1, under “d” of the Luxembourg VAT law). Management services comprise portfolio management and administration services, i.e. legal and fund management accounting services, customer inquiries, valuation and pricing, regulatory compliance monitoring, maintenance of the unitholders’/shareholders’ register, distribution of income, units/shares issues and redemptions,contract settlements, record keeping. In case of sub-contracting part of these management services, the VAT exemption applies if, viewed broadly, the services performed by a third party form a distinct whole and are specific to and essential for the management of the investment funds. Control and supervision services supplied by a depositary are excluded from the exemption and are therefore subject to VAT (at the rate of 12%).

VAT registration: UCITS are not required to register for VAT purposes, except upon receipt of taxable intangible/intellectual services from outside Luxembourg (e.g. legal or tax advice, audit/quotation services, set up costs).

41

XVII. Once-off and ongoing costs at a glance

Registration duty (only for UCITS in corporate form and management companies)

EUR 75.

Notary fees for incorporation of UCITS in corporate form and management companies

Approximately between EUR 2,000 and EUR 5,000.

Publication fees in the Mémorial of the articles of incorporation of UCITS in corporate form and management companies

+/- EUR 1,200 varying in particular if articles are drawn up in one language or are followed by a translation (French or German translation required if articles of a management company are drawn up in English; no translation required if articles of a SICAV are drawn up in English).

Registration costs in the companies’ registrar for UCITS in corporate form and management companies

+/- EUR 150.

Registration costs with the CSSF for UCITS in corporate form and FCPs (upon filing of the application and on an annual basis)

- Single UCITS other than self-managed: EUR 3,500;- Self-managed single UCITS: EUR 10,000;- Umbrella UCITS: EUR 7,000.

Registration costs with the CSSF for a Chapter 15 management company

- Annual basis: EUR 20,000- Upon filling of an application: 10,000- For each branch established abroad by a management company: EUR 2,000 on an annual basis.

42

Definitions

1993 Law Law of 5 April 1993 on the financial sector, as amended

2002 Law Law of 20 December 2002 on undertakings for collective investment, as amended

2010 Law Law of 17 December 2010 on undertakings for collective investment

ESMA (formerly CESR) European Securities and Markets Authority (formerly Committee of European Securities Regulators)

ESMA Q&A 2012/429 ESMA Questions and Answers on risk measurement and calculation of Global Exposure and Counterparty Risk for UCITS dated 9 July 2012

ESMA Guidelines 2012/832 ESMA Guidelines on ETFs and other UCITS issues dated 18 December 2012

CESR's Guidelines 07-434 CESR’s guidelines 07-434 of 17 July 2007 concerning eligible assets for investment by UCITS - The classification of hedge fund indices as financial indices

CESR's Guidelines 07-044b CESR’s guidelines 07-044b of 2 October 2008 concerning eligible assets for investment by UCITS amending CESR’s guidelines of 19 March 2007

Circular 91/75 CSSF circular 91/75 of 21 January 1991 on the revision and remodelling of the rules to which Luxembourg undertakings governed by the law of 30 March 1988 on undertakings for collective investment (“UCIs”) are subject2

Circular 07/290 CSSF circular 07/290 of 3 May 2007, as amended by the CSSF circulars 10/451 of 16 April 2010, 10/483 of 25 August 2010, 10/497 of 22 December 2010 and 11/501 of 28 February 2011, concerning the definition of capital ratios pursuant to article 56 of the amended law of 5 April 1993 on the financial sector (application to investment firms and management companies subject to chapter 13 of the 2002 Law3)

Circular 08/356 CSSF circular 08/356 of 4 June 2008 concerning the rules applicable to undertakings for collective investment when they employ certain techniques and instruments relating to transferable securities and money market instruments

Circular 08/371 CSSF circular 08/371 of 5 September 2008 concerning the electronic transmission of prospectuses and financial reports of UCIs and specialized investment funds to the CSSF

Circular 08/380 CSSF circular 08/380 of 26 November 2008 regarding guidelines of the CESR concerning eligible assets for investment by UCITS (amending Circular 08/339 of 19 February 2008 regarding guidelines of the CESR concerning eligible assets for investment by UCITS)

Circular 11/512 CSSF Circular 11/512 dated 30 May 2011 Concerning the presentation of the main regulatory changes in risk management following the publication of CSSF Regulation 10-4 and ESMA clarifications, further clarifications from the CSSF on risk management rules and the definition of the content and format of the risk management process to be communicated to the CSSF

Circular 12/546 CSSF circular 12/546 dated 24 October 2012 on authorisation and organisation of Luxembourg management companies subject to chapter 15 of the 2010 Law and investment companies which have not designated a management company

CSSF Commission de Surveillance du Secteur Financier (the Luxembourg supervisory authority of the financial sector)

CSSF Press release 12/45 CSSF press release dated 31 October 2012 on UCI and Promoter

Directive 2004/39/EC (MiFID Directive) Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments, as amended

Directive 2007/16/EC Directive of 19 March 2007 implementing 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)4 as regards the clarification of certain definitions

EEA European Economic Area

EU European Union

EU Savings Directive Council directive 2003/48/EC of 3 June 2003 on taxation of savings income in the form of interest payment

FCP Fonds commun de placement (common fund)

FDI Financial derivative instruments

43

Grand-Ducal Regulation on eligible assets

Grand-Ducal regulation of 8 February 2008 relating to certain definitions of the 2002 Law4 and implementing Directive 2007/16/EC

KIID Key Investor Information Document

Member State Member State of the EU

Mémorial The official gazette of Luxembourg, Mémorial C, Journal Officiel du Grand- Duché de Luxembourg, Recueil des Sociétés et Associations

MMI Money market instruments

OECD Organisation for Economic Cooperation and Development

Regulated Market The term “regulated market” is defined in item 1.14 of article 4 of the MiFID Directive. The term designates a multilateral system operated and/or managed by a market operator, which brings together or facilitates the bringing together of multiple third-party buying and selling interests in financial instruments - in the system and in accordance with its non-discretionary rules - in a way that results in a contract, in respect of the financial instruments admitted to trading under its rules and/or systems, and which is authorised and functions regularly and in accordance with the provisions of Title III of the MiFID Directive

Regulation 10-4 CSSF Regulation N° 10-04 dated 24 December 20101 transposing Commission Directive 2010/43/EU of 1 July 2010 implementing Directive 2009/65/EC of the European Parliament and of the Council as regards organisational requirements, conflicts of interest, conduct of business, risk management and content of the agreement between a depositary and a management company

RMP Risk management process

SICAF Société d’investissement à capital fixe (investment company with fixed capital)

SICAV Société d’investissement à capital variable (investment company with variable capital)

TA Transfer agent

TS Transferable securities

UCI Undertaking for collective investment

UCITS Undertaking for collective investment in transferable securities, subject to Part I of the 2002 Law/Part I of the 2010 Law5

UCITS III Directive Council directive 85/611/EEC of 20 December 1985 on the coordination of laws, regulations and administrative provisions relating to UCITS, as amended by Directives 2001/107/EC (also referred to as the management directive) and 2001/108/EC (also referred to as the product directive)

UCITS IV Directive Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) (recast)

2 The title of this circular has not been amended in order to take into account the fact that the law of 30 March 1988 has been replaced by the 2002 Law and the 2010 Law respectively.

3 The title of this circular has not been amended in order to take into account the fact that the 2002 Law will be replaced by the 2010 Law.4 The title of this regulation has not been amended in order to take into account the fact that the directive 85/611/EEC will be replaced by the UCITS IV Directive.5 Until 30 June 2011, UCITS may choose which regime shall be applicable; with effect of 1 July 2011, only the 2010 Law will apply.

Definitions

Notes

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Arendt & MedernachUCITS team

Our UCITS Team is supported by our Tax Team:

Claude Kremer, Partner Head of Investment ManagementTel: (352) 40 78 78 507Email: claude.kremer@arendt.com

Eric Fort, PartnerTel: (352) 40 78 78 306Email: eric.fort@arendt.com

Claude Niedner, PartnerTel: (352) 40 78 78 515Email: claude.niedner@arendt.com

Alain Goebel, PartnerTel: (352) 40 78 78 512Email: alain.goebel@arendt.com

Michèle Eisenhuth, PartnerTel: (352) 40 78 78 519Email: michele.eisenhuth@arendt.com

Bruno Gasparotto, PrincipalTel: (352) 40 78 78 909Email: bruno.gasparotto@arendt.com

Henning Schwabe, PartnerTel: (352) 40 78 78 919Email: henning.schwabe@arendt.com

Thierry Lesage, PartnerTel: (352) 40 78 78 328Email: thierry.lesage@arendt.com

Francis Kass, PartnerTel: (352) 40 78 78 277Email: francis.kass@arendt.com

Florence Stainier, PartnerTel: (352) 40 78 78 657Email: florence.stainier@arendt.com

Isabelle Lebbe, PartnerTel: (352) 40 78 78 510Email: isabelle.lebbe@arendt.com

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