Undertakings - ALFI · INTRODUCTION Between 1986 and 2008, the Luxembourg Stock Exchange published...

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Undertakings for collective investment2 0 0 9 E d i t i o n

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Société de la Bourse de Luxembourg SA

11, av. de la Por te-NeuveBP 165L - 2011 LuxembourgT + 352 47 79 36 -1F + 352 47 32 98info @ bourse.luwww.bourse.lu

ALFI a.s.b.l.Association of the Luxembourg Fund Industry

59, Boulevard RoyalL - 2449 LuxembourgT + 352 22 30 26 -1F + 352 22 30 93info @ alf i.luwww.alf i.lu

Undertakings for collective investment

Edition 2009

Published by the SOCIETE DE LA BOURSE DE LUXEMBOURG S.A. and the ASSOCIATIOn LUXEMBOURGEOISE DES FOnDS D’InvESTISSEMEnT and containing the Luxembourg laws and regulations regarding undertakings for collective investment as well as the related circulars of the supervisory authority.

In case of divergence between this translation and the original French text, the French text shall prevail.

INTRODUCTION

Between 1986 and 2008, the Luxembourg Stock Exchange published and distributed a French-English and subsequently French-English-German textbook of the Luxembourg legis-lation governing undertakings for collective investment. The textbook had eight subsequent and successful editions with an overall print of 40,000 copies. For its part, the publication has contributed to the growth of the financial centre’s activity in connection with the segment of undertakings for collective investment and, given its concept and contents, it has become a major reference for the professionals operating in the undertakings for collective investment sector.

Due to this experience and in order to meet local professionals’ requests, the Luxembourg Stock Exchange has decided to publish an update of the textbook with the collaboration of the Luxembourg Association of Investment Funds. In its updated version, the textbook is published in English, French and German, each comprising the law of 20 December 2002 on undertakings for collective investment and the related regulatory texts. The publication includes footnotes and an index in alphabetical order.

The updated textbook is the result of an active cooperation between two reputed local law firms, Arendt & Medernach and Elvinger, Hoss & Prussen, that have compiled the legal and regulatory texts and prepared the English and German translations.

The Luxembourg Stock Exchange and the Luxembourg Association of Investment Funds welcome this cooperation which enables the financial sector to be provided with an updated reference document to contribute to a continued growth of the fund industry in Luxembourg.

Both the Luxembourg Stock Exchange and the Luxembourg Association of Investment Funds extend their gratitude to all those who have contributed to the release of this present publi-cation.

Luxembourg, 20th May 2009

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TABLE OF CONTENTS

LAW DATED 20 DECEMBER 2002 RELATING TO UNDERTAKINGS FOR COLLECTIVE INVESTMENT

Introductory part Definitions (Article 1) ………………………………………………… 10

Part I. UCITS ………………………………………………………………… 14 Chapter 1. General provisions and scope (Articles 2 to 4) …………… 14 Chapter 2. Common funds in transferable securities (Articles 5 to 24) ……………………………………………… 15 Chapter 3. SICAvs in transferable securities (Articles 25 to 38) …… 19 Chapter 4. Other investment companies in transferable securities (Articles 39 and 40) ………………………………………… 24 Chapter 5. Investment policy of a UCITS (Articles 41 to 52) ………… 25 Chapter 6. UCITS situated in Luxembourg which market their units in other Member States of the European Union (Articles 53 to 57) …………………………………………… 32 Chapter 7. UCITS situated in other Member States of the European Union which market their units in Luxembourg (Articles 58 to 62) …………………………………………… 33

Part II. Other UCIs ………………………………………………………………… 34 Chapter 8. Scope (Articles 63 and 64) ………………………………… 34 Chapter 9. Common funds (Articles 65 to 68) ………………………… 34 Chapter 10. SICAvs (Articles 69 to 72) ………………………………… 36 Chapter 11. UCIs which have not been constituted as common funds or SICAvs (Articles 73 to 75) ……………………………… 37

Part III. Foreign UCIs ………………………………………………………………… 38 Chapter 12. General provisions and scope (Article 76) ………………… 38

Part Iv. The authorisation of management companies …………………………… 39 Chapter 13. Management companies managing UCITS governed by Directive 85/611/EEC (Articles 77 to 90) ………………… 39 Chapter 14. Other management companies of Luxembourg UCIs (Articles 91 and 92) ………………………………………… 48

Part v. General provisions applicable to UCITS and other UCIs ………………… 49 Chapter 15. Authorisation (Articles 93 to 96) …………………………… 49 Chapter 16. Organisation of supervision (Articles 97 to 108) ………… 50 Chapter 17. Obligations concerning information to be supplied to unitholders (Articles 109 to 119) …………………………… 58 Chapter 18. Criminal law provisions (Articles 120 to 126) …………… 62 Chapter 19. Tax provisions (Articles 127 to 131) ……………………… 64 Chapter 20. Special provisions in relation to the legal form (Articles 132 to 133 bis) …………………………………… 66 Chapter 21. Transitional and repealing provisions (Articles 134 to 138) ………………………………………… 67

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Annex I ………………………………………………………………… 69 Schedule A Information to be included in the prospectus ……………… 69 Schedule B Information to be included in the periodical reports ……… 74 Schedule C Contents of the simplified prospectus ……………………… 76

Annex II Functions included in the activity of collective portfolio management ………………………………………………… 78

GRAND-DUCAL REGULATION OF 14 APRIL 2003 ESTABLISHING THE TERMS AND AMOUNT OF THE FIXED CAPITAL DUTY PAYABLE PURSUANT TO ARTICLE 128 OF THE LAW OF 20 DECEMBER 2002 RELATING TO UNDERTAKINGS FOR COLLECTIVE INVESTMENT …………………………………… 79

GRAND-DUCAL REGULATION OF 14 APRIL 2003 DETERMINING THE CONDITIONS AND CRITERIA FOR THE APPLICATION OF THE SUBSCRIPTION TAX REFERRED TO IN ARTICLE 129 OF THE LAW OF 20 DECEMBER 2002 RELATING TO UNDERTAKINGS FOR COLLECTIVE INVESTMENT ………………… 80

GRAND-DUCAL REGULATION OF 08 FEBRUARY 2008 RELATING TO CERTAIN DEFINITIONS OF THE LAW OF 20 DECEMBER 2002 AS AMENDED CONCERNING UNDERTAKINGS FOR COLLECTIVE INVESTMENT AND IMPLEMENTING THE DIRECTIVE 2007/16/EC OF THE EUROPEAN COMMISSION IMPLEMENTING COUNCIL DIRECTIVE 85/611/EEC ON THE COORDINATION OF LAWS, REGULATIONS AND ADMINISTRATIVE PROVISIONS RELATING TO UNDERTAKINGS FOR COLLECTIVE INVESTMENT IN TRANSFERABLE SECURITIES (UCITS) AS REGARDS THE CLARIFICATION OF CERTAIN DEFINITIONS ………………………………………………………………………………… 81

IML CIRCULAR 91/75 OF 21 JANUARY 1991 …………………………………………… 90Chapter A. Purpose and scope of the law of 30 March 1988 ………………………… 91

Chapter B. Definition of the meaning of UCI …………………………………………… 92 I. Criteria by which the meaning of UCI is being defined ……………… 92 II. Practical application of the criteria retained for the definition of the meaning of UCI …………………………………………………………… 92

Chapter C. Classification of the UCIs situated in Luxembourg ……………………… 94 I. Definition of the UCIs governed by Part I of the law of 30 March 1988 …………………………………………………………… 94 II. Definition of the UCIs governed by Part II of the law of 30 March 1988 …………………………………………………………… 94 III. Status of UCITS (Part I) and of other UCIs (Part II) in the European context …………………………………………………………………… 96

Chapter D. Rules concerning the central administration of Luxembourg UCIs ……… 97 I. Definition of the meaning of central administration in Luxembourg. … 97 II. Organisation of the central administration in Luxembourg …………… 97 III. Execution of the accounting and administrative duties referred to by the meaning of central administration in Luxembourg ……………… 98

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Chapter E. Rules concerning the depositary of a Luxembourg UCI ………………… 105 I. Conditions of admission to the activity of the depositary …………… 105 II. General mission of the depositary ……………………………………… 105 III. Specific duties of the depositary ………………………………………… 106 Iv. Liability of the depositary ………………………………………………… 108

Chapter F. Rules applicable to UCITS governed by Part I of the law of 30 March 1988 ……………………………………………………………… 110

I. Intervals at which the issue and redemption prices must be determined 110 II. Redemption by UCITS of their units or shares ……………………… 110 III. Requirements in respect of the constitution of assets ……………… 110 Iv. Borrowings ………………………………………………………………… 112 v. Method of calculation of the investment limits provided for by Chapter 5 of the law of 30 March 1988 ………………………………………… 112

Chapter G. Rules applicable to UCITS subject to Part II of the law of 30 March 1988 ……………………………………………………………… 113

I. Intervals at which the issue and redemption prices must be determined 113 II. Investment limits ………………………………………………………… 113 III. Borrowings ………………………………………………………………… 114 Iv. Provisions applicable to UCITS which are subject to Chapter 11 of the law of 30 March 1988 …………………………………………………… 114

Chapter H. Rules applicable to all UCITS ……………………………………………… 115 I. Techniques and instruments relating to transferable securities …… 115 II. Techniques and instruments intended to hedge currency risks to which UCITS are exposed in the management of their assets and liabilities …………………………………………………………………… 119

Chapter I. Rules applicable to UCIs other than UCITS ……………………………… 120 I. Rules of the particular regime applicable to UCIs the principal object of which is the investment in venture capital ………………………… 120 II. Rules of the particular regime applicable to UCIs the principal object of which is the investment in futures contracts (commodity futures and/ or financial futures) and/or in options ………………………………… 122 III. Rules of the particular regime applicable to UCIs the principal object of which is the investment in real estate assets ……………………… 123

Chapter J. Rules applicable to multiple compartment UCIs ………………………… 127 I. General principle ………………………………………………………… 127 II. Common funds …………………………………………………………… 127 III. Investment companies ………………………………………………… 128 Iv. Common rules to all multiple compartment UCIs …………………… 129

Chapter K. Contents of the file in support of the application for authorisation of UCIs …………………………………………………………………………… 130

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Chapter L. Information and advertisement documents intended for investors ……… 131 I. Prospectus………………………………………………………………… 131 II. Advertising documents ………………………………………………… 132 III. Financial reports ………………………………………………………… 132 Iv. Use of the prospectus and periodical reports ………………………… 133

Chapter M. Financial information intended for the CSSF and the StateC ………… 135 I. Content of the monthly and annual financial information …………… 135 II. Collection of data provided for by tables O 1.1., O 4.1. and O 4.2. …… 135 III. Reference date …………………………………………………………… 136 Iv. Delay for transmission …………………………………………………… 136 v. Currency used in the statement ………………………………………… 136 vI. Undertakings for collective investment with multiple compartments 136 vII. Identification number …………………………………………………… 137 vIII. Reference period ………………………………………………………… 137 IX. name of staff member …………………………………………………… 137 X. Date of the first drawing-up of monthly and annual financial information 137

Chapter n. Rules applicable to management companies of common funds ………… 138 I. Information obligation of management companies vis-à-vis the CSSF 138 II. Authorisation of the shareholders of a management company ……… 138

Chapter O. Marketing rules applicable in Luxembourg ………………………………… 139

Chapter P. Obligation of UCIs to inform the CSSF on the audit made by the auditor ………………………………………………………………………… 140

Appendix: Monthly financial information concerning undertakings for collective investment ………………………………………………………… 141

CSSF CIRCULAR 02/77 OF 27 NOVEMBER 2002 CONCERNING THE PROTECTION OF INVESTORS IN CASE OF NAV CALCULATION ERROR AND CORRECTION OF THE CONSEQUENCES RESULTING FROM NON-COMPLIANCE WITH THE INVESTMENT RULES APPLICABLE TO UNDERTAKINGS FOR COLLECTIVE INVESTMENT ……………………………………………………………… 142

CSSF CIRCULAR 02/80 OF 5 DECEMBER 2002 CONCERNING THE SPECIFIC RULES APPLICABLE TO LUXEMBOURG UNDERTAKINGS FOR COLLECTIVE INVESTMENT (“UCIS”) PURSUING ALTERNATIVE INVESTMENT STRATEGIES ………………………………………………………………………………… 152

CSSF CIRCULAR 02/81 OF 6 DECEMBER 2002 RELATING TO THE GUIDELINES CONCERNING THE TASK OF AUDITORS OF UNDERTAKINGS FOR COLLECTIVE INVESTMENT ………………………………………………………………………………… 159

CSSF CIRCULAR 03/87 OF 21 JANUARY 2003 CONCERNING THE COMING INTO FORCE OF THE LAW OF 20 DECEMBER 2002 RELATING TO UNDERTAKINGS FOR COLLECTIVE INVESTMENT ………………………………………………………… 175

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CSSF CIRCULAR 03/88 OF 22 JANUARY 2003 CONCERNING THE CLASSIFICATION OF UNDERTAKINGS FOR COLLECTIVE INVESTMENT SUBJECT TO THE PROVISIONS OF THE LAW OF 20 DECEMBER 2002 RELATING TO UNDERTAKINGS FOR COLLECTIVE INVESTMENT ………………… 180

CSSF CIRCULAR 03/97 OF 28 FEBRUARY 2003 CONCERNING THE PUBLICATION BY UNDERTAKINGS FOR COLLECTIVE INVESTMENT IN THE REFERENCE DATABASE (“RÉFÉRENTIEL DE LA PLACE”) OF THE SIMPLIFIED PROSPECTUSES AND THE FULL PROSPECTUSES AS WELL AS THE ANNUAL AND SEMI-ANNUAL REPORTS. …………………………………………………………… 184

CSSF CIRCULAR 03/108 OF 30 JULY 2003 CONCERNING LUXEMBOURG MANAGEMENT COMPANIES SUBJECT TO CHAPTER 13 OF THE LAW OF 20 DECEMBER 2002 RELATING TO UNDERTAKINGS FOR COLLECTIVE INVESTMENT AS WELL AS LUXEMBOURG SELF-MANAGED INVESTMENT COMPANIES SUBJECT TO ARTICLE 27 OR ARTICLE 40 OF THE LAW OF 20 DECEMBER 2002 RELATING TO UNDERTAKINGS FOR COLLECTIVE INVESTMENT ………………………………………………………………………………… 186

CSSF CIRCULAR 03/122 OF 19 DECEMBER 2003 CONCERNING CLARIFICATIONS ON THE SIMPLIFIED PROSPECTUS. ……………………………… 201

CSSF CIRCULAR 04/146 OF 17 JUNE 2004 CONCERNING PROTECTION OF UNDERTAKINGS FOR COLLECTIVE INVESTMENT AND THEIR INVESTORS AGAINST LATE TRADING AND MARKET TIMING PRACTICES …………………… 205

CSSF CIRCULAR 05/177 OF 6 APRIL 2005 CONCERNING THE ABOLITION OF ANY PRIOR CONTROL BY THE CSSF OF ADVERTISING MATERIAL USED BY PERSONS AND COMPANIES SUPERVISED BY THE CSSF; ABROGATION OF POINT II. OF CHAPTER L. OF IML CIRCULAR 91/75; ABROGATION OF THE TWO LAST SENTENCES OF POINT IV. 5.11 OF CSSF CIRCULAR 2000/15 ……………… 209

CSSF CIRCULAR 05/185 OF 24 MAY 2005 CONCERNING LUXEMBOURG MANAGEMENT COMPANIES SUBJECT TO THE PROVISIONS OF CHAPTER 13 OF THE LAW OF 20 DECEMBER 2002 RELATING TO UNDERTAKINGS FOR COLLECTIVE INVESTMENT AS WELL AS SELF-MANAGED INVESTMENT COMPANIES SUBJECT TO THE PROVISIONS OF ARTICLE 27 OR ARTICLE 40 OF THE LAW OF 20 DECEMBER 2002 RELATING TO UNDERTAKINGS FOR COLLECTIVE INVESTMENT ……………………………………………………………… 210

CSSF CIRCULAR 05/186 OF 25 MAY 2005 CONCERNING THE GUIDELINES OF THE COMMITTEE OF EUROPEAN SECURITIES REGULATORS (CESR) REGARDING THE APPLICATION OF TRANSITIONAL MEASURES RESULTING FROM DIRECTIVES 2001/107/EC AND 2001/108/EC (UCITS III) AMENDING DIRECTIVE 85/611/EEC (UCITS I). ………………………………………………………… 212

CSSF CIRCULAR 06/267 OF 22 NOVEMBER 2006 CONCERNING THE GUIDELINES OF THE TECHNICAL SPECIFICATIONS REGARDING THE COMMUNICATION TO THE CSSF, UNDER THE LAW ON PROSPECTUSES FOR SECURITIES, OF DOCUMENTS FOR APPROVAL OR FOR FILING AND OF NOTICES FOR OFFERS TO THE PUBLIC OF UNITS OR SHARES OF LUXEMBOURG CLOSED-END UCIS AND ADMISSIONS OF UNITS OF SHARES OF LUXEMBOURG CLOSED-END UCIS TO TRADING ON A REGULATED MARKET ……………………………………………………………………… 214

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CSSF CIRCULAR 07/277 OF 9 JANUARY 2007 CONCERNING THE NEW NOTIFICATION PROCEDURE IN ACCORDANCE WITH THE GUIDELINES OF THE COMMITTEE OF EUROPEAN SECURITIES REGULATORS (CESR) CONCERNING THE SIMPLIFICATION OF THE UCITS NOTIFICATION PROCEDURE ……………… 219

CSSF CIRCULAR 07/308 OF 2 AUGUST 2007 CONCERNING THE RULES OF CONDUCT TO BE ADOPTED BY UNDERTAKINGS FOR COLLECTIVE INVESTMENT IN TRANSFERABLE SECURITIES WITH RESPECT TO THE USE OF A METHOD FOR THE MANAGEMENT OF FINANCIAL RISKS, AS WELL AS THE USE OF FINANCIAL DERIVATIVE INSTRUMENTS …………………………………… 226

CSSF CIRCULAR 08/339 OF 19 FEBRUARY 2008 RELATING TO THE GUIDELINES OF THE COMMITTEE OF EUROPEAN SECURITIES REGULATORS (CESR) CONCERNING ELIGIBLE ASSETS FOR INVESTMENT BY UCITS ………… 247

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 ………… 249

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Preface

The amended law dated 20 December 2002 relating to undertakings for collective investment has transposed into Luxembourg law the Directives of the European Parliament and of the Council of the European Union of 21 January 2002 (2001/107/EC and 2001/108/EC).11

The terms used in the Luxembourg law correspond to a large extent to those of the European Directives. In certain cases, deviations from the terms of the Directives are referred to in footnotes. The footnotes also provide certain explanations inter alia relating to the specific structures and procedures existing in Luxembourg.

11 Directives of the European Parliament and of the Council of 21 January 2002 with a view to regulating management companies and simplified prospectuses (2001/107/EC) and with regard to investment in UCITS (2001/108/EC), amending Directive 85/611/EEC of the Council on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS), as amended by the Directive of the Council of 22 March 1988 (88/220/EEC) and by the Directive of the European Parliament and of the Council of 29 June 1995 (95/26/EEC).

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INTRODUCTORY PART:

Definitions

Note: the definitions are listed alphabetically and the order is therefore not consistent with the French original. at the end of each definition a reference to the original French definition is made.

Art. 1 For the purpose of this law: 1) “branch” shall mean a place of business which is a part of the management

company, which has no legal personality and which provides the services for which the management company has been authorised; all the places of business set up in the same Member State by a management company with its registered office2 in another Member State shall be regarded as a single branch. [this definition appears under item 25 in the French original and under item 26 in the German translation]

2) “close links” shall mean a situation as defined in Article 2, paragraph (1) of Directive 95/26/EC of the European Parliament and of the Council of 29 June 1995 modifying Directives 77/780/EEC and 89/646/EEC in the field of credit institutions, Directives 73/239/EEC and 92/49/EEC in the field of non-life insurance, Directives 79/267/EEC and 92/96/EEC in the field of life insurance, Directive 93/22/EEC3 in the field of investment firms and Directive 85/611/EEC in the field of undertakings for collective investment in transferable securities (UCITS) with a view to reinforcing prudential supervision; [this definition appears under item 19 in the French original and under item 7 in the German translation]

3) “competent authorities” shall mean the authorities which each Member State designates under Article 49 of Directive 85/611/EEC. [this definition appears under item 1 in the French original and under item 25 in the German trans-lation]

4) “CSSF” shall mean the Commission de Surveillance du Secteur Financier (the Commission for the Supervision of the Financial Sector). [this definition appears under item 4 in the French original and under item 4 in the German translation]

5) “depositary bank” or “depositary” shall mean a credit institution ensuring the safe keeping of the assets of Luxembourg UCIs subject to Part I or Part II of this law. [this definition appears under item 2 in the French original and under item 5 in the German translation]

6) “Directive 78/660/EEC” shall mean the Council Directive 78/660/EEC of 25 July 1978 based on Article 54, paragraph (3), (g) of the Treaty on the

2 The English version of amended Directive 85/611/EEC refers to “headquarters” whereas the French version refers to the registered office (siège social) and the German version to the “Sitz”.

3 Directive 93/22/EEC has been replaced by Directive 2004/39/EC of 21 April 2004 on markets in financial in-struments (“MiFID”). Directive 2004/39/EC has been implemented into Luxembourg law by the law of 13 July 2007 on markets in financial instruments. In accordance with Article 173 of the law dated 13 July 2007 on markets in financial instruments, any reference to Directive 93/22/EEC shall now be read as a reference to Directive 2004/39/EC and references to terms defined or to Articles contained in Directive 93/22/EEC shall be read as a reference to the equivalent term as defined in Directive 2004/39/EC or to the equivalent Article in Directive 2004/39/EC.

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annual accounts of certain types of companies, as amended. [this definition appears under item 5 in the French original and under item 16 in the German translation]

7) “Directive 83/349/EEC” shall mean the Council Directive 83/349/EEC of 13 June 1983 based on Article 54, paragraph (3), (g) of the Treaty on consoli-dated accounts, as amended. [this definition appears under item 6 in the French original and under item 17 in the German translation]

8) “Directive 85/611/EEC” shall mean the 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), as amended. [this definition appears under item 7 in the French original and under item 18 in the German translation]

9) “Directive 93/6/EEC” shall mean the Council Directive 93/6/EEC of 15 March 1993 on the capital adequacy of investment firms and credit institutions, as amended. [this definition appears under item 8 in the French original and under item 19 in the German translation]

10) “Directive 93/22/CEE shall mean Council Directive 93/22/EEC of 15 March 1993 on capital adequacy of investment firms and credit institutions, as amended. [this definition appears under item 9 in the French original and under item 20 in the German translation]

11) “Directive 97/9/EC” shall mean the Directive 97/9/EC of the European Parliament and of the Council of 3 March 1997 on investor-compensation schemes. [this definition appears under item 10 in the French original and under item 21 in the German translation]

12) “initial capital” shall mean the elements referred to in items 1) and 2) of Article 34, paragraph (2) of Directive 2000/12/EC of the European Parliament and of the Council of 20 March 2000 relating to the taking up and pursuit of the business of credit institutions4. [this definition appears under item 3 in the French original and under item 1 in the German translation]

13) a “management company’s home Member State” shall mean the Member State in which the management company’s registered office is situated. [this definition appears under item 15 in the French original and under item 10 in the German translation]

14) “money market instruments” shall mean instruments normally dealt in on the money market which are liquid, and have a value which can be accurately determined at any time. [this definition appears under item 18 in the French original and under item 8 in the German translation]

15) a “management company’s host Member State” shall mean the Member State, other than the home Member State, within the territory of which a management company has a branch or provides services. [this definition appears under item 14 in the French original and under item 2 in the German translation]

4 Article 34, paragraph (2) items 1) and 2):1) capital within the meaning of Article 22 of Directive 86/635/EEC, insofar as it has been paid up, plus share

premium accounts but excluding cumulative preferential shares;2) reserves within the meaning of Article 23 of Directive 86/635/EEC and profits and losses brought forward as

a result of the application of the final profit or loss. The Member States may permit inclusion of interim profits before a formal decision has been taken only if these profits have been verified by persons responsible for the auditing of the accounts and if it is proved to the satisfaction of the competent authorities that the amount thereof has been evaluated in accordance with the principles set out in Directive 86/635/EEC and is net of any foreseeable charge or dividend.

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16) “own funds” shall mean own funds as defined in Title v, chapter 2, Section 1 of Directive 2000/12/EC; this definition may, however, be amended in the circumstances described in Annex v of Directive 93/6/EEC. [this definition appears under item 17 in the French original and under item 6 in the German translation]

17) “parent undertaking” shall mean a parent undertaking as defined in Articles 1 and 2 of Directive 83/349/EEC. [this definition appears under item 11 in the French original and under item 12 in the German translation]

18) “qualifying holdings in a management company” shall mean any direct or indirect holding in a management company which represents 10% or more of the capital or of the voting rights or which makes it possible to exercise a significant influence over the management of the management company in which that holding subsists. For the purpose of this definition, the voting rights referred to in Article 7 of the law of 4 December 1992 on the information to be published in case of acquisition or disposal of a substantial participation in a listed company shall be taken into account. [this definition appears under item 23 in the French original and under item 15 in the German translation]

19) “regulated market” shall mean the market defined in item 13 of Article 1 of Directive 93/22/EEC5. [this definition appears under item 20 in the French original and under item 9 in the German translation]

20) “SICAv” shall mean investment company with variable capital. [this definition appears under item 24 in the French original and under item 22 in the German translation]

21) “subsidiary” shall mean a subsidiary undertaking as defined in Articles 1 and 2 of Directive 83/349/EEC; any subsidiary of a subsidiary undertaking shall also be regarded as a subsidiary of the parent undertaking which is the ultimate parent of those undertakings. [this definition appears under item 16 in the French original and under item 23 in the German translation]

22) “transferable securities” shall mean: - shares6 and other securities equivalent to shares (“shares”),- bonds and other debt instruments7 (“bonds”)8,- any other negotiable securities which carry the right to acquire any such

transferable securities by subscription or exchange, excluding the techniques and instruments referred to in Article 42. [this

definition appears under item 26 in the French original and under item 24 in the German translation]

23) “UCI” shall mean undertaking for collective investment. [this definition appears under item 21 in the French original and under item 13 in the German trans-lation]

24) “UCITS” shall mean undertaking for collective investment in transferable securities governed by Directive 85/611/EEC. [this definition appears under item 22 in the French original and under item 14 in the German translation]

5 “Regulated market” is defined in Article 4, item 1.14 of Directive 2004/39/EC.

6 The English version of amended Directive 85/611/EEC refers to “shares in companies”.

7 The English version of amended Directive 85/611/EEC refers to “other forms of securitised debts”.

8 The French version of amended Directive 85/611/EEC uses “bonds” (obligations) as a defined term whereas the English version uses the term “debt securities”.

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25) a “UCITS home Member State” shall mean: (a) with regard to a UCITS constituted as a common fund, the Member State in

which the management company’s registered office is situated;(b) with regard to a UCITS constituted as an investment company, the Member

State in which the investment company’s registered office is situated. [this definition appears under item 13 in the French original and under item 11 in the German translation]

26) a “UCITS host Member State” shall mean the Member State, other than the UCITS home Member State, in which the units of the common fund or of the investment company are marketed. [this definition appears under item 12 in the French original and under item 3 in the German translation]

The definitions are specified by a grand-ducal regulation.

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PART I. - UCITS

Chapter 1. – General provisions and scope

Art. 2 (1) This Part applies to all UCITS situated in Luxembourg. (2) For the purpose of this law, but subject to Article 3, UCITS shall be under-

takings:– the sole object of which is the collective investment in transferable securities

and/or in other liquid financial assets referred to in Article 41, paragraph (1) of this law of capital raised from the public and which operate on the principle of risk-spreading, and

– the units of which are, at the request of holders, redeemed9 directly or indirectly, out of those undertakings’ assets. Action taken by a UCITS to ensure that the stock exchange value of its units does not significantly vary from their net asset value shall be regarded as equivalent to such redemption.

(3) Such undertakings may be constituted under the law of contract (as common funds10 managed by a management company11) or under statute (as investment company12).

(4) Investment companies the assets of which are invested through the interme-diary of subsidiary companies mainly otherwise than in transferable securities or in other liquid financial assets referred to in Article 41, paragraph (1) of this law shall however not be subject to this Part.

(5) UCITS which are subject to this Part are prohibited from transforming themselves into investment undertakings which are subject to Part II of this law.

Art. 3 The following shall not be subject to this Part:– UCITS of the closed-ended type;– UCITS which raise capital without promoting the sale of their units to the

public within the European Union or any part of it;– UCITS the units of which, under their constitutional documents, may be

sold only to the public in countries which are not members of the European Union;

– categories of UCITS determined by the CSSF, for which the rules laid down in chapter 5 are inappropriate in view of their investment and borrowing policies.

Art. 4 A UCITS shall be deemed to be situated in Luxembourg if the registered office of the management company of the common fund or the registered office of the investment company is situated in Luxembourg. The head office13 must be situated in Luxembourg.

9 Whilst the English version of amended Directive 85/611/EEC uses the terms “repurchase or redeem” (in French “rachat ou remboursement”), the law only uses the term “rachat” which corresponds to the term “repurchase”. This translation will however use “redemption” which is the term most commonly used in the industry.

10 fonds commun de placement

11 société de gestion

12 société d’investissement

13 The French text of amended Directive 85/611/EEC and the law use the term “administration centrale” whereas the English text of amended Directive 85/611/EEC uses the term “head office” and the German text of amended Directive 85/611/EEC uses the term “Hauptverwaltung”.

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Chapter 2. – Common funds in transferable securities

Art. 5 There shall be regarded as a common fund for the application of this Part any undivided collection of transferable securities and other liquid financial assets referred to in Article 41, paragraph (1) made up and managed according to the principle of risk-spreading on behalf of joint owners who are liable only up to the amount contributed by them and whose rights are represented by units intended for placement with the public by means of a public or private offer.

Art. 6 The common fund shall not be liable for the obligations of the management company or of the unitholders; it shall be answerable only for the obligations and expenses expressly imposed upon it by its management regulations.

Art. 7 A common fund shall be managed by a management company which complies with the conditions set out in chapter 13 of Part Iv of this law.

Art. 8 (1) The management company shall issue registered certificates or bearer securities, representing one or more portions of the common fund which it manages, or, in accordance with the conditions laid down in the management regulations, written confirmations of entry in the register of units or fractions of units without limitation as to the splitting-up of units.

Rights attached to fractions of units are exercised in proportion to the fraction of a unit held except for possible voting rights which can only be exercised for whole units. The certificates and securities shall be signed by the management company and by the depositary referred to in Article 17.

Such signatures may be reproduced mechanically. (2) Ownership of units shall be determined and transfer thereof shall be effected

in accordance with the rules laid down in Articles 40 and 42 of the law of 10 August 1915 concerning commercial companies, as amended14.

Art. 9 (1) Units shall be issued at a price arrived at by dividing the net asset value of the common fund by the number of units outstanding; such price may be increased by expenses and commissions, the maximum amounts and procedures for collection of which may be determined by a grand-ducal regulation for which an opinion from the CSSF shall be sought15.

(2) Units may not be issued unless the equivalent of the net issue price is paid into the assets of the common fund within the usual time limits. This provision shall not preclude the distribution of bonus units.

14 Articles 40 and 42 of the law of 10 August 1915 concerning commercial companies, as amended:40. Ownership of registered shares shall be established by an entry in the register prescribed in the foregoing

Article. Certificates recording such entries shall be issued to the shareholders. Transfers shall be carried out by means of a declaration of transfer entered in the said register, dated and

signed by the transferor and the transferee or by their duly authorised representatives, and in accordance with the rules on the assignment of claims laid down in Article 1690 of the Civil Code. The company may accept and enter in the register a transfer on the basis of correspondence or other documents recording the agreement between the transferor and the transferee.

Subject to any contrary provisions of the Articles, transmission, in the case of death, shall be validly established vis-à-vis the company, provided that no objection is lodged, on production of a death certificate, the certificate of registration and an affidavit (acte de notoriété) attested by a juge de paix or a notary.

42. The transfer of bearer shares shall be made by the mere delivery of the certificate.

15 no such regulation exists at this time.

16

(3) Unless otherwise provided for in the management regulations of the fund, the valuation of the assets of the fund shall be based, in the case of officially listed securities, on the last known stock exchange quotation, unless such quotation is not representative. For securities not so listed and for securities which are so listed, but for which the latest quotation is not representative, the valuation shall be based on the probable realisation value, estimated with care and in good faith.

Art. 10 The purchase and sale of the assets may only be effected at prices conforming to the valuation criteria laid down in paragraph (3) of Article 9.

Art. 11 (1) neither the holders of the units nor their creditors may require the distribution or the dissolution of the common fund.

(2) A common fund must redeem its units at the request of any unitholder. (3) The redemption of units shall be effected on the basis of the value calcu-

lated in accordance with Article 9, paragraph (1), after deduction of any appli-cable expenses and commissions, the maximum amounts and procedures for collection of which may be determined by grand-ducal regulation for which an opinion from the CSSF shall be sought16.

Art. 12 (1) By way of derogation from Article 11, paragraph (2):a) the management company may in the cases and according to the proce-

dures provided for by the management regulations of the fund temporarily suspend the redemption of units. Suspension may be provided for only in exceptional cases where circumstances so require and where suspension is justified having regard to the interest of the unitholders;

b) the CSSF may, in the interest of the unitholders or of the public, require the suspension of the redemption of units, in particular where the provisions of laws, regulations or agreements concerning the activity and operation of the common fund are not observed.

(2) In the cases referred to in paragraph (1) a), the management company must without delay communicate its decision to the CSSF and, if its units are marketed in other EU Member States, to the competent authorities of such States.

(3) The issue and redemption of units shall be prohibited:a) during any period where there is no management company or depositary;b) where the management company or the depositary is put into liquidation

or declared bankrupt or seeks a composition with creditors, a suspension of payment or a court-controlled management or is the subject of similar proceedings.

Art. 13 (1) The management company shall draw up the management regulations for the common fund. Such regulations must be lodged with the registry17 of the district court18 and its publication in the Mémorial19 will be made through a notice advising of the deposit of such document with the registry, all in accordance with the provisions of the law of 10 August 1915 concerning


17 The lodging is in fact made with the Registre de Commerce et des Sociétés.

18 tribunal d’arrondissement

19 The Mémorial C, Recueil des Sociétés et associations is the part of the official gazette in which certain required corporate publications and notifications are made.

17

commercial companies, as amended. The provisions of such regulations shall be deemed accepted by the unitholders by the mere fact of the acquisition of such units.

(2) The management regulations of the common fund shall at least contain the following provisions:a) the name and duration of the common fund, the name of the management

company and of the depositary,b) the investment policy according to its proposed specific objectives and the

criteria therefor,c) the distribution policy within the scope of Article 16,d) the remunerations and expenditures which the management company is

empowered to charge to the fund and the method of calculation of such remunerations,

e) the provisions as to publications,f) the date of the closing of the accounts of the common fund,g) the cases where, without prejudice to legal grounds, the common fund shall

be dissolved,h) the procedures for amendment of the management regulations,i) the procedure for the issue of units,j) the procedure for the redemption of units and the conditions under which

the redemptions are carried out and may be suspended.

Art. 14 (1) The management company shall manage the common fund in accordance with the management regulations and in the exclusive interest of the unitholders.

(2) It shall act in its own name, but shall indicate that it is acting on behalf of the common fund.

(3) It shall exercise all the rights attached to the securities comprised in the portfolio of the common fund.

Art. 15 The management company must fulfil its obligations with the diligence of a salaried agent20; it shall be liable to the unitholders for any loss resulting from the non-fulfilment or improper fulfilment of its obligations.

Art. 16 Unless otherwise provided for in the management regulations, the net assets of the common fund may be distributed subject to the limits set out in Article 23 of this law.

Art. 17 (1) The custody of the assets of the common fund must be entrusted to a depos-itary.

(2) The depositary must either have its registered office in Luxembourg or be established in Luxembourg if its registered office is in another Member State of the European Union.

(3) The depositary must be a credit institution within the meaning of the law of 5 April 1993 concerning the financial sector, as amended.

(4) The depositary’s liability shall not be affected by the fact that it has entrusted all or some of the assets in its custody to a third party.

(5) The directors of the depositary must be of sufficiently good repute and be suffi-ciently experienced, also in relation to the UCITS concerned. To that end, the

20 mandataire salarié

18

identity of the directors and of every person succeeding them in office must be communicated forthwith to the CSSF.

“Directors” shall mean those persons, who under law or the constitutional documents represent the depositary or effectively determine the conduct of its activity.

Art. 18 (1) The depositary shall carry out all operations concerning the day-to-day admin-istration of the assets of the common fund.

(2) The depositary must moreover:a) ensure that the sale, issue, redemption and cancellation of units effected

on behalf of the fund or by the management company are carried out in accordance with the law and the management regulations,

b) ensure that the value of units is calculated in accordance with the law and the management regulations,

c) carry out the instructions of the management company, unless they conflict with the law or the management regulations,

d) ensure that in transactions involving the assets of the fund, the consid-eration is remitted to it within the customary21 time limits,

e) ensure that the income of the fund is applied in accordance with the management regulations.

Art. 19 (1) The depositary shall be liable in accordance with Luxembourg law to the management company and the unitholders for any losses suffered by them as a result of its wrongful failure to perform its obligations or its wrongful improper performance thereof.

(2) The liability to unitholders shall be invoked indirectly through the management company. Should the management company fail to act despite a written notice to that effect from a unitholder within a period of three months following receipt of such a notice, such unitholder may directly invoke the liability of the depos-itary.

Art. 20 In the context of their respective roles, the management company and the depositary must act independently and solely in the interest of the unitholders.

Art. 21 The duties of the management company or of the depositary in respect of the common fund shall respectively cease:a) in the case of withdrawal of the management company, provided that it is

replaced by another management company authorised in accordance with the present law;

b) in the case of voluntary withdrawal of the depositary or of its removal by the management company; until it is replaced, which must happen within two months, the depositary shall take all necessary steps for the good preser-vation of the interests of the unitholders;

c) where the management company or the depositary has been declared bankrupt, has entered into a composition with creditors, has obtained a suspension of payment, has been put under court-controlled management, or has been the subject of a similar proceedings or has been put into liqui-dation;

21 The English text of amended Directive 85/611/EEC uses the term “usual time limits”. The term “customary” better reflects the French term “d’usage”.

19

d) where the CSSF withdraws its authorisation of the management company or the depositary;

e) in all other cases provided for in the management regulations.

Art. 22 (1) Liquidation of the common fund shall take place:a) upon the expiry of any period as may be fixed by the management regula-

tions;b) in the event of cessation of their duties by the management company or by

the depositary in accordance with sub-paragraphs b), c), d) and e) of Article 21, if they have not been replaced within two months without prejudice to the specific circumstance addressed in sub-paragraph c) below;

c) in the event of bankruptcy of the management company;d) if the net assets of the common fund have fallen for more than 6 months

below one fourth of the legal minimum provided for in Article 23 hereafter;e) in all other cases provided for in the management regulations.

(2) notice of the event giving rise to liquidation shall be published without delay by the management company or the depositary. If they fail to do so, such notice will be published by the CSSF at the expense of the common fund. The notice shall be published in the Mémorial and in at least two newspapers with adequate circulation, one of which at least must be a Luxembourg newspaper.

(3) As soon as the event giving rise to liquidation of the common fund occurs, the issue of units shall be prohibited, on penalty of nullity. The redemption of units remains possible provided the equal treatment of unitholders can be ensured.

Art. 23 The net assets of a common fund may not be less than one million two hundred and fifty thousand euro (1,250,000 euro).

This minimum must be reached within a period of six months following the authorisation of the common fund.

A grand-ducal regulation may increase such minimum amount up to a maximum of two million five hundred thousand euro (2,500,000 euro)22.

Art. 24 The management company must without delay inform the CSSF if the net assets of the common fund have fallen below two thirds of the legal minimum. In a case where the net assets of the common fund have fallen below two thirds of the legal minimum, the CSSF may, having regard to the circumstances, compel the management company to put the common fund into liquidation.

The order addressed to the management company by the CSSF to put a common fund into liquidation shall be published without delay by the management company or the depositary. If they fail to do so, such notice shall be published by the CSSF at the expense of the common fund. The notice shall be published in the Mémorial and in at least two newspapers with adequate circulation, one of which at least must be a Luxembourg newspaper.

Chapter 3. – SICAVs in transferable securities

Art. 25 For the purposes of this Part, SICAvs shall be taken to mean those companies which have adopted the form of a public limited company (société anonyme) governed by Luxembourg law,


20

– whose exclusive object is to invest their funds in transferable securities and/or other liquid financial assets referred to in Article 41, paragraph (1) of this law in order to spread the investment risks and to ensure for their shareholders23 the benefit of the result of the management of their assets, and

– whose shares are intended to be placed with the public by means of a public or private offer, and

– whose Articles of incorporation provide that the amount of the capital shall at all times be equal to the net asset value of the company.

Art. 26 SICAvs shall be subject to the provisions applicable in general to public limited companies, insofar as the present law does not derogate therefrom.

Art. 27 (1) The minimum capital of a SICAv which has not designated a management company may not be less than three hundred thousand euro (300,000 euro) at the time of authorisation. The capital of any SICAv including SICAvs which have designated a management company must reach one million two hundred and fifty thousand euro (1,250,000 euro) within a period of 6 months following the authorisation of the SICAv. A grand-ducal regulation may raise each such minimum amount up to a respective maximum of six hundred thousand euro (600,000 euro) and two million five hundred thousand euro (2,500,000 euro)24.

In addition, where a SICAv has not designated a management company authorised pursuant to Directive 85/611/EEC:– the application for authorisation must be accompanied by a program of

activity setting out, inter alia, the organisational structure of the SICAv;– the directors25 of the SICAv shall be of sufficiently good repute and be

sufficiently experienced in relation to the type of business carried out by such company. To that end the identity of the directors and of every person succeeding them in office must be communicated forthwith to the CSSF. The conduct of a SICAv’s business must be decided by at least two persons meeting such conditions. “Directors” shall mean those persons who, under law or the constitutional documents represent the SICAv or who effectively determine the policy of the company;

– moreover, where close links exist between the SICAv and other natural or legal persons, the CSSF shall grant authorisation only if such links do not prevent the effective exercise of its supervisory functions.

The CSSF shall also refuse authorisation if the laws, regulations or adminis-trative provisions of a non-member country governing one or more natural or legal persons with which the SICAv has close links, or difficulties involved in their enforcement, prevent the effective exercise of its supervisory functions.

SICAvs shall communicate to the CSSF the information it requires.

23 The French text of the law uses the correct term “actionnaires”, i.e. shareholders as opposed to unitholders, i.e.unit holders of a common fund. The English text of amended Directive 85/611/EEC mostly uses “unitholders”. However, throughout this translation a distinction is made between shareholder and unitholder.


25 The French text of amended Directive 85/611/EEC and the law use the term “dirigeants” and the German text of amended Directive 85/611/EEC uses the term “Geschäftsleiter”.

21

The applicant shall be informed, within six months of the submission of a complete application, whether or not authorisation has been granted. Reasons shall be given whenever an authorisation is refused.

A SICAv may start business as soon as authorisation has been granted. The CSSF may withdraw the authorisation issued to a SICAv subject to this

Part of the law only where that company:a) does not make use of the authorisation within twelve months, expressly

renounces the authorisation or has ceased the activity covered by this law for more than six months;

b) has obtained the authorisation by making false statements or by any other irregular means;

c) no longer fulfils the conditions under which authorisation was granted;d) has seriously and/or systematically infringed the provisions of this law or of

regulations adopted pursuant thereto; ore) falls within any of the cases where this law provides for withdrawal.

(2) Articles 85 and 86 of chapter 13 shall apply to SICAvs that have not designated a management company authorised pursuant to Directive 85/611/EEC, provided that the words “management company” shall be construed as “SICAv”.

SICAvs may only manage assets of their own portfolio and may not, under any circumstances, receive any mandate to manage assets on behalf of a third party.

(3) SICAvs that have not designated a management company authorised pursuant to Directive 85/611/EEC shall at all times observe applicable prudential rules.

In particular, the CSSF, having regard also to the nature of the SICAv, shall require that the company has sound administrative and accounting proce-dures, control and safeguard arrangements for electronic data processing and adequate internal control mechanisms including, in particular, rules for personal transactions by its employees or for the holding or management of investments in financial instruments in order to invest its initial capital and ensuring, inter alia, that each transaction involving the company may be recon-structed according to its origin, the parties concerned, its nature, and the time when and the place at which it was effected and that the assets of the SICAv are invested according to the constitutional documents and the legal provisions in force.

Art. 28 (1) a) Subject to any contrary provisions of its Articles of incorporation, a SICAv may issue its shares at any time;b) A SICAv must redeem its shares at the request of the shareholder without

prejudice to paragraphs (5) and (6) of this Article.(2) a) The shares shall be issued at a price arrived at by dividing the net asset

value of the SICAv by the number of shares outstanding; such price may be increased by expenses and commissions, the maximum amounts and procedures for collection of which may be determined by a grand-ducal regulation for which an opinion from the CSSF shall be sought26;


22

b) The shares shall be redeemed at a price arrived at by dividing the net asset value of the SICAv by the number of shares outstanding; such price may be decreased by expenses and commissions, the maximum amounts and procedures for collection of which may be determined by a grand-ducal regulation for which an opinion from the CSSF shall be sought27.

(3) Shares of a SICAv may not be issued unless the equivalent of the net issue price is paid into the assets of the SICAv within the customary28 time limits. This provision shall not preclude the distribution of bonus shares.

(4) The Articles of incorporation shall determine the time limits for payments in respect of issues and redemptions and shall specify the principles and methods of valuation of the assets of the SICAv. Unless otherwise provided for in the Articles of incorporation, the valuation of the assets of the SICAv shall be based, in the case of officially listed securities, on the last known stock exchange quotation, unless such quotation is not representative. For securities not so listed and for securities which are so listed but for which the latest quotation is not representative, the valuation shall be based on the probable realisation value which must be estimated with care and in good faith.

(5) By way of derogation from paragraph (1), the Articles of incorporation shall specify the conditions in which issues and redemptions may be suspended, without prejudice to legal causes. In the event of suspension of issues or redemptions, the SICAv must without delay inform the CSSF and, if it markets its shares in other Member States of the European Union, the competent authorities of such States.

Where the interest of the shareholders so requires, redemptions may be suspended by the CSSF if the provisions of laws, regulations or the Articles of incorporation concerning the activity and operation of the SICAv are not observed.

(6) The Articles of incorporation shall determine the frequency of the calculation of the issue and redemption price.

(7) The Articles of incorporation shall describe the nature of the expenses to be borne by the SICAv.

(8) The shares must be fully paid. They shall have no par value. (9) A share shall specify the minimum amount of capital and shall give no indication

regarding its par value or the portion of the capital which it represents. (10) The purchase and sale of assets must be effected at prices conforming to the

valuation criteria of paragraph (4).

Art. 29 (1) variations in the capital shall be effected ipso jure and without compliance with measures regarding publication and entry in the commercial and company register prescribed for increases and decreases of capital of public limited companies.

(2) Repayments to shareholders following a reduction of capital shall not be subject to any restriction other than the one provided for by Article 32, paragraph (1).

(3) In the case of issue of new shares, pre-emptive rights may not be claimed by existing shareholders unless the Articles of incorporation provide for such a right by an express provision.



23

Art. 30 (1) If the capital of the SICAv falls below two thirds of the minimum capital, the directors or the management organ, as the case may be, must submit the question of the dissolution of the SICAv to a general meeting for which no quorum shall be prescribed and which shall decide by a simple majority of the shares represented at the meeting.

(2) If the capital of the SICAv falls below one fourth of the minimum capital, the directors or the management organ, as the case may be, must submit the question of the dissolution of the SICAv to a general meeting for which no quorum shall be prescribed; dissolution may be resolved by shareholders holding one fourth of the shares at the meeting.

(3) The meeting must be convened so that it is held within a period of forty days as from the ascertainment that the net assets have fallen below two thirds or one fourth of the minimum capital, as the case may be.

Art. 31 The creation of participating shares or similar securities, regardless of the name given to them, shall be permitted only in accordance with the conditions and procedures to be laid down by grand-ducal regulation29.

Art. 32 (1) Unless otherwise provided for in the Articles of incorporation, the net assets of the SICAv may be distributed subject to the limits set out in Article 27 of this law.

(2) SICAvs shall not be obliged to create a legal reserve. (3) SICAvs are not subject to the provisions in respect of payment of interim

dividends as set out in Article 72-230 of the law of 10 August 1915 concerning commercial companies, as amended.

Art. 33 For companies to which this chapter applies, the words “public limited company”31 or “European company (SE)” shall be replaced by the words “investment company with variable capital”32 or the letters “SICAv”, or by the words “European investment company with variable capital” (société européenne d’investissement à capital variable) or “SICAv-SE”.

Art. 34 (1) The custody of the assets of a SICAv must be entrusted to a depositary. (2) The depositary’s liability shall not be affected by the fact that it has entrusted

all or some of the assets in its custody to a third party. (3) The depositary must moreover:

a) ensure that the sale, issue, redemption and cancellation of shares effected by or on behalf of the SICAv are carried out in accordance with the law or the Articles of incorporation of the SICAv;

b) ensure that in transactions involving the assets of the SICAv, the consid-eration is remitted to it within the customary33 time limits;

c) ensure that the income of the SICAv is applied in accordance with its Articles of incorporation.


30 Article 72-2 sets out the conditions under which a company may pay out interim dividends.

31 société anonyme or S.a.

32 société d’investissement à capital variable


24

Art. 35 (1) The depositary must either have its registered office in Luxembourg or be established in Luxembourg if its registered office is in another Member State of the European Union.

(2) The depositary must be a credit institution within the meaning of the law of 5 April 1993 concerning the financial sector, as amended.

(3) The directors of the depositary must be of sufficiently good repute and be suffi-ciently experienced, also in relation to the UCITS concerned. To that end, the identity of the directors and of every person succeeding them in office must be communicated forthwith to the CSSF.

“Directors” shall mean those persons, who under law or the constitutional documents represent the depositary or effectively determine the conduct of its activity.

Art. 36 The depositary shall be liable in accordance with Luxembourg law to the share-holders for any loss suffered by them as a result of its wrongful failure to perform its obligations or its wrongful improper performance thereof.

Art. 37 The duties of the depositary regarding the SICAv shall respectively cease:a) in the case of voluntary withdrawal of the depositary or of its removal by

the SICAv; until it is replaced, which must happen within two months, the depositary must take all necessary steps for the good preservation of the interests of the shareholders;

b) where the SICAv or the depositary has been declared bankrupt, has entered into a composition with creditors, has obtained a suspension of payment, has been put under court-controlled management or has been the subject of a similar proceedings or has been put into liquidation;

c) where the CSSF withdraws its authorisation of the SICAv or the depos-itary;

d) in all other cases provided for in the Articles of incorporation.

Art. 38 In carrying out its role as depositary, the depositary must act solely in the interest of the shareholders.

Chapter 4. – Other investment companies in transferable securities

Art. 39 For the purposes of this Part I, other investment companies shall be taken to mean companies other than SICAvs and– whose exclusive object is to invest their funds in transferable securities

and/or other liquid financial assets referred to in Article 41, paragraph (1) of this law in order to spread the investment risks and to ensure for their shareholders the benefit of the results of the management of their assets, and

– whose shares or units are intended to be placed with the public by means of a public or private offer provided that the words “investment company”34 appear on all their deeds, announcements, publications, letters and other documents.

34 société d’investissement

25

Art. 40 Articles 26, 27, 28 with the exception of paragraphs (8) and (9), 30, 31, 34, 35, 36, 37 and 38 of this law are applicable to investment companies subject to this chapter.

Chapter 5. – Investment policy of a UCITS

Art. 41 (1) The investments of a UCITS must consist solely of:a) transferable securities and money market instruments admitted to or dealt

in on a regulated market;b) transferable securities and money market instruments dealt in on another

market in a Member State of the European Union which is regulated, operates regularly and is recognised and open to the public;

c) transferable securities and money market instruments admitted to official listing on a stock exchange in a non-Member State of the European Union or dealt in on another market in a non-Member State of the European Union which is regulated, operates regularly and is recognised and open to the public provided that the choice of the stock exchange or market has been provided for in the constitutional documents of the UCITS35;

d) recently issued transferable securities and money market instruments, provided that:– the terms of issue include an undertaking that application will be made

for admission to official listing on a stock exchange or on another regulated market which operates regularly and is recognised and open to the public, provided that the choice of the stock exchange or the market has been provided for in the constitutional documents of the UCITS;

– such admission is secured within one year of issue;e) units of UCITS authorised according to Directive 85/611/EEC and/or

other UCIs within the meaning of the first and second indent of Article 1, paragraph (2) of Directive 85/611/EEC, whether situated in a Member State of the European Union or not, provided that: – such other UCIs are authorised under laws which provide that they are

subject to supervision considered by the CSSF to be equivalent to that laid down in Community law, and that cooperation between authorities is sufficiently ensured;

– the level of protection for unitholders in such other UCIs is equivalent to that provided for unitholders in a UCITS, and in particular that the rules on assets segregation, borrowing, lending, and uncovered sales of transferable securities and money market instruments are equivalent to the requirements of Directive 85/611/EEC;

– the business of such other UCIs is reported in half-yearly and annual reports to enable an assessment of the assets and liabilities, income and operations over the reporting period;

– no more than 10% of the assets of the UCITS or of the other UCIs, whose acquisition is contemplated, can, according to their constitutional documents, in aggregate be invested in units of other UCITS or other UCIs;

35 This refers to the management regulations of a common fund or the Articles of incorporation of an investment company with variable or fixed capital.

26

f) deposits with credit institutions which are repayable on demand or have the right to be withdrawn, and maturing in no more than 12 months, provided that the credit institution has its registered office in a Member State of the European Union or, if the registered office of the credit institution is situated in a non-Member State, provided that it is subject to prudential rules considered by the CSSF as equivalent to those laid down in Community law;

g) financial derivative instruments, including equivalent cash-settled instru-ments, dealt in on a regulated market referred to in subparagraphs a), b) and c) above, and/or financial derivative instruments dealt in over-the-counter (“OTC derivatives”), provided that:– the underlying consists of instruments covered by Article 41, paragraph

(1), financial indices, interest rates, foreign exchange rates or currencies, in which the UCITS may invest according to its investment objectives as stated in the UCITS’ constitutional documents,

– the counterparties to OTC derivative transactions are institutions subject to prudential supervision, and belonging to the categories approved by the CSSF, and

– the OTC derivatives are subject to reliable and verifiable valuation on a daily basis and can be sold, liquidated or closed by an offsetting trans-action at any time at their fair value at the UCITS’ initiative;

h) money market instruments other than those dealt in on a regulated market and which fall under Article 1 of this law, if the issue or the issuer of such instruments are themselves regulated for the purpose of protecting investors and savings, and provided that such instruments are:– issued or guaranteed by a central, regional or local authority or by

a central bank of a Member State, the European Central Bank, the European Union 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

– issued by an undertaking any securities of which are dealt in on regulated markets referred to in subparagraphs (a), (b) or (c) above, or

– issued or guaranteed by an establishment subject to prudential super-vision, 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

– 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 ten million euro (10,000,000 euro) and which presents and publishes its annual accounts in accordance with the fourth Directive 78/660/EEC, is an entity which, within a group of companies which includes one or several listed companies, is dedicated to the financing of the group or is an entity which is dedicated to the financing of securitisation vehicles which benefit from a banking liquidity line.

27

(2) However:a) a UCITS may invest no more than 10% of its assets36 in transferable

securities and money market instruments other than those referred to in paragraph (1);

b) an investment company may acquire movable and immovable property which is essential for the direct pursuit of its business;

c) a UCITS may not acquire either precious metals or certificates representing them.

(3) A UCITS may hold ancillary liquid assets. (4) The modalities for the practical application of this Article are laid down by a

grand-ducal regulation.

Art. 42 (1) The UCITS must employ a risk-management process which enables it to monitor and measure at any time the risk of the positions and their contribution to the overall risk profile of the portfolio; it must employ a process for accurate and independent assessment of the value of OTC derivative instruments. It must communicate to the CSSF regularly and in accordance with the detailed rules the latter shall define, the types of derivative instruments, the underlying risks, the quantitative limits and the methods which are chosen in order to estimate the risks associated with transactions in derivative instruments.

(2) A UCITS is also authorised to employ techniques and instruments relating to transferable securities and money market instruments under the conditions and within the limits laid down by the CSSF provided that such techniques and instruments are used for the purpose of efficient portfolio management. When these operations concern the use of derivative instruments, these conditions and limits shall conform to the provisions laid down in this law.

Under no circumstances shall these operations cause the UCITS to diverge from its investment objectives as laid down in the UCITS’ management regula-tions, its constitutional documents or prospectus.

(3) A UCITS shall ensure that its global exposure relating to derivative instruments does not exceed the total net value of its portfolio.

The exposure is calculated taking into account the current value of the under-lying assets, the counterparty risk, foreseeable37 market movements and the time available to liquidate the positions. This shall also apply to the following subparagraphs.

A UCITS may invest, as a part of its investment policy and within the limits laid down in Article 43, paragraph (5) in financial derivative instruments provided that the exposure to the underlying assets does not exceed in aggregate the investment limits laid down in Article 43. When a UCITS invests in index-based financial derivative instruments, these investments do not have to be combined to the limits laid down in Article 43.

When a transferable security or money market instrument embeds a derivative, the latter must be taken into account when complying with the requirements of this Article.

36 In the French version of the law, the term “actifs” is used which the Luxembourg supervisory authorities consider to mean net assets.

37 The French text of amended Directive 85/611/EEC and the law use the terms “évolution prévisible des marchés” (foreseeable market movements) whereas the English text uses the terms “future market movements” like the German text: “künftige Marktfluktuationen”.

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(4) The modalities for the practical application of this Article are laid down by a grand-ducal regulation.

Art. 43 (1) A UCITS may invest no more than 10% of its assets in transferable securities or money market instruments issued by the same body. A UCITS may not invest more than 20% of its assets in deposits made with the same body. The risk exposure to a counterparty of the UCITS in an OTC derivative transaction may not exceed 10% of its assets when the counterparty is a credit institution referred to in Article 41, paragraph (1) (f) or 5% of its assets in other cases.

(2) The total value of the transferable securities and money market instruments held by a UCITS in the issuing bodies in each of which it invests more than 5% of its assets must not exceed 40% of the value of its assets. This limitation does not apply to deposits and OTC derivative transactions made with financial institutions subject to prudential supervision.

notwithstanding the individual limits laid down in paragraph (1), a UCITS may not combine:– investments in transferable securities or money market instruments issued

by a single body,– deposits made with a single body, and/or– exposures arising from OTC derivative transactions undertaken with a

single body, in excess of 20% of its assets.

(3) The limit laid down in the first sentence of paragraph (1) may be of a maximum of 35% if the transferable securities or money market instruments are issued or guaranteed by a Member State of the European Union, by its public local authorities, by a non-Member State or by public international bodies of which one or more Member States are members.

(4) The limit laid down in the first sentence of paragraph (1) may be of a maximum of 25% for certain bonds when they are issued by a credit institution which has its registered office in a Member State of the European Union and is subject by law, to special public supervision designed to protect bondholders. In particular, sums deriving from the issue of these bonds must be invested in conformity with the law in assets which, during the whole period of validity of the bonds, are capable of covering claims attaching to the bonds and which, in case of bankruptcy of the issuer38, would be used on a priority basis for the repayment of principal and payment of the accrued interest.

If a UCITS invests more than 5% of its assets in the bonds referred to in the first subparagraph and issued by one issuer, the total value of such investments may not exceed 80% of the value of the assets of the UCITS.

(5) The transferable securities and money market instruments referred to in paragraphs (3) and (4) are not included in the calculation of the limit of 40% referred to in paragraph (2).

The limits set out in paragraphs (1), (2), (3) and (4) may not be combined; thus investments in transferable securities or money market instruments issued by the same body, in deposits or derivative instruments made with this body carried out in accordance with paragraphs (1), (2), (3) and (4) may not exceed a total of 35% of the assets of the UCITS.

38 The English version of amended Directive 85/611/EEC makes reference to the “failure of the issuer” as does the German version: “ausfall des emittenten”.

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Companies which are included in the same group for the purposes of consoli-dated accounts, as defined in accordance with Directive 83/349/EEC or in accordance with recognised international accounting rules, are regarded as a single body for the purpose of calculating the limits contained in this Article.

A UCITS may cumulatively invest up to 20% of its assets in transferable securities and money market instruments within the same group.

Art. 44 (1) Without prejudice to the limits laid down in Article 48, the limits laid down in Article 43 are raised to a maximum of 20% for investments in shares and/or bonds39 issued by the same body when, according to the constitutional documents of the UCITS, the aim of the UCITS’ investment policy is to replicate the composition of a certain stock or bond40 index which is recognised by the CSSF, on the following basis:– the composition of the index is sufficiently diversified;– the index represents an adequate benchmark for the market to which it

refers;– it is published in an appropriate manner.

(2) The limit laid down in paragraph (1) is raised to 35% where that proves to be justified by exceptional market conditions in particular in regulated markets where certain transferable securities or money market instruments are highly dominant. The investment up to this limit is only permitted for a single issuer.

(3) The modalities for the practical application of this Article are laid down by a grand-ducal regulation.

Art. 45 (1) By way of derogation from Article 43, the CSSF may authorise a UCITS to invest in accordance with the principle of risk-spreading up to 100% of its assets in different transferable securities and money market instruments issued or guaranteed by any Member State of the European Union, its local authorities, a non-Member State of the European Union or public international bodies of which one or more Member States of the European Union are members.

The CSSF shall grant such an authorisation only if it considers that unitholders in the UCITS have protection equivalent to that of unitholders in UCITS complying with the limits laid down in Articles 43 and 44.

These UCITS must hold securities from at least six different issues, but securities from any one issue may not account for more than 30% of the total amount.

(2) The UCITS referred to in paragraph (1) must make express mention, in their constitutional documents, of the States, local authorities or public international bodies issuing or guaranteeing securities in which they intend to invest more than 35% of their assets.

(3) In addition, the UCITS referred to in paragraph (1) must include a prominent statement in their prospectuses and in any promotional literature, drawing attention to such authorisation and indicating the States, local authorities and public international bodies in the securities of which they intend to invest or have invested more than 35% of their assets.

39 See footnote 8.

40 See footnote 8.

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Art. 46 (1) A UCITS may acquire the units of UCITS and/or other UCIs referred to in Article 41, paragraph (1) (e), provided that no more than 20% of its assets are invested in the units of a single UCITS or other UCI.

For the purpose of the application of this investment limit, each compartment of a UCI with multiple compartments41 within the meaning of Article 133 of this law is to be considered as a separate issuer provided that the principle of segregation of the obligations of the various compartments vis-à-vis third parties is ensured.

(2) Investments made in units of UCIs other than UCITS may not in aggregate exceed 30% of the assets of the UCITS.

When a UCITS has acquired units of UCITS and/or other UCIs, the assets of the respective UCITS or other UCIs do not have to be combined for the purposes of the limits laid down in Article 43.

(3) When a UCITS invests in the units of other UCITS and/or other UCIs that are managed, directly or by delegation, by the same management company or by any other company with which the management company is linked by common management or control, or by a substantial direct or indirect holding, that management company or other company may not charge subscription or redemption fees on account of the UCITS’ investment in the units of such other UCITS and/or UCIs.

A UCITS that invests a substantial proportion of its assets in other UCITS and/or other UCIs shall disclose in its prospectus the maximum level of the management fees that may be charged both to the UCITS itself and to the other UCITS and/or other UCIs in which it intends to invest. In its annual report it shall indicate the maximum proportion of management fees charged both to the UCITS itself and to the UCITS and/or other UCIs in which it invests.

Art. 47 (1) The prospectus shall indicate in which categories of assets a UCITS is authorised to invest. It shall mention if transactions in financial derivative instru-ments are authorised; in this event, it must include a prominent statement indicating if these operations may be carried out for the purpose of hedging or with the aim of meeting investment goals, and the possible outcome of the use of financial derivative instruments on the risk profile.

(2) When a UCITS invests principally in any category of assets defined in Article 41 other than transferable securities and money market instruments or repli-cates a stock or bond42 index in accordance with Article 44, its prospectus and, where necessary, any other promotional literature must include a prominent statement drawing attention to its investment policy.

(3) When the net asset value of a UCITS is likely to have a high volatility due to its portfolio composition or the portfolio management techniques that may be used, its prospectus and, where necessary, any other promotional literature must include a prominent statement drawing attention to this characteristic of the UCITS.

(4) Upon request of an investor, the management company must also provide supplementary information relating to the quantitative limits that apply in the risk management of the UCITS, to the methods chosen to this end and to the recent evolution of the risks and yields of the main categories of instruments.

41 These are commonly referred to as umbrella funds.

42 See footnote 8.

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Art. 48 (1) An investment company or a management company acting in connection with all of the common funds which it manages and which fall within the scope of Part I of this law, may not acquire any shares carrying voting rights which would enable it to exercise significant influence over the management of an issuing body.

(2) Moreover, a UCITS may acquire no more than:– 10% of the non-voting shares of the same issuer;– 10% of the debt securities of the same issuer;– 25% of the units of the same UCITS and/or other UCI;– 10% of the money market instruments of any single issuer.

The limits laid down in the second, third and fourth indents may be disregarded at the time of acquisition if at that time the gross amount of bonds43 or of the money market instruments or the net amount of the instruments in issue44 cannot be calculated.

(3) Paragraphs (1) and (2) are waived as regards:a) transferable securities and money market instruments issued or guaranteed

by a Member State of the European Union or its local authorities;b) transferable securities and money market instruments issued or guaranteed

by a non-Member State of the European Union;c) transferable securities and money market instruments issued by public

international bodies of which one or more Member States of the European Union are members;

d) shares held by UCITS in the capital of a company incorporated in a non-Member State of the European Union 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. This derogation, however, shall apply only if in its investment policy the company from the non-Member State of the European Union complies with the limits laid down in Articles 43 and 46 and Article 48, paragraphs (1) and (2). Where the limits set in Articles 43 and 46 are exceeded, Article 49 shall apply mutatis mutandis;

e) 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, in regard to the redemption of units at the request of untiholders.

Art. 49 (1) UCITS need not comply with the limits laid down in this chapter when exercising subscription rights attaching to transferable securities or money market instru-ments which form part of their assets.

While ensuring observance of the principle of risk-spreading, recently authorised UCITS may derogate from Articles 43, 44, 45 and 46 for a period of six months following the date of their authorisation.

43 See footnote 8.

44 The French text of amended Directive 85/611/EEC and the law use the term “titres émis” which comprises securi-ties and instruments. The German text of amended Directive 85/611/EEC uses the term “ausgegebene anteile” whereas the English text of amended Directive 85/611/EEC uses the term “securities”.

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(2) If the limits referred to in paragraph (1) are exceeded for reasons beyond the control of the UCITS or as a result of the exercise of subscription rights, it must adopt as a priority objective for its sales transactions the remedying of that situation, taking due account of the interests of its unitholders.

(3) To the extent that an issuer is a legal entity with multiple compartments where the assets of a compartment are exclusively reserved to the investors in such compartment and to those creditors whose claim has arisen in connection with the creation, operation or liquidation of that compartment, each compartment is to be considered as a separate issuer for the purpose of the application of the risk-spreading rules set out in Articles 43, 44 and 46.

Art. 50 (1) neither:– an investment company, nor– a management company or depositary acting on behalf of common funds,

may borrow. However, a UCITS may acquire foreign currency by means of a back-to-back

loan. (2) By way of derogation from paragraph (1), UCITS may borrow the equivalent

of:a) up to 10% of their assets provided that the borrowing is on a temporary

basis;b) up to 10% of their assets in the case of an investment company provided

that the borrowing is to make possible the acquisition of immovable property essential for the direct pursuit of their business; in this case, these borrowings and those referred to in subparagraph a) may not in any case in total exceed 15% of their assets.

Art. 51 (1) Without prejudice to the application of Articles 41 and 42, neither:– an investment company, nor– a management company or depositary acting on behalf of common funds,

may grant loans to or act as guarantor for third parties. (2) Paragraph (1) shall not prevent such undertakings from acquiring transferable

securities or money market instruments or other financial instruments referred to in Article 41, paragraph (1), subparagraphs e), g) and h) which are not fully paid.

Art. 52 neither:– an investment company, nor– a management company or depositary acting on behalf of common funds,

may carry out uncovered sales of transferable securities, money market instruments or other financial instruments referred to in Article 41, paragraph (1), subparagraphs e), g) and h).

Chapter 6. – UCITS situated in Luxembourg which market their units in other Member States of the European Union

Art. 53 (1) A UCITS which markets its units in another Member State of the European Union must comply with the laws, regulations and administrative provisions in force in that State which do not fall within the matters governed by this law.

(2) A UCITS may advertise its units in the Member State in which they are marketed. It must comply with the provisions governing advertising in that State.

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Art. 54 In the case referred to in Article 53, the UCITS must in accordance with the laws, regulations and administrative provisions in force in the Member State of marketing, inter alia take the measures necessary to ensure that facilities are available in that State for making payments to unitholders, redeeming units and making available the information which UCITS are obliged to provide.

Art. 55 A UCITS which proposes to market its units in another Member State of the European Union, must first inform the CSSF and the competent authorities of that other Member State. It must simultaneously send these authorities:– an attestation by the CSSF to the effect that it fulfils the conditions imposed

in Part I of the law,– its constitutional documents,– its full and simplified prospectuses,– where appropriate, its latest annual report and any subsequent semi-annual

report, and– details of the arrangements made for the marketing of its units in that other

Member State. The UCITS may begin to market its units in that other Member State of the

European Union two months after such communication unless the author-ities of the Member States concerned establish, in a reasoned decision taken before the expiry of that period of two months, that the arrangements made for the marketing of units do not comply with the provisions referred to in Articles 53, paragraph (1) and 54.

Art. 56 If a UCITS markets its units in another Member State of the European Union, it must distribute in that other Member State in accordance with the same proce-dures as those provided for in Luxembourg, its full and simplified prospectuses, the annual and semi-annual reports and the other information provided for in Articles 111 and 112.

These documents shall be provided in the official language or in one of the official languages of the host Member State or in a language approved by the competent authorities of the host Member State.

Art. 57 Where a UCITS situated in Luxembourg markets its units on the territory of a country which is a party to the Agreement on the European Economic Area other than a Member State of the European Union45, the provisions of Articles 53 to 56 of this law are also applicable within the limits provided by that Agreement and the instruments relating thereto.

Chapter 7. – UCITS situated in other Member States of the European Union which market their units in Luxembourg

Art. 58 UCITS situated in other Member States of the European Union which market their units in Luxembourg must comply with the laws, regulations and admin-istrative provisions in force in Luxembourg which do not fall within the matters governed by this law.

Art. 59 The UCITS must appoint a credit institution to ensure that facilities are available in Luxembourg for making payments to unitholders and redeeming units.

45 Currently: Iceland, Liechtenstein and norway.

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The UCITS must take the measures necessary to ensure that the information which it is obliged to provide, is made available to unitholders in Luxembourg.

Art. 60 If a UCITS situated in another Member State of the European Union proposes to market its units in Luxembourg, it must inform the CSSF. It must simultane-ously send to the latter authority:– an attestation by the competent authorities to the effect that it fulfils the

conditions imposed by Directive 85/611/EEC,– its constitutional documents,– its full and simplified prospectuses,– where appropriate, its latest annual report and any subsequent semi-annual

report,– details of the arrangements made for the marketing of its units in Luxem-

bourg. The UCITS may begin to market its units in Luxembourg two months after such

communication unless the CSSF establishes, in a reasoned decision taken before the expiry of that period of two months, that the arrangements made for the marketing of units do not comply with the provisions referred to in Article 58 and Article 59.

Art. 61 If a UCITS situated in another Member State of the European Union markets its units in Luxembourg, it must distribute in Luxembourg in either the Luxem-bourg, French, German or English language the documents and information which must be published in the Member State of the European Union in which it is situated, in accordance with the same procedures as those provided for in the latter State.

Art. 62 Where a UCITS situated in a country which is a party to the Agreement on the European Economic Area other than a Member State of the European Union46 markets its units in Luxembourg, the provisions of Articles 58 to 61 of this law are also applicable within the limits provided by that Agreement and the instru-ments relating thereto.

Part II. - Other UCIs

Chapter 8. – Scope

Art. 63 This Part shall apply to all UCITS excluded by Article 3 of this law and to all other UCIs situated in Luxembourg not covered by Part I.

Art. 64 A UCI shall be deemed to be situated in Luxembourg if the registered office of the management company of the common fund or the registered office of the investment company is situated in Luxembourg. The head office47 must be situated in Luxembourg.

Chapter 9. – Common funds

Art. 65 (1) There shall be regarded as a common fund for the application of this Part any undivided collection of assets made up and managed according to the principle of risk-spreading on behalf of joint owners who are liable only up to the amount


47 See footnote 13.

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contributed by them and whose rights are represented by units intended for placement with the public by means of a public or private offer.

(2) A common fund shall be managed by a management company which complies with the conditions set out in chapter 13 or 14 of Part Iv of this law.

(3) The depositary must either have its registered office in Luxembourg or be established in Luxembourg if its registered office is in another Member State of the European Union or in a State which is a non-Member State.

Art. 66 Articles 6, 8, 9, 10, 11 (1), 12 (1) b), 12 (3), 13 (1), 13 (2) a) through i), 14, 15, 16, 17 (1), 17 (3), 17 (4), 18 (1), 18 (2) a) c) d) e), 19, 20, 21, 22, 23 and 24 of this law are applicable to common funds falling within the scope of this chapter.

Art. 67 (1) A grand-ducal regulation for which an opinion from the CSSF shall be sought may, inter alia, determine48:a) the minimum frequency for the determination of the issue and redemption

prices for units of the common fund;b) the minimum percentage of the assets of the common fund which must be

represented by liquid assets;c) the maximum percentage of the assets of the common fund which may be

invested in transferable securities not quoted on a stock exchange or dealt in on an organised market offering comparable safeguards;

d) the maximum percentage of securities of the same kind issued by the same body which the common fund may hold;

e) the maximum percentage of the assets of the common fund which may be invested in securities issued by the same body;

f) the conditions under which and possibly the maximum percentages the common fund may invest in securities of other UCIs;

g) the maximum percentage, in relation to its total assets, of the amounts the common fund is authorised to borrow and the terms and conditions for such borrowings.

(2) The frequency and percentages determined in accordance with the foregoing paragraph may be differentiated depending on whether or not the common funds display certain characteristics or fulfil certain conditions.

(3) A recently formed common fund may, while ensuring observance of the principle of risk-spreading, derogate from paragraph (1), subparagraph e) above for a period of six months following the date of its authorisation.

(4) Where the maximum percentages fixed by reference to subparagraphs c), d), e), f) and g) of paragraph (1) above are exceeded as a result of the exercise of rights attached to securities in the portfolio or otherwise than by the purchase of securities, the management company must adopt as its priority objective for its sales transactions, the remedying of the situation of the fund, taking due account of the interests of the unitholders.

Art. 68 (1) neither the management company nor the depositary, acting on behalf of the common fund, may grant loans to unitholders of the common fund.

(2) Paragraph (1) shall not prevent common funds from acquiring transferable securities which are not fully paid.


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Chapter 10. – SICAVs

Art. 69 For the purpose of this Part SICAvs shall be taken to mean those companies which have adopted the form of a public limited company (société anonyme) governed by Luxembourg law,– whose exclusive object is to invest their funds in assets in order to spread

the investment risks and to ensure for their investors the benefit of the results of the management of their assets, and

– whose shares are intended to be placed with the public by means of a public or private offer, and

– whose Articles of incorporation provide that the amount of capital shall at all times be equal to the value of the net assets of the company.

Art. 70 The minimum capital of a SICAv may not be less than one million two hundred and fifty thousand euro (1,250,000 euro). This minimum must be reached within a period of six months following the authorisation of the SICAv. A grand-ducal regulation may raise such minimum amount up to a maximum of two million five hundred thousand euro (2,500,000 euro)49.

Art. 71 Articles 26, 28 (1) a), 28 (2) a), 28 (3) to (10), 29, 30, 31, 32, 33, 34, 35 (2), 36, 37 and 38 of this law are applicable to the SICAvs subject to the scope of this chapter.

Art. 72 (1) A grand-ducal regulation for which an opinion from the CSSF shall be sought may, inter alia, determine:50 a) the minimum frequency for the determination of the issue and, where the

Articles of incorporation provide for the right of shareholders to have their shares redeemed, the redemption prices for shares of the SICAv;

b) the minimum percentage of the assets of the SICAv which must be repre-sented by liquid assets;

c) the maximum percentage of the assets of the SICAv which may be invested in transferable securities not quoted on a stock exchange or dealt in on an organised market offering comparable safeguards;

d) the maximum percentage of securities of the same kind issued by the same body which the SICAv may hold;

e) the maximum percentage of the assets which the SICAv may invest in securities issued by the same body;

f) the conditions under which and possibly the maximum percentages the SICAv may invest in securities of other UCIs;

g) the maximum percentage, in relation to its total assets, of the amounts the SICAv is authorised to borrow and the terms and conditions for such borrowings.

(2) The frequency and percentages determined in accordance with the foregoing paragraph may be differentiated depending on whether or not the SICAvs display certain characteristics or fulfil certain conditions.

(3) A recently formed SICAv may, while ensuring observance of the principle of risk-spreading, derogate from paragraph (1), subparagraph e) above for a period of six months following the date of its authorisation.



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(4) Where the maximum percentages fixed by reference to subparagraphs c), d), e), f) and g) of paragraph (1) above are exceeded as a result of the exercise of rights attached to securities in the portfolio or otherwise than by the purchase of securities, the SICAv must adopt as its priority objective for its sales trans-actions, the remedying of the situation, taking due account of the interests of the shareholders.

Chapter 11. – UCIs which have not been constituted as common funds or SICAVs

Art. 73 This chapter is applicable to all companies and all undertakings other than common funds or SICAvs51

– whose exclusive object is the collective investment of their funds in assets in order to spread the investment risks and to ensure for the investors the benefit of the results of the management of their assets, and

– which solicit the public for the subscription of their units by means of a public or private offer.

Art. 74 (1) The net assets of the UCIs falling within this chapter may not be less than one million two hundred and fifty thousand euro (1,250,000 euro).

This minimum must be reached within a period of six months following their authorisation. A grand-ducal regulation may raise that minimum figure up to a maximum of two million five hundred thousand euro (2,500,000 euro)52.

(2) If the net assets have fallen below two thirds of the legal minimum, the directors or the management organ, as the case may be, or managers must submit the question of the dissolution of the undertaking to a general meeting for which no quorum shall be prescribed and which shall decide by simple majority of the units represented at the meeting.

(3) If the net assets have fallen below one fourth of the legal minimum, the directors or the management organ, as the case may be, or managers must submit the question of the dissolution to a general meeting for which no quorum shall be prescribed. The dissolution may be resolved by investors holding one fourth of the units represented at the meeting.

(4) The meeting must be convened so that it is held within a period of forty days as from the ascertainment that the net assets have fallen below two thirds or one fourth of the legal minimum, as the case may be.

(5) If the constitutional documents of the undertaking do not provide for general meetings, the directors or the management organ, as the case may be, or managers must, if the net assets of the UCI have fallen below two thirds of the legal minimum, inform the CSSF without delay. In such case, the CSSF may, having regard to the circumstances, require the directors or managers to liquidate the undertaking.

Art. 75 (1) A grand-ducal regulation for which an opinion from the CSSF shall be sought may, inter alia, determine53:

51 Investment companies that are not established in the form of a SICAv are generally investment companies with fixed capital (“SICAF”).



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a) the minimum frequency for the determination of the issue and, in case the constitutional documents provide the right for the shareholders or members to have their shares redeemed, the redemption price of the shares or units of the UCI;

b) the minimum percentage of the assets of the UCI which must be repre-sented by liquid assets;

c) the maximum percentage of the assets of the UCI which may be invested in transferable securities not quoted on a stock exchange or dealt in on an organised market offering comparable safeguards;

d) the maximum percentage of securities of the same kind issued by the same body which the UCI may hold;

e) the maximum percentage of the assets of the UCI which may be invested in securities issued by the same body;

f) the conditions under which and possibly the maximum percentages the UCI may invest in securities of other UCIs;

g) the maximum percentage, in relation to its total assets, of the amounts the UCI is authorised to borrow and the terms and conditions for such borrowings.

(2) The frequency and percentages determined in accordance with paragraph (1) above may be differentiated depending on whether or not the UCI displays certain characteristics or fulfils certain conditions.

(3) A recently formed UCI may, while ensuring observance of the principle of risk-spreading, derogate from paragraph (1), subparagraph e) above, for a period of six months following the date of its authorisation.

(4) Where the maximum percentages fixed by reference to subparagraphs c), d), e), f) and g) of paragraph (1) above are exceeded as a result of the exercise of rights attached to securities in the portfolio or otherwise than by the purchase of securities, the UCI must adopt as its priority objective for its sales trans-actions, the remedying of the situation, taking due account of the interests of the shareholders or members.

(5) The constitutional documents of the UCI shall specify the principles and methods of valuation of the assets of the UCI. Unless otherwise provided in the constitutional documents, the valuation of the assets of the UCI shall be based in the case of officially listed securities, on the last known stock exchange quotation, unless such quotation is not representative. For securities not so listed and for securities which are so listed but for which the latest quotation is not representative, the valuation shall be based on the probable realisation value which must be estimated with care and in good faith.

(6) Articles 28(5), 34, 35 (2), 36, 37 and 38 of this law are applicable to the UCIs subject to this chapter.

Part III. - Foreign UCIS

Chapter 12. – General provisions and scope

Art. 76 UCIs other than the closed-end type formed according to or operating under foreign laws, which are not subject to chapter 7 of this law and whose securities are the subject of a public announcement, offer or sale in or from Luxembourg, must be submitted in their State of origin to a permanent supervision performed

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by a supervisory authority set up by law in order to ensure the protection of investors. Article 59 of this law is applicable to such UCIs.

Part IV. - The authorisation of management companies

Chapter 13. – Management companies managing UCITS governed by Directive 85/611/EEC

a. - Conditions for taking up business

Art. 77 (1) Access to the business of management companies within the meaning of this chapter is subject to prior authorisation by the CSSF. Authorisation granted under this law to a management company shall be valid for all Member States of the European Union.

A management company shall be incorporated as a public limited company54, a private limited company55, a cooperative company56, a cooperative company set up as a public limited company57 or a corporate limited partnership58. The capital of such company must be represented by registered shares.

(2) no management company may engage in activities other than the management of UCITS authorised according to Directive 85/611/EEC except the additional management of other UCIs which are not covered by such Directive and for which the management company is subject to prudential supervision but the units of which cannot be marketed in other Member States of the European Union under Directive 85/611/EEC.

The activity of management of common funds and of investment companies includes the functions listed in Annex II of this law which list is not exhaustive.

(3) By way of derogation from paragraph (2), management companies are also authorised to provide the following services:a) management of portfolios of investments, on a discretionary client-by-

client basis, including those owned by pension funds, in accordance with mandates given by investors where such portfolios include one or more of the instruments listed in Section B of Annex II of the law of 5 April 1993 on the financial sector, as amended;

b) as non-core services:– investment advice concerning one or more of the instruments listed in

Section B of Annex II of the law of 5 April 1993 on the financial sector, as amended;

– safekeeping and administration in relation to units of UCIs.

54 société anonyme

55 société à responsabilité limitée

56 société coopérative

57 société coopérative organisée comme une société anonyme

58 société en commandite par actions

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Management companies may in no case be authorised under this chapter to provide only the services mentioned in this paragraph or to provide non-core services without being authorised for the services referred to in subparagraph a).

For the purpose of this Article, investment advice consists of the provision of personalised recommendations to a client, either upon the request of this client or at the management company’s initiative in regard to one or more transac-tions concerning financial instruments referred to in Section B of Annex II of the law of 5th April 1993 on the financial sector, as amended.

For the purpose of this Article, a personalised recommendation is a recom-mendation which is addressed to a person by reason of its capacity as investor or potential investor or its capacity as agent of an investor or of a potential investor.

This recommendation has to be adapted to this person or has to be based on the examination of the proper situation of this person and has to recommend the realisation of an operation of the following categories:a) the purchase, the sale, the subscription, the exchange, the repayment, the

holding or the firm commitment of a particular financial instrument;b) the exercise or non-exercise of the right conferred by a particular financial

instrument to purchase, to sell, to subscribe, to exchange or to reimburse a financial instrument.

A recommendation is not a personalised recommendation if it is exclusively disseminated by distribution channels within the meaning of Article 1, point 18) of the law of 9 May 2006 concerning market abuse or if it is intended for the public.

(4) Article 13, paragraph (3), Article 37-1 and Article 37-3 of the law of 5 April 1993 on the financial sector, as amended, shall apply mutatis mutandis to the provision by management companies of the services mentioned in paragraph (3) of this Article.

Management companies which provide the services referred to in subpara-graph a) of paragraph (3) of this Article must furthermore comply with the Luxembourg regulations implementing Directive 2006/49/EC of the European Parliament and of the Council of 14 June 2006 on the capital adequacy of investment firms and credit institutions (recast). On the contrary if they only provide the non-core services referred to in subparagraph b) of paragraph (3), they are not subject to the capital adequacy requirements.

Art. 78 (1) The CSSF shall grant authorisation to a management company on the following conditions:a) the management company has an initial capital of at least one hundred and

twenty-five thousand euro (125,000 euro):– When the value of the portfolios of the management company exceeds

two hundred and fifty million euro (250,000,000 euro) the management company shall be required to provide an additional amount of own funds. This additional amount of own funds shall be equal to 0.02% of the amount by which the value of the portfolios of the management company exceeds two hundred and fifty million euro (250,000,000 euro). The required total of the initial capital and the additional amount shall not, however, exceed ten million euro (10,000,000 euro).

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– For the purpose of this paragraph, the following portfolios shall be deemed to be the portfolios of the management company:(i) common funds managed by the management company including

portfolios for which it has delegated the management function but excluding portfolios that it is managing under delegation;

(ii) investment companies for which the management company is the designated management company;

(iii) other UCIs managed by the management company including portfolios for which it has delegated the management function but excluding portfolios that it is managing under delegation.

– Irrespective of the amount of these requirements, the own funds of the management company shall never be less than the amount prescribed in Annex Iv of Directive 93/6/EEC59.

Management companies are authorised not to provide up to 50% of the additional amount of own funds referred to above if they benefit from a guarantee of the same amount given by a credit institution or an insurance undertaking. The credit institution or insurance undertaking must have its registered office in a Member State of the European Union, or in a non-Member State provided that it is subject to prudential rules considered by the CSSF as equivalent to those laid down in Community law.(b) the persons who effectively conduct the business of a management

company must be of sufficiently good repute and be sufficiently experi-enced, also in relation to the type of UCITS managed by the management company. To that end, the identities of these persons and of every person succeeding them in office must be communicated forthwith to the CSSF. The conduct of a management company’s business must be decided by at least two persons meeting such conditions;

(c) the application for authorisation must be accompanied by a program of activity setting out, inter alia, the organisational structure of the management company;

(d) both its head office60 and its registered office are located in Luxembourg. (2) Moreover where close links exist between the management company and

other natural or legal persons, the CSSF shall grant authorisation only if such links do not prevent the effective exercise of its supervisory functions.

The CSSF shall also refuse authorisation if the laws, regulations or admin-istrative provisions of a non-Member State governing one or more natural or legal persons with which the management company has close links, or difficulties involved in their enforcement, prevent the effective exercise of its supervisory functions.

59 Annex Iv Other Risks Investment firms shall be required to hold own funds equivalent to one quarter of their preceding year’s fixed

overheads. The competent authorities may adjust that requirement in the event of a material change in a firm’s business since the preceding year. Where a firm has not completed a year’s business, including the day it starts up, the requirement shall be a quarter of the fixed overheads figure projected in its business plan unless an adjust-ment to that plan is required by the authorities.

60 See footnote 13.

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The CSSF shall require management companies to provide it with the infor-mation required to monitor compliance with the conditions referred to in this paragraph on a continuous basis.

(3) An applicant shall be informed, within six months of the submission of a complete application, whether or not authorisation has been granted. Reasons shall be given whenever an authorisation is refused.

(4) A management company may start business as soon as authorisation has been granted.

(5) The CSSF may withdraw the authorisation issued to a management company subject to this chapter only where that company:(a) does not make use of the authorisation within twelve months, expressly

renounces the authorisation or has ceased to exercise the activity covered by this chapter for more than six months;

(b) has obtained the authorisation by making false statements or by any other irregular means;

(c) no longer fulfils the conditions under which authorisation was granted;(d) no longer complies with the law of 5 April 1993 on the financial sector, as

amended, resulting from the implementation of Directive 93/6/EEC if its authorisation also covers the discretionary portfolio management service referred to in Article 77, paragraph (3) a) above;

(e) has seriously and/or systematically infringed the provisions of this law or of regulations adopted pursuant to it; or

(f) falls within any of the cases where this law provides for withdrawal.

Art. 79 (1) The CSSF shall not grant authorisation to take up the business of a management company until it has been informed of the identities of the shareholders or members, whether direct or indirect, natural or legal persons, that have quali-fying holdings and of the amounts of such holdings.

The CSSF shall refuse authorisation if, taking into account the need to ensure the sound and prudent management of the management company, it is not satisfied as to the suitability of the aforementioned shareholders or members.

(2) The competent authorities of the other Member State involved shall be consulted beforehand on the authorisation of any management company which is:(a) a subsidiary of another management company, investment firm, credit insti-

tution or insurance undertaking authorised in another Member State of the European Union,

(b) a subsidiary of the parent undertaking of another management company, investment firm, credit institution or insurance undertaking authorised in another Member State of the European Union, or

(c) controlled by the same natural or legal persons as control another management company, investment firm, credit institution or insurance undertaking authorised in another Member State of the European Union.

Art. 80 (1) The authorisation of a management company is subject to the condition that the audit of its annual accounting documents is entrusted to one or more external auditors61 who can justify having adequate professional experience.

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(2) Any change of external auditors must be previously approved by the CSSF. (3) The institution of statutory auditors62 provided for by the law of 10 August 1915

concerning commercial companies, as amended, and by Article 137 of such law, shall not apply to management companies subject to this chapter.

B. Relations with third countries

Art. 81 Relations with third countries shall be regulated in accordance with the relevant rules laid down in Article 15 of Directive 2004/39/CE.

For the purpose of this law, the expressions “firm/investment firm” and “investment firms” contained in Article 15 of Directive 2004/39/CE shall be construed respectively as “management company” and “management companies”; the expression “providing investment services” in Article 15, paragraph (2) of Directive 2004/39/CE shall be construed as “providing services”.

C. Operating conditions

Art. 82 (1) The management company shall comply at all times with the conditions laid down in Article 77 and Article 78, paragraphs (1) and (2) above. The own funds of a management company may not fall below the level specified in Article 78, paragraph (1) a). nevertheless, if such is the case, the CSSF may, where the circumstances justify it, allow such firms a limited period in which to rectify their situation or cease their activities.

(2) The prudential supervision of a management company shall be the respon-sibility of the CSSF whether or not the management company establishes a branch as defined in Article 1 of this law or provides services in another Member State of the European Union, without prejudice to those provisions of Directive 85/611/EEC which give responsibility to the authorities of the host Member States.

Art. 83 (1) Qualifying holdings in management companies shall be subject to the same rules as those laid down in Article 18 of the law of 5 April 1993 on the financial sector, as amended.

(2) For the purpose of this law, the expressions “firm/investment firm” and “investment firms” contained in Article 18 of the law of 5 April 1993 on the financial sector, as amended, shall be construed respectively as “management company” and “management companies”.

Art. 84 (1) With regard to the nature of the UCITS managed by it and in furtherance of the prudential rules it is required to observe at all times with regard to the activity of management of UCITS subject to Part I of this law, a management company shall be required:(a) to have sound administrative and accounting procedures, control and

safeguard arrangements for electronic data processing and adequate internal control mechanisms including, in particular, rules for personal trans-actions by its employees or for the holding or management of investments in financial instruments in order to invest own funds and ensuring, inter alia, that each transaction involving the UCITS may be reconstructed according to its origin, the parties concerned, its nature, and the time when and the

62 commissaires aux comptes

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place at which it was effected and that the assets of the common funds or of the investment companies managed by the management company are invested according to the constitutional documents and the legal provisions in force;

(b) to be structured and organised in such a way as to minimise the risk of UCITS’ or clients’ interests being prejudiced by conflicts of interest between the company and its clients, between one of its clients and another, between one of its clients and a UCITS or between two UCITS. nevertheless, where a branch is set up, the organisational arrangements may not conflict with the rules of conduct laid down by the host Member State to cover conflicts of interest.

(2) The management companies, the authorisation of which also covers the discretionary portfolio management service mentioned in Article 77, paragraph (3) a):– shall not be permitted to invest all or a part of the investor’s portfolio in units

of common funds or of investment companies it manages, unless it has received the prior general approval from the client;

– shall be subject with regard to the services referred to in Article 77, paragraph (3) to the provisions laid down by the law of 17 July 200063 implementing Directive 97/9/EC64 in the law of 5 April 1993 on the financial sector, as amended65.

Art. 85 (1) Management companies are authorised to delegate to third parties for the purpose of a more efficient conduct of their business, the power to carry out on their own behalf one or more of their functions. In that case, the following preconditions have to be complied with:a) the CSSF must be informed thereof in an appropriate manner;b) the mandate may not prevent the effectiveness of the supervision over the

management company; in particular, it must not prevent the management company from acting, or the UCITS from being managed, in the best interests of the investors;

c) when the delegation concerns the management of investments, the mandate may only be given to undertakings which are authorised or registered for the purpose of asset management and are subject to prudential super-vision; the delegation must be in accordance with investment allocation criteria periodically laid down by the management company;

d) where the mandate concerns the management of investments and is given to a third-country undertaking, cooperation between the CSSF and the supervisory authority of that country must be ensured;

e) a mandate with regard to the core function of investment management shall not be given to the depositary or to any other undertaking whose interests may conflict with those of the management company or the unitholders;

f) measures shall exist which enable the persons who conduct the business of the management company to monitor effectively at any time the activity of the undertaking to which the mandate is given;

63 The reference should be to the law of 27 July 2000.

64 Directive on investor compensation schemes.

65 This requires the management company concerned to be a member of a Luxembourg-based investor compensa-tion scheme.

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g) the mandate shall not prevent the persons who conduct the business of the management company to give at any time further instructions to the under-taking to which functions are delegated and to withdraw the mandate with immediate effect when this is in the interest of investors;

h) having regard to the nature of the functions to be delegated, the under-taking to which functions will be delegated must be qualified and capable of undertaking the functions in question; and

i) the UCITS’ prospectuses list the functions which the management company has been permitted to delegate.

(2) In no case shall the management company’s and the depositary’s liability be affected by the fact that the management company delegated any functions to third parties, nor shall the management company delegate its functions to the extent that it becomes a letter box entity.

Art. 86 In the conduct of its business activities, a management company authorised under this chapter shall, at all times, by virtue of rules of conduct:a) act honestly and fairly in conducting its business activities in the best

interests of its clients and the integrity of the market;(b) act with due skill, care and diligence, in the best interests of its clients and

the integrity of the market;(c) have and efficiently employ the resources and procedures that are

necessary for the proper performance of its business activities;(d) endeavour to avoid conflicts of interests and, when they cannot be avoided,

ensure that its clients are treated fairly, and(e) comply with all regulatory requirements applicable to the conduct of its

business activities so as to promote the best interests of its clients and the integrity of the market.

D. the right of establishment and the freedom to provide services

Art. 87 (1) A management company, authorised in accordance with Directive 85/611/EEC by the competent authorities of another Member State, may carry on in Luxem-bourg the activity for which it has been authorised, either by the establishment of a branch or under the freedom to provide services.

(2) The establishment of a branch or the provision of services as described above is not subject to any authorisation requirement, to any requirement to provide endowment capital or to any other measure having equivalent effect.

Art. 88 (1) In addition to meeting the conditions imposed in Articles 77 and 78, any management company authorised under this chapter wishing to establish a branch within the territory of another Member State of the European Union shall notify the CSSF thereof.

(2) It shall provide the following information and documents with the notification provided for in paragraph (1):a) the Member State within the territory of which the management company

plans to establish a branch;b) a program of operations setting out the envisaged activities and services

as referred to in Article 77, paragraphs (2) and (3) and the organisational structure of the branch;

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c) the address in the host Member State from which documents may be obtained;

d) the name of those responsible for the management of the branch. (3) Unless the CSSF has reason to doubt the adequacy of the administrative

structure or the financial situation of a management company, taking into account the activities envisaged, it shall, within three months of receiving all the information referred to in paragraph (2), communicate that information to the competent authorities of the host Member State and shall inform the management company accordingly. It shall also communicate details of any compensation scheme intended to protect investors.

Where the CSSF refuses to communicate the information referred to in paragraph (2) to the competent authorities of the host Member State, it shall give reasons for its refusal to the management company concerned within two months of receiving all the information.

(4) Before the branch of a management company starts business, the competent authorities of the host Member State shall, within two months of receiving the information referred to in paragraph (2) prepare for the supervision of the management company and, if necessary, indicate the conditions, including the rules mentioned in Articles 53 and 54 in force in the host Member State and the rules of conduct to be respected in the case of provision of the portfolio management service mentioned in Article 77, paragraph (3) and of investment advisory and custody services, under which, in the interest of the general good, that business must be carried on in the host Member State.

(5) On receipt of a communication from the competent authorities of the host Member State or on the expiry of the period provided for in paragraph (4) without receipt of any communication from those authorities, the branch may be established and start business. From that moment the management company may also begin distributing the units of the common funds and of the investment companies subject to Directive 85/611/EEC which it manages, unless the competent authorities of the host Member State establish, in a reasoned decision taken before the expiry of that period of two months – to be communicated to the CSSF – that the arrangements made for the marketing of the units do not comply with the provisions referred to in Article 53, paragraph (1) and Article 54.

(6) In the event of change of any particulars communicated in accordance with paragraphs (2) b), c) or d), the management company shall give written notice of that change to the CSSF and the competent authorities of the host Member State at least one month before implementing the change so that the CSSF may take a decision on the change under paragraph (3) and the competent authorities of the host Member State may do so under paragraph (4).

(7) In the event of a change in the particulars communicated in accordance with the first subparagraph of paragraph (3), the CSSF shall inform the authorities of the host Member State accordingly.

Art. 89 (1) Any management company wishing to carry on business within the territory of another Member State of the European Union for the first time under the freedom to provide services shall communicate the following information to the CSSF:a) the Member State of the European Union within the territory of which the

management company intends to operate;

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b) a programme of operations stating the envisaged activities and services referred to in Article 77, paragraphs (2) and (3).

(2) The CSSF shall, within one month of receiving the information referred to in paragraph (1) forward it to the competent authorities of the host Member State.

It shall also communicate details of any applicable compensation scheme intended to protect investors.

(3) The management company may then start business in the host Member State notwithstanding the provisions of Article 55 of the law.

When appropriate, the competent authorities of the host Member State shall, on receipt of the information referred to in paragraph (1) indicate to the management company the conditions, including the rules of conduct to be respected in the case of provision of the portfolio management service mentioned in Article 77, paragraph (3) and of the investment advisory services and custody services, with which, in the interest of the general good, the management company must comply in the host Member State.

(4) Should the content of the information communicated in accordance with paragraph (1) b) be amended, the management company shall give notice of the amendment in writing to the CSSF and the competent authorities of the host Member State before implementing the change, so that the CSSF may, if necessary, inform the management company of any change or addition to be made to the information communicated under paragraph (3).

(5) A management company shall also be subject to the notification procedure laid down in this Article in cases where it entrusts a third party with the marketing of the units in a host Member State.

Art. 90 (1) For statistical purposes, all management companies authorised in a Member State of the European Union under Directive 85/611/EEC with a branch as defined in that Directive within Luxembourg shall report periodically on their activities in Luxembourg to the CSSF.

(2) Branches of such management companies must provide the CSSF with the same information as required from management companies authorised under this chapter.

(3) Where a management company that has a branch or provides services within Luxembourg is in breach of the provisions of this law, the CSSF shall require the management company concerned to put an end to its irregular situation.

(4) If the management company concerned fails to take the necessary steps, the CSSF shall inform the competent authorities of the home Member State accordingly.

(5) If the management company persists in breaching the legal or regulatory provi-sions referred to in paragraph (2) in force in Luxembourg, the Luxembourg authorities may, after informing the competent authorities of the home Member State, take appropriate measures to prevent or sanction further irregularities and, insofar as necessary, to prevent that management company from initiating any further transactions within Luxembourg. The legal documents necessary for those measures shall be served on the management company.

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(6) The foregoing provisions shall not affect the powers of Luxembourg to take appropriate measures to prevent or to sanction irregularities committed within its territory which are contrary to legal or regulatory provisions adopted in the interest of the general good. This shall include the possibility of preventing an offending management company from initiating any further transactions within Luxembourg.

(7) Any measure adopted pursuant to paragraphs (4), (5) or (6) involving sanctions or restrictions on the activities of a management company must be properly justified and communicated to the management company concerned. Every such measure shall be subject to the right to apply to the courts in Luxem-bourg.

(8) Before following the procedure laid down in paragraphs (3), (4) or (5) the CSSF may, in emergencies, take any precautionary measures necessary to protect the interests of investors and others to whom services are provided. The European Commission and the competent authorities of the other Member States concerned will be informed of such measures at the earliest oppor-tunity.

(9) In the event of the withdrawal of authorisation, the CSSF shall be informed thereof and shall take appropriate measures to prevent the management company concerned from initiating any further transactions within Luxembourg, and to safeguard investors’ interests.

Chapter 14. – Other management companies of Luxembourg UCIs

Art. 91 (1) Access to the business of a management company within the meaning of this chapter is subject to prior authorisation by the CSSF.

The management company shall be incorporated as a public limited company66, a private limited company67, a cooperative company68, a cooperative company set up as a public limited company69 or a corporate limited partnership70. The capital of such company must be represented by registered shares.

It may not engage in activities other than the management of UCIs, the admin-istration of its own assets being only an ancillary activity provided that it must manage at least one UCI subject to Luxembourg law.

Both its head office71 and its registered office must be situated in Luxem-bourg.

66 société anonyme

67 société à responsabilité limitée

68 société coopérative

69 société coopérative organisée comme une société anonyme

70 société en commandite par actions

71 See footnote 13.

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(2) The CSSF will grant authorisation to the company only on the following condi-tions:a) it must have sufficient financial resources at its disposal to enable it to

conduct its business effectively and meet its liabilities; in particular it must have a minimum paid-up capital of one hundred and twenty-five thousand euro (125,000 euro); a grand-ducal regulation may raise that minimum amount to a maximum of six hundred and twenty-five thousand euro (625,000 euro)72;

b) the directors of the management company within the meaning of Article 93 (3) must be of sufficiently good repute and have the professional experience required for the performance of their duties;

c) the identity of reference shareholders or members of the management company must be provided to the CSSF;

d) the application must describe the organisational structure of the management company.

(3) An applicant shall be informed, within six months of the submission of a complete application, whether or not authorisation has been granted. Reasons shall be given whenever an authorisation is refused.

(4) A management company may start business as soon as authorisation has been granted.

(5) The CSSF may withdraw the authorisation issued to a management company subject to this chapter only where that company:(a) does not make use of the authorisation within twelve months, expressly

renounces the authorisation or has ceased the activity covered by this chapter for more than six months;

(b) has obtained the authorisation by making false statements or by any other irregular means;

(c) no longer fulfils the conditions under which authorisation was granted;(d) has seriously and/or systematically infringed the provisions adopted

pursuant to this law; or(e) falls within any of the cases where this law provides for withdrawal.

(6) The management company may not use the assets of the UCIs it manages for its own needs.

Art. 92 Article 80 of this law is applicable to the management companies falling within the scope of this chapter.

Part V. - General provisions applicable to UCITs and other UCIs

Chapter 15. – Authorisation

Art. 93 (1) UCIs subject to Articles 2, 63 and 76 must, in order to carry out their activities, be previously authorised by the CSSF.

A UCITS subject to Article 2 which is legally prevented from marketing its units or shares in Luxembourg, notably by a provision included in the management regulations of the fund or the constitutional documents, will not be authorised by the CSSF.


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(2) A UCI shall be authorised only if the CSSF has approved the constitutional documents and the choice of the depositary.

(3) The directors73 of the UCI and of the depositary must be of sufficiently good repute and have sufficient experience, also in relation to the type of UCI concerned. To that end, the names of the directors, and of every person succeeding them in office, must be communicated forthwith to the CSSF.

“Directors” shall mean those persons who under law or the constitutional documents represent the UCI or the depositary or who effectively determine the conduct of the activities of the UCI.

(4) The replacement of the management company or of the depositary and the amendment of the constitutional documents of the UCI are subject to approval by the CSSF.

Art. 94 (1) Authorised UCIs shall be entered by the CSSF on a list. Such entry shall be tantamount to authorisation and shall be notified by the CSSF to the UCI concerned. For the UCIs referred to in Articles 2 and 63, applications for entry on the list must be filed with the CSSF within the month following their consti-tution or formation. The said list and any amendments made thereto shall be published in the Mémorial74 by the CSSF.

(2) The entering and the maintaining on the list referred to in paragraph (1) shall be subject to observance of all the provisions of laws, regulations or agreements relating to the organisation and operation of UCIs and the distribution, placing or sale of their units.

Art. 95 Luxembourg UCIs other than the closed-end type, UCITs governed by harmo-nised Community law and foreign UCIs in case of a public offer in Luxembourg shall be exempt from publishing a prospectus as provided for in Part III of the law on prospectuses for securities. The prospectus which such UCIs draw up in accordance with the regulatory requirements applicable to UCIs shall be valid for the purposes of an offer to the public of securities or the admission of securities to trading on a regulated market.

Art. 96 The fact that a UCI is entered on the list referred to in Article 94, paragraph (1) shall not under any circumstance be described in any way whatsoever as a positive assessment made by the CSSF of the quality of the units offered for sale.

Chapter 16. – Organisation of supervision

Art. 97 (1) The authority which is to carry out the duties provided for in this law is the CSSF.

(2) The CSSF carries out its duties exclusively in the interest of the public. (3) The CSSF is authorised to receive complaints from holders of units in UCIs and

to mediate with such UCIs in order to resolve such complaints amicably.

Art. 98 (1) Any person who works or who has worked for the CSSF, as well as the auditors75 or experts instructed by the CSSF, shall be bound by the obligation

73 See footnote 25.

74 Mémorial B, Recueil administratif et economique. This is the part of the official gazette in which certain administra-tive publications are made.

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of professional secrecy provided for by Article 16 of the law of 23 December 1998 creating the Commission de Surveillance du Secteur Financier, as amended. Such secrecy implies that no confidential information which they may receive in the course of their duties may be divulged to any person or authority whatsoever, save in summary or aggregate form such that UCIs, management companies and depositaries cannot be individually identified, without prejudice to cases covered by criminal law.

(2) Paragraph (1) shall not prevent the CSSF from exchanging information with the supervisory authorities of the other Member States of the European Union within the limits provided by this law.

The CSSF shall closely cooperate with the supervisory authorities of other Member States of the European Union for the purpose of the fulfilment of their duty of supervision of UCIs and shall communicate for that sole purpose all required information.

The supervisory authorities of countries other than Member States of the European Union which are party to the Agreement on the European Economic Area76 are assimilated to the supervisory authorities of the Member States of the European Union within the limits provided by that Agreement and the instruments relating thereto.

(3) Paragraph (1) shall not prevent the CSSF from exchanging information with:– authorities of third countries with public responsibilities for the supervision

of UCIs,– the other authorities, bodies and persons referred to in paragraph (5), with

the exception of central credit registers, when they are established in third countries,

– the authorities of third countries referred to in paragraph (6).The communication of information by the CSSF authorised by this paragraph is subject to the following conditions:– the transmitted information must be required for the purpose of performing

the supervisory duty of the recipient authorities, bodies and persons,– information received shall be subject to the professional secrecy of the

recipient authorities, bodies or persons and the professional secrecy of such authorities, bodies or persons must offer guarantees at least equiv-alent to the professional secrecy of the CSSF,

– the authorities, bodies or persons which receive information from the CSSF may only use such information for the purposes for which it has been communicated to them and must be able to ensure that no other use can be made thereof,

– the authorities, bodies or persons who receive information from the CSSF grant the same right of information to the CSSF,

-– the CSSF may only disclose information received from EU authorities responsible for the supervision of UCIs with the express agreement of such authorities and, where appropriate, solely for the purposes for which those authorities gave their agreement.

For the purpose of this paragraph third countries are countries other than those referred to in paragraph (2).


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(4) Where the CSSF receives confidential information under paragraphs (2) and (3), the CSSF may use it only in the course of its duties:– to check that the conditions governing the taking-up of the business of

UCIs, of management companies and of depositaries are met and to facil-itate the monitoring of the conduct of that business, of administrative and accounting procedures and of internal control mechanisms; or

– to impose sanctions; or– in administrative appeals against decisions by the CSSF; or– in court proceedings initiated against decisions refusing or withdrawing an

authorisation. (5) Paragraphs (1) to (4) shall not preclude:

a) the exchange of information within the European Union between the CSSF and

– authorities with public responsibility for the supervision of credit institutions, investment firms, insurance undertakings and other financial organisations and the authorities responsible for the supervision of financial markets,

– bodies involved in the liquidation, bankruptcy or other similar proceedings concerning UCIs, management companies and depositaries,

– persons responsible for carrying out statutory audits of the accounts of credit institutions, investment firms, other financial institutions or insurance undertakings in the performance of their supervisory functions,

b) the disclosure by the CSSF within the European Union to bodies which administer compensation schemes of investors or to central credit registers of information necessary for the performance of their functions.

The communication of information by the CSSF authorised by this paragraph is subject to the condition that such information is covered by the profes-sional secrecy of the authorities, bodies and persons receiving the infor-mation and is only authorised to the extent that the professional secrecy of such authorities, bodies and persons offers guarantees at least equivalent to the professional secrecy of the CSSF. In particular, authorities which receive information from the CSSF may only use such information for the purposes for which it has been communicated and must be able to ensure that no other use can be made thereof.

Countries other than Member States of the European Union which are party to the Agreement on the European Economic Area77 are assimilated to the Member States of the European Union within the limits provided by that Agreement and the instruments relating thereto.

(6) Paragraphs (1) and (4) do not prevent exchanges of information within the European Union between the CSSF and:– the authorities responsible for overseeing the bodies involved in the liqui-

dation, bankruptcy or other similar proceedings concerning credit insti-tutions, investment firms, insurance undertakings, UCIs, management companies and depositaries,

– the authorities responsible for overseeing persons entrusted with the carrying out of statutory audits of the accounts of credit institutions, investment firms, insurance undertakings and other financial institutions.


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The communication of information by the CSSF authorised by this paragraph is subject to the following conditions:– the transmitted information is intended to be used for the purpose of

performing the supervisory duty of the recipient authorities,– information received shall be subject to the professional secrecy of the

recipient authorities and the professional secrecy of such authorities must offer guarantees at least equivalent to the professional secrecy of the CSSF,

– the authorities which receive information from the CSSF may only use such information for the purposes for which it has been communicated to them and must be able to ensure that no other use can be made thereof,

– the CSSF may only disclose information received from supervisory author-ities referred to in paragraphs (2) and (3) with the express agreement of such authorities and, where appropriate, solely for the purposes for which those authorities gave their agreement.

Countries other than Member States of the European Union which are party to the Agreement on the European Economic Area78 are assimilated to the Member States of the European Union within the limits provided by that Agreement and the instruments relating thereto.

(7) This Article shall not prevent the CSSF from transmitting to central banks and other bodies with a similar function in their capacity as monetary authorities information intended for the performance of their duties.

The communication of information by the CSSF authorised by this paragraph is subject to the condition that such information is covered by the professional secrecy of the recipient authorities and is only authorised to the extent that the professional secrecy of such authorities offers guarantees at least equivalent to the professional secrecy of the CSSF. In particular, authorities which receive information from the CSSF may only use such information for the purposes for which it has been communicated and must be able to ensure that no other use can be made thereof.

This Article shall furthermore not prevent the authorities or bodies referred to in this paragraph from communicating to the CSSF such information as it may need for the purposes of paragraph (4). Information received in this context by the CSSF shall be subject to its professional secrecy.

(8) This Article shall not prevent the CSSF from communicating the information referred to in paragraphs (1) to (4) to a clearing house or other similar body recognised under national law for the provision of clearing or settlement services for a market in Luxembourg if the CSSF considers it is necessary to communicate the information in order to ensure the proper functioning of those bodies in relation to defaults or potential defaults by market participants.

The communication of information by the CSSF authorised by this paragraph is subject to the condition that such information is covered by the profes-sional secrecy of the recipient bodies and is only authorised to the extent that the professional secrecy of such bodies offers guarantees at least equivalent to the professional secrecy of the CSSF. In particular, bodies which receive information from the CSSF may only use such information for the purposes for which it has been communicated and must be able to ensure that no other use can be made thereof.


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The information received by the CSSF pursuant to paragraphs (2) and (3) may not be disclosed in the circumstances referred to in this paragraph without the express agreement of the supervisory authorities which have disclosed such information to the CSSF.

Art. 99 (1) The decisions to be adopted by the CSSF in implementation of this law shall state the reasons on which they are based and, unless the delay entails risks, they shall be adopted after preparatory proceedings at which all parties are able to state their case79. They shall be notified by registered letter or delivered by bailiff80.

(2) The decisions by the CSSF concerning the granting, refusal or withdrawal of the authorisations provided for in this law may be referred to the administrative court81 which will deal with the substance of the case. The case must be filed within one month from the date of notification of the contested decision, or else shall be foreclosed.

(3) The decision of the CSSF withdrawing the name of a UCI referred to in Articles 2 and 63 of this law from the list provided for in Article 94, paragraph (1), shall, as from the notification thereof to such undertaking and until the decision has become final, ipso jure entail for such undertaking suspension of any payment by said undertaking and prohibition for such undertaking, on pain of nullity, to take any measures other than protective measures, except with the authorisation of the supervisory commissioner82. The CSSF shall ipso jure hold the office of supervisory commissioner, unless at its request, the District Court dealing with commercial matters appoints one or more super-visory commissioners. The application, stating the reasons on which it is based and accompanied by supporting documents, shall be lodged for that purpose at the Registry of the District Court in the district within which the undertaking has its registered office.

The Court shall give its ruling within a short period. If it considers that it has sufficient information, it shall immediately make an

order in public session, without hearing the parties. If it deems it necessary, it shall convene the parties by notification from the Registrar83 within three days from the lodging of the application. It shall hear the parties in chambers and give its decision in public session.

The written authorisation of the supervisory commissioners is required for all measures and decisions of the undertaking and, failing such authorisation, they shall be void.

The Court may, however, limit the scope of operations subject to authori-sation.

The commissioners may submit for consideration to the relevant bodies of the undertaking any proposals which they consider appropriate. They may attend proceedings of the administrative, management, executive or supervisory bodies of the undertaking.

79 instruction contradictoire

80 huissier (court process server)

81 tribunal administratif

82 commissaire de surveillance

83 greffier

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The Court shall decide as to the expenses and fees of the supervisory commis-sioners; it may grant them advances.

The judgment provided for in paragraph (1) of Article 104 of this law shall terminate the functions of the supervisory commissioner who must, within one month after his replacement, submit to the liquidators appointed in such judgment a report on the use of the undertaking’s assets together with the accounts and supporting documents.

If the withdrawal decision is amended on appeal in accordance with paragraphs (2) and (3) above, the supervisory commissioner shall be deemed to have resigned.

Art. 100 (1) The CSSF may prohibit the marketing in Luxembourg of units of a UCITS situated in another Member State of the European Union if it infringes the provi-sions of chapter 7.

(2) The decision taken under paragraph (1) above is notified by the CSSF to the UCI concerned and to the competent supervisory authorities of the home Member State.

Art. 101 (1) Where, through the provision of services or by the establishment of branches, a management company operates in one or more host Member States of the European Union, the CSSF shall collaborate closely with the competent authorities of the Member States concerned.

It shall supply on request all the information concerning the management and the ownership of such management companies that is likely to facil-itate their supervision and all information likely to facilitate the monitoring of such companies. In particular, the CSSF shall cooperate to ensure that the competent authorities of the host Member State can collect the information referred to in Article 90, paragraph (2).

(2) Insofar as it is necessary for the purpose of exercising its powers of super-vision, the CSSF shall be informed by the competent authorities of the host Member State of any measures taken by the host Member State pursuant to Article 90, paragraph (6) which involve sanctions imposed on a management company or restrictions on a management company’s activities.

Art. 102 (1) Where a management company authorised in another Member State of the European Union carries on business within Luxembourg through a branch, the competent authorities of the management company’s home Member State may, after informing the CSSF, carry out themselves or through the interme-diary of persons they instruct for the purpose, on-the-spot verification of the information referred to in Article 101.

(2) The competent authorities of the management company’s home Member State may also ask the CSSF to have such verification carried out. Within the scope of its powers, the CSSF shall act upon such requests either by carrying out the verifications itself, by allowing the authorities who have requested them to carry them out or by allowing external auditors84 or experts to do so.

(3) This Article shall not affect the right of the CSSF to carry out, within the exercise of its duties under this law, on-the-spot verifications of branches established within Luxembourg.

84 The French text of amended Directive 85/611/EEC refers to “commissaires aux comptes” which in France de-scribes the professionals referred to as réviseurs d’entreprises (external auditors) in Luxembourg.

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Art. 103 Any decision to withdraw the authorisation of, or any other serious measure taken against, a Luxembourg UCITS subject to Part I of this law or any suspension of redemptions imposed upon it, shall be communicated without delay by the CSSF to the supervisory authorities of the other Member States of the European Union where the units of the UCITS are marketed.

Art. 104 (1) The District Court dealing with commercial matters85 shall, at the request of the Public Prosecutor86, acting on its own initiative or at the request of the CSSF, pronounce the dissolution and order the liquidation of the UCIs referred to in Articles 2 and 63 of this law, whose entry on the list provided for in Article 94, paragraph (1) has finally been refused or withdrawn.

When ordering the liquidation, the Court shall appoint a reporting judge87 and one or more liquidators. It shall determine the method of liquidation. It may render applicable to such extent as it may determine the rules governing liqui-dation in bankruptcy. The method of liquidation may be changed by subsequent decision, either of the Court’s own motion or at the request of the liquidator(s).

The Court shall decide as to the expenses and fees of the liquidators; it may grant advances to them. The judgment pronouncing dissolution and ordering liquidation shall be enforceable on a provisional basis.

(2) The liquidator(s) may bring and defend all actions on behalf of the undertaking, receive all payments, grant releases with or without discharge, realise all the transferable securities of the undertaking and reemploy the proceeds therefrom, issue or endorse any negotiable instruments, compound or compromise on all claims. They may alienate immovable property of the undertaking by auction.

They may also but only with the authorisation of the Court, mortgage and pledge its assets and alienate its immovable property by private treaty.

(3) As from the day of the judgment, no legal actions relating to movable or immovable property nor any enforcement procedures relating to movable or immovable property may be pursued, commenced or exercised otherwise than against the liquidators.

The judgment ordering liquidation shall terminate all seizures effected at the instance of general creditors who are not secured by charges88 on movable and immovable property.

(4) After payment or deposit of the sums necessary for the discharge of the debts, the liquidators shall distribute to unitholders the sums or amounts due to them.

(5) The liquidators may convene at their own initiative, and must convene at the request of holders of units representing at least one fourth of the assets of the undertaking, a general meeting of unitholders for the purpose of deciding whether instead of an outright liquidation it is appropriate to contribute the assets of the undertaking in liquidation to another UCI. That decision shall be taken, provided that the general meeting is composed of a number of unitholders representing at least one half of the outstanding units or capital of the undertaking, by a majority of two thirds of the votes of the unitholders present or represented.

85 tribunal d’arrondissement siégeant en matière commerciale

86 procureur d’etat

87 juge-commissaire

88 créanciers chirographaires et non privilégiés

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(6) The Court’s decisions pronouncing the dissolution and ordering the liquidation of a UCI shall be published in the Mémorial89 and in two newspapers with adequate circulation specified by the Court, one of which at least must be a Luxembourg newspaper. The liquidator(s) shall arrange for such publications.

(7) If there are no or insufficient assets, as ascertained by the reporting judge, the documents relating to the proceedings shall be exempt from any registry and registration duties and the expenses and fees of the liquidators shall be borne by the Treasury and paid as judicial costs.

(8) The liquidators shall be responsible both to third parties and to the UCI for the discharge of their duties and for any faults committed in the conduct of their activities.

(9) When the liquidation is completed, the liquidators shall report to the Court on the use made of the funds of the undertaking and shall submit the accounts and supporting documents thereof. The Court shall appoint commissaires (auditors) to examine the documents.

After receipt of the auditors’ report, a ruling shall be given on the management of the liquidators and the closure of the liquidation.

The closure of the liquidation shall be published in accordance with paragraph (6) above.

Such publication shall also indicate:- the place designated by the Court where the books and records must be

kept for at least five years;- the measures taken in accordance with Article 107 with a view to the

deposit of the sums and funds due to creditors, unitholders or members to whom it has not been possible to deliver the same.

(10) Any legal actions against the liquidators of UCIs, in their capacity as such, shall be prescribed five years after publication of the closure of the liquidation provided for in paragraph (9).

Legal actions against the liquidators in connection with the performance of their duties, shall be prescribed five years after the date of the facts or, in the event of concealment thereof by wilful misconduct, five years after the discovery thereof.

(11) The provisions of this Article shall equally apply to the UCIs which have not applied to be entered on the list provided for in Article 94 within the time limit laid down therein.

Art. 105 (1) UCIs shall, after dissolution, be deemed to exist for the purpose of liquidation. In the case of a non-judicial liquidation, they shall remain subject to supervision by the CSSF.

(2) All documents issued by a UCI in liquidation shall indicate that it is in liqui-dation.

Art. 106 (1) In the event of a non-judicial liquidation of a UCI, the liquidator(s) must be approved by the CSSF. The liquidator(s) must provide all guarantees of honour-ability and professional skill.

89 The Mémorial C, Recueil des Sociétés et associations is the part of the official gazette in which certain required corporate publications and notifications are made.

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(2) Where a liquidator does not accept office or is not approved, the District Court dealing with commercial matters shall, at the request of any interested party or of the CSSF, appoint the liquidator(s). The judgment appointing the liquidator(s) shall be provisionally enforceable, on the production of the original thereof and before registration, notwithstanding any appeal or objection.

Art. 107 In the event of a voluntary or compulsory liquidation of a UCI within the meaning of this law, the sums and assets payable in respect of units whose holders failed to present themselves at the time of the closure of the liquidation, shall be paid to the public trust office90 to be held for the benefit of the persons entitled thereto.

Art. 108 (1) The directors or members of the management organ91, as the case may be, managers and officers of UCIs subject to supervision by the CSSF as well as the liquidators in the case of voluntary liquidation of a UCI may have a fine of fifteen to five hundred euro imposed upon them by the said authority in the event of their refusing to provide the financial reports and the requested infor-mation or where such documents prove to be incomplete, inaccurate or false, and in the event of any infringement of Article 109 of this law or in the event of any other serious irregularity being recorded.

(2) The same fine may be imposed upon any person who infringes the provisions of Article 96.

Chapter 17. – Obligations concerning information to be supplied to unitholders

a. – Publication of a prospectus and periodical reports

Art. 109 (1) The investment company and, for each of the common funds it manages, the management company must publish:– a simplified prospectus,– a full prospectus,– an annual report for each financial year, and– a semi-annual report covering the first six months of the financial year.

(2) The annual and semi-annual reports must be published within the following time limits, with effect from the end of the periods to which they relate:– four months in the case of the annual report,– two months in the case of the semi-annual report.

(3) The obligation to publish a simplified prospectus set out in paragraph (1) is not applicable to UCIs subject to Part II and Part III of this law.

(4) The obligation to publish a full prospectus within the meaning of this law shall not apply to undertakings for collective investment of the closed-end type.

Art. 110 (1) Both the simplified and the full prospectus must include the information necessary for investors to be able to make an informed judgment of the investment proposed to them, and, in particular, of the risks attached thereto. The full prospectus shall include a clear easily understandable description of the fund’s risk profile, irrespective of the instruments in which it invests.

90 Caisse de Consignation

91 le directoire

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(2) The full prospectus shall contain at least the information provided for in Schedule A of Annex I to this law insofar as such information does not already appear in the constitutional documents annexed to the full prospectus in accordance with Article 111, paragraph (1).

(3) The simplified prospectus shall contain in summary form the key information provided for in Schedule C of Annex I to this law. It shall be structured and written in such way that it can be easily understood by the average investor. The simplified prospectus may be attached to the full prospectus as a removable part of it. The simplified prospectus can be used as a marketing tool designed to be used in all Member States of the European Union without any alterations except for its translation.

(4) Both the full and the simplified prospectus may be incorporated in a written document or in any durable medium having an equivalent legal status and being approved by the CSSF.

(5) The annual report must include a balance sheet or a statement of assets and liabilities, a detailed income and expenditure account for the financial year, a report on the activities of the past financial year and the other information provided for in Schedule B of Annex I to this law, as well as any significant information which will enable investors to make an informed judgment on the development of the activities and the results of the UCI.

(6) The semi-annual report must include at least the information provided for in chapters I to Iv of Schedule B of Annex I to this law; where a UCI has paid or proposes to pay an interim dividend, the figures must indicate the results after tax for the half-year concerned and the interim dividend paid or proposed.

(7) The Schedules as provided for by paragraphs (1), (2), (3), (4), (5) and (6) may be differentiated by the CSSF for UCIs subject to Articles 63 and 76 of this law, depending on whether or not these UCIs display certain characteristics or fulfil certain conditions.

Art. 111 (1) The management regulations of the fund or the constitutional documents of the investment company shall form an integral part of the full prospectus and must be annexed thereto.

(2) The documents referred to in paragraph (1) need not, however, be annexed to the full prospectus provided that the unitholder is informed that on his request he will either be sent those documents or be apprised of the place where, in each Member State where the units are placed on the market, he may consult them.

Art. 112 The essential elements of the simplified and the full prospectus must be kept up-to-date.

Art. 113 (1) Luxembourg UCIs must have the accounting information given in their annual report audited by an authorised external auditor92.

The auditor’s report and its qualifications (if any) are set out in full in each annual report.

The auditor must justify having appropriate professional experience. (2) The auditor shall be appointed and remunerated by the UCI.

92 réviseur d’entreprises agréé

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(3) The auditor must report promptly to the CSSF any fact or decision of which he has become aware while carrying out the audit of the accounting information contained in the annual report of a UCI or any other legal task concerning a UCI, where such fact or decision is likely to:– constitute a material breach of this law or the regulations adopted for its

execution, or– affect the continuous functioning of the UCI, or– lead to a refusal to certify the accounts or to the expression of qualifications

thereon. The auditor likewise has a duty to promptly report to the CSSF, in the accom-

plishment of its duties referred to in the preceding sub-paragraph in respect of a UCI, any fact or decisions concerning the UCI and meeting the criteria referred to in the preceding subparagraph of which he has become aware while carrying out the audit of the accounting information contained in the annual report of another undertaking having close links resulting from a control relationship with the UCI or while carrying out any other legal task concerning such other undertaking.

For the purpose of this Article, a close link resulting from a control relationship shall mean the link which exists between a parent undertaking and a subsidiary in the cases referred to in Article 77 of the law of 17 June 1992 concerning the annual accounts and consolidated accounts of credit institutions, as amended93, or as a result of a relationship of the same type between any individual or legal entity and an undertaking; any subsidiary undertaking of a subsidiary under-taking is also considered as a subsidiary of the parent undertaking which is at the head of those undertakings. A situation in which two or more individuals or legal persons are permanently linked to one and the same person by a control relationship shall also be regarded as constituting a close link between such persons.

If, in the discharge of his duties, the auditor ascertains that the information provided to investors or to the CSSF in the reports or other documents of the UCI does not truly describe the financial situation and the assets and liabilities of the UCI, he shall be obliged to inform the CSSF forthwith.

The auditor shall moreover be obliged to provide the CSSF with all information or certificates required by the latter on any matters of which the auditor has or ought to have knowledge in connection with the discharge of his duties. The same applies if the auditor ascertains that the assets of the UCI are not or have not been invested according to the regulations set out by the law or the prospectus.

The disclosure in good faith to the CSSF by the auditor of any fact or decision referred to in this paragraph shall not constitute a breach of professional secrecy or of any restriction on disclosure of information imposed by contract and shall not result in liability of any kind of the auditor.

The CSSF may regulate the scope of the auditor’s mandate and the contents of the audit report on the annual accounts.

93 loi modifiée du 17 juin 1992 relative aux comptes annuels et les comptes consolidés des établissements de crédit

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The CSSF may request an auditor to perform a control on one or several particular aspects of the activities and operations of a UCI. This control is performed at the expense of the UCI concerned.

(4) The CSSF shall refuse or withdraw the entry on the list of UCIs whose auditor does not satisfy the conditions or does not discharge the obligations prescribed in this Article.

(5) The institution of commissaires aux comptes (statutory auditors) provided for by Articles 61, 109, 114 and 200 of the law of 10 August 1915 on commercial companies, as amended, is repealed with respect to Luxembourg investment companies. The directors or the management organ, as the case may be, are solely competent in all cases where the law of 10 August 1915 on commercial companies, as amended, provides for the joint action of the statutory auditors and the directors or the management organ, as the case may be.

The institution of statutory auditors94 provided for by Article 151 of the law of 10 August 1915 on commercial companies, as amended95, is not applicable to Luxembourg investment companies. Upon completion of the liquidation, a report on the liquidation shall be drawn up by the auditor. This report shall be tabled at the general meeting at which the liquidators report on the application of the corporate assets and submit the accounts and supporting documents. The same meeting shall resolve on the approval of the accounts of the liqui-dation, the discharge and the closure of the liquidation.

(6) The accounting information included in the annual reports of foreign UCIs as referred to in Article 76 must be audited by an independent expert providing all guarantees of honourability and professional skill.

Paragraphs (2), (3) and (4) are applicable to the case referred to in this paragraph.

Art. 114 (1) UCIs must send their simplified and full prospectuses and any amendments thereto, as well as their annual and semi-annual reports, to the CSSF.

(2) The CSSF may publish or cause the publication of the aforesaid documents by such means as it shall consider adequate.

Art. 115 (1) The simplified prospectus must be offered to subscribers free of charge before the conclusion of the contract.

In addition, the full prospectus and the latest published annual and semi-annual reports must be remitted to subscribers free of charge upon their request.

(2) The annual and semi-annual reports shall on request be supplied to unitholders free of charge.

(3) The annual and semi-annual reports must be available to the public at the places or through other means approved by the CSSF specified in the full and simplified prospectuses.

94 commissaires aux comptes - A statutory auditor under company law is an organ of the Company with a certain control and surveillance function.

95 loi du 10 août 1915 concernant les sociétés commerciales, telle que modifiée

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B. – Publication of other information

Art. 116 (1) The UCITS referred to in Article 2 of this law must make public the issue, sale and redemption price of their units each time they issue, sell and redeem their units, and at least twice a month. The CSSF may, however, permit a UCITS to reduce this frequency to once a month, on condition that such a derogation does not prejudice the interests of unitholders.

(2) The UCIs referred to in Article 63 of this law must make public the issue, sale and redemption price of their units each time they issue, sell and redeem their units, and at least once a month. The CSSF may however grant derogations therefrom upon a duly justified application.

Art. 117 All publicity comprising an invitation to purchase the units of a UCI must indicate that a prospectus or prospectuses exist and the places where it or they may be obtained by the public or how the public may have access thereto.

C. – transmission of other information to the CSSF

Art. 118 The CSSF may request the UCIs to provide any information relevant to the fulfilment of its duties and may for that purpose itself or through appointees examine the books, accounts, registers or other records and documents of UCIs.

D. – Protection of Name

Art. 119 (1) no UCI shall make use of designations or of a description giving the impression that its activities are subject to this law if it has not obtained the authorisation provided for in Article 94. The UCIs referred to in Articles 58 and 76 may use the designation they bear according to their national law. However, should this be misleading, these undertakings shall accompany the designation they use with adequate particulars.

(2) The District Court dealing with commercial matters of the place where the UCI is situated or of the place where the designation has been used, may at the request of the Public Prosecutor issue an injunction, prohibiting anyone from using the designation as defined in paragraph (1), if the conditions provided for by this law are not or no longer met.

(3) The final judgment of the District Court, of the Court of Appeals or of the Supreme Court which delivers this injunction, is published by the Public Prose-cutor and at the expense of the person sentenced in two Luxembourg or foreign newspapers with adequate circulation.

Chapter 18. – Criminal law provisions

Art. 120 A penalty of imprisonment from one month to one year and a fine of five hundred to twenty-five thousand euro or either such penalty shall be imposed upon:

(1) any person who has issued or redeemed or caused to be issued or redeemed units of a common fund in the cases referred to in Articles 12 (3), 22 (3) of this law and in Article 66 of this law to the extent that such Article provides that chapter 9 is subject to Articles 12 (3) and 22 (3) of this law;

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(2) any person who has issued or redeemed units of a common fund at a price other than that obtained by application of the criteria provided for in Articles 9 (1), 9 (3), 11 (3) and in Article 66 of this law to the extent that such Article provides that chapter 9 is subject to Articles 9 (1) and 9 (3) of this law;

(3) any person who, as director or member of the management organ, as the case may be, manager or commissaire (auditor) of the management company or the depositary has made loans or advances on units of the common fund using assets of the said fund, or who has by any means at the expense of the common fund, made payments in order to pay up units or acknowledged payments to have been made which have not actually been so made.

Art. 121 (1) A penalty of imprisonment from one to six months and a fine of five hundred to twenty-five thousand euro or either of such penalties shall be imposed upon:1) any director or member of the management organ, as the case may be, or

manager of the management company who has failed to inform the CSSF without delay that the net assets of the common fund have fallen below two thirds and one fourth respectively of the legal minimum for the net assets of the common fund;

2) any director or member of the management organ, as the case may be, or manager of the management company who has infringed Article 10 and Articles 41 to 52 of this law, Article 66 of this law to the extent that such Article provides that chapter 9 is subject to Article 10 of this law and the regulations taken pursuant to Article 67 of this law.

(2) A fine of five hundred to twenty-five thousand euro shall be imposed upon any persons who in infringement of Article 119 purport to use a designation or description giving the impression that they relate to the activities subject to this law if they have not obtained the authorisation provided for in Article 94.

Art. 122 A fine of five hundred to ten thousand euro shall be imposed on the directors or members of the management organ, as the case may be, or managers of the management company or the investment company who have not caused the issue and redemption price of the units of the UCI to be determined at the specified intervals or who have not made such prices public according to Article 116 of this law.

Art. 123 A penalty of imprisonment from one month to one year and a fine of five hundred to twenty-five thousand euro or either of such penalties shall be imposed upon the founders, directors or members of the management organ, as the case may be, or managers of an investment company who have infringed the provi-sions of Articles 28 (2), 28 (4), 28 (10) and 31 of this law; of Article 40 to the extent that it provides that chapter 4 is subject to Articles 28 (2), 28 (4), 28 (10) and 31 of this law; of Articles 41 to 52 of this law; of Article 71 of this law to the extent that it provides that chapter 10 is subject to Articles 28 (2) a), 28 (4), 28 (10) and 31 of this law; of the regulations implementing Article 72 of this law and of the regulations implementing Article 75 of this law.

Art. 124 A penalty of imprisonment of one month to one year and a fine of five hundred to twenty-five thousand euro or either of such penalties shall be imposed upon the directors or members of the management organ, as the case may be, or managers of an investment company who have not convened the extraor-dinary general meeting in accordance with Article 30 of this law; Article 40 of this law to the extent that it provides that chapter 4 is subject to Article 30 of this

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law; Article 71 to the extent that it provides that chapter 10 is subject to Article 30 of this law and Article 74 (2) to (4) of this law.

Art. 125 A penalty of imprisonment of three months to two years and a fine of five hundred to fifty thousand euro or either of such penalties shall be imposed on anyone who has carried out or caused to be carried out operations involving the receipt of savings from the public with a view to investment if the UCI for which they acted was not entered on the list.

Art. 126 (1) A penalty of imprisonment from one month to one year and a fine of five hundred to twenty-five thousand euro or either of such penalties shall be imposed on the directors96 of UCIs of the kind referred to in Articles 73 and 76 who failed to observe the conditions imposed upon them by this law.

(2) The same penalties or either of them only shall be imposed upon the directors97 of UCIs referred to in Articles 2 and 63 of this law who, notwithstanding the provisions of Article 99, paragraph (4), have taken measures other than protective measures without being authorised for that purpose by the super-visory commissioner.

Chapter 19. – Tax provisions

Art. 127 (1) Apart from the capital duty98 levied on the contribution of capital to civil and commercial companies and the subscription tax99 mentioned in Article 129 below, no other tax shall be payable by the UCIs referred to in this law.

(2) The amounts distributed by such undertakings shall not be subject to a deduction at source and are not taxable if received by non-residents.

Art. 128 (...)100

Art. 129 (1) The rate of the annual subscription tax payable by the undertakings referred to in this law shall be of 0.05 per cent.

(2) This rate is of 0.01 per cent for:a) undertakings the exclusive object of which is the collective investment in

money market instruments and the placing of deposits with credit institu-tions;

b) undertakings the exclusive object of which is the collective investment in deposits with credit institutions;

c) undertakings which are subject to the law of 13 February 2007 concerning specialised investment funds;

d) individual compartments of UCIs with multiple compartments referred to in the present law as well as for individual classes of securities issued within a UCI or within a compartment of a UCI with multiple compartments, provided that the securities of such compartments or classes are reserved to one or more institutional investors.

96 See footnote 25.

97 See footnote 25.

98 droit d’apport

99 taxe d’abonnement

100 Repealed by the law of 19 December 2008.

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(3) Are exempt from the subscription tax(a) the value of the assets represented by units held in other UCIs, provided

such units have already been subject to the subscription tax provided for by this Article or by Article 68 of the law of 13 February 2007 on specialised investment funds;

(b) UCIs as well as individual compartments of umbrella funds:(i) whose securities are reserved for institutional investors and(ii) whose exclusive object is the collective investment in money market

instruments and in deposits with credit institutions, and(iii) whose weighted residual portfolio maturity does not exceed 90 days,

and(iv) that have obtained the highest possible rating from a recognised rating

agency. Where several classes of securities exist within the UCI or the compartment,

the exemption only applies to classes whose securities are reserved for institutional investors.

(c) UCIs whose securities are reserved for i) institutions for occupational retirement provision, or similar investment vehicles, created at the initiative of a same group for the benefit of its employees and ii) undertakings of this same group investing funds they hold, to provide retirement benefits to their employees.

(4) A grand-ducal regulation shall determine the conditions necessary for the appli-cation of the rate of 0.01 per cent and the exemption, and the criteria which the money market instruments referred to above must comply with101.

(5) The taxable basis of the subscription tax shall be the aggregate net assets of the UCI as valued on the last day of each quarter.

(6) The preceding provisions apply mutatis mutandis to the individual compart-ments of a UCI with multiple compartments.

Art. 130 Article 44 (1) d) of the amended law of 12 February 1979 concerning value added tax is amended to read as follows: “d) the management of UCIs and pension funds subject to the supervision of the CSSF or the Commissariat aux assurances.”102

Art. 131 The duties of the registration administration103 include the fiscal control of UCIs.

If, at any date after the constitution of the undertakings referred to in this law, the said administration ascertains that such undertakings are engaging in operations which fall outside the framework of the activities authorised by this law, the fiscal provisions provided for in Articles 127 to 129 shall cease to be applicable.

Moreover, the registration administration may levy a fiscal fine of 0.2% on the aggregate amount of the assets of the undertakings.

101 Grand-ducal regulation of 14 April 2003 determining the conditions and criteria for the application of the subscrip-tion tax referred to in Article 129 of the law of 20 December 2002 relating to undertakings for collective invest-ment.

102 The effect of this provision is to exonerate these services from Luxembourg vAT.

103 administration de l’enregistrement

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Chapter 20. – Special provisions in relation to the legal form

Art. 132 (1) The investment companies entered in the list provided for by Article 94 (1) may be converted into SICAvs and their Articles of incorporation may be brought into harmony with the provisions of chapter 3, or as the case may be, chapter 10 of this law by resolution of a general meeting passed at a majority of two thirds of the votes of the shareholders present or represented regardless of the portion of the capital represented.

(2) The common funds referred to in chapter 2 or, as the case may be, in chapter 9 of this law may on the same conditions as those laid down in paragraph (1) above, convert themselves into a SICAv governed by chapter 3 or, as the case may be, chapter 10 of this law.

Art. 133 (1) UCIs may be constituted with multiple compartments, each compartment corre-sponding to a distinct part of the assets and liabilities of the UCI.

(2) The constitutional documents of the UCI must expressly provide for that possi-bility and the applicable operational rules. The issue prospectus must describe the specific investment policy of each compartment.

(3) The shares and units of UCIs with multiple compartments may be of different value with or without indication of a par value depending on the legal form which has been chosen.

(4) Common funds with multiple compartments may, by separate management regulations, determine the characteristics of and rules applicable to each compartment.

(5) The rights of investors and of creditors concerning a compartment or which have arisen in connection with the creation, operation or liquidation of a compartment are limited to the assets of that compartment, unless a clause included in the constitutional documents provides otherwise.

The assets of a compartment are exclusively available to satisfy the rights of investors in relation to that compartment and the rights of creditors whose claims have arisen in connection with the creation, the operation or the liqui-dation of that compartment, unless a clause included in the constitutional documents provides otherwise.

For the purpose of the relations as between investors, each compartment will be deemed to be a separate entity, unless a clause included in the constitu-tional documents provides differently.

(6) Each compartment of an undertaking may be separately liquidated without such separate liquidation resulting in the liquidation of another compartment. Only the liquidation of the last remaining compartment of the UCI will result in the liquidation of the UCI as referred to in Article 106 (1) of this law.

Art. 133bis All the provisions of this law referring to the “public limited company” shall be understood as referring also to the “European company (SE)”.

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Chapter 21. – Transitional and repealing provisions

Art. 134 (1) UCITS subject to Part I of the law of 30 March 1988 on undertakings for collective investment, as amended, established before 13 February 2002 may, until 13 February 2007, elect to remain subject to the prementioned amended law of 30 March 1988 or to be governed by this law. From and including 13 February 2007, they shall ipso jure be governed by this law.

The establishment of a new compartment does not affect the option that may be exercised pursuant to the preceding paragraph. Such option must be exercised in respect of the UCITS in its entirety, and such exercise will cover all compart-ments.

(2) UCITS subject to Part I of the law of 30 March 1988 on undertakings for collective investment, as amended, established between 13 February 2002 and the date of entry into force of this law104 may until 13 February 2004 elect to remain subject to the prementioned amended law of 30 March 1988 or to be governed by this law. As from 13 February 2004 they shall be ipso jure governed by this law.

(3) UCITS within the meaning of Article 1 of the law of 30 March 1988 concerning undertakings for collective investment as amended, but excluding those described in Article 2 of such law, established between the date of entry into force of this law105 and 13 February 2004 may elect to be governed by the prementioned amended law of 30 March 1988 or by the present law. As from 13 February 2004 they shall be ipso jure governed by this law.

(4) To the extent that the UCITS referred to in paragraphs (1) to (3) above are investment companies which have been authorised prior to 13 February 2004, the references in such paragraphs to the present law do not include Article 27, provided these investment companies may until 13 February 2007 elect to subject such provision.

(5) UCIs other than the UCITS referred to in paragraphs (1) to (3) established before the entry into force of the present law106 will remain subject to the provi-sions of the law of 30 March 1988 on undertakings for collective investment, as amended, until 13 February 2004. They may however elect to be governed by the present law as from its entry into force. From and including 13 February 2004 they shall be ipso jure governed by the present law.

(6) UCIs established between the entry into force of the present law107 and 13 February 2004, have the option to be governed by the provisions of this law or the provisions of the law of 30 March 1988 concerning undertakings for collective investment, as amended. From and including 13 February 2004 they shall be ipso jure governed by the present law.

(7) All UCIs established as from 13 February 2004 will ipso jure be governed by the present law unless they are subject to a specific separate law108.

104 This law entered into force on 1 January 2003.




108 This is the case for the UCIs governed by the law of 13 February 2007 concerning specialised investment funds.

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Art. 135 (1) The present law is applicable to all management companies incorporated under Luxembourg law. For those management companies incorporated under Luxembourg law which exist at the date of its entry into force109, all references in their Articles of incorporation to the law of 30 March 1988 will be deemed to be replaced by references to the present law. These companies are granted a period of twelve months to comply with the provisions of Article 80 of this law.

(2) Management companies existing at the date of entry into force of the present law110 are ipso jure subject to the provisions of chapter 14 and are deemed authorised pursuant to Article 91 (1) of this law. To the extent that they manage UCITS governed by Directive 85/611/EEC, they must comply with the provi-sions of chapter 13 of the present law no later than 13 February 2007.

(3) Management companies authorised between the date of entry into force of this law111 and 13 February 2004 have the option to submit themselves to chapter 13 or to chapter 14 of this law. To the extent that they are subject to chapter 14 and that they manage UCITS governed by Directive 85/611/EEC, they must comply with the provisions of chapter 13 no later than 13 February 2007.

(4) Only management companies authorised pursuant to the provisions of chapter 13 of this law may benefit from the provisions of Directive 85/611/EEC in respect of the freedom of establishment and free provision of services.

(5) Investment firms within the meaning of Article 13 (1) of the law of 5 April 1993 on the financial sector, as amended, which are only authorised to provide the services described in Section A item 3 and in Section C items 1 and 6 of Annex II of such law112, may be authorised pursuant to the present law to manage common funds and investment companies and to call themselves “management companies”. In such case, these investment firms must waive the authorisation obtained pursuant to Directive 2004/39/EC. They then become subject, depending on the date when they obtain their authorisation, to paragraph (1) or paragraph (2) above.

Art. 136 References to the present law may be made by using the following abridged title: “law of 20 December 2002 on undertakings for collective investment”.

Art. 137 The law of 30 March 1988 on undertakings for collective investment, as amended, is repealed effective on 13 February 2007.

Art. 138 The present law shall enter into force the first day of the month following its publication in the Mémorial113.




112 Article 13 (1) and Annex II of the law of 5 April 1993 on the financial sector, as amended, were amended by the law of 13 July 2007 on markets in financial instruments.

113 The law was published in the Mémorial A on 31 December 2002. It therefore entered into force on 1 January 2003.

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ANNEXE I

Schedule A

1. Information concerning thecommon fund

1. Information concerning themanagement company

1. Information concerning theinvestment company

1.1. name 1.1. name or style, legal form, registered office and head office, if different from the registered office

1.1. name or style, legal form, registered office and head office if different from the registered office

1.2. Date of establishment of the fund. Indication of duration, if limited

1.2. Date of incorporation of the company. Indication of dura-tion, if limited

1.2. Date of incorporation of the company. Indication of dura-tion, if limited

1.3. In the case of common funds having different investment compartments, indication of the compartments

1.3. If the company manages other common funds, indica-tion of those other funds

1.3. In the case of investment companies having different investment compartments, indication of the compart-ments

1.4. Statement of the place where the management regulations, if they are not annexed, and periodical reports may be obtained

1.4. Statement of the place where the instruments of incorpora-tion, if they are not annexed, and periodical reports may be obtained

1.5. Brief indications relevant to unitholders of the tax system applicable to the fund. De-tails of whether deductions are made at source from the income and capital gains paid by the fund to unithold-ers

1.5. Brief indications relevant to unitholders of the tax system applicable to the company. Details of whether deduc-tions are made at source from the income and capital gains paid by the company to unitholders

1.6. Accounting and distribution dates

1.6. Accounting and distribution dates

1.7. names of the persons responsible for auditing the accounting information referred to in Article 113

1.7. names of the persons responsible for auditing the accounting information referred to in Article 113

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1.8. names and positions in the company of the members of the administrative, manage-ment and supervisory bodies. Details of their main activities outside the company where these are of significance with respect to the company

1.8. names and positions in the company of the members of the administrative, manage-ment and supervisory bodies. Details of their main activities outside the company where these are of significance with respect to the company

1.9. Amount of the subscribed capital with an indication of the paid-up capital

1.9. Capital

1.10. Details of the types and main characteristics of the units and in particular:

– the nature of the right (real, personal or other) represented by the unit,

– original securities or certificates providing evi-dence of title; entry in a register or in an account,

– characteristics of the units: registered or bearer. Indication of any denominations which may be provided for,

– indication of unitholders’ voting rights if these exist,

– circumstances in which winding-up of the fund can be decided on and winding-up procedure, in particular as regards the rights of unitholders

1.10. Details of the types and main characteristics of the shares and in particular:

– original securities or certificates providing evi-dence of title; entry in a register or in an account,

– characteristics of the shares: registered or bearer. Indication of any denominations which may be provided for,

– indication of sharehold-ers’ voting rights,

– circumstances in which winding-up of the investment company can be decided on and winding-up procedure, in particular as regards the rights of shareholders

1.11. Where applicable, indica-tion of stock exchanges or markets where the units are listed or dealt in

1.11. Where applicable, indication of stock exchanges or mar-kets where the shares are listed or dealt in

1.12. Procedures and conditions of issue and/or sale of units

1.12. Procedures and conditions of issue and/or sale of shares

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1.13. Procedures and condi-tions for the repurchase or redemption of units, and circumstances in which the repurchase or redemp-tion may be suspended. In the case of common funds having different investment compartments, information on how a unitholder may pass from one compartment into another and the charges applicable in such case.

1.13. Procedures and condi-tions for the repurchase or redemption of shares, and circumstances in which re-purchase or redemption may be suspended. In the case of investment companies having different investment compartments, information on how a shareholder may pass from one compartment into another and the charges applicable in such case.

1.14. Description of rules for deter-mining and applying income

1.14. Description of rules for deter-mining and applying income

1.15. Description of the common fund’s investment objectives including its financial objec-tives (e.g. capital growth or income), investment policy (e.g. specialisation in geographical or industrial sectors), any limitations on that investment policy and an indication of any borrowing techniques and instruments or powers which may be used in the management of the fund

1.15. Description of the company’s investment objectives, includ-ing financial objectives (e.g. capital growth or income), investment policy (e.g. specialisation in geographi-cal or industrial sectors), any limitations on that investment policy and an indication of any borrowing techniques and instruments or powers which may be used in the management of the company

1.16. Rules for the valuation of assets

1.16. Rules for the valuation of assets

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1.17. Determination of the sale or issue price and the redemp-tion or repurchase price of units, in particular:

– the method and fre-quency of the calculation of those prices

– information concerning the charges relating to the sale, issue, repur-chase, redemption of units

– the means, places and frequency of the publica-tion of those prices

1.17. Determination of the sale or issue price and the redemp-tion or repurchase price of shares, in particular:

– the method and fre-quency of the calculation of those prices

– information concerning the charges relating to the sale, issue, repur-chase, redemption of shares

– the means, places and frequency of the publica-tion of those prices

1.18. Information concerning the manner, amount and calculation of remuneration payable by the fund to the management company, the depositary or third parties, and reimbursement of any costs by the fund to the man-agement company, to the depositary or to third parties

1.18. Information concerning the manner, amount and calcula-tion of remuneration paid by the company to its directors, and members of the adminis-trative, management and supervisory bodies, to the depositary, or to third parties, and reimbursement of any costs by the company to its directors, to the depositary or to third parties

2. Information concerning the depositary:2.1. name or style, legal form, registered office and head office if different from the registered of-

fice;2.2. Main activity.

3. Information concerning the advisory firms or external investment advisers who give advice under contract which is paid for out of the assets of the UCITS:3.1. name or style of the firm or name of the adviser;3.2. Material provisions of the contract with the management company or the investment company

which may be relevant to the unitholders, excluding those relating to remuneration;3.3. Other significant activities.

4. Information concerning the arrangements for making payments to unitholders, repurchasing or re-deeming units and making available information concerning the UCITS. Such information must in any case be given in Luxembourg. In addition, where units are marketed in another Member State, such information shall be given in respect of that Member State in the prospectus circulated therein.

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5. Other investment information:5.1. Historical performance of the common fund or of the investment company (where applicable) –

such information may be either included in or attached to the prospectus.5.2. Profile of the typical investor for whom the common fund or the investment company is de-

signed.5.3. In case an investment company or a common fund have different investment compartments,

the information referred to in items 5.1. and 5.2. must be given for each compartment.

6. Economic information6.1. Possible expenses or fees, other than the charges mentioned in item 1.17., distinguishing be-

tween those to be paid by the unitholder and those to be paid out of the common fund’s or of the investment company’s assets.

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SCHEDULE B

Information to be included in the periodical reports

I. Statement of assets and liabilities:

– transferable securities and money market instruments,

– bank balances,

– other assets,

– total assets,

– liabilities,

– net asset value.

II. Number of units in circulation

III. Net asset value per unit

IV. Portfolio, distinguishing between:

a) transferable securities and money market instruments admitted to official stock exchange listing;

b) transferable securities and money market instruments dealt in on another regulated market;

c) recently issued transferable securities and money market instruments of the type referred to in Article 41 (1) d);

d) other transferable securities and money market instruments of the type referred to in Article 41 (2) a);

and analysed in accordance with the most appropriate criteria in the light of the investment policy of the UCITS (e.g. in accordance with economic, geographical or currency criteria) as a percentage of net assets; for each of the above investments the proportion it repre-sents of the total assets of the UCITS should be stated.

Statement of changes in the composition of the portfolio during the reference period.

V. Statement of the developments concerning the assets of the UCItS during the reference period including the following:

– income from investments,

– other income,

– management charges,

– depositary’s charges,

– other charges and taxes,

– net income,

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– distributions and income reinvested,

– changes in capital account,

– appreciation or depreciation of investments,

– any other changes affecting the assets and liabilities of the UCITS.

VI. a comparative table covering the last three financial years and including, for each financial year, at the end of the financial year:

– the total net asset value,

– the net asset value per unit.

VII. Details, by category of transactions within the meaning of article 42 carried out by the UCItS during the reference period, of the resulting amount of commitments.

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SCHEDULE C

Contents of the simplified prospectus

Brief presentation of the UCItS

– when the common fund or the investment company was created and indication of the Member State where the common fund or the investment company has been regis-tered/incorporated,

– in the case of UCITS having different investment compartments, the indication of this circumstance,

– management company (when applicable),

– expected period of existence (when applicable),

– depositary,

– auditors114,

– financial group (e.g. bank) promoting the UCITS.

Investment Information

– short definition of the UCITS’ objectives,

– the common fund’s or the investment company’s investment policy and a brief assessment of the fund’s risk profile (including, if applicable, information according to Article 47 and by investment compartment),

– historical performance of the common fund or investment company (where applicable) and a warning that this is not an indicator of future performance (such information may be either included in or attached to the prospectus),

– profile of the typical investor the common fund or the investment company is designed for.

economic information

– tax regime,

– entry and exit commissions,

– other possible expenses or fees, distinguishing between those to be paid by the unitholder and those to be paid out of the common fund’s or the investment company’s assets.

Commercial information

– how to buy the units,

– how to sell the units,

– in the case of UCITS having different investment compartments, how to pass from one investment compartment into another and the charges applicable in such case,

114 The law erroneously refers to “commissaires aux comptes” which is the term used in the French version of amend-ed Directive 85/611/EEC. It should be understood as a reference to the “réviseur d’entreprises” as provided for in Article 113 of the law.

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– when and how dividends on units or shares of the UCITS (if applicable) are distributed,

– frequency and where/how prices are published or made available.

additional information

– statement that, on request, the full prospectus and the annual and semi-annual reports may be obtained free of charge before the conclusion of the contract and afterwards,

– competent authority,

– indication of a contact point (person/department, timing etc.) where additional explana-tions may be obtained if needed,

– publication date of the prospectus.

For UCITS with multiple compartments, the investment information and the economic and commercial information must be given for each compartment.

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ANNEX II

Functions included in the activity of collective portfolio management:

– Investment management

– Administration:

(a) legal and fund management accounting services;

(b) customer inquiries;

(c) valuation of the portfolio and pricing of the units (including tax returns);

(d) regulatory compliance monitoring;

(e) maintenance of unitholder register;

(f) distribution of income;

(g) unit issues and redemptions;

(h) contract settlements (including certificate dispatch);

(i) record keeping.

– Marketing

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GRAND-DUCAL REGULATION OF 14 APRIL 2003 ESTABLISHING THE TERMS AND AMOUNT OF THE FIXED CAPITAL DUTY PAYABLE PURSUANT TO ARTICLE 128 OF THE LAW OF 2O DECEMBER 2002 RELATING TO UNDERTAKINGS FOR COLLECTIVE INVESTMENT*

Art. 1. The fixed capital duty payable pursuant to Article 128 of the law of 20 December 2002 relating to undertakings for collective investment is fixed at 1,250 euro.

The fixed duty is payable at the constitution and covers any aggregation of capital which may be carried out by an undertaking for collective investment, inter alia where the capital is increased, where an undertaking subject to the aforementioned law is transformed into another undertaking subject to that law and where such undertakings merge.

Art. 2. In respect of the aggregation of capital effected after 1 October 1983 in under-takings for collective investment existing at that date, capital duty paid on formation by such undertakings has the same effects as those set out in paragraph 2 of Article 1 and which derive from the payment of the fixed capital duty referred to in paragraph 1 of such Article.

Art. 3. The transformation of an undertaking for collective investment governed by the law of 30 March 1988 on undertakings for collective investment or by the law of 19 July 1991 concerning undertakings for collective investment the securities of which are not intended to be placed with the public into an under-taking governed by the law of 20 December 2002 relating to undertakings for collective investment does not cause the fixed capital duty referred to in Article 1 to become payable.

Art. 4. The conversion of a civil company115 or of a commercial company not governed by the law of 20 December 2002 relating to undertakings for collective investment into an undertaking subject to the provisions of such law, triggers the fixed capital duty referred to in Article 1.

Art. 5. The transformation of an undertaking for collective investment subject to the law of 20 December 2002 relating to undertakings for collective investment into a civil or commercial company not subject to the provisions of such law, triggers the capital duties which according to the law of 29 December 1971 on the tax levied on the aggregation of capital in civil and commercial companies would have been payable on the aggregation of capital effected during the period in which the relevant undertaking was subject to the particular conditions of undertakings for collective investment. The fixed capital duty of Article 1 will not be set off against the duties due.

Art. 6. The grand-ducal regulation of 30 March 1988 is abrogated effective 13 February 2007.

Art. 7. Our Minister of the Treasury and Budget is responsible for the execution of the present regulation which will be published in the Mémorial.

* This Regulation is no longer applicable following the repeal of Art. 128 of the law of 20 December 2002.

115 société civile

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GRAND-DUCAL REGULATION OF 14 APRIL 2003 DETERMINING THE CONDITIONS AND CRITERIA FOR THE APPLICATION OF THE SUBSCRIPTION TAX REFERRED TO IN ARTICLE 129 OF THE LAW OF 20 DECEMBER 2002 RELATING TO UNDERTAKINGS FOR COLLECTIVE INVESTMENT

Art. 1. “Money market instruments” as referred to in the provisions of Article 129, paragraph (2), of the law of 20 December 2002 relating to undertakings for collective investment, means any debt securities and instruments, irrespective of whether they are transferable securities or not, including bonds, certificates of deposits, deposit receipts and all other similar instruments, provided that, at the time of their acquisition by the relevant undertaking, their initial or residual maturity does not exceed twelve months, taking into account the financial instruments connected therewith, or the terms and conditions governing those securities provide that the interest rate applicable thereto is adjusted at least annually on the basis of market conditions.

Art. 2. The Commission de Surveillance du Secteur Financier establishes a list of undertakings for collective investment governed by the law of 20 December 2002, which fulfil the conditions required to benefit from the reduced rate, for the purpose of calculating the annual subscription tax116. The inscription on the appropriate list is carried out at the request of the undertakings concerned which are undertakings the exclusive object of which either is the collective investment in money market instruments and the placing of deposits with credit establishments or is the collective placing of deposits with credit establish-ments. This inscription is subject to the condition that the prospectus of the applying undertaking specifically indicates its investment policy.

The provisions of the preceding paragraph apply mutatis mutandis to the individual compartments of an undertaking for collective investment with multiple compartments.

Art. 3. In order to obtain application of the exemption from the subscription tax in respect of the value of the assets represented by units of other undertakings for collective investment which are already submitted to the subscription tax provided for by Article 129 of the law of 20 December 2002, the undertakings which hold such units must declare their value separately in the periodical decla-rations they file with the administration de l’enregistrement et des Domaines.

Art. 4. The amended grand-ducal regulation of 14 April 1995 adopted pursuant to the amended law of 30 March 1988 relating to undertakings for collective investment is repealed effective 13 February 2007.

Art. 5. Our Ministry of the Treasury and Budget is responsible for the execution of the present regulation which will be published in the Mémorial.

116 taxe d’abonnement

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GRAND-DUCAL REGULATION OF 08 FEBRUARY 2008 RELATING TO CERTAIN DEFINITIONS OF THE LAW OF 20 DECEMBER 2002 AS AMENDED CONCERNING UNDERTAKINGS FOR COLLECTIVE INVESTMENT AND IMPLEMENTING THE DIRECTIVE 2007/16/EC OF THE EUROPEAN COMMISSION IMPLEMENTING COUNCIL DIRECTIVE 85/611/EEC ON THE COORDINATION OF LAWS, REGULATIONS AND ADMINISTRATIVE PROVISIONS RELATING TO UNDERTAKINGS FOR COLLECTIVE INVESTMENT IN TRANSFERABLE SECURITIES (UCITS) AS REGARDS THE CLARIFI-CATION OF CERTAIN DEFINITIONS

article 1

Subject matter

This Regulation lays down rules clarifying the following terms of the law of 20 December 2002 as amended concerning undertakings for collective investments (“the law of 20 December 2002 as amended)

1. transferable securities, as defined in Article 1, item 26117 of the law of 20 December 2002 as amended;

2. money market instruments, as defined in Article 1, item 18118 of the law of 20 December 2002 as amended;

3. liquid financial assets, as referred to in the definition of undertakings for collective investment (UCITS) laid down in Article 2 paragraph (2) of the law of 20 December 2002 with respect to financial derivative instruments;

4. transferable securities and money market instruments embedding derivatives, as referred to in the fourth subparagraph of Article 42 paragraph (3) of the law of 20 December 2002 as amended;

5. techniques and instruments for the purpose of efficient portfolio management, as referred to in Article 42 paragraph (2) of the law of 20 December 2002 as amended;

6. index-replicating UCITS, as referred to in Article 44 paragraph (1) of the law of 20 December 2002 as amended.

article 2

Transferable securities

1. The reference in Article 1, item 26119 of the law of 20 December 2002 as amended to transferable securities shall be understood as a reference to financial instruments which fulfil the following criteria:

(a) the potential loss which the UCITS may incur with respect to holding those instruments is limited to the amount paid for them;

(b) their liquidity does not compromise the ability of the UCITS to comply with Articles 11 (2), 28 (1) b) and 40 respectively of the law of 20 December 2002 as amended;

(c) reliable valuation is available for them as follows:

117 English version item 22; German version item 24

118 English version item 14; German version item 8

119 See footnote 117.

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(i) in the case of securities admitted to or dealt in on a regulated market as referred to in points (a) to (d) of Article 41(1) of the law of 20 December 2002 as amended, in the form of accurate, reliable and regular prices which are either market prices or prices made available by valuation systems independent from issuers;

(ii) in the case of other securities as referred to in point (a) of Article 41 (2) of the law of 20 December 2002 as amended in the form of a valuation on a periodic basis which is derived from information from the issuer of the security or from competent investment research;

(d) appropriate information is available for them as follows:

(i) in the case of securities admitted to or dealt in on a regulated market as referred to in points (a) to (d) of Article 41(1) of the law of 20 December 2002 as amended in the form of regular, accurate and comprehensive information to the market on the security or, where relevant, on the portfolio of the security;

(ii) in the case of other securities as referred to in point (a) of Article 41(2) of the law of 20 December 2002 as amended in the form of regular and accurate information to the UCITS on the security or, where relevant, on the portfolio of the security;

(e) they are negotiable;

(f) their acquisition is consistent with the investment objectives or the investment policy, or both, of the UCITS pursuant to the law of 20 December 2002 as amended;

(g) their risks are adequately captured by the risk management process of the UCITS.

For the purposes of points (b) and (e) and unless there is information available to the UCITS that would lead to a different determination, financial instruments which are admitted or dealt in on a regulated market in accordance with points (a), (b) or (c) of Article 41(1) of the law of 20 December 2002 as amended shall be presumed not to compromise the ability of the UCITS to comply with Articles 11 (2), 28(1) b) and 40 respectively of the law of 20 December 2002 as amended and shall also be presumed to be negotiable.

2. Transferable securities as referred to in Article 1, item 26120 of the law of 20 December 2002 as amended shall be taken to include the following:

(a) units in closed end undertakings for collective investment constituted as investment companies or as unit trusts which fulfil the following criteria:

(i) they fulfil the criteria set out in paragraph 1 of this Article;

(ii) they are subject to corporate governance mechanisms applied to companies;

(iii) where asset management activity is carried out by another entity on behalf of the closed end undertaking for collective investment, that entity is subject to national regulation for the purpose of investor protection;

(b) units in closed end undertakings for collective investment constituted under the law of contract which fulfil the following criteria:

(i) they fulfil the criteria set out in paragraph 1 of this Article;

(ii) they are subject to corporate governance mechanisms equivalent to those applied to companies as referred to in point (a)(ii);

(iii) they are managed by an entity which is subject to national regulation for the purpose of investor protection;


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(c) financial instruments which fulfil the following criteria:

(i) they fulfil the criteria set out in paragraph 1of this Article;

(ii) they are backed by, or linked to the performance of, other assets, which may differ from those referred to in Article 41 (1) of the law of 20 December 2002 as amended.

3. Where a financial instrument covered by point (c) of paragraph 2 contains an embedded derivative component as referred to in Article 10 of this Regulation, the requirements of Article 42 of the law of 20 December 2002 as amended shall apply to that component.

article 3

Instruments normally dealt in on the money market

1. The reference in Article 1, item 18121 of the law of 20 December 2002 as amended to money market instruments as instruments shall be understood as a reference to the following:

(a) financial instruments which are admitted to trading or dealt in on a regulated market in accordance with points (a), (b) and (c) of Article 41(1) of the law of 20 December 2002 as amended;

(b) financial instruments which are not admitted to trading.

2. The reference in Article 1, item 18122 of the law of 20 December 2002 as amended to money market instruments as instruments normally dealt in on the money market shall be understood as a reference to financial instruments which fulfil one of the following criteria:

(a) they have a maturity at issuance of up to and including 397 days;

(b) they have a residual maturity of up to and including 397 days;

(c) they undergo regular yield adjustments in line with money market conditions at least every 397 days;

(d) their risk profile, including credit and interest rate risks, corresponds to that of financial instruments which have a maturity as referred to in points (a) or (b), or are subject to a yield adjustment as referred to in point (c).

article 4

Liquid instruments with a value which can be accurately determined at any time

1. The reference in Article 1, item 18123 of the law of 20 December 2002 as amended to money market instruments as instruments which are liquid shall be understood as a reference to financial instruments which can be sold at limited cost in an adequately short time frame, taking into account the obligation of the UCITS to repurchase or redeem its units at the request of any unit holder.

2. The reference in Article 1, item 18124 of the law of 20 December 2002 as amended to money market instruments as instruments which have a value which can be accurately determined at any time shall be understood as a reference to financial instruments for which accurate and reliable valuations systems, which fulfil the following criteria, are available:





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(a) they enable the UCITS to calculate a net asset value in accordance with the value at which the financial instrument held in the portfolio could be exchanged between knowl-edgeable willing parties in an arm’s length transaction;

(b) they are based either on market data or on valuation models including systems based on amortised costs.

3. The criteria referred to in paragraphs 1 and 2 of this Article shall be presumed to be fulfilled in the case of financial instruments which are normally dealt in on the money market for the purposes of Article 1, item 18125 of the law of 20 December 2002 as amended and which are admitted to, or dealt in on, a regulated market in accordance with points (a), (b) or (c) of Article 41(1) thereof, unless there is information available to the UCITS that would lead to a different determination.

article 5

Instruments of which the issue or issuer is regulated for the purpose of protecting investors and savings

1. The reference in Article 41(1)(h) of the law of 20 December 2002 as amended to money market instruments, other than those dealt in on a regulated market, of which the issue or the issuer is itself regulated for the purpose of protecting investors and savings, shall be under-stood as a reference to financial instruments which fulfil the following criteria:

(a) they fulfil one of the criteria set out in Article 3(2) and all the criteria set out in Article 4(1) and (2) of this Regulation;

(b) appropriate information is available for them, including information which allows an appro-priate assessment of the credit risks related to the investment in such instruments, taking into account paragraphs 2, 3 and 4 of this Article;

(c) they are freely transferable.

2. For money market instruments covered by the second and the fourth indents of Article 41(1)(h) of the law of 20 December 2002 as amended, or for those which are issued by a local or regional authority of a Member State or by a public international body but are not guaranteed by a Member State or, in the case of a federal State which is a Member State, by one of the members making up the federation, appropriate information as referred to in point (b) of paragraph 1 of this Article shall consist of the following:

(a) information on both the issue or the issuance programme and the legal and financial situation of the issuer prior to the issue of the money market instrument;

(b) updates of the information referred to in point (a) on a regular basis and whenever a significant event occurs;

(c) the information referred to in point (a), verified by appropriately qualified third parties not subject to instructions from the issuer;

(d) available and reliable statistics on the issue or the issuance programme.

3. For money market instruments covered by the third indent of Article 41(1)(h) of the law of 20 December 2002 as amended, appropriate information as referred to in point (b) of paragraph 1 of this Article shall consist of the following information:

(a) information on the issue or the issuance programme or on the legal and financial situation of the issuer prior to the issue of the money market instrument;


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(b) updates of the information referred to in point (a) on a regular basis and whenever a significant event occurs;

(c) available and reliable statistics on the issue or the issuance programme or other data enabling an appropriate assessment of the credit risks related to the investment in such instruments.

4. For all money market instruments covered by the first indent of Article 41(1)(h) of the law of 20 December 2002 as amended except those referred to in paragraph 2 of this Article and those issued by the European Central Bank or by a central bank from a Member State, appropriate information as referred to in point (b) of paragraph 1 of this Article shall consist of information on the issue or the issuance programme or on the legal and financial situation of the issuer prior to the issue of the money market instrument.

article 6

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

The reference in the third indent of Article 41(1)(h) of the law of 20 December 2002 as amended to 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 shall be understood as a reference to an issuer which is subject to and complies with prudential rules and fulfils one of the following criteria:

1. it is located in the European Economic Area;

2. it is located in the OECD countries belonging to the Group of Ten;

3. it has at least “investment grade” rating;

4. it can be demonstrated on the basis of an in-depth analysis of the issuer that the prudential rules applicable to that issuer are at least as stringent as those laid down by Community law.

article 7

Securitisation vehicles which benefit from a banking liquidity line

1. The reference in the fourth indent of Article 41(1)(h) of the law of 20 December 2002 as amended to securitisation vehicles shall be understood as a reference to structures, whether in corporate, trust or contractual form, set up for the purpose of securitisation operations.

2. The reference in the fourth indent of Article 41(1)(h) of the law of 20 December 2002 as amended to banking liquidity lines shall be understood as a reference to banking facilities secured by a financial institution which itself complies with the third indent of Article 41(1)(h) of the law of 20 December 2002 as amended.

article 8

Liquid financial assets with respect to financial derivative instruments

1. The reference in Article 2(2) of the law of 20 December 2002 as amended to liquid financial assets shall be understood, with respect to financial derivative instruments, as a reference to financial derivative instruments which fulfil the following criteria:

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(a) their underlyings consist of one or more of the following:

(i) assets as listed in the first indent of Article 41(1)(g) of the law of 20 December 2002 as amended including financial instruments having one or several characteristics of those assets;

(ii) interest rates;

(iii) foreign exchange rates or currencies;

(iv) financial indices;

(b) in the case of OTC derivatives, they comply with the conditions set out in the second and third indents of Article 41(1)(g) of the law of 20 December 2002 as amended.

2. Financial derivative instruments as referred to in Article 41(1)(g) of the law of 20 December 2002 as amended shall be taken to include instruments which fulfil the following criteria:

(a) they allow the transfer of the credit risk of an asset as referred to in point (a) of paragraph 1 of this Article independently from the other risks associated with that asset;

(b) they do not result in the delivery or in the transfer, including in the form of cash, of assets other than those referred to in Article 41(1) and (2) of the law of 20 December 2002 as amended;

(c) they comply with the criteria for OTC-derivatives laid down in the second and third indents of Article 41(1)(g) of of the law of 20 December 2002 as amended and in paragraphs 3 and 4 of this Article;

(d) their risks are adequately captured by the risk management process of the UCITS, and by its internal control mechanisms in the case of risks of asymmetry of information between the UCITS and the counterparty to the credit derivative resulting from potential access of the counterparty to non-public information on firms the assets of which are used as under-lyings by credit derivatives.

3. For the purposes of the third indent of Article 41(1)(g) of the law of 20 December 2002 as amended, the reference to fair value shall be understood as a reference to the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction.

4. For the purposes of the third indent of Article 41(1)(g) of the law of 20 December 2002 as amended, the reference to reliable and verifiable valuation shall be understood as a reference to a valuation, by the UCITS, corresponding to the fair value as referred to in paragraph 3 of this Article, which does not rely only on market quotations by the counterparty and which fulfils the following criteria:

(a) 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 method-ology;

(b) verification of the valuation is carried out by one of the following:

(i) an appropriate third party which is independent from the counterparty of the OTC-deriv-ative, at an adequate frequency and in such a way that the UCITS is able to check it;

(ii) 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.

5. The reference in Articles 2(2) and 41(1)(g) of the law of 20 December 2002 as amended to liquid financial assets shall be understood as excluding derivatives on commodities.

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article 9

Financial indices

1. The reference in point (g) of Article 41(1) of the law of 20 December 2002 as amended to financial indices shall be understood as a reference to indices which fulfil the following criteria:

(a) they are sufficiently diversified, in that the following criteria are fulfilled:

(i) the index is composed in such a way that price movements or trading activities regarding one component do not unduly influence the performance of the whole index;

(ii) where the index is composed of assets referred to in Article 41(1) of the law of 20 December 2002 as amended, its composition is at least diversified in accordance with Article 44 of that law;

(iii) where the index is composed of assets other than those referred to in Article 41(1) of the law of 20 December 2002 as amended, it is diversified in a way which is equivalent to that provided for in Article 44 of that law;

(b) they represent an adequate benchmark for the market to which they refer, in that the following criteria are fulfilled:

(i) the index measures the performance of a representative group of underlyings in a relevant and appropriate way;

(ii) the index is revised or rebalanced periodically to ensure that it continues to reflect the markets to which it refers following criteria which are publicly available;

(iii) the underlyings are sufficiently liquid, which allows users to replicate the index, if necessary;

(c) they are published in an appropriate manner, in that the following criteria are fulfilled:

(i) their publication process relies on sound procedures to collect prices and to calculate and to subsequently publish the index value, including pricing procedures for compo-nents where a market price is not available;

(ii) material information on matters such as index calculation, rebalancing methodologies, index changes or any operational difficulties in providing timely or accurate information is provided on a wide and timely basis.

2. Where the composition of assets which are used as underlyings by financial derivatives in accordance with Article 41(1) of the law of 20 December 2002 as amended does not fulfil the criteria set out in paragraph 1 of this Article, those financial derivatives shall, where they comply with the criteria set out in Article 8(1) of this Regulation, be regarded as financial derivatives on a combination of the assets referred to in points (i), (ii) and (iii) of Article 8(1)(a).

article 10

Transferable securities and money market instruments embedding a derivative

1. The reference in the fourth subparagraph of Article 42(3) of the law of 20 December 2002 as amended to transferable securities embedding a derivative shall be understood as a reference to financial instruments which fulfil the criteria set out in Article 2(1) of this Regulation and which contain a component which fulfils the following criteria:

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(a) by virtue of that component some or all of the cash flows that otherwise would be required by the transferable security which functions as host contract can be modified according to a specified interest rate, a financial instrument price, a foreign exchange rate, an index of prices or rates, a credit rating or credit index, or another variable, and therefore vary in a way similar to a stand-alone derivative;

(b) its economic characteristics and risks are not closely related to the economic character-istics and risks of the host contract;

(c) it has a significant impact on the risk profile and pricing of the transferable security.

2. Money market instruments which fulfil one of the criteria set out in Article 3(2) and all the criteria set out in Article 4(1) and (2) of this Regulation and which contain a component which fulfils the criteria set out in paragraph 1 of this Article shall be regarded as money market instruments embedding a derivative.

3. A transferable security or a money market instrument shall not be regarded as embedding a derivative where it contains a component which is contractually transferable independently of the transferable security or the money market instrument. Such a component shall be deemed to be a separate financial instrument.

article 11

Techniques and instruments for the purpose of efficient portfolio management

1. The reference in Article 42(2) of the law of 20 December 2002 as amended to techniques and instruments which relate to transferable securities and which are used for the purpose of efficient portfolio management shall be understood as a reference to techniques and instru-ments which fulfil the following criteria:

(a) they are economically appropriate in that they are realised in a cost-effective way;

(b) they are entered into for one or more of the following specific aims:

(i) reduction of risk;

(ii) reduction of cost;

(iii) generation of additional capital or income for the UCITS with a level of risk which is consistent with the risk profile of the UCITS and the risk diversification rules laid down in Article 43 of the law of 20 December 2002 as amended.

(c) their risks are adequately captured by the risk management process of the UCITS.

2. Techniques and instruments which comply with the criteria set out in paragraph 1 and which relate to money market instruments shall be regarded as techniques and instruments relating to money market instruments for the purpose of efficient portfolio management as referred to in Article 42(2) of the law of 20 December 2002 as amended.

article 12

Index replicating UCITS

1. The reference in Article 44(1) of the law of 20 December 2002 as amended to replicating the composition of a stock or debt securities index shall be understood as a reference to replication of the composition of the underlying assets of the index, including the use of derivatives or other techniques and instruments as referred to in Article 42(2) of the law of 20 December 2002 as amended and Article 11 of this Regulation.

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2. The reference in the first indent of Article 44(1) of the law of 20 December 2002 as amended to an index whose composition is sufficiently diversified shall be understood as a reference to an index which complies with the risk diversification rules of said Article 44.

3. The reference in the second indent of Article 44(1) of the law of 20 December 2002 as amended to an index which represents an adequate benchmark shall be understood as a reference to an index whose provider uses a recognised methodology which generally does not result in the exclusion of a major issuer of the market to which it refers.

4. The reference in the third indent of Article 44(1) of of the law of 20 December 2002 as amended to an index which is published in an appropriate manner shall be understood as a reference to an index which fulfils the following criteria:

(a) it is accessible to the public;

(b) the index provider is independent from the index-replicating UCITS.

Point (b) shall not preclude index providers and the UCITS forming part of the same economic group, provided that effective arrangements for the management of conflicts of interest are in place.

article 13

Final Provisions

1. This present Regulation will enter into force four days following its publication in the Mémorial.

2. UCITS already in existence benefit from a time period until 23 July 2008 at the latest to comply with the provisions of this Regulation.

3. Any reference to this Regulation may be made under the abbreviated title “Grand-Ducal Regulation relating to certain definitions of the law of 20 December 2002 as amended concerning undertakings for collective investments”.

article 14

Execution

Our Ministry of the Treasury and Budget is responsible for the execution of the present regulation which will be published in the Mémorial.

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IML CIRCULAR 91/75 OF 21 JANUARY 1991

Revision and remodelling of the rules to which Luxembourg undertakings governed by the law of 30 March 1988 on undertakings for collective investment (“UCI”) are subject

This circular repeals and replaces IML circular 88/48 of 8 April 1988 and the former circulars which remained applicable to UCIs following the entry into force of the prementioned law of 30 March 1988.

The circulars thus repealed in addition to IML circular 88/48 of 8 April 1988, are circulars vM 47 of 7 August 1978, vEF 48 of 7 november 1978, IML 84/12 of 8 March 1984, IML 84/13 of 9 March 1984, IML 84/15 of 30 March 1984, IML 85/23 of 25 March 1985 and IML 88/47 of 5 April 1988.

In accordance with its objective of clarification and simplification, the main object of this circu-lar is to adapt and to specify the rules of the repealed circulars in light of the acquired experi-ence during the practical application thereof and to reproduce the thus revised rules in one single text with the following summary: (126)

126 note: The summary is reproduced at the beginning of this brochure.

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CHAPTER A

PURPOSE AND SCOPE OF THE LAW OF 30 MARCH 1988

The purpose of the law of 30 March 1988 is the protection of the investor who is canvassed by promoters the activity of which is the collection of funds in order to invest them collectively in accordance with the principle of risk-spreading.

In accordance with its objective, the law of 30 March 1988 determines the legal and regula-tory frame in which this activity may be exercised and pursuant to which it is submitted to the supervision of the Commission de Surveillance du Secteur Financier (“CSSF”)127 which is the supervisory authority.

The exercise of the activity subject to the law of 30 March 1988 is exclusively restricted to those undertakings which qualify as UCIs in accordance with the definition given in Chap-ter B hereafter; it follows from there that such activity, if exercised in Luxembourg, must be considered as illegal where it is exercised outside the scope of this law.

On the other hand, an undertaking which in practice, does not meet the conditions for applica-tion of the law of 30 March 1988 may not claim the status of a UCI by voluntarily submitting to the provisions of the law.

127 The initial regulator was the Institut Monétaire Luxembourgeois (IML) who became the Banque Centrale du Luxembourg (BCL) on 1 June 1998. The CSSF was created on 1 January 1999 and replaced the BCL as the super-visory authority of the financial sector. Whilst the text of this circular has not been formally amended, all references in this translation to the IML have been replaced by references to the CSSF.

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CHAPTER B

DEFINITION OF THE MEANING OF UCI

I. Criteria by which the meaning of UCI is being defined.

In order to qualify as an activity governed by the law of 30 March 1988, it is required, and it suffices, that the following conditions are cumulatively met:

- the collective investment of savings;

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

- the investment which forms the object of the collective investment must be made in ac-cordance with the principle of risk-spreading.

Collective investment of savings shall be taken to mean the collective investment of funds collected individually from the public. This investment may be made in transferable securities or other assets. The objective is to obtain a yield or a capital gain. Hence the objective of UCIs is not to acquire an interest for a purpose beyond that of obtaining a yield, namely to secure influence or even control. Furthermore, the holding of such an interest entails a long term holding objective, whereas for UCIs the retention of assets in the portfolio only depends upon the yield or the capital gains potential thereof. By way of exception, certain types of UCIs, such as those investing in venture capital, may sometimes acquire more substantial interests in companies of which they hold shares and even intervene in the management of such com-panies by the appointment of one or several representatives to the board of directors. Such involvement, however, does not have control as an objective but is dictated by the particular nature of the investments of such undertakings.

The public is canvassed where the collection of funds assigned to collective investment is not restricted to a small circle of persons only.

In respect to the principle of risk-spreading, the purpose of its application is to prevent an ex-cessive concentration of the investments which are the subject of the collective investment.

The above specified criteria of definition are common to all categories of UCIs provided for by the law of 30 March 1988. Indeed, depending upon the category to which they belong, UCIs governed by the law of 30 March 1988 only differ from one another by their legal form or by their collective investment objective.

II. Practical application of the criteria retained for the definition of the meaning of UCI.

In principle there is no problem to appreciate whether the conditions for application of the law of 30 March 1988 are met in case of common funds (“FCP”) and investment companies with variable capital (“SICAv”). In case of undertakings which do not have the legal form of common fund or SICAv, it is however sometimes difficult in practice to determine whether the law of 30 March 1988 is applicable to them or not. In such cases, the supervisory authority will in the first instance rely on the definition criteria set out in the preceding Section I. in order to determine whether such undertakings do or do not meet the required conditions for UCI qualification.

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If the review of the application file based on these criteria is not sufficient to conclude with the necessary certainty as to whether the law of 30 March 1988 is applicable, further elements will have to be taken into account such as the organisation and the general structure of such undertakings, i.e. the systematic redemption of shares, the existence of an investment advi-sory company, the charging of commissions on the purchase of securities in such undertak-ings and for the management thereof.

Thus, in application of the preceding principles, financial investment companies set up with the purpose of control, are excluded from the scope of application of the law of 30 March 1988 because their activity is not the collective investment of savings. The same applies to family holding companies and investment clubs which, even though their objective is the collective investment of savings, do not collect savings from the public.

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CHAPTER C

CLASSIFICATION OF THE UCIs SITUATED IN LUXEMBOURG

A UCI shall be deemed to be situated in Luxembourg if the registered office of the manage-ment company of the common fund or the registered office of the investment company is situated in Luxembourg. UCIs situated in Luxembourg will be referred to hereafter as Luxem-bourg UCIs.

Depending on their characteristics, Luxembourg UCIs will be subject either to Part I or Part II of the law of 30 March 1988.

This classification permits the distinction between

- undertakings within the meaning of Council Directive 85/611/EEC of 20 December 1985 on the coordination of laws, regulations and administrative provisions relating to undertak-ings for collective investment in transferable securities (the “85/611/EEC Directive”); and

- the other undertakings which do not fall within the scope of application of the 85/611/EEC Directive.

The consequences of this distinction are more fully specified in section III. hereafter.

I. Definition of the UCIs governed by Part I of the law of 30 March 1988.

Part I of the law of 30 March 1988 applies to all undertakings for collective investment in transferable securities (“UCITS”) which are defined as being UCIs the exclusive object of which is the investment in transferable securities.

Considering this definition, the criteria which determines whether a UCI is subject to Part I or Part II of the law of 30 March 1988, is the intended investment objective. If the undertaking invests in transferable securities, it is subject to Part I, save for the exceptions commented upon in section II. hereafter.

UCITS subject to Part I of the law of 30 March 1988 are of the open-ended type, since the rules to which they are subject provide for the obligation to directly or indirectly redeem their units or shares at the request of the investors.

II. Definition of the UCIs governed by Part II of the law of 30 March 1988.

Part II of the law of 30 March 1988 applies to all UCIs the principal object of which is the investment in securities other than transferable securities and to all UCITS excluded from Part I.

In its Article 2, the law of 30 March 1988 provides for exceptions to the basic rule reproduced in section I. above, by excluding from the scope of application of Part I certain categories of UCITS. That is the transposition in national law of the corresponding provisions of the 85/611/EEC Directive.

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The following types of UCITS are concerned by this exclusion:

1. UCITS of the closed-ended type.

These UCITS can be defined by distinguishing them from open-ended UCITS which di-rectly or indirectly redeem their units or shares at the request of investors.

The reimbursement to investors after a decision of the management bodies is not tanta-mount to a redemption if such reimbursement occurred without any request from investors which would have been based on a right to request redemption.

If the securities issued by UCITS of the closed-ended type are redeemed at the request of investors after a certain date, such undertaking shall fall within the scope of application of Part I of the law of 30 March 1988 from such date onwards, unless it belongs to one of the other categories of UCITS described in paragraphs 2. to 4. hereafter. In case this feature is established at inception, the prospectus must from the outset attract the investors’ at-tention to that fact and to the eventual consequences thereof, inter alia on the investment policy.

A UCITS, the constitutional documents of which provide for the right of investors to re-quest redemptions, cannot qualify as being of the closed-ended type and as such fall outside the scope of application of Part I of the law of 30 March 1988, upon the grounds that it provides for limitations on the exercise of such right. As a UCITS subject to the pro-visions of Part I, it must relinquish such limitations insofar as their purpose is to subject the exercise of the right to redeem to conditions and procedures which render redemptions practically impossible or unnecessarily and arbitrarily complicated or provide for unneces-sary and arbitrary intervals.

2. UCITS which raise capital without promoting the sale of their units or shares to the public within the European Union (“EU”)128 or any part of it.

The exclusion from Part I of the law of 30 March 1988 does not dispense the UCITS con-cerned from the condition of the collection of public savings which all undertakings must comply with in order to qualify as UCI; it simply prohibits the UCITS in question to engage in any promotional activity within the EU; the terms “promotional activity” refer in particular to the use of advertisement methods such as press, radio, television or advertisement circulars. It does however not refer to offers for subscription which are addressed to a lim-ited, particularly knowledgeable circle of investors such as pension funds and insurance companies.

It follows from the above that the UCITS concerned hereby are those which, even though they are addressed to the public, renounce any promotional activity within the EU.

3. UCITS the units or shares of which may, under their constitutional documents, only be sold to the public in countries which are not members of the EU.

To this category belong UCITS the units or shares of which are listed on the Luxembourg Stock Exchange and which market those units or shares solely outside the EU.

128 The designation European Economic Community (EEC) which is featured in this circular is replaced by “European Union” (EU) as a consequence of Article A of the Maastricht Treaty of 7 February 1992 establishing a European Union. This circular has not been formally amended but this publication will refer to the new designation.

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The supervisory authority does not interfere in the delimitation of the scope of application. The exclusion only operates under the management regulations or the Articles of incorpo-ration of these UCITS provide expressly that the sale of their units or shares is limited to the public of countries which are not members of the EU.

4. Categories of UCITS determined by the supervisory authority for which the rules laid down in Chapter 5 of the law of 30 March 1988 are inappropriate in view of their investment and borrowing policies.

UCITS covered by this exclusion belong to one of the following categories:

4.1. Undertakings the investment policy of which provides for the investment of 20% or more of their net assets in venture capital. Investment in venture capital shall be taken to mean investment in securities of companies which have been recently con-stituted or which are still in the early development stage.

4.2. Undertakings the investment policy of which provides for the investment of 20% or more of their net assets (other than liquid assets) in securities other than the transfer-able securities provided for in Article 40 (1) of the law of 30 March 1988.

4.3. Undertakings the investment policy of which provides for the permanent borrowing for investment purposes of at least 25% of their net assets.

4.4. Undertakings the investment policy of which provides for the investment of 20% or more of their net assets in other open-ended UCIs.

4.5. Undertakings the investment policy of which provides for the investment of 20% or more of their net assets in money market instruments and liquid assets (including any regularly negotiated money market instruments the residual maturity of which does not exceed 12 months) other than the transferable securities provided for in Article 40 (1) of the law of 30 March 1988.

4.6. Undertakings the investment policy of which provides for the investment of 50% or more of their net assets in liquid assets.

4.7. Multiple compartment undertakings, one compartment of which is not subject to Part I of the law of 30 March 1988 by reason of its investment or borrowing policy.

III. Status of UCITS (Part I) and of other UCIs (Part II) in the European context.

For the regulation of UCITS subject to it, Part I of the law of 30 March 1988 takes as a basis the provisions of the 85/611/EEC Directive. Consequently, these UCITS conform to the en-tirety of the requirements of those provisions. They thus benefit from the status of EU UCITS which gives them the right to freely market their units or shares in the whole of the territory of the EU.

UCIs, other than UCITS governed by Part I of the law of 30 March 1988, may not rely upon the marketing facilities provided for by the 85/611/EEC Directive since they are excluded from the scope of application thereof. Consequently, where such UCIs wish to market their units or shares in other countries of the EU, they must comply with the specific conditions to which the authorities of the countries concerned may, as the case may be, subject the authorisation of UCIs which do not have the status of EU UCITS.

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CHAPTER D

RULES CONCERNING THE CENTRAL ADMINISTRATION OF LUXEMBOURG UCIs

Under the provisions of the law of 30 March 1988, the central administration of any Lux-embourg UCI must be situated in Luxembourg. This requirement must ensure that the supervisory authority, the depositary and the auditor may easily perform their respective legal duties.

I. Definition of the meaning of central administration in Luxembourg.

The legal requirement that central administration be situated in Luxembourg implies inter alia that:

- the accounts must be kept, and the accounting documents must be available, in Luxem-bourg;

- issues and redemptions must be carried out in Luxembourg;

- the register of participants must be kept in Luxembourg;

- the prospectus, financial reports and all other documents intended for investors must be established in cooperation with the central administration in Luxembourg;

- the correspondence, dispatch of financial reports and of all other documents intended for shareholders or unitholders must be carried out from Luxembourg and in any case under the responsibility of the central administration in Luxembourg;

- the calculation of the net asset value must be carried out in Luxembourg.

It appears from the preceding enumeration that the meaning of central administration in Lux-embourg exclusively includes accounting and administrative functions. It therefore neither ex-cludes the possibility for Luxembourg UCIs to obtain assistance for the management of their assets from investment advisors established abroad nor does it prevent that the decisions in relation with that management (investment and disinvestment decisions) are made and ex-ecuted elsewhere than in Luxembourg.

II. Organisation of the central administration in Luxembourg.

A Luxembourg UCI or its management company, where it is made up in the form of a com-mon fund, is not obliged to perform itself the tasks connected to the accounting and adminis-trative duties of the central administration in Luxembourg.

By a service contract, it may indeed entrust to a third party established in Luxembourg the exercise of those duties which essentially concern the execution of the tasks set out in section I. above. Upon the condition that a division of such tasks is not detrimental to the satisfac-tory performance of the central administration, this third party may delegate the execution of specific tasks to one or more other providers of services established in Luxembourg subject to it ensuring the coordination, general supervision and liability therefore.

It is also conceivable that a Luxembourg UCI may by separate service agreements organise itself the division of tasks connected to the duties of central administration amongst various providers of services established in Luxembourg provided that it must, in such case, be in the position to coordinate and supervise itself the execution of such tasks unless it entrusts such

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a mission to a duly qualified agent. Such agent then becomes the contact of the CSSF in its relationship with the central administration of the relevant UCI.

In both cases, the division of tasks connected to the duties of central administration must not result in an excessive parcelling which renders the exercise of the coordination and general supervisory function difficult if not impossible or which unnecessarily increases costs by un-justified overlapping.

For the reasons mentioned above, it is therefore recommended not to provide for too compli-cated and costly constructions or structures.

On the basis of the above, the CSSF considers that tasks as intimately connected as the execution of issues and redemptions and the keeping of the register of participants may only be entrusted to one single provider of services. The CSSF considers furthermore that it is not conceivable to have different providers of services execute jobs relating to the same task. Thus for instance, it is not permissible to have more than one provider of services perform the execution of the necessary tasks in relation to the keeping of the accounts.

In organising its relationship with the depositary of the UCI which it administers, the cen-tral administration in Luxembourg must, by the operation of appropriate procedures, ensure the satisfactory performance of information circuits and information flow necessary to obtain upon request from the depositary all information and data required in order to establish the position of the assets and liabilities of the UCI and to calculate net asset value.

The UCI, in case it ensures its own administration, or the providers of services which may be appointed therefore, must have the necessary infrastructure in Luxembourg i.e. sufficient human and technical means in order to accomplish the entirety of the tasks connected to the duties of central administration in Luxembourg. This implies the localisation in Luxembourg of equipment and material used by the central administration as technical support for the execution of its duties.

III. Execution of the accounting and administrative duties referred to by the meaning of central administration in Luxembourg.

1. Keeping of the accounts, calculation of the net asset value and availability of basic documentation relating to the UCI and its operations.

Where the central administration in Luxembourg uses a remote-access computing net-work as technical support for the execution of the tasks connected to the keeping of the accounts and/or the calculation of the net asset value (such as operations necessary for the valuation of the portfolio of securities, the determination of the amount of income generated by such portfolio and the conversion in the currency of account of the UCI of assets denominated in another currency), the requirement of localisation in Luxembourg of the equipment and material necessary for the operation of such administration does not exclude that the unit which is intended to ensure the processing of accounting and other information which is entered in the network used may be situated elsewhere than in Luxembourg.

The possible location abroad of the processing unit is however subject to the following conditions:

- the central administration must have at its disposal in Luxembourg necessary means to enter information in the processing unit of the remote-access computing network used and to withdraw such information. Its access to the information memorised in the network processing unit must be immediate and unlimited and must inter alia permit the instanta-neous and full production of any data necessary for normal operation;

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- the central administration must be aware of the operating conditions of the processing unit and must give its consent for alterations to its programme;

- the central administration must have the possibility to directly engage in the processing of information memorised in the processing unit;

- information memorised in the processing unit must be transferred upon each valuation of the assets, but at least once a week and, as the case may be, more frequently, if required by safety necessities, on memory supports which are situated and which may be operated in Luxembourg;

- the promoters must have at their disposal the necessary means to enable the central ad-ministration to continue to operate normally in case of exceptional events such as the in-terruption of the means of communication with the processing unit or the non-functioning thereof for an extended period;

- where the central administration uses the remote-access computing network together with other users which do not participate in the operations of the UCI, the central adminis-tration must ensure by the establishment of adequate protection measures that these us-ers may not, at the level of the processing unit, have access to the information concerning the UCI, in order to prevent them from obtaining knowledge of that information or altering or deleting the same.

The conditions set out under the first, second, third and last indents above apply mutatis mutandis where the network processing unit used is situated in Luxembourg.

In principle, it is the central administration’s responsibility to proceed in Luxembourg, as the case may be in cooperation with the depositary, with the operations necessary to enter the information relating to the operation of the UCI into the remote-access computing network used wherever the processing unit of the network used is situated. This does not exclude that portfolio managers established abroad may immediately access the relevant network and set in motion the accounting operations connected to the execution of the decisions taken by them within the scope of their management mandate. It does furthermore not exclude that other agents participating in the operations of the UCI may proceed in the same way.

Such intervention by portfolio managers and by other agents the services of which are being used, is however subject to the following conditions:

- the central administration must ensure by the establishment of adequate protection mea-sures that these agents may not access information other than that which is necessary for the execution of their respective duties notwithstanding the provisions concerning profes-sional secrecy;

- the UCI must install, at the management level, supervisory procedures which are able to ensure the regularity of the operations initiated by the portfolio managers with respect to the obligations to which it is subject under the law of 30 March 1988 as well as under its constitutional documents and prospectus.

Since the central administration in Luxembourg assumes the ultimate liability for the accuracy of the financial information relating to the UCI, it alone is authorised to proceed with the al-locations, apportionments and provisions necessary for finalising the calculation of the net asset value, these operations concerning in particular the charges, expenses and taxes due by the UCI.

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The central administration must have at its disposal in Luxembourg all accounting and other documents which constitute the essential documentation of the UCI and which are neces-sary for:

- the preparation of accounts and valuations;

- the drawing-up of certificates of title and of indebtedness;

- the establishment of the allotment of units or shares outstanding; and

- the general protection of the interests of the UCI such as the depositary agreement, the agreements made with the portfolio managers as well as any other agreements with pro-viders of services which participate in the operation of the UCI.

The requirement as to availability in Luxembourg of the essential documentation of the UCI implies that the documents relating to transactions initiated from abroad must forthwith be forwarded to Luxembourg.

2. Execution of issues and redemptions.

2.1. Role of the central administration in Luxembourg in connection with the execution of issues and redemptions.

The requirement for issues and redemptions to take place in Luxembourg implies that the performance of the tasks connected to the processing of subscription and redemption orders for the securities issued by Luxembourg UCIs, is to be carried out by the central administration in Luxembourg of such UCIs. This means that it is in principle up to the central administration in Luxembourg to determine the prices at which the subscription and redemption orders must be calculated, to draw up subscription or redemption contract notes and the share and unit certificates and to dispatch such documents to the individual investors.

The requirement relating to the execution in Luxembourg of issues and redemptions does not prohibit Luxembourg UCIs to appoint Luxembourg or foreign intermediaries as authorised financial agents and representatives for the placing and redemption of their units or shares.

Such intermediaries are then authorised to collect subscription and redemption or-ders for the units or shares of the UCIs by which they have been appointed. Subject to the conditions specified under heading 2.2. hereafter, they may participate in the placing and redemption operations either as distributors, or as nominees or market makers.

Provided that the recourse to the intermediaries referred to above may in no way restrict the ability of investors to deal directly with the UCI of their choice when plac-ing their subscription and redemption orders. It is therefore necessary for UCIs to explicitly and apparently mention this possibility in their prospectus.

2.2. Conditions subject to which intermediaries may participate in placing and redemption operations.

2.2.1. Conditions applicable to distributors.

Distributors are intermediaries who are part of the distribution process set up by the promoters whether they actively participate in the marketing of the securities issued by a UCI or whether they are appointed in the prospectus or in any other document as being authorised to receive subscription and redemption orders on behalf of that UCI.

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For the purposes of the processing of the subscription and redemption orders collected by them, the distributors must forthwith transmit to the central admin-istration in Luxembourg the data necessary for the timely accomplishment of the entirety of the tasks connected to the processing of such orders.

In case the subscription or redemption orders concern registered securities, distributors obviously shall provide the central administration in Luxembourg with the registration data necessary to accomplish on an individual basis the tasks referred to above.

Subject to the provisions of heading 2.3. below, this obligation does not ex-ist in cases the issue and redemption orders relate to bearer securities. In such cases, distributors act in the capacity of subscribers vis-à-vis the central administration in Luxembourg. They may therefore aggregate individual sub-scription and redemption orders and transmit them in the form of a combined order to the central administration in Luxembourg. In doing so, the distribu-tors may, where appropriate after set-off, purchase or sell the whole of the securities subscribed to or redeemed from investors to be followed by the subsequent allotment thereof according to the individual orders received.

It is not necessary for distributors to forward to the central administration in Luxembourg the documentation relating to subscription and redemption or-ders from investors. However, where such documentation is not forwarded to Luxembourg, the distributors must allow the administration in Luxembourg to have access thereto without any restriction in case of need.

Where the distributors are authorised to receive and make settlement pay-ments in respect of the subscription and redemption orders collected by them, they may aggregate and set off individual payments in order to deal on a net basis with the central administration in Luxembourg. This possibility is avail-able for orders relating to registered shares and for orders relating to bearer shares.

In order to facilitate delivery of certificates, a Luxembourg UCI and its deposi-tary may enter into an agreement with the distributors pursuant to which the latter are authorised to hold a stock of unissued certificates. In that case, the distributors must be duly authorised by such agreement to deliver their bearer certificates to subscribers in accordance with the instructions from the central administration in Luxembourg.

2.2.2. Conditions applicable to nominees.

nominees act as intermediaries between investors and the UCIs of their choice. Where the intervention of a nominee is an integral part of the distri-bution arrangement set up by the promoters, the relationship between the UCI, the nominee, the central administration in Luxembourg and the investors must be determined by contract which shall provide for their respective obli-gations. The promoters must nevertheless ensure that the nominee presents sufficient guarantees for the proper execution of its obligations towards the investors who utilise its services. The intervention of a nominee is only autho-rised if the following conditions are met:

a) the role of the nominee must be adequately described in the prospec-tuses;

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b) the investors must have the possibility to directly invest in the UCIs of their choice without using a nominee and prospectuses must expressly state this fact;

c) the agreements between the nominee and the investors must include a termination clause which gives the investors the right to claim, at any time, direct title to the securities subscribed through the nominee.

It is understood that the conditions set out under b) and c) above are not applicable in circumstances where the use of the services of a nominee is indispensable or even compulsory for legal, regulatory or compelling practical reasons.

2.2.3. Conditions applicable to market makers.

Market makers are intermediaries which participate for their own account and at their own risk in subscription and redemption transactions on securities is-sued by UCIs. Where the organisation of a market by such intermediaries is an integral part of the distribution arrangement set up by the promoters, the relationship between the UCI, the central administration in Luxembourg and the market makers must be determined by contract.

Additionally, the following conditions must be met:

a) the role of the market makers must be adequately described in the pro-spectuses;

b) the market makers may not act as counterparts to subscription and re-demption transactions without the specific approval of the investors initiat-ing the relevant transactions;

c) market makers may not price subscription and redemption orders ad-dressed to them on less favourable terms than those that would be ap-plied to such orders had they been directly processed by the relevant UCIs;

d) market makers must regularly notify to the central administration in Lux-embourg the orders executed by them where such orders relate to reg-istered securities, in order to ensure (i) that the data relating to investors are updated in the register of unitholders or shareholders and (ii) that the registered certificates or confirmations of investment may be forwarded from Luxembourg to the new investors.

2.3. Duties of the central administration in Luxembourg and of the marketing intermediar-ies in respect of the prevention of the laundering of drug trafficking proceeds.

IML circular 89/57 of 15 november 1989 on the laundering of drug trafficking pro-ceeds is in principle applicable to Luxembourg UCIs.

When considering the particular way the UCI industry operates, notably in the area of marketing, it appears that it is often extremely difficult for the central administration in Luxembourg to know the identity of investors the subscription and redemption orders of which are collected by Luxembourg or foreign intermediaries.

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Considering the above, a derogatory system is applicable to subscription and re-demption orders collected by intermediaries established, or the activities of which in this respect are exercised, in a State which belongs to the Financial Action Task Force on Money Laundering established after the “Arch” summit in June 1989 or which applies the recommendations issued by this Task Force.

The central administration in Luxembourg is not obliged to check the identity of in-vestors, the orders of which emanate from such intermediaries, such checking being made in the State where these orders are collected. The status of the foreign inter-mediary must however be verified and unusual transactions monitored.

In respect of subscription or redemption orders collected by intermediaries estab-lished in States which do not apply the recommendations issued by the Task Force, the central administration in Luxembourg is fully responsible for the compliance with the rules specified in IML circular 89/57.

3. Maintenance of the register of participants.

The requirement for the register of participants to be kept in Luxembourg not only implies that such register must be permanently available there, but also implies the obligation for the central administration in Luxembourg to perform in Luxembourg the registrations, al-terations or deletions necessary to ensure the regular update thereof.

Where the central administration in Luxembourg uses a remote-access computing net-work as technical support for the performance of these duties, it may, subject to applying the security and protection measures described under heading 1. above and whilst pre-serving the confidentiality required by legal and regulatory requirements, use the network to access and store the registration data relating to participants in the processing unit. The processing unit then constitutes the storage facility required for the maintenance of the register of participants.

Distributors who are connected to the remote-access computing network used may, through this network, transmit to the central administration in Luxembourg the information relating to the issue and redemption orders collected by them so that it can initiate in the network the necessary operations to update the data of the participants’ register stored in the processing unit.

4. Drawing up of prospectuses, financial reports and other documents intended for investors.

The requirement for prospectuses, financial reports and other documents intended for investors to be drawn up in cooperation with the central administration in Luxembourg only relates to the intellectual tasks necessary for the drawing up of these documents as opposed to the physical realisation thereof. For the performance of these tasks, this requirement does not exclude the limited recourse to experts, advisors and other specia-lised providers of services established abroad.

Since technical or purely physical tasks are not addressed by this requirement, the cen-tral administration in Luxembourg may use the services of printers or other providers of services established abroad in connection with the physical production of the documents intended for investors.

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5. Correspondence and dispatch of prospectuses, financial reports and other docu-ments intended for investors.

The requirement for correspondence and dispatch of prospectuses, financial reports and other documents intended for investors to be made from Luxembourg is intended to safe-guard the confidentiality of data relating to investors who directly apply to the central administration in Luxembourg to place their subscription orders or the names of which appear in the register of participants.

Save for the case specified below, only the central administration in Luxembourg may, in accordance with this objective, carry out from Luxembourg, the dispatches intended for the investors referred to above including the case where these dispatches concern docu-ments printed abroad. As an exception to this rule, dispatches to the relevant investors may be carried out from abroad (e.g. from the printer’s address) provided such dispatches are made under the supervision of the central administration in Luxembourg. It must then ensure by adequate measures of protection that non-authorised third parties may not ac-cess data relating to investors for whom the dispatches are intended for.

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CHAPTER E

RULES CONCERNING THE DEPOSITARY OF A LUXEMBOURG UCI

I. Conditions of admission to the activity of depositary.

The admission to the activity of depositary of a UCITS subject to Part I of the law of 30 March 1988 is exclusively limited to banks incorporated under Luxembourg law or Luxembourg branches of banks established in an eU Member State.

This also applies to the depositary of a UCI subject to Part II of the law of 30 March 1988 save that such depositary may also be a Luxembourg branch of a bank established in a non-member State of the eU.

Pursuant to Article 71(2) of the law of 30 March 1988, a UCI may only be authorised if the supervisory authority approves the choice of the depositary. This approval is only given if the proposed depositary can justify that it possesses the necessary infrastructure to perform the totality of the tasks relating to its duties, namely sufficient human and technical resources.

II. General mission of the depositary.

Pursuant to the law of 30 March 1988, the custody of the assets of each Luxembourg UCI must be entrusted to a depositary. This requirement is of a general application insofar as it indistinctively refers to all UCIs whatever their status or legal form.

Pursuant to the commentary of the Articles of the law of 30 March 1988, the concept of cus-tody used to describe the general mission of the depositary should be understood not in the sense of “safekeeping”, but in the sense of “supervision” which implies that the depositary must have knowledge at any time of how the assets of the UCI have been invested and where and how these assets are available.

In accordance with the meaning thus attributed to the concept of custody, the physical deposit of all or part of the assets may be made either with the depositary itself (which represents the most prudent solution) or with any professional designated by the UCI in agreement with the depositary.

This interpretation of the custody mission of a depositary in no way prevents the recourse to a fiduciary agreement to be entered into between the depositary and the UCI for the deposit of the latter’s assets; this solution presents some considerable advantages since the depositary thus receives significant authority for the exercise of its duties.

In the context of its custody duties over the assets of the UCI, the depositary may communi-cate with foreign correspondents by using electronic means of communication developed or operated by third parties and possibly computer equipment located abroad, provided how-ever that these means are used for the direct communication with the foreign correspondents without the intervention of a third party.

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III. Specific duties of the depositary.

1. Specific duties of the depositary of a common fund subject to Part I of the law of 30 March 1988.

The law of 30 March 1988 provides that the depositary carries out all operations concern-ing day-to-day administration of the assets of the common fund.

This means that the depositary is in particular responsible for the collection of dividends, interest and proceeds of matured securities, the exercise of options and, in general, for any other operation concerning the day-to-day administration of the securities and liquid assets making up the fund.

To the extent that the operations referred to above involve assets that are not held by the depositary itself, it may charge third parties with whom the assets are actually deposited, with the execution thereof. In such case and in order to comply with its obligation of su-pervision of the assets of the common fund, the depositary must organise its relationship with its correspondents so as to ensure that it is immediately informed of any operation ex-ecuted by them within the day-to-day administration of the assets deposited with them.

The depositary is in addition entrusted with the following supervisory and monitoring du-ties:

- ensure that the sale, issue, redemption and cancellation of units effected on behalf of the fund or by the management company are carried out in accordance with the law and the management regulations;

- ensure that the value of units is calculated in accordance with the law and the man-agement regulations;

- carry out the instructions of the management company, unless they conflict with the law or the management regulations;

- ensure that in transactions involving the assets of the funds, the consideration is remit-ted to it within the usual time limits;

- ensure that the income of the fund is applied in accordance with the management regulations.

In connection herewith, it is not possible for the depositary to delegate to third parties the execution of tasks relating to the obligation to “ensure” the correct performance of the duties referred to above.

However, the term “to ensure” as used in the provisions of the law of 30 March 1988 implies that the depositary need not “carry out” such tasks itself, but that it must verify the correct execution thereof. Thus for instance, it is conceivable that for objective reasons a depositary might set up a structure in which a foreign company assists in the settlement of portfolio transactions.

Finally, the provision pursuant to which the depositary must carry out the instructions of the management company unless they conflict with the law or the management regulations, does not prevent the depositary to operate by way of mandate in case the management company entrusts the management of the fund’s assets to portfolio managers established abroad.

In such case, the relationship between the depositary and its representatives must be organised in such a way that the latter have at their disposal all the resources and data necessary to perform the preliminary verifications required for the appraisal of the

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conformity of a decision taken by the portfolio managers with the requirements of the law or the management regulations.

Where in the cases referred to above the depositary does not have the possibility to perform these preliminary verifications itself or through its representatives, it must, in conjunction with the central administration in Luxembourg, set up supervision proce-dures capable of ensuring the regularity of the transactions initiated by the portfolio managers in light of the requirements of the law or the management regulations.

The possibility for the depositary not to execute itself all duties incumbent upon it and to be assisted by or to delegate to third parties, must not lead to a situation where all duties are concentrated in the hands of one and the same third party. Such a situa-tion would indeed be contrary to relevant legal provisions since its purpose would be to avoid the application thereof. Additionally, it would constitute a structure leading to unnecessary additional costs and could cast doubt on the Luxembourg nationality of the common fund.

The prohibition of the concentration of duties to be executed by third parties in the hands of the same correspondent of the depositary does not apply to situations where one single correspondent has been chosen for technical reasons. This is inter alia the case (without being exclusive) in situations where investments are made on a single market.

2. Specific obligations of the depositary of a common fund subject to Part II of the law of 30 March 1988.

The depositary referred to herein has the same duties as the depositary of a common fund subject to Part I of the law save that it is not obliged to ensure that the calculation of the value of units is carried out in accordance with the law and the management regulations.

Subject to the conditions specified under the preceding heading 1., it may, to the same extent as a depositary of a common fund subject to Part I, seek assistance from third par-ties for the execution of its tasks or entrust to its representatives the execution thereof.

3. Specific obligations of the depositary of a SICAV or any other UCI which has not been constituted as a common fund.

For this purpose no distinction is made between the depositary of a UCI subject to Part I and the depositary of a UCI subject to Part II of the law of 30 March 1988.

In addition to its role of custodian of the assets entrusted to it, the depositary referred to herein must:- ensure that the sale, issue, redemption and cancellation of units or shares effected

by or on behalf of the UCI are carried out in accordance with the law and the constitu-tional documents;

- ensure that in transactions involving the assets of the UCI, the consideration is remit-ted to it within the usual time limits;

- ensure that the income of the UCI is applied in accordance with the constitutional documents.

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In light of the preceding enumeration, it appears that the depositary of a SICAv or of any other UCI which has not been constituted as a common fund does not have supervisory and monitoring duties as extensive as those provided for other depositaries by the law of 30 March 1988.

Thus, the depositary of a SICAv or of any other UCI which has not been constituted as a common fund is not obliged to verify whether the instructions of the management bodies are in accordance with the law or the constitutional documents.

Likewise to a depositary of a common fund subject to Part II of the law of 30 March 1988 it is furthermore not obliged to ensure that the calculation of the value of units or shares is carried out in accordance with the law and the constitutional documents.Insofar as they refer to obligations which are shared by all depositaries, the provisions under 1. herebefore apply mutatis mutandis to the depositary of a SICAv or of any other UCI which has not been constituted as a common fund.

IV. Liability of the depositary.

As stated above, the concept of custody of UCI assets by the depositary is to be understood in the sense of supervision.

With respect to the full range of duties incumbent upon it under the provisions of the law of 30 March 1988, the depositary has a duty of supervision which implies a liability for its wrong-ful failure to perform its obligations or its wrongful improper performance thereof. Anyone suf-fering damages must prove the depositary’s negligence in respect of its duty of supervision and the correspondence between cause and effect.

This supervision by the depositary is in particular exercised over the third parties with which the assets of the UCI have been deposited.

As regards the extent of the duty of supervision of the depositary, one can consider that the depositary has discharged its duty of supervision when it is satisfied from the outset and dur-ing the whole of the duration of the contract that the third parties with which the assets of the UCI are on deposit are reputable and competent and have sufficient financial resources.

The duty of supervision of the assets of the UCI and consequently the liability for such super-vision always resides with the depositary. Any provision of the management regulations and the Articles or any other agreement aiming to exclude or limit this liability are null and void.

It follows from there that the depositary may, in no case, release itself from its duty of supervi-sion. Therefore the depositary may in particular not argue that the deposit of the assets of the UCI has been carried out with its general or specific approval. The liability of the depositary is furthermore unaffected by the fact either that it has been assisted by third parties in the execution of its tasks or that it has entrusted the execution thereof to its representatives.

The liability of the depositary in matters of custody is basically different from that in respect of the deposit agreement. Indeed, where the assets of the UCI are on deposit with the deposi-tary itself, its liability is governed by the law applicable to deposit agreements (Article 1915 and the following Articles of the Civil Code).

In the light of the above, depositary agreements containing liability provisions must distin-guish the three following liability regimes:

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- liability of the depositary for the tasks incumbent upon it pursuant to the provisions of the law of 30 March 1988 where the assets of the UCI are on deposit with third par-ties;

- liability of the depositary where the assets of the UCI are on deposit with the deposi-tary itself;

- liability of the depositary for the tasks assigned to it by the depositary agreement where such tasks are not expressly referred to by the law of 30 March 1988.

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CHAPTER F

RULES APPLICABLE TO UCITS GOVERNED BY PART I OF THE LAW OF 30 MARCH 1988

I. Intervals at which the issue and redemption prices must be determined.

UCITS must determine the issue and redemption prices of their units or shares at sufficiently close and fixed intervals, but at least twice a month.

II. Redemption by UCITS of their units or shares.

As already mentioned in heading I. of Chapter C. above, UCITS are required to redeem their units or shares directly or indirectly at the request of investors.

In this connection, one has to recall that UCITS must waive any restrictions the object of which is to submit the exercise of the right to redeem to conditions and procedures which would render the redemption practically impossible or needlessly and arbitrarily complicated and less frequent.

It remains however that a UCITS may, subject to adequate justification of the necessity thereof, provide in its constitutional documents that the management bodies may, in particular circum-stances (e.g. in case of temporary liquidity shortage) or where redemption requests received in connection with the same dealing day exceed a certain level in respect of the number of securities outstanding, either provide for a delay of settlement of redemptions during a de-termined period of time, or for a proportional reduction of all redemption requests so that the set level is not exceeded, provided however that in such case any proportion of a redemption request which would not have been honoured by virtue of this possibility, must be treated as if the request had been made for the next following dealing day or days until full settlement of the original requests.

III. Requirements in respect of the constitution of assets.

1. Investment in transferable securities.

Subject to the exceptions provided for in Chapter 5 of the law of 30 March 1988, the invest-ment of the assets of UCITS must be exclusively made in transferable securities which are either admitted to official stock exchange listing or dealt in on another regulated market which operates regularly and is recognised and open to the public.

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It follows that the authorised investments of UCITS must simultaneously meet the following two essential conditions:

- firstly, they must qualify as transferable securities;

- secondly, these transferable securities must be admitted to official stock exchange listing or dealt in on another regulated market which operates regularly and is recogn-ised and open to the public.

neither the 85/611/EEC Directive, nor the law of 30 March 1988 give a definition of the concept of “transferable securities”.

A problem may therefore arise where in actual cases involving Luxembourg or foreign securities, it is not clear, prima facie, whether the securities qualify as transferable securi-ties.

In case of Luxembourg securities, the CSSF will continue to rely on the Luxembourg prac-tice which adopted the interpretation according to which the words “transferable securities” mean quoted securities, that is securities which are capable of being quoted irrespectively of whether their admission to official stock exchange listing has been effectively realised or not. According to this practice, a quotation is deemed possible where the determination of a single price can be contemplated; this is the case where securities do not appreciably differ from one another either by their amount, maturity or in any other material respect.

The above criteria are not applied however where foreign securities are to be qualified. In this case, it is the CSSF’s policy to align itself with the definition of the relevant securities made by the respective regulations of the countries concerned.

The words “regulated, operating regularly, recognised and open to the public” as used to designate the definition criteria of the markets referred to above are likewise not defined by the 85/611/EEC Directive nor by the law of 30 March 1988.

In the absence of such definition, the CSSF considers that the following meaning should be given to these words:

- regulated: the essential characteristic of a regulated market is the clearing which pre-supposes the existence of a central market organisation for the settlement of orders. Such a market can furthermore be distinguished by multilateral order matching (gen-eral matching of bid and offers enabling the setting of a single price), transparency (maximum distribution of information amongst buyers and sellers giving them the pos-sibility to follow the evolution of the market so that they may ensure that their orders have been carried out at current conditions) and the neutrality of its organisor (the organisor’s role must be limited to recording and supervision);

- recognised: the market must be recognised by a state or by a public authority which has been delegated by that state or by another entity which is recognised by that state or by that public authority such as a professional association;

- operating regularly: securities admitted to this market must be dealt in at a certain fixed frequency (no sporadic dealings);

- open to the public: the securities dealt in thereon must be accessible to the public.

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2. Debt instruments which are treated as equivalent to transferable securities pursu-ant to Article 40(2)b) of the law of 30 March 1988.

Securities referred to here are regularly traded money market instruments the residual matu-rity of which exceeds 12 months.

3. Investments in liquid assets.

In addition to the investments authorised pursuant to heading 1. above, a UCITS may hold ancillary liquid assets.

This term not only covers cash and short-term bank deposits, but also regularly traded money market instruments the residual maturity of which does not exceed 12 months.

The term “ancillary” means in this context that liquid assets may not in themselves constitute an investment objective, the exclusive object of UCITS being the investment of their assets in transferable securities. The law of 30 March 1988 does therefore not prohibit a UCITS to hold an important amount of liquid assets during a certain amount of time because of cir-cumstances provided such UCITS does not transform such investment in liquid assets in an investment purpose onto itself.

4. Investments in closed-ended UCIs.

The restrictions to which Article 44 of the law of 30 March 1988 submits the purchase of units of open-ended UCIs does not apply to the investment in units of closed-ended UCIs.

The units of closed-ended UCIs are indeed considered as being similar to any other transfer-able security and are therefore, in respect of investment rules, subject to the general rules applicable to transferable securities.

IV. Borrowings.

The restrictions to which the borrowings of UCITS are subject to, will not prohibit a UCITS to acquire currency by way of a back to back loan. A “back to back” loan is given in the case of a UCITS which borrows currency in the context of the acquisition of foreign transferable se-curities and the holding thereof while depositing with the lender, its agent or any other person designated by it, an amount in national currency equal or larger than the amount borrowed.

V. Method of calculation of the investment limits provided for by Chapter 5 of the law of 30 March 1988.

The investment limit percentages to be complied with by UCITS must be applied to the net assets of UCITS.

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CHAPTER G

RULES APPLICABLE TO UCITS SUBJECT TO PART II OF THE LAW OF 30 MARCH 1988

I. Intervals at which the issue and redemption prices must be determined.

UCITS must determine the issue and redemption prices of their units or shares at sufficiently close and fixed intervals, but at least once a month, subject to the exceptions provided for by the law of 30 March 1988.

II. Investment limits.

The purpose of the investment limits is to ensure that investments are sufficiently liquid and diversified. Certain of these limits do not apply to the categories of UCITS defined in heading II.4. of Chapter C. above insofar as they are incompatible with the investment policy assigned to each such category. Subject to this exception UCITS may not in principle:

a) invest more than 10% of their net assets in securities not listed on a stock exchange nor dealt in on another regulated market which operates regularly and is recognised and open to the public;

b) acquire more than 10% of the securities of the same kind issued by the same issuing body;

c) invest more than 10% of their net assets in securities issued by the same issuing body.

The restrictions mentioned hereabove are not applicable to securities issued or guaranteed by a Member State of the OECD or their local authorities or public international bodies with eU, regional or worldwide scope.

The restrictions mentioned in a), b) and c) above are applicable to the purchase of units of UCIs of the open-ended type if such UCIs are not subject to risk diversification requirements comparable to those provided for by this circular for UCITs subject to Part II of the law of 30 March 1988.

It should be remembered that units of closed-ended UCIs are treated in the same way as other transferable securities and are therefore subject to the general rules applicable to trans-ferable securities.

The possibility to invest in units of other UCIs must not be used to avoid the provisions of Article 70 of the law of 30 March 1988.

If it is intended to make investments in other UCIs, the prospectus must expressly state this possibility. In cases where it is intended to make investments in other UCIs of the same pro-moter, the prospectus must also specify the nature of the fees and expenses which may arise out of such investment.

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III. Borrowings.

UCITS may borrow the equivalent of up to 25% of their net assets without restriction in re-spect of the intended use thereof. This limit does not apply to the category of UCITS defined in heading II.4.3. of Chapter C. above.

IV. Provisions applicable to UCITS which are subject to Chapter 11 of the law of 30 March 1988.

1. Information to be provided in the constitutional documents.

The constitutional documents must inter alia specify

- the principles and methods of valuation of assets;

- the time allowed for payment in respect of issues (and redemptions, if any);

- the conditions which enable suspension of issues (and redemptions, if any).

2. Valuation of assets.

Unless otherwise provided for in the constitutional documents, the valuation of the assets of UCITS referred to herein must be based, in the case of officially listed securities, on the last known stock exchange price, unless such price is not representative. For securities not so listed and for securities which are so listed but for which the latest price is not representative, the valuation shall be based on the probable realisation value which must be estimated with care and in good faith.

3. Purchases and sales of securities held in the portfolio.

The purchase and sale of securities held in the portfolio of these UCITS can only be carried out at prices consistent with the valuation criteria specified in heading 2. above (“valuation of assets”).

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CHAPTER H

RULES APPLICABLE TO ALL UCITS

Pursuant to Article 41 of the law of 30 March 1988 UCITS are authorised

- to employ techniques and instruments relating to transferable securities provided that such techniques and instruments are used for the purpose of efficient portfolio manage-ment;

- to employ techniques and instruments intended to provide protection against exchange risks in the context of the management of their assets and liabilities.

The techniques and instruments which UCITS are authorised to use under this provision are more fully described under headings I. and II. of this Chapter. The use of other techniques and instruments is in principle not permitted.

Where a UCITS wishes to use the techniques and instruments described below, this must be expressly mentioned in its prospectus. In such case, the prospectus must list the envisaged types of transactions and specify the purpose thereof and the conditions and limits within which such transactions may be made. As the case may be, the prospectus must also include a description of the risks inherent to the envisaged transactions.

I. Techniques and instruments relating to transferable securities.

For the purpose of efficient portfolio management, a UCITS may participate in transactions relating to

- options;

- financial futures and related options;

- securities lending;

- repurchase agreements.

1. Transactions relating to options on transferable securities.

The purchase and writing of call and put options by a UCITS is permitted provided such options are traded on a regulated market which is operating regularly, recognised and open to the public.

When entering into these transactions, the UCITS must comply with the following rules:

1.1. Rules applicable to the purchase of options.

The total premiums paid for the acquisition of call and put options outstanding and re-ferred to herein may not, together with the total of the premiums paid for the purchase of call and put options outstanding and referred to in heading 2.3. below, exceed 15% of the net assets of the UCITS.

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1.2. Rules to ensure the coverage of the commitments resulting from option transac-tions.

Upon the conclusion of contracts whereby call options are written, the UCITS must hold either the underlying securities, or equivalent call options or other instruments capable of ensuring adequate coverage of the commitments resulting from such contracts, such as warrants. The underlying securities related to call options written may not be disposed of as long as these options are in existence unless such options are covered by matching options or by other instruments that can be used for that purpose. The same applies to equivalent call options or other instruments which the UCITS must hold where it does not have the underlying securities at the time of the writing of such options.

As an exception to this rule, a UCITS may write call options on securities it does not hold at the entering into the option contract provided the following conditions are met:

- the aggregate exercise (striking) price of such uncovered call options written shall not exceed 25 % of the net assets of the UCITS;

- the UCITS must at any time be in the position to ensure the coverage of the position taken as a result of the writing of such options.

Where it writes put options, the UCITS must be covered during the entire duration of the option contract by adequate liquid assets that may be used to pay for the securities which could be delivered to it in case of the exercise of the option by the counterpart.

1.3. Conditions and limits for the writing of call and put options.

The aggregate of the commitments arising from the writing of put and call options (excluding call options written in respect of which the UCITS has adequate cover-age) and the aggregate of the commitments from the transactions referred to in heading 2.3. hereafter may not, at any time, exceed the value of the net assets of the UCITS.

In this context, the commitment on call and put options written is deemed to be equal to the aggregate of the exercise (striking) prices of those options.

1.4. Rules concerning the regular information of the public.

In its financial reports, the UCITS must identify the portfolio securities which are the subject of an option and individually indicate the writing of call options on securities which are not held in the portfolio. It must also break down by category of options the aggregate of the exercise (striking) prices of options outstanding as at the reference date of the relevant reports.

2. Transactions relating to futures and option contracts relating to financial instru-ments.

Except for transactions by private agreement mentioned under heading 2.2. below, the transactions described herein may only relate to contracts that are dealt in on a regulated market which is operating regularly, recognised and open to the public.

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Subject to the conditions specified below, these transactions may be made for hedging or other purposes.

2.1. transactions with the purpose of hedging risks connected to the evolution of stock markets.

A UCITS may sell stock index futures for the purpose of hedging against a global risk of an unfavourable evolution of stock markets. For the same purpose, it may also write call options on stock indices or purchase put options thereon.

The hedging purpose of these transactions presupposes that there exists a sufficient correlation between the composition of the index used and the corresponding port-folio.

In principle, the aggregate commitments resulting from futures contracts and stock index options may not exceed the aggregate estimated market value of the securities held by the UCITS in the corresponding market.

2.2. transactions with the purpose of hedging interest rates.

A UCITS may sell interest rate futures contracts for the purpose of achieving a global hedge against interest rate fluctuations. It may also for the same purpose write call options or purchase put options on interest rates or enter into interest rate swaps by private agreement with highly rated financial institutions specialised in this type of operation.

In principle, the aggregate of the commitments relating to futures contracts, options and swap transactions on interest rates may not exceed the aggregate estimated market value of the assets to be hedged and held by the UCITS in the currency cor-responding to those contracts.

2.3. transactions made for a purpose other than hedging.

Besides option contracts on transferable securities and contracts on currencies, a UCITS may, for a purpose other than hedging, purchase and sell futures contracts and options on any kind of financial instruments provided that the aggregate com-mitments in connection with such purchase and sale transactions together with the amount of the commitments relating to the writing of call and put options on trans-ferable securities does not exceed at any time the value of the net assets of the UCITS.

The writing of call options on transferable securities for which a UCITS has adequate coverage are not considered for the calculation of the aggregate amount of the com-mitments referred to above.

In this context, the concept of the commitments relating to transactions other than options on transferable securities is defined as follows:

- the commitment arising from futures contracts is deemed equal to the value of the underlying net positions payable on those contracts which relate to identical fi-nancial instruments (after setting off all sale positions against purchase positions), without taking into account the respective maturity dates and

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- the commitment deriving from options purchased and written is equal to the ag-gregate of the exercise (striking) prices of net uncovered sales positions which relate to single underlying assets without taking into account respective maturity dates.

It is reminded that the aggregate amount of premiums paid for the acquisition of call and put options outstanding which are referred to herein, may not, together with the aggregate of the premiums paid for the acquisition of call and put options on trans-ferable securities mentioned in heading 1.1. above, exceed 15% of the net assets of the UCITS.

2.4. Periodical information of the public.

In its financial reports, the UCITS must separately indicate for each of the categories of transactions mentioned in headings 2.1, 2.2. and 2.3. above the total amount of commitments deriving from operations outstanding as at the date of reference of the relevant reports.

3. Securities lending transactions.

UCITS may enter into securities lending transactions provided the following rules are complied with:

3.1. Rules intended to ensure proper completion of lending transactions.

A UCITS may only participate in securities lending transactions within a standardised lending system organised by a recognised securities clearing institution or by a high-ly rated financial institution specialised in that type of transactions.

In relation to its lending transactions, the UCITS must in principle receive security of a value which, at the conclusion of the lending agreement, must be at least equal to the value of the global valuation of the securities lent.

This collateral must be given in the form of cash and/or of securities issued or guar-anteed by Member States of the OECD or by their local authorities or by supranation-al institutions and organisations with eU, regional or worldwide scope and blocked in favour of the UCITS until termination of the lending contract.

3.2. Conditions and limits of lending transactions.

Lending transactions may not be carried out on more than 50% of the aggregate market value of the securities in the portfolio. This limit is not applicable where the UCITS has the right, at any time, to terminate the contract and obtain restitution of the securities lent.

Lending transactions may not extend beyond a period of 30 days.

3.3 Periodical information of the public.

The UCITS must indicate in its financial reports the global valuation of securities lent at the date of reference of the relevant reports.

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4. Repurchase agreements.

UCITS may enter into repurchase agreements which consist of the purchase and sale of securities whereby the terms of the agreement entitle the seller to repurchase the securi-ties from the purchaser at a price and at a time agreed amongst the two parties at the conclusion of the agreement.

The UCITS may act either as purchaser or seller in repurchase transactions. Its entering into such agreements is however subject to the following rules:

4.1. Rules intended to ensure the proper completion of repurchase agreements.

The UCITS may purchase or sell securities in the context of a repurchase agreement only if its counterpart is a highly rated financial institution specialised in this type of transaction.

4.2. Conditions and limits of repurchase transactions.

During the lifetime of a repurchase agreement, the UCI may not sell the securities which are the object of the agreement (i) either before the repurchase of the se-curities by the counterparty has been carried out or (ii) the repurchase period has expired.

Where the UCITS is open-ended, it must ensure it maintains the importance of pur-chased securities subject to a repurchase obligation at a level such that it is able, at all times, to meet its obligations to redeem its own shares.

4.3. Periodical information of the public.

In its financial reports, the UCITS must separately indicate for purchases and sales subject to repurchase obligations, the total amount of repurchase agreements out-standing at the date of reference of the relevant reports.

II. Techniques and instruments intended to hedge currency risks to which UCITS are exposed in the management of their assets and liabilities.

In order to protect its assets against currency fluctuations, UCITS may enter into trans-actions the objects of which are currency forward contracts as well as the writing of call options and the purchase of put options on currencies. The transactions referred to herein may only concern contracts which are traded on a regulated market which is operating regularly, recognised and open to the public.

For the same purpose, the UCITS may also enter into forward sales of currencies or exchange currencies on the basis of private agreements with highly rated financial institu-tions specialised in this type of transactions.

The afore mentioned transactions’ objective of achieving a hedge presupposes the ex-istence of a direct relationship between them and the assets to be hedged. This implies that transactions made in one currency may in principle not exceed the valuation of the aggregate assets denominated in that currency nor exceed the period during which such assets are held.

In its financial reports, the UCITS must indicate, for the different types of transactions made, the aggregate amount of commitments relating to transactions outstanding as at the date of reference of the relevant reports.

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CHAPTER I

RULES APPLICABLE TO UCIs OTHER THAN UCITS

The law of 30 March 1988 does not provide for the collective investment objective of UCIs other than UCITS which means that such UCIs may carry out investments in assets other than transferable securities.

The detailed provisions which provide investors in traditional UCITS with certain safety guar-antees may not be applied entirely as they stand to UCIs the objective of which differs from that of such UCITS, in particular with respect to the particular nature of the investment policy of these UCIs which makes it impossible to apply certain operational rules which must be obided by traditional UCIs. UCIs the objective of which differs from the objective of traditional UCITS must therefore be submitted to a certain extent to a particular regime the rules of which are differentiated according to the nature of their investments.

To date, the supervisory authority has set up separate rules for three types of specialised UCIs the principal object of which is either:

- the investment in venture capital which means the investment in securities of unlisted companies either because these companies have been recently formed or because they still are in the course of development and therefore have not yet obtained the stage of maturity required to have access to stock markets; or

- the investment in commodity futures contracts and/or financial futures contracts and/or in options; or;

- the investment in real estate.

The separate rules established by the supervisory authority for each of the three specialised types of UCIs do not replace the general rules which remain applicable, but only modify cer-tain rules in order to adapt them to the particularities of each type of UCI.

The particular rules applicable to the UCIs referred to here are specified under headings I., II. and III. hereafter.

In specific cases, the CSSF may grant certain derogations from these rules on the basis of adequate justification.

I. Rules of the particular regime applicable to UCIs the principal object of which is the investment in venture capital.

The rules provided for hereafter modify the rules of the general regime on the following points:

1. Management and supervisory bodies.

With regard to the professional qualification, the directors of the management bodies and, where applicable, the investment advisors, must have specific experience in the field of investment in venture capital.

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2. Investment restrictions.

The investment restrictions applicable to traditional UCITS do not apply to UCIs subject hereto except that the investment in venture capital must be diversified to such an extent that an adequate spread of the investment risk is warranted. In order to ensure a minimum spread of such risks, the UCIs concerned may not invest more than 20% of their net assets in any one company.

3. Issue and redemption of units or shares.

The date of determination of the issue and redemption prices will depend upon the fre-quency of the periods of issue and redemption of units or shares.

Should the investors have the right to present their units or shares for redemption, the UCI may provide certain restrictions to such right. These restrictions must be clearly and precisely described in the prospectus.

4. Special regulations.

Apart from these general rules which, fundamentally, are based upon those applicable to traditional UCITS, UCIs the principal object of which is the investment in venture capital must also comply with the following special regulations:

4.1. type of securities.

Bearer certificates of the UCI and entries in the register of participants must represent a number of shares or units the value of which at the time of issue is at least equal to 12,394.68 euro.

4.2. Remuneration of investment management and advisory bodies.

If the remuneration of the investment management and advisory bodies is higher than that usually received by similar bodies from traditional UCITS, the issue pro-spectus must state whether the additional remuneration is also payable on assets which are not invested in venture capital.

4.3. Information for investors.

The annual and semi-annual reports of the UCI must contain information on the development of the companies in which it has invested. In the case of sale of securi-ties of the portfolio, the UCI must publish separately for each investment the amount of profit or loss. In addition, the financial statements must mention where there is a potential conflict of interest between the interests of a director of the investment management or advisory bodies and the interests of the UCI.

4.4. Special indications to be made in the issue prospectus.

The issue prospectus must contain a detailed description of the investment risks inherent to the investment policy of the UCI and of the type of conflict of interest

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which could arise between the interests of a director of the investment management and advisory bodies and the interests of the UCI.

Furthermore, the prospectus must include a statement indicating that since an in-vestment in such UCI represents an above average risk, the UCI in question is only suitable for those persons who can afford to take such risks and that it is advisable for the average subscriber to invest therein only a part of the sums such subscriber intends for a long-term investment.

II. Rules of the particular regime applicable to UCIs the principal object of which is the investment in futures contracts (commodity futures and/or financial futures) and/or in options.


1. Management and supervisory bodies.

With regard to the professional qualification, the directors of the management bodies and, where applicable, the investment advisors must have specific experience in the field of investment in commodities, financial futures and options respectively.


2.1. Margin deposits relating to commitments taken on futures purchase and sale con-tracts, and call and put options written may not exceed 70% of the net assets of the UCI, the balance of 30% representing a liquidity reserve.

2.2. The UCI may only enter into futures contracts dealt in on an organised market. Fu-tures contracts underlying options must also comply with this condition.

2.3. The UCI may not enter into commodity contracts other than commodity futures con-tracts. As a departure therefrom, the UCI may, for cash consideration, acquire pre-cious metals which are negotiable on an organised market.

2.4. The UCI may only acquire call and put options which are dealt in on an organised market. Premiums paid for the acquisition of options outstanding are included in the 70% limit provided for under heading 2.1. above.

2.5. The UCI must ensure an adequate spread of investment risks by sufficient diversifi-cation.

2.6. The UCI may not hold an open forward position in any one futures contract for which the margin requirement represents 5% or more of net assets. This rule also applies to open positions resulting from options written.

2.7. Premiums paid to acquire options outstanding having identical characteristics may not exceed 5% of net assets.

2.8. The UCI may not hold an open position in futures contracts concerning a single com-modity or a single category of financial futures for which the margin required repre-sents 20% or more of net assets. This rule also applies to open positions resulting from options written.

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3. Borrowings.

The UCI may only borrow up to the equivalent of 10% of its net assets provided such bor-rowings may not be used for investment purposes.


Apart from these general rules which, fundamentally, are based upon those applicable to traditional UCITS, UCIs the principal object of which is the investment in futures contracts and/or options must also comply with the following special regulations:

4.1. type of securities.

Bearer certificates of the UCI and entries in the register of participants must represent a number of shares or units the value of which at the time of issue is at least equal to 12,394.68 euro.

4.2. Remuneration of managers and investment advisors.

If the remuneration of the investment management and advisory bodies is higher than that usually received by similar bodies from traditional UCITS, the issue pro-spectus must state whether the additional remuneration is also payable on assets which are not invested in futures contracts and/or options.

4.3. Information for investors.

The annual and semi-annual reports of the UCI must contain information, for each category of futures and option contracts that has been carried out, the amount of profit or loss realised by the UCI. In addition, the financial statements must quantify the commissions paid to brokers and the fees paid to the investment management and advisory bodies.

4.4. Special indications to be made in the issue prospectus.

The issue prospectus must contain a detailed description of the trading strategy fol-lowed by the UCI with respect to futures contracts and options as well as the invest-ment risks inherent to the investment policy. In particular, mention must be made that the futures contracts and option markets are extremely volatile and that the risk of loss is very high.

In addition, the prospectus must include a statement indicating that the UCI in ques-tion is only suitable for persons who can afford to take such risks since the invest-ment in that UCI represents an above average risk.

III. Rules of the particular regime applicable to UCIs the principal object of which is the investment in real estate assets.

By real estate assets this circular means:

- property consisting of land and/or buildings registered in the name of the UCI;

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- shareholdings in real estate companies (including claims on such companies) the exclu-sive object and purpose of which is the acquisition, promotion and sale as well as the let-ting and agricultural lease of property provided that these shareholdings must be at least as liquid as the property rights held directly by the UCI;

- property related long-term interests such as surface ownership, leasehold and options on real estate assets.


1. Management bodies.

With regard to the professional qualification, the directors of the management bodies and, where applicable, the investment advisors, must have specific experience in real estate assets.


The investment restrictions applicable to traditional UCITS do not apply to UCIs subject hereto. nevertheless, the investment in real estate assets must be diversified to an extent that an adequate spread of the investment risk is warranted. In order to achieve a minimum spread of such risks, UCIs subject hereto may not invest more than 20% of their net assets in a single property, such restriction being effective at the date of acquisition of the relevant property. Property whose economic viability is linked to another property is not considered a separate item of property for this purpose.

This 20% rule does not apply during a start-up period which may not extend beyond four years after the closing date of the initial subscription period.

3. Issue and redemption of securities.

The net asset value on which the issue and redemption prices of the securities are based must be determined at least once a year, namely at the end of the financial year, as well as on each day on which shares or units are issued or redeemed. In respect of real estate assets, management may use the valuation established at the year end throughout the following year unless there is a change in the general economic situation or in the condi-tion of the properties which requires new valuations to be carried out under the same conditions as the annual valuation.

Should the investors have the right to present their securities for redemption, the UCI may provide for certain restrictions thereto. In addition, where it is justified, notably with regard to a specific investment policy, the UCI has the obligation to restrict such right of redemp-tion. These restrictions must be clearly and precisely described in the prospectus. The UCI may inter alia provide for delays of payment in case it does not hold sufficient liquid assets to immediately settle redemption requests.

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Apart from these general rules which, fundamentally, are based upon those applicable to traditional UCITS, UCIs the principal object of which is the investment in real estate must also comply with the following special regulations:

4.1. Remuneration of investment management and advisory bodies.

If the remuneration of investment management and advisory bodies is higher than that usually received by similar bodies from traditional UCITS, the issue prospectus must indicate whether such additional remuneration is also payable on assets which are not directly or indirectly invested in real estate assets.

4.2. Valuation of properties.

Management must appoint one or more independent property valuers with specific experience in the field of property valuation.

At the end of the financial year, management must instruct the property valuer(s) to examine the valuation of all properties owned by the UCI or by its affiliated real estate companies.

In addition, properties may not be acquired or sold unless they have been valued by the property valuer(s), although a new valuation is unnecessary if the sale of the property takes place within six months after the last valuation thereof.

Acquisition prices may not be noticeably higher, nor sales prices noticeably lower, than the relevant valuation except in exceptional circumstances which are duly jus-tified. In such case, the managers must justify their decision in the next financial report.

4.3. Borrowings.

The aggregate of all borrowings of the UCI may not exceed on average 50% of the valuation of all its properties.

4.4. Financial statements.

The audit of the accounts of the UCI and of real estate companies which are funded for more than 50% by the UCI either by way of equity or loans, must be carried out under the responsibility of one and the same auditor. The accounts of these entities must in principle be drawn up as at the same date.

At the end of each half year, the accounts of the UCI must be consolidated with those of the real estate companies referred to in the preceding paragraph subject to the relevant legal requirements.

Where the UCI holds minority interests in real estate companies the securities of which are not listed on a stock exchange nor dealt in on another regulated market operating regularly, recognised and open to the public, the UCI must provide either for a partial consolidation at year end or for a valuation on the basis of the probable sale value estimated with prudence and in good faith by the management. For the valuation of minority shareholdings held in real estate companies the securities of

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which are listed on a stock exchange or dealt in on another regulated market operat-ing regularly, recognised and open to the public, the stock exchange or market value must be taken into consideration.

In its annual and semi-annual reports, the UCI must clearly explain the accounting principles applied for the consolidation of its own accounts with those of affiliated real estate companies.

The inventory of properties included in the annual and semi-annual reports must, for each category of property held by the UCI or its real estate companies, indicate the aggregate of the purchase price or cost, the insured value and the valuation.

In the financial statements, properties must be shown as valued.

4.5. Specific indications to be disclosed in the issue prospectus.

The issue prospectus must give a description of the investment risks inherent to the UCI’s investment policy. In addition, the prospectus must provide details of the type of commissions, expenses and charges to be borne by the UCI and the way in which they are calculated and charged.

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CHAPTER J

RULES APPLICABLE TO MULTIPLE COMPARTMENT UCIs

I. General principle.

The law of 30 March 1988 introduced in Luxembourg law the concept of UCIs with multiple compartments commonly referred to as “umbrella funds”.

These are UCIs formed as common funds or investment companies with a multitude of com-partments within a single entity. These compartments are for instance used for investment in transferable securities denominated in different currencies or of different geographic regions or economic sectors. From a practical point of view, it appeared attractive to offer investors the possibility to select within a single entity between a multitude of currencies or assets. Furthermore, after having invested in one compartment, the investor may easily switch into one or several other compartments. The conversion from one compartment to the other within the same UCI does in principle not give rise to the payment of commissions of the category of those which would be provided for if the investor had invested in legally separate and in-dependent undertakings.

The law of 30 March 1988 provides that a multiple compartment UCI constitutes a single legal entity. This implies that a multiple compartment UCI, certain compartments of which would normally fall under Part I of the law of 30 March 1988 whilst other compartments would fall under Part II, is to be considered to fall in its entirety under Part II because of the criterion of the “single legal entity”.

nevertheless, the law of 30 March 1988 provides that the constitutional documents of multiple compartment UCIs may provide that in respect of the relations between unitholders, each compartment will be treated as a separate entity.

Considering that the multiple compartment UCI, existing as a single legal entity, consists of different compartments and that the investor may restrict his investment to one or the other compartment, it appears that it is inevitable that the units or shares of this single legal entity can have different values. For this reason, the law of 30 March 1988 provides in its Article 111 that the units or shares may be of different values with or without par value depending on the legal form which has been chosen. This is a derogatory provision to Article 37 of the law of 10 August 1915 on commercial companies (as amended) which, inter alia, provides that the capital of limited liability companies is divided into shares of equal value.

The experience of multiple compartment UCIs has led to the drawing up of the rules set out under headings II., III. and Iv. hereafter.

II. Common funds.

In order to remain within the scope of Article 111(2) of the law of 30 March 1988 which pro-vides that multiple compartment UCIs constitute a single legal entity, the following conditions must be met:

- the different compartments of the fund must have a collective generic denomination and a single management company which determines the investment policies and their applica-tion to the relevant compartments through a single board of directors of the management company;

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- the custody of the assets of the different compartments of the fund must be ensured by a single depositary who may however utilise, to the same extent as in respect of funds with a single portfolio, correspondents in different geographic regions;

- the fund must be governed by a single set of management regulations which form its legal basis. Subject to derogations which may be granted by the CSSF on the basis of adequate justification, the management regulations must notably determine for each com-partment the same redemption conditions for each category of units and the same general valuation, suspension, redemption and investment restriction principles;

- the supervision of the fund must be carried out by a single auditor;

- the unitholders shall in principle, subject to reasonable limits, be able to switch from one compartment to the other without payment of commissions;

- the management regulations must indicate the currency in which the combined position of the fund is expressed and which is obtained by aggregating the financial positions of all the compartments in the fund.

In addition to the more specific preceding conditions, common funds with multiple compart-ments must also comply with the following conditions:

- the certificates or other documents evidencing the rights of unitholders may only differ on the designation of the respective compartments in respect of which they are issued;

- the issue and redemption of units attributable to each compartment must be carried out at a price arrived at by dividing the net asset value of the corresponding compartment by the number of outstanding units in such compartment;

- the investment and borrowing restrictions provided for by the law of 30 March 1988 or by this circular must be complied with inside each compartment with the exception of those restricting the holding of securities of a single issuer which shall also apply to the different compartments taken together.

As regards more particularly the condition of minimum net assets resulting from Article 22 of the law of 30 March 1988, it is considered that this condition is complied with if a common fund with multiple compartments reaches minimum assets of 1,239,467.62 euro in respect of all its compartments taken together within a period of 6 months following its authorisation.

As a consequence of the above, the provisions of the first paragraph of Article 23 of the law of 30 March 1988 only become applicable after the aggregate net assets of all the compart-ments of a multiple compartment common fund taken together have fallen below two thirds of the legal minimum of 1,239,467.62 euro.

III. Investment companies.

The inherent specifics of the concept of multiple compartment investment companies call for the following commentaries:

1. In a multiple compartment investment company the net asset value of a share is calcu-lated on the basis of the net assets of the compartment in respect of which the share is issued. The value of shares of the same company shall therefore necessarily differ from one compartment to the other.

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However, this difference of value of shares representing share capital of a multiple com-partment investment company bears no consequence on the voting rights attached to such shares. Indeed, each share gives the right to one vote within the exercise of voting rights and all shares participate equally in the decisions to be taken in general meetings.

For the sake of clarity, it is recommended that this equal treatment of shareholders in respect of the exercise of their voting rights is emphasised in the Articles of incorporation of a multiple compartment investment company.

Furthermore, the Articles should in addition distinguish between the decisions affecting all shareholders and which are to be considered in a single general meeting and decisions only affecting specific rights of shareholders of one compartment and which are therefore taken by the general meeting of one compartment.

2. Every company must have a share capital represented by shares.

The law implies that there be - a single share capital;

- denominated in a single currency;- the nominal or accounting par value being expressed in that same currency;- the annual accounts being also expressed in that same currency.

It follows from there that the share capital of a multiple compartment investment company must be denominated in a single reference currency. However, the net asset value of each compartment is denominated in the currency of the relevant compartment.

In the interest of a clear understanding of the operating mechanism of multiple com-partment investment companies, it is recommended that the Articles of these companies clearly indicate the preceding particularities.

3. The Articles of a multiple compartment investment company, similarly to the Articles of investment companies with a single portfolio, must enumerate the circumstances of sus-pension of the calculation of the net asset value of the company and consequently the suspension of issues and redemptions of shares of that company.

The Articles of a multiple compartment investment company must furthermore provide for the circumstances of suspension of the calculation of the net asset value (and conse-quently of issues and redemptions) of the individual compartments.

4. The investment and borrowing restrictions provided for by the law of 30 March 1988 or by this circular must be complied with inside each compartment with the exception of those restricting the holding of securities of a single issuer which shall also apply to the different compartments taken together.

IV. Common rules applicable to all multiple compartment UCIs.

It must clearly result from the constitutional documents of multiple compartment UCIs ir-respective of whether they are established in the form of common funds or in the form of investment companies, that for the purposes of the relations between unit- or shareholders, each compartment shall be treated as a single entity with its own funding, capital gains and losses, expenses etc.

The opening of a new compartment is subject to the authorisation of the CSSF and the up-date of the prospectus, as the case may be by means of an insert.

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CHAPTER K

CONTENTS OF THE FILE IN SUPPORT OF THE APPLICATION FOR AUTHORISATION OF UCIs

In support of their application for entry on the list provided for by Article 72(1) of the law of 30 March 1988 Luxembourg UCIs must submit to the CSSF an application file which, inter alia, contains the following:

a) Drafts of- the constitutional documents (Articles of incorporation of the management company

and management regulations or Articles of incorporation of the UCI),- the prospectus and all other information and/or advertisement document intended for

investors,- any agreements such as depositary and advisory agreements;

b) Indication of the name of the depositary in Luxembourg with a precise and detailed de-scription of the human and technical resources at its disposal for the accomplishment of all the tasks related to its duties;

c) Indication of the name of the auditor;

d) Indications on the organisation of the central administration of the UCI in Luxembourg with a precise and detailed description of the human and technical resources at its disposal for the accomplishment of all the tasks linked to its duties;

e) Information on the promoter(s) such as recent financial reports;

f) Biographical notices of directors and officers;

g) Indication on the method of marketing of the securities issued by the UCI, on the countries of marketing and on the targeted investors.

Where the information and documents mentioned in items b), d), e) and f) hereabove have already been furnished to the CSSF in respect of a previous application they must not be re-submitted provided that no change has occurred in the interim.

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CHAPTER L

INFORMATION AND ADVERTISEMENT DOCUMENTS INTENDED FOR INVESTORS

I. Prospectus.

1. Contents of the prospectus.

The prospectus must include the information necessary for investors to be able to make an informed judgment on the investment proposed to them.

It shall contain the information provided for in Schedule A annexed to the law of 30 March 1988 insofar as such information does not already appear in the documents annexed to the prospectus in accordance with Article 87(1) of the same law. In addition, it must carry a statement that no person is authorised to give any information other than that contained in the prospectus or in the documents referred to therein which are available for inspection by the public.

The CSSF may require the publication of such additional information it deems necessary in order to provide for an objective and complete information of the public.

Every prospectus must be dated and may be used only as long as the information con-tained therein remains accurate. The essential elements of the prospectus must be kept up to date. This may be achieved by the periodical financial reports.

UCIs may in principle only enter into the transactions specifically mentioned in their pro-spectus. This particularly applies to the transactions concerned by Chapter H above. Refer-ence is made to the detailed provisions of that Chapter.

2. Particular rules applicable to multiple compartment UCIs.

In the interest of correct information of investors, it is recommended that the characteris-tics set out under headings II. to Iv. of Chapter J. above should be stated clearly not only in the constitutional documents of multiple compartment UCIs, but also in the prospectuses of such UCIs.

Multiple compartment UCIs must make provision for a single prospectus for all their com-partments. In that prospectus, it must be specified that commitments in relation to a single compartment bind the whole of the UCI unless contrary arrangements have been agreed with the relevant creditors.

Besides this prospectus, multiple compartment UCIs may provide for the publication of separate prospectuses for each of their compartments. Where this facility is used, the following indications, adequately emphasised, must compulsorily be included in the separate prospectuses:

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- Indication that the particular compartment, to which the separate prospectus relates, does not constitute a separate legal entity, but that there exist other compartments which together with the particular compartment form a single entity;

- Indication that for the purposes of the relationship between unit- or shareholders, each compartment is considered as a separate entity with its own funding, capital gains and losses, expenses etc.;

- Indication that commitments in respect of the compartment to which the separate pro-spectus relates, bind the whole UCI unless contrary arrangements have been agreed to with the relevant creditors;

- Indication that there exists a prospectus which includes a complete description of all the compartments of the UCI with an indication of the locations where that prospectus may be obtained.

3. Visa.

In order to ensure an identification of the prospectuses which have obtained the “nihil ob-stat” of the CSSF, such prospectuses are stamped with its visa by the CSSF and remitted with such visa to the person who submitted the dossier.

For this purpose, the CSSF must receive five copies of each prospectus, when final, with respect to both content and presentation. The visa stamp may in no circumstances be used as an advertisement means.

II. Advertising documents.

The advertising material used by those responsible for the placing and their agents must be submitted for supervision to the CSSF where such material is not subject to the super-vision of the competent authorities of the countries in which it is to be used.

III. Financial reports.

1. Frequency and content of financial reports.

Every UCI must publish an annual report for each financial year and a semi-annual report covering the first six months of the financial year.

The financial year ends in principle on the last calendar day of a month.

The annual and semi-annual reports must be published within the following time limits with effect from the end of the period to which they relate:

- four months in the case of the annual report;

- two months in the case of the semi-annual report.

In respect of the content of the financial reports, reference is made to Article 86(2), (3) and (4) of the law of 30 March 1988 as well as to Schedule B annexed to that law. In the same context, it should be remembered that the financial reports must include the indications required by the provisions of Chapter H. above in respect of the transactions referred to in that Chapter.

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The auditor’s report provided for by Article 89(1) of the law of 30 March 1988 must be included in the annual reports.

2. Specific rules applicable to multiple compartment UCIs.

Multiple compartment UCIs must include in their financial reports separate information on each of their compartments as well as combined information on all of their compartments. The information referred to hereby is provided for by Article 86(2), (3) and (4) of the law of 30 March 1988 as well as in Schedule B annexed to that law, provided that headings II., III., Iv., vI. and vII. of that Schedule are not to be considered for the establishment of combined information.

The separate financial reports, which must be established for each of the compartments, must be expressed in their respective reference currency. For the purpose of the estab-lishment of the combined situation of the UCI, these financial reports must be aggregated after having been converted in the denomination of the share capital, where the UCI has been formed as an investment company, or in the currency determined for that purpose by the management company, where the UCI has been formed as a common fund.

Alongside the full report to be established pursuant to these rules, multiple compartment UCIs may provide for the publication of separate financial reports for each of their com-partments. Where this facility is used, the conditions provided for the publication of sepa-rate prospectuses are applicable to this case by analogy. Reference is made in this con-nection to heading I.2. above.

Where a separate annual report is established for each compartment of a multiple com-partment UCI, the auditor’s report provided for by Article 89(1) of the law of 30 March 1988 must also be included in the relevant report unless the auditor establishes separate reports for each compartment. If such separate auditor’s reports are established, they may be published in the separate annual reports of the relevant compartments in lieu of the report covering all the compartments which make up the UCI.

3. Publication of the financial reports and communication thereof to the CSSF.

The UCI must transmit to the CSSF two copies of its annual and semi-annual reports, when final, with respect to both contents and presentation, at the latest on the time of publication. It is not necessary to submit drafts to the CSSF prior to publication.

Financial reports are not subject to the formality of the visa.

Where periodical reports contain errors or omissions, the CSSF reserves the right to de-termine if an amended report must be published.

IV. Use of the prospectus and periodical reports.

Pursuant to the provisions of Article 91(1) of the law of 30 March 1988 the prospectus and the latest annual report as well as the subsequent semi-annual report, if published, must be offered to subscribers free of charge before the conclusion of a contract.

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In this respect, the question arises whether the above-mentioned documents must, before the conclusion of a subscription contract, be supplied to the subscriber only upon his request or whether they must be supplied in any event even in the absence of such request.

On this matter, the CSSF considers that the subscription contract may be entered into with-out the subscriber having actually looked into or, even received, a copy of the prospectus and periodical reports, provided these documents had been offered to him in the prescribed fashion.

It follows from the above that Article 91(1) of the law of 30 March 1988 does not prohibit that the subscription form is attached not to the prospectus, but to a brief information brochure which includes the offer to subscribers to obtain the prospectus and the periodical reports.

It naturally remains that for the purposes of marketing their securities abroad, Luxembourg UCIs must comply with the legal, regulatory and administrative provisions which govern the use of the prospectus and periodical reports in the respective countries of marketing.

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CHAPTER M

FINANCIAL INFORMATION129 INTENDED FOR THE CSSF AND THE STATEC130

The following indications intend to clarify for the concerned undertakings for collective in-vestment the requirements concerning the establishment and communication of the required financial information.

I. Content of the monthly and annual financial information

The monthly and annual financial information of undertakings for collective investment are to be drawn up pursuant to the tables O 1.1., O 4.1. and O 4.2. annexed to this circular131 as ap-pendices A, B and C respectively132. The appendices also include definitions and discussions concerning the various headings of such tables.

II. Collection of data provided for by tables O 1.1., O 4.1. and O 4.2.

The Centrale de Communications Luxembourg S.a. (“CC Lux*”) is entrusted with the duty to electronically collect the information provided for in tables O 1.1., O 4.1. and O 4.2. and to transmit them to the CSSF which will serve as an intermediary between CCLux* and STATEC for the transmission of the data required by the latter.

The central administrations of the undertakings for collective investment concerned by this collection of information will forward the required information under the format defined by CC Lux* either directly or by using the software put at their disposal by CCLux*.

In order to securitise the data transmission, data may be encrypted from dispatch by the central administrations until their receipt by the CSSF. In the absence of encryption by the central administrations, CC Lux* will encrypt the data for the purpose of their transmission to the CSSF.

CC Lux* will separately communicate to each central administration instructions for the input of data.

129 Chapter M of this Circular was globally replaced by a circular issued on 13 June 1997 by the IML (now replaced by the CSSF), as amended by CSSF Circular 08/348

130 Service Central de la Statistique et des Etudes Economiques; Central Service for Statistics and Economic Studies.

131 IML Circular 97/136 of 13 June 1997, as amended by CSSF Circular 08/348

132 For ease of presentation of this translation, these Annexes have not been included here.

* Centrale de Communications Luxembourg S.A. (CCLux) changed its name to Finesti S.A. on 28 January 2009.

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III. Reference date

Monthly financial information

In principle, the last day of each month shall be taken as the reference date for the preparation of the monthly financial information to be transmitted by undertakings for collective invest-ment.

However, the preceding rule is not compulsory for undertakings for collective investment which calculate their net asset value at least once a week. For this category of undertakings for collective investment, the reference date may be the last day on which the net asset value of that month is calculated.

This derogation is also valid for those undertakings for collective investment which calculate the per unit or per share net asset value at least monthly if the day of such calculation falls either on the last week of the reference month or on the first week of the following month. The financial information to be transmitted must then be prepared on the basis of the data avail-able at the calculation date nearest to the last day of the month.

Undertakings for collective investment which do not calculate their per unit or per share net asset value on a monthly basis need only indicate in their monthly statements the amounts effectively booked in the accounts at the end of the month excluding any non-accounting estimates.

annual financial information

The fiscal year-end date is the reference date for the preparation of the yearly financial infor-mation to be transmitted by undertakings for collective investment.

IV. Delay for transmission

Undertakings for collective investment must provide the monthly and yearly financial state-ments to CCLux* within a period of 20 days respectively 4 months after the reference date.

V. Currency used in the statement

The monthly and yearly tables must indicate in the place provided therefor the reporting cur-rency used for the preparation of the numbered information which they contain. This reporting currency must be the currency used to calculate the net asset value. All amounts are to be set out without decimals with the exception of the amounts concerning items 120, 130 and 520 of the monthly table which are, if required, to be indicated with decimals.

VI. Undertakings for collective investment with multiple compartments

The monthly and yearly financial statements must be drawn up for each compartment sepa-rately. The relevant tables must indicate in the place provided for that purpose the reporting currency used to set out numbered information contained therein. The reporting currency must be the currency used to determine the net asset value of the compartment.

It is not required to draw up a combined situation of the whole undertaking for collective in-vestment.

* Centrale de Communications Luxembourg S.A. (CCLux) changed its name to Finesti S.A. on 28 January 2009

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VII. Identification number

The CSSF will attribute to each undertaking for collective investment and, if applicable, to each compartment of an undertaking for collective investment an identification number. The CSSF will separately communicate such numbers to the undertakings for collective invest-ment which must indicate that number in the space provided for that purpose on the monthly and annual tables.

VIII. Reference period

The annual tables must indicate in the space provided therefor the reference period which they cover. This period which is identical to the period covered by the annual report is to be expressed in number of months (in principle 12 months) and, if required, in number of days if the period does not in its entirety cover a full month (in this last case the number of full months and of days remaining are to be indicated).

IX. Name of staff member

In each table it has to be indicated in the space reserved therefor the name of the staff mem-ber responsible for the drawing-up of the relevant table as well as the telephone number at which the relevant staff member may be contacted by the CSSF if appropriate.

X. Date of the first drawing-up of monthly and annual financial information

The monthly and annual financial information pursuant to tables O 1.1., O 4.1. and O 4.2. are to be drawn up for the first time at 31 December 1997.

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CHAPTER N

RULES APPLICABLE TO MANAGEMENT COMPANIES OF COMMON FUNDS

I. Information obligation of management companies vis-à-vis the CSSF.

Immediately following the approval thereof by the general meeting of shareholders, the man-agement companies of common funds must transmit to the CSSF their annual accounts to-gether with the directors’ report and the report of the external auditors responsible for the audit of the annual accounts.

II. Authorisation of the shareholders of a management company.

Pursuant to Article 71(3) of the law of 30 March 1988 the directors of a management company must be of sufficiently good repute and have the experience required for the performance of their duties.

To that end, the names of the directors of the management company, and of every person succeeding them in office, must be communicated forthwith to the supervisory authority.

The law of 30 March 1988 defines directors as being the persons who represent the manage-ment company or who effectively determine the policy thereof.

This raises the question as to whether the shareholders of the management company are to be considered as directors which require the authorisation of the supervisory authority. This question must be answered in the affirmative insofar as one has to consider that the share-holders actually determine the policy of the management company.

The principal shareholders of the management company of a common fund must therefore be of sufficient good repute and have the experience required for the performance of their duties and must, in this respect, obtain the authorisation of the CSSF.

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CHAPTER O

MARKETING RULES APPLICABLE IN LUXEMBOURG

The marketing rules which UCIs must comply with in Luxembourg when their units or shares are distributed therein derive in particular from:

- the law of 25 August 1983 on the legal protection of consumers;

- the law of 27 november 1986 regulating certain commercial practices and penalising un-fair competition; and

- the law of 16 July 1987 on door-to-door sales, itinerant trade, display of goods and can-vassing for orders.

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CHAPTER P

OBLIGATION OF UCIs TO INFORM THE CSSF ON THE AUDIT MADE BY THE AUDI-TOR

UCIs must forthwith communicate to the CSSF without being specially requested to do so, the certificates, reports and written commentaries made by the auditor within the scope of the supervision which he must carry out pursuant to Article 89 of the law of 30 March 1988. The documents to be communicated must inter alia include the written commentaries issued by the auditors which generally take the form of a management letter to the UCI.

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APPENDIX

To be forwarded to theCommission de Surveillance du Secteur FinancierL-2991 Luxembourg

MONTHLY FINANCIAL INFORMATION CONCERNINGUNDERTAKINGS FOR COLLECTIVE INVESTMENT

(Table annexed to IML circular 91/75 of 21 January 1991.)

name of the undertaking for collective investment:

_________________________________________________________________________

Reference month: ________________________ Currency: _________________

I. Information concerning the net asset value at the month end: 1. Total net asset value (in millions): _________________ 2. net asset value per unit or share: _________________ 3. Percentage change (+ or -) in the value at sub 2. in relation to previous month’s value: _________________

II. Percentage value of the portfolio in relation to the total net asset value at the end of the month: _________________

III. Information concerning the amount of issues and redemptions of units or shares during the reference month (in millions): 1. net proceeds of issues: _________________ 2. Payment made in respect of redemptions: _________________ 3. net issues (net repurchases) (3=1-2): _________________

Iv. Information concerning distributions declared during the reference month: 1. Total amount of distributions (in millions): _________________ 2. Amount per unit or share: ________________________________________________________________

Authorised signature(s) and stamp: name of employee(s): ____________________________ Tel.: ________________________

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CSSF CIRCULAR 02/77 OF 27 NOVEMBER 2002 CONCERNING THE PROTECTION OF INVESTORS IN CASE OF NAV CALCULATION ERROR AND CORRECTION OF THE CONSEQUENCES RESULTING FROM NON-COMPLIANCE WITH THE INVESTMENT RULES APPLICABLE TO UNDERTAKINGS FOR COLLECTIVE INVESTMENT

Luxembourg, 27 november 2002

To: All Luxembourg undertakings for collective investment and all parties involved in the operation and supervision of such undertakings

CSSF CIRCULAR 02/77

Concerns: Protection of investors in case of NAV calculation error and correction of the consequences resulting from non-compliance with the investment rules applicable to undertakings for collective investment.

Ladies and Gentlemen,

The purpose of this circular is to set out the minimum rules of conduct to be followed by collective investment professionals in Luxembourg in case of errors in the administration or management of the undertakings for collective investment (“UCIs”) for which they are respon-sible.

Errors which occur in practice are essentially those resulting from the incorrect calculation of the net asset value (“nAv”) or from non-compliance with the investment rules applicable to UCIs. In most cases, non-compliance is caused either by investments which are not in compliance with the investment policy which the UCIs define in their prospectus or because of a breach of the investment or borrowing restrictions provided for by law or their prospectus.

It is the responsibility of the UCIs’ promoters to ensure that any errors are correctly dealt with in strictest compliance with the rules of conduct specified in this circular. This is of a primordial importance not only because the interests of the UCIs and/or of the investors having suffered a loss need to be protected, but it must be ensured that investors maintain their trust in the integrity of collective management professionals which exercise their activities in Luxembourg and the effectiveness of the supervision exercised over UCIs.

The corrective and compensatory actions to be taken in case of nAv calculation errors or in case of non-compliance with the investment rules applicable to UCIs are separately dealt with under sections I. and II. hereafter. That presentation is necessary to take account of the fact that this circular takes a different approach to deal with losses in each of the two situations.

This circular replaces and supersedes CSSF circular 2000/8 of 15 March 2000.

I. The treatment of NAV calculation errors

1. Definition of a calculation error

It is reminded that the nAv per unit/share of UCIs is obtained by dividing the value of their net assets, meaning assets less liabilities, by the number of units/shares outstanding.

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Unless provided differently in their constitutional documents, the valuation of the assets of UCIs, whose investment policy provides for the investment in transferable securities, must be based, in case of securities admitted to official stock exchange listing, on the last known price on such stock exchange, unless such price is not representative. Securities which are not so listed or securities which are so listed but of which the last price is not representative, are valued on the basis of the reasonably foreseeable sale’s price which must be determined prudently and in good faith.

It is presumed that the nAv is correctly calculated where the rules provided for its determination in the constitutional documents and prospectus of the UCI are strictly applied, consistently and in good faith, on the basis of the most current and most reliable information available at the time of the calculation.

An error in the nAv calculation occurs as a result of one or more factors or circum-stances which cause the calculation to yield an incorrect result. Generally, these factors and circumstances are related to inadequate internal control procedures, management shortfalls, imperfections or deficiencies in the operation of the IT, accounting or communication systems as well as to non-compliance with the valuation rules provided in the constitutional documents and the prospectus of UCIs.

2. The materiality concept in the context of the nAv calculation errors

It is generally recognised that the nAv calculation process is not an exact science and that the result of the calculation constitutes the closest possible approximation of the true market value of the assets of a UCI. The level of precision with which the nAv is calculated will indeed depend on a series of external factors more or less linked to the complexity of each particular UCI such as volatility of the markets on which an important part of the assets of the UCI are invested in, the availability at the appro-priate time of up-to-date information on market prices and/or other elements relevant for the calculation of the nAv as well as the reliability of the price information sources used.

In consideration of these factors, it is accepted in the majority of the principal collective management industry centres that only those calculation errors, which have a material impact on the nAv and whose proportion compared to the nAv reaches or exceeds a certain threshold, referred to as the materiality or tolerance threshold, must be notified to the CSSF and corrected in order to protect the interests of the investors concerned while it is indeed considered that in all other cases, the immateriality of the errors does not justify the recourse to relatively long and costly administration procedures which must be put into place in order to recalculate incorrect nAvs and indemnify affected investors.

Following the use and practices adopted abroad, this circular introduces the materi-ality concept for Luxembourg UCIs whilst determining acceptable tolerance thresholds at different levels depending on the type of UCI concerned by the nAv calculation error. This differentiating approach is justified to the extent that the implicit level of imprecision in each nAv calculation can vary from one type of UCI to the next by virtue of the external factors referred to above and in particular market volatility. That factor is indeed of a primordial importance in this context as it is generally admitted that the volatility of a market depends to a large extent on the risks associated with the financial assets dealt on that market and that such volatility increases depending on whether those assets are money market instruments, bonds/debt securities or shares and other types of securities.

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In conformity with that approach, different tolerance thresholds are provided for UCIs which invest in money market instruments and/or cash assets (“money market UCIs/cash funds”), UCIs which invest in debt obligations and/or similar debt instruments (“bond UCIs”), UCIs which invest in shares and/or financial assets other than those referred to above (“equity or other financial assets’ UCIs”) and UCIs which follow a mixed investment policy (“mixed UCIs”).

For each of these types of UCIs the tolerance threshold is specified hereunder:

money market UCIs/cash funds: 0.25% of nAv

bond UCIs: 0.50% of nAv

shares and other financial assets’ UCIs: 1.00% of nAv

mixed UCIs: 0.50% of nAv.

The introduction of the materiality concept does not mean that UCI promoters will in case of calculation errors be obliged to apply the tolerance thresholds specified above. On the contrary promoters are free to apply less high tolerance thresholds or even not apply any at all.

It is the responsibility of the governing bodies of Luxembourg UCIs whose units/shares are admitted to distribution abroad to ensure that the tolerance thresholds they propose to adopt in case of nAv calculation errors are not in conflict with the require-ments that may be applicable in those circumstances in the host countries.

3. Procedures to be followed for the correction of calculation errors which have a signif-icant impact on the nAv.

The indications given under the points below relate to the principal stages of the correction process and fix in detail the rules of conduct to be followed in the correction of the calculation errors whose impact on the nAv reaches or exceeds the acceptable tolerance threshold as specified above and which are thereby considered to constitute significant errors. These rules of conduct concern in particular

– the information to be furnished to the promoter and the custodian of the UCI and to the CSSF;

– the determination of the financial impact of the calculation errors;

– the indemnification of the damages which result from the calculation errors for the UCI and/or its investors;

– the implication of the external auditor in the monitoring of the correction process and

– the communications to be made to those investors which have to be indemnified.

Significant errors not only mean isolated calculation errors which have a significant impact on the nAv but also unprocessed simultaneous or successive calculation errors which each remain below the acceptable tolerance threshold but which, if considered on an aggregate basis, reach or exceed that threshold.

The correction procedures must form an integral part of the internal control procedures which the head office of UCIs must put into place to limit as much as possible the risk for calculation errors and detect any errors that occur.

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(a) The information to be furnished to the promoter and the custodian of the UCI and to the CSSF

As soon as a significant calculation error is discovered, the head office of the UCI must immediately inform the promoter and the custodian of the UCI as well as the CSSF of the occurrence of the error and submit to the promoter and the CSSF a corrective action plan dealing with the steps which are proposed or have been taken to cure the problems which have caused the ascertained calculation error and to put into place the improvements to the administrative and control structures which are necessary to avoid the subsequent occurrence of the same problems.

The corrective action plan must also specify the steps which are proposed or which have been taken to

– identify in the most appropriate way the different categories of investors who are affected by the errors;

– recalculate the nAvs which have been applied to subscription and redemption requests received during the period starting on the date on which the error became significant and the date on which it was corrected (“the error period”);

– determine, on the basis of the recalculated nAvs, the amounts which have to be repaid to the UCI and the amounts payable by way of indemnity to investors who have suffered a loss as a result of the error;

– notify the error to the supervisory authorities of the countries in which the units/shares of the UCI are authorised for distribution, to the extent that the latter so require;

– notify the error to the investors who have to be indemnified and inform them of the steps that will be put into place for indemnifying their losses.

If, following a nAv calculation error, the indemnification amount does not exceed EUR 25,000 and the amount to be reimbursed to an investor does not exceed EUR 2,500, no corrective action plan as detailed hereabove needs to be submitted to the CSSF. In that case the head office must notify the occurrence of the signif-icant calculation error to the CSSF and must quickly take the measures necessary for correcting the calculation error and for arranging the indemnification of the damages incurred as provided in items b), c), and e) hereafter.

(b) The determination of the financial impact of significant calculation errors

In case of a significant calculation error, the head office of the UCI must as quickly as possible take the steps necessary to correct the error. In particular, it must recalculate the nAvs which have been determined during the error period and quantify the loss for the UCI and/or its investors on the basis of the corrected nAvs, provided however that the recalculation of incorrect nAvs is required only in case subscription or redemption requests have been processed during the error period.

In determining the financial impact of calculation errors, the head office of the UCI must fundamentally distinguish between

– investors which have joined the UCI before the error period and which have redeemed their units/shares during such period and

– investors which have joined the UCI during the error period and which continued to hold their units/shares after such a period,

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provided that investors other than those belonging to the above categories may be affected depending on actual circumstances.

The indications below give an overview of the situation of the UCI and the concerned investors in the following cases:

Cases where the NaV is undervalued.

In this case,

– investors which have joined the UCI before the error period and which have redeemed their units/shares during such period, must be indemnified of the difference between the recalculated nAv and the undervalued nAv which was applied to the redeemed units/shares;

– the UCI must be indemnified of the difference between the recalculated nAv and the undervalued nAv which has been applied to units/shares subscribed to during the error period and which remained outstanding beyond that period.

In case the NaV is overvalued.

In this case,

– the UCI must be indemnified of the difference between the overvalued nAv which was applied to units/shares redeemed during the error period but which were subscribed to before that period and the recalculated nAv;

– investors which have joined the UCI during the error period and which have held their units/shares beyond such period must be indemnified of the difference between the overvalued nAv applied to the units/shares subscribed to and the recalculated nAv.

The investors having suffered a loss as a result of a calculation error may be indemnified out of the assets of the UCI in case the payments due to the relevant investors correspond to excess sums within the assets of the UCI and the payment of which can therefore not affect the interests of the other investors. It remains nevertheless that the head office of the UCI or, as the case may be, its promoter may decide to take over themselves the payments necessary to indemnify affected investors.

There is an open issue as to whether the UCI affected by a calculation error has the right to require investors who have involuntarily benefited from that error to subsequently pay to the UCI the amount not paid by them in respect of units/shares subscribed by them on the basis of an undervalued nAv or to repay the excess of the sums received by them in respect of units/shares redeemed at an overvalued nAv. Since this is a controversial issue to which no clear response can be given in the absence of a court precedent, it is not recommended to call upon the investors concerned to indemnify the UCI for its losses, unless the beneficiaries are institu-tional investors or other sophisticated investors who accept in full knowledge of the circumstances to cover the loss of the UCI.

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In those circumstances, it is in principle the obligation of the head office of the UCI or as the case may be of its promoter, to make the payments due to the UCI in lieu of the investors who have benefited from the error. This solution is particularly justified because any claim on the investors having benefited from the error could have a negative effect on the promoter’s reputation and result therefore in a non negligible commercial prejudice for the promoter.

As soon as the operations consisting of the recalculation of the incorrect nAvs and the computation of the losses resulting from the calculation error for the UCI and/or its investors have been concluded, the head office of the UCI must make the entries in the accounts of the UCI which are necessary to reflect the payments to be received and the payments to be made by the UCI.

(c) The correction of the consequences for the UCI and/or its investors of calculation errors

The compensation for damages is only compulsory by reference to the specific dates on which nAv calculation errors were significant. Insofar as other dates are concerned, it is the responsibility of the governing bodies of the UCI to determine whether it is necessary to determine the financial impact of the error and establish an indemnification plan.

The head office of the UCI must diligently put into place the measures provided for in the correction plan referred to in item a) above for the recalculation of the incorrect nAvs and the determination of the loss suffered by the UCI and/or the affected investors.

It must also act with diligence in the organisation of the indemnity payments due to the UCI and/or the affected investors, provided however that these payments can only be made after the external auditor has completed his special report referred to in item d) below.

In order to accelerate the process of calculation error correction, the head office of the UCI can initiate the different stages of that process without having obtained the prior consent of the CSSF. It suffices in that case that the CSSF is informed of the steps taken subsequently thereto.

If, following a nAv calculation error, the total indemnification amount does not exceed EUR 25,000 and the amount to be reimbursed to an investor does not exceed EUR 2,500, the head office must be diligent in operating the payment of the amounts due as indemnification to the UCI and/or to affected investors as soon as the sums payable as indemnification will have been determined.

It remains however that the CSSF can intervene in the correction process on a subsequent basis if it deems such intervention necessary in order to preserve the interests of the UCI and/or the affected investors.

In most of the main centres for collective management, UCIs are authorised by the CSSF to apply the de minimis rule to the amounts which individual investors can claim.

In accordance with that rule, the UCIs which benefit from such an authorisation may decide not to pay to individual investors sums which do not exceed a specific amount, the level of which is generally fixed as a lump sum figure, referred to as the de minimis amount. That lump sum figure is applied in order to avoid that investors who have a right to be paid lesser amounts, end up with no real benefit because of the bank charges (cheque collection charges for cheques issued to their order or bank transfer charges) and other costs they have to bear.

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For the reasons specified in the preceding paragraph, Luxembourg UCIs can also take advantage of the de minimis rule. This document does however not introduce a single lump sum for the de minimis amount Luxembourg UCIs can apply.

It is therefore the responsibility of each UCI to determine itself, with the approval of the CSSF, the lump sum of de minimis amount it intends to apply provided that, in determining such lump sum, it must take into account the level of bank charges and other costs which are charged to investors to whom payments are made. This approach is justified because a large majority of Luxembourg UCIs are distributed abroad and that the level of those charges can appreciably vary between UCIs depending on the geographic location of investors.

Concerning the indemnification of investors who already hold units/shares at the moment of payment of the amounts due to them, UCIs may decide the attribution to them of new units/shares (or, as the case may be, fractions of units or shares) instead of making a payment by cheque or bank transfer. For those investors, recourse to this particular method of indemnification is even recommended since such investors then avoid the bank charges which would otherwise be charged to them and since it additionally allows a complete indemnification without any consideration being given to the actual amounts they are entitled to, as in those circumstances there is no justification to apply a de minimis amount.

It is clear that UCIs which issue new units/shares to indemnify affected investors may not deduct commissions or other entry costs in respect to those units/shares.

Where affected investors have subscribed units/shares through a “nominee”, the head office of the UCI must remit to such “nominee” the amounts which are intended for the relevant investors. In such cases, the “nominee” must commit to the head office that it will forward the amounts received by it to the persons effec-tively entitled thereto.

The term “nominee” as used herein means an intermediary who intervenes between the investors and the UCI they have selected and who offers nominee services which the investors may use in the conditions set out in the prospectus of the UCI.

The de minimis rule can in no case be used to refuse payment to investors of amounts which are less than the de minimis amount applicable to such investors in case such investors expressly claim such payment.

(d) The implication of the external auditor in the monitoring of the correction process

At the same time as the head office notifies the promoter and the custodian of the UCI and the CSSF of the occurrence of a significant calculation error, the head office of the UCI must also notify the UCI’s external auditor and instruct him to report on the adequacy of the method it intends to use in order to

– identify the different categories of investors affected by the error;

– recalculate the nAvs applied to subscription and redemption requests received during the error period; and

– determine, on the basis of the recalculated nAvs, the amounts which must be repaid to the UCI and the amounts payable on an indemnity basis to investors who have suffered a significant loss because of the error.

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The conclusions of the external auditor on the proposed methods must be documented in writing and must be attached to the correction plan referred to in item a) above.

When the calculation error is discovered by the external auditor, the external auditor must immediately notify the head office of the UCI thereof and request it to immediately inform the promoter, the custodian and the CSSF thereof. If the external auditor realises that the head office does not comply with that request, the external auditor must notify this fact to the CSSF.

As soon as the head office of the UCI has carried out the entries in the accounts of the UCI which are necessary to correct the calculation error, the external auditor must draw up a special report in which he opines whether the correction process is appropriate and reasonable or not. This opinion must address the following:

– the methods referred to above,

– the incorrect nAvs which have been recalculated,

– the losses suffered by the UCI and/or its investors.

The head office must forward a copy of the special audit report to the CSSF as well as to the supervisory authorities of those countries in which the units/shares of the UCI are admitted for distribution, in case such authorities so request.

Finally, the external auditor must establish a confirmation in which he certifies that the amounts due on an indemnity basis to the UCI and/or affected investors have effectively been paid.

A copy of that confirmation must also be forwarded to the CSSF and, as the case may be, the foreign regulatory authorities referred to above.

In the context of an nAv calculation error for which the indemnification amount does not exceed EUR 25,000 and the amount to be reimbursed to an investor does not exceed EUR 2,500, the external auditor must review the correction process in the course of its annual audit of the UCI. The external auditor must in the report on its review state whether, in its opinion, the process of correction is or is not appropriate and reasonable. This statement must cover the following items:

– the methods referred to above;

– the incorrect nAvs which have been recalculated;

– the losses suffered by the UCI and/or its investors; and

– the payment of the amounts due as indemnification.

(e) The communications to be made to those investors which have to be indemnified

Significant calculation errors must be brought to the attention of the investors who are to be indemnified.

If applicable, the communications which are made for that purpose through individual notices and/or by publication in the press must inter alia include partic-ulars on the calculation error and the steps taken to correct it and to indemnify the UCI and/or the affected investors accordingly.

These communications must be submitted in draft form to the CSSF and, as the case may be, the supervisory authorities of those countries in which the units/shares of the UCI are admitted for distribution, in case such authorities so request.

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4. Responsibility for the costs resulting from the correction operations of a calculation error

The costs caused by the correction operations of a calculation error, including the costs associated with the intervention of the external auditor, cannot be charged to the assets of the UCI. These costs must be fully supported by the head office of the UCI, failing which, by the promoter of the UCI, in each case irrespective of the impact of the error on the nAv.

The external auditor will be responsible to ascertain within the framework of the audit of the accounting information contained in the annual reports of the UCI that the costs referred to herein will not be charged to the UCI.

II. The compensation of the consequences resulting from non-compliance with the investment rules applicable to UCIs

Promptly upon discovering a non-compliance with investment rules, the directors133 of the UCI concerned must take the steps which are necessary to regularise the situation of the UCI caused by such non-compliance.

In case the ascertained non-compliance results from investments which do not comply with the investment policy defined in the prospectus, the UCI must realise those invest-ments.

In case the investment restrictions provided for by law or by the prospectus are breached in circumstances other than those referred to in Article 46 of the law of 30 March 1988 concerning undertakings for collective investment, the UCI must realise the excess positions.

Where the borrowing limits provided for by law or by the prospectus are breached, the UCI must reduce its borrowings to the authorised limit.

In the three circumstances referred to above, the UCI must be indemnified to the extent of any damage suffered.

In the first two circumstances, the damage must be determined in principle by reference to the loss of the UCI resulting from the realisation of the non-authorised investments. In the third circumstance, the UCI must in principle be indemnified to the extent of its interest and other charges resulting from the non-authorised portion of the borrowings.

In the presence of a number of simultaneous breaches of investment rules, the indemnity, if any, is to be calculated in respect of the net result of the corrective actions concerning all the breaches.

In case the corrective actions have a net positive result for the UCI, it will retain the benefit thereof. In those circumstances, it suffices for the head office of the UCI to notify the CSSF and the external auditor.

By exception to the preceding principle and to the extent that there is adequate justifi-cation therefor, methods other than those described above may be used to determine the suffered damage, including in particular the method which consists of determining the damage by reference to the performance which would have been realised if the non-au-thorised investment had been subject to the same fluctuations as the portfolio invested in compliance with the investment policy and the investment restrictions provided for by law or the prospectus.

133 The original circular uses the term “dirigeant” which includes directors, managers and officers.

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The tolerance levels which are provided for NAV calculation errors cannot be applied to damages of UCIs resulting from non-compliance with investment rules.

Because they did not comply with their obligations it is the responsibility of the persons who have caused the losses to ensure that such losses are repaid. In case this principle cannot be applied, the promoters will have to indemnify.

The principles which determine the procedures to be followed for the processing of nAv calculation errors and the treatment of nAv calculation errors for which the total indemnification amount does not exceed EUR 25,000 and the indemnification amount to be paid to one investor does not exceed EUR 2,500 will apply mutatis mutandis in all cases where a UCI suffers a loss as a result of non-compliance with investment rules. The principles referred to herein which have to be applied are in particular those concerning

– the information to be furnished to the promoter and the custodian of the UCI and to the CSSF;

– the identification of the categories of investors which are affected because of the loss suffered by the UCI;

– the determination of the financial impact of the loss for individual investors and the measures to be taken for their indemnification;

– the implication of the independent auditor in the monitoring of the correction process;

– the communications to be made to those investors which have to be indemnified.

As regards the procedures for indemnifying investors, the rules set out in Section I. 3. (c) of this circular will apply.

III. Final Provisions

1. Repealment provision

CSSF circular 2000/8 is repealed.

2. Entry into force

The provisions of this circular are immediately applicable in their entirety.

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CSSF CIRCULAR 02/80 OF 5 DECEMBER 2002 CONCERNING THE SPECIFIC RULES APPLICABLE TO LUXEMBOURG UNDERTAKINGS FOR COLLECTIVE INVESTMENT (“UCIS”) PURSUING ALTERNATIVE INVESTMENT STRATEGIES

Luxembourg, 5 December 2002

To all persons and companies supervised by the CSSF

CSSF CIRCULAR 02/80

Concerns: Specific rules applicable to Luxembourg undertakings for collective investment (“UCIs”) pursuing alternative investment strategies.


Preamble

The law of 30 March 1988 relating to UCIs does not comprise any provisions regarding restrictions applicable to UCIs governed by Part II of such law. Such restrictions are set out in the IML Circular 91/75 of 21 January 1991 applicable to UCIs. However, the UCIs which adopt alternative investment strategies are not specifically covered by the provisions of the above-mentioned circular. Therefore, in the past, the investment restrictions applicable to UCIs pursuing so called alternative investment strategies were dealt with by the Commission for the Supervision of the Financial Sector (“CSSF”) on a case-by-case basis.

Considering the increasing number of applications for the creation and authorisation of Luxembourg UCIs which pursue investment strategies akin to those pursued by “hedge funds”134 or “alternative investment funds”134, the CSSF intends to clarify the legal and regulatory framework applicable to such UCIs.

This circular is issued in the context of the existing legal framework and its purpose is to clarify the specific rules applicable to Luxembourg UCIs which pursue so-called alter-native investment strategies. In this context and due to the high investment risks which the investment strategies pursued by the UCIs concerned by this circular may entail, the CSSF will pay attention to the reputation, experience and financial standing of the promoters of such UCIs. Moreover, the CSSF considers that the professional qualification and the experience of the directors135 of the management bodies, and, if applicable, of the investment managers and the investment advisers are particularly important in relation to such UCIs.

For the avoidance of doubt, it is to be understood that the rules laid down in chapter I of IML Circular 91/75 of 21 January 1991 applicable to UCIs other than UCITS and providing for specific rules for three types of specialised UCIs remain unchanged. Such rules are not appli-cable to UCIs concerned by this circular. UCIs which pursue so-called alternative investment strategies are subject to Part II of the law of 30 March 1988 relating to UCIs as the rules set forth in chapter 5 of such law are not appropriate for such UCIs.

Although these UCIs have no obligation to borrow, their investment policy may provide for the possibility to borrow on a permanent basis for investment purposes.

134 In English in the French text.

135 The French version of this circular uses the term “dirigeant” which term includes directors, managers and officers. See footnote 25.

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Such UCIs have to comply with the provisions of this circular. However, the CSSF may grant derogations from the provisions set forth hereafter on the basis of an appropriate justification or impose additional investment restrictions.

A. Risk diversification rules regarding short sales

A.1. Short sales may not, in principle, result in the UCI holding:

a) a short position on transferable securities which are not admitted to official stock exchange listing or dealt in on another regulated market, which operates regularly and is recognised and open to the public. However, the UCI may hold short positions on transferable securities which are not quoted or not dealt in on a regulated market if such securities are highly liquid and do not represent more than 10% of the assets of the UCI;

b) a short position on transferable securities which represent more than 10% of the securities of the same type issued by the same issuer;

c) a short position on transferable securities of the same issuer, (i) if the sum of the prices at which the short sales have been carried out represents more than 10% of the assets of the UCI or (ii) if the short position represents a commitment exceeding 5% of the assets.

A.2. The commitments arising from short sales on transferable securities at a given time correspond to the cumulative non-realised losses resulting, at that time, from the short sales made by the UCI. The non-realised loss resulting from a short sale is the positive amount resulting from the difference between the market price at which the short position can be covered and the price at which the relevant transferable security has been sold short.

A.3. The aggregate commitments of the UCI resulting from short sales may at no time exceed 50% of the assets of the UCI. If the UCI enters into short sales transactions, it must hold sufficient assets enabling it at any time to close the open positions resulting from such short sales.

A.4. The short sales of transferable securities for which the UCI holds adequate coverage are not to be considered in the calculation of the total commitments referred to above. For the avoidance of doubt, it is to be noted that the fact for a UCI to grant a security, of whatever nature, on its assets to third parties in order to secure its obligations towards such third parties, is not to be considered as adequate coverage for the UCI’s commit-ments.

A.5. In connection with short sales on transferable securities, UCIs are authorised to enter, as borrower, into securities lending transactions with first class professionals specialised in this type of transactions. The counterparty risk resulting from the difference between (i) the value of the assets transferred by a UCI to a lender as security in the context of the securities lending transactions and (ii) the debt of the UCI owed to such lender may not exceed 20% of the assets of the UCI. For the avoidance of doubt, it is to be noted that UCIs may, in addition, give security by using security arrangements which do not result in a transfer of ownership or which limit the counterparty risk by other means.

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B. Borrowings

UCIs concerned by this circular may borrow permanently and for investment purposes from first class professionals specialised in this type of transaction.

Such borrowings are limited to 200% of the net assets of the UCI. Consequently, the value of the assets of the UCI may not exceed 300% of its net assets. UCIs pursuing a strategy with a high level of correlation between long positions and short positions are authorised to borrow up to 400% of their net assets.

The counterparty risk resulting from the difference between (i) the value of the assets transferred by the UCI to a lender as security in the context of borrowing transactions and (ii) the value of the debt of the UCI owed to such lender may not exceed 20% of the assets of the UCI. For the avoidance of doubt, it is to be noted that UCIs may, in addition, give security by using security arrangements which do not result in a transfer of ownership or which limit the counterparty risk by other means.

The counterparty risk resulting from the sum of (i) the difference between the value of the assets transferred as security in the context of securities lending transactions and the value of the amounts due referred to under item A.5 above and (ii) the difference between the assets transferred as security and the amounts borrowed referred to above may not, in respect of a single lender, exceed 20% of the assets of the UCI.

C. Restrictions applicable to investments in UCIs (“target UCIs”)

The UCIs referred to in this circular may not, in principle, invest more than 20% of their net assets in securities issued by the same target UCI. For the purpose of the appli-cation of this 20% limit, each compartment of a target UCI with multiple compartments is to be considered as a distinct target UCI provided that the principle of segregation of the commitments of the different compartments vis-à-vis third parties is ensured. The UCI may hold more than 50% of the units of a target UCI provided that, if the target UCI is a UCI with multiple compartments, the investment of the UCI concerned by this circular in the legal entity constituting the target UCI must represent less than 50% of the net assets of the UCI concerned by this circular.

These restrictions are not applicable to the acquisition of units of open-ended target UCIs if such target UCIs are subject to risk diversification requirements comparable to those applicable to UCIs which are subject to Part II of the law of 30th March, 1988 and if such target UCIs are subject in their home country to a permanent supervision by a supervisory authority set up by law in order to ensure the protection of investors. This derogation may not result in an excessive concentration of the investments of the UCI referred to in this circular in one single target UCI provided that for the purpose of this limitation, each compartment of a target UCI with multiple compartments is to be considered as a distinct target UCI on the condition that the principle of segregation of the commitments of the different compartments towards third parties is ensured.

UCIs which principally invest in other UCIs must make sure that their portfolio of target UCIs presents appropriate liquidity features to enable the UCIs to meet their obligation to redeem its shares. Their investment policy must comprise an appropriate description in that respect.

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D. Additional Investment Restrictions

UCIs concerned by this circular shall, in principle, not:

a) invest more than 10% of their assets in transferable securities which are not admitted to official listing on a stock exchange or dealt in on another regulated market, which operates regularly and is recognised and open to the public,

b) acquire more than 10% of the securities of the same kind issued by the same issuer,

c) invest more than 20% of their assets in securities issued by the same issuer.

The restrictions set forth under a), b) and c) above are not applicable to securities issued or guaranteed by a member State of the OECD or its local authorities or by suprana-tional institutions and bodies with EU, regional or worldwide scope.

The restrictions set forth under a), b) and c) above are not applicable to units or shares issued by target UCIs. The restrictions set forth in section C. above are applicable to investments in target UCIs.

E. Use of derivative financial instruments and other techniques

The UCIs concerned by this circular are authorised to employ derivative financial instru-ments and use the techniques specified hereafter.

These derivative financial instruments may, amongst others, include options, financial futures and related options as well as swap contracts by private agreement on any type of financial instruments. In addition, such UCIs may employ techniques consisting of securities lending transactions as well as sales with right of repurchase transactions and repurchase transactions136. UCIs which employ such derivative financial instru-ments and techniques must state in their prospectus the total leverage which may not be exceeded and include in their prospectus a description of the risks arising from the transactions which they intend to pursue. The derivative financial instruments must be dealt in on an organised market or contracted by private agreement with first class professionals specialised in this type of transactions.

The aggregate commitments resulting from short sales of transferable securities together with the commitments resulting from financial derivative instruments entered into by private agreement and, if applicable, the commitments resulting from financial derivative instruments dealt in on an organised market may not at any time exceed the value of the assets of the UCI.

E. 1. Restrictions relating to derivative financial instruments

1. Margin deposits in relation to derivative financial instruments dealt on an organised market as well as the commitments arising from derivative financial instruments contracted by private agreement may not exceed 50% of the assets of the UCI. The reserve of liquid assets of such UCIs must represent an amount at least equal to the margin deposits made by the UCI. Liquid assets do not only comprise time deposits and regularly negotiated money market instruments the remaining maturity of which is less than 12 months, but also treasury bills and bonds issued by Member States of the OECD or their local authorities or by supranational institutions and bodies with EU, regional or worldwide scope as well as bonds admitted to official listing on a stock exchange or dealt in on a regulated market,

136 The French text refers to “opérations à réméré” and “opérations de mise en pension”. For the distinction between the two, see the description under E.3.

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which operates regularly and is open to the public, issued by first class issuers and which are highly liquid.

2. The UCI may not borrow to finance margin deposits.

3. The UCI may not enter into contracts relating to commodities other than commodity futures contracts. However, the UCI may acquire, for cash consideration, precious metals which are negotiable on an organised market.

4. The premiums paid for the acquisition of options outstanding are included in the calculation of the 50% limit referred to under item 1. above.

5. The UCI must ensure an adequate spread of investment risks by sufficient diver-sification.

6. The UCI may not hold an open position in any one single contract relating to a derivative financial instrument dealt in on an organised market or in a single contract relating to a derivative financial instrument entered into by private agreement for which the required margin or the commitment taken, respectively, represents 5% or more of its assets.

7. Premiums paid to acquire options outstanding having identical characteristics may not exceed 5% of the assets.

8. The UCI may not hold an open position in derivative financial instruments relating to a single commodity or a single category of financial futures for which the required margin (in relation to derivative financial instruments dealt in on an organised market) as well as the commitment (in relation to derivative financial instruments entered into by private agreement) represent 20% or more of the assets.

9. The commitment in relation to a transaction on a derivative financial instrument entered into by private agreement by the UCI corresponds to the non-realised loss resulting, at that time, from the said transaction.

E. 2. Securities lending transactions

The UCI may enter into securities lending transactions in accordance with the provi-sions set forth in IML Circular 91/75. However, the limitation that securities lending transactions may not extend beyond a period of 30 days is not applicable where the UCI has the right, at any time, to terminate the lending transaction and obtain the restitution of the securities lent.

E. 3. Sale with right of repurchase transactions and repurchase transactions

The UCI may enter into sale with right of repurchase transactions which consist of the purchase and sale of securities where the terms reserve the right to the seller to repurchase the securities from the buyer at a price and at a time agreed between the two parties at the time when the contract is entered into. The UCI can also enter into repurchase transactions which consist of transactions where, at maturity, the seller has the obligation to take back the asset sold whereas the original buyer either has a right or an obligation to return the asset sold.

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The UCI can either act as buyer or as seller in the context of the aforementioned trans-actions. Its participation in the relevant transactions is however subject to the following rules:

1. Rules to bring the transactions to a successful conclusion

The UCI may participate in sale with right of repurchase transactions or repurchase transactions only if the counterparties in such transactions are first class profes-sionals specialised in this type of transactions.

2. Conditions and limits of these transactions

During the duration of a sale with right of repurchase agreement where the UCI acts as purchaser, it may not sell the securities which are the subject of the contract before the counterparty has exercised its right to repurchase the securities or until the deadline for the repurchase has expired, unless the UCI has other means of coverage. If the UCI is open for redemption, it must ensure that the value of such transactions is kept at a level such that it is at all times able to meet its redemption obligation. The same conditions are applicable in the case of a repurchase trans-action on the basis of a purchase and firm re-sale agreement where the UCI acts as purchaser (transferee).

Where the UCI acts as seller (transferor) in a repurchase transaction, the UCI may not, during the whole duration of the repo, transfer the title to the security under the repo or pledge them to a third party, or repo them a second time, in whatever form. The UCI must at the maturity of the repurchase transactions hold sufficient assets to pay, if appropriate, the agreed repurchase price payable to the transferee.

3. Periodical information of the public

In its financial reports, the UCI must separately, for its sale with right of repurchase transactions and for its repurchase transactions, indicate the total amount of the open transactions at the date as of which the relevant reports are issued.

F. Breach of investment limits otherwise than by investment decisions

If the percentage limits referred to above are exceeded for reasons other than investment decisions (market fluctuations, redemptions), the priority objective of the UCI must be to remedy the situation taking due account of the interests of the investors.

G. Management and supervisory bodies

Concerning their professional qualification, the directors of the management bodies and, if applicable, the investment managers and investment advisers, must have confirmed experience in the area of the proposed investment policy.

H. Specific rules

H.1. The issue prospectus must contain a description of the investment strategy of the UCI concerned as well as a description of the specific risks inherent to its investment policy. The prospectus must, if applicable, provide that:

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– the potential losses resulting from unsecured sales on transferable securities differ from the possible losses resulting from the investment of liquid assets in such transferable securities. In the first case, the loss may be unlimited whereas, in the second case, the loss is limited to the amount of liquid assets invested in the transferable securities concerned;

– leverage generates an opportunity for higher return and therefore more important income, but, at the same time, increases the volatility of the value of the assets of the UCI and, hence, the risk of losing capital. Borrowings generate interest costs which may be higher than the income and capital gains produced by the assets of the UCI;

– due to the limited liquidity of the assets of the UCI, it may not be in a position to meet the redemption requests of its units which may be presented to it by its investors.

H.2. In addition, the prospectus must state that the investment in the relevant UCI entails an above-average risk and is only appropriate for persons who can take the risk of losing their entire investment. If appropriate, the issue prospectus must contain a description of the investment strategy in futures and options pursued by the UCI as well as the investment risks resulting from the investment policy. It must for example be mentioned that the futures and options markets are extremely volatile and that the risk of incurring a loss in relation to such markets and/or in relation to uncovered sales is very high.

CSSF CIRCULAR 02/81 OF 6 DECEMBER 2002 RELATING TO THE GUIDELINES CONCERNING THE TASK OF AUDITORS OF UNDERTAKINGS FOR COLLECTIVE INVESTMENT


To all Luxembourg undertakings for collective investment

CSSF CIRCULAR 02/81

Concerns: Guidelines concerning the task of auditors of undertakings for collective investment.


The purpose of this circular it to set out the rules concerning the scope of the audit of the annual accounting documents and the content of the audit reports to be drawn up in this context, pursuant to the law of 30 March 1988 relating to undertakings for collective investment (“UCIs”), as amended by the law of 17 July 2000.

This circular intends to define the role and task of the auditor in the context of the audit of the accounting documents provided for by law. The task of the auditor is not limited to the audit of the accounting documents but also covers the analysis of the operation and procedures of the UCI.

It is understood that the task of the auditor may vary depending on the risks existing in the markets in which the UCI is active and the quality of the control mechanisms implemented at the level of the UCI.

This circular does not amend the contents of the reports on the annual accounts to be estab-lished pursuant to Schedule B as provided for by the law, but aims to specify the subjects which need to be developed in the long form report137 because that report constitutes, together with the report on the annual accounts and the management letter, an important source of information for the CSSF in the performance of its supervisory functions.

137 The circular uses the term “report on the audit of the activities of the UCI” but the term used in the industry is “long form report” and that term will be used in this translation.

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CONTENTS

I. Mandate

II. Report on the annual accounts

III. Long form report

A. General principles

B. Structure of the long form report

C. Explanatory comments on the structure of the long form report

Iv. Reporting to the CSSF pursuant to Article 89(3) of the law relating to UCIs

v. Final provisions

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I. Mandate

The auditor is appointed by the general meeting of shareholders of the UCI. For common funds, the auditor is appointed by the board of directors of the management company. The board of directors of the UCI or of the management company of the UCI must subse-quently specify in writing to the auditor the terms of engagement which shall contain at least the following provisions:

1. The audit of the annual accounts has to be undertaken in accordance with the working recommendations of the Luxembourg Auditors’ Institute138. In this context, the IRE provides for the application of the International Standards on Auditing (ISAs) published by IFAC (“International Federation of Accountants”), adapted or completed, if needed, by national legislation or practice.

2. The audit has to cover all categories of operations of the UCI whether these opera-tions are accounted for on the balance sheet or are recorded off-balance sheet. The mandate given to the auditor cannot exclude from its scope a category of operations or a specific operation. The audit must also cover all risks incurred by the UCI.

3. The audit must cover all aspects of the organisation and verification of the procedures which apply to the UCI. The analysis must inter alia cover the procedures concerning compliance with the investment restrictions, control of the calculation of the nAv and reconciliations as well as the procedures relating to the valuation methods. The audit must indeed enable all information to be provided which is required for the report on the annual accounts and the long form report.

4. The mandate for the annual audit must specifically include the following tasks:

– to check compliance with the principles established by the circulars of the super-visory authority concerning the fight against money laundering, including in particular circular IML 94/112 concerning the fight against money laundering and the prevention of the use of the financial sector for money laundering purposes and its supplements, circulars BCL 98/153, CSSF 00/21, CSSF 01/40 and CSSF 02/78, as well as the correct application of internal procedures for the prevention of money laundering;

– to check compliance with all other circulars applicable to UCIs.

5. The audit of the annual accounts as defined hereabove has to be documented on the one hand by a report on the annual accounts (see chapter II. hereunder) and on the other hand by a long form report (see chapter III. hereunder).

In general, the UCI must immediately inform the CSSF in case the auditor resigns from its mandate before the end of the term or if the auditor envisages not to seek a re-appointment.

In the same way, the UCI must notify the CSSF, with an indication of the reasons, of its intention to terminate the appointment of the auditor. The CSSF will in respect of each request for replacement of the auditor analyse the reasons for the proposed change and will assess if the UCI has, in the procedure for the appointment of a new auditor, given due regard to the competence and resources of the latter in view of the type and volume of the activities of the UCI.

138 Institut des Réviseurs d’entreprises luxembourgeois (IRe)

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II. Report on the annual accounts

The report on the annual accounts contains the auditor’s attestation (attestation du réviseur d’entreprises, Bestätigungsvermerk) and is to be published in accordance with Article 85 (1) of the law of 30 March 1988 relating to undertakings for collective investment.

In the report on the annual accounts, the auditor issues its attestation in accordance with the ISA 700139 standards as adopted by IRE.

In accordance with Article 86 (2) of the law of 30 March 1988 relating to UCIs, the report on the annual accounts has to contain a balance sheet or a statement of assets and liabilities, a detailed income and expenditure account for the financial year, a report on the activities of the financial year and the other information provided for in Schedule B annexed to the prementioned law, as well as any significant information which will enable investors to make an informed judgment on the development of the activities and the results of the UCI.

In case the auditor announces to the UCI that it will issue a qualified attestation or that it will refuse to certify the accounts, the UCI concerned must immediately inform the CSSF (see also chapter Iv. “Reporting to the CSSF pursuant to Article 89 (3) of the law relating to UCIs” hereunder).

The report on the annual accounts has in any case to be submitted to the CSSF within a period of four months from the end of the period to which such report relates.

III. Long Form Report

A. General principles

The purpose of the long form report is to report on the findings of the auditor in the course of its audit concerning the financial and organisational aspects of the UCI comprising inter alia its relationship with the head office, the custodian and the other intermediaries (the investment managers, the transfer agents, the distributors, etc.).

The long form report must be concise, clear and critical.

It is not intended to be made available to the public. It is issued for the exclusive use by the board of directors of the UCI or the management company of the UCI as well as the CSSF.

It must detail for every item listed under III.B., the verifications which are essential to permit a precise and informed judgment on the organisation and the financial state-ments of the UCI.

The auditor must, in the context of its usual audits carried out in accordance with recommendations RRC n° 21140 of IRE, give its opinion on the compliance with the investment restrictions set out by law and/or regulations and must also obtain the assurance that the systems which have been put into place permit a proper calculation of the net asset value.

The auditor has to indicate the nAv calculation errors and the infringements to the investment restrictions which it will have ascertained during its audit and which have nevertheless not been notified to the CSSF in accordance with CSSF circular 02/77.

139 International Standard on Auditing n° 700: The Auditor’s report on financial statements.

140 Recommendation on accounting audit n° 21: The audit of the financial statements of the UCIs.

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In the long form report, the auditor must also analyse the nAv calculation errors or the failures to comply with investment rules which have been the subject of a notification in application of CSSF circular 02/77, but for which the amount of indemnification did not exceed EUR 25,000 and for which the amount to be reimbursed to any one share-holder did not exceed EUR 2,500 as set out in CSSF circular 02/77.

The auditor has to communicate in detail the weaknesses and the areas to be improved which it will have ascertained during its audit. This communication can be made in the context of the long form report or through a letter of recommendation141 addressed to the board of directors of the UCI or the management company of the UCI. The findings of the auditor must mandatorily be supplemented by comments of the board of directors of the UCI or the management company of the UCI. In case a management letter is drawn up, it must be annexed to the long form report. If the auditor does not issue a management letter, this must be expressly noted in the long form report.

In accordance with chapter P of circular IML 91/75 of 21 January 1991142, the UCI must immediately communicate to the CSSF, without having been invited to do so, all other documents issued by the auditor in the context of its annual audit as referred to hereabove.

The long form report has to be remitted to the CSSF within a period of four months from the end of the period to which the report refers.

B. Structure of the long form report

The long form report must be drawn up in accordance with the layout featured below. The layout concerned corresponds to the minimum information to be detailed by the auditor in its report. However, the layout of the report can be adapted to the volume and the complexity of the activity and to the structure of the UCI. If appropriate, the auditor will have to supplement the layout set out below by those items which it will find necessary. If one particular item of the layout does not apply to a UCI, the auditor will have to explicitly mention this fact under the item concerned.

1. Organisation of the UCI

1.1. Head office

1.1.1. Situation where the auditor of the UCI relies on the audit report of the auditor of the central administration

1.1.2. Situation where the audit and verifications are made by the auditor of the UCI

1.1.2.1. Assessment of procedures

1.1.2.2. Computer systems

1.2. Custodian

1.2.1. Situation where the auditor of the UCI relies on the audit report of the auditor of the custodian


141 commonly referred to as a “management letter”.

142 Circular IML 91/75 relating to the revision and remodeling of the rules to which undertakings for collective invest-ment governed by the law of 30 March 1988 on undertakings for collective investment are subject.

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1.2.2.3. Result of the reconciliations

1.3. Relationship with the management company

1.4. Relationship with other intermediaries

2. Audit of the operations of the UCI

2.1. Control of anti-money laundering rules

2.2. valuation methods

2.3. Audit of the risk management system

2.4. Specific audits

2.5. Assets and liabilities and profit and loss account

2.6. Publication of the nAv

3. Internet

4. Complaints from investors

5. Follow-up on problems identified in preceding long form reports

6. General conclusion

C. Explanatory comments on the structure of the long form report

1. Organisation of the UCI

The operations of a UCI require the recourse to specialised service providers in Luxembourg as well as abroad.

Under the provisions of the law of 30 March 1988 relating to undertakings for collective investment (as amended), the head office of the UCI must be located in Luxembourg. The prementioned law also provides that the custodian of a UCI must be established in Luxembourg. The entities which exercise one or several functions in relation to the head office and/or the custody for the UCI play a signif-icant role in the operation of a UCI.

To the extent that the custodian and the professional of the financial sector which carries out the head office duties for the UCI have been subjected by their auditor to an audit on the activities exercised for UCIs which covers at least the items detailed under paragraphs 1.1.2. and 1.2.2. herebelow, the auditor of the UCI may refer to the long form reports of the auditor of the custodian or the professional of the financial sector on dealing with the services provided to undertakings for collective investment.

In case the auditor of the UCI does not make use of that possibility and consid-ering the important role in the organisation of the UCI assumed by the entities which carry out the function of head office and/or custodian, the auditor must itself undertake the verifications and controls detailed in the pre-mentioned paragraphs. In that case the auditor of the UCI will have to advise the board of directors of the UCI or the management company of the UCI that it needs to have access to certain information on the entity concerned in order to carry out the verifications and audits required by this circular. The board of directors of the UCI or of the management company of the UCI must in that case request the entity concerned to provide access to the information which is necessary for the auditor of the UCI to accomplish its mission.

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For common funds the management of which is performed by a management company, the auditor of the UCI will have to carry out certain audits and verifi-cations as defined under paragraph 1.3. hereafter. The auditor of the UCI may for these tasks refer to the long form report of the auditor of the management company if such report covers at least the items detailed under paragraph 1.3. In case it does not make use of that possibility, it must call upon the board of directors of the management company of the common fund. The board of directors of the management company must then make available to the auditor all information necessary in relation to the activities exercised by the management company for the common fund and, in case the management company has delegated certain important administration functions to a specialised entity, the board will have to request that entity to provide access to the information required.

It also must be noted, that in case the various head office functions are performed by more than one professional of the financial sector, the auditor of the UCI must give its opinion on the procedures regarding the coordination and general super-vision of the activities of the UCI.

In respect of the relationship of the UCI with other service providers established in Luxembourg and/or abroad, reference is made to paragraph 1.4. below.

1.1. Head office

1.1.1. Situation where the auditor of the UCI relies on the audit report of the auditor of the head office

The auditor of the UCI must, in its long form report, specify the audit report of the auditor of the head office he has relied upon. He must in this context provide the following data:

- the name of the auditor of the head office

- the date of the audit report

- if applicable, the audit report in accordance with international standard ISA 402, type B or in accordance with US standard SAS 70, type 2, or in accordance with any other equivalent standard, as well as the name of the auditor which has established that report.

In cases where the head office functions are fulfilled by more than one entity, the auditor of the UCI has to indicate in its long form report the data mentioned hereabove in respect of each of these entities individ-ually.



In its long form report, the auditor must indicate the exact functions performed by the head office on behalf of the UCI. In case these functions are split among more than one professional of the financial sector and/or management body of the fund, the auditor must in its report indicate the allocation of the tasks between the different parties.

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The auditor must specify if the head office or the different parties are in possession of a procedures manual describing the functions which they perform on behalf of the UCI and which are, inter alia, set forth in chapter D. of IML Circular 91/75.

In addition, the auditor has to verify if specific procedures have been established in connection with the following items:

a) internal control procedure on the origin of funds (anti-money laundering procedures),

b) valuation procedure of the portfolio by the accounting agent, distin-guishing between the different types of investment and insisting in particular on unquoted and illiquid securities,

c) internal control procedures on the investment policy and restric-tions,

d) internal control procedure on the accuracy of the nAv calcu-lation,

e) recording and settlement procedure of subscription/redemption orders of units/shares,

f) validation and recording procedure in relation to the acquisition and sale of securities.

The auditor must give its opinion on the adequacy of the procedures put in place.

Finally, the auditor must indicate if the human resources made available are sufficient to ensure a proper execution of the contractual obligations of the entity for the relevant UCI.

In case of splitting of the head office functions, it goes without saying that, in addition, the auditor must give its opinion on the procedures regarding the coordination and the general supervision of the activities of the UCI.


As regards computer systems, the auditor will give a brief description of the software used by the head office and of the functions for which the software is used.

The auditor must indicate whether, during the financial year under review, significant changes have occurred with respect to the computer system and whether problems were encountered at the time of migration from one system to another.

The auditor must also give its opinion on the adequacy of the computer system in consideration of the volume of the activities of the relevant UCI and, if applicable, in respect of pooling or co-management techniques.

With regard to the accounting system for the calculation of the nAv, the auditor will give its opinion on whether the accounting system is adequate in view of the type of investments made by the UCI. Manual accounting operations and valuations and the internal control proce-dures relating thereto must be pointed out.

The auditor must also verify if appropriate measures to safeguard the confidentiality of information have been put into place.

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In addition, the auditor must outline the general principles of the contin-gency plan in place which should permit the head office to operate normally in case of a breakdown of its computer systems, including its Internet connections.

When use is made of an external processing unit, whether based in Luxembourg or abroad, the auditor must clearly indicate which functions have been sub-delegated and to whom.

The auditor must furthermore give its opinion on compliance with the provisions of item III.1. of chapter D of IML circular 91/75.

Generally, the auditor must highlight the significant deficiencies which it will have detected during its audit and must describe them in a detailed manner so that the CSSF can assess the situation.

1.2. Custodian

1.2.1. Situation where the auditor of the UCI relies on the audit report of the auditor of the custodian

The auditor of the UCI must in its long form report, specify the audit report of the auditor of the custodian he has relied upon. He must in this context provide the following data:

– the name of the auditor of the custodian

– the date of the audit report

– if applicable, the audit report in accordance with international standard ISA 402, type B, or in accordance with US standard SAS 70, type 2 or in accordance with any other equivalent standard, as well as the name of the auditor which has established the report.

The auditor of the UCI must in any case give its opinion on the result of the reconciliations between assets accounted for by the UCI and the assets deposited with the custodian as well as on the off-balance sheet operations of the UCI.

In case the auditor, during its audit, notes serious problems at the level of the reconciliation between the positions accounted for by the UCI and those registered with the custodian, it must make a detailed description of those problems in the long form report.

1.2.2. Situation where the controls and verifications are made by the auditor of the UCI


The long form report indicates if the entity is in possession of a proce-dures manual describing the duties of the custodian and whether this manual includes general procedures and specific procedures relating to the activities undertaken.

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The long form report will describe in particular the correspondent bank network. The long form report will describe the policy of the entity as regards the selection criteria of those counterparties. The auditor will give an outline of the third parties with which the entity has entered into a relationship and it will indicate if these counterparties have been retained in accordance with the policy of the entity.

In case the custodian exercises also part or all of the head office functions, the long form report has to provide explanations on the separation of duties, specifically between custody and head office duties.

In case the auditor notes deficiencies, the auditor will have to indicate exactly which obligation(s) the custodian has not complied with.

1.2.2.2. Computer Systems

As regards computer systems, the auditor will give a brief description of the software used by the custodian.

The auditor must indicate whether, during the financial year under review, significant changes have occurred with regard to the computer system and whether problems were encountered at the time of migration from one system to another.

The auditor must give its opinion on the adequacy of the computer system and the available human resources for ensuring the proper execution by the credit institution of its contractual obligations towards the UCI concerned.

1.2.2.3. Result of the reconciliations

The auditor must indicate whether the custodian has established proce-dures concerning the reconciliation of positions accounted for by the UCI and those registered with the custodian. It will also give an opinion on the adequacy of those procedures.

The auditor must give its opinion on the results of the reconciliation between the positions accounted for by the UCI and the positions regis-tered with the custodian.

In case the auditor would during its audit identify serious problems as regards the reconciliation between the positions accounted for by the UCI and those registered with the custodian, the auditor must give a detailed description of the problems in the long form report.

1.3. Relationship with the management company

The auditor verifies whether the management company assumes its functions in compliance with legal and contractual obligations.

It indicates in its long form report which functions are performed by the management company on behalf of the UCI. To the extent that the management company performs all or part of the administration functions, the auditor has to proceed as provided for under item 1., paragraph 1.1.1. or 1.1.2. hereabove.

In case the auditor becomes aware of major problems, it has to provide a detailed description of those problems in the long form report of the UCI.

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1.4. Relationship with other intermediaries

In the context of the relationship of the UCI with other intermediaries, comprising inter alia the investment managers, the distributors, etc., the auditor must indicate in its long form report if the activity of the UCI has been hindered by major problems encountered in the course of the operations conducted with these other intermediaries.

If this is the case, the auditor must describe in a detailed manner the problem(s) encountered during its analysis in order to enable the CSSF to assess the situation.

2. Audit of the operations of the UCI

2.1. Audit of anti-money laundering rules

As the head office of a UCI deals with subscription, redemption and transfer requests of units or shares of UCIs, it has to ensure compliance with the provisions set forth in the circulars relating to the fight against money laundering, comprising circulars IML 94/112, BCL 98/153, CSSF 00/21, CSSF 01/40 and CSSF 02/78.

IML circular 94/112 has, however, taken into account the specific manner in which UCIs are marketed, by dispensing the head office of a UCI in Luxembourg under certain conditions from the obligation to carry out itself the identification of investors in case it makes use of professionals of the financial sector subject to identification obligations equivalent to those provided for by Luxembourg law. In this context, it has to be reminded that in respect of all intermediaries participating in the placement of the units or shares of UCIs, the head office has to systematically verify the conditions provided for by circular IML 94/112 concerning equivalent identification. That verification has to cover inter alia the status of the intermediary and its submission to the FATF recom-mendations. If the conditions of an equivalent identification provided for by circular IML 94/112 are not met, the head office of the UCI in Luxem-bourg must itself carry out the identification of the investors in the UCI.

On the basis of the description provided by the head office, the auditor must analyse the distribution channel of units or shares of the UCI in order to determine if the head office complies with its obligations concerning the fight against money laundering.

In addition, the auditor must check whether the head office supervises abnormal transactions.

In this context, the auditor has to indicate its method of selection of sample files checked and the percentage of the total transactions covered.

In case a non-compliance is noted, the auditor will have to provide precise indications to the CSSF enabling it to make an appreciation of the situation (number of files which are incomplete, detail of the failures noted, etc.).

In case the auditor of the UCI makes use of the possibility to base itself on the audit report of the auditor in charge of the review of the entity which is responsible for compliance with anti-money laundering rules, the long form report must provide the following details:

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- name of the auditor of the entity in question

- date of the audit report

2.2. Valuation methods

The law of 30 March 1988 provides that, unless otherwise provided for in the management regulations or the Articles of incorporation, the valuation of the assets shall be based ‘in case of officially quoted security’ on the latest known stock exchange quotations unless such quotations are not representative. For securities not so quoted and for securities which are so quoted but for which the latest quotation is not representative, these Articles provide that the valuation must be based on the probable realisation value which must be estimated with care and in good faith.

The auditor will thus check if the valuation methods are applied in accordance with the procedures and the rules determined by the management regulations or the Articles of incorporation and if these methods are also applied in a consistent manner.

The auditor must inter alia verify the application and the sincerity of the valuation rules of the securities portfolio, securities’ lending/borrowing, repurchase and reverse repurchase agreements, sale with right of repurchase agreements, transactions, futures, swaps and options.

In connection with the valuation of portfolio securities, it must in particular insist on unquoted securities and illiquid securities.

In addition, the auditor will request the board of directors of the UCI or the management company of the UCI to provide details on the trans-actions undertaken by the UCI to enable the auditor to verify by sample tests if these transactions were undertaken at arm’s length.

In case of non-compliance with the valuation methods described in the procedures or in the management regulations or the Articles of incorpo-ration, the auditor must provide detailed information enabling the CSSF to assess the situation.

2.3. Control of the risk management system

The board of directors of the UCI or of the management company of the UCI is supposed to have put into place the necessary controls to ensure compliance with the investment restrictions and policies of the UCI as well as the management of the risks encountered by the UCI. Either it assumes all or part of the above mentioned controls itself or it delegates this duty to one or several third parties.

The auditor must indicate the responsible persons/entities appointed by the board of directors of the UCI or the board of directors of the management company of the UCI which are entrusted with the control of the different risks for which the UCI is exposed. The auditor will also have to specify the frequency with which risk controls are made.

The long form report must indicate whether the control system put into place within those entities covers at least the risks inherent to the policy and the investment risks of the UCI concerned, such as:

– credit risk/counterparty risk

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– market risk

– settlement risk

– foreign exchange risk

If appropriate:

– interest rate risk

– liquidity risk

– risk on derivative instruments

The long form report must provide an analysis and an assessment of the systems put in place by the UCI to control and manage the different risks to which the UCI is exposed when it carries out its activities.

If shortfalls are noted, the auditor must give precise indications enabling the CSSF to assess of the situation.

2.4. Specific audits

In the context of his mission, the auditor must also proceed to specific audits. These are the audit of the compliance with the investment policy and the investment restrictions and the audit of the calculation of the nAv.

The auditor must under this item analyse every nAv calculation error and every non-compliance with the investment rules for which the amount of indemnification did not exceed EUR 25,000 and for which the amount to be reimbursed to any one investor did not exceed EUR 2,500 as set out in CSSF circular 02/77.

Under this item, the auditor must also indicate the following:

– material errors which the auditor has detected during its mission and which should have been notified in accordance with the provi-sions of CSSF circular 02/77;

– cases of non-compliance which the auditor has detected during its mission and which should have been notified in compliance with the provisions of CSSF circular 02/77.

In those cases, the auditor will in its long form report describe the material errors and the cases of non-compliance with investment rules identified during its audit and which have not been notified to the CSSF in compliance with CSSF circular 02/77. The auditor will thereafter deal with these errors and cases of non-compliance with the investment rules in accordance with the procedures set forth in CSSF circular 02/77.

In case no significant nAv error or in case of non-compliance with the investment policy will have been identified, the auditor must expressly state so in its long form report of the UCI.

2.5. Assets and liabilities and profit and loss account

The auditor will comment on the different items of the consolidated143 balance sheet in a clear on and precise manner. The auditor must

143 UCIs are not required to produce consolidated accounts. What is meant here is the combined balance sheet of the multiple compartment UCIs consisting of the combination of the balance sheets of all compartments.

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check the existence of those items, their amounts and their adequate accounting treatment, as well as the consistent application of accounting principles.

In addition, the auditor must examine the sale and purchase trans-actions of securities made during the two weeks preceding and the two weeks following the end of the financial year (this period needs to be extended if suspicious operations have been detected), in order to determine whether transactions have been entered into for the purpose of “window dressing”.

Furthermore, the auditor will have to collect statistics on portfolio turnover in order to make an appreciation whether transactions have been entered into for the purpose of “churning”.

The auditor must also comment on the various items of the combined profit and loss account. The auditor will have to check the existence of those items, their amounts and their adequate accounting treatment, as well as the consistent application of the accounting principles.

During its mission, the auditor will have to pay particular attention to the performance fee which may be payable to the investment managers.

The auditor will also have to receive from the board of directors of the UCI or of the management company of the UCI confirmation to the effect that neither the investment managers nor any of their connected parties have received rebates from brokers and a confirmation on any arrangements concerning the payment of “soft commissions” in the context of the activities of the UCI. In case “soft commissions” are paid, the auditor will have to provide in the long form report details on the arrangements in relation thereto.

In addition, the auditor will need to receive from the board of directors of the UCI or the management company of the UCI confirmation indicating whether there have been any commission rebates and, in the affirm-ative, describe the nature thereof.

Finally, the auditor will ask for a list of all costs, comprising transaction costs, which have been attributed to the UCI. It is recommended that this list of costs refers where possible to the gross amount of the costs attributable to the UCI. In relation to the most significant costs, the auditor will have to determine whether they have been calculated in compliance with the provisions of the applicable agreements.

In case of irregularities or shortfalls, the auditor will have to provide precise indications enabling the CSSF to assess the situation.

2.6. Publication of the NAV

The auditor shall indicate if the UCI has published its nAv in accordance with Article 92 of the law of 30 March 1988.

In case of non-compliance with this legal requirement, the auditor will indicate in detail the origin of this shortfall.

3. Internet

The long form report will indicate whether the UCI makes direct use of the Internet as a communication or distribution channel.

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4. Complaints from investors

The auditor will query with the board of directors of the UCI or of the management company of the UCI whether, during the course of the financial year under review, complaints have been received by the head office in Luxembourg and to which the UCI had to respond.

If this is not the case, the auditor will specifically mention this in its long form report.

If complaints have been received, the auditor will indicate how many complaints have been received by the UCI in Luxembourg.

5. Follow-up on problems identified in preceding reports on the audit of the activities of the UCI

The auditor indicates in this part of its long form report the follow-up on irregu-larities and important weaknesses identified during its preceding audits and which are detailed either in an earlier long form report or in a separate management letter addressed to the board of directors of the UCI or of the management company of the UCI (see also chapter III.A. “General Principles” hereabove).

6. General conclusion

In its general conclusion the auditor must give its opinion on all the important items of its control in order to give a general view on the situation of the UCI.

More specifically, the auditor must summarise the main comments and conclusions contained in the long form report. It will also indicate the main recommendations and observations made to the board of directors of the UCI or the management company of the UCI as well as the latter’s response thereto. In case the auditor issues a separate management letter to the board of directors of the UCI or of the management company of the UCI, it is sufficient that the general conclusion refers, for this part, to that document which, in such case, must be annexed to the long form report (see also chapter III.A. “General Principles” hereabove).

IV. Reporting to the CSSF pursuant to Article 89(3) of the law relating to UCIs

In compliance with paragraph (3) of Article 89 as amended of the law on UCIs, introduced by the law of 29 April 1999144, the auditor must report to the CSSF any fact or decision it has become aware of while carrying out the audit of the accounting information contained in the annual report of a UCI or any other legal task concerning a UCI where such fact or decision is liable to:

– constitute a material breach of the provisions of the law on UCIs or the regulations adopted for its execution, or

144 Law of 29 April 1999- implementing directive 95/26/EC concerning the reinforcement of prudential supervision into the law of 5 April

1993 relating to the financial sector (as amended) and into the law of 30 March 1988 on undertakings for collec-tive investment (as amended);

- partially implementing Article 7 of directive 93/6/EEC on the capital adequacy of investment firms and credit institutions into the law of 5 April 1993 relating to the financial sector (as amended);

- operating certain other amendments to the law of 5 April 1993 relating to the financial sector (as amended);- amending the grand-ducal regulation of 19 July 1983 relating to fiduciary contracts of credit institutions.

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– affect the continuous functioning of the UCI, or

– lead to a refusal to certify the accounts or to the expression of reservations therein.

The auditor shall likewise have the duty to report to the CSSF any fact or decision concerning the UCI and meeting the criteria mentioned hereabove of which it has become aware while carrying out the audit of the accounting information contained in the annual report of another undertaking having close links resulting from a control relationship with the UCI for which it carries out a legal task or while carrying out any other legal task concerning such other undertakings.

“Close link” resulting from a control relationship shall mean the link which exists between a parent undertaking and a subsidiary in the cases referred to in Article 77 of the amended law of 17 June 1992 relating to the annual accounts and the consolidated accounts of credit institutions or as a result of a relationship of the same type between any individual or legal entity and an undertaking; any subsidiary undertaking of a subsidiary undertaking is also considered a subsidiary of the parent undertaking which is at the head of those undertakings. A situation in which two or more individuals or legal persons are perma-nently linked to one and the same person by a control relationship shall also be regarded as constituting a close link between such persons.

In addition, if in the discharge of its duties the auditor ascertains that the information provided to investors or to the CSSF in the reports or other documents of the UCI does not truly describe the financial situation and the assets and liabilities of the UCI, it shall be obliged to inform the CSSF forthwith.

The auditor shall moreover be obliged to provide the CSSF with all information or certifi-cates required by the latter on any matters of which the auditor has or ought to have knowledge in connection with the discharge of its duties. The same applies if the auditor ascertains that the assets of the UCI are not or have not been invested according to the regulations set out by the law or the prospectus.

In return for the duty to report to the CSSF, paragraph (3) also provides that any disclosure in good faith to the CSSF by the auditor of any fact or decision referred to in paragraph (3) does not constitute a breach of professional secrecy or of any restriction on disclosure of information imposed by contract and will not result in liability of any kind of the auditor.

V. Final provisions

The provisions of the present circular have to be complied with in their entirety for the annual accounts of the financial years ending on or after 31 December 2003.

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CSSF CIRCULAR 03/87 OF 21 JANUARY 2003 CONCERNING THE COMING INTO FORCE OF THE LAW OF 20 DECEMBER 2002 RELATING TO UNDERTAKINGS FOR COLLECTIVE INVESTMENT

Luxembourg, 21 January 2003

To all undertakings for collective investment and to those who act in relation to the operation and supervision of such undertakings.

CSSF CIRCULAR 03/87

Concerns: Coming into effect of the law of 20 December 2002 relating to under-takings for collective investment.


We would like to draw your attention to the enactment of the law of 20 December 2002 relating to undertakings for collective investment (Mémorial A - n° 151 of 31 December 2002).

This law of 20 December 2002 implements into Luxembourg law directives 2001/107/EC and 2001/108/EC and brings about a number of changes to the Luxembourg legal framework of undertakings for collective investment (UCIs).

The purpose of this circular is to present, in summary form, to the professionals of collective management, the main changes introduced by this law of 20 December 2002 and which relate to:

I. the definitions set forth in the text of the law

II. the extension of the investment policy of UCIs subject to Part I of the law

III. the rules concerning management companies

Iv. the simplified prospectus and the publication of documents of UCIs

v. the transitional provisions.

I. Definitions

Article 1 of the law comprises a number of definitions, most of which have been taken from directives 2001/107/EC and 2001/108/EC.

The law comprises, inter alia, a definition of the term “transferable securities”.

Pursuant to Article 1, item 26)145, “transferable securities” shall mean:

– shares and other securities equivalent to shares (“shares”),

– bonds and other debt instruments (“bonds”)146,

145 Item 22 in the English translation of the law and item 24 in the German translation of the law.

146 The law, the French version of amended Directive 85/611/EEC and the circular use “bonds” (obligations) as a defined term whereas the English version of amended Directive 85/611/EEC uses the term “debt securities”.

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– any other negotiable securities which carry the right to acquire any such transferable securities by subscription or exchange,

excluding the techniques and instruments referred to in Article 42 of the law.

II. Extension of the investment policy of UCITS subject to part I of the law

Compared to the amended law of 30 March 1988 relating to UCIs, the law extends the range of assets in which UCITS subject to part I of the law can invest in, and permits, under certain conditions, the investment in money market instruments, in units of UCITS and/or other UCIs, in deposits and in derivative financial instruments.

The transferable securities and other liquid financial assets in which UCITS subject to part I of the law may invest, must meet a certain number of criteria which are set forth in Article 41 (1) of the law.

While extending the eligible investments for UCITS subject to part I, the law adjusts the specific investment limits applicable to investments in such transferable securities and other liquid financial assets referred to in Article 41 (1).

The law also permits UCITS subject to part I to derogate, within specified conditions, from certain investment limits in order to permit them to replicate a recognised index of shares or bonds.

The detailed rules applicable to the investment policy and the investment restrictions applicable to UCITS subject to part I are referred to under chapter 5 of the law.

III. Rules regarding management companies

Part Iv of the law (chapters 13 and 14), which provides for detailed rules applicable to management companies, distinguishes between management companies which act as management company for one or several UCITS complying with the amended directive 85/611/EEC and the other management companies subject to Luxembourg law which do not act as management company for UCITS complying with the aforesaid directive.

A. Common provisions applicable to all management companies

The law provides that the activity of a management company to manage at least one UCI subject to Luxembourg law, requires a prior authorisation to be granted by the CSSF.

Under the provisions of the law, the CSSF may only grant its authorisation if the management company has its central administration and registered office in Luxem-bourg.

The law specifies that the application for authorisation must describe the structure of the organisation of the management company.

The authorisation is subject to the condition that the management company entrusts the audit of its annual accounting documents to one or more auditors (réviseurs d’entreprises), who can justify of an adequate professional experience.

Management companies which exist at the date of entry into force of the law must within 12 months from the date of entry into force of the law comply with the requirement to entrust the audit of their accounting documents to one or more auditors.

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B. Provisions concerning management companies complying with directive 2001/107/EC

Chapter 13 of the law provides for detailed rules applicable to management companies complying with directive 2001/107/EC. It is applicable to all management companies which manage at least one UCITS complying with the amended Directive 85/611/EEC. These management companies may also manage UCIs which do not comply with the amended directive 85/611/EEC.

The law extends the permitted activities of management companies complying with Directive 2001/107/EC.

The law provides that these management companies may, in addition to the collective management for UCIs, undertake discretionary management activities for the account of individual and institutional investors, including pension funds.

The law specifies the conditions for taking up business and the operating conditions applicable to management companies complying with directive 2001/107/EC.

Article 78 of the law deals with the conditions for taking up business and comprises, inter alia, the capital requirements applicable to such management companies which manage one or several UCITS complying with the amended directive 85/611/EEC.

These capital requirements refer to the initial capital and the additional amount of own funds required if the assets under management exceed 250 million Euro.

For the purpose of the calculation of the amount of own funds, the assets the management of which is delegated are taken into account, whereas the assets managed by delegation are not taken into account.

The law provides that the own funds of the management company shall never be less than the amount prescribed in Annex Iv of directive 93/6/EEC.

Article 78, paragraph (1), item b) provides that the persons who effectively conduct the business of the management company and which must be at least two, must be of sufficiently good repute and experience also in relation to the type of UCITS managed.

IV. Simplified prospectus and publication of the documents of UCIs

The law introduces the simplified prospectus which must include, in summary form, the information necessary for investors to be able to make an informed judgment of the investment proposed to them and, in particular, of the risks attached thereto.

The requirement to publish a simplified prospectus is however not applicable to UCIs subject to Part II of the law, and therefore only UCITS subject to Part I of the law must publish a simplified prospectus, whereas UCIs subject to Part II of the law may, but are not obliged to publish such a simplified prospectus.

The simplified prospectus is structured and written in such way that it can be easily under-stood by the average investor. It can be attached to the full prospectus as a removable part of it.

It is to be noted that the simplified prospectus can be used as a marketing tool designed to be used in all Member States of the European Union without any alterations except for its translation.

The content of the simplified prospectus is described in schedule C of annex I of the law.

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With respect to the publication of documents of UCIs, Article 114 of the law introduces a new provision pursuant to which the CSSF may publish or arrange the publication of the documents of UCIs by all means which the CSSF deems appropriate.

The purpose of this text is to avoid possible legal hurdles relating to the publication of UCI documents in the context of a project commonly referred to as “référentiel de la place” (reference data base)147 which is intended to form a data base centralising the information on Luxembourg UCIs.

V. Transitional provisions

The law is applicable as from 1 January 2003.

For reasons relating, inter alia, to the implementation provisions provided for by the two directives 2001/107/EC and 2001/108/EC, it was decided to adopt a new law on UCIs, rather than to modify the amended law of 30 March 1988.

To the extent that the two directives 2001/107/EC and 2001/108/EC include transi-tional provisions which provide for a deadline expiring on 13 February 2007 to permit UCITS existing on 13 February 2002 and management companies authorised prior to 13 February 2004 to comply with the new provisions, the law comprises in its transitional and repealing provisions, a number of provisions implementing the transitional provisions of the directives.

A. Transitional provisions concerning UCIs

The law provides that UCITS subject to Part I of the amended law of 30 March 1988 relating to UCIs, as amended established before 13 February 2002, may elect until 13 February 2007 to remain governed by the amended law of 30 March 1988 or to be governed by the law of 20 December 2002.

As from 13 February 2007, they will ipso jure be governed by the law of 20 December 2002.

The law provides that the establishment of a new compartment does not affect the foregoing option. This option must be exercised in respect of the UCITS as a whole in its entirety, including all its compartments.

UCITS subject to Part I of the law of 30 March 1988 relating to UCIs, as amended and established between 13 February 2002 and 1 January 2003 may elect until 13 February 2004, to remain governed by the amended law of 30 March 1988 or to be governed by the law of 20 December 2002.

As from 13 February 2004, they will be governed by the law of 20 December 2002 by operation of law.

UCITS within the meaning of Article 1 of the amended law of 30 March 1988 relating to UCIs, excluding those concerned by Article 2 of such same law, and established between 1 January 2003 and 13 February 2004 may elect to be governed by the amended law of 30 March 1988 or by the law of 20 December 2002.


147 Référentiel de la place; see also CSSF circular 03/97.

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UCIs established prior to 1 January 2003 and subject to Part II of the amended law of 30 March 1988 remain governed by the provisions of the amended law of 30 March 1988 relating to UCIs until 13 February 2004. They may however be governed by the law of 20 December 2002 as from 1st January 2003.


UCIs established between 1 January 2003 and 13 February 2004 may elect to be governed by the provisions of the law of 20 December 2002 or by the provisions of the amended law of 30 March 1988 relating to UCIs.


All UCIs established as from 13 February 2004 are governed by the law of 20 December 2002, unless they are governed by a special law.

An investment company is deemed to be established as from the date of its incorpo-ration before a notary.

A common fund is deemed established as from the date of execution of its management regulations or from the date of entering into force of its management regulations if the management regulations specifically provide for such date.

B. Transitional provisions concerning management companies

Management companies existing on 1 January 2003 are subject, by operation of law, to the provisions of chapter 14 and are deemed authorised in accordance with Article 91 (1) of the law of 20 December 2002.

To the extent that they manage UCITS governed by the amended directive 85/611/EEC, such management companies must comply, at the latest by 13 February 2007, with the provisions of chapter 13 of the law of 20 December 2002.

Management companies authorised between 1 January 2003 and 13 February 2004 which act as management company for UCITS governed by the amended directive 85/611/EEC must comply, at the latest by 13 February 2007, with the provisions of chapter 13.

In this context, it is important to note that the amended law of 30 March 1988 will remain in force until 13 February 2007 and that, as a consequence there will be, until such date, two laws which will, on a parallel basis, regulate matters regarding UCIs.

It is the intention of the CSSF to clarify by means of circulars a number of other items referred to in the law of 20 December 2002. Accordingly, other CSSF circulars will provide further clarifications, inter alia, on the following subjects:

– the rules regarding management companies governed by Luxembourg law

– the rules of conduct applicable to professionals of collective management in Luxembourg

– the risk management methods and valuation methods applicable to transactions on derivative instruments.

The rules set forth in Circular IML 91/75 will also be amended and adjusted by means of a new CSSF circular.

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CSSF CIRCULAR 03/88 OF 22 JANUARY 2003 CONCERNING THE CLASSIFICATION OF UNDERTAKINGS FOR COLLECTIVE INVESTMENT SUBJECT TO THE PROVISIONS OF THE LAW OF 20 DECEMBER 2002 RELATING TO UNDERTAKINGS FOR COLLECTIVE INVESTMENT


To all Luxembourg undertakings for collective investment and to those who act in relation to the operation and supervision of such undertakings.

CSSF CIRCULAR 03/88

Concerns: Classification of undertakings for collective investment subject to the provisions of the law of 20 December 2002 relating to undertakings for collective investment.


The purpose of this circular is to clarify the classification of undertakings for collective investment (UCIs) which are subject to the law of 20 December 2002 which entered into force on 1 January 2003. The main changes introduced by the law of 20 December 2002 are described in CSSF circular 03/87.

The amended law of 30 March 1988 relating to UCIs (the law of 30 March 1988) will remain in force until 13 February 2007 and, as a consequence, until such date two distinct laws will, on a parallel basis, regulate matters regarding UCIs.

Pursuant to the transitional provisions set forth in the law of 20 December 2002, the following UCIs established under the law of 30 March 1988 must comply with the new legal provisions by 13 February 2004 at the latest:

– UCITS subject to Part I of the law of 30 March 1988 established between 13 February 2002 and 1 January 2003;

– UCITS within the meaning of Article 1 of the law of 30 March 1988, excluding those referred to in Article 2 of such law, established between 1 January 2003, and 13 February 2004, which in a first stage had elected to be governed by the law of 30 March 1988;

– UCIs existing on 1 January 2003, subject to Part II of the law of 30 March 1988 which qualify as UCITS under Part I of the law of 20 December 2002;

– UCIs existing on 1 January 2003, subject to Part II of the law of 30 March 1988 which qualify as UCIs subject to Part II of the law of 20 December 2002;

– UCIs established between 1 January 2003 and 13 February 2004, which qualify either as UCITS under Part I of the law of 20 December 2002 or as UCIs under Part II of the law of 20 December 2002 and which in a first stage elected to be governed by the law of 30 March 1988 (Part II).

All undertakings for collective investment established on and after 13 February 2004 are subject, by operation of law, to the law of 20 December 2002 and must comply with the provi-sions thereof as from the date of their establishment.

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UCITS subject to Part I of the law of 30 March 1988 established prior to 13 February 2002 may elect, until 13 February 2007, either to remain subject to the law of 30 March 1988 or to be governed by the law of 20 December 2002.

I. General considerations

A UCI shall be deemed to be situated in Luxembourg if the registered office of the management company of the common fund or of the registered office of the investment company is situated in Luxembourg.

Depending on their characteristics, Luxembourg UCIs governed by the law of 20 December 2002 will be subject either to Part I or to Part II of such law.

This classification permits the distinction between:

– undertakings within the meaning of 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), as amended;

– the other undertakings which do not fall within the scope of application of directive 85/611/EEC, as amended.

II. Definition of UCIs governed by Part I of the law of 20 December 2002

Part I of the law of 20 December 2002 applies to all UCIs the exclusive object of which is the investment in transferable securities and/or the other liquid financial assets referred to in Article 41 (1) of the law.

Considering this aforementioned definition, the criterium which determines whether a UCI is subject to Part I or Part II of the law of 20 December 2002 is the intended investment objective. If the UCI invests in transferable securities and/or the other liquid financial assets referred to in the aforesaid Article 41 (1) of the law of 20 December 2002, it is subject to Part I save for the exceptions commented in section III. below.

UCITS subject to Part I of the law of 20 December 2002 are of the open-ended type since the rules to which they are subject provide that they, directly or indirectly, redeem their units or shares at the request of the investors.

Due attention must be given to the abovementioned transitional provisions of the law of 20th December, 2002 and, in particular, to Article 134 (5) concerning UCIs which exist on the date of the entry into force of such law and which are capable of becoming UCITS subject to Part I as a result of the extension of the concept of eligible assets.

Accordingly, a UCI which is presently governed by Part II of the law of 30 March 1988 may have to submit itself, because of its investment policy, by 13 February 2004 at the latest to the provisions of Part I of the law of 20 December 2002, unless it is excluded from Part I pursuant to Article 3 of such law.

III. Definition of UCIs subject to Part II of the law of 20 December 2002

Part II of the law of 20 December 2002 applies to all UCIs the principal object of which is the investment in securities other than transferable securities and/or the other liquid financial assets referred to in Article 41 (1) of the law, as well as to all UCITS excluded from Part I.

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In its Article 3, the law of 20 December 2002 provides for exceptions to the basic rule reproduced in section II. above by excluding from the scope of application of Part I certain categories of UCITS.

The cases of exclusion, which relate to the four categories described below, are identical to those provided for by the law of 30 March 1988. They were described in detail in IML circular 91/75. The first three categories described hereafter remain fundamentally identical to their description in IML circular 91/75. The fourth category has been adjusted to take account of the extension of the concept of eligible assets of UCITS as a result of which certain UCIs which were excluded from Part I of the law of 30 March 1988 are no longer excluded from Part I of the law of 20 December 2002.

UCITS excluded from Part I of the law of 20 December 2002 relate to the four following categories:

1. UCITS of the closed-ended type.

These UCITS can be defined by distinguishing them from open-ended UCITS which, directly or indirectly, redeem their units or shares at the request of investors.

The reimbursement to investors after a decision of the UCITS is not tantamount to a redemption if such reimbursement occurred without any request from investors pursuant to a redemption right.

If the securities of a UCITS of the closed-ended type are redeemed at the request of investors after a certain date, such UCITS falls within the scope of application of Part I of the law from such date onwards, unless it belongs to one of the other categories of UCITS referred to in paragraphs 2. to 4. hereafter. In case this feature is established at inception, the prospectus must, from the outset, draw the investors’ attention to that fact and to the possible consequences arising therefrom, including those relating to the investment policy.

2. UCITS which raise capital without promoting the sale of their units or shares to the public within the European Union (“EU”) or any part of it.

The exclusion from Part I of the law does not dispense the UCITS concerned from the condition of the collection of public savings which all undertakings must comply with in order to qualify as UCI; it simply prohibits the UCITS concerned to engage in any promotional activity within the EU as this concept is defined in each Member State. In Luxembourg, the concept of “promotional activity” refers in particular to the use of advertisement methods such as the press, radio, television or advertisement circulars. It does however not refer to offers of subscription which are addressed to a limited, particularly well-informed circle of investors.

It follows from the above that the UCITS concerned hereby are those which, even though they are addressed to the public, renounce any promotional activity within the EU.

3. UCITS the units or shares of which may, under their constitutional documents, only be sold to the public in countries which are not members of the European Union.

The exclusion only applies subject to the condition that the management regulations or the Articles of incorporation of these UCITS expressly provide that the sale of their units or shares is limited to the public of countries which are not members of the European Union and of the European Economic Area.

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Also covered by this category are UCITS, the units or shares of which are listed on the Luxembourg Stock Exchange and which market those units or shares solely outside the European Union and the European Economic Area.

4. Categories of UCITS determined by the CSSF for which the rules laid down in chapter 5 of the law of 20 December 2002 are inappropriate in view of their investment and borrowing policies.

UCITS covered by this exclusion belong to one of the following categories:

4.1. UCITS the investment policy of which permits the investment of 20% or more of their net assets in securities other than in transferable securities and/or other liquid financial assets referred to in Article 41 (1) of the law of 20 December 2002.

4.2. UCITS the investment policy of which permits the investment of 20% or more of their net assets in venture capital. Investment in venture capital shall be taken to mean investment in securities of companies which have been recently formed or which are still in the course of development.

4.3. UCITS the investment policy of which permits the borrowing, on a permanent basis and for investment purposes, of amounts representing at least 25% of their net assets.

4.4. Multiple compartment UCITS, one compartment of which is not subject to Part I of the law of 20 December 2002 by reason of its investment or borrowing policy.

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CSSF CIRCULAR 03/97 OF 28 FEBRUARY 2003 CONCERNING THE PUBLICATION BY UNDERTAKINGS FOR COLLECTIVE INVESTMENT IN THE REFERENCE DATABASE (“RÉFÉRENTIEL DE LA PLACE”) OF THE SIMPLIFIED PROSPECTUSES AND THE FULL PROSPECTUSES AS WELL AS THE ANNUAL AND SEMI-ANNUAL REPORTS

Luxembourg, 28 February 2003


CSSF CIRCULAR 03/97

Concerns: Publication by undertakings for collective investment in the reference database (“référentiel de la place”) of the simplified prospectuses and the full prospectuses as well as the annual and semi-annual reports.


The purpose of this circular is to clarify the method of publication of simplified prospectuses and full prospectuses as well as the annual and semi-annual reports which undertakings for collective investment (UCIs) must publish for the benefit of their investors pursuant to chapter 17 of the law of 20 December 2002 relating to undertakings for collective investment (the law of 20 December 2002).

That law provides in its Article 114 that:

(1) UCIs must send their simplified and full prospectuses and any amendments thereto, as well as the annual and semi-annual reports, to the CSSF.

(2) The CSSF may publish or cause the publication of the aforesaid documents by such means as it shall consider adequate.

To take into account the evolution of information technology, a reference database has been put in place by the Centrale de Communication Luxembourg S.A. (CCLux*) in order to create an infrastructure which permits investors and professionals of the industry to have access, by electronic means, to all prospectuses and annual and semi-annual reports of Luxembourg UCIs.

This platform is in line with the new European trends aiming at facilitating the distribution and the inspection of prospectuses and annual and semi-annual reports by means of electronic support such as the Internet.

The CSSF considers that this reference database strengthens the transparency of the infor-mation relating to UCIs subject to Luxembourg law and facilitates the access to such infor-mation for investors.

On the basis of Article 114 (2) of the law of 20 December 2002, the simplified prospectus and the full prospectus, as well as the annual and semi-annual reports of the UCIs subject to the aforesaid law must be published in the reference database. This compulsory publication is not applicable to UCIs subject to the law of 19 July 1991 relating to UCIs the securities of which are not intended to be placed with the public.


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It is strongly recommended that UCIs subject to the law of 30 March 1988, relating to under-takings for collective investment (the law of 30 March 1988) also comply with this obligation of publication in the reference database.

The publication of the prospectus must be made as soon as the latter has been approved by the CSSF. To the extent notified by a UCI to the CSSF, the publication of the prospectus is postponed until, at the latest, the start date of the distribution of the units of the UCI.

The annual and semi-annual reports must be published within the deadlines set forth in Article 109 (2) of the law of 20 December 2002 and in Article 85 (2) of the law of 30 March 1988.

The CSSF may, on the basis of an adequate justification, grant a derogation in relation to the obligation to publish the prospectuses and the annual and semi-annual reports in the reference database.

A separate circular will be issued at the time when the reference database will become opera-tional and will deal with the methods of transmission of the prospectuses and the annual and semi-annual reports of UCIs to the CSSF and to CCLux*.


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CSSF CIRCULAR 03/108 OF 30 JULY 2003 CONCERNING LUXEMBOURG MANAGEMENT COMPANIES SUBJECT TO CHAPTER 13 OF THE LAW OF 20 DECEMBER 2002 RELATING TO UNDERTAKINGS FOR COLLECTIVE INVESTMENT AS WELL AS LUXEM-BOURG SELF-MANAGED INVESTMENT COMPANIES SUBJECT TO ARTICLE 27 OR ARTICLE 40 OF THE LAW OF 20 DECEMBER 2002 RELATING TO UNDERTAKINGS FOR COLLECTIVE INVESTMENT

Luxembourg, 30 July 2003

To all UCIs and management companies subject to Luxembourg law

CSSF CIRCULAR 03/108

Concerns: Luxembourg management companies subject to the provisions of chapter 13 of the law of 20 December 2002 relating to undertakings for collective investment as well as self-managed investment companies subject to the provisions of Article 27 or Article 40 of the law of 20 December 2002 relating to undertakings for collective investment.


The main purpose of this circular is to clarify the way of application of certain Articles of chapter 13 of the law of 20 December 2002 relating to undertakings for collective investment and amending the amended law of 12 February 1979 on value added tax (the “law of 20 December 2002”) which introduces a specific regime applicable to management companies managing UCITS governed by Directive 85/611, as amended (hereafter the “Directive 85/611”). In addition, the circular specifies the financial information that management companies which are subject to chapter 13 must communicate to the CSSF.

Chapter 13 of the law of 20 December 2002 is applicable to all management companies subject to Luxembourg law which manage at least one UCITS authorised in accordance with Directive 85/611, as well as their branches.

Management companies which are subject to chapter 14 of the law of 20 December 2002 and management companies which manage neither a Luxembourg UCI nor a UCITS, are not subject to the provisions of this circular.

It is to be noted that pursuant to the transitional provisions of Article 135 of the law of 20 December 2002, management companies which are authorised or which will be authorised until 13 February 2004 have the option to submit themselves to chapter 13 or to chapter 14 of the law of 20 December 2002. To the extent that they are subject to chapter 14 and that they manage UCITS governed by Directive 85/611, they must comply with the provisions of chapter 13 no later than 13 February 2007. Management companies which manage UCITS and which are authorised after 13 February 2004 are automatically subject to chapter 13 of the law of 20 December 2002.

In addition, this circular is applicable mutatis mutandis to investment companies subject to Directive 85/611 as amended by the directive of the European Parliament and Council of 21 January 2002, and which have not designated a management company (Articles 27(2) and 40), except for items I.4 (shareholding), I.6 (own funds) and II. (prudential supervision of a management company subject to chapter 13 of the law of 20 December 2002).

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Finally, the transitional provisions of Article 134 applicable to them must also be considered.

I. Conditions for obtaining and maintaining authorisation for management companies which do not engage in activities other than collective portfolio management as provided for by Article 77(2).

1. Basic principles

Access to business of management companies within the meaning of chapter 13 of the law of 20 December 2002 (“management companies”), is subject to prior authori-sation by the CSSF (Article 77).

Prior authorisation is also required for the opening by Luxembourg management companies of agencies in Luxembourg or branches abroad.

The right of establishment and the freedom to provide services are applicable to Luxembourg branches of management companies managing UCITS and which are authorised and supervised by the competent authorities of another Member State.

2. Programme of activity

The application for authorisation must be accompanied by a programme of activity as referred to in Article 78(1)c) which provides, in particular, a description of a plan for development of the activities. The activity programme comprises information relating to:

a) the scope of the proposed services for the three next accounting periods concerning:

- the collective portfolio management (number of UCITS managed directly and under delegation, laws under which such UCITS have been set up, their net assets as well as the number and net assets of UCITS, either managed directly or under delegation, created at the initiative of a company which is not part of the same group as the management company);

b) the investment policies of the UCITS managed as well as the financial instruments and markets concerned;

c) the risk management process (Article 42(1)).

3. Head office and infrastructure

The head office of a management company must be situated in Luxembourg. This requirement implies that a management company may not have in Luxembourg a registered or statutory office only. This concept must be understood in a broad sense and comprises in particular the fields of infrastructure and accounting and electronic data processing systems (Article 78(1)).

a) human infrastructure

The staff of the management company must be permanent and must be adapted to the contemplated activities. The CSSF must be informed about the number of persons working for the management company. The staff is, in principle, employed148 by the company.

148 The French original of the circular uses in this sentence the term “salarié” which implies an employer/employee relationship between the management company and its staff.

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The CSSF can grant a derogation from this requirement and can authorise that the staff, in part or entirely, is either on secondment149 or made available by an entity of the same group or by a non-affiliated company. In this case, the contract governing this secondment or availability arrangement must be submitted to the CSSF. In addition, this contract must comprise rules governing conflicts of interest between the persons concerned and the entity if the latter is part of the same group.

The CSSF must be informed on the identity of the persons who conduct the business of the management company. The conduct of the company’s business must be decided by at least two persons meeting the conditions of reputation and professional experience as described under item 5 of this circular. The CSSF must be able to contact directly the persons who conduct the business of the management company. These persons must be in a position to provide all the information which the CSSF considers essential for the performance of its supervision. At least one of these persons must be on site150.

They must not necessarily be employees of the management company the business of which they conduct, provided that there exists an agreement which precisely defines their rights and obligations and, if applicable, with whom there exists a hierarchical connection. It is also not excluded that the persons concerned conduct the business of several management companies, provided that the CSSF has sufficient evidence that each of these persons is in a position to accomplish at all times his functions, taking into account in particular the activities of the management companies concerned.

The principle of independence of the management company from the depositary does not permit the persons who conduct the business of the management company to be employed by the custodian of a UCITS which it manages151.

b) technical infrastructure

The CSSF must receive a description of the IT equipment, the information sources and the software which is being used.

The management company must have sound administrative and accounting proce-dures, control and safeguard arrangements for electronic data processing and adequate internal control mechanisms; it must be structured and organised in such a way as to minimise the risk of UCITS’ or clients’ interests being prejudiced by conflicts of interest between the management company and its clients, between one of its clients and another, between one of its clients and a UCITS or between two UCITS (Article 84(1)). These prudential rules will be specified at a later stage in a circular.

c) preconditions for authorisation of delegation

Management companies are authorised to delegate to third parties, for the purpose of a more efficient conduct of their business, the power to carry out on their behalf one or more of their own functions (Article 85(1)).

149 The French original of the circular uses the word “détaché” which implies that the staff must not be employees in the sense of footnote 148.

150 The French original of the circular uses the terms “sur place”. This implies that the relevant person must usually work in Luxembourg but can reside either in Luxembourg or in one of its neighbour countries.

151 The French original of the circular refers to “dont elles assurent la gestion” which, from a French grammar point of view, would imply that this portion of the sentence refers to the persons who conduct the business. In fact the sentence makes sense only if the portion of this sentence refers to the management company.

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The management company’s and the depositary’s liability shall not be affected by the fact that the management company has delegated any functions to third parties.

To obtain an authorisation of delegation from the CSSF, the following preconditions must be complied with:

- General preconditions to the authorisation of delegation

- The CSSF must be informed in an appropriate manner about the delegation of functions. To that effect, the management company must submit, in relation to each UCITS which it manages, to the supervisory authority152 a description with details of the functions which it intends to delegate, the entities to which the functions will be delegated as well as the procedures available to the management company to control the activities of the enterprises153 to which mandates will be given. This description must comprise all details necessary to permit the CSSF to verify whether the conditions for delegation are complied with.

- The mandate may not prevent the effectiveness of supervision over the management company, and in particular, it must not prevent the management company from acting, or the UCITS from being managed, in the best interest of the investors.

In that context, the delegation must be structured in a manner that the compliance with the rules of conduct set forth in Article 86 is ensured and can be controlled at any time.

The rules of conduct will be specified at a later stage in a circular.

- Measures exist which enable the persons who conduct the business of the management company to monitor effectively at any time the activity of the enter-prise to which the mandate is given.

This requirement imposes on the management company to put in place a monitoring infrastructure which enables its directors154 to have access to the data relating to the activities performed by the agent or agents in the name and on behalf of the management company and the UCITS which it manages.

Depending on the delegated functions, the directors will receive on a regular basis, in relation to each of the UCITS managed by the management company, detailed reports which enable them to assess in particular:

* that the assets of the UCITS are invested in accordance with its constitutive documents and the applicable laws;

* that a risk management process exists and is employed which enables the monitoring and measurement at any time of the risk of the positions and their contribution to the overall risk profile of the portfolio of the UCITS;

* the monitoring of the marketing policy of the UCITS.

The frequency and the detail of such reports shall be dictated by the character-istics of the UCITS and the risks associated therewith.

152 i.e. the CSSF.

153 The French original of the circular generally uses, in the same manner as amended Directive 85/611/EEC and the law of 20 December 2002, the term “entreprise” but sometimes also the word “entité”. In the same manner as the English version of amended Directive 85/611/EEC the term “enterprise” is used in this translation on a consistent basis.

154 The French original of the circular uses the word “dirigeant”. They are the persons (at least two) referred to in 3.a) above who are referred to in this section.

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The delegation of certain functions to third parties must not prevent the persons who conduct the activity of the management company to have access, either on a real time basis or upon simple request, to the accounting documents relating to the UCITS.

- The mandate shall not prevent the persons who conduct the business of the management company to give at any time further instructions to the enterprise to which functions are delegated and to withdraw the mandate with immediate effect when this is in the interest of investors.

The content of the delegation agreement must take into account these require-ments and provide for the details thereof, comprising the circumstances in which the contract can be terminated with immediate effect.

- The enterprise to which functions will be delegated must be qualified and capable of undertaking the functions in question, having regard to the nature of the functions to be delegated.

In addition to the authorisations which may be required by applicable regula-tions, the enterprises to which functions have been delegated must bring evidence that they have appropriate human and technical resources, having regard to the delegated functions.

- The prospectuses of the UCITS list the functions which the management company has been permitted to delegate.

The CSSF may require, if the interest of investors so warrants, that the identity of the enterprises to which functions have been delegated by the management company are published in the prospectus.

- Preconditions specific to the investment management function

- When the delegation concerns the management of investments, the mandate may only be given to entities which are authorised or registered for the purpose of asset management and are subject to prudential supervision.

To that effect, the enterprises to which investment management functions have been delegated must have the necessary authorisations required under their national laws and, if applicable, any other laws applicable to the services provided.

The enterprises to which investment management functions have been delegated must be submitted in their home state to a permanent supervision performed by a supervisory authority set up by law in order to ensure the protection of investors.

- The identity of the enterprises to which investment management functions have been delegated must, in principle, be published in the prospectus of the UCITS concerned.

- The delegation must be in accordance with investment-allocation criteria periodi-cally laid down by the management company.

Therefore, the delegation agreement shall indicate the investment policy and the investment restrictions applicable to the UCITS (and each compartment if the delegation concerns one or several compartments of a UCITS with multiple compartments155) and, if applicable, specific investment rules (“asset allocation criteria”) determined by the board of directors. These provisions can be included

155 These are commonly referred to as umbrella funds.

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in the delegation agreement by means of a reference to the provisions in the prospectus of the UCITS concerned, without prejudice to specific instructions which may be given from time to time by the board of directors of the management company or by the persons who conduct the business of the management company. In case of an amendment of such rules, the agreement will be amended in due time to permit the delegates to comply with the new rules immediately when they come into force.

- Where the mandate concerns the management of investments and is given to a third country enterprise, cooperation between the CSSF and the supervisory authority of that country must be ensured.

The CSSF will determine which supervisory authorities meet such condition.

- A mandate with regard to the core function of investment management shall not be given to the depositary or to any other enterprise whose interests may conflict with those of the management company or the unitholders.

This provision does not prohibit the delegation of the investment management function to a company which is part of the same group as the depositary. In such a situation, the CSSF will authorise the delegation only if it has evidence that measures have been put in place to protect the interests of the management company and the unitholders.

4. Shareholding

The CSSF shall not grant authorisation to take up the business of a management company until it has been informed of the identities of the shareholders or members, whether direct or indirect, natural or legal persons, that have qualifying holdings and of the amounts of those holdings (Article 79(1)). The CSSF must be satisfied that the shareholders who have a qualifying holding must not only be of sufficiently good repute, but will perform their powers in a manner to ensure the sound and prudent management of the management company. A qualifying holding means any direct or indirect holding in a management company which represents 10% or more of the capital or of the voting rights or which makes it possible to exercise a significant influence over the management of the management company in which that holding subsists (Article 1(23))156.

In addition, it is required that the structure of the direct and indirect shareholding is organised in a manner that the authorities responsible for the prudential super-vision of the management company, and, if applicable, the persons with whom the management company has close links are clearly determined and that such super-vision can be undertaken without hindrance (Article 78(2)).

Finally, the management company must inform the CSSF about any change in the persons that have qualifying holdings or holdings which make it possible to exercise a significant influence, as soon as it becomes aware thereof (Article 83(1)).

156 In the English translation of the law of 20 December 2002 prepared by the authors of this translation, the term “qualifying holdings” is defined in Article 1, item 18.

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5. Good professional repute and professional experience

The directors of the UCITS must be of sufficiently good repute and have sufficient experience, also in relation to the type of UCITS concerned. To that end, the names of the directors, and of every person succeeding them in office, must be communicated forthwith to the CSSF (Article 93(3)). “Directors” shall mean those persons who, under law or the constitutional documents, represent the UCITS, in this case the members of the board of directors, or those who effectively determine the conduct of the activities of the UCITS.

The persons who conduct the business of the management company must also be of sufficiently good repute and be sufficiently experienced in relation to the type of UCITS managed by the management company concerned (Article 78(1)b)) in order to be authorised by the CSSF prior to their appointment.

6. Own funds

The requirements relating to the own funds of the management company are one of the major changes of the new text. There is now a requirement for an initial capital of at least 125,000 Euro and an additional amount of own funds must be provided according to the portfolios under management (Article 78(1)a)).

Irrespective of the amount of these requirements, the own funds of the management company shall never be less than the amount prescribed in Annex Iv of Directive 93/6/EEC157.

In case a management company of UCITS provides, in addition, services of management of portfolios of investments on a discretionary client-by-client basis, including those owned by pension funds, in accordance with a mandate given by investors, the provisions of circular CSSF 00/12 defining the ratios of own funds appli-cable by virtue of Article 56 of the amended law of 5 April 1993 relating to the financial sector are applicable.

7. External audit

Management companies must entrust the audit of their annual accounting documents to one or more réviseurs d’entreprises (external auditors) who can justify having adequate professional experience (Article 80(1)).

II. Conditions for obtaining and maintaining authorisation for management companies which engage in activities of collective portfolio management and in the management of portfolios of investments on a discretionary client-by-client basis as contem-plated in Article 77(3).

All the conditions set forth in chapter I remain applicable. In addition, requirements specific to the activity of portfolio management on a discretionary client-by-client basis are appli-cable.

157 Investment firms shall be required to hold own funds equivalent to one quarter of their preceding year’s fixed overheads. The competent authorities may adjust that requirement in the event of a material change in the firm’s business since the preceding year. Where a firm has not completed a year’s business, including the day it starts up, the requirement shall be a quarter of the fixed overheads projected in its business plan unless an adjustment to that plan is required by the authorities.

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Especially, the activity programme as described in chapter I.2. comprises, in addition, information on the scope of the proposed services for the next three accounting periods as regards:

- the management of portfolios of investments on a discretionary client-by-client basis (number of private clients, institutional clients and pension funds as well as the assets managed for each type of client);

- if applicable, the proposed non-core services.

In addition, to the extent that the services in which the management companies subject to this chapter engage are in respect of the management on a discretionary client-by-client basis the same services as those in which portfolio managers158 falling within the scope of Article 24 B) of the amended law of 5 April 1993 relating to the financial sector engage, the same prudential rules are, in principle, also applicable to them.

For example, the two persons who conduct the business of the management company must be on site. The details of such specific additional requirements will, if necessary, be specified in a circular at a later stage.

III. Prudential supervision of a management company subject to chapter 13 of the law of 20 December 2002.

Article 82(2) provides that the prudential supervision of a management company shall be the responsibility of the CSSF. The management companies, as well as their branches, must from now on provide the CSSF with financial information which has to be drawn up on a quarterly basis. This financial information will be used by the CSSF for the purpose of its prudential supervision of the management companies.

The schedules of financial information which must be remitted periodically to the CSSF are attached hereto. The information concerned is divided in two parts.

The first part is applicable on a general basis to all management companies of UCITS and concerns the “Financial situation of the management company” (Table SG 1A), the “Profit and loss account” (Table SG 1 B) and the “Management of UCIs” (Table SG 1C). The second part concerns the financial information relating to other possible activities in which the management company engages (Table SG 2).

All tables have to be drawn up on a quarterly basis. The reference dates of the reports are the last day of each calendar quarter, i.e. 31 March, 30 June, 30 September and 31

December; the tables must be received by the CSSF by the 20th day of the month which follows the reference date. The tables have to be submitted to the CSSF for the first time as at 31 December 2003.

IV. Prudential supervision of a self-managed investment company in transferable securities (SIAG)159.

Articles 27 and 40 impose on SIAGs compliance with the provisions applicable in relation to prudential supervision. The SIAGs, comprising their branches, must provide the CSSF with specific financial information which has to be drawn up on a quarterly basis. This financial information will be used by the CSSF for the purpose of its prudential supervision of the SIAGs.

158 gérants de fortunes

159 The French original of the circular uses the term “société d’investissement en valeurs mobilières autogérée” and the abbreviation “SIAG”.

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The schedules of financial information which must be remitted periodically to the CSSF are attached hereto. Such information concerns the “Financial situation of the SIAG” (Table SIAG 1A) and the “Profit and loss account” (Table SIAG 1B).

The tables must be drawn up on a quarterly basis. The reference dates of the reports are the last day of each calendar quarter, i.e. 31 March, 30 June, 30 September and 31 December; the tables must be received by the CSSF by the 20th day of the month which follows the reference date. The tables have to be submitted to the CSSF for the first time as at 31 December 2003.

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Annex 1

Table SG 1A FINANCIAL SITUATION AS AT … (in the currency of the capital)

Company:

Person in charge:

Frequency: quarterly

LIABILITIES AMOUnT

1. Equity capital

1.1. Subscribed capital or endowment capital

1.2. Share premium

1.3. Revaluation reserve

1.4. Legal reserve

1.5. Other reserves

1.6. Profit or loss brought forward

2. Subordinated debts

3. Provisions for liabilities and charges

3.1. Provisions for pensions and similar commitments

3.2. Provisions for taxes

3.3. Other provisions

4. Debts

5. Profit for the financial year

Total (1+2+3+4+5)

ASSETS AMOUnT

1. Subscribed capital unpaid

2. Incorporation expenses

3. Fixed assets

3.1. Fixed intangible assets

3.2. Fixed tangible assets

3.3. Financial fixed assets

Units in affiliated undertakings

Loans and advances to affiliated undertakings

Participating interests

Loans and advances to undertakings in which the company has participating interests

Securities held as fixed assets

Others

4. Current assets

4.1. Cash

4.2. Balances in banks, balances in postal cheques accounts

4.3. Loans and advances

4.4. Transferable securities

4.5. Others

5. Prepayments and accrued income

6. various

7. Loss for the financial year

Total (1+2+3+4+5+6+7)

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Annex 2

Table SG 1B PROFIT AND LOSS ACCOUNTS AS AT … (in the currency of the capital)

Company:

Person in charge:


WORDInG AMOUnT

1. Interests and fees received +

2. Interests and fees payable -

3. Other operating income +

4. Gross profit or gross loss

5. Income from transferable securities +

a) income from participating interests ( )

b) income from other transferable securities ( )

c) income from participating interests or from units in affiliated undertakings ( )

6. General administrative expenses -

6.1. Staff costs

Wages and salaries ( )

Social security costs ( )

Social security costs relating to general pensions ( )

6.2. Other administrative expenses ( )

7. value adjustments in respect of: -

7.1. Intangible and tangible assets ( )

7.2. Financial fixed assets and transferable securities being part of the current assets ( )

7.3 Others ( )

8. value re-adjustments +

9. Provisions for general risks -

10. Tax on profit on ordinary activities -

11. Profit or loss on ordinary activities after tax +/-

12. Extraordinary income +

13. Extraordinary charges -

14. Extraordinary profit or loss +/-

15. Tax on extraordinary profit or loss -

16. Other taxes not shown under the preceding items -

17. Profit or loss for the financial year +/-

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Annex 3

Table SG 1C MANAGEMENT OF UCIs AS AT … (in the currency of the capital)

Company:

Person in charge:


Portfolios of the UCIs managed Number Evaluation value

I. UCIs managed

FCP Part I

Others

SICAv Part I

Others

Other UCIs

Total

II. UCIs managed under delegation

Amount

Own funds of the management company

note:

UCIs managed: concerns the UCIs managed by the management company including portfolios for which it has delegated the management function but excluding portfolios that it manages under delegation.

UCIs managed under delegation: concerns UCIs managed by the management company under delegation.

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Annex 4

Table SG 2 OTHER ACTIVITIES AS AT … (in the currency of the capital)

Company:

Person in charge:


Number Amount

1. Management of portfolios of investment

Management mandates

Of which: pension funds

Fees received during the quarter Xxxxxxxxxxxxx

2. Investment advice

Existing investment advisory agreements

Fees received during the quarter

3. Safekeeping and administration of UCI units

Deposits of UCI units

Fees received during the quarter Xxxxxxxxxxxxx

note:

1. Management of portfolios of investment

1) The total of the assets under management must correspond to the market value at the time of the drawing-up of the table.

2) With respect to the fees received during the quarter, the table must indicate the gross amount of the fees received (management fees, performance fees, etc.) for the management of assets during the quarter for which the table is drawn up.

2. Investment advice

1) Investment advisory agreements: it concerns agreements made with a client in order to provide him with investment advice for a determined or undetermined period of time on instruments listed in section B of annex II of the amended law of 5 April 1993 relating to the financial sector.

2) Amount: one should indicate the average volume during the current accounting year of the portfolio for which investment advice has been provided which means that there should be calculated at the end of each month an average of the value of the portfolio of all clients advised during the current accounting year including the amount of the portfolio at the date of closing of the previous accounting year.

3) Amount of the fees received during the current month: the table must indicate the amount of advisory fees received during the current quarter until the date as of which the table is drawn up.

3. Safekeeping and administration of UCI units

1) Deposits of UCI units: one should indicate the number of deposits, as well as the evaluation value of these deposits.

2) Fees received during the quarter: the table must indicate the amount of the fees received in the context of the deposit service provided for UCI units at the date of the drawing-up of the table.

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Annex 5

Table SIAG 1A FINANCIAL SITUATION AS AT … (in the currency of the capital)

Company:

Status: o SICAv o Others

Person in charge:


ASSETS AMOUnT

1. Incorporation expenses

2. Fixed asset

2.1 Fixed intangible assets

2.2 Fixed tangible assets

2.3 Financial fixed assets

3. Current assets

3.1 Portfolio Securities

3.1.1 Shares and other variable-yield securities

3.1.1.1. Shares other than UCI units

3.1.1.2. Shares admitted to listing or dealt in on another regulated market

3.1.1.3. Shares not admitted to listing

3.1.1.4. Other participating interests

3.1.1.5. UCI units

3.1.2 Bonds and other debt securities

3.1.2.1 Short term securities (initial due date: one year or more)

3.1.2.2 Medium/long term securities (initial due date: more than one year)

3.1.3 Money market instruments

3.1.4 Warrants and other rights

4. Financial instruments

4.1. Option contracts

4.1.1. Options purchased

4.1.2. Options sold

4.2. Forward contracts

4.3. Others

5. Liquid assets

6. Other assets

Total (1+2+3+4+5+6)

LIABILITIES AMOUnT

1. Equity capital

2. Loans

3. Provisions for liabilities and charges

3.1. Provisions for pensions and similar commitments

3.2. Provisions for taxes

3.3. Other provisions

4. Debts

5. Profits for the financial year

Total (1+2+3+4+5)

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Annex 6

Table SIAG 1B PROFIT AND LOSS ACCOUNTS AS AT… (in the currency of the capital)

Company:

Status: o SICAv o Others

Person in charge:


AMOUnT

Total income

1. Dividends

2. Interest on bonds and other debt securities

3. Interest from banks

4. Other income

a) Fees received

b) Others

Total charges

1. Fees

a) Advisory and/or management fees

b) Depositary bank fees

c) Other fees

2. Administration charges

a) Head office (central administration) charges

b) Audit and controlling charges

c) Other administration charges

3. Taxes

a) Annual subscription tax

b) Other taxes

4. Interests paid

5. Other charges

net profit or net loss on investments

6. Realised net profit or loss

7. variation of unrealised net profit or loss

net profit or net loss on operations

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CSSF CIRCULAR 03/122 OF 19 DECEMBER 2003 CONCERNING CLARIFICATIONS ON THE SIMPLIFIED PROSPECTUS




Concerns: Clarifications on the simplified prospectus.


The purpose of this circular is to provide more detailed information on the simplified prospectus and in particular on the interpretation of certain elements of information in schedule C attached to the law of 20 December 2002 relating to undertakings for collective investment (the “law of 20 December 2002”).

The circular’s purpose is notably to describe three elements of information of the simplified prospectus mentioned in schedule C, namely:

– the UCITS’ objectives, the UCITS’ investment policy and a brief evaluation of the UCITS’ risk profile,

– the historical performance of the UCITS,

– the other possible expenses and fees.

It further sets out the authorisation procedure of the CSSF in relation to the simplified prospectus.

I. Introduction

Article 109(1) of the law of 20 December 2002 relating to undertakings for collective investment obliges undertakings for collective investment in transferable securities (UCITS) subject to Part I of such law to publish a simplified prospectus.

UCITS which remain governed by Part I of the law of 30 March 1988 relating to under-takings for collective investment until 13 February 2007 at the latest, are not obliged by Luxembourg law to publish a simplified prospectus. However, if any such UCITS intends to publish a simplified prospectus, it has to comply with the requirements imposed by annex I, schedule C, for the simplified prospectus of UCITS subject to Part I of the law of 20 December 2002.

Pursuant to Article 112 of the law of 20 December 2002, the key elements of the simplified prospectus must be kept up to date.

A distinction must be made between:

a) the sporadic updates which must be made upon changes of any key elements of the full prospectus and/or the management regulations / articles;

b) the periodical updates which must be made at least once a year and which concern in particular the following elements: the historical performance, the total expense ratio and the portfolio turnover rate.

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II. Definition of elements of information of schedule C

a) objectives, investment policy and assessment of the UCItS’ risk profile

In the section short definition of the UCITS objectives, the simplified prospectus must give a description of the objective the UCITS seeks to achieve. As the case may be, it must mention the guarantees received from any third parties as well as the restrictions to such guarantees.

For UCITS, whose objective is to reproduce the composition of a specific equity index or bond index, the simplified prospectus must comprise, in addition to the aforemen-tioned indications, information which permits the identification of the index or indices and the degree of tracking sought.

The section investment policy of the UCITS comprises, if this information is relevant, indications similar to the following:

- the main categories of eligible financial assets,

- information on whether the investment policy of the UCITS concentrates on certain markets (sectorial, geographical or others) or on certain types of assets (shares, bonds or others).

The simplified prospectus of UCITS which make use of financial derivative instru-ments must indicate if this type of instruments is used for investment policy purposes or for hedging purposes only. The simplified prospectus of UCITS which reproduce an index must indicate the strategy which is pursued to achieve this objective.

The description of the risk profile of the UCITS is qualitative. In addition to all the general risks incurred by investors investing in a UCITS, it must describe the specific risks which the UCITS incurs by reason of the specific investment policy or strategies it pursues.

In all cases, the simplified prospectus must comprise the following statements:

- the investments of the UCITS are subject to market fluctuations and there is a risk for the investor to eventually recover an amount lower than the one he invested,

- a reference to the full prospectus for a detailed description of the risks mentioned in the simplified prospectus.

If the UCITS is established as a UCITS with multiple compartments, such information must be provided for each compartment.

b) historical performance of the UCItS

The historical performance of the UCITS is represented on a histogram160 showing the performance for the last three accounting periods. If the UCITS has existed for less than three years, the histogram presents the situation for the full past years. The performance must be calculated on the basis of the nAv, taking into account the reinvestment of dividends.

If the UCITS is managed by reference to a reference index, a “benchmark”161, or if the fee structure comprises a performance fee depending on a reference index, the historical performance of the UCITS must be compared to the historical performance of the reference index by reference to which the UCITS is managed or on the basis of which the performance fee is calculated.

160 The French version of the circular uses the word histogramme.

161 It can be assumed that this provision is only applicable if the relevant benchmark is published in the UCITS’ prospectus or periodical reports.

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If the UCITS is established as a UCITS with multiple compartments, such information must be provided for each compartment.

c) the other possible expenses and fees

The UCITS must indicate the management fee and, as the case may be, the performance fee as well as other possible expenses and fees, distinguishing between those to be paid by the investor and those to be paid out of the assets of the UCITS.

Furthermore, the UCITS may calculate a total expense ratio. The total expense ratio, hereafter total expense Ratio (teR), is the ratio of the gross amount of the expenses of the UCITS to its average net assets.

If a UCITS calculates a TER, the rules set forth hereafter must be complied with.

The average net assets must be calculated on the basis of the net assets of the UCITS each time the nAv is calculated.

The TER must be calculated at least once a year on an ex-post basis, in principle by reference to the fiscal year of the UCITS.

The TER includes all the expenses levied on the assets of the UCITS such as the management expenses, performance fees, administration expenses, custodian expenses, distribution expenses, remuneration of the auditor, remuneration of the legal advisers, registration charges and duties. The TER does not include subscription and redemption fees directly paid by the investor.

If a UCITS invests more than 20% of its assets in other investment funds which publish a TER in accordance with this circular, a synthetic TER corresponding to such investment must be indicated.

Conversely, if the target funds do not publish a TER in accordance with this circular, the impossibility to calculate a synthetic TER for such portion of investments must be mentioned.

The simplified prospectus must indicate if the transaction costs are or are not included in the TER.

If the UCITS is established as a UCITS with multiple compartments or issues multiple classes of shares/units, the TER is calculated per compartment and, as the case may be, per class of shares/units.

The simplified prospectus may indicate the turnover rate of the portfolio on an annual basis, hereafter portfolio turnover rate. The portfolio turnover rate of a UCITS or, as the case may be, of a compartment must be calculated as follows:

Turnover = [(Total 1 – Total 2)/M]*100

with:

Total 1 = Total of securities transactions during the relevant period = X + Y

where X = purchases of securities and Y = sales of securities

Total 2 = total of transactions in units/shares of the UCITS during the relevant period = S + T

where S = subscriptions of units/shares of the UCITS and T = redemptions of units/shares of the UCITS

M = average monthly assets of the UCITS

The information relating to the TER, the portfolio turnover rate and the historical performances can be reflected in the simplified prospectus or on a sheet annexed to the simplified prospectus.

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III. Visa

All UCITS subject to Part I of the law of 20 December 2002 must publish a simplified prospectus and transmit it to the CSSF in accordance with the Articles 109 and 114 of such law.

UCITS which publish a simplified prospectus must previously transmit it to the CSSF (together, as the case may be, with the sheet annexed to the simplified prospectus) as well as any amendments thereto (and/or to the sheet annexed to the simplified prospectus). Once the simplified prospectuses have obtained the “nihil obstat” of the CSSF, they are provided with the CSSF’s visa stamp and are remitted to the person who has introduced the file.

To that effect, the CSSF must receive five copies of each simplified prospectus in its final form and presentation. The visa stamp may in no circumstances be used for commercial purposes.

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CSSF CIRCULAR 04/146 OF 17 JUNE 2004 CONCERNING PROTECTION OF UNDER-TAKINGS FOR COLLECTIVE INVESTMENT AND THEIR INVESTORS AGAINST LATE TRADING AND MARKET TIMING PRACTICES

Luxembourg 17 June 2004

To all credit institutions, professionals of the financial sector, Luxembourg undertakings for collective investment and all parties involved in the operation and supervision of such under-takings.


Concerns: Protection of undertakings for collective investment and their investors against Late Trading and Market Timing practices.


The purpose of this circular is to protect undertakings for collective investment (UCIs) and their investors against the Late trading and Market timing practices described hereafter.

To that end, it clarifies the protective measures to be adopted by UCIs and certain of their service providers. These measures take into account the particularities of Luxembourg UCIs which are frequently invested and distributed through all time zones and the marketing of which is frequently undertaken by intermediaries subject to the supervision of a foreign authority.

This circular further fixes more general rules of conduct to be complied with by all profes-sionals subject to the supervision of the CSSF.

Finally, it extends the role of the auditor of the UCI, as described in CSSF Circular 02/81, as regards the verification of the procedures and controls established by the UCI to protect the UCI against Late trading and Market timing practices.

Late Trading is to be understood as the acceptance of a subscription, conversion or redemption order after the time limit fixed for accepting orders (cut-off time) on the relevant day and the execution of such order at the price based on the net asset value (nAv) appli-cable to such same day.

Through Late trading, an investor may take advantage of being aware of events or infor-mation published after the cut-off time, but which events or information are not yet reflected in the price which will be applied to such investor. This investor is therefore privileged compared to the other investors who have complied with the official cut-off time. The advantage of this practice to the investor is increased even more if he is able to combine Late trading with Market timing.

The Late trading practice is not acceptable as it violates the provisions of the prospectuses of the UCIs which provide that an order received after the cut-off time is dealt with at a price based on the next applicable nAv.

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The acceptance of an order is not to be considered as a Late trading transaction, where the intermediary in charge of the marketing of the UCI transmits to the transfer agent of the UCI after the official cut-off time to still be dealt with at the nAv applicable on the relevant day, if such an order has effectively been issued by the investor before the cut-off time. To limit the risk of abuse, the transfer agent of the UCI must ensure that such an order is transmitted to him within a reasonable timeframe.

The acceptance of an order dealt with or corrected after the cut-off time by applying the nAv applicable on the relevant day is also not to be considered as a Late trading transaction, if such an order has effectively been issued by the investor before the cut-off time.

Market Timing is to be understood as an arbitrage method through which an investor system-atically subscribes and redeems or converts units or shares of the same UCI within a short time period, by taking advantage of time differences and/or imperfections or deficiencies in the method of determination of the nAv of the UCI.

Opportunities arise for the market timer either if the nAv of the UCI is calculated on the basis of market prices which are no longer up to date (stale prices) or if the UCI is already calcu-lating the nAv when it is still possible to issue orders.

The Market timing practice is not acceptable as it may affect the performance of the UCI through an increase of the costs and/or entail a dilution of the profit.

As Late trading and Market timing practices are likely to affect the performance of the UCI and are likely to harm investors, the preventive measures recommended hereafter have to be applied with great care.

I. Prevention of Late Trading and Market Timing practices

a) protective measures to be adopted by the UCI and by certain of its service providers

The investor must, in principle, subscribe, redeem or convert the units or shares of a UCI at an unknown nAv. This implies that the cut-off time must be fixed in a manner to precede or to be simultaneous to the moment when the nAv, on which the appli-cable price is based (“forward pricing”), is calculated. A non-precise cut-off time such as, for example, “until the close of business” is to be avoided. The prospectus must specifically mention that subscriptions, redemptions and conversions are dealt with at an unknown nAv and must indicate the cut-off time.

The transfer agent of the UCI shall ensure that subscription, redemption and conversion orders are received before the cut-off time as set forth in the UCI’s prospectus in order to process them at the price based on the nAv applicable on that day. In respect of orders received after such cut-off time, the transfer agent applies the price based on the next applicable nAv. The transfer agent shall ensure that he receives within a reasonable time period the orders which have effectively been issued by investors before the cut-off time but which have been forwarded to the transfer agent by inter-mediaries in charge of the marketing of the UCI after such time limit only.

In order to be able to ensure the compliance with the cut-off time, the transfer agent of the UCI must adopt appropriate procedures and undertake to perform the necessary controls. The transfer agent undertakes either to provide the UCI on an annual basis with a confirmation from its auditor on its compliance with the cut-off time or to authorise the auditor of the UCI to perform its own controls on the compliance of the cut-off time.

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If intermediaries in charge of the marketing of the UCI have been appointed by the UCI to ensure the collection of orders and the control of the cut-off time with regard to the acceptance of the orders, the UCI shall ensure that it obtains from each intermediary concerned a contractual undertaking pursuant to which the intermediaries undertake towards the UCI to transmit to the transfer agent of the UCI, for the processing at the nAv applicable on such day, only such orders which it has received before such cut-off time.

The cut-off time, the time at which the securities prices which are taken into account for the calculation of the nAv are fixed162 and the time at which the nAv is calculated must be combined in a manner so as to minimise any arbitrage possibilities arising from time differences and/or imperfections/deficiencies in the method of determination of the nAv of the UCI.

UCIs which, due to their structure, are exposed to Market timing practices must put in place adequate measures of protection and/or control to prevent and avoid such practices. The introduction of appropriate subscription, redemption and conversion charges, an increased monitoring of dealing transactions and the valuation of the portfolio securities at “fair value” may constitute possible solutions for such UCIs.

The board of directors of the UCI analyses such solutions with care and will implement them or make certain that they are implemented.

The UCI shall ensure not to permit transactions which it knows to be, or it has reasons to believe to be, related to Market timing and uses its best available means to avoid such practices.

If formal contractual relationships exist between the UCI and intermediaries in charge of its marketing, the UCI shall ensure to obtain from the intermediary concerned a contractual undertaking from the intermediary not to permit transactions which the intermediary knows to be, or has reasons to believe to be, related to Market timing.

The prospectus of the UCIs concerned must include a statement indicating that the UCI does not permit practices related to Market timing and that the UCI reserves the right to reject subscription and conversion orders from an investor who the UCI suspects of using such practices and to take, if appropriate, the necessary measures to protect the other investors of the UCI.

Particular attention has to be paid to subscription, conversion or redemption orders from employees of the service providers acting for the UCI or from any person who holds or is likely to hold privileged information (e.g.: knowledge on the exact compo-sition of the portfolio of the UCI, etc.). Accordingly, adequate measures have to be taken by the service providers of the UCIs to avoid the risk that any such person can take advantage of his privileged situation either directly or through another person.

b) rules of conduct to be followed by all professionals subject to the supervision of the CSSF

The CSSF prohibits any express or tacit agreement which permits certain investors to undertake Late trading or Market timing practices.

The CSSF requires that any professional subject to its supervision refrains from using Late trading or Market timing practices when investing in a UCI or from processing a subscription or conversion order of units or shares of a UCI which he knows to be, or he has reasons to believe to be, related to Late trading or Market timing.

162 Sometimes referred to as “valuation point”.

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The CSSF requires that any professional subject to its supervision that detects or is aware of a case of Late trading or Market timing, informs the CSSF as soon as possible by providing it with the necessary information to enable it to make a judgment on the situation.

II. Protection of the UCI and investors in case of the occurrence of Late Trading and/or Market Timing transactions

Any person who is guilty of knowingly undertaking or supporting Late trading or Market timing practices as defined by this circular exposes himself to sanctions as well as to the obligation of repairing the damage caused to the UCI.

III. Additional provisions to CSSF Circular 02/81 on the guidelines concerning the task of the auditors of UCIs

The auditor of the UCI checks the procedures and controls put in place by the UCI so as to protect itself from Late trading practices and describes these in its long form report. For UCIs which, due to their structure, are likely to be subject to Market timing practices, the auditor checks the measures and/or controls put in place by the UCI to protect itself by the best possible means against such practices and describes such measures and/or controls in its long form report.

If the auditor of the UCI, during the performance of its duties, becomes aware of a case of Late trading or Market timing, he must indicate it in its long form report.

In case of indemnification of investors harmed by Late trading or Market timing practices during the accounting year, the auditor must give, in the long form report, its opinion whether investors have been adequately indemnified.

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CSSF CIRCULAR 05/177 OF 6 APRIL 2005 CONCERNING THE ABOLITION OF ANY PRIOR CONTROL BY THE CSSF OF ADVERTISING MATERIAL USED BY PERSONS AND COMPANIES SUPERVISED BY THE CSSF; ABROGATION OF POINT II. OF CHAPTER L. OF IML CIRCULAR 91/75; ABROGATION OF THE TWO LAST SENTENCES OF POINT IV. 5.11 OF CSSF CIRCULAR 2000/15

Luxembourg, 6 April 2005

To all persons and companies supervised by the CSSF


Concerns: Abolition of any prior control by the CSSF of advertising material used by persons and companies supervised by the CSSF; abrogation of point II. of chapter L. of IML Circular 91/75; abrogation of the two last sentences of point IV. 5.11 of CSSF Circular 2000/15.


The present circular abrogates point II. entitled “Advertising Documents” of chapter L. of IML Circular 91/75, as well as the two last sentences of point Iv., 5.11 of CSSF Circular 2000/15.

From now on, persons and companies subject to the prudential supervision of the Commission de Surveillance du Secteur Financier (“CSSF”) are no longer compelled to communicate to the CSSF, for comments, the content of their advertising messages intended for distribution to their clients or to the public. In particular, advertising material used by persons in charge of the distribution of units of undertakings for collective investment and their representatives does not need to be submitted to the CSSF for their control, even if this material is not subject to control by the competent authorities in countries where it is used.

On the basis of cases where the CSSF intervened, it appeared that it was no longer necessary to maintain such provisions.

Obviously, the persons and companies subject to the supervision of the CSSF must continue to comply with the rules of conduct of the financial sector both in Luxembourg and abroad, in refraining from issuing misleading advertising material with regard to the services offered and by mentioning, where necessary, the particular risks inherent to these services and in bringing to the client’s attention his own responsibility.

The control of the compliance with the rules of conduct of the financial sector regarding adver-tisement remains within the competence of the CSSF, which has the authority to require the withdrawal of any misleading advertisement with regard to the services offered as well as of any inappropriate communications of information on the Luxembourg legal framework.

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CSSF CIRCULAR 05/185 OF 24 MAY 2005 CONCERNING LUXEMBOURG MANAGEMENT COMPANIES SUBJECT TO THE PROVISIONS OF CHAPTER 13 OF THE LAW OF 20 DECEMBER 2002 RELATING TO UNDERTAKINGS FOR COLLECTIVE INVESTMENT AS WELL AS SELF-MANAGED INVESTMENT COMPANIES SUBJECT TO THE PROVI-SIONS OF ARTICLE 27 OR ARTICLE 40 OF THE LAW OF 20 DECEMBER 2002 RELATING TO UNDERTAKINGS FOR COLLECTIVE INVESTMENT

Luxembourg, 24 May 2005

To all UCIs and management companies subject to Luxembourg law


Concerns: Luxembourg management companies subject to the provisions of chapter 13 of the law of 20 December 2002 relating to undertakings for collective investment as well as self-managed investment companies subject to the provisions of Article 27 or Article 40 of the law of 20 December 2002 relating to undertakings for collective investment.


The purpose of this circular is to complete CSSF Circular 03/108 as regards the conditions for obtaining and maintaining authorisation for management companies which do not engage in activities other than collective portfolio management as provided for by Article 77(2) of the law of 20 December 2002 (section I of CSSF Circular 03/108).

It is recalled that in the description of the human infrastructure which must be available to a management company, CSSF Circular 03/108 provides that the staff of the management company must be permanent and must be adapted to the contemplated activities. In compliance with the law of 20th December 2002, CSSF Circular 03/108 provides that the conduct of the management companies’ business must be decided by at least two persons (the “managers”)163 who the CSSF must be able to contact directly and who must be in a position to provide all the information which the CSSF considers essential for the performance of its supervision.

CSSF Circular 03/108 also requires that at least one of these managers must be on site.

On the basis of the experience acquired in the analysis of applications for authorisation, the CSSF can also authorise a management company subject to chapter 13 of the amended law of 20 December 2002 if the specific elements of a file enable the CSSF to conclude that the management company does not have a registered or statutory office in Luxembourg only. These elements can be multiple and should, inter alia, be inspired by a concern for compliance with principles of corporate governance and risk controls. Luxembourg resident board members, the holding of regular board meetings in Luxembourg or the performance of certain activities in Luxembourg are examples which, individually, are not necessarily sufficient or, in the presence of other elements, not necessarily required. Each file will be

163 The French original of the circular uses the word “dirigeants”.

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analysed on a case by case basis, considering the specific elements which are submitted to the CSSF to support the application for authorisation.

In all cases, the managers must have at their disposal all technical and IT equipment necessary to enable them to assume all the responsibilities and to perform the functions which are imposed on them by the law of 20 December 2002 and CSSF Circular 03/108. In particular, it is important that appropriate procedures and processes are put in place to enable the managers to conduct together the business of the management company.

The regime provided for by this Circular is not applicable to management companies which engage in activities of collective portfolio management and in the management of portfolios of investments on a discretionary client-by-client basis as contemplated in Article 77(3) of the law of 20 December 2002 (section II of CSSF Circular 03/108).

This Circular is applicable mutatis mutandis to investment companies subject to Directive 85/611 which have not designated a management company.

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CSSF CIRCULAR 05/186 OF 25 MAY 2005 CONCERNING THE GUIDELINES OF THE COMMITTEE OF EUROPEAN SECURITIES REGULATORS (CESR) REGARDING THE APPLICATION OF TRANSITIONAL MEASURES RESULTING FROM DIREC-TIVES 2001/107/CE AND 2001/108/CE (UCITS III) AMENDING DIRECTIVE 85/611/CEE (UCITS I)

Luxembourg, 25 May 2005



Concerns: Guidelines of the Committee of European Securities Regulators (CESR) regarding the application of transitional measures resulting from directives 2001/107/CE and 2001/108/CE (UCITS III) amending directive 85/611/CEE (UCITS I).


The purpose of this circular is to draw the attention of undertakings for collective investment in transferable securities subject to Part I of the amended law of 20 December 2002 (hereafter “UCITS”) to the publication of the guidelines of the Committee of European Securities Regulators (CESR) concerning the application of the transitional provisions of the directives 2001/107/CE and 2001/108/CE (UCITS III) amending directive 85/611/CEE (UCITS I).

This document, which was published by CESR on 3 February 2005 with reference 04/-434b, can be consulted on the internet site of CESR at the address http://www.cesr-eu.org.

In this context, it can be recalled that directives 2001/107/CE and 2001/108/CE, which had to be implemented in the legislations of the Member Countries of the European Union by 13 February 2004 at the latest, comprise transitional provisions, also called “grandfathering provisions”. Under the terms of directives 2001/107/CE and 2001/108/CE, UCITS and management companies subject to the amended directive 85/611/CEE must comply with the requirements of the directive by 13 February 2007 at the latest.

Directives 2001/107/CE and 2001/108/CE have been implemented into Luxembourg law by the law of 20 December 2002 relating to undertakings for collective investment (UCI).

The guidelines of the CESR aim at putting an end to the divergent interpretations of the transi-tional provisions by the supervisory authorities of the Member States of the European Union. They relate to the transitional provisions concerning UCITS and management companies, to the provisions concerning the simplified prospectus and to the scope of the European passport for management companies and for UCITS.

The guidelines of the CESR fix a series of new deadlines for certain UCITS and for certain management companies.

These new deadlines imply that, in order to comply with the guidelines of the CESR, certain UCITS and certain management companies have to apply the rules resulting from directives 2001/107/CE and 2001/108/CE before the date of 13 February 2007.

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The following extracts, which are of particular interest, can be highlighted:

*) A grandfathered management company is allowed to launch UCITS of the UCITS III type until 30 April 2006 if it employs an appropriate risk-management process. After this date the management company must meet the requirements of the UCITS III directive. Management companies which have launched UCITS of the UCITS III type before 30 April 2006 must have received by 30 April 2006 at the latest from the competent authority the authorisation as management company complying with the requirements of the UCITS III directive. This should be stated by a special confirmation from the competent supervisory authority.

*) A grandfathered UCITS I umbrella fund is allowed to launch new UCITS I sub-funds until 31 December 2005. Grandfathered UCITS I umbrella funds which have launched a sub-fund since 13 February 2002 must meet the requirements of the UCITS III directive by 31 December 2005 at the latest.

*) All UCITS (comprising UCITS of the UCITS I type) must have a simplified prospectus as from 30 September 2005 at the latest.

Concerning the requirement to have a simplified prospectus, it can be noted that it appears from the provisions of the amended law of 20 December 2002 concerning UCIs and the provisions of CSSF circular 03/122 concerning clarifications on the simplified prospectus that UCITS of the UCITS III type must publish a simplified prospectus when they are subject to Part I of such law.

It can be noted that UCITS of the UCITS I type created before 13 February 2002 and which have not launched new compartments since 13 February 2002 and management companies created before 13 February 2004 which only manage UCITS of the UCITS I type which have not launched new compartments since 13 February 2002 have time until 13 February 2007 to comply with the directives 2001/107/CE and 2001/108/CE.

All supervisory authorities which are members of CESR have undertaken to apply the guide-lines of the CESR.

It should be highlighted that it is highly recommended that the UCITS concerned comply with the deadlines fixed by the guidelines of the CESR concerning the transitional provisions resulting from directives 2001/107/CE and 2001/108/CE.

Indeed, the non-compliance with the deadlines fixed by the guidelines of the CESR concerning the transitional provisions resulting from directives 2001/107/CE and 2001/108/CE may jeopardise the marketing in other Member Countries of the European Union of the UCITS and management companies concerned under the European passport.

We request that you take into account the deadlines fixed by the guidelines of the CESR and to take these into consideration for the purpose of the procedures of conversion of UCITS and management companies under the regime of Part I and chapter 13, respectively, of the amended law of 20 December 2002 concerning UCITS.

We recommend that you consult the guidelines of the CESR concerning the transitional provi-sions of directives 2001/107/CE and 2001/108/CE.

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CSSF CIRCULAR 06/267 OF 22 NOVEMBER 2006 CONCERNING THE GUIDELINES OF THE TECHNICAL SPECIFICATIONS REGARDING THE COMMUNICATION TO THE CSSF, UNDER THE LAW ON PROSPECTUSES FOR SECURITIES, OF DOCUMENTS FOR THE APPROVAL OR FOR FILING AND OF NOTICES FOR OFFERS TO THE PUBLIC OF UNITS OR SHARES OF LUXEMBOURG CLOSED-END UCIS AND ADMISSIONS OF UNITS OF SHARES OF LUXEMBOURG CLOSED-END UCIS TO TRADING ON A REGULATED MARKET

Luxembourg, 22 november 2006



Concerns: Technical specifications regarding the communication to the CSSF, under the law on prospectuses for securities, of documents for the approval or for filing and of notices for offers to the public of units or shares of Luxembourg closed-end UCIs and admissions of units of shares of Luxembourg closed-end UCIs to trading on a regulated market.


This circular is addressed to Luxembourg closed-end UCIs whose units or shares are being offered to the public or admitted to trading on a regulated market within the meaning of the law of 10 July 2005 on prospectuses for transferable securities (hereinafter “Prospectus law”). Please refer to the circular CSSF 05/226 of 16 December 2005 for a general presentation of the Prospectus law. For the definitions, please refer to the Part I.1. entitled “The securities concerned” of the circular CSSF 05/225 of 16 December 2005. In this context, it is reminded that a closed-end UCI under the Prospectus law is defined as a UCI for which investors do not have any repurchase rights in relation to the units concerned. In all other cases, whatever the number or periodicity of the contemplated repurchases, the UCI is of the open-end type and not covered by the Prospectus law.

The purpose of this circular is to specify the technical procedure for communications to the CSSF of:

• documentsforapprovalbytheCSSFor filing with the CSSF relating to offers to the public of units or shares of Luxembourg closed-end UCIs and admission to trading on a regulated market, which are subject to Community harmonisation under Directive 2003/71/EC, in accordance with Articles 7, 8, 10, 11-16 of chapter 1 of Part II of the Prospectus law;

• requestsforcertificatesofapprovalinaccordancewithArticle19ofchapter2ofPartII of the Prospectus law; and

• notices for offers to the public of units or shares of Luxembourg closed-end UCIs governed by Part II of the Prospectus law and notices for admissions of units or shares of Luxembourg closed-end UCIs to trading on a regulated market referred to in Part II of the Prospectus law in accordance with Articles 5 and 6 of Part II of the Prospectus law.

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This circular does not apply to communications to the CSSF concerning UCIs other than of the closed-end type.

1. Competencies

The Prospectus law designates the CSSF as the authority competent to ensure imple-mentation of the provisions of Part II on the drawing-up, approval and distribution of the prospectus to be published when units or shares of Luxembourg closed-end UCIs are offered to the public and/or admitted to trading on a regulated market, which are subject to Community harmonisation under Directive 2003/71/EC (Article 22).

In accordance with Articles 7 and 13 of Part II, chapter 1 of the Prospectus law, the CSSF is the competent authority for the approval of prospectuses and any supplements thereto, drawn up for public offers of units or shares of Luxembourg closed-end UCIs and/or admission of units or shares of Luxembourg closed-end UCIs to trading on a regulated market, which are subject to Community harmonisation under Directive 2003/71/EC, in the case when Luxembourg is the home Member State. The filing of documents and notices in accordance with Part II shall also be made with the CSSF.

While the Prospectus law introduces in Luxembourg a new definition of the competencies with respect to the prospectus approval as defined above, the competencies concerning the decisions with respect to the admission of units or shares of Luxembourg closed-end UCIs to trading on a market and/or official listing remain unchanged. Indeed, the decisions with respect to the admission of units or shares of Luxembourg closed-end UCIs to a market and/or official listing continue to fall within the remit of the relevant market operator and are taken in accordance with the provisions laid down in the rules governing the functioning of this operator (currently in Luxembourg: the Rules and Regulations of the Luxembourg Stock Exchange), it being understood that compliance of the underlying documents with the regulations regarding prospectuses is one of the requirements to be fulfilled.

2. Applications for approval

Before making an official submission in accordance with Article 7 of the Prospectus law (hereinafter “Official Submission”), the Luxembourg closed-end UCI must be approved by the CSSF. To this end, the Luxembourg closed-end UCI shall submit an application file to the CSSF. As soon as the CSSF has given its verbal approval, the Luxembourg closed-end UCI may make an Official Submission.

3. Submission of documents to be approved

The CSSF receives the documents submitted in the context of scrutiny of applications for prospectus approval.

The Official Submission to the CSSF can be validly made by an issuer, an offeror or by a person asking for the admission to trading on a regulated market or a person acting on behalf of one of these persons (the “Déposant(s)”) through the following means:

• via the e-file communication platform at http://www.e-file.lu for Déposants who have an e-file connection; and

• via e-mail to [email protected] if the Déposant does not have the necessary e-file connection.

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If a Déposant uses other means of communication, such as filing of paper copies, the latter must enclose an electronic support (CD, DvD, PC floppy disk). The files shall be submitted to the CSSF by mail to the address 110, route d’Arlon, L-2991 Luxembourg. The files can be sent in PDF or DOC (MS-Word) format.

The documents officially submitted shall enclose the following information:

• aliststatingtheexactdesignationofallthedocumentscomprisedinthesubmission;

• theobjectofthesubmission(indicatingthePartand,whereapplicable,thechapterofthe Prospectus law under which the approval is requested and the Member State(s) in which an offer to the public is planned, as well as the regulated market(s) on which the admission to trading is requested);

• thecontactdataof theDéposant and the contact person for the file (name, postal address, e-mail and telephone number);

• thecontactdataoftheissueronbehalfofwhomthedocumentsarefiled(name,postaladdress, e-mail and telephone number);

• thecontactdataofthepersoncommissionedtoreceive,onbehalfoftheissuer,allthe notifications (name, function, relation with the issuer, postal address, e-mail and telephone number);

• thecontactdataofthepersoncommissionedbytheissuertoconfirmthattheversionsubmitted for final approval and publication is the final version of the prospectus (name, postal address, e-mail and telephone number); and

• thetimetableofthetransactionandtherequesteddateofapproval.

Any reference made hereabove to the issuer is to be understood, where applicable, as reference to the offeror or to the person asking for the admission of units or shares of Luxembourg closed-end UCIs to trading on a regulated market.

The Official Submission is confirmed by electronic acknowledgment of receipt:

• throughthee-fileprocess,ifthesubmissionhasbeenmadevia e-file;

• totheaddressstatedbytheDéposant if the filing has been made through [email protected].

4. Enforcement of the time limits for scrutiny of an application for offers of units or shares of Luxembourg closed-end UCIs to the public and admission of units or shares of Luxembourg closed-end UCIs to trading on a regulated market

The time limit laid down in Article 7 paragraph 2 of the Prospectus law runs from the business day following that of the Official Submission of a file.

If, at the time of receipt and/or processing of the file, the file is not complete or additional information is needed, the CSSF informs the Déposant, either via e-file or e-mail, that the file is incomplete in accordance with Article 7 paragraph 5. In that case, the time limits only run from the business day that follows the day on which the requested information has been provided by the Déposant in accordance with the above provisions of the Prospectus law.

Given the application of principles of administrative law, the decision regarding the approval of the prospectus can still be validly notified after the expiry of the above mentioned time limit. This enables the issuer to request the CSSF to approve the prospectus on a date, which, due to the timetable of the transaction, falls beyond the prescribed time limits provided in the Prospectus law as regards the notification of the decision of approval.

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The same principles apply to the applications for approval of supplements to the prospectus in accordance with Article 13 paragraph 1, for which the maximum time limit for approval is 7 days.

5. Treatment of applications for approval and approval

The CSSF communicates the approval either via e-file or e-mail to the address stated to this end by the Déposant at the Official Submission. The CSSF confirms the approval in writing to the postal address of the issuer, the offeror or the person asking for the admission.

6. Submissions of requests for certificates of approval

In accordance with Article 19 of chapter 2 of Part II of the Prospectus law, the requests for certificates of approval for the purpose of notification by the CSSF to one or several competent authorities of the host Member States shall be sent according to the same procedures as those referred to in point 3 above. This request shall be sent together with the draft prospectus or separately. This request shall include the following information and documents:

• indicationofthehost Member State for which the notification shall be prepared;

• indicationofthedateonwhichthenotification is requested;

• asthecasemaybe,thetranslationofthesummaryproducedundertheresponsibilityof the issuer or person responsible for drawing up the prospectus.

The same procedure shall apply for any supplement to the prospectus, and, as the case may be, the summary.

7. Filing of documents that are not subject to approval

The filing of documents that are not subject to approval shall be made in accordance with the same procedures as those referred to in point 3 above. The documents concerned are the following:

• theregistrationdocument,insofarasitsapprovalisnotsought,whichshallbeexpresslymentioned (Article 11); and

• theannualdocumentasdefinedinArticle14.

8. Notices for offers to the public and admission to trading on regulated market

The notices for offers to the public of units or shares of Luxembourg closed-end UCIs and notifices for admissions of units or shares of Luxembourg closed-end UCIs to trading on a regulated market referred to in Part II of the Prospectus law in accordance with Articles 5 and 6 of Part II of the Prospectus law shall be made in accordance with the same proce-dures as those referred to in point 3 above.

Every notice shall include the following information and documents:

• the object of the notice (indication of the nature and timetable of the transactionplanned in Luxembourg);

• thenameandaddressof theperson issuingthenotice,of the issuer forwhomthenotice is made, as well as the contact data of the contact person(s).

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The Official Submission made in relation to an application for approval of a prospectus (or the filing of final terms, respectively) is simultaneously considered as a notice, i.e. the persons who made an Official Submission in accordance with point 3 above, do not also have to submit a notice in accordance with this point 8.

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CSSF CIRCULAR 07/277 OF 9 JANUARY 2007 CONCERNING THE NEW NOTIFICATION PROCEDURE IN ACCORDANCE WITH THE GUIDELINES OF THE COMMITTEE OF EUROPEAN SECURITIES REGULATORS (CESR) CONCERNING THE SIMPLIFICATION OF THE UCITS NOTIFICATION PROCEDURE




Concerns: The new notification procedure in accordance with the guidelines of the Committee of European Securities Regulators (CESR) concerning the simplification of the UCITS notification procedure.


The purpose of this circular is to draw the attention of UCITS subject to Part I of the law of 30 March 1988 relating to UCIs or to Part I of the law of 20 December 2002 relating to UCIs to the new notification procedure in accordance with the guidelines of the Committee of European Securities Regulators (CESR) concerning the simplification of the UCITS notifi-cation procedure.

This document, published by CESR on 29 June 2006 with the reference CESR/06-120b, is available on CESR website at http://www.cesr.eu.

The purpose of CESR’s guidelines is to present a common approach to the administration, by host authorities, of the notification procedures, as disclosed in Article 46 of the Directive 85/611/EEC, as amended. The objective of the guidelines is to bring more simplicity, trans-parency and certainty to the procedure of notification and to accelerate the processing of the file.

The intention of this circular is also to state more precisely the approach adopted by the CSSF as regards European passports for UCITS following the adoption of the new CESR guidelines.

A. The following sections of the document CESR/06-120b, relating to the notification procedure of UCITS and to the modifications and updates of UCITS, can be pointed out:

1. Notification procedure

a) With regard to the notification procedure, the UCITS has to provide a certain number of documents to the host State authority. The document CESR/06-120b introduces a standardised attestation letter of the home State authority (Annex I of the CESR document) and a standardised notification letter (Annex II of the CESR document) which shall be submitted to the host State authority.

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The UCITS shall, among other things, provide the documents listed in Annex II to the CESR document to the host State authority. A detailed list is enclosed in Annex 1 of this circular.

b) The host authorities shall not request certification by the home State authority of the documents listed in Annex II of the CESR document and which have to be provided with the notification letter. These authorities shall accept that the notifying UCITS or a third party duly empowered by the UCITS self-certifies the documents. This certification must confirm that the documents attached to the notification letter are the most recent ones that have been issued or approved by the home State authority (“self-certification”).

c) A supervisory authority shall issue an attestation letter in accordance with the standard model disclosed in Annex I of the CESR document. For the notification procedure with the other Member State authorities, a true copy of such original attestation letter, certified by the UCITS or a third party duly empowered by the UCITS, shall be used.

2. Modifications and updates

a) The UCITS shall request from its supervisory authority the issue of a new attestation solely in the case where the information on the UCITS provided in the original attes-tation issued by the supervisory authority has been modified. These modifications are, inter alia, the change of the management company or the creation of a new sub-fund in an existing UCITS.

b) The UCITS shall keep all their documents up-to-date. Therefore, all modifications to the constitutional documents or management rules and the Articles of incorporation, as well as any creation of new units/share classes and the new (full and simplified) prospectuses shall be transmitted to the host State authority by the UCITS. The same rule applies to the latest published annual reports and any subsequent half-yearly reports. Submission of these documents has to be made without delay after the documents have been made available for the first time in the home Member State.

All the documents which do not constitute modifications of the information included in the original attestation of the supervisory authority are certified by the UCITS or a third party duly empowered by the UCITS (“self-certification”).

B. Practice adopted by the CSSF regarding the European passport for UCITS

I. Luxembourg UCITS that market their units/shares in another EU Member State

UCITS that consider marketing their units/shares in another EU Member State shall submit to the host State authority all the documents listed in Annex 1 to this circular, and, as the case may be, any other specific documents required by the host State authority.

UCITS that market their units/shares in another EU Member State should take into consid-eration the following points:

1. Attestation letter

The CSSF provides every UCITS with an attestation as set out in Annex I of the CESR document, together with a letter confirming its registration on the official list. The CSSF’s attestation letter for UCITS will be issued in the official languages of German and French. Furthermore, an attestation letter in English will be provided to the UCITS. On request, the CSSF provides the attestation letter in electronic form.

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The attestation letter discloses all UCITS sub-funds approved by the CSSF. The sub-funds listed in the attestation letter shall be the same as those mentioned in the full prospectus of the UCITS.

A new attestation may be requested from the CSSF by the UCITS only in the case of the modification of the information on the UCITS provided in the original attestation issued by the CSSF, such as a change of management company or the creation of a new sub-fund in an existing UCITS.

In any other cases, the procedure of self-certification mentioned in point A.2.b) above applies.

2. Notification letter

UCITS shall use the standardised notification letter attached in Annex II of the CESR document when considering to market their units/shares in another EU Member State. A sample of the notification letter is available in French, German and English on the CSSF website http://www.cssf.lu, under section “Marketing of UCITS > Marketing of units/shares of Luxembourg UCITS in the EU”.

nevertheless, the CSSF advises UCITS to visit the Internet websites of the host Member State authorities for any further information.

3. Visa of prospectuses

Luxembourg UCITS shall submit three copies of their (full and simplified) prospectuses in their final form and presentation to the CSSF. One example, bearing the visa stamp, will be returned to the person that has submitted the file.

With respect to the notification procedure with the host State authorities, the UCITS shall, pursuant to point A.1.b) above, attach to the notification letter a true copy of the visa-stamped prospectus, certified by the UCITS or a third person duly empowered by the UCITS.

4. Electronic filing

The CSSF accepts that the applicants submit their requests for attestation and their documents electronically to the address [email protected]. Also, the applicants that have access to the e-file connection may also submit their application or documents via the e-file communication platform at http://www.e-file.lu.

II. Foreign UCITS established in another EU Member State that consider marketing their units/shares in Luxembourg

1) With regard to the notification procedure, the UCITS are required to provide the CSSF with the documents listed in Annex 2 of this circular.

In addition, the UCITS shall submit specific information that relates to the marketing of units/shares in Luxembourg to the CSSF. To this end, the UCITS shall use the form disclosed in Annex 3. This form can be downloaded from the CSSF’s website at http://www.cssf.lu, under section “Marketing of UCITS” > Marketing of units/shares of European UCITS in Luxembourg”.

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2) Only the sub-funds that the UCITS considers marketing actively in Luxembourg must be mentioned in the notification letter to be submitted to the CSSF by an umbrella UCITS. A sample notification letter is available in one of the three languages French, German and English on the CSSF’s website at the same address and section as mentioned above.

3) The UCITS or a third party duly empowered by the UCITS may self-certify the documents listed in Annex 2 of this circular and that must be attached to the notifi-cation letter. This certificate confirms that the documents that have been attached to the notification letter are the most recent ones that have been issued or approved by the home State authority. For the notification procedure, a true copy of the original attestation letter in French, German or English certified by the UCITS or a third party duly empowered by the UCTIS, shall be submitted to the CSSF.

The UCITS shall submit a new attestation to the CSSF solely where the information on the UCITS provided in the original attestation issued by the supervisory authority has been amended. These modifications are, for example, the change of management company or the creation of new sub-funds in an existing UCITS.

The required documents may be filed with the CSSF electronically to [email protected]. Furthermore, applicants that have access to the e-file connection may also submit their documents via the e-file communication platform at http://www.e-file.lu.

4) The CSSF informs the UCITS of any missing information or documents within one week after receiving the file. Within one week after the notification is deemed to be complete, the CSSF informs the UCITS that the marketing of units/shares may start immediately.

In the case where an umbrella UCITS markets sub-funds in Luxembourg and considers marketing new or additional sub-funds in Luxembourg, the CSSF applies the same procedure as that described in the previous paragraph.

C. National marketing rules and other specific national regulations

According to the document CESR/06-120b, the EU Member States are requested to publish their national marketing rules in a standardised form specified in Annex III of the document in force.

The rules applicable in Luxembourg are available on the CSSF’s website at http://:www.cssf.lu, under section “Marketing of UCITS > Marketing of units/shares of European UCITS in Luxembourg”.

For any additional questions on the marketing of units/shares of UCITS in Luxembourg, please contact Mr Jean-Paul Heger (tel.: +352 26 25 1 527, e-mail: [email protected]).

This circular comes into force with immediate effect.

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Annex 1.

List of documents that a UCITS marketing its units/shares in the European Union must provide to the host State authority

The UCITS shall provide the host State authority with the documents listed in Annex II of the CESR document, i.e.:

- the attestation letter granted by the home State authority drafted according to the model letter in Annex I of the CESR document;

- the notification letter drafted according to the model in Annex II of the CESR document; the notification letter may be submitted to the host authority in a language common in the sphere of finance or in the official language(s) of the host Member State provided that this is not against the national rules and regulations of the host State;

- the latest version of the management regulations and Articles of incorporation of the investment company;

- the latest version of the full and simplified prospectuses;

- the latest published annual report and any subsequent half-yearly report and, as regards umbrella funds, the latest versions of the annual report and the half-yearly report covering all sub-funds;

- details of the arrangements made for the marketing of the units/shares of the UCITS in the host Member State.

The documents listed above, except for the attestation, must be attached to the notification letter in their original version as well as in a translated version in the official language(s) of the host State. The host State may also allow the use of a non-official language.

The attestation letter is submitted in its original version, together, where applicable, with an English version.

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Annex 2.

List of documents that foreign UCITS established in another EU Member State must submit to the CSSF

The foreign UCITS established in another EU Member State that considers marketing its units/shares in Luxembourg shall submit to the CSSF the documents listed in Annex II of the CESR document, i.e.:

- the attestation letter granted by the home Member State authority drafted according to the model letter in Annex I of the CESR document;

- the notification letter drafted according to the model in Annex II of the CESR document; the notification letter may be submitted to the CSSF in French, German or English and can be downloaded from the CSSF’s website at http://www.cssf.lu, under section “Marketing of UCITS > Marketing of units/shares of European UCITS in Luxem-bourg”;

- the latest version of the management regulations and Articles of incorporation of the investment company;

- the latest version of the full and simplified prospectuses;

- the latest published annual report and any subsequent half-yearly report and, as regards umbrella funds, the latest versions of the annual report and the half-yearly report covering all sub-funds;

- details of the arrangements made for the marketing of the units/shares of the UCITS in Luxembourg.

In addition, the foreign UCITS fill in the form in Annex 3 of this circular and submit it to the CSSF. The form is available for download on the CSSF website at the same address and section as mentioned above.

The documents listed above shall be attached to the notification letter in French, German or English.

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Annex 3.

Specific information on the marketing in Luxembourg of units/shares of a UCITS estab-lished in another Member State of the European Union

1) name of the UCITS

2) Home Member State

3) Registered office

4) name and address of the financial service (paying agent) in Luxembourg

5) name and address of the primary contact in Luxembourg in charge of the notification to the CSSF

6) name of the person(s) empowered by mandate to certify documents on behalf of the UCITS

name, first name, position, date and signature:

...................................................................

...................................................................

...................................................................

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CSSF CIRCULAR 07/308 OF 2 AUGUST 2007 CONCERNING THE RULES OF CONDUCT TO BE ADOPTED BY UNDERTAKINGS FOR COLLECTIVE INVESTMENT IN TRANS-FERABLE SECURITIES WITH RESPECT TO THE USE OF A METHOD FOR THE MANAGEMENT OF FINANCIAL RISKS, AS WELL AS THE USE OF FINANCIAL DERIV-ATIVE INSTRUMENTS

Luxembourg, 2 August 2007

To all Luxembourg undertakings for collective investment in transferable securities (“UCITS”) and to those involved in the operation and supervision of such undertakings.


Concerns: Rules of conduct to be adopted by undertakings for collective investment in transferable securities with respect to the use of a method for the management of financial risks, as well as the use of financial derivative instruments.


The purpose of this circular is to notify undertakings for collective investment in transferable securities (hereinafter referred to as “UCITS”), subject to Part I of the amended law of 20 December 2002 (hereinafter referred to as the “2002 law”), of additional information with respect to the use of a method for the management of financial risks, within the meaning of Article 42 (1) of the 2002 law, as well as the use of financial derivative instruments, within the meaning of Article 41 (1) g) of this same law.

I. General provisions

The principal reason why UCITS must devote greater efforts and means to risk quantification and oversight is that the 2002 law has expanded (as compared to the law dated 30 March 1988) the list of financial instruments in which UCITS may invest. In addition to bank deposits, money market instruments, units of UCITS and units of UCIs, UCITS may, within the scope of their investment policy, use financial derivative instruments. This may involve financial deriv-ative instruments dealt in on a regulated market of the type set forth in points a), b) and c) of Article 41 (1) of the 2002 law, and financial derivative instruments dealt in over-the-counter (“OTC”), provided that the underlying consists of:

- instruments covered by Article 41, Paragraph (1),

- financial indices,

- interest rates,

- foreign exchange rates or

- currencies.

A UCITS may avail itself of financial derivative instruments within the scope of the techniques and instruments which are mentioned in Article 42 (2), and which relate to transferable securities and money market instruments. These transactions must also comply with the provisions of Article 41 (1) g), Article 42 and Article 43. Financial derivative instruments

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used pursuant to Article 41 (1) g) are however not automatically subject to the requirements associated with the efficient portfolio management referred to in Article 42 (2).

To prevent UCITS from being exposed to excessive financial risks, in particular through financial derivative instruments, the 2002 law imposes on UCITS the use of a “Risk Management” structure, as well as a detailed financial risk limitation system.

By means of this circular, the Commission aims at providing UCITS with rules of conduct to be followed at the time of the implementation of such a “Risk Management” structure. Although the business activities of UCITS are often exposed to a multitude of risks, this circular is limited to the financial risks directly covered in the 2002 law, namely the global exposure, the counterparty risk and the concentration risk. Moreover, the circular’s purpose is to clarify the requirements with respect to the coverage of financial derivative instruments, a corollary to Article 52 of the 2002 law, as well as the obligation to perform a daily valuation of the OTC financial derivative instruments arising from Articles 41 (1) g) and 42 (1) of this law.

The other risks (operating risk, payment on delivery risk, legal risk, ...) which are not directly covered in this circular, but which may cause losses to UCITS, must be the subject of adequate supervision at the UCITS level.

This circular shall, in point II, deal with the organisational requirements, as well as the Risk Management’s field of operation as regards the above-mentioned financial risks before dealing with, in greater detail in point III, the limitations of the risks in question. It shall finish, in point Iv, with the coverage rules and the valuation of the OTC financial derivative instruments.

II. Implementation of a risk management process

II.1. Organisational principles

Article 42 (1) of the 2002 law requires that UCITS implement a risk management method that enables them to monitor and measure at any time, the risk of the positions and their contri-bution to the overall risk profile.

The Commission expects that non-sophisticated UCITS, as defined hereafter, measure and control financial risks related to investments at least on a bi-monthly basis. For sophisticated UCITS, such frequency is daily.

By derogation to the foregoing, and subject to an adequate justification, other frequencies for measuring and controlling may be utilised in particular cases with the prior approval of the CSSF.

UCITS pursue more or less risky investment strategies, so that a distinction has to be made between sophisticated UCITS and non-sophisticated UCITS.

A sophisticated UCITS, as defined in point III, must entrust to a risk management unit (hereinafter referred to as “Risk Management”), which is independent of the units in charge of making portfolio management decisions, the task of identifying, quantifying, following up on and monitoring the risks associated with the portfolio’s positions.

The following qualitative criteria must be fulfilled in order to allow the Risk Management unit to satisfy the Commission’s expectations in this regard:

- In order to accomplish its assigned missions, as described in this circular, Risk Management must have a sufficient number of qualified personnel with the necessary knowledge.

- Risk Management must have the necessary tools (IT and others) for accomplishing the missions described in this circular.

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- The persons who conduct the business164 of the management company, respectively of the self-managed investment company (hereinafter referred to as “SIAG”), must be actively associated with the risk management and monitoring. They are notably in charge of approving the adoption of the method of risk management and monitoring.

- Risk Management must answer directly to the persons who conduct the business, who must be regularly kept informed of Risk Management’s work and the risks run by the UCITS by means of risk monitoring reports. It is up to the persons who conduct the business to take appropriate measures on the basis of the data reported.

- The Board of Directors of management companies and investment companies are responsible for ensuring that Risk Management complies with applicable legal and regulatory requirements and for ensuring that the mechanisms which have been implemented operate correctly.

These organisational rules must also be complied with by UCITS classified as non-sophisti-cated UCITS, but which make use of the approach of the internal model, which is explained in greater detail in point III.

The Commission allows management companies and SIAGs to delegate a portion or all of the risk management and control process to a third party acknowledged to be specialised in this type of activity. notwithstanding this delegation, the minimum requirements formulated in this circular must be complied with by this third party, and it must be ascertained that the UCITS receives the information required for the risk evaluation regularly, in order to allow it to take the measures which are required and to permit implementation of its own independent check. This delegation does not, in any way, absolve the management company or, respec-tively, the SIAG of its responsibility of ensuring an adequate follow-up of the UCITS’ risks.

For a non-sophisticated UCITS, as defined in point III (and applying the commitment approach with respect to the determination of the global exposure), the organisational structure of Risk Management does not have to be as developed and substantive as that of sophisticated UCITS. It is for this reason that the Commission gives these UCITS the option of organising the function in a different manner as is indicated above. Despite this flexibility, the Commission will not allow such a UCITS to delegate the Risk Management function to the unit in charge of portfolio management decisions (“Front Office”). In order to guarantee some independence, a third party, independent from the UCITS, could be assigned the responsi-bility of taking over all missions incumbent on Risk Management.

The Commission reserves the right, in consideration of the investment strategy used and the risks associated thereto, to require non-sophisticated UCITS to comply with the qualitative criteria formulated with respect to sophisticated UCITS.

II.2. Scope of activities of Risk Management

In compliance with this circular’s scope, Risk Management must cover the global exposure, the counterparty risk, as well as the concentration risk associated with all the portfolio’s positions.

In this context, special attention must be paid, along with stringent follow-ups, to transactions with financial derivative instruments, given the specific risks (leverage effect, high volatility of market prices, complexity of instruments, ...) associated with this category of instruments.

164 The French original of the circular uses the word “dirigeant” and refers to the persons (at least two) who conduct the business of the management company (referred to in Article 78 (1) b) of the law of 20 December 2002) or the SIAG (referred to in Article 27 (1) of the law of 20 December 2002).

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At the very least, the Commission expects that the work listed below be part of Risk Manage-ment’s scope of activities:

- determination and follow-up of the global exposure (see point III.1.),

- determination and follow-up of the counterparty risk associated with OTC financial derivative instruments (see point III.2.),

- check and follow-up of the minimum requirements associated with the determination of the global exposure and the counterparty risk (see points III.1., III.2., Appendix 1 or 2),

- determination of and/or follow-up of the use of concentration limits (see point III.3.),

- follow-up and check of coverage rules (see point Iv.1.),

- determination and/or check, if applicable, of the valuations of the OTC financial deriv-ative instruments (see point Iv.2.),

- establishment of the risk monitoring reports for the persons who conduct the business of the management company, respectively of the SIAG.

Depending on the risk profile noted, the Commission may impose more strict measures.

III. Limitation of risks applicable to UCITS investments

The 2002 law defines a certain number of limitations with respect to the investments which can be made by UCITS; these are meant to ensure that the UCITS is not exposed to unreasonable risks which might imperil its continuity and, consequently, the principle of the investors’ protection. The limitations shall be briefly introduced at this level, before being further detailed later in this circular:

- In compliance with Article 42 (3), “A UCITS shall ensure that its global exposure relating to derivative instruments does not exceed the total net value of its portfolio. The exposure is calculated taking into account the current value of the underlying assets, the counterparty risk, foreseeable market movements and the time available to liquidate the positions”.

In its application of this Article, the Commission deems that the global exposure of UCITS may at most be doubled by the use of financial derivative instruments. The UCITS’ total commitment is thus limited to 200%. The implications of this limitation are explained more explicitly in point III.1. Given that the counterparty risk associated with OTC financial derivative instruments is specifically limited for a given entity by the provisions of Article 43, the Commission restricts the concept of global exposure solely to the market risk.

To this may be added the possibility for UCITS to borrow up to 10% of its net assets, as long as these are temporary borrowings and that such borrowings may not be used for investment purposes.

- Pursuant to Article 43 (1), “The risk exposure to a counterparty of the UCITS in an OTC derivative transaction may not exceed 10% of its assets when the counterparty is a credit institution referred to in Article 41, paragraph (1) f), or 5% of its assets in other cases”. Point III.2. shall deal with the rules with respect to the determination of the counterparty risk in greater detail.

- Pursuant to Article 42 (3), a UCITS may invest in financial derivative instruments, provided that the exposure to the underlying assets does not exceed in aggregate the investment limits laid down in Article 43. The Commission also extends this limitation to the units of UCIs and UCITS referred to in Article 46. The purpose of these limits is to restrict the exposure which the UCITS may take with respect to a given issuer

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or fund, i.e. concentration risk. The requirements in that regard shall be discussed in point III.3.

III.1. Limitation of the market risk

III.1.1. Classification of UCITS on the basis of their risk profile.

The Commission allows UCITS to adapt the method of calculation of their global exposure to the risk profile resulting from their investment policy and to the Risk Management’s level of sophistication.

More specifically, the Commission expects each UCITS to conduct a self-assessment of its risk profile and to classify itself, on the basis of this analysis, either as a non-sophisti-cated UCITS or as a sophisticated UCITS. This classification will require the approval of the persons who conduct the business and the board of directors. The assessment process must be documented and must be kept available for the Commission.

The following elements aim at supplying UCITS with rules of conduct to consider in the classi-fication process:

• Asophisticated UCITS is a UCITS using, for an important part, financial derivative instruments and/or making use of more complex strategies or instruments.

• A non-sophisticated UCITS is a UCITS with less and less complex positions on financial derivative instruments or with financial derivative instruments used solely for hedging purposes.

A UCITS that wants to change its risk profile must inform the Commission in advance in order to obtain the latter’s consent. Depending on the scope of the risk profile change (for example: new types of financial derivative instruments, ...), the UCITS’ prospectus must, if appropriate, be adapted accordingly.

III.1.2. Determination of the global exposure: non-sophisticated UCITS

In the case of non-sophisticated UCITS, the global exposure related solely to positions on financial derivative instruments (including those embedded in transferable securities or money market instruments) must, in principle, be determined on the basis of the Commitment Approach.

The approach using the internal model (see III.1.3.), which applies to all UCITS’ positions, may also be used by the UCITS, as long as there is compliance with the related require-ments.

III.1.2.1. Commitment approach

On the basis of this approach, the positions on financial derivative instruments must be converted into equivalent positions on the underlying assets.

The UCITS’ total commitment to financial derivative instruments, limited to 100% of the portfolio’s total net value, is then quantified as the sum, as an absolute value, of the individual commitments, after consideration of the possible effects of netting and coverage, as described in point III.1.2.2.

Appendix 1 details the calculation method of the commitment for the financial derivative instruments most commonly used by UCITS, although this list does not aim to be exhaustive. In the case of financial derivative instruments which are not on this list, the Commission expects the UCITS to inform it of the calculation method applied.

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If UCITS are authorised to avail themselves of repurchase transactions or the lending/borrowing of securities in order to generate additional leverage through reinvestment of collateral, these transactions must be taken into consideration for the determination of the global exposure. Any reinvestment of collateral in financial assets that yield a return greater than the risk-free rates must be taken into consideration by this quantification.

As an exception to what is set forth above, and on the condition that there is adequate justification, an approach which differs from the commitment approach may be used by a non-sophisticated UCITS (example: “add-on approach”, sensitivity approach), with the Commission’s prior approval. An approach of this kind must be based on a level of prudence similar to that of the commitment approach in the determination of the global exposure.

III.1.2.2. Netting and position coverage process

When applying the commitment approach, UCITS may proceed with the following netting processes:

- netting between buying and selling positions on financial derivative instruments with identical underlying assets (reference rates, reference assets, ...), regardless of the contracts’ due date (example: long position on purchase option and short position on purchase option of the same underlying asset, ...);

- netting between financial derivative instruments and assets held directly by a UCITS, on the condition that the two positions deal with the same underlying asset (example: long position on the XYZ share and short position on the purchase option for the XYZ share, ...);

To this is to be added the possibility of not taking into account the financial derivative instru-ments whose function is to partially or totally cover the portfolio positions against a fluctuation of the market risk165. This ability is strictly reserved for cases in which there is an undeniable and manifest risk reduction effect, i.e. the cash prices of the position or positions and the position on the financial derivative instrument are moving in opposite directions and that the asset or assets to be covered and the financial derivative instruments’ underlying assets show an adequate similarity (i.e. adequate symmetry of the assets, term, currencies) (strong correlation).

The netting may only be done for the amounts of equivalent commitments, either in terms of market value or in terms of risk (example: duration), and it may not result in the UCITS neglecting obvious and material risks.

The netting process in question must be accompanied by an adequate follow-up by Risk Management.

III.1.3. Determination of the global exposure: sophisticated UCITS

III.1.3.1. General principle

The Commission requires all UCITS pursuing a sophisticated investment strategy to use an approach based on the internal model, taking into consideration all the sources of global exposure (general and specific market risks166), which might lead to a significant change in the portfolio’s value.

By internal model, the Commission refers to a model of the value-at-Risk (“vaR”) type, which must comply with the requirements listed below.

165 General or specific market risk, as defined in Appendix 2.

166 As defined in Appendix 2.

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The purpose of a vaR model is the quantification of the maximum potential loss which might be generated by a UCITS portfolio in normal market conditions. This loss is estimated on the basis of a given time period and a certain confidence interval. UCITS must complete this approach with stress tests, as described in Appendix 2, in order to quantify the risks associated with possible abnormal market movements. These tests evaluate the reactions of the portfolio’s value to extreme financial or economic events at a given point in time.

nevertheless, other risk quantification methods complying with the conditions listed in this document may, possibly, be deemed acceptable by the Commission. If the vaR does not appear appropriate for a UCITS by reason of the nature of the risks to which it is exposed, the Commission expects that the UCITS adopts other methods of measuring risks. In all such cases, the prior consent from the Commission is required.

III.1.3.2. Limits applicable to the market risk

The investment policy pursued by a UCITS is the determining factor for the method of limitation of the global exposure. In all cases, the process of determining the method of limitation must be documented and kept available for the Commission. Two situations may be distinguished:

a) Relative vaR limitation

For the purposes of the limitation of the global exposure, the Commission is requesting that UCITS ensure that the global exposure associated with the total portfolio’s positions, calcu-lated by means of the vaR, does not exceed two times the vaR of a reference portfolio of the same market value as the UCITS. This management limit is applicable to all UCITS for which it is possible or appropriate to define a reference portfolio.

The reference portfolio must be determined by the UCITS, taking into account both the funds’ investment policy, as set forth in the prospectus, and the portfolio’s actual composition. It constitutes, in principle, a true picture of the “benchmark”167, by reference to which the UCITS will compare the performance of its investments and which does not include positions on financial derivative instruments.

The UCITS must ensure that this reference portfolio complies with the provisions of the 2002 law.

The process of the determination of the reference portfolio has to be done in the context of appropriate procedures and must be closely overseen by Risk Management. Investment managers may take the initiative of proposing a reference portfolio which they feel to be the most appropriate for the funds’ investment policy. However, Risk Management must analyse this proposal and formulate an opinion for the persons who conduct the business of the management company, respectively of the SIAG, with respect to the appropriateness of the proposed portfolio.

b) Absolute vaR limitation

Those UCITS which are unable or for which it is not appropriate to determine a reference portfolio (example: an “absolute return” type UCITS) must determine an absolute vaR on all of the portfolio’s positions. The Commission expects that a UCITS, on the basis of the analysis of the investment policy and the given risk profile, fixes a maximum vaR; this management limit may not exceed the threshold of 20%.

167 In principle, an external index.

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When the reasons put forth by the UCITS have been deemed acceptable by the Commission, the latter may exceptionally allow the UCITS to use a different management limit if it is convinced that the principle of investor protection is not endangered by the granting of such a derogation.

III.1.3.3. Criteria governing the use of a VaR model by UCItS

The use of an internal model, as described above, is subject to the Commission’s prior approval. In order to be able to be considered an acceptable model, all the criteria set forth in Appendix 2 must be complied with.

III.2. Limitation of the counterparty risk

III.2.1. Maximum limit per entity / group

In compliance with Article 43 (1) of the 2002 law, the risk exposure to a counterparty of a UCITS in an OTC derivative transaction may not exceed 10% of its assets, when the counter-party is a credit institution referred to in Article 41, paragraph (1), point f), or 5% of its assets in other cases.

It is possible to exclude from the calculation of the use of counterparty risk limitations, all transactions on financial derivative instruments executed on a market whose clearing house complies with the following three conditions:

- backing by an appropriate completion guarantee;

- daily valuation of the market values of the positions on financial derivative instru-ments; and

- making margin calls at least once a day.

The counterparty risk is thus reduced, in principle, to OTC financial derivative instruments.

III.2.2. Counterparty status

Pursuant to Article 41 (1), g), counterparties to OTC derivative transactions must be insti-tutions subject to prudential supervision and belonging to the categories approved by the Commission. In addition, they must be specialised in this type of transaction.

III.2.3. Determination of the counterparty risk

III.2.3.1. Calculation principles

In order to determine the counterparty risk relating to OTC financial derivative instruments, UCITS must apply the method, set forth in 3 stages, described below. The Commission may, subject to appropriate elements of justification, allow UCITS to use another method. A derogation of this nature is subject to the Commission’s prior approval.

- 1st stage:

For each contract, the UCITS must determine the current replacement cost by carrying out a valuation at market price. Only the contracts with positive replacement cost will be selected for stage 1. The rules to be observed during the valuation process of OTC financial derivative instruments are specified in point Iv.2.

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- 2nd stage:

In order to reflect the risk which might be incurred later (potential future credit risk), the amount of the principal notional or the underlying asset of all the contracts is multiplied by the following percentages (“add-on factor”):

Residual Interest Exchange Ownership Other term rate rate title eligible contracts contracts contracts contracts

One year 0% 1% 6% 10% or less

More than one year and less 0.5% 5% 8% 12% than five years

More than 1.5% 7.5% 10% 15% five years

Those financial derivative instruments which cannot be entered in one of the first three categories of this table, with the exception of credit derivatives, the details of which are set forth below, are automatically included in the “Other eligible contracts” category.

For credit derivatives of the total return swap and credit default swap type, the percentage to be taken into account with regard to the future potential risk is equal to 10%, regardless of the contract’s residual term. However, for credit default swap contracts where the UCITS acts as a protection seller, the percentage in question may be set at 0% unless the credit default swap contract comprises a provision of closeout upon insolvency. In the latter case, the amount to be taken into account for the add-on factor will be limited to the premium/ interest to be received, i.e. unpaid premium at the time of the calculation.

- 3rd stage:

The sum of the current replacement cost and the potential future credit risk is multiplied by a weighting factor of 20% for credit institutions and investment enterprises of EU origin or those recognised from third countries. A 50% weighting factor is to be applied in all other cases.

The counterparty risk for each entity, respectively group, is then calculated by adding the sum of the risks of all contracts entered into.

III.2.3.2. techniques for mitigating counterparty risk

a) netting of exposures vis-à-vis a given counterparty

UCITS are allowed to net their positions on OTC financial derivative instruments vis-à-vis a given counterparty, as long as the netting procedures comply with the conditions set out in Part 7 of Annex III of Directive 2006/48/EC, and that they are based on legally binding agree-ments.

b) Financial collateral given as guarantees

UCITS are allowed to take into consideration collateral in order to mitigate the counterparty risk, to the extent that this collateral:

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• isvaluedatmarketprice,atacalculationfrequencyatleastequaltothecalculationfrequency of the nAv of the UCITS in question;

• presents limited risks, is adequately diversified, is liquid, and does not present a significant positive correlation with the counterparty’s credit status;

• is held by a third party trustee, which has no link with the supplier, or is legallyprotected from the consequences of a default by a related party;

• canberealisedentirelyatanytimebytheUCITS, i.e. the UCITS must be entitled to assert its rights over the collateral at any time.

The Commission allows UCITS, in compliance with the provisions set forth above, to make use of the following financial collateral to reduce the counterparty risk:

• cashdeposits and financial instruments equivalent to cash;

• debt instruments with an external credit rating at least equivalent to “investmentgrade”;

• sharesandconvertible bonds which are comprised in a main index.

The UCITS may disregard the counterparty risk on the condition that the value of the collateral, valued at market price, taking into account appropriate discounts, exceeds the value of the amount exposed to risk.

For the valuation of the collateral presenting a significant risk of value fluctuation, UCITS must apply prudent discount rates. In this context it is to be noted that collateral in the form of cash deposits in a currency other than the currency of exposure must also be the subject of a rate of discount for risk of currency mismatch. On an indicative basis, the Commission considers that an adjustment of 10% is appropriate.

Still on an indicative basis, the Commission considers that levels of discount of approximately 20%, respectively 15%, are appropriate for shares or convertible bonds which are comprised in a main index, respectively debt securities issued by a non-governmental issuer rated BBB.

Collateral received by the counterparty to the OTC financial derivative instrument is likely to expose the UCITS to a credit risk with respect to the trustee of the collateral. If such a risk exists, the Commission requires that UCITS take such risk into account in the context of the limitations on deposits provided for by Article 43 (1) of the 2002 law.

Moreover, the Commission expects that the UCITS back, by means of appropriate proce-dures and controls, the other risks which result from the use of counterparty risk mitigation techniques (legal, operational, etc. risks).

III.2.4. Risk concentration limits

The counterparty risk on a same entity or group must be added to the issuer risk resulting from the fund’s exposure on transferable securities, money market instruments and deposits with respect to this same entity or group, in compliance with the provisions of Article 43 of the 2002 law. The sum of the exposures shall not exceed 20% per entity, respectively per group.

III.3. Limitation of the concentration risk

III.3.1. General principle

Pursuant to Article 42 (3), the Commission deems that a UCITS may invest in financial derivative instruments provided that the exposure to the underlying assets does not exceed in

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aggregate the investment limits set out in Article 43. The Commission extends this limitation to units of UCIs and UCITS referred to in Article 46. This provision only affects, in principle, those financial derivative instruments whose underlying assets entail an issuer risk, thus, those based on an ownership deed or a debt security.

In accordance with the calculation method of the commitment applicable to non-sophisticated UCITS (point III.1.2.), the financial derivative instruments are to be converted into equivalent positions on the underlying assets. The method used to convert the financial derivative instruments into equivalent positions on the underlying assets must be adapted to the type of instrument involved and must be in line with the guidelines provided in Appendix 1. As indicated in point III.1.2., in the case of financial derivative instruments for which the calcu-lation method has not been detailed in Appendix 1, the UCITS is responsible for informing the Commission of the method applied.

If the conversion method of financial derivative instruments into their equivalent underlying positions proves to be inappropriate or technically not feasible because of the complexity of the financial derivative instrument in question, an approach based on the maximum potential loss linked to this financial derivative instrument may be used. This maximum potential loss is then considered as the threshold for the estimate of the maximum loss which the UCITS is at risk to incur on this position.

The financial derivative instruments embedded in transferable securities or money market instruments must, for the purpose of this point, be isolated, using the methods described in this point and taken into account in the determination of the use of concentration risk limits.

As is the case for the market risk determination, the UCITS may benefit from possible netting effects before determining the use of the concentration limits per entity, respectively per group (see point III.1.2.2.).

III.3.2. Specific provisions

In compliance with Article 42 (3), UCITS may exclude from the calculation of the concen-tration limits, those financial derivative instruments based on an index:

• thecompositionofwhichissufficientlydiversified,

• whichrepresentsanadequatebenchmarkforthemarket to which it refers,

• whichispublishedinanappropriatemanner.

It should be noted that, generally, for the application of this provision, management or investment companies must not use financial derivative instruments based on an index which they have composed themselves with the intention of circumventing the concentration limits set forth in Article 43 of the 2002 law.

IV. Other provisions regulating the use of financial derivative instruments

IV.1. Coverage rules applicable to financial derivative instruments

Generally, the UCITS should, at any given time, be capable of meeting the obligations incurred by transactions involving financial derivative instruments and which, for the UCITS, give rise to delivery as well as payment obligations.

In the case of contracts which provide, automatically or at the counterparty’s choice, for the physical delivery of the underlying financial instrument on the due date or the exercise date, and insofar as physical delivery is a normal practice in the case of the instrument in question, the UCITS must:

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• holdinitsportfolio the underlying financial instrument as cover or

• incasetheUCITS deems that the underlying financial instrument is sufficiently liquid, it may hold as coverage other liquid assets (including liquidities), on the condition that these assets (after applying appropriate safeguards, i.e. discounts), held in sufficient quantities, may be used at any time to acquire the underlying financial instrument which is to be delivered.

In respect of contracts which provide for cash payment, automatically or at the UCITS’ discretion, the latter must hold enough liquid assets (after the application of appropriate safeguard measures, i.e. discounts) to allow it to make the contractually required payments (example: margin calls, interest payments, contractual cash payments, ...). Given the number of different situations which might arise, the Commission leaves it up to the UCITS itself to determine the method by which it will determine the coverage level of the contracts which are payable in cash. This method must, in any event, allow the UCITS to meet, at any time, all payment obligations.

Liquid assets, as defined by the Commission, besides cash, are liquid debt securities or other liquid assets (investment grade debt instruments, shares comprised in a main index, ...) which can be converted into cash on very short notice at a price corresponding closely to the current valuation of the financial instrument on its market.

It is thus up to Risk Management to regularly check whether the coverage available to the UCITS, either in the form of the underlying financial instrument or in the form of liquid assets as described above, exist in sufficient quantity to meet future obligations.

IV.2. Valuation of OTC financial derivative instruments

Pursuant to Articles 41 (1) g) and 42 (1), OTC financial derivative instruments must be subjected to a precise valuation, verifiable on a daily and independent basis by the UCITS.

UCITS must be able to determine, with reasonable accuracy, the “fair value” of the OTC financial derivative instruments for their entire life span. “Fair value” is defined as the amount for which an asset may be exchanged or a liability settled, between knowledgeable, willing parties, in an arm’s length transaction.

The reference to a reliable and verifiable valuation is meant to be understood as a reference to a valuation made by the UCITS, which corresponds to the fair value, which is not only based on market prices supplied by the counterparty and which complies with the following criteria:

• thevaluation is based on a current market value, which was established in a reliable manner for the instrument, or, if no such value is available, on a valuation model using an appropriate and recognised methodology;

• theverificationofthevaluation shall be done by one of the following entities:

• anappropriatethirdparty,independentofthecounterparty to the OTC derivative instrument, which will proceed with the verification at an appropriate frequency and pursuant to methods allowing the UCITS to check it;

• a unit of the UCITS which is independent of the department overseeing asset management and which is appropriately equipped for this purpose. The UCITS may, if applicable, make use of valuation tools, respectively data, provided by a third party subject to ensuring that they are appropriate prior to making use of them in the valuation process. The use of valuation models provided by a party linked to the UCITS (for example: dealing room through which the UCITS settles its derivative transactions) and which have not been reviewed by the UCITS, is not acceptable.

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In the event that there is no valuation of this nature for a given product, the UCITS may not make use of it, even if the investment policy expressly allows it.

IV.3. Description of risks

UCITS, which use financial derivative instruments for purposes other than coverage, should include in their prospectus an appropriate description of the risks resulting from the use of this type of instrument, which description can include an indication of the level of leverage or market risk.

V. Information to be provided to the Commission

Pursuant to Article 42 (1) of the 2002 law, the Commission requires that each management company and SIAG provides it with a certain amount of information relating to the risk assessment and control process, as well as the use of financial derivative instruments and the associated risks.

Thus, each management company and SIAG must provide the Commission with clear and precise documentation with respect to the Risk Management process which was imple-mented pursuant to the rules and principles formulated in this circular. In particular, they must ensure that such documentation covers, at any given time, all UCITS (including the compart-ments of UCITS) for which they are responsible. Before the launch of a new UCITS (including a compartment), the management company, or the SIAG, must ensure the appropriateness of the Risk Management process with respect to this new product. If this is not the case (example: lack of coverage of a given product by the vaR), the necessary adjustments must be made and incorporated into the above-mentioned documentation. The updated version must be sent to the Commission.

This documentation must show possible delegations which have been made in the context of Risk Management, in which case the procedure must comprise a clear and precise description of the risk management process implemented by the delegate, as well as the monitoring done by the management company or the SIAG.

Management companies and SIAGs already approved by the CSSF, must proceed with an internal self-evaluation in order to determine the possible variances to the provisions of this circular. These possible variances must be dealt with and an updated version (in “track changes” mode) of the above-mentioned documentation must then be sent to the Commission.

The Risk Management procedure must, at a minimum, include the following information (if applicable):

V.1. Implementation of a risk management process

• organisation of the Risk Management department (flow chart, number of people, past experience of the people in charge, allocation of responsibilities, IT tools, etc.)

• listoftheUCITS to which the above-mentioned procedure is applicable, while indicating for each UCITS (respectively compartment) whether the UCITS is a sophisticated or non-sophisticated UCITS as well as the associated global exposure calculation method (including the maximum limit set in the event that there is an absolute vaR limitation); this list may be in the form of a table, such as the one supplied below:

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UCITS Risk Market Limit (*) Reference Exposure/ profile risk Portfolio Market N-S or S calculation risk (**)

UCITS 1 n-S Commitment 100% n.A. 40%

UCITS 2 – S Relative vaR 200% MSCI World 3% Ref. Portf. compartment 5% UCITS 1 ➔166%

UCITS 2 – n-S Commitment 100% n.A. 71% Others

UCITS 3 S Absolute vaR 20% n.A. 11%

...

(*) in the case of an absolute vaR limitation; by default 100% in the case of the use of the commitment approach or 200% in the case of a relative vaR;

(**) n-S ➔ non-sophisticated; S ➔ sophisticated

V.2. Determination and monitoring of global exposure

a) Commitment approach

• list of the financial derivative instruments for which the commitment approach is used, while specifying the calculation method for each instrument (with an illustrative numbered example for each product);

• details of the implementation of the other requirements listed in this circular (Appendix 1);

• detailswithrespecttothepolicyofnettingandcoverage;

b) Internal model approach

• listof financial instruments (cashandderivatives) forwhich theglobal exposure is quantified using an internal model;

• descriptionoftheinternalmodel(typeofmethodology168, “third party vendor model”, model which has already been approved169, ...) and details on the implementation of the requirements laid down in this circular (III.1.3., Appendix 2) such as:

• processfordeterminationofthereferenceportfolio and internal evaluation of the adequacy of this portfolio (“relative vaR limitation” case)

• processforsettingthemanagementlimitforthe“absolutevaR limitation” case;

• …

168 variances-Covariances, Historic Simulation or Monte-Carlo.

169 The UCITS must indicate whether or not the model was approved by a supervisory authority (example: UCITS using the internal model which is used by a credit institution and which was approved by a supervisory authority for the calculation of regulatory own funds requirements, ...).

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c) All approaches combined

• global exposure follow-up procedures and procedures for the purpose of avoiding limits to be exceeded (“escalation procedures, …”)

• otherrisk indicators calculated for the purposes of the follow-up and oversight of the global exposure (duration, beta, exposure per rating, etc.);

• details thedrawingupof reportingsof the risk monitoring (frequency, addressees, content, ...); attach the “main” reporting.

V.3. Determination and monitoring of the counterparty risk associated with OTC financial derivative instruments

• selectionandapprovalprocessofagivencounterparty;

• confirmationwithrespecttothecalculationmethodofthecounterparty risk;

• useornotofnettingandcollateral(sureties)agreementswithindicationofthetypeofcollateral accepted and the processing of the residual risk on the collateral (third party trustee);

• details thedrawingupof reportingsof the risk monitoring (frequency, addressees, content, ...); attach the “main” reporting.

• other risk indicators calculated for the purpose of the monitoring and control of the counterparty risk.

V.4. Determination and/or monitoring of the concentration risk

• allocationoftasksattheUCITS level and, in particular, that of Risk Management in the determination and/or monitoring of the concentration risk;

• details thedrawingupof reportingsof the risk monitoring (frequency, addressees, content, etc.); attach the “main” reporting.

V.5. Valuation of the OTC financial derivative instruments

• descriptionofthevaluation process of OTC financial derivative instruments (position / department in charge, tools, controls made, ...).

V.6. Monitoring and oversight of coverage rules

• descriptionofthemonitoringandoversightprocessofthecoveragerulesandspecifi-cation, in particular, of the role of Risk Management;

• detailsthedeterminationofthecoverageassociatedwithfinancialderivative instru-ments.

VI. Repealing provisions

This circular repeals CSSF circular 05/176 and enters into force immediately.

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Appendices

Appendix 1: Determination of the commitments associated with financial derivative instruments

1. Calculation principles

The purpose of this Appendix is to lay down, for a certain number of financial derivative instru-ments, the method used for the calculation of the commitment to be taken into account for the limitation of the global exposure for non-sophisticated UCITS. With respect to the financial derivative instruments which are not covered below, the UCITS must inform the Commission of the method applied.

Share option market value of the underlying asset, adjusted by the option’s delta

number of contracts x number of shares x underlying price x delta

Bond option market value of the underlying asset, adjusted by the option’s delta

number of contracts x face value x underlying price x delta

Warrant market value of the underlying asset, adjusted by the option’s delta

In respect of buying positions on options and warrants, the UCITS may refer to the market value of the contracts (adjusted premium) for the purpose of the limitations set forth in point III. 1.2.

UCITS (example: UCITS with limited exposure to options) may use a delta equivalent to 1 for determining commitments related to options and warrants.

In the case of optional contracts for which the delta method is not appropriate, given the risk profile, respectively, the “payoff” function, UCITS will not be able to use the calculation method set forth above (example: digital options, barrier options). An approach based on the maximum potential loss could, in this case, be applied. In all cases, the Commission expects the UCITS to inform it of the method used.

Index future market value of the contract or the underlying asset

number of contracts x value of 1 point x index level

Bond future market value of the contract or the underlying asset

number of contracts x notional of the future contract x market value of the future

or

number of contracts x notional x market price of the cheapest bond to be delivered, adjusted by the conversion factor

Forward exchange principal of the contract

Interest rate swap principal of the contract

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Credit default swaps protection buyer: sum of the premiums to be paid during the entire life of the contract protection seller: contract’s notional value.

Total rate of return swap protection buyer & seller: contract’s notional value

The determination of the commitment for a protection buying position through a TRORS on the basis of the contract’s notional value is only acceptable in those cases where the buyer does not hold the underlying asset in the portfolio.

A performance swap, the purpose of which is to swap the global return of a financial asset held in portfolio by the UCITS for the global return of another financial asset may not be taken into consideration for the purposes of the calculation of commitments when the swap in question no longer subjects the UCITS to a market risk of the asset held and it does not include either leverage clauses or other additional risks as compared to a pure and simple holding of the other financial asset, of which the UCITS will receive the return. This reasoning can be extended to cases in which the performance swap involves several assets or even the entire portfolio.

Currency swaps principal of the contract

As an exception to what is set forth above, and on the condition that there is adequate justification, an approach which differs from the commitment approach may be used by a non-sophisticated UCITS (example: “add-on approach”, sensitivity approach, ...), with the Commission’s prior approval. An approach of this kind must be based on a level of prudence similar to that of the commitment approach in the determination of the global risk.

2. Qualitative criteria

2.1. Risk Management

Risk Management is responsible for ensuring that the calculation of the global exposure relating to the various derivative instruments dealt with by the UCITS is in compliance with the calculation principles formulated above.

Further information on the organisational requirements may be found above under point II of this circular.

2.2. Documentation of the approach

The calculation approach must be the subject of appropriate documentation (calculation of the commitment per product).

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Appendix 2: Criteria governing the use of an internal model

1. Quantitative criteria

1.1. vaR calculation standards

The calculation of the value-at-Risk must be done according to the following calculation standards:

• unilateralconfidenceintervalof99%;

• holdingperiodequivalentto1month(20days);

• effectiveobservationperiod(historic)ofrisk factors of at least 1 year (250 days) unless a shorter observation period is justified by a significant increase in price volatility;

• quarterlydataupdate;

• dailycalculation,inprinciple.

In principle, UCITS must apply an instant price choc equivalent to a 20 days price variation and a confidence interval of 99%.

A UCITS that wishes, for a well-justified reason, to use a confidence interval or a holding period which differs from those indicated above (example: calculation coherency within a group, parameters which are better suited to the relevant portfolio’s risk profile, ...) may do so, subject to obtaining the Commission’s prior approval.

However, UCITS having the benefit of such a derogation must, for market risk limitation reasons, translate their vaR figure to a vaR equivalent to 99% confidence interval and 1 month holding period. This conversion can be done under the hypothesis of a normal distri-bution with identical and independent distribution of risk factors returns.

For example, for the conversion of the holding period, this hypothesis implies the use of multi-plication by the square root of time.

For example, in order to convert a vaR with a holding period of 10 days into a vaR based on a holding period of 1 month (20 days), everything else being equal, one would have to multiply the vaR figure by the factor √ 20

10.

In the same manner, to convert a vaR figure with a confidence interval of 95% into an equiv-alent number with a confidence interval of 99%, one would go through the quantiles of normal distribution and multiply the vaR figure by the factor of 2,3263

1,6449.

The Commission would like to draw the UCITS’ attention to the fact that the method of calcu-lation of a vaR equivalent to 99% confidence interval and one month holding period described above is based on simplifying hypotheses which are far from being always observed in reality. Consequently, the Commission expects that the UCITS applies such equivalent vaR with caution and makes use, if appropriate, of a more conservative method or determines directly the vaR on the basis of the parameters of 99% and 1 month holding period (instant choc) when it becomes obvious that the indicated method (square root of time, quantiles of normal distribution) results in an underestimate of the risk for the standard calculations determined at the beginning of this point (i.e. 99%, 1 month).

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1.2. Coverage of the risks

The sources of market risks which the vaR model (or equivalent model) must cover may be broken down as follows:

• generalmarket risk

• specificmarket risk.

The general market risk is defined as the risk of a price fluctuation (of the debt security or the ownership title, or, in the case of a financial derivative instrument, the latter’s value) caused by the market’s general trend.

The specific risk covers two types of risks:

• The idiosyncratic risk is the risk of a price fluctuation which is the result of factors associated with the issuer of the debt security or the ownership title, or, in the case of a financial derivative instrument, with the issuer of the underlying instrument.

In order to take the idiosyncratic risk into account, the vaR model could, for example, call on risk factors such as daily fluctuations of the prices of individual products (example: prices of ownership titles) or use spread curves as a comparison to the curves of the market reference rates.

• Theeventrisk (or risk dictated by the circumstances) is the risk that the value of a debt security or an ownership title will vary suddenly as the result of an event with particular significance to the issuer of the security in question. The event risk covers, for example, the migration risk for interest rate products or the risk of significant fluctuations or jumps of prices for the shares.

For the application purposes of this point, the Commission expects that the vaR model used by the UCITS in order to demonstrate its exposure to market risk takes into account, as a minimum, general risk and idiosyncratic risk.

UCITS which can show the Commission that the idiosyncratic risk constitutes a negligible risk component within the context of their investment policy may waive the obligation of covering this risk through the model. UCITS which, for example, within the scope of their investment strategy, make use of credit derivatives may not take advantage of this waiver.

As an exception to the foregoing, the Commission expects that the UCITS which are exten-sively subject to event and/or default risks (example: exotic instruments, credit derivatives, ...) take this sufficiently into account when determining market risk. If the proposed vaR model should prove inadequate, the Commission reserves the right to require stricter measures for such UCITS.

1.3. Accuracy and completeness of the risk assessment

The UCITS must be able to show the Commission that the internal model assesses the risk with reasonable accuracy. More specifically, the model must adequately cover all the risks associated with portfolio positions and, in particular, the specific risks associated with financial derivative instruments. It must be able to adequately catch all significant price risks with respect to option positions or assimilated positions.

All the risk factors which have a non-negligible influence on the fluctuation of the portfolio’s value must thus be covered by the model. The model must be able to catch a sufficient number of risk factors which will depend on the investments which the UCITS will make in various markets (interest rate, exchange, ownership titles, spread).

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Before using the model for the first time, Risk Management must validate the model.

Moreover, UCITS must implement procedures which will guarantee that the model in question covers all the portfolio positions at a given point in time.

1.4. Backtesting of the vaR model’s results

UCITS must oversee the reliability and efficiency of their model (i.e. risk estimate predication capacity), using a backtesting program. The backtesting must supply a comparison, for each business day, between the quantification of the value-at-risk on a day calculated by the UCITS model on the basis of the positions at the end of the day and the fluctuation over a day of the portfolio’s value at the end of the following working day. UCITS must undertake the backtesting program at least on a quarterly basis, subject to always performing retroactively the aforesaid comparison for each business day.

The Commission encourages the UCITS to implement backtesting checks, basing themselves either on the effective fluctuations (“dirty backtesting”) or the hypothetical fluctuations (“clean backtesting”) of the portfolio’s value and to take the appropriate steps to improve their backtesting program, if it is deemed to be insufficient.

The backtesting checks on the hypothetical fluctuations of the portfolio’s value are based on a comparison between the portfolio’s value at the end of the day and its value, its positions unchanged, at the end of the following day.

The UCITS must follow up on cases in which the vaR predicted by the model is less then the value noted after backtesting. There is thus an excess when the fluctuation of the portfolio’s value over one day is greater than the vaR’s quantification on a corresponding day, calcu-lated by the model.

Once a year, the UCITS is obliged to inform the Commission of the number of instances of excess noted upon applying the backtesting program.

In the event that numerous overages reveal that the model is not sufficiently reliable, that is to say, that the number of overages is greater than the number which was predicted by the confidence interval selected for the calculation of the vaR, the Commission, after having informed the UCITS, reserves the right to impose appropriate measures in order to ensure that the model is quickly improved, or, if need be, to disallow the use of the model for the purpose of determining market risk.

1.5. Stress tests

The Commission requires that sophisticated UCITS follow up on the risk of the occurrence of extreme variations of the risk factors to which UCITS might be exposed through their invest-ments by implementing a rigorous program of stress tests. The program must cover all the risk factors having a non-negligible influence on the portfolio’s value and must also deal with correlation changes between risk factors.

The scenarios defined by Risk Management must be adapted to the nature of the portfolio’s positions and risks, and therefore any fundamental change in the investment strategy should be accompanied by a recalibration of the crisis scenarios.

The calculations’ results must be analysed by Risk Management and must, if need be, lead to amended measures for the purpose of adjusting the UCITS’ risk situation.

The stress test calculations should be done with a frequency which is in line with the UCITS’ risk profile, but, at a minimum, once per month.

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2. Qualitative criteria

In order to be able to determine its global exposure though the use of a vaR model, the UCITS must be able to show compliance with the following criteria:

2.1. Risk management

Risk Management is responsible for ensuring that the model is continuously adapted to the portfolio’s type and structure and shall, before its first use, undergo initial validation. Further details about the organisational requirements in this regard may be found above in point II of this circular.

2.2. vaR model documentation and procedures

The model must be the subject of appropriate documentation (model methodology, mathe-matical hypotheses and bases, data used, backtesting, ...) and procedural supervision.

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CSSF CIRCULAR 08/339 OF 19 FEBRUARY 2008 RELATING TO THE GUIDELINES OF THE COMMITTEE OF EUROPEAN SECURITIES REGULATORS (CESR) CONCERNING ELIGIBLE ASSETS FOR INVESTMENT BY UCITS

Luxembourg, 19 February 2008

To all Luxembourg undertakings for collective investment and to all those that take part in the functioning and control of these undertakings

CIRCULAR CSSF 08/339

Re: Guidelines of the Committee of European Securities Regulators (CESR) concerning eligible assets for investment by UCITS.


This circular draws the attention of UCITS subject to Part I of the amended law of 20 December 2002 relating to undertakings for collective investment to the publication of the following guidelines published by the Committee of European Securities Regulators (hereafter “CESR”):

1) CeSR’s guidelines concerning eligible assets for investment by UCItS – March 2007, Ref.: CeSR/07-044

2) CeSR’s guidelines concerning eligible assets for investment by UCItS – the classifi-cation of hedge fund indices as financial indices – July 2007, ref.: CeSR/07-0434.

These documents are attached to this circular. They are also available on the CESR website: http://www.cesr.eu.

CESR’ s guidelines should be read in conjunction with the provisions of Commission Directive 2007/16/EC of 19 March 2007 implementing Council Directive 85/611/EEC on the coordi-nation of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS), as amended, as regards the clarification of certain definitions.

Directive 2007/16/EC aims at clarifying certain definitions of Directive 85/611/EEC, as amended, concerning eligible assets for investment by UCITS in order to ensure uniform application of this Directive throughout the European Union.

Directive 2007/16/EC has been transposed into Luxembourg law through the Grand-Ducal regulation of 8 February 2008 concerning certain definitions of the amended law of 20 December 2002 relating to undertakings for collective investment. This regulation has been published in Mémorial A – n° 19 of 19 February 2008.

In relation to the provisions of Directive 2007/16/EC and Grand-Ducal regulation of 8 February 2008, the guidelines issued by CESR in the document “CeSR’s guidelines concerning eligible assets for investment in UCItS” provide additional clarifications relating to eligible assets for investment by UCITS covered by Directive 85/611/EEC, as amended.

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For example, point 23 of “CeSR’s guidelines concerning eligible assets for investment by UCItS” provides further details in relation to Article 10 of Directive 2007/16/EC as regards transferable securities and money market instruments embedding derivatives. It is important to note in this context that UCITS are responsible for assessing, where applicable, whether these transferable securities and money market instruments embed or do not embed a derivative.

Special attention should be paid to point 26 of “CeSR’s guidelines concerning eligible assets for investment by UCItS” which provides further details on the first two indents of Article 41(1)e) of the amended law of 20 December 2002 relating to undertakings for collective investment.

More specifically, the above document defines in particular the factors that can be used to assess whether the supervision to which a collective investment undertaking must be subject is equivalent in order to qualify as an eligible undertaking for collective investment in the context of the investment policy of a UCITS.

The guidelines issued by CESR in the document “CeSR’s guidelines concerning eligible assets for investment by UCItS – the classification of hedge fund indices as financial indices” provide further specific details on the eligibility of hedge fund indices as under-lying instruments of a financial derivative instrument. Moreover, this document specifies that UCITS seeking exposure to a hedge fund index must undertake appropriate due diligence. This includes the obligation for the UCITS to assess the quality of the hedge fund index.

All supervisory authorities members of CESR have committed to apply these CESR guide-lines.

UCITS shall thus take into account these guidelines when assessing whether a specific financial instrument constitutes an eligible asset for investment within the meaning of the relevant provisions of the amended law of 20 December 2002, as further specified in Grand-Ducal regulation of 8 February 2008.

The guidelines issued by CESR are applicable as from the entry into force of Grand-Ducal regulation of 8 February 2008.

UCITS existing at the time of the implementation of the guidelines issued by CESR benefit from an extension until 23 July 2008 at the latest to comply with these guidelines.

Annexes:

Annex I: CeSR’s guidelines concerning eligible assets for investment by UCItS – March 2007, Ref.: CeSR/07-044

Annex II: CeSR’s guidelines concerning eligible assets for investment by UCItS – the classification of hedge fund indices as financial indices – July 2007, Ref.: CeSR/07-434

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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

Luxembourg, 4 June 2008

To all Luxembourg undertakings for collective investment (“UCIs”) subject to the amended law of 20 December 2002 relating to undertakings for collective investment and to those who act in relation to the operation and supervision of such undertakings.


Concerns: Rules applicable to undertakings for collective investment when they employ certain techniques and instruments relating to transferable securities and money market instruments.


The purpose of this circular is to clarify the conditions and limits under which an undertaking for collective investment in transferable securities (“UCITS”) is authorised to employ techniques and instruments relating to transferable securities and to money market instruments. The techniques and instruments covered by this circular are securities lending transactions, sale with right of repurchase transactions170 and reverse repurchase transactions/repurchase transactions171.

The conditions and limits stated hereafter apply, in principle, also to other undertakings for collective investment (“UCIs”).

These techniques and instruments must be used for the purpose of efficient portfolio management, which supposes that they must fulfil the following criteria:

a) they are economically appropriate in that they are realised in a cost-effective way;

b) they are entered into for one or more of the following specific aims:

(i) reduction of risk;

(ii) reduction of cost;

(iii) generation of additional capital or income for the UCITS with a level of risk which is consistent with the risk profile of the UCITS and the risk diversification rules applicable to it;

c) their risks are adequately captured by the risk management process of the UCITS.

170 The French original of the circular uses the term “opérations à réméré”.

171 The French original of the circular uses the term “opérations de prise/mise en pension”.

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In no case may the use of these operations by the UCITS result in a change of its investment objectives as laid down in its management regulations/its constitutional documents, its prospectus, or result in additional risk higher than its risk profile as described in its sales documents.

When a UCITS wants to make use of the techniques and instruments described hereafter, it must mention this specifically in its prospectus. The prospectus must indicate the different types of transactions considered and clarify the purpose of these transactions as well as the conditions at and limits within which they are conducted. If the UCITS intends to reinvest cash received as a guarantee172 as a result of its transactions, the UCITS’ prospectus must specify the conditions and limits applicable to these reinvestments. If need be, the prospectus must contain a description of the risks inherent to the envisaged operations.

The UCITS must make sure that the principles of corporate governance comprise provisions, as regards the transactions referred to in this circular, for a period during which is held an annual shareholders’ meeting of the issuing company of the securities lent or temporarily sold.

I. Techniques and instruments that may be used by UCITS

The techniques and instruments that may be used by UCITS are more fully described hereafter.

A. Securities lending transactions

A UCITS may enter into securities lending transactions provided it complies with the following rules:

1. Rules intended to ensure the proper completion of the securities lending transactions

• TheUCITS may lend the securities included in its portfolio to a borrower either directly or through a standardised lending system organised by a recognised clearing institution or through a lending system organised by a financial institution subject to prudential supervision rules considered by the CSSF as equivalent to those prescribed by Community law and specialised in this type of transactions.

In all cases, the counterparty to the securities lending agreement (i.e. the borrower) must be subject to prudential supervision rules considered by the CSSF as equiv-alent to those prescribed by Community law. In case the aforementioned financial institution acts on its own account, it is to be considered as counterparty in the securities lending agreement.

If the UCITS lends its securities to entities that are linked to the UCITS by common management or control, specific attention has to be paid to the conflicts of interest which may result therefrom.

• The UCITS must receive, previously or simultaneously to the transfer of the securities lent, a guarantee which complies with the requirements expressed under section II b) of this circular. At maturity of the securities lending transaction, the guarantee will be remitted simultaneously or subsequently to the restitution of the securities lent.


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In case of a standardised securities lending system organised by a recognised clearing institution or in case of a lending system organised by a financial institution subject to prudential supervision rules considered by the CSSF as equivalent to those prescribed by Community law and specialised in this type of transactions, securities lent may be transferred before the receipt of the guarantee if the inter-mediary in question assures the proper completion of the transaction. Such inter-mediary may, instead of the borrower, provide the UCITS with a guarantee in compliance with the requirements expressed under section II b) hereafter.

2. Limits to securities lending transactions

The UCITS must ensure that the volume of the securities lending transactions is kept at an appropriate level or that it is entitled to request the return of the securities lent in a manner that enables it, at all times, to meet its redemption obligations and that these transactions do not jeopardise the management of the UCITS’ assets in accordance with its investment policy.


In its financial reports, the UCITS must disclose the global valuation of the securities lent on the date of reference of these reports.

B. Sale with right of repurchase transactions

a) Purchase of securities with a repurchase option173

Acting as buyer, the UCITS may agree to purchase securities with a repurchase option. These transactions consist of the purchase of securities with a clause reserving for the seller (counterparty) the right to repurchase the securities sold from the UCITS at a price and time agreed between the two parties at the time when the contract is entered into.

Its involvement in such transactions is, however, subject to the following rules:

1. Rules intended to ensure the proper completion of the purchase with a repurchase option transactions

The UCITS may enter into these transactions only if the counterparties to these transactions are subject to prudential supervision rules considered by the CSSF as equivalent to those prescribed by Community law.

2. Limits applicable to the purchase with a repurchase option transactions

For the duration of a purchase with a repurchase option agreement, the UCITS may not sell the securities which are the subject of the contract, before the counterparty has exercised its option or until the deadline for the repurchase has expired, unless the UCITS has other means of coverage.

The UCITS must ensure it maintains the value of the purchase with repurchase option trans-actions at a level such that it is able, at all times, to meet its redemption obligations towards unitholders/shareholders.

173 The French original of the circular uses the term “achat de titres à réméré”.

252

Securities that are the subject of purchase with a repurchase option transactions are limited to:

(i) short term bank certificates or money market instruments such as defined within the 2007/16/EC Directive of 19 March 2007 implementing Council Directive 85/611/EEC on the coordination of laws, regulations and administrative provisions relating to certain UCITS as regards the clarification of certain definitions,

(ii) bonds issued or guaranteed by a Member State of the OECD or by their local public authorities or by supranational institutions and undertakings with EU, regional or world-wide scope,

(iii) shares or units issued by money market UCIs calculating a daily net asset value and being assigned a rating of AAA or its equivalent,

(iv) bonds issued by non-governmental issuers offering an adequate liquidity,

(v) shares quoted or negotiated on a regulated market of a European Union Member State or on a stock exchange of a Member State of the OECD, on the condition that these shares are included in a main index.

The securities purchased with a repurchase option must be in accordance with the UCITS’ investment policy and must, together with the other securities that the UCITS holds in its portfolio, globally comply with the UCITS’ investment restrictions.


In its financial reports, the UCITS must provide separate information on securities purchased with a repurchase option, disclosing the total amount of the open transactions on the date of reference of these reports.

b) Sale of securities with a repurchase option174

Acting as the seller, the UCITS may agree to sell securities with a repurchase option. These transactions consist of the sale of securities with a clause reserving for the UCITS the right to repurchase the securities from the purchaser (counterparty) at a price and at a time agreed between the two parties at the time when the contract is entered into.


1. Rules intended to ensure the proper completion of the sale with repurchase option transactions

The UCITS may enter into these transactions only if the counterparties to these transactions are subject to prudential supervision rules considered by the CSSF as equivalent to that prescribed by Community law.

2. Limits applicable to the sale with repurchase option transactions

The UCITS must ensure that, at maturity of the repurchase option, it holds sufficient assets to be able to settle, if applicable, the amount agreed for the restitution of the securities to the UCITS.

174 The French original of the circular uses the term “vente de titres à réméré”.

253


In its financial reports, the UCITS must provide separate information on securities sold with a repurchase option, disclosing the total amount of the open transactions on the date of reference of these reports.

C. Reverse repurchase and repurchase agreement transactions

a) Reverse repurchase agreement transactions175

The UCITS may enter into reverse repurchase agreement transactions, which consist of a forward transaction at the maturity of which the seller (counterparty) has the obligation to repurchase the asset sold and the UCITS the obligation to return the asset received under the transaction.


1. Rules intended to ensure the proper completion of the reverse repurchase agreement transactions


2. Limits applicable to reverse repurchase agreement transactions

For the duration of the reverse repurchase agreement, the UCITS may not sell or pledge/give as security the securities purchased through this contract, except if the UCITS has other means of coverage.

The UCITS must take care to ensure that the value of the reverse repurchase agreement transactions is kept at a level such that it is able, at all times, to meet its redemption obliga-tions towards unitholders/shareholders.

Securities that may be purchased in reverse repurchase agreements are limited to:

(i) short-term bank certificates or money market instruments such as defined within the 2007/16/EC Directive of 19 March 2007 implementing Council Directive 85/611/EEC on the coordination of laws, regulations and administrative provisions relating to certain UCITS as regards the clarification of certain definitions,



(iv) bonds issued by non-governmental issuers offering an adequate liquidity,

(v) shares quoted or negotiated on a regulated market of a European Union Member State or on a stock exchange of a Member State of the OECD, on the condition that these shares are included within a main index.

175 The French original of the circular uses the term “opérations de prise en pension”.

254

The securities purchased through a reverse repurchase agreement transaction must conform to the UCITS’ investment policy and must, together with the other securities that the UCITS holds in its portfolio, globally respect the UCITS’ investment restrictions.


In its financial reports, the UCITS must provide separate information on securities purchased under reverse repurchase agreements, disclosing the total amount of the open transactions on the date of reference of these reports.

b) Repurchase agreement transactions176

The UCITS may enter into repurchase agreement transactions, which consist of a forward transaction at the maturity of which the UCITS has the obligation to repurchase the asset sold and the buyer (the counterparty) the obligation to return the asset received under the transaction.


1. Rules intended to ensure the proper completion of the repurchase agreement transac-tions


2. Limits applicable to repurchase agreement transactions

The UCITS must ensure that, at maturity of the agreement, it has sufficient assets to be able to settle the amount agreed with the counterparty for the restitution to the UCITS.

The UCITS must take care to ensure that the volume of the repurchase agreement transac-tions is kept at a level such that it is able, at all times, to meet its redemption obligations towards unitholders/shareholders.


In its financial reports, the UCITS must provide separate information on securities sold under repurchase agreements, disclosing the total amount of the open transactions on the date of reference of these reports.

II. Limitation of the counterparty risk and receipt of an appropriate guarantee177

a) Limitation of the counterparty risk

For each securities lending transaction, the UCITS must receive, in accordance with the fourth paragraph of section I. A. 1) of this circular, a guarantee the value of which is, during the lifetime of the lending agreement, at least equivalent to 90% of the global valuation (interests, dividends and other eventual rights included) of the securities lent.

176 The French original of the circular uses the term “opérations de mise en pension”.

177 The French original of the circular uses the term “sûreté”. The term “guarantee” used in this translation is to be understood as “collateral” where appropriate.

255

The risk exposure to a single counterparty of the UCITS arising from one or more securities lending transactions, sale with right of repurchase transactions and/or reverse repurchase/ repurchase transactions may not exceed 10% of its assets when the counterparty is a credit institution referred to in Article 41, paragraph (1)(f) of the law of 20 December 2002 or 5% of its assets in other cases.

UCITS may take into account a guarantee conforming to the requirements set out under section II b) below in order to reduce the counterparty risk in sale with right of repurchase transactions and/or reverse repurchase and repurchase transactions.

b) Receipt of an appropriate guarantee

The UCITS must proceed on a daily basis to the valuation of the guarantee received.

The agreement concluded between the UCITS and the counterparty must include provisions to the effect that the counterparty must provide additional guarantees at very short term in case the value of the guarantee already granted appears to be insufficient in comparison with the amount to be covered. Furthermore, the aforementioned agreement must, if appropriate, provide for safety margins that take into consideration exchange risks or market risks inherent to the assets accepted as guarantee.

The guarantee must normally take the form of:

(i) liquid assets,

liquid assets include not only cash and short term bank certificates, but also money market instruments such as defined within the 2007/16/EC Directive of 19 March 2007 implementing Council Directive 85/611/EEC on the coordination of laws, regulations and administrative provisions relating to certain UCITS as regards the clarification of certain definitions. A letter of credit or a guarantee at first-demand given by a first class credit institution not affiliated to the counterparty are considered as equivalent to liquid assets,



(iv) shares or units issued by UCITS investing mainly in bonds/shares mentioned in (v) and (vi) below,

(v) bonds issued or guaranteed by first class issuers offering an adequate liquidity, or

(vi) shares admitted to or dealt in on a regulated market of a Member State of the European Union or on a stock exchange of a Member State of the OECD, on the condition that these shares are included in a main index.

The guarantee given under any form other than cash or shares/units of a UCI/UCITS must be issued by an entity not affiliated to the counterparty.

The guarantee given in the form of cash may expose the UCITS to a credit risk vis-à-vis the trustee of this guarantee. If such risk exists, the UCITS must take it into consideration for the purpose of the limits on deposits prescribed by Article 43 (1) of the amended law of 20 December 2002 concerning undertakings for collective investment. As a principle, the guarantee given must not be safekept by the counterparty, except if it is legally protected from the consequences of default of the latter.

256

The guarantee given in a form other than cash must not be safekept by the counterparty, except if it is adequately segregated from the latter’s own assets.

The UCITS must make sure that it is able to claim its rights on the guarantee in case of the occurrence of an event requiring the execution thereof. Therefore, the guarantee must be available at all times, either directly or through the intermediary of a first class financial institution or a wholly-owned subsidiary of this institution, in such a manner that the UCITS is able to appropriate or realise the assets given as guarantee, without delay, if the counterparty does not comply with its obligation to return the securities.

Also, the UCITS must make sure that its contractual rights relating to the relevant transac-tions permit, in case of a liquidation, of a reorganisation178 or in any other situation of equal ranking179, to discharge its obligation to return the assets received as a guarantee, if and to the extent that the restitution cannot be undertaken on the terms initially agreed.

For the duration of the agreement the guarantee cannot be sold or given as a security or pledged, except when the UCITS has other means of coverage.

III. Reinvestment of cash provided as a guarantee

If the guarantee was given in the form of cash, such cash may be reinvested by the UCITS in:

(a) shares or units in money market UCIs calculating a daily net asset value and being assigned a rating of AAA or its equivalent,

(b) short-term bank deposits,

(c) money market instruments as defined in Directive 2007/16/EC of 19 March 2007,

(d) short-term bonds issued or guaranteed by a Member State of the European Union, Switzerland, Canada, Japan or the United States or by their local authorities or by supranational institutions and undertakings with EU, regional or world-wide scope,

(e) bonds issued or guaranteed by first class issuers offering an adequate liquidity, and

(f) reverse repurchase agreement transactions according to the provisions described under section I (C) a) of this circular.

Financial assets other than bank deposits and units or shares of UCIs acquired by means of reinvestment of cash received as a guarantee, must be issued by an entity not affiliated to the counterparty.

Financial assets other than bank deposits must not be safekept by the counterparty, except if they are segregated in an appropriate manner from the latter’s own assets. Bank deposits must in principle not be safekept by the counterparty, unless they are legally protected from the consequences of default of the latter.

Financial assets may not be pledged/given as a guarantee, except when the UCITS has suffi-cient liquid assets enabling it to return the guarantee by a cash payment.

Short-term bank deposits, money market instruments and bonds referred to in (b) through (d) above must be eligible investments within the meaning of Article 41 (1) of the law of 20 December 2002.

178 The French original of the circular uses the term “mesure d’assainissement”.

179 The French original of the circular uses the term “toute autre situation de concours”.

257

The reinvestment of cash received as a guarantee is not subject to the diversification rules generally applicable to UCITS, provided however, that the UCITS must avoid an excessive concentration of its reinvestments, both at issuer level and at instrument level. Reinvestments in assets referred to in (a) and (d) above are exempt from this requirement.

If the short-term bank deposits referred to in (b) are likely to expose the UCITS to a credit risk vis-à-vis the trustee, the UCITS must take this into consideration for the purpose of the limits on deposits prescribed by Article 43 (1) of the amended law of 20 December 2002 concerning undertakings for collective investment.

The reinvestment must, in particular if it creates a leverage effect, be taken into account for the calculation of the UCITS’ global exposure. Any reinvestment of a guarantee provided in the form of cash in financial assets providing a return in excess of the risk free rate180, is subject to this requirement.

Reinvestments must be specifically mentioned with their respective value in an appendix to the financial reports of the UCITS.

180 The French original of the circular uses the terms “procurant un rendement supérieur au taux sans risque”.

258

A85/611/EEC Directive ………………………………………………………………… 94, 96, 111Accounts ………… 11, 17, 26, 29, 52, 55, 57, 60, 61, 62, 97, 98, 100, 125, 126, 129, 136,

138, 147, 149, 159, 160, 161, 162, 171, 174, 195Advertising documents …………………………………………………………………… 6, 132Advertising material …………………………………………………………………… 7, 132, 209Agreement on the European Economic Area ……………………………… 33, 34, 51, 52, 53Annual report……………………… 30, 33, 34, 58, 59, 60, 132, 133, 137, 173, 174, 223, 224Articles of incorporation ………… 20, 21, 22, 23, 24, 25, 36, 66, 68, 96, 129, 130, 170, 182,

220, 223, 224Asset …………14, 15, 20, 21, 22, 30, 44, 74, 75, 82, 84, 86, 97, 98, 99, 124, 128, 129, 136,

141, 142, 156, 162, 190, 199, 205, 231, 234, 237, 241, 242, 248, 252, 253, 254, 255, 256Assets and liabilities…………………………… 25, 59, 60, 66, 74, 75, 98, 115, 119, 162, 174Authorisation ………………………………………………………… 3, 5, 19, 20, 21, 24, 29, 31,

35, 36, 37, 38, 39, 40, 41, 42, 44, 45, 48, 49, 50, 52, 54, 56, 62, 63, 68, 96, 128, 129, 138, 147, 152, 176, 187, 188, 189, 191, 192, 201, 210, 211, 213

BBearer securities …………………………………………………………………………… 15, 101Borrowings……………………………………………………… 5, 112, 114, 123, 125, 154, 158Branch ……………………………………………………… 10, 11, 43, 44, 45, 46, 47, 55, 105

CCapital duty …………………………………………………………………………………… 4, 79CESR ………………………………… 7, 8, 212, 213, 219, 220, 221, 222, 223, 224, 247, 248Close links …………………………………………………………………10, 20, 41, 60, 174, 191Closed-ended UCIs ……………………………………………………………………… 112, 113Closing of the accounts ………………………………………………………………………… 17Collective investment ……………………………………… A, B, C, 3, 4, 6, 7, 8, 9, 10, 11, 12,

14, 37, 58, 64, 65, 67, 68, 79, 80, 81, 82, 89, 90, 92, 93, 94, 120, 135, 136, 137, 141, 142, 150, 152, 159, 162, 163, 164, 173, 175, 180, 181, 184, 185, 186, 201, 205, 209, 210, 212, 214, 219, 226, 247, 248, 249, 255, 257

Collective portfolio management ……………………………………… 78, 187, 192, 210, 211Commercial and company register …………………………………………………………… 22Commission de Surveillance du Secteur Financier …………………10, 51, 80, 91, 141, 209Common fund ………………………………………………………………………………………3Common management …………………………………………………………………… 30, 250Compartment …………… 5, 30, 32, 64, 65, 66, 67, 71, 73, 76, 77, 96, 127, 128, 129, 131,

132, 133, 136, 137, 154, 171, 178, 183, 190, 202, 203, 238, 239Competent authority……………………………………………………………………77, 213, 215Concentration risk ……………………………………………… 227, 228, 230, 235, 236, 240Constitutional document ………………………………………………………………………… 14Convert …………………………………………………………………………………… 236, 243Cooperation ………………………………………………………… C, 25, 44, 97, 99, 103, 191Counterparty …………… 27, 28, 86, 119, 153, 154, 157, 170, 227, 228, 229, 233, 234, 235,

236, 237, 240, 250, 251, 252, 253, 254, 255, 256Court ……………………………………………………………………… 16, 18, 24, 52, 54, 146CSSF ………… 6, 7, 8, 10, 14, 15, 16, 18, 19, 20, 21, 22, 24, 25, 26, 27, 29, 33, 34, 35, 36,

37, 39, 40, 41, 42, 43, 44, 45, 46, 47, 48, 49, 50, 51, 52, 53, 54, 55, 56, 57, 58, 59, 60, 61, 62, 63, 65, 85, 91, 98, 111, 120, 128, 129, 130, 131, 132, 133, 134, 135, 137, 138, 140, 142, 143, 144, 145, 147, 148, 149, 150, 151, 152, 153, 159, 160, 161, 162, 163, 167, 169, 170, 171, 172, 173, 174, 175, 176, 178, 179, 180, 183, 184, 185, 186, 187, 188, 189, 190,

259

191, 192, 193, 194, 201, 204, 205, 207, 208, 209, 210, 211, 212, 213, 214, 215, 216, 217, 219, 220, 221, 222, 224, 225, 226, 227, 238, 240, 247, 249, 250, 251, 252, 253, 254

Currency …………… 5, 32, 74, 98, 112, 117, 119, 128, 129, 133, 136, 195, 196, 197, 198, 199, 200, 235

DDeduction at source ……………………………………………………………………………… 64Depositary ………… 5, 10, 15, 16, 17, 18, 19, 23, 24, 32, 35, 44, 45, 50, 63, 72, 74, 76, 97,

98, 99, 100, 101, 105, 106, 107, 108, 109, 128, 130, 188, 189, 191Deposits ………… 26, 28, 64, 65, 80, 112, 122, 155, 156, 176, 198, 226, 235, 255, 256, 257Derivative instruments ………… 8, 26, 27, 28, 30, 81, 85, 86, 155, 171, 179, 202, 226, 227,

228, 229, 230, 231, 232, 233, 234, 235, 236, 237, 238, 239, 240, 241, 242, 244Director …………………………………………………………………………………63, 121, 122Distribution policy ………………………………………………………………………………… 17Distributor …………………………………………………………………100, 101, 103, 162, 169District Court dealing with commercial matters ………………………………… 54, 56, 58, 62Dividend ……………………………………………………………………………………… 11, 59

EEfficient portfolio management ……………………………………… 27, 81, 88, 115, 227, 249Eligible assets ……………………………………………………………… 8, 181, 182, 247, 248Embedded derivative …………………………………………………………………………… 83Embedding a derivative …………………………………………………………………… 87, 88Embedding derivatives …………………………………………………………………… 81, 248European Economic Area …………………………………… 33, 34, 51, 52, 53, 85, 182, 183

FFinancial institution ………………………………………………… 85, 118, 119, 250, 251, 256Financial reports ……………………………………………………………………… 6, 132, 133Financial Risk ………………………………………………………………………… 8, 226, 227Fine ……………………………………………………………………………… 58, 62, 63, 64, 65Fractions of units …………………………………………………………………………… 15, 148Freedom of establishment ……………………………………………………………………… 68Free provision of services ……………………………………………………………………… 68Futures contracts …………………………………………………… 5, 117, 120, 122, 123, 156

GGeneral meeting ………………………………………… 23, 37, 56, 61, 63, 66, 129, 138, 161Group ………………………… 26, 29, 65, 76, 87, 89, 187, 188, 191, 233, 234, 235, 236, 243Guarantee …………………………………… 41, 228, 233, 245, 250, 251, 254, 255, 256, 257

HHead office ………… 14, 34, 41, 48, 69, 72, 144, 145, 146, 147, 148, 149, 150, 162, 164,

165, 166, 167, 168, 169, 173, 187Hedging ………………………………………………………………………… 30, 117, 202, 230Historical performance……………………………………………………… 73, 76, 201, 202, 203Home Member State …………………………………………… 11, 13, 47, 55, 215, 220, 224Host Member State ………………………………… 11, 13, 33, 44, 46, 47, 55, 217, 221, 223

IImmovable property ……………………………………………………………………… 27, 32, 56Index ……………… 27, 29, 30, 81, 87, 88, 89, 117, 176, 202, 232, 235, 236, 237, 241, 248,

252, 253, 255Indices ………………………………………………………26, 86, 87, 117, 202, 226, 247, 248Infrastructure …………………………………………………… 98, 105, 184, 187, 188, 189, 210

260

Initial capital ………………………………………………………………… 11, 21, 40, 177, 192Institutional investor ……………………………………………………………… 64, 65, 146, 177Investment advisory ……………………………………………………………… 46, 47, 93, 198Investment company ………… 12, 13, 14, 23, 24, 25, 27, 31, 32, 34, 58, 59, 63, 69, 70, 71,

72, 73, 76, 94, 128, 129, 133, 179, 181, 193, 223, 224, 228Investment company with variable capital ……………………………………………… 12, 23Investment management……………………………………… 44, 121, 122, 123, 125, 190, 191Investment policy ……………………………………………………………………………… 3, 25Investor ………… 11, 26, 30, 40, 44, 59, 73, 76, 82, 91, 127, 145, 147, 149, 151, 171, 177,

202, 203, 205, 206, 207, 233Issue ……………5, 15, 16, 17, 18, 19, 21, 22, 23, 25, 26, 28, 29, 31, 35, 36, 38, 56, 62, 63,

66, 70, 72, 84, 85, 101, 103, 106, 107, 110, 113, 121, 123, 124, 125, 126, 128, 146, 148, 157, 158, 162, 163, 206, 220

LLate Trading ………………………………………………………………… 7, 205, 206, 207, 208Legal reserve ……………………………………………………………………………… 23, 195Letter box entity ………………………………………………………………………………… 45Liability ……………………………………………………………………………………… 5, 108Liquid assets ……………… 27, 35, 36, 38, 96, 106, 112, 116, 124, 155, 158, 237, 255, 256Liquidation ……………………………………… 16, 18, 19, 24, 32, 52, 56, 57, 58, 61, 66, 256Liquid financial assets ……………………………… 14, 15, 20, 24, 81, 85, 86, 176, 181, 183Loan ………………………………………………………………………………………… 32, 112

MManagement company ……… 6, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 30, 31, 32,

34, 35, 39, 40, 41, 42, 43, 44, 45, 46, 47, 48, 49, 50, 55, 58, 63, 69, 70, 71, 72, 76, 94, 97, 106, 127, 130, 133, 138, 161, 162, 163, 164, 165, 168, 170, 172, 173, 176, 177, 179, 181, 186, 187, 188, 189, 190, 191, 192, 193, 197, 210, 211, 213, 220, 221, 222, 228, 229, 232, 238

Management regulations…………… 15, 16, 17, 18, 19, 25, 27, 49, 59, 66, 69, 96, 106, 107, 108, 128, 130, 170, 179, 182, 201, 223, 224, 250

Manager …………… 37, 58, 63, 99, 100, 106, 107, 123, 125, 150, 152, 157, 162, 169, 172, 193, 210, 211, 232

Marketing …………………………………………………………………… 6, 78, 221, 222, 224Market risk …………………………… 171, 229, 230, 231, 232, 236, 238, 242, 243, 244, 245Market Timing ……………………………………………………………… 7, 205, 206, 207, 208Market to ………………………………………………………………………… 29, 87, 89, 236Money laundering ……………………………………………………………… 161, 164, 166, 169Money Laundering …………………………………………………………………………… 103Money market instrument ………………………………………………………… 27, 84, 85, 88

Nnet asset ………… 14, 15, 20, 21, 22, 30, 74, 75, 84, 97, 98, 99, 124, 128, 129, 136, 141,

142, 162, 205, 252, 253, 255, 256net asset value ……………14, 15, 20, 21, 22, 30, 74, 75, 84, 97, 98, 99, 124, 128, 129, 136,

141, 142, 162, 205, 252, 253, 255, 256non-core service ……………………………………………………………………… 39, 40, 193non-sophisticated UCITS …………………………… 227, 228, 230, 231, 236, 238, 241, 242notification ……………… 8, 45, 47, 54, 57, 163, 216, 217, 219, 220, 221, 222, 223, 224, 225

OOffer …………………………………… 15, 20, 24, 35, 36, 37, 38, 50, 51, 53, 127, 134, 216Officially listed securities ………………………………………………………… 16, 22, 38, 114

261

Option …………………… 67, 68, 116, 117, 123, 178, 186, 228, 231, 241, 244, 251, 252, 253OTC ………………………………… 26, 27, 28, 86, 226, 227, 229, 233, 234, 235, 237, 240Own funds …………………………………………………… 12, 40, 41, 43, 177, 186, 192, 239

PPar value ………………………………………………………………………… 22, 66, 127, 129Parent undertaking ……………………………………………………………… 12, 42, 60, 174Participating shares ……………………………………………………………………………… 23Participation ………………………………………………………………………………… 12, 157Pension fund ……………………………………………………… 39, 65, 95, 177, 192, 193, 198Portfolio …………4, 17, 21, 27, 30, 35, 37, 38, 42, 44, 46, 47, 65, 74, 78, 81, 82, 84, 88, 92,

98, 99, 100, 106, 107, 114, 115, 116, 117, 118, 121, 128, 129, 141, 150, 154, 166, 170, 172, 187, 189, 192, 193, 198, 201, 203, 207, 210, 211, 227, 228, 229, 230, 231, 232, 237, 239, 242, 243, 244, 245, 246, 249, 250, 252, 254

Portfolio turnover rate …………………………………………………………………… 201, 203Price (issue) ……………………………………………………………………………… 15, 22, 72Private (offer) ……………………………………………………………… 15, 20, 24, 35, 36, 37Probable realisation value ………………………………………………… 16, 22, 38, 114, 170Promoter ………………………………… 113, 130, 144, 145, 146, 147, 148, 149, 150, 151Prospectus…………… 4, 6, 7, 27, 30, 50, 58, 59, 60, 61, 62, 66, 72, 73, 76, 77, 80, 95, 97,

99, 100, 113, 115, 121, 122, 123, 124, 125, 126, 129, 130, 131, 132, 133, 134, 142, 143, 148, 150, 155, 157, 158, 174, 175, 177, 182, 184, 185, 190, 191, 201, 202, 203, 204, 206, 207, 212, 213, 215, 216, 217, 218, 221, 230, 232, 238, 250

Prospectus law ………………………………………………………………… 214, 215, 216, 217Prudential supervision …………… 10, 26, 28, 39, 43, 44, 173, 186, 190, 191, 193, 209, 233,

250, 251, 252, 253, 254Publication …………… 16, 22, 57, 61, 68, 72, 77, 87, 89, 95, 131, 133, 149, 175, 177, 178,

184, 185, 212, 216, 247Public offer…………………………………………………………………………………… 50, 215

QQualifying holdings …………………………………………………………………… 12, 42, 191

RRecently issued transferable securities ………………………………………………… 25, 74Redemption ……………………………………………… 5, 14, 16, 17, 18, 19, 22, 23, 30, 31,

35, 36, 38, 62, 63, 71, 72, 93, 95, 100, 101, 102, 103, 106, 107, 110, 113, 121, 124, 128, 145, 148, 157, 158, 166, 169, 182, 203, 205, 206, 207, 251, 253, 254

Register …………………………………………15, 22, 70, 78, 97, 98, 102, 103, 104, 121, 123Registered office ………… 10, 11, 13, 14, 17, 24, 26, 28, 31, 34, 35, 41, 48, 54, 69, 72, 94,

176, 181Registration duties ……………………………………………………………………………… 57Regulated market ……………7, 12, 25, 26, 50, 74, 82, 83, 84, 110, 111, 113, 115, 116, 119,

125, 126, 153, 155, 199, 214, 215, 216, 217, 226, 252, 253, 255Repurchase ……… 14, 71, 72, 83, 115, 119, 155, 156, 157, 170, 214, 231, 249, 251, 252,

253, 254, 255, 256Repurchase transactions …………………………… 119, 155, 156, 157, 231, 249, 251, 255Reverse repurchase……………………………………………… 170, 249, 253, 254, 255, 256Risk Management …………… 30, 82, 86, 88, 164, 170, 179, 187, 189, 227, 228, 229, 230,

231, 232, 237, 238, 240, 242, 245, 246, 249Risk(s) …………… , 5, 8, 14, 15, 20, 24, 27, 28, 29, 30, 31, 32, 34, 35, 36, 37, 38, 44, 54,

58, 76, 82, 83, 84, 85, 86, 88, 89, 91, 92, 102, 113, 115, 117, 119, 121, 122, 123, 124, 126, 143, 144, 152, 153, 154, 155, 156, 157, 158, 159, 161, 164, 170, 171, 177, 179, 187, 188,

262

189, 201, 202, 206, 207, 209, 210, 213, 226, 227, 228, 229, 230, 231, 232, 233, 234, 235, 236, 238, 239, 240, 241, 242, 243, 244, 245, 249, 250, 254, 255, 257

- counterparty risk………… 27, 153, 154, 170, 227, 228, 229, 233, 234, 235, 240, 254, 255- global exposure ……………… 27, 227, 228, 229, 230, 231, 232, 238, 239, 240, 241, 242,

246, 257- investment risks …………………… 20, 24, 36, 37, 121, 122, 123, 126, 152, 156, 158, 170- risk-management process ……………………………………………………………… 27, 213- risk profile ………… 27, 30, 58, 76, 83, 88, 189, 201, 202, 227, 229, 230, 232, 241, 243,

245, 249, 250- underlying risks ………………………………………………………………………………… 27Risk-spreading ……………………………………… 14, 15, 29, 31, 32, 34, 35, 36, 38, 91, 92

SSchedule A …………………………………………………………………………… 59, 69, 131Schedule B ……………………………………………………………… 59, 132, 133, 159, 162Schedule C ………………………………………………………………… 59, 76, 177, 201, 202Securities ………… 3, 4, 5, 7, 8, 9, 10, 11, 12, 14, 15, 16, 17, 19, 20, 22, 23, 24, 25, 26, 27,

28, 29, 30, 31, 32, 35, 36, 37, 38, 50, 56, 64, 65, 70, 74, 79, 80, 81, 82, 87, 88, 92, 93, 94, 95, 96, 98, 100, 101, 102, 106, 110, 111, 112, 113, 114, 115, 116, 117, 118, 119, 120, 121, 123, 124, 125, 127, 128, 129, 130, 134, 143, 153, 154, 155, 156, 157, 158, 166, 170, 172, 175, 176, 181, 182, 183, 184, 193, 195, 196, 199, 200, 201, 203, 207, 212, 214, 226, 230, 231, 235, 236, 237, 247, 248, 249, 250, 251, 252, 253, 254, 255, 256

Securities lending …………………… 115, 118, 153, 154, 155, 156, 249, 250, 251, 254, 255Securitisation………………………………………………………………………………… 26, 85Semi-annual report ………………………………………………………33, 34, 58, 59, 132, 133Services ………… 10, 11, 39, 40, 43, 44, 45, 46, 47, 48, 53, 55, 65, 68, 78, 97, 98, 99, 100,

101, 102, 103, 148, 164, 187, 190, 192, 193, 209Shareholder ……………………………………………………………………… 20, 21, 71, 163Shares ………… 5, 7, 11, 12, 15, 20, 21, 22, 23, 24, 29, 31, 36, 38, 39, 48, 49, 66, 70, 71,

72, 77, 92, 93, 94, 95, 96, 100, 101, 107, 108, 110, 113, 119, 121, 123, 124, 127, 128, 129, 139, 141, 142, 143, 144, 145, 146, 148, 149, 154, 155, 166, 169, 175, 176, 181, 182, 183, 202, 203, 206, 207, 214, 215, 216, 217, 220, 221, 222, 223, 224, 225, 235, 237, 241, 244, 252, 253, 255, 256

SICAv………………………… 12, 20, 21, 22, 23, 24, 36, 37, 66, 92, 107, 108, 197, 199, 200Simplified prospectus …… 4, 7, 58, 59, 61, 76, 175, 177, 184, 201, 202, 203, 204, 212, 213Sophisticated UCITS …………………………… 227, 228, 230, 231, 236, 238, 241, 242, 245Stress test ………………………………………………………………………………… 232, 245Subscription right …………………………………………………………………………… 31, 32Subscription tax ……………………………………………………………………………… 4, 80Subsidiary …………………………………………………………… 12, 14, 31, 42, 60, 174, 256Supervision ………………………………3, 10, 25, 26, 28, 38, 39, 43, 44, 46, 50, 51, 52, 55,

57, 58, 65, 91, 97, 104, 105, 106, 107, 108, 111, 128, 132, 140, 142, 154, 165, 166, 173, 175, 180, 184, 186, 188, 189, 190, 191, 193, 201, 205, 207, 208, 209, 210, 212, 214, 219, 226, 227, 233, 246, 248, 249, 250, 251, 252, 253, 254

Supervisory authority …………B, 39, 44, 91, 92, 96, 97, 105, 120, 138, 154, 161, 189, 190, 191, 213, 220, 222, 239

Suspension of redemption ……………………………………………………………………… 56Swaps………………………………………………………………………………… 117, 170, 242

TTechniques and instruments ……………………………………………… 5, 88, 115, 119, 250TER ……………………………………………………………………………………………… 203

263

Third country …………………………………………………………………………………… 191Total Expense Ratio……………………………………………………………………… 201, 203Transactions by private agreement ………………………………………………………… 116Transferable securities ………………………………………………………3, 4, 5, 8, 9, 10, 11,

12, 14, 15, 19, 20, 24, 25, 27, 28, 29, 30, 31, 32, 35, 36, 38, 56, 74, 80, 81, 87, 88, 92, 94, 96, 110, 111, 112, 113, 115, 117, 118, 120, 127, 143, 153, 155, 158, 175, 176, 181, 183, 193, 196, 201, 212, 214, 226, 230, 235, 236, 247, 248, 249

UUCITS ………… 3, 4, 5, 7, 8, 9, 10, 11, 12, 13, 14, 17, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33,

34, 39, 41, 43, 44, 45, 49, 55, 56, 62, 67, 68, 72, 74, 75, 76, 77, 81, 82, 83, 84, 86, 88, 89, 94, 95, 96, 105, 110, 111, 112, 113, 114, 115, 116, 117, 118, 119, 120, 121, 123, 124, 125, 152, 176, 177, 178, 179, 180, 181, 182, 183, 186, 187, 188, 189, 190, 191, 192, 193, 201, 202, 203, 204, 212, 213, 219, 220, 221, 222, 223, 224, 225, 226, 227, 228, 229, 230, 231, 232, 233, 234, 235, 236, 237, 238, 239, 240, 241, 242, 243, 244, 245, 246, 247, 248, 249, 250, 251, 252, 253, 254, 255, 256, 257

UCITS of the closed-ended type …………………………………………………… 14, 95, 182UCITS of the open-ended type ……………………………………………………………… 113UCI with multiple compartments ……………………………………………… 30, 64, 65, 154Uncovered sales ………………………………………………………………… 25, 32, 118, 158Undertaking for collective investment ……………… 12, 79, 80, 82, 136, 137, 141, 248, 249Undertaking for collective investment in transferable securities ……………………… 12, 249Unitholder ………………………………………………………… 16, 18, 20, 59, 71, 73, 76, 78

Vvaluation ………… 16, 22, 26, 38, 71, 78, 81, 82, 84, 86, 98, 99, 114, 118, 119, 124, 125,

126, 128, 143, 161, 166, 170, 179, 207, 227, 233, 235, 237, 238, 240, 251, 254, 255value ………… 11, 14, 15, 16, 18, 20, 21, 22, 26, 27, 28, 30, 36, 38, 40, 65, 66, 74, 75, 80,

83, 84, 86, 87, 97, 98, 99, 106, 107, 108, 114, 116, 117, 118, 121, 123, 124, 125, 126, 127, 128, 129, 136, 141, 142, 143, 153, 154, 155, 157, 158, 162, 170, 186, 197, 198, 205, 207, 229, 230, 231, 232, 235, 237, 241, 242, 244, 245, 251, 252, 253, 254, 255, 256, 257

value-at-Risk………………………………………………………………………… 231, 243, 245vaR ………………………………………………… 231, 232, 233, 238, 239, 243, 244, 245, 246venture capital ……………………………………………………………5, 92, 96, 120, 121, 183visa ……………………………………………………………………………… 132, 133, 204, 221volatility …………………………………………………………………… 30, 143, 158, 228, 243voting right ………………………………………………………………12, 15, 31, 70, 129, 191

WWarrants …………………………………………………………………………… 116, 190, 241

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Undertakings for collective investment2 0 0 9 E d i t i o n

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Société de la Bourse de Luxembourg SA

11, av. de la Por te-NeuveBP 165L - 2011 LuxembourgT + 352 47 79 36 -1F + 352 47 32 98info @ bourse.luwww.bourse.lu

ALFI a.s.b.l.Association of the Luxembourg Fund Industry

59, Boulevard RoyalL - 2449 LuxembourgT + 352 22 30 26 -1F + 352 22 30 93info @ alf i.luwww.alf i.lu

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