Luxembourg Regulated Investment Vehicles - Alfi

Luxembourg RegulatedInvestment VehiclesAn overview of the regulatory requirementsUpdated as at 1 March 2010

Luxembourg RegulatedInvestment VehiclesAn overview of the regulatory requirementsUpdated as at 1 March 2010ALFI thanks KPMG in Luxembourg, which produced the content of this brochure,for its authorization to reprint. KPMG in Luxembourg is a member of ALFI.

Executive summary2ALFI is pleased to reprint KPMG’s newedition of the Luxembourg RegulatedInvestment Vehicles brochure. The purposeof this brochure is to provide an overviewof the various vehicles that may be set up inLuxembourg covering the complete spectrumof the Fund industry.The overview covers the following areas:• Legal and regulatory requirements• Shareholding• Reporting requirements• Approval and supervision• TaxationLuxembourg FundindustryOver the years, Luxembourg has developeda strong reputation as a centre of excellencefor a large variety of investment funds. Thelegal framework of the country offers a largeselection of investment vehicles that may beused to accommodate the strategies pursuedby promoters.As at 31 December 2009, the size of theLuxembourg Fund industry was Euro 1.84trillion (2008: Euro 1.57 trillion). There were3,463 funds (2008: 3,371) or 12,232 sub-funds(2008: 12,325) approved. During the year2009, 407 new funds were set up while 315were closed or liquidated. In terms of sub-fundsthere was net closure of 93 sub-funds duringthe year. Net subscriptions during the year wereEuro 84 billion, while the market accounted foran increase of Euro 197 billion.In addition there were 237 (2008: 221)SICARs and 24 (2008: 20) securitizationvehicles on the list of regulated vehicles bythe Commission de Surveillance du SecteurFinancier (the Luxembourg regulator) as at31 December 2009.2009 has seen a significant increase in thenumber of SIFs from 837 at the end ofDecember 2008 to 971 at the end of December2009.The table below shows the number of funds under the different laws and the size of theassets managed.Part I(2002 law)Part II(2002 law)Funds2008 2009AssetsEUR billionFundsSubfundsSubfundsAssetsEUR billion1,843 7,976 1,465 1,826 8,178 1,169649 2,137 221 708 2,332 259SIF 971 2,119 154 837 1,815 130SICAR 237 - N/A 221 - 20Securitization(regulated)24 - N/A 20 - N/A

3StrategyPromoters/ initiators are conducting avaried range of strategies regarding the useof investment vehicles in Luxembourg. Thestrategies may be retail oriented or dedicatedto professional investors. They are alsoaiming at market segments such as hedgefunds, real estate and private equity.Fund Strategy interms of assets undermanagement2008 20093%3%10 %8 %25 %18 %22 %24 %16 %16 %26 %29 %■ Bond■ Equity■ Balanced■ Money market■ Fund of Funds■ OtherSource: ALFIThe above table confirms the trend thatwas seen in 2009; a rising stock market andsignificant redemptions from funds of funds.In recent years, there were also newstrategies in niche markets, such as Shariafunds, gold fund, microfinance funds andsocially responsible funds. Certain Hedgefund strategies have also been acceptedas UCITS 3 funds and have indeed beenpopular with certain promoters. Howeverthey remain niche markets and none of thesestrategies had any significant impact on theindustry as a whole.Real estate and private equity funds haveproved to be popular as SIFs and SICARsaiming mainly at institutional investors.The niche markets are aimed principally toinstitutional investors as more funds are nowcreated as SIFs rather than the traditionalUCITS 3 funds.

Legal and regulatory requirements4Part I Fund (UCITS)Applicable legislation Law of 20 December 2002(“Fund law”).Part II Fund (UCI)Law of 20 December 2002(“Fund law”).Eligible assetsPart IRestricted to:Transferable securities, investment funds,financial derivative instruments, cashand money market instruments that arecompliant with Article 41 of the Fund lawand the Commission Directive of 19 March2007 implementing Council Directive85/611/EEC as transposed in Luxembourgby the grand-ducal decree of 8 February2008.Uncovered short sales and borrowings arenot permitted.More details can be found in KPMG’sbrochure entitled “Clarification ofDefinitions concerning Eligible Assets forinvestments of UCITS”.Part IIUnrestricted.Prior approval of the investment objectiveand strategy by the CSSF.Risk diversificationrequirementsEntity typeDetailed risk diversification is required perArticles 42 to 52 of the Fund law.SICAV (SA)SICAF (SA,SCA)FCPAll three must be open-ended.Risk diversification requirements aredetailed in CSSF Circular 91/75 and are lessstringent than the ones in application forPart I funds.In addition, specific restrictions arecontained in :- CSSF Circular 91/75 for funds investing inventure capital, futures, options and realestate.- CSSF Circular 02/80 for funds adoptingan alternative investment strategy.SICAV (SA)SICAF (SA,SCS, SCA,Sàrl)FCPStructures may be open or closed-ended.Segregated sub-funds Yes Yes

5SIF SICAR Securitization vehicle – regulatedLaw of 13 February 2007(“SIF law”).Law of 15 June 2004(“SICAR law”).Law of 22 March 2004(“Law on Securitization”).Unrestricted.Risk diversification requirements aredetailed in CSSF Circular 07/309and are less stringent than the onesin application for part I and Part IIfunds.Restricted to direct and/or indirectinvestment in securities that representrisk capital.CSSF Circular 06/241 defines thenotion of risk capital and the waythe CSSF will decide if the investmentobjective of the SICAR complieswith the requirement to invest in riskcapital.Risk capital consists mainly of highrisk investments made in view of theirlaunch, development or listing onstock exchange. Such investments maytake varied forms and are normallydone with a medium-term view.The SICAR may also marginally enterinto financial derivative instrumentson an exceptional basis.Temporary investment in other assetsis allowed pending investment in riskcapital.No risk diversification requirements.Securitization of risks linked to allkinds of assets, whether movable orimmovable, tangible or intangible aswell as risks relating to obligations orliabilities assumed by third parties orrelating to all or part of the activitiesof a third party. Such risks can betaken on by the securitization vehiclethrough the acquisition of assets, thesecuring or guaranteeing of liabilities,or the entering into any kind ofobligation.No risk diversification requirements.SICAV / SICAF (SA,SCA,Sàrl, SCoSA)FCPStructures may be open or closedended.Corporate entity with fixed or variableshare capital (SA,SCA,Sàrl, SCoSA,SCS)Yes Yes YesSecuritization company(SA, SCA, Sàrl, SCoSA)Public offering may only be conductedunder the structure of a SA or SCA.Securitization fund(FCP, Fiduciary trust)

Legal and regulatory requirements6Substance requirementsin LuxembourgRequired serviceproviders in LuxembourgPart I Fund (UCITS)Head office of SICAV/ SICAF or of themanagement company of the FCP must be inLuxembourg.No nationality or residency requirements forDirectors of funds which have appointed amanagement company.General requirement for one of the twoconducting officers of the managementcompany or self-managed SICAV to belocated in Luxembourg.DepositaryCentral administrationRéviseur d’entreprisesPart II Fund (UCI)Head office of SICAV/ SICAF or of themanagement company of the FCP must bein Luxembourg.No nationality or residency requirementsfor Directors of funds or managementcompany.DepositaryCentral administrationRéviseur d’entreprisesMinimum capitalrequirement for fund/company€ 1,250,000 to be reached within 6 monthsof authorization.Self-managed SICAV/SICAF:€ 300,000 at the date of authorization and€ 1,250,000 to be reached within 6 monthsof authorization.€ 1,250,000 to be reached within 6 monthsof authorization.Management companyrequirementFCPYes (Chapter 13 of the Fund law)FCPYes (Chapter 14 of the Fund law)Minimum capitalrequirement formanagement companyRisk managementSICAV/SICAFMay appoint a management company or beset-up as a self-managed SICAV (chapter 13of the Fund law).Initial capital : € 125,000Additional capital: 0.02% of the value ofthe portfolios managed by the managementcompany in excess of € 250,000,000.Initial capital and additional capital arecapped to € 10,000,000.Possibility to reduce capital need by 50% ifa guarantee is received from a bank or aninsurance company.The risk management function is regulatedbased on CSSF Circular 07/308.SICAV/SICAFNo€ 125,000The risk management function is notregulated.

7SIF SICAR Securitization vehicle – regulatedHead office of SICAV/ SICAF or ofthe management company of the FCPmust be in Luxembourg.No nationality or residencyrequirements for Directors of funds orChapter 14 management company.General requirement for one ofthe two conducting officiers of theChapter 13 management company tobe located in Luxembourg.DepositaryCentral administrationRéviseur d’entreprisesHead office of the SICAR must be inLuxembourg.No nationality or residencyrequirements for Directors.DepositaryCentral administrationRéviseur d’entreprisesHead office of securitization companyor of the management company ofthe securitization fund must be inLuxembourg.No nationality or residencyrequirements for Directorsof securitization company ormanagement company.DepositaryAdministrative agentRéviseur d’entreprises€ 1,250,000 to be reached within12 months of authorization.FCPYes (Chapter 13 or Chapter 14 of theFund law)SICAV/SICAFNoTotal of subscribed share capitaland share premium of e 1,000,000to be reached within 12 months ofauthorization.NoSecuritization fundNo minimum requirement.Securitization companySA/SCA: € 31.000Sàrl: € 12.500SCoSA: no minimum requirement.Securitization fundYes (Commercial Law)Securitization companyNo€ 125,000For Chapter 13 managementcompanies, additional capital basedon the assets under management isrequired if in excess of€ 250,000,000.— Will depend on the legal form chosen.The minimum capital will range from€ 12,500 for a Sàrl to € 31,000 for aSA.The risk management function is notregulated.The risk management function is notregulated.The risk management function is notregulated.

Shareholding8Part I Fund (UCITS)Part II Fund (UCI)Eligible investors All types All typesListing Possible PossibleCapital callsFCPCapital calls can be made either by wayof capital commitments or through theissue of partly paid units. The law doesnot prescribe the minimum percentage ofpayment of the unit.FCPCapital calls can be made either by wayof capital commitments or through theissue of partly paid units. The law doesnot prescribe the minimum percentage ofpayment of the unit.SICAVCapital calls may only be made by way ofcapital commitments as partly paid sharesare not allowed for a SICAV.SICAVCapital calls may only be made by way ofcapital commitments as partly paid sharesare not allowed for a SICAV.SICAFIf the SICAF is set up as a SA or SCA,capital calls can be organized throughcapital commitment or by way of the issueof partly paid shares. At least 25% of eachshare must be paid-up.SICAFFor a Sàrl capital calls may only be madeby way of capital commitments as partlypaid shares are not allowed. If the SICAFis set up as a SA, SCA or SCS, capitalcalls can be organized through capitalcommitment or by way of the issue ofpartly paid shares.At least 25% of each share must be paid-up.

9SIF SICAR Securitization vehicle – regulatedWell-informed investors Well-informed investors All typesPossible Possible PossibleFCPCapital calls may be made by wayof capital commitments or throughthe issue of partly paid units. Thelaw does not prescribe the minimumpercentage to which each unit must bepaid-up.Capital calls may be made by way ofcapital commitments or through theissue of partly paid shares. At least5% of each share must be paid-up.Securitization fundCapital calls can be made eitherby way of capital commitments orthrough the issue of partly paidshares. The law does not prescribe theminimum percentage to which eachshare must be paid-up.SICAVCapital calls may be done by way ofcapital commitments or through theissue of partly paid shares. At least5% of each share must be paid-up.SICAFCapital calls may be done by way ofcapital commitments or through theissue of partly paid shares. At least5% of each share must be paid-up.Securitization companyPartly paid shares are not allowed forthe Sàrl and SCoSA so capital callsmust be organized through capitalcommitment. If the company is set upas a SA or SCA, capital calls can beorganized through capital commitmentor by way of the issue of partly paidshares. At least 25% of each sharemust be paid-up.

Shareholding10Issue of shares / unitsPart I Fund (UCITS)FCPUnits must be issued at the NAV price.Such price may be increased by expensesand commissions.Existing unitholders do not have apre-emption right when new units areissued, unless specifically provided for inthe Management Regulations.Part II Fund (UCI)FCPUnits must be issued at the NAV price.Such price may be increased by expensesand commissions.Existing unitholders do not havea pre-emption right when new units areissued, unless specifically provided for inthe Management Regulations.SICAVThe issue of shares does not require anamendment of the Articles.Shares must be issued at the NAV price.Such price may be increased by expensesand commissions.Existing shareholders do not have apre-emption right when new shares areissued, unless specifically provided for inthe Articles.SICAVThe issue of shares does not require anamendment of the Articles.Shares must be issued at the NAV price.Such price may be increased by expensesand commissions.Existing shareholders do not havea pre-emption right when new shares areissued, unless specifically provided for inthe Articles.SICAFThe issue of shares requires an amendmentof the Articles.The share price will be determined based onthe principles laid down in the Articles.When the SICAF is organized as a SAor SCA, existing shareholders have apre-emption right when new shares areissued, unless this right was waived by theShareholders’ Meeting.SICAFThe issue of shares requires an amendmentof the Articles.The share price will be determined based onthe principles laid down in the Articles.When the SICAF is organized as a SAor SCA, existing shareholders have apre-emption right when new shares areissued, unless this right was waived by theShareholders’ Meeting.Distribution of dividendsThe distribution of dividends must beforeseen in the prospectus of the fund.For SICAV and FCP, distributions (interimor final) can be made irrespective of therealized results within the period, tothe extent the minimum share capital ismaintained.For SICAF, final dividend distributionsmay not result in a decrease in assets toan amount less than one-and-a- half timesthe fund’s total liabilities to its creditors.Interim dividend distributions are subject tostatutory requirements per Article 72-2 ofthe Commercial Law.The distribution of dividends must beforeseen in the prospectus of the fund.For SICAV and FCP, distributions (interimor final) can be made irrespective of therealized results within the period, tothe extent the minimum share capital ismaintained.For SICAF, final dividend distributionsmay not result in a decrease in assets to anamount less than one-and-a- half times thefund’s total liabilities to its creditors.Interim dividend distributions are subject tostatutory requirements per Article 72-2 ofthe Commercial Law.

11SIF SICAR Securitization vehicle – regulatedFCPThe unit price will be determinedbased on the principles laid down inthe Management Regulations.Existing unitholders do not havea pre-emption right when new unitsare issued, unless specifically providedfor in the Management Regulations.SICAVThe issue of shares does not require anamendment of the Articles.The share price will be determinedbased on the principles laid down inthe Articles.Existing shareholders do not havea pre-emption right when new sharesare issued, unless specifically providedfor in the Articles.SICAFThe issue of shares requires anamendment of the Articles.The share price will be determinedbased on the principles laid down inthe Articles.When the SICAF is organized as aSA or SCA, existing shareholdershave a pre-emption right when newshares are issued, unless this right waswaived by the Shareholders’ Meeting.The distribution of dividends must beforeseen in the prospectus of the fund.For SICAV and FCP, distributions(interim or final) can be madeirrespective of the realized resultswithin the period, to the extent theminimum share capital is maintained.For SICAF, final dividend distributionsmay not result in a decrease in assets toan amount less than one-and-a- half timesthe fund’s total liabilities to its creditors.Interim dividend distributions aresubject to statutory requirements perArticle 72-2 of the Commercial Law.The issue of new shares requires anamendment of the Articles unless theSICAR is set-up with variable sharecapital.The share price will be determinedbased on the principles laid down inthe Articles.The issue of new shares will beconducted as provided for in theArticles. The existing shareholders willhave a pre-emption right if specificallyprovided for in the Articles.The distribution of dividends mustbe foreseen in the prospectus of theSICAR.Dividend distributions, interimand final, are not subject to specificregulatory requirements, except forcompliance with minimum capitalrequirements.Securitization fundThe unit price will be determinedbased on the principles laid down inthe Management Regulations.Existing unitholders do not havea pre-emption right when new unitsare issued, unless specifically providedfor in the Management Regulations.Securitization companyThe issue of new shares requires anamendment of the Articles.The share price will be determinedbased on the principles laid down inthe Articles.When the securitization company isorganized as a SA or SCA, existingshareholders have a pre-emption rightwhen new shares are issued, unlessthis right was waived by the Shareholders’Meeting.Securitization fundThere are no restrictions ondistributions (interim or final).Securitization companyFinal dividend distribution may notresult in a decrease in assets to anamount less than the subscribedcapital plus non-distributable reserves.Interim dividend distributions aresubject to statutory requirements perArticle 72-2 of the Commercial Law.

Reporting requirements12Prospectus directiveas transposed into theLuxembourg lawPart I Fund (UCITS)Closed-endedPart I funds may not be closed-ended.Part II Fund (UCI)Closed-endedA prospectus prepared in compliancewith the requirements of the ProspectusDirective must be prepared when an “offerto the public” within the meaning of theProspectus Directive is made except ifthe offer falls under any exemption ofthe Prospectus Directive. In that case, aprospectus must be prepared in accordancewith the Fund law.Open-endedPart I funds may make a public offer onthe basis of their prospectus prepared inaccordance with the requirements of theFund law.This prospectus must be updated on anongoing basis.Open-endedPart II funds may make a public offer onthe basis of their prospectus prepared inaccordance with the requirements of theFund law.This prospectus must be updated on anongoing basis.Simplified prospectus Required Not requiredNAV computationfrequencyNAV must be computed on each day thereare subscriptions or redemptions with aminimum of twice a month.NAV must be computed on each day thereare subscriptions or redemptions with aminimum of once a month.

13SIF SICAR Securitization vehicle – regulatedClosed-endedA prospectus prepared in compliancewith the requirements of the ProspectusDirective must be prepared whenan “offer to the public” within themeaning of the Prospectus Directive ismade except if the offer falls under anyexemption of the Prospectus Directive.In that case, a prospectus must beprepared in accordance with the SIF law.A prospectus prepared in compliancewith the requirements of theProspectus Directive must be preparedwhen an “offer to the public” withinthe meaning of the ProspectusDirective is made except if the offerfalls under any exemption of theProspectus Directive.A prospectus prepared in compliancewith the requirements of the ProspectusDirective must be prepared whenan “offer to the public” within themeaning of the Prospectus Directive ismade except if the offer falls under anyexemption of the Prospectus Directive.Open-endedSIF may make a public offer on thebasis of their prospectus prepared inaccordance with the requirements ofthe SIF law.This prospectus must be up-to-datewhen new securities are issued to newinvestors.A SICAR that makes an offer underan exemption of the prospectusDirective must prepare a prospectuscompliant with the SICAR law.This prospectus must be updated eachtime new securities are issued.There are no specific requirementswhen an offer falls under an exemptionof the Prospectus Directive.Not required Not required Not requiredNAV is computed on the frequencyset in the Articles or ManagementRegulations.Not requiredSecuritization fundNot requiredSecuritization companyNot required

Reporting requirements14Valuation principlesPart I Fund (UCITS)Valuation of assets is made on the basisof the realizable value estimated in goodfaith, unless provided for differently in theArticles or Management Regulations.Part II Fund (UCI)Valuation of assets is made on the basisof the realizable value estimated in goodfaith unless provided for differently in theArticles or Management Regulations.Financial reportsAudited annual report is required within4 months of the year-end.Semi-annual report due within 2 months ofthe 6 month period-end.Audited annual report is required within4 months of the year-end.Semi-annual report due within 2 months ofthe 6 month period-end.Generally acceptedaccounting principlesAnnual reportLux GAAP only, i.e. provisions of the lawof 19 December 2002 except for :• The content and layout of the annualreport.• The valuation of assets which is ruled byarticles 9§3, 28§4, 40, 71, 75§5 of theFund law.Annual reportLux GAAP only, i.e. provisions of the law of19 December 2002 except for :• The content and layout of the annualreport.• The valuation of assets which is ruled byarticles 9§3, 28§4, 40, 71, 75§5 of theFund law.Semi-annual reportLux GAAP only, i.e. provisions of the lawof 19 December 2002 except for :• The content and layout of the annualreport.• The valuation of assets which is ruled byarticles 9§3, 28§4, 40, 71, 75§5 of theFund law.Semi-annual reportLux GAAP only, i.e. provisions of the law of19 December 2002 except for :• The content and layout of the annualreport.• The valuation of assets which is ruled byarticles 9§3, 28§4, 40, 71, 75§5 of theFund law.

15SIF SICAR Securitization vehicle – regulatedAssets are to be valued at fair valueto be determined in compliance withthe rules detailed in the Articles orManagement Regulations.Audited annual report is requiredwithin 6 months of the year-end.No semi-annual report is required.If a closed-ended SIF is listed on anEU regulated market the deadlinesmay be shorter.Annual reportLux GAAP only, i.e. provisions of thelaw of 19 December 2002 except for :• The content and layout of theannual report.• The valuation of assets which isruled by articles 9, 28§4, 40§1 ofthe SIF law.Semi-annual reportNot requiredAssets are to be valued at fair value tobe determined in compliance with therules detailed in the Articles.Audited annual report is requiredwithin 6 months of the year-end.No semi-annual report is required.If the entity has securities listed onan EU regulated market the deadlinesmay be shorter.Annual reportLux GAAP only, i.e. provisions of thelaw of 19 December 2002 except forthe valuation of assets which is ruledby article 5§3 of the SICAR law.Semi-annual reportNot requiredSecuritization fundValuation of assets is made on thebasis of the realizable value estimatedin good faith unless providedfor differently in the Articles orManagement Regulations.Securitization companyValuation of assets is made at thelower of acquisition cost or marketvalue or at acquisition cost less anypermanent impairment considered bythe Board of Directors.Securitization fundSame requirements as for the FCP.Securitization companyAudited annual report is required atyear-end. It must be available 15 daysbefore the Annual General meetingof shareholders and filed with theRegistrar within 7 months of the yearend.No semi-annual report is required.If the entity has securities listed onan EU regulated market the deadlinesmay be shorter.Annual reportSecuritization fundLux GAAP only, i.e. provisions of thelaw of 19 December 2002 except for :• The content and layout of theannual report.• The valuation of assets which isruled by articles 9§3, 28§4, 40, 71,75§5 of the Fund law.Securitization companyLux GAAP only, i.e. provisions of thelaw of 19 December 2002.

Reporting requirements16Other reportsConsolidationIFRSPart I Fund (UCITS)Long-form report to be issued by theauditor with the annual report inaccordance with CSSF Circular 02/81.No exemption granted – normallynot required due to diversificationrequirements.Annual accounts• SICAV / SICAFIFRS allowed upon request to the“Commission des Normes Comptables”.• FCPIFRS allowed if provided for in theprospectus approved by the CSSF.Part II Fund (UCI)Long-form report to be issued by theauditor with the annual report inaccordance with CSSF Circular 02/81.No exemption granted.Annual accounts• SICAV / SICAFIFRS allowed upon request to the“Commission des Normes Comptables”.• FCPIFRS allowed if provided for in theprospectus approved by the CSSF.Consolidated accountsIFRS is mandatory if the company is listedin accordance with the EU regulation1606/2002.Consolidated accountsIFRS is mandatory if the company is listedin accordance with the EU regulation1606/2002.

17SIF SICAR Securitization vehicle – regulatedNone None NoneThe law contains an exemption toprepare consolidated accounts for theSIF and its subsidiaries.Annual accounts• SICAV / SICAFIFRS allowed upon request tothe “Commission des NormesComptables”.• FCPIFRS allowed if provided for in theprospectus approved by the CSSF.The law contains an exemption forthe SICAR to prepare consolidatedaccounts.Annual accountsIFRS allowed upon request tothe “Commission des NormesComptables”.No exemption granted.Annual accountsIFRS allowed upon request tothe “Commission des NormesComptables”.Consolidated accountsIFRS is mandatory if the companyis listed in accordance with the EUregulation 1606/2002.Consolidated accountsIFRS is mandatory if the companyis listed in accordance with the EUregulation 1606/2002.Consolidated accountsIFRS is mandatory if the companyis listed in accordance with the EUregulation 1606/2002.

Approval and supervision18Part I Fund (UCITS)Part II Fund (UCI)Promoter requirement Yes YesSupervision by CSSF Yes YesRegular reporting toCSSFYesMonthly with due date the 10th of the nextmonth.Annually with due date four months afteryear-end.Details on reporting contained in CSSFCircular 97/136 as modified by CSSFCircular 08/348.YesMonthly with due date the 10th of the nextmonth.Annually with due date four months afteryear-end.Details on reporting contained in CSSFCircular 97/136 as modified by CSSFCircular 08/348.Approval processCreation of a fund is subject to priorapproval by the CSSF of:• Articles or Management Regulations,full and simplified prospectus and mainagreements with service providers.• Directors of the fund or managers of themanagement company.• Choice of Depositary and Auditor.• Promoter’s experience and financialsoundness.Creation of a fund is subject to priorapproval by the CSSF of:• Articles, or Management Regulations,prospectus and main agreements withservice providers.• Directors of the fund or managers of themanagement company.• Choice of Depositary and Auditor.• Promoter’s experience and financialsoundness.

19SIF SICAR Securitization vehicle – regulatedNo No NoYes Yes YesYesMonthly with due date the 10th ofthe next month based on the latestavailable NAV (when NAV is notcalculated monthly)Annually with due date six monthsafter year-end.Details on reporting contained inCSSF Circular 07/310 as modified byCSSF Circular 08/348.Creation of a SIF is not subject toprior approval of the CSSF.An authorization file must besubmitted to the CSSF within themonth following the creation of theSIF. The authorization will be grantedsubject to:• Approval of the constitutionaldocuments.• Approval of the choice ofDepositary and Auditor.• Notification of the Directorsof the fund or managers of themanagement company.YesTwice a year, as at June 30 andDecember 31 with due date 45calendar days subsequent to thereference date of the report.Details on reporting contained inCSSF circular 08/376.Creation of a SICAR is not subject toprior approval of the CSSF.An authorization file must besubmitted to the CSSF within themonth following the creation of theSICAR. The authorization will begranted subject to:• Approval of the Articles orManagement Regulations.• Approval of the choice ofDepositary and Auditor.• Notification of the Directors ofthe SICAR or managers of themanagement company.Yes (only applicable for regulatedvehicles that issue securities to thepublic on a continuous basis – forothers no requirements)When issued :• Final documents relating to eachissue.• Financial statements prepared forinvestors and rating agencies.• Annual audited report.Half-yearly :• Details on the issuing activities andsituation as at half-year.• Financial situation including assetsand liabilities.At year-end :• Balance sheet and profit and lossaccount.Creation of a securitization vehicle issubject to prior approval by the CSSF of:• Articles or Management Regulationsand main agreements with serviceproviders.• Directors of the company ormanagers of the managementcompany.• Choice of Depositary and Auditor.Notification is required of :• Investors that may have a significantinfluence on the business conduct.• Initiation of the securitizationscheme.

Taxation20Part I Fund (UCITS)Part II Fund (UCI)Income tax Tax exempt Tax exemptWithholding tax ondividends and capitalgainsNot subject to withholding tax except ifEU savings directive applies.Not subject to withholding tax except ifEU savings directive applies.Subscription tax• 0.05% of NAV for equity fund.• 0.01%of NAV for money market cashfunds and institutional fund.• Exemption for special institutionalmoney market cash funds, pensionfunds and funds investing in other fundsalready subject to the subscription tax.• 0.05% of NAV for equity fund.• 0.01%of NAV for money market cashfunds and institutional fund.• Exemption for special institutionalmoney market cash funds, pensionfunds and funds investing in other fundsalready subject to the subscription tax.Net wealth tax Tax exempt Tax exemptCapital duty No proportional capital duty No proportional capital dutyValue Added tax (VAT) Tax exemption on management services. Tax exemption on management services.Double Taxation Treaties(DTT)FCPNo access to DTT signed by Luxembourg;exception Ireland.FCPNo access to DTT signed by Luxembourg;exception Ireland.SICAV/SICAFLimited to some DTTs.Applicability of DTTs is determined bya decision taken by the Luxembourgfiscal authorities, but without practicalexperience on the exact classification thatmay be adopted by the other countries.SICAV/SICAFLimited to some DTTs.Applicability of DTTs is determined bya decision taken by the Luxembourgfiscal authorities, but without practicalexperience on the exact classification thatmay be adopted by the other countries.

21SIF SICAR Securitization vehicle – regulatedTax exemptNot subject to withholding tax exceptif EU savings directive applies.sTax exemption for income derivedfrom transferable securities.Tax exemption for one year forincome on cash held for the purposeof a future investment.The remaining income is subject to theordinary income tax of 28,59 %(Municipal Business Tax + CorporateIncome Tax - Luxembourg city 2010).Not subject to withholding tax exceptif EU savings directive applies.Securitization companyFully taxable at a rate of 28,59%(Municipal Business Tax + CorporateIncome Tax - Luxembourg city 2010).A reduction of the taxable income toclose to e 0 is possible (engagementsmade to investors and other creditorsare fully tax deductible).Securitization fundTax exemptNot subject to withholding tax exceptif EU savings directive applies.• Annually 0.01% of NAV.• Tax exemption possible for certainmoney market and pension fundsor SIFs investing in other fundsalready subject to subscription tax.No subscription tax.Securitization companyNo subscription tax.Securitization fundTax exemption.Tax exempt Tax exempt Tax exemptNo proportional capital duty No proportional capital duty No proportional capital dutyTax exemption on managementservices.FCPNo access to DTT signed byLuxembourg; exception Ireland.SICAV/SICAFLimited to some DTTs.Applicability of DTTs is determined bya decision taken by the Luxembourgfiscal authorities, but without practicalexperience on the exact classificationthat may be adopted by the othercountries.Tax exemption on managementservices.SICAR in the form of a corporateentity (all types except the SCS)should benefit from the Luxembourgdouble tax treaty network.Tax exemption on managementservices.Securitization companyYes (all types except the SCS).Securitization fundNo access to DTT.

Glossary of terms22ArticlesArticles of incorporation of a Company / Fund.Closed-ended fundA fund which is not open to redemptions.Commercial LawThe Law dated 10 August 1915 on commercial companies, as amended.CSSFCommission de Surveillance du Secteur Financier, the Luxembourg financial supervisoryauthority.FCPFonds Commun de Placement, an unincorporated co-ownership of assets managed by amanagement company.IFRSInternational Financial Reporting Standards.Lux GAAPLuxembourg Generally Accepted Accounting Principles.NAVNet Asset Value.Offer to the public“Offer to the public” within the meaning of the Prospectus Directive:a communication that is addressed in any form or by any means to individuals andcontaining sufficient information on the conditions of the offer and on the shares offered, sothat the investor is in a position to decide on the purchase or subscription of those shares.This definition also applies to the placement of shares by financial intermediaries.Open-ended fundA fund that is open to redemptions.Part I fundA fund that complies with Part I of the law of 20 December 2002, also referred to as UCITS(Undertakings for Collective Investment in Transferable Securities).Part II fund A fund that complies with Part II of the law of 20 December 2002.Prospectus DirectiveDirective 2003/71/EC (amending Directive 2001/34/EC) on the prospectus to be publishedwhen securities are offered to the public or admitted to trading,as transposed into Luxembourg law.

23Well-informed investor A well-informed investor must be either :• An institutional investor:Undertakings and organizations that manage an important amount of funds and assets.This concept covers inter alia credit institutions and other financial sector professionals,insurance and re-insurance undertakings, welfare institutions and pension funds, industrialand financial groups and structures put in place by these entities to manage an importantamount of funds and assets.• Or a professional investorAny professional investor within the meaning of Annex II to the Directive 2004/39 onmarkets in financial instruments.• Or an investor who has adhered in writing to the status of well-informed investor andcomplies with one of the following conditions:- he invests at least 125,000 in the fund /company,- his expertise is confirmed by a banking institution as defined in Directive 2006/48/EC,by an investment firm as defined in Directive 2004/39/EC or bya management company as defined in Directive 2001/107/EC.SASociété Anonyme (public limited company).SàrlSociété à Responsabilité Limitée (private limited company).SCASociété en Commandite par Actions (partnership limited by shares).SCoSASociété Coopérative organisée comme une Société Anonyme(cooperative company organized as a public limited company).SCSSociété en Commandite Simple (limited partnership).SICAFSociété d’Investissement à Capital Fixe (investment company with fixed capital).SICARSociété d’Investissement en Capital à Risque (investment company in risk capital).SICAVSociété d’Investissement à Capital Variable (investment company with variable capital).SIF Specialised investment fund, compliant with the law of 13 February 2007.UCITSUndertakings for Collective Investments in Transferable Securities.

24The Association of theLuxembourg Fund Industry(ALFI), the representativebody for the Luxembourginvestment fund community,was founded in 1988.Today it brings together the interests ofover a thousand Luxembourg-domiciledinvestment funds, asset managementcompanies, and more than 190 companiesactive in the Luxembourg fund industry.These represent a wide variety of serviceproviders, including depositary banks, fundadministrators, transfer agents, distributors,law firms, consultants, tax advisers, auditorsand accountants, specialist IT providersandcommunications agencies.Luxembourg is the largest fund domicilein Europe and its investment fund industryis a world leader in cross-border funddistribution. Luxembourg-domiciledinvestment structures are distributed inover 50 countries around the globe, witha particular focus on Europe, Asia, LatinAmerica and the Middle East.ALFI defines its mission asto “Lead industry effortsto make Luxembourgthe most attractiveinternational centre”.Our main objectives are to:• Help members capitaliseon industry trendsALFI’s many technical committees andworking groups constantly review andanalyse developments worldwide, as well aslegal and regulatory changes in Luxembourg,the EU and beyond, to identify threats andopportunities for the Luxembourg fundindustry.• Shape regulationAn up-to-date, innovative legal and fiscalenvironment is critical to defend and improveLuxembourg’s competitive position as acentre for the domiciliation, administrationand distribution of investment funds. Strongrelationships with regulatory authorities,the government and enable ALFI to makean effective contribution to decision-makingthrough relevant input on changes to theregulatory framework, implementation ofEuropean directives and regulation of newproducts or services.• Foster dedication to professionalstandards, integrity and qualityInvestor trust is essential for success incollective investment services, and ALFI thusdoes all it can to promote high professionalstandards, quality products and services,and integrity. Action in this area includesorganizing training at all levels, definingcodes of conduct, promoting transparencyand good corporate governance, andsupporting initiatives to combat moneylaundering.• Promote the Luxembourginvestment fund industryALFI actively promotes the Luxembourginvestment fund industry, its products and itsservices. We represent the sector in economicand financial missions organised by theLuxembourg government around the worldand take an active part in meetings of theglobal fund industry.For more information, visit our website atwww.alfi .lu

The information contained herein is of a general nature and isnot intended to address the circumstances of any particularindividual or entity. Although we endeavour to provide accurateand timely information, there can be no guarantee that suchinformation is accurate as of the date it is received or that itwill continue to be accurate in the future. No one should act onsuch information without appropriate professional advice aftera thorough examination of the particular situation.© 2010 KPMG S.à r.l., a Luxembourg privatelimited company, is a subsidiary of KPMG EuropeLLP and a member of the KPMG network ofindependent member firms affiliated with KPMGInternational Cooperative (“KPMG International”),a Swiss entity. All rights reserved. KPMG and theKPMG logo are registered trademarks of KPMGInternational. Printed in Luxembourg.

alfi | association of the B.P. 206 Tel: +352 22 30 26 - 1 info@alfi.luluxembourg fund industry L-2012 Luxembourg Fax: +352 22 30 93 www.alfi.lu