law of 20 December 2002 - Alfi

Undertakingsfor collective investment2 0 0 9 E d i t i o n

Undertakings for collective investmentEdition 2009

Published by the SOCIETE DE LA BOURSE DE LUXEMBOURG S.A. and the AssociationLuxembourgeoise des Fonds d’Investissement and containing the Luxembourglaws and regulations regarding undertakings for collective investment as well as the relatedcirculars of the supervisory authority.In case of divergence between this translation and the original French text, the French textshall prevail.

INTRODUCTIONBetween 1986 and 2008, the Luxembourg Stock Exchange published and distributed aFrench-English and subsequently French-English-German textbook of the Luxembourg legislationgoverning undertakings for collective investment. The textbook had eight subsequentand successful editions with an overall print of 40,000 copies. For its part, the publication hascontributed to the growth of the financial centre’s activity in connection with the segment ofundertakings for collective investment and, given its concept and contents, it has become amajor reference for the professionals operating in the undertakings for collective investmentsector.Due to this experience and in order to meet local professionals’ requests, the LuxembourgStock Exchange has decided to publish an update of the textbook with the collaboration ofthe Luxembourg Association of Investment Funds. In its updated version, the textbook ispublished in English, French and German, each comprising the law of 20 December 2002on undertakings for collective investment and the related regulatory texts. The publicationincludes footnotes and an index in alphabetical order.The updated textbook is the result of an active cooperation between two reputed local lawfirms, Arendt & Medernach and Elvinger, Hoss & Prussen, that have compiled the legal andregulatory texts and prepared the English and German translations.The Luxembourg Stock Exchange and the Luxembourg Association of Investment Fundswelcome this cooperation which enables the financial sector to be provided with an updatedreference document to contribute to a continued growth of the fund industry in Luxembourg.Both the Luxembourg Stock Exchange and the Luxembourg Association of Investment Fundsextend their gratitude to all those who have contributed to the release of this present publication.Luxembourg, 20th May 2009

TABLE OF CONTENTSLAW DATED 20 DECEMBER 2002 RELATING TO UNDERTAKINGS FOR COLLECTIVEINVESTMENTIntroductory part Definitions (Article 1)… ………………………………………………… 10Part I. UCITS …………………………………………………………………… 14Chapter 1. General provisions and scope (Articles 2 to 4)……………… 14Chapter 2. Common funds in transferable securities(Articles 5 to 24)………………………………………………… 15Chapter 3. SICAVs in transferable securities (Articles 25 to 38)… …… 19Chapter 4. Other investment companies in transferable securities(Articles 39 and 40)… ………………………………………… 24Chapter 5. Investment policy of a UCITS (Articles 41 to 52)…………… 25Chapter 6. UCITS situated in Luxembourg which market their unitsin other Member States of the European Union(Articles 53 to 57)… …………………………………………… 32Chapter 7. UCITS situated in other Member States of the EuropeanUnion which market their units in Luxembourg(Articles 58 to 62)… …………………………………………… 33Part II. Other UCIs …………………………………………………………………… 34Chapter 8. Scope (Articles 63 and 64)… ………………………………… 34Chapter 9. Common funds (Articles 65 to 68)… ………………………… 34Chapter 10. SICAVs (Articles 69 to 72)… ………………………………… 36Chapter 11. UCIs which have not been constituted as common fundsor SICAVs (Articles 73 to 75)… ……………………………… 37Part III. Foreign UCIs …………………………………………………………………… 38Chapter 12. General provisions and scope (Article 76)………………… 38Part IV. The authorisation of management companies… …………………………… 39Chapter 13. Management companies managing UCITS governed byDirective 85/611/EEC (Articles 77 to 90)… ………………… 39Chapter 14. Other management companies of Luxembourg UCIs(Articles 91 and 92)… ………………………………………… 48Part V. General provisions applicable to UCITS and other UCIs…………………… 49Chapter 15. Authorisation (Articles 93 to 96)… …………………………… 49Chapter 16. Organisation of supervision (Articles 97 to 108)… ………… 50Chapter 17. Obligations concerning information to be supplied tounitholders (Articles 109 to 119)……………………………… 58Chapter 18. Criminal law provisions (Articles 120 to 126)… …………… 62Chapter 19. Tax provisions (Articles 127 to 131)… ……………………… 64Chapter 20. Special provisions in relation to the legal form(Articles 132 to 133 bis)… …………………………………… 66Chapter 21. Transitional and repealing provisions(Articles 134 to 138)… ………………………………………… 673

Annex I …………………………………………………………………… 69Schedule A Information to be included in the prospectus……………… 69Schedule B Information to be included in the periodical reports………… 74Schedule C Contents of the simplified prospectus……………………… 76Annex IIFunctions included in the activity of collective portfoliomanagement… ………………………………………………… 78GRAND-DUCAL REGULATION OF 14 APRIL 2003 ESTABLISHING THETERMS AND AMOUNT OF THE FIXED CAPITAL DUTY PAYABLE PURSUANTTO ARTICLE 128 OF THE LAW OF 20 DECEMBER 2002 RELATING TOUNDERTAKINGS FOR COLLECTIVE INVESTMENT……………………………………… 79GRAND-DUCAL REGULATION OF 14 APRIL 2003 DETERMINING THECONDITIONS AND CRITERIA FOR THE APPLICATION OF THE SUBSCRIPTIONTAX REFERRED TO IN ARTICLE 129 OF THE LAW OF 20 DECEMBER 2002RELATING TO UNDERTAKINGS FOR COLLECTIVE INVESTMENT………………… 80Grand-Ducal Regulation of 08 February 2008 relating tocertain definitions of the law of 20 December 2002 as amendedconcerning undertakings for collective investment andimplementing the Directive 2007/16/EC of the European Commissionimplementing Council Directive 85/611/EEC on the coordinationof laws, regulations and administrative provisions relatingto undertakings for collective investment in transferablesecurities (UCITS) as regards the clarification of certaindefinitions… ………………………………………………………………………………… 81IML CIRCULAR 91/75 OF 21 JANUARY 1991……………………………………………… 90Chapter A. Purpose and scope of the law of 30 March 1988… ………………………… 91Chapter B. Definition of the meaning of UCI… …………………………………………… 92I. Criteria by which the meaning of UCI is being defined… ……………… 92II. Practical application of the criteria retained for the definition of themeaning of UCI……………………………………………………………… 92Chapter C. Classification of the UCIs situated in Luxembourg… ……………………… 94I. Definition of the UCIs governed by Part I of the law of30 March 1988……………………………………………………………… 94II. Definition of the UCIs governed by Part II of the law of30 March 1988……………………………………………………………… 94III. Status of UCITS (Part I) and of other UCIs (Part II) in the Europeancontext… …………………………………………………………………… 96Chapter D. Rules concerning the central administration of Luxembourg UCIs……… 97I. Definition of the meaning of central administration in Luxembourg.… 97II. Organisation of the central administration in Luxembourg…………… 97III. Execution of the accounting and administrative duties referred to bythe meaning of central administration in Luxembourg… ……………… 984

Chapter E. Rules concerning the depositary of a Luxembourg UCI… ………………… 105I. Conditions of admission to the activity of the depositary… …………… 105II. General mission of the depositary………………………………………… 105III. Specific duties of the depositary………………………………………… 106IV. Liability of the depositary…………………………………………………… 108Chapter F.Chapter G.Rules applicable to UCITS governed by Part I of the law of30 March 1988… ……………………………………………………………… 110I. Intervals at which the issue and redemption prices must be determined… 110II. Redemption by UCITS of their units or shares… ……………………… 110III. Requirements in respect of the constitution of assets… ……………… 110IV. Borrowings…………………………………………………………………… 112v. Method of calculation of the investment limits provided for by Chapter5 of the law of 30 March 1988… ………………………………………… 112Rules applicable to UCITS subject to Part II of the law of30 March 1988… ……………………………………………………………… 113I. Intervals at which the issue and redemption prices must be determined… 113II. Investment limits… ………………………………………………………… 113III. Borrowings…………………………………………………………………… 114IV. Provisions applicable to UCITS which are subject to Chapter 11 of thelaw of 30 March 1988… …………………………………………………… 114Chapter H. Rules applicable to all UCITS… ……………………………………………… 115I. Techniques and instruments relating to transferable securities… …… 115II. Techniques and instruments intended to hedge currency risks to whichUCITS are exposed in the management of their assets andliabilities……………………………………………………………………… 119Chapter I. Rules applicable to UCIs other than UCITS… ……………………………… 120I. Rules of the particular regime applicable to UCIs the principal objectof which is the investment in venture capital… ………………………… 120II. Rules of the particular regime applicable to UCIs the principal objectof which is the investment in futures contracts (commodity futures and/or financial futures) and/or in options… ………………………………… 122III. Rules of the particular regime applicable to UCIs the principal objectof which is the investment in real estate assets… ……………………… 123Chapter J. Rules applicable to multiple compartment UCIs… ………………………… 127I. General principle… ………………………………………………………… 127II. Common funds……………………………………………………………… 127III. Investment companies… ………………………………………………… 128IV. Common rules to all multiple compartment UCIs… …………………… 129Chapter K.Contents of the file in support of the application for authorisation ofUCIs… …………………………………………………………………………… 1305

Chapter L. Information and advertisement documents intended for investors………… 131I. Prospectus………………………………………………………………… 131II. Advertising documents… ………………………………………………… 132III. Financial reports… ………………………………………………………… 132IV. Use of the prospectus and periodical reports…………………………… 133Chapter M. Financial information intended for the CSSF and the Statec… ………… 135I. Content of the monthly and annual financial information… …………… 135II. Collection of data provided for by tables O 1.1., O 4.1. and O 4.2.……… 135III. Reference date……………………………………………………………… 136IV. Delay for transmission…………………………………………………… 136v. Currency used in the statement………………………………………… 136vI. Undertakings for collective investment with multiple compartments… 136vII. Identification number… …………………………………………………… 137vIII. Reference period…………………………………………………………… 137IX. Name of staff member…………………………………………………… 137X. Date of the first drawing-up of monthly and annual financial information… 137Chapter N. Rules applicable to management companies of common funds………… 138I. Information obligation of management companies vis-à-vis the CSSF… 138II. Authorisation of the shareholders of a management company……… 138Chapter O. Marketing rules applicable in Luxembourg…………………………………… 139Chapter P.Appendix:Obligation of UCIs to inform the CSSF on the audit made by theauditor… ………………………………………………………………………… 140Monthly financial information concerning undertakings forcollective investment… ………………………………………………………… 141CSSF CIRCULAR 02/77 OF 27 NOVEMBER 2002 CONCERNING THEPROTECTION OF INVESTORS IN CASE OF NAV CALCULATION ERROR ANDCORRECTION OF THE CONSEQUENCES RESULTING FROM NON-COMPLIANCEWITH THE INVESTMENT RULES APPLICABLE TO UNDERTAKINGS FORCOLLECTIVE INVESTMENT… ……………………………………………………………… 142CSSF CIRCULAR 02/80 OF 5 DECEMBER 2002 CONCERNING THESPECIFIC RULES APPLICABLE TO LUXEMBOURG UNDERTAKINGS FORCOLLECTIVE INVESTMENT (“UCIS”) PURSUING ALTERNATIVE INVESTMENTSTRATEGIES… ………………………………………………………………………………… 152CSSF CIRCULAR 02/81 OF 6 DECEMBER 2002 RELATING TO THE GUIDELINESCONCERNING THE TASK OF AUDITORS OF UNDERTAKINGS FOR COLLECTIVEINVESTMENT… ………………………………………………………………………………… 159CSSF CIRCULAR 03/87 OF 21 JANUARY 2003 CONCERNING THE COMING INTOFORCE OF THE LAW OF 20 DECEMBER 2002 RELATING TO UNDERTAKINGSFOR COLLECTIVE INVESTMENT… ………………………………………………………… 1756

CSSF CIRCULAR 03/88 OF 22 JANUARY 2003 CONCERNING THECLASSIFICATION OF UNDERTAKINGS FOR COLLECTIVE INVESTMENTSUBJECT TO THE PROVISIONS OF THE LAW OF 20 DECEMBER 2002RELATING TO UNDERTAKINGS FOR COLLECTIVE INVESTMENT………………… 180CSSF CIRCULAR 03/97 OF 28 FEBRUARY 2003 CONCERNING THEPUBLICATION BY UNDERTAKINGS FOR COLLECTIVE INVESTMENT IN THEREFERENCE DATABASE (“RÉFÉRENTIEL DE LA PLACE”) OF THE SIMPLIFIEDPROSPECTUSES AND THE FULL PROSPECTUSES AS WELL AS THE ANNUALAND SEMI-ANNUAL REPORTS.…………………………………………………………… 184CSSF CIRCULAR 03/108 OF 30 JULY 2003 CONCERNING LUXEMBOURGMANAGEMENT COMPANIES SUBJECT TO CHAPTER 13 OF THE LAW OF20 DECEMBER 2002 RELATING TO UNDERTAKINGS FOR COLLECTIVEINVESTMENT AS WELL AS LUXEMBOURG SELF-MANAGED INVESTMENTCOMPANIES SUBJECT TO ARTICLE 27 OR ARTICLE 40 OF THE LAW OF20 DECEMBER 2002 RELATING TO UNDERTAKINGS FOR COLLECTIVEINVESTMENT… ………………………………………………………………………………… 186CSSF CIRCULAR 03/122 of 19 December 2003 concerningClarifications on the simplified prospectus.……………………………… 201CSSF Circular 04/146 of 17 June 2004 concerning Protection ofundertakings for collective investment and their investorsagainst Late Trading and Market Timing practices… …………………… 205CSSF CIRCULAR 05/177 of 6 April 2005 concerning the Abolition ofany prior control by the CSSF of advertising material used bypersons and companies supervised by the CSSF; abrogation ofpoint II. of Chapter L. of IML circular 91/75; abrogation of the twolast sentences of point IV. 5.11 of CSSF circular 2000/15……………… 209CSSF CIRCULAR 05/185 of 24 May 2005 concerning Luxembourgmanagement companies subject to the provisions of chapter13 of the law of 20 December 2002 relating to undertakingsfor collective investment as well as self-managed investmentcompanies subject to the provisions of article 27 or article 40of the law of 20 December 2002 relating to undertakings forcollective investment… ……………………………………………………………… 210CSSF CIRCULAR 05/186 of 25 May 2005 concerning the Guidelinesof the Committee of European Securities Regulators (CESR)regarding the application of transitional measures resultingfrom directives 2001/107/EC and 2001/108/EC (UCITS III) amendingdirective 85/611/EEC (UCITS I).…………………………………………………………… 212CSSF CIRCULAR 06/267 OF 22 November 2006 CONCERNING THEGUIDeLINES OF THE Technical specifications regarding thecommunication to the CSSF, under the law on prospectusesfor securities, of documents for approval or for filingand of notices for offers to the public of units or sharesof Luxembourg closed-end UCIs and admissions of units ofshares of Luxembourg closed-end UCIs to trading on aregulated market………………………………………………………………………… 2147

CSSF Circular 07/277 OF 9 January 2007 CONCERNING THE newnotification procedure in accordance with the guidelines of theCommittee of European Securities Regulators (CESR) concerningthe simplification of the UCITS notification procedure………………… 219CSSF CIRCULAR 07/308 OF 2 August 2007 CONCERNING THE Rulesof conduct to be adopted by undertakings for collectiveinvestment in transferable securities with respect to the use ofa method for the management of financial risks, as well as theuse of financial derivative instruments… …………………………………… 226CSSF CIRCULAR 08/339 of 19 FEBRUARY 2008 RELATING TO THEGuidelines of the Committee of European Securities Regulators(CESR) concerning eligible assets for investment by UCITS………… 247CSSF CIRCULAR 08/356 OF 4 June 2008 CONCERNING THE Rulesapplicable to undertakings for collective investment whenthey employ certain techniques and instruments relating totransferable securities and money market instruments… ………… 2498

law dated 20 December 2002 relating toundertakings for collective investmentPrefaceThe amended law dated 20 December 2002 relating to undertakings for collective investmenthas transposed into Luxembourg law the Directives of the European Parliament and of theCouncil of the European Union of 21 January 2002 (2001/107/EC and 2001/108/EC). 11The terms used in the Luxembourg law correspond to a large extent to those of the EuropeanDirectives. In certain cases, deviations from the terms of the Directives are referred to infootnotes. The footnotes also provide certain explanations inter alia relating to the specificstructures and procedures existing in Luxembourg.11 Directives of the European Parliament and of the Council of 21 January 2002 with a view to regulatingmanagement 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 andadministrative provisions relating to undertakings for collective investment in transferable securities (UCITS), asamended by the Directive of the Council of 22 March 1988 (88/220/EEC) and by the Directive of the EuropeanParliament and of the Council of 29 June 1995 (95/26/EEC).9

LAW DATED 20 DECEMBER 2002 RELATING TOUNDERTAKINGS FOR COLLECTIVE INVESTMENTINTRODUCTORY PART:DefinitionsNote: The definitions are listed alphabetically and the order is therefore not consistent withthe French original. At the end of each definition a reference to the original French definitionis made.Art. 1 For the purpose of this law:1) “branch” shall mean a place of business which is a part of the managementcompany, which has no legal personality and which provides the servicesfor which the management company has been authorised; all the places ofbusiness set up in the same Member State by a management company withits registered office 2 in another Member State shall be regarded as a singlebranch. [This definition appears under item 25 in the French original and underitem 26 in the German translation]2) “close links” shall mean a situation as defined in Article 2, paragraph (1) ofDirective 95/26/EC of the European Parliament and of the Council of 29 June1995 modifying Directives 77/780/EEC and 89/646/EEC in the field of creditinstitutions, Directives 73/239/EEC and 92/49/EEC in the field of non-lifeinsurance, Directives 79/267/EEC and 92/96/EEC in the field of life insurance,Directive 93/22/EEC 3 in the field of investment firms and Directive 85/611/EECin the field of undertakings for collective investment in transferable securities(UCITS) with a view to reinforcing prudential supervision; [This definitionappears under item 19 in the French original and under item 7 in the Germantranslation]3) “competent authorities” shall mean the authorities which each Member Statedesignates under Article 49 of Directive 85/611/EEC. [This definition appearsunder item 1 in the French original and under item 25 in the German translation]4) “CSSF” shall mean the Commission de Surveillance du Secteur Financier(the Commission for the Supervision of the Financial Sector). [This definitionappears under item 4 in the French original and under item 4 in the Germantranslation]5) “depositary bank” or “depositary” shall mean a credit institution ensuring thesafe keeping of the assets of Luxembourg UCIs subject to Part I or Part II ofthis law. [This definition appears under item 2 in the French original and underitem 5 in the German translation]6) “Directive 78/660/EEC” shall mean the Council Directive 78/660/EEC of25 July 1978 based on Article 54, paragraph (3), (g) of the Treaty on the2 The English version of amended Directive 85/611/EEC refers to “headquarters” whereas the French version refersto 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 instruments(“MiFID”). Directive 2004/39/EC has been implemented into Luxembourg law by the law of 13 July2007 on markets in financial instruments. In accordance with Article 173 of the law dated 13 July 2007 onmarkets in financial instruments, any reference to Directive 93/22/EEC shall now be read as a reference toDirective 2004/39/EC and references to terms defined or to Articles contained in Directive 93/22/EEC shall be readas a reference to the equivalent term as defined in Directive 2004/39/EC or to the equivalent Article in Directive2004/39/EC.10

annual accounts of certain types of companies, as amended. [This definitionappears under item 5 in the French original and under item 16 in the Germantranslation]7) “Directive 83/349/EEC” shall mean the Council Directive 83/349/EEC of13 June 1983 based on Article 54, paragraph (3), (g) of the Treaty on consolidatedaccounts, as amended. [This definition appears under item 6 in theFrench original and under item 17 in the German translation]8) “Directive 85/611/EEC” shall mean the Council Directive 85/611/EEC of20 December 1985 on the coordination of laws, regulations and administrativeprovisions relating to undertakings for collective investment in transferablesecurities (UCITS), as amended. [This definition appears under item 7 in theFrench original and under item 18 in the German translation]9) “Directive 93/6/EEC” shall mean the Council Directive 93/6/EEC of 15 March1993 on the capital adequacy of investment firms and credit institutions, asamended. [This definition appears under item 8 in the French original andunder item 19 in the German translation]10) “Directive 93/22/CEE shall mean Council Directive 93/22/EEC of 15 March 1993on capital adequacy of investment firms and credit institutions, as amended.[This definition appears under item 9 in the French original and under item 20in the German translation]11) “Directive 97/9/EC” shall mean the Directive 97/9/EC of the European Parliamentand of the Council of 3 March 1997 on investor-compensation schemes. [Thisdefinition appears under item 10 in the French original and under item 21 in theGerman translation]12) “initial capital” shall mean the elements referred to in items 1) and 2) of Article34, paragraph (2) of Directive 2000/12/EC of the European Parliament andof the Council of 20 March 2000 relating to the taking up and pursuit of thebusiness of credit institutions 4 . [This definition appears under item 3 in theFrench original and under item 1 in the German translation]13) a “management company’s home Member State” shall mean the MemberState in which the management company’s registered office is situated. [Thisdefinition appears under item 15 in the French original and under item 10 in theGerman translation]14) “money market instruments” shall mean instruments normally dealt in on themoney market which are liquid, and have a value which can be accuratelydetermined at any time. [This definition appears under item 18 in the Frenchoriginal 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 managementcompany has a branch or provides services. [This definition appears underitem 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 sharepremium 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 asa result of the application of the final profit or loss. The Member States may permit inclusion of interim profitsbefore a formal decision has been taken only if these profits have been verified by persons responsible forthe auditing of the accounts and if it is proved to the satisfaction of the competent authorities that the amountthereof has been evaluated in accordance with the principles set out in Directive 86/635/EEC and is net of anyforeseeable charge or dividend.11

16) “own funds” shall mean own funds as defined in Title V, chapter 2, Section1 of Directive 2000/12/EC; this definition may, however, be amended in thecircumstances described in Annex V of Directive 93/6/EEC. [This definitionappears under item 17 in the French original and under item 6 in the Germantranslation]17) “parent undertaking” shall mean a parent undertaking as defined in Articles 1and 2 of Directive 83/349/EEC. [This definition appears under item 11 in theFrench original and under item 12 in the German translation]18) “qualifying holdings in a management company” shall mean any direct orindirect holding in a management company which represents 10% or moreof the capital or of the voting rights or which makes it possible to exercise asignificant influence over the management of the management company inwhich that holding subsists. For the purpose of this definition, the voting rightsreferred to in Article 7 of the law of 4 December 1992 on the information to bepublished in case of acquisition or disposal of a substantial participation in alisted company shall be taken into account. [This definition appears under item23 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 ofDirective 93/22/EEC 5 . [This definition appears under item 20 in the Frenchoriginal and under item 9 in the German translation]20) “SICAV” shall mean investment company with variable capital. [This definitionappears under item 24 in the French original and under item 22 in the Germantranslation]21) “subsidiary” shall mean a subsidiary undertaking as defined in Articles 1 and 2of Directive 83/349/EEC; any subsidiary of a subsidiary undertaking shall alsobe regarded as a subsidiary of the parent undertaking which is the ultimateparent of those undertakings. [This definition appears under item 16 in theFrench original and under item 23 in the German translation]22) “transferable securities” shall mean:- shares 6 and other securities equivalent to shares (“shares”),- bonds and other debt instruments 7 (“bonds”) 8 ,- any other negotiable securities which carry the right to acquire any suchtransferable securities by subscription or exchange,excluding the techniques and instruments referred to in Article 42. [Thisdefinition appears under item 26 in the French original and under item 24 in theGerman translation]23) “UCI” shall mean undertaking for collective investment. [This definition appearsunder item 21 in the French original and under item 13 in the German translation]24) “UCITS” shall mean undertaking for collective investment in transferablesecurities governed by Directive 85/611/EEC. [This definition appears underitem 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 theEnglish version uses the term “debt securities”.12

25) a “UCITS home Member State” shall mean:(a) with regard to a UCITS constituted as a common fund, the Member State inwhich the management company’s registered office is situated;(b) with regard to a UCITS constituted as an investment company, the MemberState in which the investment company’s registered office is situated. [Thisdefinition appears under item 13 in the French original and under item 11 inthe German translation]26) a “UCITS host Member State” shall mean the Member State, other than theUCITS home Member State, in which the units of the common fund or of theinvestment company are marketed. [This definition appears under item 12 inthe French original and under item 3 in the German translation]The definitions are specified by a grand-ducal regulation.13

PART I. - UCITSArt. 2Art. 3Art. 4Chapter 1. – General provisions and scope(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 undertakings:– the sole object of which is the collective investment in transferable securitiesand/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 theprinciple of risk-spreading, and– the units of which are, at the request of holders, redeemed 9 directly orindirectly, out of those undertakings’ assets. Action taken by a UCITS toensure that the stock exchange value of its units does not significantlyvary from their net asset value shall be regarded as equivalent to suchredemption.(3) Such undertakings may be constituted under the law of contract (as commonfunds 10 managed by a management company 11 ) or under statute (as investmentcompany 12 ).(4) Investment companies the assets of which are invested through the intermediaryof subsidiary companies mainly otherwise than in transferable securitiesor in other liquid financial assets referred to in Article 41, paragraph (1) of thislaw shall however not be subject to this Part.(5) UCITS which are subject to this Part are prohibited from transformingthemselves into investment undertakings which are subject to Part II of thislaw.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 thepublic within the European Union or any part of it;– UCITS the units of which, under their constitutional documents, may besold only to the public in countries which are not members of the EuropeanUnion;– categories of UCITS determined by the CSSF, for which the rules laid downin chapter 5 are inappropriate in view of their investment and borrowingpolicies.A UCITS shall be deemed to be situated in Luxembourg if the registered officeof the management company of the common fund or the registered office ofthe investment company is situated in Luxembourg. The head office 13 must besituated 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”. Thistranslation will however use “redemption” which is the term most commonly used in the industry.10 fonds commun de placement11 société de gestion12 société d’investissement13 The French text of amended Directive 85/611/EEC and the law use the term “administration centrale” whereasthe English text of amended Directive 85/611/EEC uses the term “head office” and the German text of amendedDirective 85/611/EEC uses the term “Hauptverwaltung”.14

Art. 5Art. 6Art. 7Art. 8Art. 9Chapter 2. – Common funds in transferable securitiesThere shall be regarded as a common fund for the application of this Part anyundivided collection of transferable securities and other liquid financial assetsreferred to in Article 41, paragraph (1) made up and managed according tothe principle of risk-spreading on behalf of joint owners who are liable only upto the amount contributed by them and whose rights are represented by unitsintended for placement with the public by means of a public or private offer.The common fund shall not be liable for the obligations of the managementcompany or of the unitholders; it shall be answerable only for the obligationsand expenses expressly imposed upon it by its management regulations.A common fund shall be managed by a management company which complieswith the conditions set out in chapter 13 of Part IV of this law.(1) The management company shall issue registered certificates or bearersecurities, representing one or more portions of the common fund which itmanages, or, in accordance with the conditions laid down in the managementregulations, written confirmations of entry in the register of units or fractions ofunits without limitation as to the splitting-up of units.Rights attached to fractions of units are exercised in proportion to the fractionof a unit held except for possible voting rights which can only be exercised forwhole units. The certificates and securities shall be signed by the managementcompany 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 effectedin accordance with the rules laid down in Articles 40 and 42 of the law of10 August 1915 concerning commercial companies, as amended 14 .(1) Units shall be issued at a price arrived at by dividing the net asset value of thecommon fund by the number of units outstanding; such price may be increasedby expenses and commissions, the maximum amounts and procedures forcollection of which may be determined by a grand-ducal regulation for whichan opinion from the CSSF shall be sought 15 .(2) Units may not be issued unless the equivalent of the net issue price is paid intothe assets of the common fund within the usual time limits. This provision shallnot 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 foregoingArticle.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 andsigned by the transferor and the transferee or by their duly authorised representatives, and in accordance withthe rules on the assignment of claims laid down in Article 1690 of the Civil Code. The company may accept andenter in the register a transfer on the basis of correspondence or other documents recording the agreementbetween the transferor and the transferee.Subject to any contrary provisions of the Articles, transmission, in the case of death, shall be validly establishedvis-à-vis the company, provided that no objection is lodged, on production of a death certificate, the certificateof 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.15

Art. 10(3) Unless otherwise provided for in the management regulations of the fund, thevaluation of the assets of the fund shall be based, in the case of officially listedsecurities, on the last known stock exchange quotation, unless such quotationis not representative. For securities not so listed and for securities which areso listed, but for which the latest quotation is not representative, the valuationshall be based on the probable realisation value, estimated with care and ingood faith.The purchase and sale of the assets may only be effected at prices conformingto 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 distributionor 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 calculatedin accordance with Article 9, paragraph (1), after deduction of any applicableexpenses and commissions, the maximum amounts and procedures forcollection of which may be determined by grand-ducal regulation for which anopinion from the CSSF shall be sought 16 .Art. 12 (1) By way of derogation from Article 11, paragraph (2):a) the management company may in the cases and according to the proceduresprovided for by the management regulations of the fund temporarilysuspend the redemption of units. Suspension may be provided for only inexceptional cases where circumstances so require and where suspensionis justified having regard to the interest of the unitholders;b) the CSSF may, in the interest of the unitholders or of the public, require thesuspension of the redemption of units, in particular where the provisions oflaws, regulations or agreements concerning the activity and operation ofthe common fund are not observed.(2) In the cases referred to in paragraph (1) a), the management company mustwithout delay communicate its decision to the CSSF and, if its units aremarketed in other EU Member States, to the competent authorities of suchStates.(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 liquidationor declared bankrupt or seeks a composition with creditors, a suspensionof payment or a court-controlled management or is the subject of similarproceedings.Art. 13 (1) The management company shall draw up the management regulations forthe common fund. Such regulations must be lodged with the registry 17 ofthe district court 18 and its publication in the Mémorial 19 will be made througha notice advising of the deposit of such document with the registry, all inaccordance with the provisions of the law of 10 August 1915 concerning16 No such regulation exists at this time.17 The lodging is in fact made with the Registre de Commerce et des Sociétés.18 tribunal d’arrondissement19 The Mémorial C, Recueil des Sociétés et Associations is the part of the official gazette in which certain requiredcorporate publications and notifications are made.16

commercial companies, as amended. The provisions of such regulations shallbe deemed accepted by the unitholders by the mere fact of the acquisition ofsuch units.(2) The management regulations of the common fund shall at least contain thefollowing provisions:a) the name and duration of the common fund, the name of the managementcompany and of the depositary,b) the investment policy according to its proposed specific objectives and thecriteria therefor,c) the distribution policy within the scope of Article 16,d) the remunerations and expenditures which the management company isempowered to charge to the fund and the method of calculation of suchremunerations,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 shallbe 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 whichthe redemptions are carried out and may be suspended.Art. 14 (1) The management company shall manage the common fund in accordance withthe 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 thecommon fund.(3) It shall exercise all the rights attached to the securities comprised in the portfolioof the common fund.Art. 15Art. 16The management company must fulfil its obligations with the diligence of asalaried agent 20 ; it shall be liable to the unitholders for any loss resulting fromthe non-fulfilment or improper fulfilment of its obligations.Unless otherwise provided for in the management regulations, the net assetsof the common fund may be distributed subject to the limits set out in Article 23of this law.Art. 17 (1) The custody of the assets of the common fund must be entrusted to a depositary.(2) The depositary must either have its registered office in Luxembourg or beestablished in Luxembourg if its registered office is in another Member State ofthe European Union.(3) The depositary must be a credit institution within the meaning of the law of5 April 1993 concerning the financial sector, as amended.(4) The depositary’s liability shall not be affected by the fact that it has entrustedall 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 sufficientlyexperienced, also in relation to the UCITS concerned. To that end, the20 mandataire salarié17

identity of the directors and of every person succeeding them in office must becommunicated forthwith to the CSSF.“Directors” shall mean those persons, who under law or the constitutionaldocuments represent the depositary or effectively determine the conduct of itsactivity.Art. 18 (1) The depositary shall carry out all operations concerning the day-to-day administrationof the assets of the common fund.(2) The depositary must moreover:a) ensure that the sale, issue, redemption and cancellation of units effectedon behalf of the fund or by the management company are carried out inaccordance with the law and the management regulations,b) ensure that the value of units is calculated in accordance with the law andthe management regulations,c) carry out the instructions of the management company, unless they conflictwith the law or the management regulations,d) ensure that in transactions involving the assets of the fund, the considerationis remitted to it within the customary 21 time limits,e) ensure that the income of the fund is applied in accordance with themanagement regulations.Art. 19 (1) The depositary shall be liable in accordance with Luxembourg law to themanagement company and the unitholders for any losses suffered by them asa result of its wrongful failure to perform its obligations or its wrongful improperperformance thereof.(2) The liability to unitholders shall be invoked indirectly through the managementcompany. Should the management company fail to act despite a written noticeto that effect from a unitholder within a period of three months following receiptof such a notice, such unitholder may directly invoke the liability of the depositary.Art. 20Art. 21In the context of their respective roles, the management company and thedepositary must act independently and solely in the interest of the unitholders.The duties of the management company or of the depositary in respect of thecommon fund shall respectively cease:a) in the case of withdrawal of the management company, provided that it isreplaced by another management company authorised in accordance withthe present law;b) in the case of voluntary withdrawal of the depositary or of its removal by themanagement company; until it is replaced, which must happen within twomonths, the depositary shall take all necessary steps for the good preservationof the interests of the unitholders;c) where the management company or the depositary has been declaredbankrupt, has entered into a composition with creditors, has obtained asuspension of payment, has been put under court-controlled management,or has been the subject of a similar proceedings or has been put into liquidation;21 The English text of amended Directive 85/611/EEC uses the term “usual time limits”. The term “customary” betterreflects the French term “d’usage”.18

d) where the CSSF withdraws its authorisation of the management companyor 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 regulations;b) in the event of cessation of their duties by the management company or bythe depositary in accordance with sub-paragraphs b), c), d) and e) of Article21, if they have not been replaced within two months without prejudice tothe 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 monthsbelow 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 bythe management company or the depositary. If they fail to do so, such notice willbe published by the CSSF at the expense of the common fund. The notice shallbe published in the Mémorial and in at least two newspapers with adequatecirculation, 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, theissue of units shall be prohibited, on penalty of nullity. The redemption of unitsremains possible provided the equal treatment of unitholders can be ensured.Art. 23Art. 24The net assets of a common fund may not be less than one million two hundredand fifty thousand euro (1,250,000 euro).This minimum must be reached within a period of six months following theauthorisation of the common fund.A grand-ducal regulation may increase such minimum amount up to a maximumof two million five hundred thousand euro (2,500,000 euro) 22 .The management company must without delay inform the CSSF if the netassets 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 thirdsof 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 acommon fund into liquidation shall be published without delay by themanagement company or the depositary. If they fail to do so, such notice shallbe published by the CSSF at the expense of the common fund. The notice shallbe published in the Mémorial and in at least two newspapers with adequatecirculation, one of which at least must be a Luxembourg newspaper.Art. 25Chapter 3. – SICAVs in transferable securitiesFor the purposes of this Part, SICAVs shall be taken to mean those companieswhich have adopted the form of a public limited company (société anonyme)governed by Luxembourg law,22 No such regulation exists at this time.19

Art. 26– whose exclusive object is to invest their funds in transferable securitiesand/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 theirshareholders 23 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 apublic or private offer, and– whose Articles of incorporation provide that the amount of the capital shallat all times be equal to the net asset value of the company.SICAVs shall be subject to the provisions applicable in general to public limitedcompanies, insofar as the present law does not derogate therefrom.Art. 27 (1) The minimum capital of a SICAV which has not designated a managementcompany may not be less than three hundred thousand euro (300,000 euro)at the time of authorisation. The capital of any SICAV including SICAVswhich have designated a management company must reach one million twohundred and fifty thousand euro (1,250,000 euro) within a period of 6 monthsfollowing the authorisation of the SICAV. A grand-ducal regulation may raiseeach such minimum amount up to a respective maximum of six hundredthousand 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 companyauthorised pursuant to Directive 85/611/EEC:– the application for authorisation must be accompanied by a program ofactivity setting out, inter alia, the organisational structure of the SICAV;– the directors 25 of the SICAV shall be of sufficiently good repute and besufficiently experienced in relation to the type of business carried out bysuch company. To that end the identity of the directors and of every personsucceeding them in office must be communicated forthwith to the CSSF.The conduct of a SICAV’s business must be decided by at least two personsmeeting such conditions. “Directors” shall mean those persons who, underlaw or the constitutional documents represent the SICAV or who effectivelydetermine the policy of the company;– moreover, where close links exist between the SICAV and other natural orlegal persons, the CSSF shall grant authorisation only if such links do notprevent the effective exercise of its supervisory functions.The CSSF shall also refuse authorisation if the laws, regulations or administrativeprovisions of a non-member country governing one or more natural orlegal persons with which the SICAV has close links, or difficulties involved intheir 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.unitholders 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.24 No such regulation exists at this time.25 The French text of amended Directive 85/611/EEC and the law use the term “dirigeants” and the German text ofamended Directive 85/611/EEC uses the term “Geschäftsleiter”.20

The applicant shall be informed, within six months of the submission of acomplete application, whether or not authorisation has been granted. Reasonsshall 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 thisPart of the law only where that company:a) does not make use of the authorisation within twelve months, expresslyrenounces the authorisation or has ceased the activity covered by this lawfor more than six months;b) has obtained the authorisation by making false statements or by any otherirregular 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 ofregulations 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 notdesignated a management company authorised pursuant to Directive85/611/EEC, provided that the words “management company” shall beconstrued as “SICAV”.SICAVs may only manage assets of their own portfolio and may not, underany circumstances, receive any mandate to manage assets on behalf of a thirdparty.(3) SICAVs that have not designated a management company authorised pursuantto 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, shallrequire that the company has sound administrative and accounting procedures,control and safeguard arrangements for electronic data processingand adequate internal control mechanisms including, in particular, rules forpersonal transactions by its employees or for the holding or management ofinvestments in financial instruments in order to invest its initial capital andensuring, inter alia, that each transaction involving the company may be reconstructedaccording to its origin, the parties concerned, its nature, and the timewhen and the place at which it was effected and that the assets of the SICAVare invested according to the constitutional documents and the legal provisionsin force.Art. 28 (1) a) Subject to any contrary provisions of its Articles of incorporation, a SICAVmay issue its shares at any time;b) A SICAV must redeem its shares at the request of the shareholder withoutprejudice to paragraphs (5) and (6) of this Article.(2) a) The shares shall be issued at a price arrived at by dividing the net assetvalue of the SICAV by the number of shares outstanding; such price maybe increased by expenses and commissions, the maximum amounts andprocedures for collection of which may be determined by a grand-ducalregulation for which an opinion from the CSSF shall be sought 26 ;26 No such regulation exists at this time.21

) The shares shall be redeemed at a price arrived at by dividing the net assetvalue of the SICAV by the number of shares outstanding; such price maybe decreased by expenses and commissions, the maximum amounts andprocedures for collection of which may be determined by a grand-ducalregulation for which an opinion from the CSSF shall be sought 27 .(3) Shares of a SICAV may not be issued unless the equivalent of the net issueprice is paid into the assets of the SICAV within the customary 28 time limits.This provision shall not preclude the distribution of bonus shares.(4) The Articles of incorporation shall determine the time limits for paymentsin respect of issues and redemptions and shall specify the principles andmethods of valuation of the assets of the SICAV. Unless otherwise providedfor in the Articles of incorporation, the valuation of the assets of the SICAVshall be based, in the case of officially listed securities, on the last known stockexchange quotation, unless such quotation is not representative. For securitiesnot so listed and for securities which are so listed but for which the latestquotation is not representative, the valuation shall be based on the probablerealisation value which must be estimated with care and in good faith.(5) By way of derogation from paragraph (1), the Articles of incorporation shallspecify the conditions in which issues and redemptions may be suspended,without prejudice to legal causes. In the event of suspension of issues orredemptions, the SICAV must without delay inform the CSSF and, if it marketsits shares in other Member States of the European Union, the competentauthorities of such States.Where the interest of the shareholders so requires, redemptions may besuspended by the CSSF if the provisions of laws, regulations or the Articlesof incorporation concerning the activity and operation of the SICAV are notobserved.(6) The Articles of incorporation shall determine the frequency of the calculation ofthe issue and redemption price.(7) The Articles of incorporation shall describe the nature of the expenses to beborne 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 indicationregarding 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 thevaluation criteria of paragraph (4).Art. 29 (1) Variations in the capital shall be effected ipso jure and without compliance withmeasures regarding publication and entry in the commercial and companyregister prescribed for increases and decreases of capital of public limitedcompanies.(2) Repayments to shareholders following a reduction of capital shall not be subjectto 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 byexisting shareholders unless the Articles of incorporation provide for such aright by an express provision.27 No such regulation exists at this time.28 The English text of amended Directive 85/611/EEC uses the term “usual time limits”. The term “customary” betterreflects the French term “d’usage”.22

Art. 30 (1) If the capital of the SICAV falls below two thirds of the minimum capital, thedirectors or the management organ, as the case may be, must submit thequestion of the dissolution of the SICAV to a general meeting for which noquorum shall be prescribed and which shall decide by a simple majority of theshares 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 submitthe question of the dissolution of the SICAV to a general meeting for whichno quorum shall be prescribed; dissolution may be resolved by shareholdersholding 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 asfrom the ascertainment that the net assets have fallen below two thirds or onefourth of the minimum capital, as the case may be.Art. 31The creation of participating shares or similar securities, regardless of thename given to them, shall be permitted only in accordance with the conditionsand procedures to be laid down by grand-ducal regulation 29 .Art. 32 (1) Unless otherwise provided for in the Articles of incorporation, the net assets ofthe SICAV may be distributed subject to the limits set out in Article 27 of thislaw.(2) SICAVs shall not be obliged to create a legal reserve.(3) SICAVs are not subject to the provisions in respect of payment of interimdividends as set out in Article 72-2 30 of the law of 10 August 1915 concerningcommercial companies, as amended.Art. 33For companies to which this chapter applies, the words “public limitedcompany” 31 or “European company (SE)” shall be replaced by the words“investment company with variable capital” 32 or the letters “SICAV”, or bythe words “European investment company with variable capital” (sociétéeuropéenne 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 entrustedall 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 effectedby or on behalf of the SICAV are carried out in accordance with the law orthe Articles of incorporation of the SICAV;b) ensure that in transactions involving the assets of the SICAV, the considerationis remitted to it within the customary 33 time limits;c) ensure that the income of the SICAV is applied in accordance with itsArticles of incorporation.29 No such regulation exists at this time.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 variable33 The English text of amended Directive 85/611/EEC uses the term “usual time limits”. The term “customary” betterreflects the French term “d’usage”.23

Art. 35 (1) The depositary must either have its registered office in Luxembourg or beestablished in Luxembourg if its registered office is in another Member State ofthe European Union.(2) The depositary must be a credit institution within the meaning of the law of5 April 1993 concerning the financial sector, as amended.(3) The directors of the depositary must be of sufficiently good repute and be sufficientlyexperienced, also in relation to the UCITS concerned. To that end, theidentity of the directors and of every person succeeding them in office must becommunicated forthwith to the CSSF.“Directors” shall mean those persons, who under law or the constitutionaldocuments represent the depositary or effectively determine the conduct of itsactivity.Art. 36Art. 37Art. 38The depositary shall be liable in accordance with Luxembourg law to the shareholdersfor any loss suffered by them as a result of its wrongful failure toperform its obligations or its wrongful improper performance thereof.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 bythe SICAV; until it is replaced, which must happen within two months, thedepositary must take all necessary steps for the good preservation of theinterests of the shareholders;b) where the SICAV or the depositary has been declared bankrupt, hasentered into a composition with creditors, has obtained a suspension ofpayment, has been put under court-controlled management or has beenthe subject of a similar proceedings or has been put into liquidation;c) where the CSSF withdraws its authorisation of the SICAV or the depositary;d) in all other cases provided for in the Articles of incorporation.In carrying out its role as depositary, the depositary must act solely in theinterest of the shareholders.Art. 39Chapter 4. – Other investment companies in transferable securitiesFor the purposes of this Part I, other investment companies shall be taken tomean companies other than SICAVs and– whose exclusive object is to invest their funds in transferable securitiesand/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 theirshareholders 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 meansof a public or private offer provided that the words “investment company” 34appear on all their deeds, announcements, publications, letters and otherdocuments.34 société d’investissement24

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 thischapter.Chapter 5. – Investment policy of a UCITSArt. 41 (1) The investments of a UCITS must consist solely of:a) transferable securities and money market instruments admitted to or dealtin on a regulated market;b) transferable securities and money market instruments dealt in on anothermarket 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 officiallisting on a stock exchange in a non-Member State of the European Unionor dealt in on another market in a non-Member State of the European Unionwhich is regulated, operates regularly and is recognised and open to thepublic provided that the choice of the stock exchange or market has beenprovided for in the constitutional documents of the UCITS 35 ;d) recently issued transferable securities and money market instruments,provided that:– the terms of issue include an undertaking that application will be madefor admission to official listing on a stock exchange or on anotherregulated market which operates regularly and is recognised and opento the public, provided that the choice of the stock exchange or themarket has been provided for in the constitutional documents of theUCITS;– such admission is secured within one year of issue;e) units of UCITS authorised according to Directive 85/611/EEC and/orother 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 Stateof the European Union or not, provided that:– such other UCIs are authorised under laws which provide that they aresubject to supervision considered by the CSSF to be equivalent to thatlaid down in Community law, and that cooperation between authoritiesis sufficiently ensured;– the level of protection for unitholders in such other UCIs is equivalentto that provided for unitholders in a UCITS, and in particular that therules on assets segregation, borrowing, lending, and uncovered salesof transferable securities and money market instruments are equivalentto the requirements of Directive 85/611/EEC;– the business of such other UCIs is reported in half-yearly and annualreports to enable an assessment of the assets and liabilities, incomeand 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 constitutionaldocuments, in aggregate be invested in units of other UCITS or otherUCIs;35 This refers to the management regulations of a common fund or the Articles of incorporation of an investmentcompany with variable or fixed capital.25

26f) deposits with credit institutions which are repayable on demand or have theright to be withdrawn, and maturing in no more than 12 months, providedthat the credit institution has its registered office in a Member State of theEuropean Union or, if the registered office of the credit institution is situatedin a non-Member State, provided that it is subject to prudential rulesconsidered by the CSSF as equivalent to those laid down in Communitylaw;g) financial derivative instruments, including equivalent cash-settled instruments,dealt in on a regulated market referred to in subparagraphs a),b) and c) above, and/or financial derivative instruments dealt in over-thecounter(“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 asstated in the UCITS’ constitutional documents,– the counterparties to OTC derivative transactions are institutions subjectto prudential supervision, and belonging to the categories approved bythe CSSF, and– the OTC derivatives are subject to reliable and verifiable valuation on adaily basis and can be sold, liquidated or closed by an offsetting transactionat any time at their fair value at the UCITS’ initiative;h) money market instruments other than those dealt in on a regulated marketand which fall under Article 1 of this law, if the issue or the issuer ofsuch instruments are themselves regulated for the purpose of protectinginvestors and savings, and provided that such instruments are:– issued or guaranteed by a central, regional or local authority or bya central bank of a Member State, the European Central Bank, theEuropean Union or the European Investment Bank, a non-MemberState or, in case of a Federal State, by one of the members making upthe federation, or by a public international body to which one or moreMember States belong, or– issued by an undertaking any securities of which are dealt in onregulated markets referred to in subparagraphs (a), (b) or (c) above, or– issued or guaranteed by an establishment subject to prudential supervision,in accordance with criteria defined by Community law, or by anestablishment which is subject to and complies with prudential rulesconsidered by the CSSF to be at least as stringent as those laid downby Community law, or– issued by other bodies belonging to the categories approved by theCSSF provided that investments in such instruments are subject toinvestor protection equivalent to that laid down in the first, the second orthe third indent and provided that the issuer is a company whose capitaland reserves amount to at least ten million euro (10,000,000 euro) andwhich presents and publishes its annual accounts in accordance withthe fourth Directive 78/660/EEC, is an entity which, within a group ofcompanies which includes one or several listed companies, is dedicatedto the financing of the group or is an entity which is dedicated to thefinancing of securitisation vehicles which benefit from a banking liquidityline.

(2) However:a) a UCITS may invest no more than 10% of its assets 36 in transferablesecurities and money market instruments other than those referred to inparagraph (1);b) an investment company may acquire movable and immovable propertywhich is essential for the direct pursuit of its business;c) a UCITS may not acquire either precious metals or certificates representingthem.(3) A UCITS may hold ancillary liquid assets.(4) The modalities for the practical application of this Article are laid down by agrand-ducal regulation.Art. 42 (1) The UCITS must employ a risk-management process which enables it tomonitor and measure at any time the risk of the positions and their contributionto the overall risk profile of the portfolio; it must employ a process for accurateand independent assessment of the value of OTC derivative instruments. Itmust communicate to the CSSF regularly and in accordance with the detailedrules the latter shall define, the types of derivative instruments, the underlyingrisks, the quantitative limits and the methods which are chosen in order toestimate the risks associated with transactions in derivative instruments.(2) A UCITS is also authorised to employ techniques and instruments relating totransferable securities and money market instruments under the conditionsand within the limits laid down by the CSSF provided that such techniques andinstruments are used for the purpose of efficient portfolio management. Whenthese operations concern the use of derivative instruments, these conditionsand limits shall conform to the provisions laid down in this law.Under no circumstances shall these operations cause the UCITS to divergefrom its investment objectives as laid down in the UCITS’ management regulations,its constitutional documents or prospectus.(3) A UCITS shall ensure that its global exposure relating to derivative instrumentsdoes not exceed the total net value of its portfolio.The exposure is calculated taking into account the current value of the underlyingassets, the counterparty risk, foreseeable 37 market movements and thetime available to liquidate the positions. This shall also apply to the followingsubparagraphs.A UCITS may invest, as a part of its investment policy and within the limits laiddown in Article 43, paragraph (5) in financial derivative instruments providedthat the exposure to the underlying assets does not exceed in aggregate theinvestment limits laid down in Article 43. When a UCITS invests in index-basedfinancial derivative instruments, these investments do not have to be combinedto 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 ofthis Article.36 In the French version of the law, the term “actifs” is used which the Luxembourg supervisory authorities considerto 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 theGerman text: “künftige Marktfluktuationen”.27

(4) The modalities for the practical application of this Article are laid down by agrand-ducal regulation.Art. 43 (1) A UCITS may invest no more than 10% of its assets in transferable securitiesor money market instruments issued by the same body. A UCITS may notinvest more than 20% of its assets in deposits made with the same body. Therisk exposure to a counterparty of the UCITS in an OTC derivative transactionmay not exceed 10% of its assets when the counterparty is a credit institutionreferred 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 instrumentsheld by a UCITS in the issuing bodies in each of which it invests more than5% of its assets must not exceed 40% of the value of its assets. This limitationdoes not apply to deposits and OTC derivative transactions made with financialinstitutions subject to prudential supervision.notwithstanding the individual limits laid down in paragraph (1), a UCITS maynot combine:– investments in transferable securities or money market instruments issuedby a single body,– deposits made with a single body, and/or– exposures arising from OTC derivative transactions undertaken with asingle body,in excess of 20% of its assets.(3) The limit laid down in the first sentence of paragraph (1) may be of a maximumof 35% if the transferable securities or money market instruments are issuedor guaranteed by a Member State of the European Union, by its public localauthorities, by a non-Member State or by public international bodies of whichone or more Member States are members.(4) The limit laid down in the first sentence of paragraph (1) may be of a maximumof 25% for certain bonds when they are issued by a credit institution whichhas its registered office in a Member State of the European Union and issubject by law, to special public supervision designed to protect bondholders.In particular, sums deriving from the issue of these bonds must be invested inconformity with the law in assets which, during the whole period of validity ofthe bonds, are capable of covering claims attaching to the bonds and which,in case of bankruptcy of the issuer 38 , would be used on a priority basis for therepayment 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 firstsubparagraph and issued by one issuer, the total value of such investmentsmay not exceed 80% of the value of the assets of the UCITS.(5) The transferable securities and money market instruments referred to inparagraphs (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; thusinvestments in transferable securities or money market instruments issuedby the same body, in deposits or derivative instruments made with this bodycarried out in accordance with paragraphs (1), (2), (3) and (4) may not exceeda 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 theGerman version: “Ausfall des Emittenten”.28

Companies which are included in the same group for the purposes of consolidatedaccounts, as defined in accordance with Directive 83/349/EEC or inaccordance with recognised international accounting rules, are regarded as asingle body for the purpose of calculating the limits contained in this Article.A UCITS may cumulatively invest up to 20% of its assets in transferablesecurities 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 inArticle 43 are raised to a maximum of 20% for investments in shares and/or bonds 39 issued by the same body when, according to the constitutionaldocuments of the UCITS, the aim of the UCITS’ investment policy is to replicatethe composition of a certain stock or bond 40 index which is recognised by theCSSF, on the following basis:– the composition of the index is sufficiently diversified;– the index represents an adequate benchmark for the market to which itrefers;– it is published in an appropriate manner.(2) The limit laid down in paragraph (1) is raised to 35% where that proves to bejustified by exceptional market conditions in particular in regulated marketswhere certain transferable securities or money market instruments are highlydominant. 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 agrand-ducal regulation.Art. 45 (1) By way of derogation from Article 43, the CSSF may authorise a UCITS toinvest in accordance with the principle of risk-spreading up to 100% of its assetsin different transferable securities and money market instruments issued orguaranteed by any Member State of the European Union, its local authorities,a non-Member State of the European Union or public international bodies ofwhich one or more Member States of the European Union are members.The CSSF shall grant such an authorisation only if it considers that unitholdersin the UCITS have protection equivalent to that of unitholders in UCITScomplying with the limits laid down in Articles 43 and 44.These UCITS must hold securities from at least six different issues, butsecurities from any one issue may not account for more than 30% of the totalamount.(2) The UCITS referred to in paragraph (1) must make express mention, in theirconstitutional documents, of the States, local authorities or public internationalbodies issuing or guaranteeing securities in which they intend to invest morethan 35% of their assets.(3) In addition, the UCITS referred to in paragraph (1) must include a prominentstatement in their prospectuses and in any promotional literature, drawingattention to such authorisation and indicating the States, local authorities andpublic international bodies in the securities of which they intend to invest orhave invested more than 35% of their assets.39 See footnote 8.40 See footnote 8.29

Art. 46 (1) A UCITS may acquire the units of UCITS and/or other UCIs referred to inArticle 41, paragraph (1) (e), provided that no more than 20% of its assets areinvested in the units of a single UCITS or other UCI.For the purpose of the application of this investment limit, each compartmentof a UCI with multiple compartments 41 within the meaning of Article 133 ofthis law is to be considered as a separate issuer provided that the principleof segregation of the obligations of the various compartments vis-à-vis thirdparties is ensured.(2) Investments made in units of UCIs other than UCITS may not in aggregateexceed 30% of the assets of the UCITS.When a UCITS has acquired units of UCITS and/or other UCIs, the assetsof the respective UCITS or other UCIs do not have to be combined for thepurposes of the limits laid down in Article 43.(3) When a UCITS invests in the units of other UCITS and/or other UCIs thatare managed, directly or by delegation, by the same management companyor by any other company with which the management company is linked bycommon management or control, or by a substantial direct or indirect holding,that management company or other company may not charge subscription orredemption fees on account of the UCITS’ investment in the units of such otherUCITS and/or UCIs.A UCITS that invests a substantial proportion of its assets in other UCITSand/or other UCIs shall disclose in its prospectus the maximum level of themanagement fees that may be charged both to the UCITS itself and to theother UCITS and/or other UCIs in which it intends to invest. In its annual reportit shall indicate the maximum proportion of management fees charged both tothe 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 isauthorised to invest. It shall mention if transactions in financial derivative instrumentsare authorised; in this event, it must include a prominent statementindicating if these operations may be carried out for the purpose of hedging orwith the aim of meeting investment goals, and the possible outcome of the useof financial derivative instruments on the risk profile.(2) When a UCITS invests principally in any category of assets defined in Article41 other than transferable securities and money market instruments or replicatesa stock or bond 42 index in accordance with Article 44, its prospectus and,where necessary, any other promotional literature must include a prominentstatement drawing attention to its investment policy.(3) When the net asset value of a UCITS is likely to have a high volatility due toits portfolio composition or the portfolio management techniques that may beused, its prospectus and, where necessary, any other promotional literaturemust include a prominent statement drawing attention to this characteristic ofthe UCITS.(4) Upon request of an investor, the management company must also providesupplementary information relating to the quantitative limits that apply in therisk management of the UCITS, to the methods chosen to this end and to therecent evolution of the risks and yields of the main categories of instruments.41 These are commonly referred to as umbrella funds.42 See footnote 8.30

Art. 48 (1) An investment company or a management company acting in connection withall of the common funds which it manages and which fall within the scope ofPart I of this law, may not acquire any shares carrying voting rights which wouldenable it to exercise significant influence over the management of an issuingbody.(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 disregardedat the time of acquisition if at that time the gross amount of bonds 43 or of themoney market instruments or the net amount of the instruments in issue 44cannot be calculated.(3) Paragraphs (1) and (2) are waived as regards:a) transferable securities and money market instruments issued or guaranteedby a Member State of the European Union or its local authorities;b) transferable securities and money market instruments issued or guaranteedby a non-Member State of the European Union;c) transferable securities and money market instruments issued by publicinternational bodies of which one or more Member States of the EuropeanUnion are members;d) shares held by UCITS in the capital of a company incorporated in anon-Member State of the European Union which invests its assets mainlyin the securities of issuing bodies having their registered office in that State,where under the legislation of that State, such a holding represents the onlyway in which the UCITS can invest in the securities of issuing bodies of thatState. This derogation, however, shall apply only if in its investment policythe company from the non-Member State of the European Union complieswith 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 49shall apply mutatis mutandis;e) shares held by one or more investment companies in the capital ofsubsidiary companies which, exclusively on its or their behalf carry on onlythe business of management, advice or marketing in the country where thesubsidiary is located, in regard to the redemption of units at the request ofuntiholders.Art. 49 (1) UCITS need not comply with the limits laid down in this chapter when exercisingsubscription rights attaching to transferable securities or money market instrumentswhich form part of their assets.While ensuring observance of the principle of risk-spreading, recently authorisedUCITS may derogate from Articles 43, 44, 45 and 46 for a period of six monthsfollowing 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 securitiesand 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”.31

(2) If the limits referred to in paragraph (1) are exceeded for reasons beyond thecontrol of the UCITS or as a result of the exercise of subscription rights, it mustadopt as a priority objective for its sales transactions the remedying of thatsituation, taking due account of the interests of its unitholders.(3) To the extent that an issuer is a legal entity with multiple compartments wherethe assets of a compartment are exclusively reserved to the investors in suchcompartment and to those creditors whose claim has arisen in connection withthe creation, operation or liquidation of that compartment, each compartment isto be considered as a separate issuer for the purpose of the application of therisk-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-backloan.(2) By way of derogation from paragraph (1), UCITS may borrow the equivalentof:a) up to 10% of their assets provided that the borrowing is on a temporarybasis;b) up to 10% of their assets in the case of an investment company providedthat the borrowing is to make possible the acquisition of immovableproperty essential for the direct pursuit of their business; in this case, theseborrowings and those referred to in subparagraph a) may not in any case intotal 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 transferablesecurities or money market instruments or other financial instruments referred toin Article 41, paragraph (1), subparagraphs e), g) and h) which are not fully paid.Art. 52Neither:– an investment company, nor– a management company or depositary acting on behalf of common funds,may carry out uncovered sales of transferable securities, money marketinstruments 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 unitsin other Member States of the European UnionArt. 53 (1) A UCITS which markets its units in another Member State of the EuropeanUnion must comply with the laws, regulations and administrative provisions inforce 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.32

Art. 54Art. 55Art. 56Art. 57In the case referred to in Article 53, the UCITS must in accordance with thelaws, regulations and administrative provisions in force in the Member State ofmarketing, inter alia take the measures necessary to ensure that facilities areavailable in that State for making payments to unitholders, redeeming units andmaking available the information which UCITS are obliged to provide.A UCITS which proposes to market its units in another Member State of theEuropean Union, must first inform the CSSF and the competent authorities ofthat other Member State. It must simultaneously send these authorities:– an attestation by the CSSF to the effect that it fulfils the conditions imposedin Part I of the law,– its constitutional documents,– its full and simplified prospectuses,– where appropriate, its latest annual report and any subsequent semi-annualreport, and– details of the arrangements made for the marketing of its units in that otherMember State.The UCITS may begin to market its units in that other Member State of theEuropean Union two months after such communication unless the authoritiesof the Member States concerned establish, in a reasoned decision takenbefore the expiry of that period of two months, that the arrangements made forthe marketing of units do not comply with the provisions referred to in Articles53, paragraph (1) and 54.If a UCITS markets its units in another Member State of the European Union, itmust distribute in that other Member State in accordance with the same proceduresas those provided for in Luxembourg, its full and simplified prospectuses,the annual and semi-annual reports and the other information provided for inArticles 111 and 112.These documents shall be provided in the official language or in one of theofficial languages of the host Member State or in a language approved by thecompetent authorities of the host Member State.Where a UCITS situated in Luxembourg markets its units on the territory of acountry which is a party to the Agreement on the European Economic Areaother than a Member State of the European Union 45 , the provisions of Articles53 to 56 of this law are also applicable within the limits provided by thatAgreement and the instruments relating thereto.Art. 58Art. 59Chapter 7. –UCITS situated in other Member States of the EuropeanUnion which market their units in LuxembourgUCITS situated in other Member States of the European Union which markettheir units in Luxembourg must comply with the laws, regulations and administrativeprovisions in force in Luxembourg which do not fall within the mattersgoverned by this law.The UCITS must appoint a credit institution to ensure that facilities are availablein Luxembourg for making payments to unitholders and redeeming units.45 Currently: Iceland, Liechtenstein and Norway.33

Art. 60Art. 61Art. 62The UCITS must take the measures necessary to ensure that the informationwhich it is obliged to provide, is made available to unitholders in Luxembourg.If a UCITS situated in another Member State of the European Union proposesto market its units in Luxembourg, it must inform the CSSF. It must simultaneouslysend to the latter authority:– an attestation by the competent authorities to the effect that it fulfils theconditions imposed by Directive 85/611/EEC,– its constitutional documents,– its full and simplified prospectuses,– where appropriate, its latest annual report and any subsequent semi-annualreport,– details of the arrangements made for the marketing of its units in Luxembourg.The UCITS may begin to market its units in Luxembourg two months after suchcommunication unless the CSSF establishes, in a reasoned decision takenbefore the expiry of that period of two months, that the arrangements made forthe marketing of units do not comply with the provisions referred to in Article 58and Article 59.If a UCITS situated in another Member State of the European Union marketsits units in Luxembourg, it must distribute in Luxembourg in either the Luxembourg,French, German or English language the documents and informationwhich must be published in the Member State of the European Union in whichit is situated, in accordance with the same procedures as those provided for inthe latter State.Where a UCITS situated in a country which is a party to the Agreement on theEuropean Economic Area other than a Member State of the European Union 46markets its units in Luxembourg, the provisions of Articles 58 to 61 of this laware also applicable within the limits provided by that Agreement and the instrumentsrelating thereto.Part II. - Other ucisChapter 8. – ScopeArt. 63Art. 64This Part shall apply to all UCITS excluded by Article 3 of this law and to allother UCIs situated in Luxembourg not covered by Part I.A UCI shall be deemed to be situated in Luxembourg if the registered officeof the management company of the common fund or the registered office ofthe investment company is situated in Luxembourg. The head office 47 must besituated in Luxembourg.Chapter 9. – Common fundsArt. 65 (1) There shall be regarded as a common fund for the application of this Part anyundivided collection of assets made up and managed according to the principleof risk-spreading on behalf of joint owners who are liable only up to the amount46 Currently: Iceland, Liechtenstein and Norway.47 See footnote 13.34

contributed by them and whose rights are represented by units intended forplacement with the public by means of a public or private offer.(2) A common fund shall be managed by a management company which complieswith 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 beestablished in Luxembourg if its registered office is in another Member State ofthe 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 and24 of this law are applicable to common funds falling within the scope of thischapter.Art. 67 (1) A grand-ducal regulation for which an opinion from the CSSF shall be soughtmay, inter alia, determine 48 :a) the minimum frequency for the determination of the issue and redemptionprices for units of the common fund;b) the minimum percentage of the assets of the common fund which must berepresented by liquid assets;c) the maximum percentage of the assets of the common fund which may beinvested in transferable securities not quoted on a stock exchange or dealtin on an organised market offering comparable safeguards;d) the maximum percentage of securities of the same kind issued by the samebody which the common fund may hold;e) the maximum percentage of the assets of the common fund which may beinvested in securities issued by the same body;f) the conditions under which and possibly the maximum percentages thecommon fund may invest in securities of other UCIs;g) the maximum percentage, in relation to its total assets, of the amounts thecommon fund is authorised to borrow and the terms and conditions for suchborrowings.(2) The frequency and percentages determined in accordance with the foregoingparagraph may be differentiated depending on whether or not the commonfunds display certain characteristics or fulfil certain conditions.(3) A recently formed common fund may, while ensuring observance of the principleof risk-spreading, derogate from paragraph (1), subparagraph e) above for aperiod 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 ofrights attached to securities in the portfolio or otherwise than by the purchaseof securities, the management company must adopt as its priority objective forits sales transactions, the remedying of the situation of the fund, taking dueaccount of the interests of the unitholders.Art. 68 (1) Neither the management company nor the depositary, acting on behalf of thecommon fund, may grant loans to unitholders of the common fund.(2) Paragraph (1) shall not prevent common funds from acquiring transferablesecurities which are not fully paid.48 No such regulation exists at this time.35

Art. 69Art. 70Chapter 10. – SICAVsFor the purpose of this Part SICAVs shall be taken to mean those companieswhich 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 spreadthe investment risks and to ensure for their investors the benefit of theresults of the management of their assets, and– whose shares are intended to be placed with the public by means of apublic or private offer, and– whose Articles of incorporation provide that the amount of capital shall at alltimes be equal to the value of the net assets of the company.The minimum capital of a SICAV may not be less than one million two hundredand fifty thousand euro (1,250,000 euro). This minimum must be reachedwithin a period of six months following the authorisation of the SICAV. A grandducalregulation may raise such minimum amount up to a maximum of twomillion 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 thischapter.Art. 72 (1) A grand-ducal regulation for which an opinion from the CSSF shall be soughtmay, inter alia, determine: 50a) the minimum frequency for the determination of the issue and, where theArticles of incorporation provide for the right of shareholders to have theirshares redeemed, the redemption prices for shares of the SICAV;b) the minimum percentage of the assets of the SICAV which must be representedby liquid assets;c) the maximum percentage of the assets of the SICAV which may be investedin transferable securities not quoted on a stock exchange or dealt in on anorganised market offering comparable safeguards;d) the maximum percentage of securities of the same kind issued by the samebody which the SICAV may hold;e) the maximum percentage of the assets which the SICAV may invest insecurities issued by the same body;f) the conditions under which and possibly the maximum percentages theSICAV may invest in securities of other UCIs;g) the maximum percentage, in relation to its total assets, of the amountsthe SICAV is authorised to borrow and the terms and conditions for suchborrowings.(2) The frequency and percentages determined in accordance with the foregoingparagraph may be differentiated depending on whether or not the SICAVsdisplay certain characteristics or fulfil certain conditions.(3) A recently formed SICAV may, while ensuring observance of the principle ofrisk-spreading, derogate from paragraph (1), subparagraph e) above for aperiod of six months following the date of its authorisation.49 No such regulation exists at this time.50 No such regulation exists at this time.36

(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 ofrights attached to securities in the portfolio or otherwise than by the purchaseof securities, the SICAV must adopt as its priority objective for its sales transactions,the remedying of the situation, taking due account of the interests ofthe shareholders.Art. 73Chapter 11. – UCIs which have not been constituted as common fundsor SICAVsThis chapter is applicable to all companies and all undertakings other thancommon funds or SICAVs 51– whose exclusive object is the collective investment of their funds in assetsin order to spread the investment risks and to ensure for the investors thebenefit of the results of the management of their assets, and– which solicit the public for the subscription of their units by means of apublic or private offer.Art. 74 (1) The net assets of the UCIs falling within this chapter may not be less than onemillion two hundred and fifty thousand euro (1,250,000 euro).This minimum must be reached within a period of six months following theirauthorisation. A grand-ducal regulation may raise that minimum figure up to amaximum 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 directorsor the management organ, as the case may be, or managers must submit thequestion of the dissolution of the undertaking to a general meeting for whichno quorum shall be prescribed and which shall decide by simple majority of theunits represented at the meeting.(3) If the net assets have fallen below one fourth of the legal minimum, the directorsor the management organ, as the case may be, or managers must submit thequestion of the dissolution to a general meeting for which no quorum shall beprescribed. The dissolution may be resolved by investors holding one fourth ofthe units represented at the meeting.(4) The meeting must be convened so that it is held within a period of forty days asfrom the ascertainment that the net assets have fallen below two thirds or onefourth of the legal minimum, as the case may be.(5) If the constitutional documents of the undertaking do not provide for generalmeetings, the directors or the management organ, as the case may be, ormanagers must, if the net assets of the UCI have fallen below two thirds ofthe legal minimum, inform the CSSF without delay. In such case, the CSSFmay, having regard to the circumstances, require the directors or managers toliquidate the undertaking.Art. 75 (1) A grand-ducal regulation for which an opinion from the CSSF shall be soughtmay, inter alia, determine 53 :51 Investment companies that are not established in the form of a SICAV are generally investment companies withfixed capital (“SICAF”).52 No such regulation exists at this time.53 No such regulation exists at this time.37

a) the minimum frequency for the determination of the issue and, in case theconstitutional documents provide the right for the shareholders or membersto have their shares redeemed, the redemption price of the shares or unitsof the UCI;b) the minimum percentage of the assets of the UCI which must be representedby liquid assets;c) the maximum percentage of the assets of the UCI which may be investedin transferable securities not quoted on a stock exchange or dealt in on anorganised market offering comparable safeguards;d) the maximum percentage of securities of the same kind issued by the samebody which the UCI may hold;e) the maximum percentage of the assets of the UCI which may be investedin securities issued by the same body;f) the conditions under which and possibly the maximum percentages the UCImay invest in securities of other UCIs;g) the maximum percentage, in relation to its total assets, of the amountsthe UCI is authorised to borrow and the terms and conditions for suchborrowings.(2) The frequency and percentages determined in accordance with paragraph (1)above may be differentiated depending on whether or not the UCI displayscertain characteristics or fulfils certain conditions.(3) A recently formed UCI may, while ensuring observance of the principle of riskspreading,derogate from paragraph (1), subparagraph e) above, for a periodof 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 ofrights attached to securities in the portfolio or otherwise than by the purchaseof securities, the UCI must adopt as its priority objective for its sales transactions,the remedying of the situation, taking due account of the interests ofthe shareholders or members.(5) The constitutional documents of the UCI shall specify the principles andmethods of valuation of the assets of the UCI. Unless otherwise provided in theconstitutional documents, the valuation of the assets of the UCI shall be basedin the case of officially listed securities, on the last known stock exchangequotation, unless such quotation is not representative. For securities not solisted and for securities which are so listed but for which the latest quotationis not representative, the valuation shall be based on the probable realisationvalue 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 UCIssubject to this chapter.Part III. - Foreign UCISArt. 76Chapter 12. – General provisions and scopeUCIs other than the closed-end type formed according to or operating underforeign laws, which are not subject to chapter 7 of this law and whose securitiesare 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 performed38

y a supervisory authority set up by law in order to ensure the protection ofinvestors. Article 59 of this law is applicable to such UCIs.Part IV. - The authorisation of management companiesChapter 13. – Management companies managing UCITS governed byDirective 85/611/EECA. - Conditions for taking up businessArt. 77 (1) Access to the business of management companies within the meaning of thischapter is subject to prior authorisation by the CSSF. Authorisation grantedunder this law to a management company shall be valid for all Member Statesof the European Union.A management company shall be incorporated as a public limited company 54 ,a private limited company 55 , a cooperative company 56 , a cooperative companyset up as a public limited company 57 or a corporate limited partnership 58 . Thecapital of such company must be represented by registered shares.(2) No management company may engage in activities other than the managementof UCITS authorised according to Directive 85/611/EEC except the additionalmanagement of other UCIs which are not covered by such Directive and forwhich the management company is subject to prudential supervision but theunits of which cannot be marketed in other Member States of the EuropeanUnion under Directive 85/611/EEC.The activity of management of common funds and of investment companiesincludes 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 alsoauthorised to provide the following services:a) management of portfolios of investments, on a discretionary client-byclientbasis, including those owned by pension funds, in accordance withmandates given by investors where such portfolios include one or more ofthe instruments listed in Section B of Annex II of the law of 5 April 1993 onthe financial sector, as amended;b) as non-core services:– investment advice concerning one or more of the instruments listed inSection 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 anonyme55 société à responsabilité limitée56 société coopérative57 société coopérative organisée comme une société anonyme58 société en commandite par actions39

Management companies may in no case be authorised under this chapter toprovide only the services mentioned in this paragraph or to provide non-coreservices without being authorised for the services referred to in subparagraph a).For the purpose of this Article, investment advice consists of the provision ofpersonalised recommendations to a client, either upon the request of this clientor at the management company’s initiative in regard to one or more transactionsconcerning financial instruments referred to in Section B of Annex II of thelaw of 5 th April 1993 on the financial sector, as amended.For the purpose of this Article, a personalised recommendation is a recommendationwhich is addressed to a person by reason of its capacity as investoror potential investor or its capacity as agent of an investor or of a potentialinvestor.This recommendation has to be adapted to this person or has to be based onthe examination of the proper situation of this person and has to recommendthe realisation of an operation of the following categories:a) the purchase, the sale, the subscription, the exchange, the repayment, theholding or the firm commitment of a particular financial instrument;b) the exercise or non-exercise of the right conferred by a particular financialinstrument to purchase, to sell, to subscribe, to exchange or to reimburse afinancial instrument.A recommendation is not a personalised recommendation if it is exclusivelydisseminated 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 thepublic.(4) Article 13, paragraph (3), Article 37-1 and Article 37-3 of the law of 5 April1993 on the financial sector, as amended, shall apply mutatis mutandis to theprovision by management companies of the services mentioned in paragraph(3) of this Article.Management companies which provide the services referred to in subparagrapha) of paragraph (3) of this Article must furthermore comply with theLuxembourg regulations implementing Directive 2006/49/EC of the EuropeanParliament and of the Council of 14 June 2006 on the capital adequacy ofinvestment firms and credit institutions (recast). On the contrary if they onlyprovide 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 followingconditions:a) the management company has an initial capital of at least one hundred andtwenty-five thousand euro (125,000 euro):– When the value of the portfolios of the management company exceedstwo hundred and fifty million euro (250,000,000 euro) the managementcompany shall be required to provide an additional amount of ownfunds. This additional amount of own funds shall be equal to 0.02%of the amount by which the value of the portfolios of the managementcompany exceeds two hundred and fifty million euro (250,000,000euro). The required total of the initial capital and the additional amountshall not, however, exceed ten million euro (10,000,000 euro).40

– For the purpose of this paragraph, the following portfolios shall bedeemed to be the portfolios of the management company:(i) common funds managed by the management company includingportfolios for which it has delegated the management function butexcluding portfolios that it is managing under delegation;(ii) investment companies for which the management company is thedesignated management company;(iii) other UCIs managed by the management company includingportfolios for which it has delegated the management function butexcluding portfolios that it is managing under delegation.– Irrespective of the amount of these requirements, the own funds of themanagement company shall never be less than the amount prescribedin Annex IV of Directive 93/6/EEC 59 .Management companies are authorised not to provide up to 50% of the additionalamount of own funds referred to above if they benefit from a guarantee of thesame amount given by a credit institution or an insurance undertaking. Thecredit institution or insurance undertaking must have its registered office in aMember State of the European Union, or in a non-Member State provided thatit is subject to prudential rules considered by the CSSF as equivalent to thoselaid down in Community law.(b) the persons who effectively conduct the business of a managementcompany must be of sufficiently good repute and be sufficiently experienced,also in relation to the type of UCITS managed by the managementcompany. To that end, the identities of these persons and of every personsucceeding them in office must be communicated forthwith to the CSSF.The conduct of a management company’s business must be decided by atleast two persons meeting such conditions;(c) the application for authorisation must be accompanied by a program ofactivity setting out, inter alia, the organisational structure of the managementcompany;(d) both its head office 60 and its registered office are located in Luxembourg.(2) Moreover where close links exist between the management company andother natural or legal persons, the CSSF shall grant authorisation only if suchlinks do not prevent the effective exercise of its supervisory functions.The CSSF shall also refuse authorisation if the laws, regulations or administrativeprovisions of a non-Member State governing one or more naturalor legal persons with which the management company has close links, ordifficulties involved in their enforcement, prevent the effective exercise of itssupervisory functions.59 Annex IVOther RisksInvestment firms shall be required to hold own funds equivalent to one quarter of their preceding year’s fixedoverheads. The competent authorities may adjust that requirement in the event of a material change in a firm’sbusiness since the preceding year. Where a firm has not completed a year’s business, including the day it startsup, the requirement shall be a quarter of the fixed overheads figure projected in its business plan unless an adjustmentto that plan is required by the authorities.60 See footnote 13.41

The CSSF shall require management companies to provide it with the informationrequired to monitor compliance with the conditions referred to in thisparagraph on a continuous basis.(3) An applicant shall be informed, within six months of the submission of acomplete application, whether or not authorisation has been granted. Reasonsshall be given whenever an authorisation is refused.(4) A management company may start business as soon as authorisation hasbeen granted.(5) The CSSF may withdraw the authorisation issued to a management companysubject to this chapter only where that company:(a) does not make use of the authorisation within twelve months, expresslyrenounces the authorisation or has ceased to exercise the activity coveredby this chapter for more than six months;(b) has obtained the authorisation by making false statements or by any otherirregular 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, asamended, resulting from the implementation of Directive 93/6/EEC if itsauthorisation also covers the discretionary portfolio management servicereferred to in Article 77, paragraph (3) a) above;(e) has seriously and/or systematically infringed the provisions of this law or ofregulations 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 managementcompany until it has been informed of the identities of the shareholders ormembers, whether direct or indirect, natural or legal persons, that have qualifyingholdings and of the amounts of such holdings.The CSSF shall refuse authorisation if, taking into account the need to ensurethe sound and prudent management of the management company, it is notsatisfied as to the suitability of the aforementioned shareholders or members.(2) The competent authorities of the other Member State involved shall be consultedbeforehand on the authorisation of any management company which is:(a) a subsidiary of another management company, investment firm, credit institutionor insurance undertaking authorised in another Member State of theEuropean Union,(b) a subsidiary of the parent undertaking of another management company,investment firm, credit institution or insurance undertaking authorised inanother Member State of the European Union, or(c) controlled by the same natural or legal persons as control anothermanagement company, investment firm, credit institution or insuranceundertaking authorised in another Member State of the European Union.Art. 80 (1) The authorisation of a management company is subject to the condition thatthe audit of its annual accounting documents is entrusted to one or moreexternal auditors 61 who can justify having adequate professional experience.61 réviseur d’entreprises42

(2) Any change of external auditors must be previously approved by the CSSF.(3) The institution of statutory auditors 62 provided for by the law of 10 August 1915concerning commercial companies, as amended, and by Article 137 of suchlaw, shall not apply to management companies subject to this chapter.Art. 81B. Relations with third countriesRelations with third countries shall be regulated in accordance with the relevantrules 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 beconstrued respectively as “management company” and “managementcompanies”; the expression “providing investment services” in Article 15,paragraph (2) of Directive 2004/39/CE shall be construed as “providingservices”.C. Operating conditionsArt. 82 (1) The management company shall comply at all times with the conditions laiddown in Article 77 and Article 78, paragraphs (1) and (2) above. The own fundsof 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 thecircumstances justify it, allow such firms a limited period in which to rectify theirsituation or cease their activities.(2) The prudential supervision of a management company shall be the responsibilityof the CSSF whether or not the management company establishesa branch as defined in Article 1 of this law or provides services in anotherMember State of the European Union, without prejudice to those provisionsof Directive 85/611/EEC which give responsibility to the authorities of the hostMember States.Art. 83 (1) Qualifying holdings in management companies shall be subject to the samerules as those laid down in Article 18 of the law of 5 April 1993 on the financialsector, 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 thefinancial sector, as amended, shall be construed respectively as “managementcompany” and “management companies”.Art. 84 (1) With regard to the nature of the UCITS managed by it and in furtherance of theprudential rules it is required to observe at all times with regard to the activityof management of UCITS subject to Part I of this law, a management companyshall be required:(a) to have sound administrative and accounting procedures, control andsafeguard arrangements for electronic data processing and adequateinternal control mechanisms including, in particular, rules for personal transactionsby its employees or for the holding or management of investmentsin financial instruments in order to invest own funds and ensuring, inter alia,that each transaction involving the UCITS may be reconstructed accordingto its origin, the parties concerned, its nature, and the time when and the62 commissaires aux comptes43

place at which it was effected and that the assets of the common funds orof the investment companies managed by the management company areinvested according to the constitutional documents and the legal provisionsin force;(b) to be structured and organised in such a way as to minimise the risk ofUCITS’ or clients’ interests being prejudiced by conflicts of interest betweenthe company and its clients, between one of its clients and another, betweenone of its clients and a UCITS or between two UCITS. Nevertheless, wherea branch is set up, the organisational arrangements may not conflict withthe rules of conduct laid down by the host Member State to cover conflictsof interest.(2) The management companies, the authorisation of which also covers thediscretionary 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 unitsof common funds or of investment companies it manages, unless it hasreceived 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 2000 63implementing Directive 97/9/EC 64 in the law of 5 April 1993 on the financialsector, as amended 65 .Art. 85 (1) Management companies are authorised to delegate to third parties for thepurpose of a more efficient conduct of their business, the power to carry outon their own behalf one or more of their functions. In that case, the followingpreconditions 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 themanagement company; in particular, it must not prevent the managementcompany from acting, or the UCITS from being managed, in the bestinterests of the investors;c) when the delegation concerns the management of investments, the mandatemay only be given to undertakings which are authorised or registered forthe purpose of asset management and are subject to prudential supervision;the delegation must be in accordance with investment allocationcriteria periodically laid down by the management company;d) where the mandate concerns the management of investments and is givento a third-country undertaking, cooperation between the CSSF and thesupervisory authority of that country must be ensured;e) a mandate with regard to the core function of investment management shallnot be given to the depositary or to any other undertaking whose interestsmay conflict with those of the management company or the unitholders;f) measures shall exist which enable the persons who conduct the businessof the management company to monitor effectively at any time the activityof 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 compensationscheme.44

Art. 86g) the mandate shall not prevent the persons who conduct the business of themanagement company to give at any time further instructions to the undertakingto which functions are delegated and to withdraw the mandate withimmediate effect when this is in the interest of investors;h) having regard to the nature of the functions to be delegated, the undertakingto which functions will be delegated must be qualified and capable ofundertaking the functions in question; andi) the UCITS’ prospectuses list the functions which the management companyhas been permitted to delegate.(2) In no case shall the management company’s and the depositary’s liability beaffected by the fact that the management company delegated any functions tothird parties, nor shall the management company delegate its functions to theextent that it becomes a letter box entity.In the conduct of its business activities, a management company authorisedunder this chapter shall, at all times, by virtue of rules of conduct:a) act honestly and fairly in conducting its business activities in the bestinterests of its clients and the integrity of the market;(b) act with due skill, care and diligence, in the best interests of its clients andthe integrity of the market;(c) have and efficiently employ the resources and procedures that arenecessary 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 itsbusiness activities so as to promote the best interests of its clients and theintegrity of the market.D. The right of establishment and the freedom to provide servicesArt. 87 (1) A management company, authorised in accordance with Directive 85/611/EECby the competent authorities of another Member State, may carry on in Luxembourgthe activity for which it has been authorised, either by the establishmentof a branch or under the freedom to provide services.(2) The establishment of a branch or the provision of services as described aboveis not subject to any authorisation requirement, to any requirement to provideendowment capital or to any other measure having equivalent effect.Art. 88 (1) In addition to meeting the conditions imposed in Articles 77 and 78, anymanagement company authorised under this chapter wishing to establish abranch within the territory of another Member State of the European Unionshall notify the CSSF thereof.(2) It shall provide the following information and documents with the notificationprovided for in paragraph (1):a) the Member State within the territory of which the management companyplans to establish a branch;b) a program of operations setting out the envisaged activities and servicesas referred to in Article 77, paragraphs (2) and (3) and the organisationalstructure of the branch;45

c) the address in the host Member State from which documents may beobtained;d) the name of those responsible for the management of the branch.(3) Unless the CSSF has reason to doubt the adequacy of the administrativestructure or the financial situation of a management company, taking intoaccount the activities envisaged, it shall, within three months of receiving allthe information referred to in paragraph (2), communicate that informationto the competent authorities of the host Member State and shall inform themanagement company accordingly. It shall also communicate details of anycompensation scheme intended to protect investors.Where the CSSF refuses to communicate the information referred to inparagraph (2) to the competent authorities of the host Member State, it shallgive reasons for its refusal to the management company concerned within twomonths of receiving all the information.(4) Before the branch of a management company starts business, the competentauthorities of the host Member State shall, within two months of receivingthe information referred to in paragraph (2) prepare for the supervision of themanagement company and, if necessary, indicate the conditions, including therules mentioned in Articles 53 and 54 in force in the host Member State andthe rules of conduct to be respected in the case of provision of the portfoliomanagement service mentioned in Article 77, paragraph (3) and of investmentadvisory 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 hostMember State or on the expiry of the period provided for in paragraph (4)without receipt of any communication from those authorities, the branchmay be established and start business. From that moment the managementcompany may also begin distributing the units of the common funds and ofthe investment companies subject to Directive 85/611/EEC which it manages,unless the competent authorities of the host Member State establish, in areasoned decision taken before the expiry of that period of two months – to becommunicated to the CSSF – that the arrangements made for the marketing ofthe 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 withparagraphs (2) b), c) or d), the management company shall give written noticeof that change to the CSSF and the competent authorities of the host MemberState at least one month before implementing the change so that the CSSFmay take a decision on the change under paragraph (3) and the competentauthorities of the host Member State may do so under paragraph (4).(7) In the event of a change in the particulars communicated in accordance withthe first subparagraph of paragraph (3), the CSSF shall inform the authoritiesof the host Member State accordingly.Art. 89 (1) Any management company wishing to carry on business within the territoryof another Member State of the European Union for the first time under thefreedom to provide services shall communicate the following information to theCSSF:a) the Member State of the European Union within the territory of which themanagement company intends to operate;46

) a programme of operations stating the envisaged activities and servicesreferred to in Article 77, paragraphs (2) and (3).(2) The CSSF shall, within one month of receiving the information referred toin paragraph (1) forward it to the competent authorities of the host MemberState.It shall also communicate details of any applicable compensation schemeintended to protect investors.(3) The management company may then start business in the host Member Statenotwithstanding the provisions of Article 55 of the law.When appropriate, the competent authorities of the host Member Stateshall, on receipt of the information referred to in paragraph (1) indicate tothe management company the conditions, including the rules of conduct tobe respected in the case of provision of the portfolio management servicementioned in Article 77, paragraph (3) and of the investment advisory servicesand custody services, with which, in the interest of the general good, themanagement company must comply in the host Member State.(4) Should the content of the information communicated in accordance withparagraph (1) b) be amended, the management company shall give notice ofthe amendment in writing to the CSSF and the competent authorities of thehost Member State before implementing the change, so that the CSSF may, ifnecessary, inform the management company of any change or addition to bemade to the information communicated under paragraph (3).(5) A management company shall also be subject to the notification procedure laiddown in this Article in cases where it entrusts a third party with the marketing ofthe units in a host Member State.Art. 90 (1) For statistical purposes, all management companies authorised in a MemberState of the European Union under Directive 85/611/EEC with a branch asdefined in that Directive within Luxembourg shall report periodically on theiractivities in Luxembourg to the CSSF.(2) Branches of such management companies must provide the CSSF with thesame information as required from management companies authorised underthis chapter.(3) Where a management company that has a branch or provides services withinLuxembourg is in breach of the provisions of this law, the CSSF shall requirethe 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 Stateaccordingly.(5) If the management company persists in breaching the legal or regulatory provisionsreferred to in paragraph (2) in force in Luxembourg, the Luxembourgauthorities may, after informing the competent authorities of the home MemberState, take appropriate measures to prevent or sanction further irregularitiesand, insofar as necessary, to prevent that management company from initiatingany further transactions within Luxembourg. The legal documents necessaryfor those measures shall be served on the management company.47

(6) The foregoing provisions shall not affect the powers of Luxembourg to takeappropriate measures to prevent or to sanction irregularities committed withinits territory which are contrary to legal or regulatory provisions adopted in theinterest of the general good. This shall include the possibility of preventing anoffending management company from initiating any further transactions withinLuxembourg.(7) Any measure adopted pursuant to paragraphs (4), (5) or (6) involving sanctionsor restrictions on the activities of a management company must be properlyjustified and communicated to the management company concerned. Everysuch measure shall be subject to the right to apply to the courts in Luxembourg.(8) Before following the procedure laid down in paragraphs (3), (4) or (5) theCSSF may, in emergencies, take any precautionary measures necessary toprotect the interests of investors and others to whom services are provided.The European Commission and the competent authorities of the other MemberStates concerned will be informed of such measures at the earliest opportunity.(9) In the event of the withdrawal of authorisation, the CSSF shall be informedthereof and shall take appropriate measures to prevent the managementcompany concerned from initiating any further transactions within Luxembourg,and to safeguard investors’ interests.Chapter 14. – Other management companies of Luxembourg UCIsArt. 91 (1) Access to the business of a management company within the meaning of thischapter is subject to prior authorisation by the CSSF.The management company shall be incorporated as a public limited company 66 ,a private limited company 67 , a cooperative company 68 , a cooperative companyset up as a public limited company 69 or a corporate limited partnership 70 . Thecapital of such company must be represented by registered shares.It may not engage in activities other than the management of UCIs, the administrationof its own assets being only an ancillary activity provided that it mustmanage at least one UCI subject to Luxembourg law.Both its head office 71 and its registered office must be situated in Luxembourg.66 société anonyme67 société à responsabilité limitée68 société coopérative69 société coopérative organisée comme une société anonyme70 société en commandite par actions71 See footnote 13.48

Art. 92(2) The CSSF will grant authorisation to the company only on the following conditions:a) it must have sufficient financial resources at its disposal to enable it toconduct its business effectively and meet its liabilities; in particular it musthave a minimum paid-up capital of one hundred and twenty-five thousandeuro (125,000 euro); a grand-ducal regulation may raise that minimumamount 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 experiencerequired for the performance of their duties;c) the identity of reference shareholders or members of the managementcompany must be provided to the CSSF;d) the application must describe the organisational structure of the managementcompany.(3) An applicant shall be informed, within six months of the submission of acomplete application, whether or not authorisation has been granted. Reasonsshall be given whenever an authorisation is refused.(4) A management company may start business as soon as authorisation hasbeen granted.(5) The CSSF may withdraw the authorisation issued to a management companysubject to this chapter only where that company:(a) does not make use of the authorisation within twelve months, expresslyrenounces the authorisation or has ceased the activity covered by thischapter for more than six months;(b) has obtained the authorisation by making false statements or by any otherirregular means;(c) no longer fulfils the conditions under which authorisation was granted;(d) has seriously and/or systematically infringed the provisions adoptedpursuant 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 forits own needs.Article 80 of this law is applicable to the management companies falling withinthe scope of this chapter.Part V. - General provisions applicable to ucits and other ucisChapter 15. – AuthorisationArt. 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 unitsor shares in Luxembourg, notably by a provision included in the managementregulations of the fund or the constitutional documents, will not be authorisedby the CSSF.72 No such regulation exists at this time.49

(2) A UCI shall be authorised only if the CSSF has approved the constitutionaldocuments and the choice of the depositary.(3) The directors 73 of the UCI and of the depositary must be of sufficiently goodrepute and have sufficient experience, also in relation to the type of UCIconcerned. To that end, the names of the directors, and of every personsucceeding them in office, must be communicated forthwith to the CSSF.“Directors” shall mean those persons who under law or the constitutionaldocuments represent the UCI or the depositary or who effectively determinethe conduct of the activities of the UCI.(4) The replacement of the management company or of the depositary and theamendment of the constitutional documents of the UCI are subject to approvalby the CSSF.Art. 94 (1) Authorised UCIs shall be entered by the CSSF on a list. Such entry shall betantamount to authorisation and shall be notified by the CSSF to the UCIconcerned. For the UCIs referred to in Articles 2 and 63, applications for entryon the list must be filed with the CSSF within the month following their constitutionor formation. The said list and any amendments made thereto shall bepublished in the Mémorial 74 by the CSSF.(2) The entering and the maintaining on the list referred to in paragraph (1) shall besubject to observance of all the provisions of laws, regulations or agreementsrelating to the organisation and operation of UCIs and the distribution, placingor sale of their units.Art. 95Art. 96Luxembourg UCIs other than the closed-end type, UCITs governed by harmonisedCommunity law and foreign UCIs in case of a public offer in Luxembourgshall be exempt from publishing a prospectus as provided for in Part III of thelaw on prospectuses for securities. The prospectus which such UCIs draw upin accordance with the regulatory requirements applicable to UCIs shall bevalid for the purposes of an offer to the public of securities or the admission ofsecurities to trading on a regulated market.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 asa positive assessment made by the CSSF of the quality of the units offered forsale.Chapter 16. – Organisation of supervisionArt. 97 (1) The authority which is to carry out the duties provided for in this law is theCSSF.(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 andto 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 theauditors 75 or experts instructed by the CSSF, shall be bound by the obligation73 See footnote 25.74 Mémorial B, Recueil Administratif et Economique. This is the part of the official gazette in which certain administrativepublications are made.75 réviseurs d’entreprises50

of professional secrecy provided for by Article 16 of the law of 23 December1998 creating the Commission de Surveillance du Secteur Financier, asamended. Such secrecy implies that no confidential information which theymay receive in the course of their duties may be divulged to any person orauthority 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 withthe supervisory authorities of the other Member States of the European Unionwithin the limits provided by this law.The CSSF shall closely cooperate with the supervisory authorities of otherMember States of the European Union for the purpose of the fulfilment of theirduty of supervision of UCIs and shall communicate for that sole purpose allrequired information.The supervisory authorities of countries other than Member States of theEuropean Union which are party to the Agreement on the European EconomicArea 76 are assimilated to the supervisory authorities of the Member Statesof the European Union within the limits provided by that Agreement and theinstruments relating thereto.(3) Paragraph (1) shall not prevent the CSSF from exchanging information with:– authorities of third countries with public responsibilities for the supervisionof UCIs,– the other authorities, bodies and persons referred to in paragraph (5), withthe exception of central credit registers, when they are established in thirdcountries,– the authorities of third countries referred to in paragraph (6).The communication of information by the CSSF authorised by this paragraphis subject to the following conditions:– the transmitted information must be required for the purpose of performingthe supervisory duty of the recipient authorities, bodies and persons,– information received shall be subject to the professional secrecy of therecipient authorities, bodies or persons and the professional secrecy ofsuch authorities, bodies or persons must offer guarantees at least equivalentto the professional secrecy of the CSSF,– the authorities, bodies or persons which receive information from the CSSFmay only use such information for the purposes for which it has beencommunicated to them and must be able to ensure that no other use canbe made thereof,– the authorities, bodies or persons who receive information from the CSSFgrant the same right of information to the CSSF,-– the CSSF may only disclose information received from EU authoritiesresponsible for the supervision of UCIs with the express agreement of suchauthorities and, where appropriate, solely for the purposes for which thoseauthorities gave their agreement.For the purpose of this paragraph third countries are countries other than thosereferred to in paragraph (2).76 Currently: Iceland, Liechtenstein and Norway.51

(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 ofUCIs, of management companies and of depositaries are met and to facilitatethe monitoring of the conduct of that business, of administrative andaccounting 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 anauthorisation.(5) Paragraphs (1) to (4) shall not preclude:a) the exchange of information within the European Union between the CSSFand– authorities with public responsibility for the supervision of credit institutions,investment firms, insurance undertakings and other financial organisationsand the authorities responsible for the supervision of financial markets,– bodies involved in the liquidation, bankruptcy or other similar proceedingsconcerning UCIs, management companies and depositaries,– persons responsible for carrying out statutory audits of the accounts ofcredit institutions, investment firms, other financial institutions or insuranceundertakings in the performance of their supervisory functions,b) the disclosure by the CSSF within the European Union to bodies whichadminister compensation schemes of investors or to central credit registersof information necessary for the performance of their functions.The communication of information by the CSSF authorised by this paragraphis subject to the condition that such information is covered by the professionalsecrecy of the authorities, bodies and persons receiving the informationand is only authorised to the extent that the professional secrecy ofsuch authorities, bodies and persons offers guarantees at least equivalentto the professional secrecy of the CSSF. In particular, authorities whichreceive information from the CSSF may only use such information for thepurposes for which it has been communicated and must be able to ensurethat no other use can be made thereof.Countries other than Member States of the European Union which areparty to the Agreement on the European Economic Area 77 are assimilatedto the Member States of the European Union within the limits provided bythat Agreement and the instruments relating thereto.(6) Paragraphs (1) and (4) do not prevent exchanges of information within theEuropean Union between the CSSF and:– the authorities responsible for overseeing the bodies involved in the liquidation,bankruptcy or other similar proceedings concerning credit institutions,investment firms, insurance undertakings, UCIs, managementcompanies and depositaries,– the authorities responsible for overseeing persons entrusted with thecarrying out of statutory audits of the accounts of credit institutions,investment firms, insurance undertakings and other financial institutions.77 Currently: Iceland, Liechtenstein and Norway.52

The communication of information by the CSSF authorised by this paragraphis subject to the following conditions:– the transmitted information is intended to be used for the purpose ofperforming the supervisory duty of the recipient authorities,– information received shall be subject to the professional secrecy of therecipient authorities and the professional secrecy of such authorities mustoffer guarantees at least equivalent to the professional secrecy of theCSSF,– the authorities which receive information from the CSSF may only use suchinformation for the purposes for which it has been communicated to themand must be able to ensure that no other use can be made thereof,– the CSSF may only disclose information received from supervisory authoritiesreferred to in paragraphs (2) and (3) with the express agreement ofsuch authorities and, where appropriate, solely for the purposes for whichthose authorities gave their agreement.Countries other than Member States of the European Union which are partyto the Agreement on the European Economic Area 78 are assimilated to theMember States of the European Union within the limits provided by thatAgreement and the instruments relating thereto.(7) This Article shall not prevent the CSSF from transmitting to central banks andother bodies with a similar function in their capacity as monetary authoritiesinformation intended for the performance of their duties.The communication of information by the CSSF authorised by this paragraphis subject to the condition that such information is covered by the professionalsecrecy of the recipient authorities and is only authorised to the extent that theprofessional secrecy of such authorities offers guarantees at least equivalentto the professional secrecy of the CSSF. In particular, authorities which receiveinformation from the CSSF may only use such information for the purposes forwhich it has been communicated and must be able to ensure that no other usecan be made thereof.This Article shall furthermore not prevent the authorities or bodies referred toin this paragraph from communicating to the CSSF such information as it mayneed for the purposes of paragraph (4). Information received in this context bythe CSSF shall be subject to its professional secrecy.(8) This Article shall not prevent the CSSF from communicating the informationreferred to in paragraphs (1) to (4) to a clearing house or other similar bodyrecognised under national law for the provision of clearing or settlementservices for a market in Luxembourg if the CSSF considers it is necessary tocommunicate the information in order to ensure the proper functioning of thosebodies in relation to defaults or potential defaults by market participants.The communication of information by the CSSF authorised by this paragraphis subject to the condition that such information is covered by the professionalsecrecy of the recipient bodies and is only authorised to the extent thatthe professional secrecy of such bodies offers guarantees at least equivalentto the professional secrecy of the CSSF. In particular, bodies which receiveinformation from the CSSF may only use such information for the purposes forwhich it has been communicated and must be able to ensure that no other usecan be made thereof.78 Currently: Iceland, Liechtenstein and Norway.53

The information received by the CSSF pursuant to paragraphs (2) and (3) maynot be disclosed in the circumstances referred to in this paragraph without theexpress agreement of the supervisory authorities which have disclosed suchinformation to the CSSF.Art. 99 (1) The decisions to be adopted by the CSSF in implementation of this law shallstate the reasons on which they are based and, unless the delay entails risks,they shall be adopted after preparatory proceedings at which all parties areable to state their case 79 . They shall be notified by registered letter or deliveredby bailiff 80 .(2) The decisions by the CSSF concerning the granting, refusal or withdrawal ofthe authorisations provided for in this law may be referred to the administrativecourt 81 which will deal with the substance of the case. The case must be filedwithin one month from the date of notification of the contested decision, or elseshall be foreclosed.(3) The decision of the CSSF withdrawing the name of a UCI referred to in Articles2 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 decisionhas become final, ipso jure entail for such undertaking suspension of anypayment by said undertaking and prohibition for such undertaking, on painof nullity, to take any measures other than protective measures, except withthe authorisation of the supervisory commissioner 82 . The CSSF shall ipsojure hold the office of supervisory commissioner, unless at its request, theDistrict Court dealing with commercial matters appoints one or more supervisorycommissioners. The application, stating the reasons on which it is basedand accompanied by supporting documents, shall be lodged for that purposeat the Registry of the District Court in the district within which the undertakinghas 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 anorder in public session, without hearing the parties. If it deems it necessary, itshall convene the parties by notification from the Registrar 83 within three daysfrom the lodging of the application. It shall hear the parties in chambers andgive its decision in public session.The written authorisation of the supervisory commissioners is required for allmeasures and decisions of the undertaking and, failing such authorisation,they shall be void.The Court may, however, limit the scope of operations subject to authorisation.The commissioners may submit for consideration to the relevant bodies of theundertaking any proposals which they consider appropriate. They may attendproceedings of the administrative, management, executive or supervisorybodies of the undertaking.79 instruction contradictoire80 huissier (court process server)81 tribunal administratif82 commissaire de surveillance83 greffier54

The Court shall decide as to the expenses and fees of the supervisory commissioners;it may grant them advances.The judgment provided for in paragraph (1) of Article 104 of this law shallterminate the functions of the supervisory commissioner who must, withinone month after his replacement, submit to the liquidators appointed in suchjudgment a report on the use of the undertaking’s assets together with theaccounts 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 haveresigned.Art. 100 (1) The CSSF may prohibit the marketing in Luxembourg of units of a UCITSsituated in another Member State of the European Union if it infringes the provisionsof chapter 7.(2) The decision taken under paragraph (1) above is notified by the CSSF tothe UCI concerned and to the competent supervisory authorities of the homeMember 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 ofthe European Union, the CSSF shall collaborate closely with the competentauthorities of the Member States concerned.It shall supply on request all the information concerning the managementand the ownership of such management companies that is likely to facilitatetheir supervision and all information likely to facilitate the monitoring ofsuch companies. In particular, the CSSF shall cooperate to ensure that thecompetent authorities of the host Member State can collect the informationreferred to in Article 90, paragraph (2).(2) Insofar as it is necessary for the purpose of exercising its powers of supervision,the CSSF shall be informed by the competent authorities of the hostMember State of any measures taken by the host Member State pursuant toArticle 90, paragraph (6) which involve sanctions imposed on a managementcompany or restrictions on a management company’s activities.Art. 102 (1) Where a management company authorised in another Member State of theEuropean Union carries on business within Luxembourg through a branch,the competent authorities of the management company’s home Member Statemay, after informing the CSSF, carry out themselves or through the intermediaryof persons they instruct for the purpose, on-the-spot verification of theinformation referred to in Article 101.(2) The competent authorities of the management company’s home Member Statemay also ask the CSSF to have such verification carried out. Within the scopeof its powers, the CSSF shall act upon such requests either by carrying outthe verifications itself, by allowing the authorities who have requested them tocarry them out or by allowing external auditors 84 or experts to do so.(3) This Article shall not affect the right of the CSSF to carry out, within the exerciseof its duties under this law, on-the-spot verifications of branches establishedwithin Luxembourg.84 The French text of amended Directive 85/611/EEC refers to “commissaires aux comptes” which in France describesthe professionals referred to as réviseurs d’entreprises (external auditors) in Luxembourg.55

Art. 103Any decision to withdraw the authorisation of, or any other serious measuretaken against, a Luxembourg UCITS subject to Part I of this law or anysuspension of redemptions imposed upon it, shall be communicated withoutdelay by the CSSF to the supervisory authorities of the other Member States ofthe European Union where the units of the UCITS are marketed.Art. 104 (1) The District Court dealing with commercial matters 85 shall, at the request of thePublic Prosecutor 86 , acting on its own initiative or at the request of the CSSF,pronounce the dissolution and order the liquidation of the UCIs referred to inArticles 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 judge 87 andone or more liquidators. It shall determine the method of liquidation. It mayrender applicable to such extent as it may determine the rules governing liquidationin bankruptcy. The method of liquidation may be changed by subsequentdecision, 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 maygrant advances to them. The judgment pronouncing dissolution and orderingliquidation 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 thetransferable securities of the undertaking and reemploy the proceeds therefrom,issue or endorse any negotiable instruments, compound or compromise on allclaims. They may alienate immovable property of the undertaking by auction.They may also but only with the authorisation of the Court, mortgage andpledge its assets and alienate its immovable property by private treaty.(3) As from the day of the judgment, no legal actions relating to movable orimmovable property nor any enforcement procedures relating to movable orimmovable property may be pursued, commenced or exercised otherwise thanagainst the liquidators.The judgment ordering liquidation shall terminate all seizures effected at theinstance of general creditors who are not secured by charges 88 on movableand 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 tothem.(5) The liquidators may convene at their own initiative, and must convene at therequest of holders of units representing at least one fourth of the assets ofthe undertaking, a general meeting of unitholders for the purpose of decidingwhether instead of an outright liquidation it is appropriate to contribute theassets of the undertaking in liquidation to another UCI. That decision shallbe taken, provided that the general meeting is composed of a number ofunitholders representing at least one half of the outstanding units or capitalof the undertaking, by a majority of two thirds of the votes of the unitholderspresent or represented.85 tribunal d’arrondissement siégeant en matière commerciale86 procureur d’Etat87 juge-commissaire88 créanciers chirographaires et non privilégiés56

(6) The Court’s decisions pronouncing the dissolution and ordering the liquidationof a UCI shall be published in the Mémorial 89 and in two newspapers withadequate circulation specified by the Court, one of which at least must be aLuxembourg newspaper. The liquidator(s) shall arrange for such publications.(7) If there are no or insufficient assets, as ascertained by the reporting judge, thedocuments relating to the proceedings shall be exempt from any registry andregistration duties and the expenses and fees of the liquidators shall be borneby the Treasury and paid as judicial costs.(8) The liquidators shall be responsible both to third parties and to the UCI for thedischarge of their duties and for any faults committed in the conduct of theiractivities.(9) When the liquidation is completed, the liquidators shall report to the Court onthe use made of the funds of the undertaking and shall submit the accountsand 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 managementof 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 bekept for at least five years;- the measures taken in accordance with Article 107 with a view to thedeposit of the sums and funds due to creditors, unitholders or members towhom 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 liquidationprovided for in paragraph (9).Legal actions against the liquidators in connection with the performance of theirduties, shall be prescribed five years after the date of the facts or, in the eventof concealment thereof by wilful misconduct, five years after the discoverythereof.(11) The provisions of this Article shall equally apply to the UCIs which have notapplied to be entered on the list provided for in Article 94 within the time limitlaid 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 supervisionby the CSSF.(2) All documents issued by a UCI in liquidation shall indicate that it is in liquidation.Art. 106 (1) In the event of a non-judicial liquidation of a UCI, the liquidator(s) must beapproved by the CSSF. The liquidator(s) must provide all guarantees of honourabilityand professional skill.89 The Mémorial C, Recueil des Sociétés et Associations is the part of the official gazette in which certain requiredcorporate publications and notifications are made.57

Art. 107(2) Where a liquidator does not accept office or is not approved, the District Courtdealing with commercial matters shall, at the request of any interested party orof the CSSF, appoint the liquidator(s). The judgment appointing the liquidator(s)shall be provisionally enforceable, on the production of the original thereof andbefore registration, notwithstanding any appeal or objection.In the event of a voluntary or compulsory liquidation of a UCI within the meaningof this law, the sums and assets payable in respect of units whose holdersfailed to present themselves at the time of the closure of the liquidation, shallbe paid to the public trust office 90 to be held for the benefit of the personsentitled thereto.Art. 108 (1) The directors or members of the management organ 91 , as the case may be,managers and officers of UCIs subject to supervision by the CSSF as well asthe liquidators in the case of voluntary liquidation of a UCI may have a fine offifteen to five hundred euro imposed upon them by the said authority in theevent of their refusing to provide the financial reports and the requested informationor 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 ofany other serious irregularity being recorded.(2) The same fine may be imposed upon any person who infringes the provisionsof Article 96.Chapter 17. – Obligations concerning information to be suppliedto unitholdersA. – Publication of a prospectus and periodical reportsArt. 109 (1) The investment company and, for each of the common funds it manages, themanagement 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 followingtime 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 notapplicable 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 shallnot apply to undertakings for collective investment of the closed-end type.Art. 110 (1) Both the simplified and the full prospectus must include the informationnecessary for investors to be able to make an informed judgment of theinvestment proposed to them, and, in particular, of the risks attached thereto.The full prospectus shall include a clear easily understandable description ofthe fund’s risk profile, irrespective of the instruments in which it invests.90 Caisse de Consignation91 le directoire58

(2) The full prospectus shall contain at least the information provided for in ScheduleA of Annex I to this law insofar as such information does not already appear inthe constitutional documents annexed to the full prospectus in accordance withArticle 111, paragraph (1).(3) The simplified prospectus shall contain in summary form the key informationprovided for in Schedule C of Annex I to this law. It shall be structured andwritten in such way that it can be easily understood by the average investor. Thesimplified prospectus may be attached to the full prospectus as a removablepart of it. The simplified prospectus can be used as a marketing tool designedto be used in all Member States of the European Union without any alterationsexcept for its translation.(4) Both the full and the simplified prospectus may be incorporated in a writtendocument or in any durable medium having an equivalent legal status andbeing approved by the CSSF.(5) The annual report must include a balance sheet or a statement of assets andliabilities, a detailed income and expenditure account for the financial year,a report on the activities of the past financial year and the other informationprovided for in Schedule B of Annex I to this law, as well as any significantinformation which will enable investors to make an informed judgment on thedevelopment of the activities and the results of the UCI.(6) The semi-annual report must include at least the information provided for inchapters I to IV of Schedule B of Annex I to this law; where a UCI has paid orproposes to pay an interim dividend, the figures must indicate the results aftertax 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) maybe 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 fulfilcertain conditions.Art. 111 (1) The management regulations of the fund or the constitutional documents of theinvestment company shall form an integral part of the full prospectus and mustbe annexed thereto.(2) The documents referred to in paragraph (1) need not, however, be annexed tothe full prospectus provided that the unitholder is informed that on his requesthe will either be sent those documents or be apprised of the place where, ineach Member State where the units are placed on the market, he may consultthem.Art. 112The essential elements of the simplified and the full prospectus must be keptup-to-date.Art. 113 (1) Luxembourg UCIs must have the accounting information given in their annualreport audited by an authorised external auditor 92 .The auditor’s report and its qualifications (if any) are set out in full in eachannual report.The auditor must justify having appropriate professional experience.(2) The auditor shall be appointed and remunerated by the UCI.92 réviseur d’entreprises agréé59

(3) The auditor must report promptly to the CSSF any fact or decision of which hehas become aware while carrying out the audit of the accounting informationcontained in the annual report of a UCI or any other legal task concerning aUCI, where such fact or decision is likely to:– constitute a material breach of this law or the regulations adopted for itsexecution, or– affect the continuous functioning of the UCI, or– lead to a refusal to certify the accounts or to the expression of qualificationsthereon.The auditor likewise has a duty to promptly report to the CSSF, in the accomplishmentof its duties referred to in the preceding sub-paragraph in respectof a UCI, any fact or decisions concerning the UCI and meeting the criteriareferred to in the preceding subparagraph of which he has become awarewhile carrying out the audit of the accounting information contained in theannual report of another undertaking having close links resulting from a controlrelationship with the UCI or while carrying out any other legal task concerningsuch other undertaking.For the purpose of this Article, a close link resulting from a control relationshipshall mean the link which exists between a parent undertaking and a subsidiaryin the cases referred to in Article 77 of the law of 17 June 1992 concerning theannual accounts and consolidated accounts of credit institutions, as amended 93 ,or as a result of a relationship of the same type between any individual or legalentity and an undertaking; any subsidiary undertaking of a subsidiary undertakingis also considered as a subsidiary of the parent undertaking which is atthe head of those undertakings. A situation in which two or more individuals orlegal persons are permanently linked to one and the same person by a controlrelationship shall also be regarded as constituting a close link between suchpersons.If, in the discharge of his duties, the auditor ascertains that the informationprovided to investors or to the CSSF in the reports or other documents of theUCI does not truly describe the financial situation and the assets and liabilitiesof the UCI, he shall be obliged to inform the CSSF forthwith.The auditor shall moreover be obliged to provide the CSSF with all informationor certificates required by the latter on any matters of which the auditor has orought to have knowledge in connection with the discharge of his duties. Thesame applies if the auditor ascertains that the assets of the UCI are not orhave not been invested according to the regulations set out by the law or theprospectus.The disclosure in good faith to the CSSF by the auditor of any fact or decisionreferred to in this paragraph shall not constitute a breach of professionalsecrecy or of any restriction on disclosure of information imposed by contractand shall not result in liability of any kind of the auditor.The CSSF may regulate the scope of the auditor’s mandate and the contentsof the audit report on the annual accounts.93 loi modifiée du 17 juin 1992 relative aux comptes annuels et les comptes consolidés des établissements decrédit60

The CSSF may request an auditor to perform a control on one or severalparticular aspects of the activities and operations of a UCI. This control isperformed at the expense of the UCI concerned.(4) The CSSF shall refuse or withdraw the entry on the list of UCIs whose auditordoes not satisfy the conditions or does not discharge the obligations prescribedin this Article.(5) The institution of commissaires aux comptes (statutory auditors) provided forby Articles 61, 109, 114 and 200 of the law of 10 August 1915 on commercialcompanies, as amended, is repealed with respect to Luxembourg investmentcompanies. The directors or the management organ, as the case may be, aresolely competent in all cases where the law of 10 August 1915 on commercialcompanies, as amended, provides for the joint action of the statutory auditorsand the directors or the management organ, as the case may be.The institution of statutory auditors 94 provided for by Article 151 of the law of10 August 1915 on commercial companies, as amended 95 , is not applicableto Luxembourg investment companies. Upon completion of the liquidation, areport on the liquidation shall be drawn up by the auditor. This report shall betabled at the general meeting at which the liquidators report on the applicationof the corporate assets and submit the accounts and supporting documents.The same meeting shall resolve on the approval of the accounts of the liquidation,the discharge and the closure of the liquidation.(6) The accounting information included in the annual reports of foreign UCIs asreferred to in Article 76 must be audited by an independent expert providing allguarantees of honourability and professional skill.Paragraphs (2), (3) and (4) are applicable to the case referred to in thisparagraph.Art. 114 (1) UCIs must send their simplified and full prospectuses and any amendmentsthereto, 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 bysuch means as it shall consider adequate.Art. 115 (1) The simplified prospectus must be offered to subscribers free of charge beforethe conclusion of the contract.In addition, the full prospectus and the latest published annual and semi-annualreports must be remitted to subscribers free of charge upon their request.(2) The annual and semi-annual reports shall on request be supplied to unitholdersfree of charge.(3) The annual and semi-annual reports must be available to the public at theplaces or through other means approved by the CSSF specified in the full andsimplified prospectuses.94 commissaires aux comptes - A statutory auditor under company law is an organ of the Company with a certaincontrol and surveillance function.95 loi du 10 août 1915 concernant les sociétés commerciales, telle que modifiée61

B. – Publication of other informationArt. 116 (1) The UCITS referred to in Article 2 of this law must make public the issue, saleand redemption price of their units each time they issue, sell and redeem theirunits, and at least twice a month. The CSSF may, however, permit a UCITSto reduce this frequency to once a month, on condition that such a derogationdoes not prejudice the interests of unitholders.(2) The UCIs referred to in Article 63 of this law must make public the issue, saleand redemption price of their units each time they issue, sell and redeem theirunits, and at least once a month. The CSSF may however grant derogationstherefrom upon a duly justified application.Art. 117All publicity comprising an invitation to purchase the units of a UCI must indicatethat a prospectus or prospectuses exist and the places where it or they may beobtained by the public or how the public may have access thereto.Art. 118C. – Transmission of other information to the CSSFThe CSSF may request the UCIs to provide any information relevant to thefulfilment of its duties and may for that purpose itself or through appointeesexamine the books, accounts, registers or other records and documents ofUCIs.D. – Protection of NameArt. 119 (1) No UCI shall make use of designations or of a description giving the impressionthat its activities are subject to this law if it has not obtained the authorisationprovided for in Article 94. The UCIs referred to in Articles 58 and 76 may usethe designation they bear according to their national law. However, should thisbe misleading, these undertakings shall accompany the designation they usewith adequate particulars.(2) The District Court dealing with commercial matters of the place where the UCIis situated or of the place where the designation has been used, may at therequest of the Public Prosecutor issue an injunction, prohibiting anyone fromusing the designation as defined in paragraph (1), if the conditions provided forby this law are not or no longer met.(3) The final judgment of the District Court, of the Court of Appeals or of theSupreme Court which delivers this injunction, is published by the Public Prosecutorand at the expense of the person sentenced in two Luxembourg orforeign newspapers with adequate circulation.Art. 120Chapter 18. – Criminal law provisionsA penalty of imprisonment from one month to one year and a fine of fivehundred to twenty-five thousand euro or either such penalty shall be imposedupon:(1) any person who has issued or redeemed or caused to be issued or redeemedunits of a common fund in the cases referred to in Articles 12 (3), 22 (3) of thislaw and in Article 66 of this law to the extent that such Article provides thatchapter 9 is subject to Articles 12 (3) and 22 (3) of this law;62

(2) any person who has issued or redeemed units of a common fund at a priceother than that obtained by application of the criteria provided for in Articles9 (1), 9 (3), 11 (3) and in Article 66 of this law to the extent that such Articleprovides 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 thecase may be, manager or commissaire (auditor) of the management companyor the depositary has made loans or advances on units of the common fundusing assets of the said fund, or who has by any means at the expense ofthe common fund, made payments in order to pay up units or acknowledgedpayments 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 totwenty-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, ormanager of the management company who has failed to inform the CSSFwithout delay that the net assets of the common fund have fallen below twothirds and one fourth respectively of the legal minimum for the net assets ofthe common fund;2) any director or member of the management organ, as the case may be, ormanager of the management company who has infringed Article 10 andArticles 41 to 52 of this law, Article 66 of this law to the extent that suchArticle provides that chapter 9 is subject to Article 10 of this law and theregulations taken pursuant to Article 67 of this law.(2) A fine of five hundred to twenty-five thousand euro shall be imposed uponany persons who in infringement of Article 119 purport to use a designation ordescription giving the impression that they relate to the activities subject to thislaw if they have not obtained the authorisation provided for in Article 94.Art. 122Art. 123Art. 124A fine of five hundred to ten thousand euro shall be imposed on the directorsor members of the management organ, as the case may be, or managers ofthe management company or the investment company who have not causedthe issue and redemption price of the units of the UCI to be determined atthe specified intervals or who have not made such prices public according toArticle 116 of this law.A penalty of imprisonment from one month to one year and a fine of five hundredto twenty-five thousand euro or either of such penalties shall be imposed uponthe founders, directors or members of the management organ, as the casemay be, or managers of an investment company who have infringed the provisionsof Articles 28 (2), 28 (4), 28 (10) and 31 of this law; of Article 40 to theextent 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 theextent 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 lawand of the regulations implementing Article 75 of this law.A penalty of imprisonment of one month to one year and a fine of five hundredto twenty-five thousand euro or either of such penalties shall be imposed uponthe directors or members of the management organ, as the case may be, ormanagers of an investment company who have not convened the extraordinarygeneral meeting in accordance with Article 30 of this law; Article 40 ofthis law to the extent that it provides that chapter 4 is subject to Article 30 of this63

Art. 125law; Article 71 to the extent that it provides that chapter 10 is subject to Article30 of this law and Article 74 (2) to (4) of this law.A penalty of imprisonment of three months to two years and a fine of fivehundred to fifty thousand euro or either of such penalties shall be imposed onanyone who has carried out or caused to be carried out operations involvingthe receipt of savings from the public with a view to investment if the UCI forwhich 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 hundredto twenty-five thousand euro or either of such penalties shall be imposed onthe directors 96 of UCIs of the kind referred to in Articles 73 and 76 who failed toobserve the conditions imposed upon them by this law.(2) The same penalties or either of them only shall be imposed upon the directors 97of UCIs referred to in Articles 2 and 63 of this law who, notwithstanding theprovisions of Article 99, paragraph (4), have taken measures other thanprotective measures without being authorised for that purpose by the supervisorycommissioner.Chapter 19. – Tax provisionsArt. 127 (1) Apart from the capital duty 98 levied on the contribution of capital to civil andcommercial companies and the subscription tax 99 mentioned in Article 129below, 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 adeduction at source and are not taxable if received by non-residents.Art. 128 (...) 100Art. 129 (1) The rate of the annual subscription tax payable by the undertakings referred toin 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 inmoney market instruments and the placing of deposits with credit institutions;b) undertakings the exclusive object of which is the collective investment indeposits with credit institutions;c) undertakings which are subject to the law of 13 February 2007 concerningspecialised investment funds;d) individual compartments of UCIs with multiple compartments referred to inthe present law as well as for individual classes of securities issued within aUCI or within a compartment of a UCI with multiple compartments, providedthat the securities of such compartments or classes are reserved to one ormore institutional investors.96 See footnote 25.97 See footnote 25.98 droit d’apport99 taxe d’abonnement100 Repealed by the law of 19 December 2008.64

Art. 130Art. 131(3) Are exempt from the subscription tax(a) the value of the assets represented by units held in other UCIs, providedsuch units have already been subject to the subscription tax provided forby this Article or by Article 68 of the law of 13 February 2007 on specialisedinvestment 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 marketinstruments 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 ratingagency.Where several classes of securities exist within the UCI or the compartment,the exemption only applies to classes whose securities are reserved forinstitutional investors.(c) UCIs whose securities are reserved for i) institutions for occupationalretirement provision, or similar investment vehicles, created at the initiativeof a same group for the benefit of its employees and ii) undertakings of thissame group investing funds they hold, to provide retirement benefits to theiremployees.(4) A grand-ducal regulation shall determine the conditions necessary for the applicationof the rate of 0.01 per cent and the exemption, and the criteria which themoney market instruments referred to above must comply with 101 .(5) The taxable basis of the subscription tax shall be the aggregate net assets ofthe UCI as valued on the last day of each quarter.(6) The preceding provisions apply mutatis mutandis to the individual compartmentsof a UCI with multiple compartments.Article 44 (1) d) of the amended law of 12 February 1979 concerning valueadded tax is amended to read as follows: “d) the management of UCIs andpension funds subject to the supervision of the CSSF or the Commissariat auxAssurances.” 102The duties of the registration administration 103 include the fiscal control ofUCIs.If, at any date after the constitution of the undertakings referred to in thislaw, the said administration ascertains that such undertakings are engaging inoperations which fall outside the framework of the activities authorised by thislaw, the fiscal provisions provided for in Articles 127 to 129 shall cease to beapplicable.Moreover, the registration administration may levy a fiscal fine of 0.2% on theaggregate 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 subscriptiontax referred to in Article 129 of the law of 20 December 2002 relating to undertakings for collective investment.102 The effect of this provision is to exonerate these services from Luxembourg VAT.103 Administration de l’Enregistrement65

Chapter 20. – Special provisions in relation to the legal formArt. 132 (1) The investment companies entered in the list provided for by Article 94 (1) maybe converted into SICAVs and their Articles of incorporation may be broughtinto harmony with the provisions of chapter 3, or as the case may be, chapter10 of this law by resolution of a general meeting passed at a majority of twothirds of the votes of the shareholders present or represented regardless of theportion of the capital represented.(2) The common funds referred to in chapter 2 or, as the case may be, in chapter9 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 casemay be, chapter 10 of this law.Art. 133 (1) UCIs may be constituted with multiple compartments, each compartment correspondingto a distinct part of the assets and liabilities of the UCI.(2) The constitutional documents of the UCI must expressly provide for that possibilityand the applicable operational rules. The issue prospectus must describethe specific investment policy of each compartment.(3) The shares and units of UCIs with multiple compartments may be of differentvalue with or without indication of a par value depending on the legal formwhich has been chosen.(4) Common funds with multiple compartments may, by separate managementregulations, determine the characteristics of and rules applicable to eachcompartment.(5) The rights of investors and of creditors concerning a compartment or whichhave arisen in connection with the creation, operation or liquidation of acompartment are limited to the assets of that compartment, unless a clauseincluded in the constitutional documents provides otherwise.The assets of a compartment are exclusively available to satisfy the rightsof investors in relation to that compartment and the rights of creditors whoseclaims have arisen in connection with the creation, the operation or the liquidationof that compartment, unless a clause included in the constitutionaldocuments provides otherwise.For the purpose of the relations as between investors, each compartment willbe deemed to be a separate entity, unless a clause included in the constitutionaldocuments provides differently.(6) Each compartment of an undertaking may be separately liquidated withoutsuch separate liquidation resulting in the liquidation of another compartment.Only the liquidation of the last remaining compartment of the UCI will result inthe liquidation of the UCI as referred to in Article 106 (1) of this law.Art. 133bisAll the provisions of this law referring to the “public limited company” shall beunderstood as referring also to the “European company (SE)”.66

Chapter 21. – Transitional and repealing provisionsArt. 134 (1) UCITS subject to Part I of the law of 30 March 1988 on undertakings forcollective investment, as amended, established before 13 February 2002 may,until 13 February 2007, elect to remain subject to the prementioned amendedlaw of 30 March 1988 or to be governed by this law. From and including13 February 2007, they shall ipso jure be governed by this law.The establishment of a new compartment does not affect the option that may beexercised pursuant to the preceding paragraph. Such option must be exercisedin respect of the UCITS in its entirety, and such exercise will cover all compartments.(2) UCITS subject to Part I of the law of 30 March 1988 on undertakings forcollective investment, as amended, established between 13 February 2002and the date of entry into force of this law 104 may until 13 February 2004 electto remain subject to the prementioned amended law of 30 March 1988 or tobe governed by this law. As from 13 February 2004 they shall be ipso juregoverned by this law.(3) UCITS within the meaning of Article 1 of the law of 30 March 1988 concerningundertakings for collective investment as amended, but excluding thosedescribed in Article 2 of such law, established between the date of entry intoforce of this law 105 and 13 February 2004 may elect to be governed by theprementioned amended law of 30 March 1988 or by the present law. As from13 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 areinvestment companies which have been authorised prior to 13 February 2004,the references in such paragraphs to the present law do not include Article27, provided these investment companies may until 13 February 2007 elect tosubject such provision.(5) UCIs other than the UCITS referred to in paragraphs (1) to (3) establishedbefore the entry into force of the present law 106 will remain subject to the provisionsof the law of 30 March 1988 on undertakings for collective investment,as amended, until 13 February 2004. They may however elect to be governedby the present law as from its entry into force. From and including 13 February2004 they shall be ipso jure governed by the present law.(6) UCIs established between the entry into force of the present law 107 and13 February 2004, have the option to be governed by the provisions of thislaw or the provisions of the law of 30 March 1988 concerning undertakings forcollective investment, as amended. From and including 13 February 2004 theyshall be ipso jure governed by the present law.(7) All UCIs established as from 13 February 2004 will ipso jure be governed bythe present law unless they are subject to a specific separate law 108 .104 This law entered into force on 1 January 2003.105 This law entered into force on 1 January 2003.106 This law entered into force on 1 January 2003.107 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.67

Art. 135 (1) The present law is applicable to all management companies incorporatedunder Luxembourg law. For those management companies incorporated underLuxembourg law which exist at the date of its entry into force 109 , all referencesin their Articles of incorporation to the law of 30 March 1988 will be deemed tobe replaced by references to the present law. These companies are granted aperiod 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 presentlaw 110 are ipso jure subject to the provisions of chapter 14 and are deemedauthorised pursuant to Article 91 (1) of this law. To the extent that they manageUCITS governed by Directive 85/611/EEC, they must comply with the provisionsof chapter 13 of the present law no later than 13 February 2007.(3) Management companies authorised between the date of entry into forceof this law 111 and 13 February 2004 have the option to submit themselvesto chapter 13 or to chapter 14 of this law. To the extent that they aresubject to chapter 14 and that they manage UCITS governed by Directive85/611/EEC, they must comply with the provisions of chapter 13 no later than13 February 2007.(4) Only management companies authorised pursuant to the provisions of chapter13 of this law may benefit from the provisions of Directive 85/611/EEC inrespect 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 1993on the financial sector, as amended, which are only authorised to providethe services described in Section A item 3 and in Section C items 1 and 6of Annex II of such law 112 , may be authorised pursuant to the present law tomanage common funds and investment companies and to call themselves“management companies”. In such case, these investment firms must waivethe authorisation obtained pursuant to Directive 2004/39/EC. They thenbecome subject, depending on the date when they obtain their authorisation,to paragraph (1) or paragraph (2) above.Art. 136Art. 137Art. 138References to the present law may be made by using the following abridgedtitle: “law of 20 December 2002 on undertakings for collective investment”.The law of 30 March 1988 on undertakings for collective investment, asamended, is repealed effective on 13 February 2007.The present law shall enter into force the first day of the month following itspublication in the Mémorial 113 .109 This law entered into force on 1 January 2003.110 This law entered into force on 1 January 2003.111 This law entered into force on 1 January 2003.112 Article 13 (1) and Annex II of the law of 5 April 1993 on the financial sector, as amended, were amended by the lawof 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 on1 January 2003.68

ANNEXE ISchedule A1. Information concerning thecommon fund1. Information concerning themanagement company1. Information concerning theinvestment company1.1. Name 1.1. Name or style, legal form,registered office and headoffice, if different from theregistered office1.2. Date of establishment of thefund. Indication of duration, iflimited1.3. In the case of common fundshaving different investmentcompartments, indication ofthe compartments1.4. Statement of the place wherethe management regulations,if they are not annexed, andperiodical reports may beobtained1.5. Brief indications relevant tounitholders of the tax systemapplicable to the fund. Detailsof whether deductionsare made at source from theincome and capital gainspaid by the fund to unitholders1.6. Accounting and distributiondates1.7. Names of the personsresponsible for auditingthe accounting informationreferred to in Article 1131.2. Date of incorporation of thecompany. Indication of duration,if limited1.3. If the company managesother common funds, indicationof those other funds1.1. Name or style, legal form,registered office and headoffice if different from theregistered office1.2. Date of incorporation of thecompany. Indication of duration,if limited1.3. In the case of investmentcompanies having differentinvestment compartments,indication of the compartments1.4. Statement of the place wherethe instruments of incorporation,if they are not annexed,and periodical reports maybe obtained1.5. Brief indications relevant tounitholders of the tax systemapplicable to the company.Details of whether deductionsare made at sourcefrom the income and capitalgains paid by the company tounitholders1.6. Accounting and distributiondates1.7. Names of the personsresponsible for auditingthe accounting informationreferred to in Article 11369

1. Information concerning thecommon fund1. Information concerning themanagement company1. Information concerning theinvestment company1.10. Details of the types and maincharacteristics of the unitsand in particular:– the nature of the right(real, personal or other)represented by the unit,– original securities orcertificates providing evidenceof title; entry in aregister or in an account,– characteristics of theunits: registered orbearer. Indication of anydenominations whichmay be provided for,– indication of unitholders’voting rights if theseexist,– circumstances in whichwinding-up of the fundcan be decided on andwinding-up procedure, inparticular as regards therights of unitholders1.11. Where applicable, indicationof stock exchanges ormarkets where the units arelisted or dealt in1.12. Procedures and conditions ofissue and/or sale of units1.8. Names and positions in thecompany of the members ofthe administrative, managementand supervisory bodies.Details of their main activitiesoutside the company wherethese are of significance withrespect to the company1.9. Amount of the subscribedcapital with an indication ofthe paid-up capital1.8. Names and positions in thecompany of the members ofthe administrative, managementand supervisory bodies.Details of their main activitiesoutside the company wherethese are of significance withrespect to the company1.9. Capital1.10. Details of the types and maincharacteristics of the sharesand in particular:– original securities orcertificates providing evidenceof title; entry in aregister or in an account,– characteristics of theshares: registered orbearer. Indication of anydenominations whichmay be provided for,– indication of shareholders’voting rights,– circumstances in whichwinding-up of theinvestment companycan be decided on andwinding-up procedure, inparticular as regards therights of shareholders1.11. Where applicable, indicationof stock exchanges or marketswhere the shares arelisted or dealt in1.12. Procedures and conditions ofissue and/or sale of shares70

1. Information concerning thecommon fund1. Information concerning themanagement company1. Information concerning theinvestment company1.13. Procedures and conditionsfor the repurchase orredemption of units, andcircumstances in whichthe repurchase or redemptionmay be suspended. Inthe case of common fundshaving different investmentcompartments, informationon how a unitholder maypass from one compartmentinto another and the chargesapplicable in such case.1.14. Description of rules for determiningand applying income1.15. Description of the commonfund’s investment objectivesincluding its financial objectives(e.g. capital growthor income), investmentpolicy (e.g. specialisation ingeographical or industrialsectors), any limitations onthat investment policy and anindication of any borrowingtechniques and instrumentsor powers which may beused in the management ofthe fund1.16. Rules for the valuation ofassets1.13. Procedures and conditionsfor the repurchase orredemption of shares, andcircumstances in which repurchaseor redemption maybe suspended. In the caseof investment companieshaving different investmentcompartments, informationon how a shareholder maypass from one compartmentinto another and the chargesapplicable in such case.1.14. Description of rules for determiningand applying income1.15. Description of the company’sinvestment objectives, includingfinancial objectives (e.g.capital growth or income),investment policy (e.g.specialisation in geographicalor industrial sectors), anylimitations on that investmentpolicy and an indication ofany borrowing techniquesand instruments or powerswhich may be used in themanagement of the company1.16. Rules for the valuation ofassets71

1. Information concerning thecommon fund1. Information concerning themanagement company1. Information concerning theinvestment company1.17. Determination of the sale orissue price and the redemptionor repurchase price ofunits, in particular:– the method and frequencyof the calculationof those prices– information concerningthe charges relating tothe sale, issue, repurchase,redemption ofunits– the means, places andfrequency of the publicationof those prices1.17. Determination of the sale orissue price and the redemptionor repurchase price ofshares, in particular:– the method and frequencyof the calculationof those prices– information concerningthe charges relating tothe sale, issue, repurchase,redemption ofshares– the means, places andfrequency of the publicationof those prices1.18. Information concerningthe manner, amount andcalculation of remunerationpayable by the fund to themanagement company, thedepositary or third parties,and reimbursement of anycosts by the fund to the managementcompany, to thedepositary or to third parties1.18. Information concerning themanner, amount and calculationof remuneration paid bythe company to its directors,and members of the administrative,management andsupervisory bodies, to thedepositary, or to third parties,and reimbursement of anycosts by the company to itsdirectors, to the depositary orto third parties2. Information concerning the depositary:2.1. Name or style, legal form, registered office and head office if different from the registered office;2.2. Main activity.3. Information concerning the advisory firms or external investment advisers who give advice undercontract 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 companywhich 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 redeemingunits and making available information concerning the UCITS. Such information must in anycase be given in Luxembourg. In addition, where units are marketed in another Member State, suchinformation shall be given in respect of that Member State in the prospectus circulated therein.72

5. Other investment information:5.1. Historical performance of the common fund or of the investment company (where applicable) –such information may be either included in or attached to the prospectus.5.2. Profile of the typical investor for whom the common fund or the investment company is designed.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 betweenthose to be paid by the unitholder and those to be paid out of the common fund’s or ofthe investment company’s assets.73

SCHEDULE BInformation to be included in the periodical reportsI. 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 circulationIII. Net asset value per unitIV. Portfolio, distinguishing between:a) transferable securities and money market instruments admitted to official stockexchange listing;b) transferable securities and money market instruments dealt in on another regulatedmarket;c) recently issued transferable securities and money market instruments of the typereferred to in Article 41 (1) d);d) other transferable securities and money market instruments of the type referred to inArticle 41 (2) a);and analysed in accordance with the most appropriate criteria in the light of the investmentpolicy 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 representsof 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 referenceperiod including the following:– income from investments,– other income,– management charges,– depositary’s charges,– other charges and taxes,– net income,74

– 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 financialyear, 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 theUCITS during the reference period, of the resulting amount of commitments.75

SCHEDULE CContents of the simplified prospectusBrief presentation of the UCITS– when the common fund or the investment company was created and indication of theMember State where the common fund or the investment company has been registered/incorporated,– in the case of UCITS having different investment compartments, the indication of thiscircumstance,– management company (when applicable),– expected period of existence (when applicable),– depositary,– auditors 114 ,– 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 briefassessment of the fund’s risk profile (including, if applicable, information according toArticle 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 maybe either included in or attached to the prospectus),– profile of the typical investor the common fund or the investment company is designedfor.Economic information– tax regime,– entry and exit commissions,– other possible expenses or fees, distinguishing between those to be paid by theunitholder and those to be paid out of the common fund’s or the investment company’sassets.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 oneinvestment 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 amendedDirective 85/611/EEC. It should be understood as a reference to the “réviseur d’entreprises” as provided for inArticle 113 of the law.76

– when and how dividends on units or shares of the UCITS (if applicable) aredistributed,– 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 reportsmay 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 explanationsmay be obtained if needed,– publication date of the prospectus.For UCITS with multiple compartments, the investment information and the economic andcommercial information must be given for each compartment.77

ANNEX IIFunctions 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.– Marketing78

GRAND-DUCAL REGULATION OF 14 APRIL 2003 ESTABLISHING THE TERMS ANDAMOUNT OF THE FIXED CAPITAL DUTY PAYABLE PURSUANT TO ARTICLE 128 OFTHE LAW OF 2O DECEMBER 2002 RELATING TO UNDERTAKINGS FOR COLLECTIVEINVESTMENT*Art. 1.Art. 2.Art. 3.Art. 4.Art. 5.Art. 6.Art. 7.The fixed capital duty payable pursuant to Article 128 of the law of20 December 2002 relating to undertakings for collective investment is fixed at1,250 euro.The fixed duty is payable at the constitution and covers any aggregation ofcapital which may be carried out by an undertaking for collective investment,inter alia where the capital is increased, where an undertaking subject to theaforementioned law is transformed into another undertaking subject to that lawand where such undertakings merge.In respect of the aggregation of capital effected after 1 October 1983 in undertakingsfor collective investment existing at that date, capital duty paid onformation by such undertakings has the same effects as those set out inparagraph 2 of Article 1 and which derive from the payment of the fixed capitalduty referred to in paragraph 1 of such Article.The transformation of an undertaking for collective investment governed bythe law of 30 March 1988 on undertakings for collective investment or bythe law of 19 July 1991 concerning undertakings for collective investment thesecurities of which are not intended to be placed with the public into an undertakinggoverned by the law of 20 December 2002 relating to undertakings forcollective investment does not cause the fixed capital duty referred to in Article1 to become payable.The conversion of a civil company 115 or of a commercial company not governedby the law of 20 December 2002 relating to undertakings for collective investmentinto an undertaking subject to the provisions of such law, triggers the fixedcapital duty referred to in Article 1.The transformation of an undertaking for collective investment subject to thelaw of 20 December 2002 relating to undertakings for collective investment intoa civil or commercial company not subject to the provisions of such law, triggersthe capital duties which according to the law of 29 December 1971 on the taxlevied on the aggregation of capital in civil and commercial companies wouldhave been payable on the aggregation of capital effected during the periodin which the relevant undertaking was subject to the particular conditions ofundertakings for collective investment. The fixed capital duty of Article 1 will notbe set off against the duties due.The grand-ducal regulation of 30 March 1988 is abrogated effective13 February 2007.Our Minister of the Treasury and Budget is responsible for the execution of thepresent 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 civile79

GRAND-DUCAL REGULATION OF 14 APRIL 2003 DETERMINING THE CONDITIONSAND CRITERIA FOR THE APPLICATION OF THE SUBSCRIPTION TAX REFERRED TOIN ARTICLE 129 OF THE LAW OF 20 DECEMBER 2002 RELATING TO UNDERTAKINGSFOR COLLECTIVE INVESTMENTArt. 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 forcollective investment, means any debt securities and instruments, irrespectiveof whether they are transferable securities or not, including bonds, certificatesof deposits, deposit receipts and all other similar instruments, provided that, atthe time of their acquisition by the relevant undertaking, their initial or residualmaturity does not exceed twelve months, taking into account the financialinstruments connected therewith, or the terms and conditions governing thosesecurities provide that the interest rate applicable thereto is adjusted at leastannually on the basis of market conditions.Art. 2.Art. 3.Art. 4.Art. 5.The Commission de Surveillance du Secteur Financier establishes a list ofundertakings for collective investment governed by the law of 20 December2002, which fulfil the conditions required to benefit from the reduced rate, forthe purpose of calculating the annual subscription tax 116 . The inscription onthe appropriate list is carried out at the request of the undertakings concernedwhich are undertakings the exclusive object of which either is the collectiveinvestment in money market instruments and the placing of deposits with creditestablishments or is the collective placing of deposits with credit establishments.This inscription is subject to the condition that the prospectus of theapplying undertaking specifically indicates its investment policy.The provisions of the preceding paragraph apply mutatis mutandis to theindividual compartments of an undertaking for collective investment withmultiple compartments.In order to obtain application of the exemption from the subscription tax inrespect of the value of the assets represented by units of other undertakingsfor collective investment which are already submitted to the subscription taxprovided for by Article 129 of the law of 20 December 2002, the undertakingswhich hold such units must declare their value separately in the periodical declarationsthey file with the Administration de l’Enregistrement et des Domaines.The amended grand-ducal regulation of 14 April 1995 adopted pursuant tothe amended law of 30 March 1988 relating to undertakings for collectiveinvestment is repealed effective 13 February 2007.Our Ministry of the Treasury and Budget is responsible for the execution of thepresent regulation which will be published in the Mémorial.116 taxe d’abonnement80

Grand-Ducal Regulation of 08 February 2008 relating to certaindefinitions of the law of 20 December 2002 as amended concerningundertakings FOR collective investment and implementing theDirective 2007/16/EC of the European Commission implementing CouncilDirective 85/611/EEC on the coordination of laws, regulations andadministrative provisions relating to undertakings for collectiveinvestment in transferable securities (UCITS) as regards the clarificationof certain definitionsArticle 1Subject matterThis Regulation lays down rules clarifying the following terms of the law of 20 December 2002as amended concerning undertakings for collective investments (“the law of 20 December2002 as amended)1. transferable securities, as defined in Article 1, item 26 117 of the law of 20 December 2002as amended;2. money market instruments, as defined in Article 1, item 18 118 of the law of 20 December2002 as amended;3. liquid financial assets, as referred to in the definition of undertakings for collectiveinvestment (UCITS) laid down in Article 2 paragraph (2) of the law of 20 December 2002with respect to financial derivative instruments;4. transferable securities and money market instruments embedding derivatives, as referredto in the fourth subparagraph of Article 42 paragraph (3) of the law of 20 December 2002as amended;5. techniques and instruments for the purpose of efficient portfolio management, as referredto 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 of20 December 2002 as amended.Article 2Transferable securities1. The reference in Article 1, item 26 119 of the law of 20 December 2002 as amended totransferable securities shall be understood as a reference to financial instruments which fulfilthe following criteria:(a) the potential loss which the UCITS may incur with respect to holding those instruments islimited 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 24118 English version item 14; German version item 8119 See footnote 117.81

(i) in the case of securities admitted to or dealt in on a regulated market as referred to inpoints (a) to (d) of Article 41(1) of the law of 20 December 2002 as amended, in theform of accurate, reliable and regular prices which are either market prices or pricesmade 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 of20 December 2002 as amended in the form of a valuation on a periodic basis which isderived from information from the issuer of the security or from competent investmentresearch;(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 toin points (a) to (d) of Article 41(1) of the law of 20 December 2002 as amended in theform of regular, accurate and comprehensive information to the market on the securityor, 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 of20 December 2002 as amended in the form of regular and accurate information to theUCITS 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, orboth, 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 UCITSthat would lead to a different determination, financial instruments which are admitted or dealtin on a regulated market in accordance with points (a), (b) or (c) of Article 41(1) of the lawof 20 December 2002 as amended shall be presumed not to compromise the ability of theUCITS to comply with Articles 11 (2), 28(1) b) and 40 respectively of the law of 20 December2002 as amended and shall also be presumed to be negotiable.2. Transferable securities as referred to in Article 1, item 26 120 of the law of 20 December2002 as amended shall be taken to include the following:(a) units in closed end undertakings for collective investment constituted as investmentcompanies 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 theclosed end undertaking for collective investment, that entity is subject to nationalregulation for the purpose of investor protection;(b) units in closed end undertakings for collective investment constituted under the law ofcontract 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 tocompanies as referred to in point (a)(ii);(iii) they are managed by an entity which is subject to national regulation for the purposeof investor protection;120 See footnote 117.82

(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 differfrom 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 embeddedderivative component as referred to in Article 10 of this Regulation, the requirements of Article42 of the law of 20 December 2002 as amended shall apply to that component.Article 3Instruments normally dealt in on the money market1. The reference in Article 1, item 18 121 of the law of 20 December 2002 as amended to moneymarket 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 inaccordance with points (a), (b) and (c) of Article 41(1) of the law of 20 December 2002 asamended;(b) financial instruments which are not admitted to trading.2. The reference in Article 1, item 18 122 of the law of 20 December 2002 as amended tomoney market instruments as instruments normally dealt in on the money market shall beunderstood 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 every397 days;(d) their risk profile, including credit and interest rate risks, corresponds to that of financialinstruments which have a maturity as referred to in points (a) or (b), or are subject to ayield adjustment as referred to in point (c).Article 4Liquid instruments with a value which can be accurately determined at any time1. The reference in Article 1, item 18 123 of the law of 20 December 2002 as amended tomoney market instruments as instruments which are liquid shall be understood as a referenceto 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 therequest of any unit holder.2. The reference in Article 1, item 18 124 of the law of 20 December 2002 as amended to moneymarket instruments as instruments which have a value which can be accurately determined atany time shall be understood as a reference to financial instruments for which accurate andreliable valuations systems, which fulfil the following criteria, are available:121 See footnote 118.122 See footnote 118.123 See footnote 118.124 See footnote 118.83

(a) they enable the UCITS to calculate a net asset value in accordance with the value atwhich the financial instrument held in the portfolio could be exchanged between knowledgeablewilling parties in an arm’s length transaction;(b) they are based either on market data or on valuation models including systems based onamortised costs.3. The criteria referred to in paragraphs 1 and 2 of this Article shall be presumed to be fulfilledin the case of financial instruments which are normally dealt in on the money market for thepurposes of Article 1, item 18 125 of the law of 20 December 2002 as amended and whichare admitted to, or dealt in on, a regulated market in accordance with points (a), (b) or (c) ofArticle 41(1) thereof, unless there is information available to the UCITS that would lead to adifferent determination.Article 5Instruments of which the issue or issuer is regulated for the purpose of protectinginvestors and savings1. The reference in Article 41(1)(h) of the law of 20 December 2002 as amended to moneymarket instruments, other than those dealt in on a regulated market, of which the issue or theissuer is itself regulated for the purpose of protecting investors and savings, shall be understoodas 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 appropriateassessment of the credit risks related to the investment in such instruments, takinginto 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 Article41(1)(h) of the law of 20 December 2002 as amended, or for those which are issued by alocal or regional authority of a Member State or by a public international body but are notguaranteed by a Member State or, in the case of a federal State which is a Member State, byone 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 financialsituation 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 asignificant event occurs;(c) the information referred to in point (a), verified by appropriately qualified third parties notsubject 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 lawof 20 December 2002 as amended, appropriate information as referred to in point (b) ofparagraph 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 situationof the issuer prior to the issue of the money market instrument;125 See footnote 118.84

(b) updates of the information referred to in point (a) on a regular basis and whenever asignificant event occurs;(c) available and reliable statistics on the issue or the issuance programme or other dataenabling an appropriate assessment of the credit risks related to the investment in suchinstruments.4. For all money market instruments covered by the first indent of Article 41(1)(h) of the lawof 20 December 2002 as amended except those referred to in paragraph 2 of this Articleand 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 ofinformation on the issue or the issuance programme or on the legal and financial situation ofthe issuer prior to the issue of the money market instrument.Article 6Establishment which is subject to and complies with prudential rules considered bythe CSSF to be at least as stringent as those laid down by Community lawThe reference in the third indent of Article 41(1)(h) of the law of 20 December 2002 as amendedto an establishment which is subject to and complies with prudential rules considered by theCSSF to be at least as stringent as those laid down by Community law shall be understoodas a reference to an issuer which is subject to and complies with prudential rules and fulfilsone 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 prudentialrules applicable to that issuer are at least as stringent as those laid down by Communitylaw.Article 7Securitisation vehicles which benefit from a banking liquidity line1. The reference in the fourth indent of Article 41(1)(h) of the law of 20 December 2002 asamended to securitisation vehicles shall be understood as a reference to structures, whetherin 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 asamended to banking liquidity lines shall be understood as a reference to banking facilitiessecured 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 8Liquid financial assets with respect to financial derivative instruments1. The reference in Article 2(2) of the law of 20 December 2002 as amended to liquid financialassets shall be understood, with respect to financial derivative instruments, as a reference tofinancial derivative instruments which fulfil the following criteria:85

(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 asamended including financial instruments having one or several characteristics of thoseassets;(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 andthird 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 December2002 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 paragraph1 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 assetsother than those referred to in Article 41(1) and (2) of the law of 20 December 2002 asamended;(c) they comply with the criteria for OTC-derivatives laid down in the second and third indentsof Article 41(1)(g) of of the law of 20 December 2002 as amended and in paragraphs 3 and4 of this Article;(d) their risks are adequately captured by the risk management process of the UCITS, and byits internal control mechanisms in the case of risks of asymmetry of information betweenthe UCITS and the counterparty to the credit derivative resulting from potential access ofthe counterparty to non-public information on firms the assets of which are used as underlyingsby credit derivatives.3. For the purposes of the third indent of Article 41(1)(g) of the law of 20 December 2002 asamended, the reference to fair value shall be understood as a reference to the amount forwhich an asset could be exchanged, or a liability settled, between knowledgeable, willingparties 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 asamended, the reference to reliable and verifiable valuation shall be understood as a referenceto a valuation, by the UCITS, corresponding to the fair value as referred to in paragraph 3 ofthis Article, which does not rely only on market quotations by the counterparty and which fulfilsthe 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 methodology;(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-derivative,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 ofmanaging 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 toliquid financial assets shall be understood as excluding derivatives on commodities.86

Article 9Financial indices1. The reference in point (g) of Article 41(1) of the law of 20 December 2002 as amendedto financial indices shall be understood as a reference to indices which fulfil the followingcriteria:(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 activitiesregarding one component do not unduly influence the performance of the wholeindex;(ii) where the index is composed of assets referred to in Article 41(1) of the law of 20December 2002 as amended, its composition is at least diversified in accordance withArticle 44 of that law;(iii) where the index is composed of assets other than those referred to in Article 41(1) ofthe law of 20 December 2002 as amended, it is diversified in a way which is equivalentto that provided for in Article 44 of that law;(b) they represent an adequate benchmark for the market to which they refer, in that thefollowing criteria are fulfilled:(i) the index measures the performance of a representative group of underlyings in arelevant and appropriate way;(ii) the index is revised or rebalanced periodically to ensure that it continues to reflect themarkets to which it refers following criteria which are publicly available;(iii) the underlyings are sufficiently liquid, which allows users to replicate the index, ifnecessary;(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 calculateand to subsequently publish the index value, including pricing procedures for componentswhere 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 informationis provided on a wide and timely basis.2. Where the composition of assets which are used as underlyings by financial derivativesin accordance with Article 41(1) of the law of 20 December 2002 as amended does not fulfilthe criteria set out in paragraph 1 of this Article, those financial derivatives shall, where theycomply with the criteria set out in Article 8(1) of this Regulation, be regarded as financialderivatives on a combination of the assets referred to in points (i), (ii) and (iii) of Article 8(1)(a).Article 10Transferable securities and money market instruments embedding a derivative1. The reference in the fourth subparagraph of Article 42(3) of the law of 20 December2002 as amended to transferable securities embedding a derivative shall be understoodas a reference to financial instruments which fulfil the criteria set out in Article 2(1) of thisRegulation and which contain a component which fulfils the following criteria:87

(a) by virtue of that component some or all of the cash flows that otherwise would be requiredby the transferable security which functions as host contract can be modified according toa specified interest rate, a financial instrument price, a foreign exchange rate, an index ofprices or rates, a credit rating or credit index, or another variable, and therefore vary in away similar to a stand-alone derivative;(b) its economic characteristics and risks are not closely related to the economic characteristicsand 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 thecriteria set out in Article 4(1) and (2) of this Regulation and which contain a component whichfulfils the criteria set out in paragraph 1 of this Article shall be regarded as money marketinstruments embedding a derivative.3. A transferable security or a money market instrument shall not be regarded as embeddinga derivative where it contains a component which is contractually transferable independentlyof the transferable security or the money market instrument. Such a component shall bedeemed to be a separate financial instrument.Article 11Techniques and instruments for the purpose of efficient portfolio management1. The reference in Article 42(2) of the law of 20 December 2002 as amended to techniquesand instruments which relate to transferable securities and which are used for the purpose ofefficient portfolio management shall be understood as a reference to techniques and instrumentswhich 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 isconsistent with the risk profile of the UCITS and the risk diversification rules laid downin 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 andwhich relate to money market instruments shall be regarded as techniques and instrumentsrelating to money market instruments for the purpose of efficient portfolio management asreferred to in Article 42(2) of the law of 20 December 2002 as amended.Article 12Index replicating UCITS1. The reference in Article 44(1) of the law of 20 December 2002 as amended to replicatingthe composition of a stock or debt securities index shall be understood as a reference toreplication of the composition of the underlying assets of the index, including the use ofderivatives or other techniques and instruments as referred to in Article 42(2) of the law of 20December 2002 as amended and Article 11 of this Regulation.88

2. The reference in the first indent of Article 44(1) of the law of 20 December 2002 as amendedto an index whose composition is sufficiently diversified shall be understood as a reference toan 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 asamended to an index which represents an adequate benchmark shall be understood as areference to an index whose provider uses a recognised methodology which generally doesnot 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 asamended to an index which is published in an appropriate manner shall be understood as areference 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 economicgroup, provided that effective arrangements for the management of conflicts of interest arein place.Article 13Final Provisions1. This present Regulation will enter into force four days following its publication in theMémorial.2. UCITS already in existence benefit from a time period until 23 July 2008 at the latest tocomply with the provisions of this Regulation.3. Any reference to this Regulation may be made under the abbreviated title “Grand-DucalRegulation relating to certain definitions of the law of 20 December 2002 as amendedconcerning undertakings for collective investments”.Article 14ExecutionOur Ministry of the Treasury and Budget is responsible for the execution of the presentregulation which will be published in the Mémorial.89

IML CIRCULAR 91/75 OF 21 JANUARY 1991Revision and remodelling of the rules to which Luxembourg undertakings governed bythe law of 30 March 1988 on undertakings for collective investment (“UCI”) are subjectThis circular repeals and replaces IML circular 88/48 of 8 April 1988 and the former circularswhich remained applicable to UCIs following the entry into force of the prementioned law of30 March 1988.The circulars thus repealed in addition to IML circular 88/48 of 8 April 1988, are circulars VM47 of 7 August 1978, VEF 48 of 7 November 1978, IML 84/12 of 8 March 1984, IML 84/13 of9 March 1984, IML 84/15 of 30 March 1984, IML 85/23 of 25 March 1985 and IML 88/47 of5 April 1988.In accordance with its objective of clarification and simplification, the main object of this circularis to adapt and to specify the rules of the repealed circulars in light of the acquired experienceduring the practical application thereof and to reproduce the thus revised rules in onesingle text with the following summary: ( 126 )126 Note: The summary is reproduced at the beginning of this brochure.90

CHAPTER APURPOSE AND SCOPE OF THE LAW OF 30 MARCH 1988The purpose of the law of 30 March 1988 is the protection of the investor who is canvassedby promoters the activity of which is the collection of funds in order to invest them collectivelyin accordance with the principle of risk-spreading.In accordance with its objective, the law of 30 March 1988 determines the legal and regulatoryframe in which this activity may be exercised and pursuant to which it is submitted to thesupervision of the Commission de Surveillance du Secteur Financier (“CSSF”) 127 which is thesupervisory authority.The exercise of the activity subject to the law of 30 March 1988 is exclusively restricted tothose undertakings which qualify as UCIs in accordance with the definition given in ChapterB hereafter; it follows from there that such activity, if exercised in Luxembourg, must beconsidered 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 applicationof the law of 30 March 1988 may not claim the status of a UCI by voluntarily submitting tothe provisions of the law.127 The initial regulator was the Institut Monétaire Luxembourgeois (IML) who became the Banque Centrale duLuxembourg (BCL) on 1 June 1998. The CSSF was created on 1 January 1999 and replaced the BCL as the supervisoryauthority of the financial sector. Whilst the text of this circular has not been formally amended, all referencesin this translation to the IML have been replaced by references to the CSSF.91

CHAPTER BDEFINITION OF THE MEANING OF UCII. 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 itsuffices, 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 accordancewith the principle of risk-spreading.Collective investment of savings shall be taken to mean the collective investment of fundscollected individually from the public. This investment may be made in transferable securitiesor other assets. The objective is to obtain a yield or a capital gain. Hence the objective of UCIsis not to acquire an interest for a purpose beyond that of obtaining a yield, namely to secureinfluence or even control. Furthermore, the holding of such an interest entails a long termholding objective, whereas for UCIs the retention of assets in the portfolio only depends uponthe 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 interestsin companies of which they hold shares and even intervene in the management of such companiesby the appointment of one or several representatives to the board of directors. Suchinvolvement, however, does not have control as an objective but is dictated by the particularnature of the investments of such undertakings.The public is canvassed where the collection of funds assigned to collective investment is notrestricted to a small circle of persons only.In respect to the principle of risk-spreading, the purpose of its application is to prevent an excessiveconcentration 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 bythe law of 30 March 1988. Indeed, depending upon the category to which they belong, UCIsgoverned by the law of 30 March 1988 only differ from one another by their legal form or bytheir 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 thelaw of 30 March 1988 are met in case of common funds (“FCP”) and investment companieswith variable capital (“SICAV”). In case of undertakings which do not have the legal form ofcommon fund or SICAV, it is however sometimes difficult in practice to determine whether thelaw of 30 March 1988 is applicable to them or not. In such cases, the supervisory authoritywill in the first instance rely on the definition criteria set out in the preceding Section I. in orderto determine whether such undertakings do or do not meet the required conditions for UCIqualification.92

If the review of the application file based on these criteria is not sufficient to conclude with thenecessary certainty as to whether the law of 30 March 1988 is applicable, further elementswill have to be taken into account such as the organisation and the general structure of suchundertakings, i.e. the systematic redemption of shares, the existence of an investment advisorycompany, the charging of commissions on the purchase of securities in such undertakingsand for the management thereof.Thus, in application of the preceding principles, financial investment companies set up withthe purpose of control, are excluded from the scope of application of the law of 30 March 1988because their activity is not the collective investment of savings. The same applies to familyholding companies and investment clubs which, even though their objective is the collectiveinvestment of savings, do not collect savings from the public.93

CHAPTER CCLASSIFICATION OF THE UCIs SITUATED IN LUXEMBOURGA UCI shall be deemed to be situated in Luxembourg if the registered office of the managementcompany of the common fund or the registered office of the investment company issituated in Luxembourg. UCIs situated in Luxembourg will be referred to hereafter as LuxembourgUCIs.Depending on their characteristics, Luxembourg UCIs will be subject either to Part I or Part IIof 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 1985on the coordination of laws, regulations and administrative provisions relating to undertakingsfor 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/EECDirective.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 intransferable securities (“UCITS”) which are defined as being UCIs the exclusive object ofwhich is the investment in transferable securities.Considering this definition, the criteria which determines whether a UCI is subject to Part I orPart II of the law of 30 March 1988, is the intended investment objective. If the undertakinginvests in transferable securities, it is subject to Part I, save for the exceptions commentedupon in section II. hereafter.UCITS subject to Part I of the law of 30 March 1988 are of the open-ended type, since the rulesto which they are subject provide for the obligation to directly or indirectly redeem their units orshares 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 theinvestment in securities other than transferable securities and to all UCITS excluded fromPart I.In its Article 2, the law of 30 March 1988 provides for exceptions to the basic rule reproducedin section I. above, by excluding from the scope of application of Part I certain categories ofUCITS. That is the transposition in national law of the corresponding provisions of the 85/611/EEC Directive.94

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 directlyor indirectly redeem their units or shares at the request of investors.The reimbursement to investors after a decision of the management bodies is not tantamountto a redemption if such reimbursement occurred without any request from investorswhich 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 ofinvestors after a certain date, such undertaking shall fall within the scope of application ofPart I of the law of 30 March 1988 from such date onwards, unless it belongs to one of theother categories of UCITS described in paragraphs 2. to 4. hereafter. In case this featureis established at inception, the prospectus must from the outset attract the investors’ attentionto that fact and to the eventual consequences thereof, inter alia on the investmentpolicy.A UCITS, the constitutional documents of which provide for the right of investors to requestredemptions, cannot qualify as being of the closed-ended type and as such falloutside the scope of application of Part I of the law of 30 March 1988, upon the groundsthat it provides for limitations on the exercise of such right. As a UCITS subject to the provisionsof Part I, it must relinquish such limitations insofar as their purpose is to subject theexercise of the right to redeem to conditions and procedures which render redemptionspractically impossible or unnecessarily and arbitrarily complicated or provide for unnecessaryand arbitrary intervals.2. UCITS which raise capital without promoting the sale of their units or shares to thepublic 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 concernedfrom the condition of the collection of public savings which all undertakings mustcomply with in order to qualify as UCI; it simply prohibits the UCITS in question to engagein any promotional activity within the EU; the terms “promotional activity” refer in particularto the use of advertisement methods such as press, radio, television or advertisementcirculars. It does however not refer to offers for subscription which are addressed to a limited,particularly knowledgeable circle of investors such as pension funds and insurancecompanies.It follows from the above that the UCITS concerned hereby are those which, even thoughthey 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, onlybe 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 LuxembourgStock 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 “EuropeanUnion” (EU) as a consequence of Article A of the Maastricht Treaty of 7 February 1992 establishing a EuropeanUnion. This circular has not been formally amended but this publication will refer to the new designation.95

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 incorporationof these UCITS provide expressly that the sale of their units or shares is limited tothe public of countries which are not members of the EU.4. Categories of UCITS determined by the supervisory authority for which the ruleslaid down in Chapter 5 of the law of 30 March 1988 are inappropriate in view of theirinvestment 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% ormore of their net assets in venture capital. Investment in venture capital shall betaken to mean investment in securities of companies which have been recently constitutedor which are still in the early development stage.4.2. Undertakings the investment policy of which provides for the investment of 20% ormore of their net assets (other than liquid assets) in securities other than the transferablesecurities 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 borrowingfor investment purposes of at least 25% of their net assets.4.4. Undertakings the investment policy of which provides for the investment of 20% ormore of their net assets in other open-ended UCIs.4.5. Undertakings the investment policy of which provides for the investment of 20% ormore of their net assets in money market instruments and liquid assets (includingany regularly negotiated money market instruments the residual maturity of whichdoes not exceed 12 months) other than the transferable securities provided for inArticle 40 (1) of the law of 30 March 1988.4.6. Undertakings the investment policy of which provides for the investment of 50% ormore of their net assets in liquid assets.4.7. Multiple compartment undertakings, one compartment of which is not subject to PartI 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 basisthe provisions of the 85/611/EEC Directive. Consequently, these UCITS conform to the entiretyof the requirements of those provisions. They thus benefit from the status of EU UCITSwhich gives them the right to freely market their units or shares in the whole of the territory ofthe EU.UCIs, other than UCITS governed by Part I of the law of 30 March 1988, may not rely uponthe marketing facilities provided for by the 85/611/EEC Directive since they are excluded fromthe scope of application thereof. Consequently, where such UCIs wish to market their unitsor shares in other countries of the EU, they must comply with the specific conditions to whichthe authorities of the countries concerned may, as the case may be, subject the authorisationof UCIs which do not have the status of EU UCITS.96

CHAPTER DRULES CONCERNING THE CENTRAL ADMINISTRATION OF LUXEMBOURG UCIsUnder the provisions of the law of 30 March 1988, the central administration of any LuxembourgUCI must be situated in Luxembourg. This requirement must ensure that thesupervisory authority, the depositary and the auditor may easily perform their respectivelegal duties.I. Definition of the meaning of central administration in Luxembourg.The legal requirement that central administration be situated in Luxembourg implies inter aliathat:- the accounts must be kept, and the accounting documents must be available, in Luxembourg;- 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 beestablished in cooperation with the central administration in Luxembourg;- the correspondence, dispatch of financial reports and of all other documents intended forshareholders or unitholders must be carried out from Luxembourg and in any case underthe 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 Luxembourgexclusively includes accounting and administrative functions. It therefore neither excludesthe possibility for Luxembourg UCIs to obtain assistance for the management of theirassets from investment advisors established abroad nor does it prevent that the decisions inrelation with that management (investment and disinvestment decisions) are made and executedelsewhere 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 commonfund, is not obliged to perform itself the tasks connected to the accounting and administrativeduties of the central administration in Luxembourg.By a service contract, it may indeed entrust to a third party established in Luxembourg theexercise of those duties which essentially concern the execution of the tasks set out in sectionI. above. Upon the condition that a division of such tasks is not detrimental to the satisfactoryperformance of the central administration, this third party may delegate the execution ofspecific tasks to one or more other providers of services established in Luxembourg subjectto it ensuring the coordination, general supervision and liability therefore.It is also conceivable that a Luxembourg UCI may by separate service agreements organiseitself the division of tasks connected to the duties of central administration amongst variousproviders of services established in Luxembourg provided that it must, in such case, be in theposition to coordinate and supervise itself the execution of such tasks unless it entrusts such97

a mission to a duly qualified agent. Such agent then becomes the contact of the CSSF in itsrelationship with the central administration of the relevant UCI.In both cases, the division of tasks connected to the duties of central administration must notresult in an excessive parcelling which renders the exercise of the coordination and generalsupervisory function difficult if not impossible or which unnecessarily increases costs by unjustifiedoverlapping.For the reasons mentioned above, it is therefore recommended not to provide for too complicatedand costly constructions or structures.On the basis of the above, the CSSF considers that tasks as intimately connected as theexecution of issues and redemptions and the keeping of the register of participants may onlybe entrusted to one single provider of services. The CSSF considers furthermore that it is notconceivable 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 theexecution 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 centraladministration in Luxembourg must, by the operation of appropriate procedures, ensurethe satisfactory performance of information circuits and information flow necessary to obtainupon request from the depositary all information and data required in order to establish theposition 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 maybe appointed therefore, must have the necessary infrastructure in Luxembourg i.e. sufficienthuman and technical means in order to accomplish the entirety of the tasks connected to theduties of central administration in Luxembourg. This implies the localisation in Luxembourgof equipment and material used by the central administration as technical support for theexecution of its duties.III. Execution of the accounting and administrative duties referred to by the meaning ofcentral administration in Luxembourg.1. Keeping of the accounts, calculation of the net asset value and availability of basicdocumentation relating to the UCI and its operations.Where the central administration in Luxembourg uses a remote-access computing networkas technical support for the execution of the tasks connected to the keeping of theaccounts and/or the calculation of the net asset value (such as operations necessaryfor the valuation of the portfolio of securities, the determination of the amount of incomegenerated by such portfolio and the conversion in the currency of account of the UCI ofassets denominated in another currency), the requirement of localisation in Luxembourgof the equipment and material necessary for the operation of such administration doesnot exclude that the unit which is intended to ensure the processing of accounting andother information which is entered in the network used may be situated elsewhere than inLuxembourg.The possible location abroad of the processing unit is however subject to the followingconditions:- the central administration must have at its disposal in Luxembourg necessary means toenter information in the processing unit of the remote-access computing network usedand to withdraw such information. Its access to the information memorised in the networkprocessing unit must be immediate and unlimited and must inter alia permit the instantaneousand full production of any data necessary for normal operation;98

- the central administration must be aware of the operating conditions of the processing unitand must give its consent for alterations to its programme;- the central administration must have the possibility to directly engage in the processing ofinformation memorised in the processing unit;- information memorised in the processing unit must be transferred upon each valuation ofthe assets, but at least once a week and, as the case may be, more frequently, if requiredby safety necessities, on memory supports which are situated and which may be operatedin Luxembourg;- the promoters must have at their disposal the necessary means to enable the central administrationto continue to operate normally in case of exceptional events such as the interruptionof the means of communication with the processing unit or the non-functioningthereof for an extended period;- where the central administration uses the remote-access computing network togetherwith other users which do not participate in the operations of the UCI, the central administrationmust ensure by the establishment of adequate protection measures that these usersmay not, at the level of the processing unit, have access to the information concerningthe UCI, in order to prevent them from obtaining knowledge of that information or alteringor deleting the same.The conditions set out under the first, second, third and last indents above apply mutatismutandis where the network processing unit used is situated in Luxembourg.In principle, it is the central administration’s responsibility to proceed in Luxembourg, as thecase may be in cooperation with the depositary, with the operations necessary to enter theinformation relating to the operation of the UCI into the remote-access computing networkused wherever the processing unit of the network used is situated. This does not exclude thatportfolio managers established abroad may immediately access the relevant network andset in motion the accounting operations connected to the execution of the decisions taken bythem within the scope of their management mandate. It does furthermore not exclude thatother 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 beingused, is however subject to the following conditions:- the central administration must ensure by the establishment of adequate protection measuresthat these agents may not access information other than that which is necessary forthe execution of their respective duties notwithstanding the provisions concerning professionalsecrecy;- the UCI must install, at the management level, supervisory procedures which are able toensure the regularity of the operations initiated by the portfolio managers with respect tothe obligations to which it is subject under the law of 30 March 1988 as well as under itsconstitutional documents and prospectus.Since the central administration in Luxembourg assumes the ultimate liability for the accuracyof the financial information relating to the UCI, it alone is authorised to proceed with the allocations,apportionments and provisions necessary for finalising the calculation of the netasset value, these operations concerning in particular the charges, expenses and taxes dueby the UCI.99

The central administration must have at its disposal in Luxembourg all accounting and otherdocuments which constitute the essential documentation of the UCI and which are necessaryfor:- 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, theagreements made with the portfolio managers as well as any other agreements with providersof services which participate in the operation of the UCI.The requirement as to availability in Luxembourg of the essential documentation of the UCIimplies that the documents relating to transactions initiated from abroad must forthwith beforwarded to Luxembourg.2. Execution of issues and redemptions.2.1. Role of the central administration in Luxembourg in connection with the execution ofissues and redemptions.The requirement for issues and redemptions to take place in Luxembourg impliesthat the performance of the tasks connected to the processing of subscription andredemption orders for the securities issued by Luxembourg UCIs, is to be carriedout by the central administration in Luxembourg of such UCIs. This means that it isin principle up to the central administration in Luxembourg to determine the pricesat which the subscription and redemption orders must be calculated, to draw upsubscription or redemption contract notes and the share and unit certificates and todispatch such documents to the individual investors.The requirement relating to the execution in Luxembourg of issues and redemptionsdoes not prohibit Luxembourg UCIs to appoint Luxembourg or foreign intermediariesas authorised financial agents and representatives for the placing and redemption oftheir units or shares.Such intermediaries are then authorised to collect subscription and redemption ordersfor the units or shares of the UCIs by which they have been appointed. Subjectto the conditions specified under heading 2.2. hereafter, they may participate in theplacing and redemption operations either as distributors, or as nominees or marketmakers.Provided that the recourse to the intermediaries referred to above may in no wayrestrict the ability of investors to deal directly with the UCI of their choice when placingtheir subscription and redemption orders. It is therefore necessary for UCIs toexplicitly and apparently mention this possibility in their prospectus.2.2. Conditions subject to which intermediaries may participate in placing and redemptionoperations.2.2.1. Conditions applicable to distributors.Distributors are intermediaries who are part of the distribution process setup by the promoters whether they actively participate in the marketing of thesecurities issued by a UCI or whether they are appointed in the prospectusor in any other document as being authorised to receive subscription andredemption orders on behalf of that UCI.100

For the purposes of the processing of the subscription and redemption orderscollected by them, the distributors must forthwith transmit to the central administrationin Luxembourg the data necessary for the timely accomplishment ofthe 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 Luxembourgwith the registration data necessary to accomplish on an individual basis thetasks referred to above.Subject to the provisions of heading 2.3. below, this obligation does not existin cases the issue and redemption orders relate to bearer securities. Insuch cases, distributors act in the capacity of subscribers vis-à-vis the centraladministration in Luxembourg. They may therefore aggregate individual subscriptionand redemption orders and transmit them in the form of a combinedorder to the central administration in Luxembourg. In doing so, the distributorsmay, where appropriate after set-off, purchase or sell the whole of thesecurities subscribed to or redeemed from investors to be followed by thesubsequent allotment thereof according to the individual orders received.It is not necessary for distributors to forward to the central administration inLuxembourg the documentation relating to subscription and redemption ordersfrom investors. However, where such documentation is not forwarded toLuxembourg, the distributors must allow the administration in Luxembourg tohave access thereto without any restriction in case of need.Where the distributors are authorised to receive and make settlement paymentsin respect of the subscription and redemption orders collected by them,they may aggregate and set off individual payments in order to deal on a netbasis with the central administration in Luxembourg. This possibility is availablefor orders relating to registered shares and for orders relating to bearershares.In order to facilitate delivery of certificates, a Luxembourg UCI and its depositarymay enter into an agreement with the distributors pursuant to which thelatter are authorised to hold a stock of unissued certificates. In that case, thedistributors must be duly authorised by such agreement to deliver their bearercertificates to subscribers in accordance with the instructions from the centraladministration in Luxembourg.2.2.2. Conditions applicable to nominees.nominees act as intermediaries between investors and the UCIs of theirchoice. Where the intervention of a nominee is an integral part of the distributionarrangement set up by the promoters, the relationship between theUCI, the nominee, the central administration in Luxembourg and the investorsmust be determined by contract which shall provide for their respective obligations.The promoters must nevertheless ensure that the nominee presentssufficient guarantees for the proper execution of its obligations towards theinvestors who utilise its services. The intervention of a nominee is only authorisedif the following conditions are met:a) the role of the nominee must be adequately described in the prospectuses;101

) the investors must have the possibility to directly invest in the UCIs of theirchoice without using a nominee and prospectuses must expressly statethis fact;c) the agreements between the nominee and the investors must include atermination 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 notapplicable in circumstances where the use of the services of a nominee isindispensable or even compulsory for legal, regulatory or compelling practicalreasons.2.2.3. Conditions applicable to market makers.Market makers are intermediaries which participate for their own account andat their own risk in subscription and redemption transactions on securities issuedby UCIs. Where the organisation of a market by such intermediaries isan integral part of the distribution arrangement set up by the promoters, therelationship between the UCI, the central administration in Luxembourg andthe 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 prospectuses;b) the market makers may not act as counterparts to subscription and redemptiontransactions without the specific approval of the investors initiatingthe relevant transactions;c) market makers may not price subscription and redemption orders addressedto them on less favourable terms than those that would be appliedto such orders had they been directly processed by the relevantUCIs;d) market makers must regularly notify to the central administration in Luxembourgthe orders executed by them where such orders relate to registeredsecurities, in order to ensure (i) that the data relating to investorsare updated in the register of unitholders or shareholders and (ii) that theregistered certificates or confirmations of investment may be forwardedfrom Luxembourg to the new investors.2.3. Duties of the central administration in Luxembourg and of the marketing intermediariesin 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 proceedsis in principle applicable to Luxembourg UCIs.When considering the particular way the UCI industry operates, notably in the area ofmarketing, it appears that it is often extremely difficult for the central administration inLuxembourg to know the identity of investors the subscription and redemption ordersof which are collected by Luxembourg or foreign intermediaries.102

Considering the above, a derogatory system is applicable to subscription and redemptionorders collected by intermediaries established, or the activities of whichin this respect are exercised, in a State which belongs to the Financial Action TaskForce on Money Laundering established after the “Arch” summit in June 1989 orwhich applies the recommendations issued by this Task Force.The central administration in Luxembourg is not obliged to check the identity of investors,the orders of which emanate from such intermediaries, such checking beingmade in the State where these orders are collected. The status of the foreign intermediarymust however be verified and unusual transactions monitored.In respect of subscription or redemption orders collected by intermediaries establishedin States which do not apply the recommendations issued by the Task Force,the central administration in Luxembourg is fully responsible for the compliance withthe 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 impliesthat such register must be permanently available there, but also implies the obligation forthe central administration in Luxembourg to perform in Luxembourg the registrations, alterationsor deletions necessary to ensure the regular update thereof.Where the central administration in Luxembourg uses a remote-access computing networkas technical support for the performance of these duties, it may, subject to applyingthe security and protection measures described under heading 1. above and whilst preservingthe confidentiality required by legal and regulatory requirements, use the networkto access and store the registration data relating to participants in the processing unit. Theprocessing unit then constitutes the storage facility required for the maintenance of theregister 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 informationrelating to the issue and redemption orders collected by them so that it can initiate in thenetwork the necessary operations to update the data of the participants’ register stored inthe processing unit.4. Drawing up of prospectuses, financial reports and other documents intended forinvestors.The requirement for prospectuses, financial reports and other documents intended forinvestors to be drawn up in cooperation with the central administration in Luxembourgonly relates to the intellectual tasks necessary for the drawing up of these documentsas opposed to the physical realisation thereof. For the performance of these tasks, thisrequirement does not exclude the limited recourse to experts, advisors and other specialisedproviders of services established abroad.Since technical or purely physical tasks are not addressed by this requirement, the centraladministration in Luxembourg may use the services of printers or other providers ofservices established abroad in connection with the physical production of the documentsintended for investors.103

5. Correspondence and dispatch of prospectuses, financial reports and other documentsintended for investors.The requirement for correspondence and dispatch of prospectuses, financial reports andother documents intended for investors to be made from Luxembourg is intended to safeguardthe confidentiality of data relating to investors who directly apply to the centraladministration in Luxembourg to place their subscription orders or the names of whichappear in the register of participants.Save for the case specified below, only the central administration in Luxembourg may, inaccordance with this objective, carry out from Luxembourg, the dispatches intended forthe investors referred to above including the case where these dispatches concern documentsprinted abroad. As an exception to this rule, dispatches to the relevant investorsmay be carried out from abroad (e.g. from the printer’s address) provided such dispatchesare made under the supervision of the central administration in Luxembourg. It must thenensure by adequate measures of protection that non-authorised third parties may not accessdata relating to investors for whom the dispatches are intended for.104

CHAPTER ERULES CONCERNING THE DEPOSITARY OF A LUXEMBOURG UCII. 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 March1988 is exclusively limited to banks incorporated under Luxembourg law or Luxembourgbranches 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 1988save that such depositary may also be a Luxembourg branch of a bank established in a nonmemberState of the EU.Pursuant to Article 71(2) of the law of 30 March 1988, a UCI may only be authorised if thesupervisory authority approves the choice of the depositary. This approval is only given if theproposed depositary can justify that it possesses the necessary infrastructure to perform thetotality 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 UCImust be entrusted to a depositary. This requirement is of a general application insofar as itindistinctively 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 custodyused to describe the general mission of the depositary should be understood not in thesense of “safekeeping”, but in the sense of “supervision” which implies that the depositarymust have knowledge at any time of how the assets of the UCI have been invested and whereand how these assets are available.In accordance with the meaning thus attributed to the concept of custody, the physical depositof all or part of the assets may be made either with the depositary itself (which represents themost prudent solution) or with any professional designated by the UCI in agreement with thedepositary.This interpretation of the custody mission of a depositary in no way prevents the recourse to afiduciary agreement to be entered into between the depositary and the UCI for the deposit ofthe latter’s assets; this solution presents some considerable advantages since the depositarythus 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 communicatewith foreign correspondents by using electronic means of communication developed oroperated by third parties and possibly computer equipment located abroad, provided howeverthat these means are used for the direct communication with the foreign correspondentswithout the intervention of a third party.105

III. Specific duties of the depositary.1. Specific duties of the depositary of a common fund subject to Part I of the law of 30March 1988.The law of 30 March 1988 provides that the depositary carries out all operations concerningday-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, forany other operation concerning the day-to-day administration of the securities and liquidassets making up the fund.To the extent that the operations referred to above involve assets that are not held by thedepositary 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 supervisionof the assets of the common fund, the depositary must organise its relationshipwith its correspondents so as to ensure that it is immediately informed of any operation executedby 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 duties:- ensure that the sale, issue, redemption and cancellation of units effected on behalf ofthe fund or by the management company are carried out in accordance with the lawand the management regulations;- ensure that the value of units is calculated in accordance with the law and the managementregulations;- carry out the instructions of the management company, unless they conflict with thelaw or the management regulations;- ensure that in transactions involving the assets of the funds, the consideration is remittedto it within the usual time limits;- ensure that the income of the fund is applied in accordance with the managementregulations.In connection herewith, it is not possible for the depositary to delegate to third partiesthe execution of tasks relating to the obligation to “ensure” the correct performance ofthe duties referred to above.However, the term “to ensure” as used in the provisions of the law of 30 March 1988implies that the depositary need not “carry out” such tasks itself, but that it must verifythe correct execution thereof. Thus for instance, it is conceivable that for objectivereasons a depositary might set up a structure in which a foreign company assists inthe settlement of portfolio transactions.Finally, the provision pursuant to which the depositary must carry out the instructionsof the management company unless they conflict with the law or the managementregulations, does not prevent the depositary to operate by way of mandate in casethe management company entrusts the management of the fund’s assets to portfoliomanagers established abroad.In such case, the relationship between the depositary and its representatives mustbe organised in such a way that the latter have at their disposal all the resources anddata necessary to perform the preliminary verifications required for the appraisal of the106

conformity of a decision taken by the portfolio managers with the requirements of thelaw or the management regulations.Where in the cases referred to above the depositary does not have the possibility toperform these preliminary verifications itself or through its representatives, it must, inconjunction with the central administration in Luxembourg, set up supervision procedurescapable of ensuring the regularity of the transactions initiated by the portfoliomanagers 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 andto be assisted by or to delegate to third parties, must not lead to a situation where allduties are concentrated in the hands of one and the same third party. Such a situationwould indeed be contrary to relevant legal provisions since its purpose would beto avoid the application thereof. Additionally, it would constitute a structure leading tounnecessary additional costs and could cast doubt on the Luxembourg nationality ofthe common fund.The prohibition of the concentration of duties to be executed by third parties in thehands of the same correspondent of the depositary does not apply to situations whereone single correspondent has been chosen for technical reasons. This is inter alia thecase (without being exclusive) in situations where investments are made on a singlemarket.2. Specific obligations of the depositary of a common fund subject to Part II of the lawof 30 March 1988.The depositary referred to herein has the same duties as the depositary of a common fundsubject to Part I of the law save that it is not obliged to ensure that the calculation of thevalue 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 sameextent as a depositary of a common fund subject to Part I, seek assistance from third partiesfor 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 notbeen constituted as a common fund.For this purpose no distinction is made between the depositary of a UCI subject to Part Iand 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 toherein must:- ensure that the sale, issue, redemption and cancellation of units or shares effectedby or on behalf of the UCI are carried out in accordance with the law and the constitutionaldocuments;- ensure that in transactions involving the assets of the UCI, the consideration is remittedto it within the usual time limits;- ensure that the income of the UCI is applied in accordance with the constitutionaldocuments.107

In light of the preceding enumeration, it appears that the depositary of a SICAV or of anyother UCI which has not been constituted as a common fund does not have supervisoryand monitoring duties as extensive as those provided for other depositaries by the law of30 March 1988.Thus, the depositary of a SICAV or of any other UCI which has not been constituted as acommon fund is not obliged to verify whether the instructions of the management bodies arein 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 isfurthermore not obliged to ensure that the calculation of the value of units or shares is carriedout in accordance with the law and the constitutional documents.Insofar as they refer to obligations which are shared by all depositaries, the provisions under1. herebefore apply mutatis mutandis to the depositary of a SICAV or of any other UCI whichhas 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 understoodin the sense of supervision.With respect to the full range of duties incumbent upon it under the provisions of the law of30 March 1988, the depositary has a duty of supervision which implies a liability for its wrongfulfailure to perform its obligations or its wrongful improper performance thereof. Anyone sufferingdamages must prove the depositary’s negligence in respect of its duty of supervisionand the correspondence between cause and effect.This supervision by the depositary is in particular exercised over the third parties with whichthe assets of the UCI have been deposited.As regards the extent of the duty of supervision of the depositary, one can consider that thedepositary has discharged its duty of supervision when it is satisfied from the outset and duringthe whole of the duration of the contract that the third parties with which the assets of theUCI 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 supervisionalways resides with the depositary. Any provision of the management regulations andthe 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 supervision.Therefore the depositary may in particular not argue that the deposit of the assets of theUCI has been carried out with its general or specific approval. The liability of the depositaryis furthermore unaffected by the fact either that it has been assisted by third parties in theexecution 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 ofthe deposit agreement. Indeed, where the assets of the UCI are on deposit with the depositaryitself, its liability is governed by the law applicable to deposit agreements (Article 1915and the following Articles of the Civil Code).In the light of the above, depositary agreements containing liability provisions must distinguishthe three following liability regimes:108

- liability of the depositary for the tasks incumbent upon it pursuant to the provisions ofthe law of 30 March 1988 where the assets of the UCI are on deposit with third parties;- liability of the depositary where the assets of the UCI are on deposit with the depositaryitself;- liability of the depositary for the tasks assigned to it by the depositary agreementwhere such tasks are not expressly referred to by the law of 30 March 1988.109

CHAPTER FRULES APPLICABLE TO UCITS GOVERNED BY PART I OF THE LAW OF30 MARCH 1988I. 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 sufficientlyclose 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 theirunits 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 ofwhich is to submit the exercise of the right to redeem to conditions and procedures whichwould render the redemption practically impossible or needlessly and arbitrarily complicatedand 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 circumstances(e.g. in case of temporary liquidity shortage) or where redemption requests receivedin connection with the same dealing day exceed a certain level in respect of the number ofsecurities outstanding, either provide for a delay of settlement of redemptions during a determinedperiod of time, or for a proportional reduction of all redemption requests so that theset level is not exceeded, provided however that in such case any proportion of a redemptionrequest which would not have been honoured by virtue of this possibility, must be treated asif the request had been made for the next following dealing day or days until full settlement ofthe 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 investmentof the assets of UCITS must be exclusively made in transferable securities which areeither admitted to official stock exchange listing or dealt in on another regulated market whichoperates regularly and is recognised and open to the public.110

It follows that the authorised investments of UCITS must simultaneously meet the followingtwo essential conditions:- firstly, they must qualify as transferable securities;- secondly, these transferable securities must be admitted to official stock exchangelisting or dealt in on another regulated market which operates regularly and is recognisedand open to the public.Neither the 85/611/EEC Directive, nor the law of 30 March 1988 give a definition of theconcept of “transferable securities”.A problem may therefore arise where in actual cases involving Luxembourg or foreignsecurities, it is not clear, prima facie, whether the securities qualify as transferable securities.In case of Luxembourg securities, the CSSF will continue to rely on the Luxembourg practicewhich adopted the interpretation according to which the words “transferable securities”mean quoted securities, that is securities which are capable of being quoted irrespectivelyof whether their admission to official stock exchange listing has been effectively realisedor not. According to this practice, a quotation is deemed possible where the determinationof a single price can be contemplated; this is the case where securities do not appreciablydiffer 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. Inthis case, it is the CSSF’s policy to align itself with the definition of the relevant securitiesmade by the respective regulations of the countries concerned.The words “regulated, operating regularly, recognised and open to the public” as used todesignate the definition criteria of the markets referred to above are likewise not definedby 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 shouldbe given to these words:- regulated: the essential characteristic of a regulated market is the clearing which presupposesthe existence of a central market organisation for the settlement of orders.Such a market can furthermore be distinguished by multilateral order matching (generalmatching of bid and offers enabling the setting of a single price), transparency(maximum distribution of information amongst buyers and sellers giving them the possibilityto follow the evolution of the market so that they may ensure that their ordershave been carried out at current conditions) and the neutrality of its organisor (theorganisor’s role must be limited to recording and supervision);- recognised: the market must be recognised by a state or by a public authority whichhas been delegated by that state or by another entity which is recognised by that stateor by that public authority such as a professional association;- operating regularly: securities admitted to this market must be dealt in at a certainfixed frequency (no sporadic dealings);- open to the public: the securities dealt in thereon must be accessible to the public.111

2. Debt instruments which are treated as equivalent to transferable securities pursuantto Article 40(2)b) of the law of 30 March 1988.Securities referred to here are regularly traded money market instruments the residual maturityof which exceeds 12 months.3. Investments in liquid assets.In addition to the investments authorised pursuant to heading 1. above, a UCITS may holdancillary liquid assets.This term not only covers cash and short-term bank deposits, but also regularly traded moneymarket 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 constitutean investment objective, the exclusive object of UCITS being the investment of their assetsin transferable securities. The law of 30 March 1988 does therefore not prohibit a UCITS tohold an important amount of liquid assets during a certain amount of time because of circumstancesprovided such UCITS does not transform such investment in liquid assets in aninvestment 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 unitsof 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 transferablesecurity and are therefore, in respect of investment rules, subject to the general rulesapplicable to transferable securities.IV. Borrowings.The restrictions to which the borrowings of UCITS are subject to, will not prohibit a UCITS toacquire currency by way of a back to back loan. A “back to back” loan is given in the case ofa UCITS which borrows currency in the context of the acquisition of foreign transferable securitiesand the holding thereof while depositing with the lender, its agent or any other persondesignated 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 lawof 30 March 1988.The investment limit percentages to be complied with by UCITS must be applied to the netassets of UCITS.112

CHAPTER GRULES APPLICABLE TO UCITS SUBJECT TO PART II OF THE LAW OF30 MARCH 1988I. 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 sufficientlyclose and fixed intervals, but at least once a month, subject to the exceptions provided for bythe law of 30 March 1988.II. Investment limits.The purpose of the investment limits is to ensure that investments are sufficiently liquid anddiversified. Certain of these limits do not apply to the categories of UCITS defined in headingII.4. of Chapter C. above insofar as they are incompatible with the investment policy assignedto 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 nordealt in on another regulated market which operates regularly and is recognised and opento the public;b) acquire more than 10% of the securities of the same kind issued by the same issuingbody;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 guaranteedby a Member State of the OECD or their local authorities or public international bodies withEU, regional or worldwide scope.The restrictions mentioned in a), b) and c) above are applicable to the purchase of units ofUCIs of the open-ended type if such UCIs are not subject to risk diversification requirementscomparable to those provided for by this circular for UCITs subject to Part II of the law of30 March 1988.It should be remembered that units of closed-ended UCIs are treated in the same way asother transferable securities and are therefore subject to the general rules applicable to transferablesecurities.The possibility to invest in units of other UCIs must not be used to avoid the provisions ofArticle 70 of the law of 30 March 1988.If it is intended to make investments in other UCIs, the prospectus must expressly state thispossibility. In cases where it is intended to make investments in other UCIs of the same promoter,the prospectus must also specify the nature of the fees and expenses which may ariseout of such investment.113

III. Borrowings.UCITS may borrow the equivalent of up to 25% of their net assets without restriction in respectof the intended use thereof. This limit does not apply to the category of UCITS definedin heading II.4.3. of Chapter C. above.IV. Provisions applicable to UCITS which are subject to Chapter 11 of the law of30 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 ofUCITS referred to herein must be based, in the case of officially listed securities, on the lastknown stock exchange price, unless such price is not representative. For securities not solisted 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 withcare 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 carriedout at prices consistent with the valuation criteria specified in heading 2. above (“Valuationof assets”).114

CHAPTER HRULES APPLICABLE TO ALL UCITSPursuant to Article 41 of the law of 30 March 1988 UCITS are authorised- to employ techniques and instruments relating to transferable securities provided thatsuch techniques and instruments are used for the purpose of efficient portfolio management;- to employ techniques and instruments intended to provide protection against exchangerisks in the context of the management of their assets and liabilities.The techniques and instruments which UCITS are authorised to use under this provision aremore fully described under headings I. and II. of this Chapter. The use of other techniquesand instruments is in principle not permitted.Where a UCITS wishes to use the techniques and instruments described below, this must beexpressly mentioned in its prospectus. In such case, the prospectus must list the envisagedtypes of transactions and specify the purpose thereof and the conditions and limits withinwhich such transactions may be made. As the case may be, the prospectus must also includea 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 transactionsrelating 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 suchoptions are traded on a regulated market which is operating regularly, recognised andopen 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 referredto herein may not, together with the total of the premiums paid for the purchaseof call and put options outstanding and referred to in heading 2.3. below, exceed 15%of the net assets of the UCITS.115

1.2. Rules to ensure the coverage of the commitments resulting from option transactions.Upon the conclusion of contracts whereby call options are written, the UCITS musthold either the underlying securities, or equivalent call options or other instrumentscapable of ensuring adequate coverage of the commitments resulting from suchcontracts, such as warrants. The underlying securities related to call options writtenmay not be disposed of as long as these options are in existence unless such optionsare covered by matching options or by other instruments that can be used for thatpurpose. The same applies to equivalent call options or other instruments which theUCITS must hold where it does not have the underlying securities at the time of thewriting of such options.As an exception to this rule, a UCITS may write call options on securities it does nothold at the entering into the option contract provided the following conditions aremet:- the aggregate exercise (striking) price of such uncovered call options writtenshall 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 theposition taken as a result of the writing of such options.Where it writes put options, the UCITS must be covered during the entire durationof the option contract by adequate liquid assets that may be used to pay for thesecurities which could be delivered to it in case of the exercise of the option by thecounterpart.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 coverage)and the aggregate of the commitments from the transactions referred to inheading 2.3. hereafter may not, at any time, exceed the value of the net assets ofthe UCITS.In this context, the commitment on call and put options written is deemed to be equalto 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 thesubject of an option and individually indicate the writing of call options on securitieswhich are not held in the portfolio. It must also break down by category of options theaggregate of the exercise (striking) prices of options outstanding as at the referencedate of the relevant reports.2. Transactions relating to futures and option contracts relating to financial instruments.Except for transactions by private agreement mentioned under heading 2.2. below, thetransactions described herein may only relate to contracts that are dealt in on a regulatedmarket which is operating regularly, recognised and open to the public.116

Subject to the conditions specified below, these transactions may be made for hedgingor other purposes.2.1. Transactions with the purpose of hedging risks connected to the evolution of stockmarkets.A UCITS may sell stock index futures for the purpose of hedging against a global riskof an unfavourable evolution of stock markets. For the same purpose, it may alsowrite call options on stock indices or purchase put options thereon.The hedging purpose of these transactions presupposes that there exists a sufficientcorrelation between the composition of the index used and the corresponding portfolio.In principle, the aggregate commitments resulting from futures contracts and stockindex options may not exceed the aggregate estimated market value of the securitiesheld 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 globalhedge against interest rate fluctuations. It may also for the same purpose write calloptions or purchase put options on interest rates or enter into interest rate swaps byprivate agreement with highly rated financial institutions specialised in this type ofoperation.In principle, the aggregate of the commitments relating to futures contracts, optionsand swap transactions on interest rates may not exceed the aggregate estimatedmarket value of the assets to be hedged and held by the UCITS in the currency correspondingto those contracts.2.3. Transactions made for a purpose other than hedging.Besides option contracts on transferable securities and contracts on currencies, aUCITS may, for a purpose other than hedging, purchase and sell futures contractsand options on any kind of financial instruments provided that the aggregate commitmentsin connection with such purchase and sale transactions together with theamount of the commitments relating to the writing of call and put options on transferablesecurities does not exceed at any time the value of the net assets of theUCITS.The writing of call options on transferable securities for which a UCITS has adequatecoverage are not considered for the calculation of the aggregate amount of the commitmentsreferred to above.In this context, the concept of the commitments relating to transactions other thanoptions on transferable securities is defined as follows:- the commitment arising from futures contracts is deemed equal to the value of theunderlying net positions payable on those contracts which relate to identical financialinstruments (after setting off all sale positions against purchase positions),without taking into account the respective maturity dates and117

- the commitment deriving from options purchased and written is equal to the aggregateof the exercise (striking) prices of net uncovered sales positions whichrelate to single underlying assets without taking into account respective maturitydates.It is reminded that the aggregate amount of premiums paid for the acquisition of calland put options outstanding which are referred to herein, may not, together with theaggregate of the premiums paid for the acquisition of call and put options on transferablesecurities mentioned in heading 1.1. above, exceed 15% of the net assetsof the UCITS.2.4. Periodical information of the public.In its financial reports, the UCITS must separately indicate for each of the categoriesof transactions mentioned in headings 2.1, 2.2. and 2.3. above the total amount ofcommitments deriving from operations outstanding as at the date of reference of therelevant reports.3. Securities lending transactions.UCITS may enter into securities lending transactions provided the following rules arecomplied with:3.1. Rules intended to ensure proper completion of lending transactions.A UCITS may only participate in securities lending transactions within a standardisedlending system organised by a recognised securities clearing institution or by a highlyrated financial institution specialised in that type of transactions.In relation to its lending transactions, the UCITS must in principle receive security ofa value which, at the conclusion of the lending agreement, must be at least equal tothe 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 guaranteedby Member States of the OECD or by their local authorities or by supranationalinstitutions and organisations with EU, regional or worldwide scope and blocked infavour 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 aggregatemarket value of the securities in the portfolio. This limit is not applicable where theUCITS has the right, at any time, to terminate the contract and obtain restitution ofthe 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 lentat the date of reference of the relevant reports.118

4. Repurchase agreements.UCITS may enter into repurchase agreements which consist of the purchase and sale ofsecurities whereby the terms of the agreement entitle the seller to repurchase the securitiesfrom the purchaser at a price and at a time agreed amongst the two parties at theconclusion of the agreement.The UCITS may act either as purchaser or seller in repurchase transactions. Its enteringinto 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 agreementonly if its counterpart is a highly rated financial institution specialised in this type oftransaction.4.2. Conditions and limits of repurchase transactions.During the lifetime of a repurchase agreement, the UCI may not sell the securitieswhich are the object of the agreement (i) either before the repurchase of the securitiesby the counterparty has been carried out or (ii) the repurchase period hasexpired.Where the UCITS is open-ended, it must ensure it maintains the importance of purchasedsecurities subject to a repurchase obligation at a level such that it is able, atall 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 salessubject to repurchase obligations, the total amount of repurchase agreements outstandingat the date of reference of the relevant reports.II. Techniques and instruments intended to hedge currency risks to which UCITS areexposed in the management of their assets and liabilities.In order to protect its assets against currency fluctuations, UCITS may enter into transactionsthe objects of which are currency forward contracts as well as the writing of calloptions and the purchase of put options on currencies. The transactions referred to hereinmay only concern contracts which are traded on a regulated market which is operatingregularly, recognised and open to the public.For the same purpose, the UCITS may also enter into forward sales of currencies orexchange currencies on the basis of private agreements with highly rated financial institutionsspecialised in this type of transactions.The afore mentioned transactions’ objective of achieving a hedge presupposes the existenceof a direct relationship between them and the assets to be hedged. This impliesthat transactions made in one currency may in principle not exceed the valuation of theaggregate assets denominated in that currency nor exceed the period during which suchassets are held.In its financial reports, the UCITS must indicate, for the different types of transactionsmade, the aggregate amount of commitments relating to transactions outstanding as atthe date of reference of the relevant reports.119

CHAPTER IRULES APPLICABLE TO UCIs OTHER THAN UCITSThe law of 30 March 1988 does not provide for the collective investment objective of UCIsother than UCITS which means that such UCIs may carry out investments in assets otherthan transferable securities.The detailed provisions which provide investors in traditional UCITS with certain safety guaranteesmay not be applied entirely as they stand to UCIs the objective of which differs fromthat of such UCITS, in particular with respect to the particular nature of the investment policyof these UCIs which makes it impossible to apply certain operational rules which must beobided by traditional UCIs. UCIs the objective of which differs from the objective of traditionalUCITS must therefore be submitted to a certain extent to a particular regime the rules ofwhich are differentiated according to the nature of their investments.To date, the supervisory authority has set up separate rules for three types of specialisedUCIs the principal object of which is either:- the investment in venture capital which means the investment in securities of unlistedcompanies either because these companies have been recently formed or because theystill are in the course of development and therefore have not yet obtained the stage ofmaturity required to have access to stock markets; or- the investment in commodity futures contracts and/or financial futures contracts and/or inoptions; or;- the investment in real estate.The separate rules established by the supervisory authority for each of the three specialisedtypes of UCIs do not replace the general rules which remain applicable, but only modify certainrules 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 ofadequate justification.I. Rules of the particular regime applicable to UCIs the principal object of which is theinvestment in venture capital.The rules provided for hereafter modify the rules of the general regime on the followingpoints: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 ofinvestment in venture capital.120

2. Investment restrictions.The investment restrictions applicable to traditional UCITS do not apply to UCIs subjecthereto except that the investment in venture capital must be diversified to such an extentthat an adequate spread of the investment risk is warranted. In order to ensure a minimumspread of such risks, the UCIs concerned may not invest more than 20% of their net assetsin 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 frequencyof the periods of issue and redemption of units or shares.Should the investors have the right to present their units or shares for redemption, theUCI may provide certain restrictions to such right. These restrictions must be clearly andprecisely described in the prospectus.4. Special regulations.Apart from these general rules which, fundamentally, are based upon those applicable totraditional UCITS, UCIs the principal object of which is the investment in venture capitalmust 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 representa number of shares or units the value of which at the time of issue is at least equal to12,394.68 euro.4.2. Remuneration of investment management and advisory bodies.If the remuneration of the investment management and advisory bodies is higherthan that usually received by similar bodies from traditional UCITS, the issue prospectusmust state whether the additional remuneration is also payable on assetswhich are not invested in venture capital.4.3. Information for investors.The annual and semi-annual reports of the UCI must contain information on thedevelopment of the companies in which it has invested. In the case of sale of securitiesof the portfolio, the UCI must publish separately for each investment the amountof profit or loss. In addition, the financial statements must mention where there isa potential conflict of interest between the interests of a director of the investmentmanagement 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 risksinherent to the investment policy of the UCI and of the type of conflict of interest121

which could arise between the interests of a director of the investment managementand advisory bodies and the interests of the UCI.Furthermore, the prospectus must include a statement indicating that since an investmentin such UCI represents an above average risk, the UCI in question is onlysuitable for those persons who can afford to take such risks and that it is advisablefor the average subscriber to invest therein only a part of the sums such subscriberintends for a long-term investment.II. Rules of the particular regime applicable to UCIs the principal object of which is theinvestment in futures contracts (commodity futures and/or financial futures) and/orin options.The rules provided for hereafter modify the rules of the general regime on the followingpoints: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 ofinvestment in commodities, financial futures and options respectively.2. Investment restrictions.2.1. Margin deposits relating to commitments taken on futures purchase and sale contracts,and call and put options written may not exceed 70% of the net assets of theUCI, the balance of 30% representing a liquidity reserve.2.2. The UCI may only enter into futures contracts dealt in on an organised market. Futurescontracts underlying options must also comply with this condition.2.3. The UCI may not enter into commodity contracts other than commodity futures contracts.As a departure therefrom, the UCI may, for cash consideration, acquire preciousmetals which are negotiable on an organised market.2.4. The UCI may only acquire call and put options which are dealt in on an organisedmarket. Premiums paid for the acquisition of options outstanding are included in the70% limit provided for under heading 2.1. above.2.5. The UCI must ensure an adequate spread of investment risks by sufficient diversification.2.6. The UCI may not hold an open forward position in any one futures contract for whichthe margin requirement represents 5% or more of net assets. This rule also appliesto open positions resulting from options written.2.7. Premiums paid to acquire options outstanding having identical characteristics maynot exceed 5% of net assets.2.8. The UCI may not hold an open position in futures contracts concerning a single commodityor a single category of financial futures for which the margin required represents20% or more of net assets. This rule also applies to open positions resultingfrom options written.122

3. Borrowings.The UCI may only borrow up to the equivalent of 10% of its net assets provided such borrowingsmay not be used for investment purposes.4. Special regulations.Apart from these general rules which, fundamentally, are based upon those applicable totraditional UCITS, UCIs the principal object of which is the investment in futures contractsand/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 representa number of shares or units the value of which at the time of issue is at least equal to12,394.68 euro.4.2. Remuneration of managers and investment advisors.If the remuneration of the investment management and advisory bodies is higherthan that usually received by similar bodies from traditional UCITS, the issue prospectusmust state whether the additional remuneration is also payable on assetswhich 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 eachcategory of futures and option contracts that has been carried out, the amount ofprofit or loss realised by the UCI. In addition, the financial statements must quantifythe commissions paid to brokers and the fees paid to the investment managementand 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 followedby the UCI with respect to futures contracts and options as well as the investmentrisks inherent to the investment policy. In particular, mention must be madethat the futures contracts and option markets are extremely volatile and that the riskof loss is very high.In addition, the prospectus must include a statement indicating that the UCI in questionis only suitable for persons who can afford to take such risks since the investmentin that UCI represents an above average risk.III. Rules of the particular regime applicable to UCIs the principal object of which is theinvestment 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;123

- shareholdings in real estate companies (including claims on such companies) the exclusiveobject and purpose of which is the acquisition, promotion and sale as well as the lettingand agricultural lease of property provided that these shareholdings must be at leastas liquid as the property rights held directly by the UCI;- property related long-term interests such as surface ownership, leasehold and options onreal estate assets.The rules provided for hereafter modify the rules of the general regime on the followingpoints: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 estateassets.2. Investment restrictions.The investment restrictions applicable to traditional UCITS do not apply to UCIs subjecthereto. Nevertheless, the investment in real estate assets must be diversified to an extentthat an adequate spread of the investment risk is warranted. In order to achieve a minimumspread of such risks, UCIs subject hereto may not invest more than 20% of their net assetsin a single property, such restriction being effective at the date of acquisition of the relevantproperty. Property whose economic viability is linked to another property is not considereda separate item of property for this purpose.This 20% rule does not apply during a start-up period which may not extend beyond fouryears 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 basedmust be determined at least once a year, namely at the end of the financial year, as wellas on each day on which shares or units are issued or redeemed. In respect of real estateassets, management may use the valuation established at the year end throughout thefollowing year unless there is a change in the general economic situation or in the conditionof the properties which requires new valuations to be carried out under the sameconditions as the annual valuation.Should the investors have the right to present their securities for redemption, the UCI mayprovide for certain restrictions thereto. In addition, where it is justified, notably with regardto a specific investment policy, the UCI has the obligation to restrict such right of redemption.These restrictions must be clearly and precisely described in the prospectus. The UCImay inter alia provide for delays of payment in case it does not hold sufficient liquid assetsto immediately settle redemption requests.124

4. Special regulations.Apart from these general rules which, fundamentally, are based upon those applicable totraditional UCITS, UCIs the principal object of which is the investment in real estate mustalso 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 thanthat usually received by similar bodies from traditional UCITS, the issue prospectusmust indicate whether such additional remuneration is also payable on assets whichare not directly or indirectly invested in real estate assets.4.2. Valuation of properties.Management must appoint one or more independent property valuers with specificexperience 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 realestate companies.In addition, properties may not be acquired or sold unless they have been valuedby the property valuer(s), although a new valuation is unnecessary if the sale of theproperty 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 justified.In such case, the managers must justify their decision in the next financialreport.4.3. Borrowings.The aggregate of all borrowings of the UCI may not exceed on average 50% of thevaluation of all its properties.4.4. Financial statements.The audit of the accounts of the UCI and of real estate companies which are fundedfor more than 50% by the UCI either by way of equity or loans, must be carried outunder the responsibility of one and the same auditor. The accounts of these entitiesmust 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 thoseof the real estate companies referred to in the preceding paragraph subject to therelevant legal requirements.Where the UCI holds minority interests in real estate companies the securities ofwhich are not listed on a stock exchange nor dealt in on another regulated marketoperating regularly, recognised and open to the public, the UCI must provide eitherfor a partial consolidation at year end or for a valuation on the basis of the probablesale value estimated with prudence and in good faith by the management. For thevaluation of minority shareholdings held in real estate companies the securities of125

which are listed on a stock exchange or dealt in on another regulated market operatingregularly, recognised and open to the public, the stock exchange or market valuemust be taken into consideration.In its annual and semi-annual reports, the UCI must clearly explain the accountingprinciples applied for the consolidation of its own accounts with those of affiliated realestate companies.The inventory of properties included in the annual and semi-annual reports must, foreach category of property held by the UCI or its real estate companies, indicate theaggregate 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 theUCI’s investment policy. In addition, the prospectus must provide details of the typeof commissions, expenses and charges to be borne by the UCI and the way in whichthey are calculated and charged.126

CHAPTER JRULES APPLICABLE TO MULTIPLE COMPARTMENT UCIsI. General principle.The law of 30 March 1988 introduced in Luxembourg law the concept of UCIs with multiplecompartments commonly referred to as “umbrella funds”.These are UCIs formed as common funds or investment companies with a multitude of compartmentswithin a single entity. These compartments are for instance used for investment intransferable securities denominated in different currencies or of different geographic regionsor economic sectors. From a practical point of view, it appeared attractive to offer investorsthe 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 intoone or several other compartments. The conversion from one compartment to the other withinthe same UCI does in principle not give rise to the payment of commissions of the categoryof those which would be provided for if the investor had invested in legally separate and independentundertakings.The law of 30 March 1988 provides that a multiple compartment UCI constitutes a single legalentity. This implies that a multiple compartment UCI, certain compartments of which wouldnormally fall under Part I of the law of 30 March 1988 whilst other compartments would fallunder Part II, is to be considered to fall in its entirety under Part II because of the criterion ofthe “single legal entity”.Nevertheless, the law of 30 March 1988 provides that the constitutional documents of multiplecompartment UCIs may provide that in respect of the relations between unitholders, eachcompartment will be treated as a separate entity.Considering that the multiple compartment UCI, existing as a single legal entity, consists ofdifferent compartments and that the investor may restrict his investment to one or the othercompartment, it appears that it is inevitable that the units or shares of this single legal entitycan have different values. For this reason, the law of 30 March 1988 provides in its Article 111that the units or shares may be of different values with or without par value depending on thelegal form which has been chosen. This is a derogatory provision to Article 37 of the law of10 August 1915 on commercial companies (as amended) which, inter alia, provides that thecapital 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 outunder 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 providesthat multiple compartment UCIs constitute a single legal entity, the following conditionsmust be met:- the different compartments of the fund must have a collective generic denomination and asingle management company which determines the investment policies and their applicationto the relevant compartments through a single board of directors of the managementcompany;127

- the custody of the assets of the different compartments of the fund must be ensured by asingle depositary who may however utilise, to the same extent as in respect of funds witha single portfolio, correspondents in different geographic regions;- the fund must be governed by a single set of management regulations which form itslegal basis. Subject to derogations which may be granted by the CSSF on the basis ofadequate justification, the management regulations must notably determine for each compartmentthe same redemption conditions for each category of units and the same generalvaluation, 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 onecompartment to the other without payment of commissions;- the management regulations must indicate the currency in which the combined position ofthe fund is expressed and which is obtained by aggregating the financial positions of allthe compartments in the fund.In addition to the more specific preceding conditions, common funds with multiple compartmentsmust also comply with the following conditions:- the certificates or other documents evidencing the rights of unitholders may only differ onthe 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 ata price arrived at by dividing the net asset value of the corresponding compartment by thenumber of outstanding units in such compartment;- the investment and borrowing restrictions provided for by the law of 30 March 1988 or bythis circular must be complied with inside each compartment with the exception of thoserestricting the holding of securities of a single issuer which shall also apply to the differentcompartments taken together.As regards more particularly the condition of minimum net assets resulting from Article 22 ofthe law of 30 March 1988, it is considered that this condition is complied with if a commonfund with multiple compartments reaches minimum assets of 1,239,467.62 euro in respect ofall 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 lawof 30 March 1988 only become applicable after the aggregate net assets of all the compartmentsof a multiple compartment common fund taken together have fallen below two thirds ofthe legal minimum of 1,239,467.62 euro.III. Investment companies.The inherent specifics of the concept of multiple compartment investment companies call forthe following commentaries:1. In a multiple compartment investment company the net asset value of a share is calculatedon the basis of the net assets of the compartment in respect of which the share isissued. The value of shares of the same company shall therefore necessarily differ fromone compartment to the other.128

However, this difference of value of shares representing share capital of a multiple compartmentinvestment company bears no consequence on the voting rights attached tosuch shares. Indeed, each share gives the right to one vote within the exercise of votingrights 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 inrespect of the exercise of their voting rights is emphasised in the Articles of incorporationof a multiple compartment investment company.Furthermore, the Articles should in addition distinguish between the decisions affecting allshareholders and which are to be considered in a single general meeting and decisionsonly affecting specific rights of shareholders of one compartment and which are thereforetaken 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 companymust be denominated in a single reference currency. However, the net asset value of eachcompartment is denominated in the currency of the relevant compartment.In the interest of a clear understanding of the operating mechanism of multiple compartmentinvestment companies, it is recommended that the Articles of these companiesclearly indicate the preceding particularities.3. The Articles of a multiple compartment investment company, similarly to the Articles ofinvestment companies with a single portfolio, must enumerate the circumstances of suspensionof the calculation of the net asset value of the company and consequently thesuspension of issues and redemptions of shares of that company.The Articles of a multiple compartment investment company must furthermore providefor the circumstances of suspension of the calculation of the net asset value (and consequentlyof issues and redemptions) of the individual compartments.4. The investment and borrowing restrictions provided for by the law of 30 March 1988 or bythis circular must be complied with inside each compartment with the exception of thoserestricting the holding of securities of a single issuer which shall also apply to the differentcompartments taken together.IV. Common rules applicable to all multiple compartment UCIs.It must clearly result from the constitutional documents of multiple compartment UCIs irrespectiveof whether they are established in the form of common funds or in the form ofinvestment 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 andlosses, expenses etc.The opening of a new compartment is subject to the authorisation of the CSSF and the updateof the prospectus, as the case may be by means of an insert.129

CHAPTER KCONTENTS OF THE FILE IN SUPPORT OF THE APPLICATION FOR AUTHORISATIONOF UCIsIn support of their application for entry on the list provided for by Article 72(1) of the law of30 March 1988 Luxembourg UCIs must submit to the CSSF an application file which, interalia, contains the following:a) Drafts of- the constitutional documents (Articles of incorporation of the management companyand management regulations or Articles of incorporation of the UCI),- the prospectus and all other information and/or advertisement document intended forinvestors,- any agreements such as depositary and advisory agreements;b) Indication of the name of the depositary in Luxembourg with a precise and detailed descriptionof the human and technical resources at its disposal for the accomplishment of allthe 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 witha precise and detailed description of the human and technical resources at its disposal forthe 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 countriesof marketing and on the targeted investors.Where the information and documents mentioned in items b), d), e) and f) hereabove havealready been furnished to the CSSF in respect of a previous application they must not be resubmittedprovided that no change has occurred in the interim.130

CHAPTER LINFORMATION AND ADVERTISEMENT DOCUMENTS INTENDED FOR INVESTORSI. Prospectus.1. Contents of the prospectus.The prospectus must include the information necessary for investors to be able to make aninformed judgment on the investment proposed to them.It shall contain the information provided for in Schedule A annexed to the law of 30 March1988 insofar as such information does not already appear in the documents annexed tothe prospectus in accordance with Article 87(1) of the same law. In addition, it must carrya statement that no person is authorised to give any information other than that containedin the prospectus or in the documents referred to therein which are available for inspectionby the public.The CSSF may require the publication of such additional information it deems necessary inorder 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 containedtherein remains accurate. The essential elements of the prospectus must be kept upto date. This may be achieved by the periodical financial reports.UCIs may in principle only enter into the transactions specifically mentioned in their prospectus.This particularly applies to the transactions concerned by Chapter H above. Referenceis 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 characteristicsset out under headings II. to IV. of Chapter J. above should be stated clearly not only inthe constitutional documents of multiple compartment UCIs, but also in the prospectusesof such UCIs.Multiple compartment UCIs must make provision for a single prospectus for all their compartments.In that prospectus, it must be specified that commitments in relation to a singlecompartment bind the whole of the UCI unless contrary arrangements have been agreedwith the relevant creditors.Besides this prospectus, multiple compartment UCIs may provide for the publicationof separate prospectuses for each of their compartments. Where this facility is used,the following indications, adequately emphasised, must compulsorily be included in theseparate prospectuses:131

- Indication that the particular compartment, to which the separate prospectus relates,does not constitute a separate legal entity, but that there exist other compartmentswhich together with the particular compartment form a single entity;- Indication that for the purposes of the relationship between unit- or shareholders, eachcompartment is considered as a separate entity with its own funding, capital gains andlosses, expenses etc.;- Indication that commitments in respect of the compartment to which the separate prospectusrelates, bind the whole UCI unless contrary arrangements have been agreedto with the relevant creditors;- Indication that there exists a prospectus which includes a complete description of allthe compartments of the UCI with an indication of the locations where that prospectusmay be obtained.3. Visa.In order to ensure an identification of the prospectuses which have obtained the “nihil obstat”of the CSSF, such prospectuses are stamped with its visa by the CSSF and remittedwith such visa to the person who submitted the dossier.For this purpose, the CSSF must receive five copies of each prospectus, when final, withrespect to both content and presentation. The visa stamp may in no circumstances beused as an advertisement means.II. Advertising documents.The advertising material used by those responsible for the placing and their agents mustbe submitted for supervision to the CSSF where such material is not subject to the supervisionof 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 reportcovering 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 limitswith 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 samecontext, it should be remembered that the financial reports must include the indicationsrequired by the provisions of Chapter H. above in respect of the transactions referred to inthat Chapter.132

The auditor’s report provided for by Article 89(1) of the law of 30 March 1988 must beincluded in the annual reports.2. Specific rules applicable to multiple compartment UCIs.Multiple compartment UCIs must include in their financial reports separate information oneach 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 lawof 30 March 1988 as well as in Schedule B annexed to that law, provided that headingsII., III., IV., VI. and VII. of that Schedule are not to be considered for the establishment ofcombined 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 establishmentof the combined situation of the UCI, these financial reports must be aggregatedafter having been converted in the denomination of the share capital, where the UCI hasbeen formed as an investment company, or in the currency determined for that purposeby 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 compartmentUCIs may provide for the publication of separate financial reports for each of their compartments.Where this facility is used, the conditions provided for the publication of separateprospectuses are applicable to this case by analogy. Reference is made in this connectionto heading I.2. above.Where a separate annual report is established for each compartment of a multiple compartmentUCI, the auditor’s report provided for by Article 89(1) of the law of 30 March1988 must also be included in the relevant report unless the auditor establishes separatereports for each compartment. If such separate auditor’s reports are established, theymay be published in the separate annual reports of the relevant compartments in lieu ofthe 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 ofpublication. 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 determineif 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 andthe latest annual report as well as the subsequent semi-annual report, if published, must beoffered to subscribers free of charge before the conclusion of a contract.133

In this respect, the question arises whether the above-mentioned documents must, before theconclusion of a subscription contract, be supplied to the subscriber only upon his request orwhether 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 withoutthe subscriber having actually looked into or, even received, a copy of the prospectusand periodical reports, provided these documents had been offered to him in the prescribedfashion.It follows from the above that Article 91(1) of the law of 30 March 1988 does not prohibit thatthe subscription form is attached not to the prospectus, but to a brief information brochurewhich 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, LuxembourgUCIs must comply with the legal, regulatory and administrative provisions which govern theuse of the prospectus and periodical reports in the respective countries of marketing.134

CHAPTER MFINANCIAL INFORMATION 129 INTENDED FOR THE CSSF AND THE STATEC 130The following indications intend to clarify for the concerned undertakings for collective investmentthe requirements concerning the establishment and communication of the requiredfinancial information.I. Content of the monthly and annual financial informationThe monthly and annual financial information of undertakings for collective investment are tobe drawn up pursuant to the tables O 1.1., O 4.1. and O 4.2. annexed to this circular 131 as appendicesA, B and C respectively 132 . The appendices also include definitions and discussionsconcerning 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 toelectronically collect the information provided for in tables O 1.1., O 4.1. and O 4.2. and totransmit them to the CSSF which will serve as an intermediary between CCLux* and STATECfor the transmission of the data required by the latter.The central administrations of the undertakings for collective investment concerned by thiscollection of information will forward the required information under the format defined byCC 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 thecentral administrations until their receipt by the CSSF. In the absence of encryption by thecentral administrations, CC Lux* will encrypt the data for the purpose of their transmission tothe CSSF.CC Lux* will separately communicate to each central administration instructions for the inputof data.129 Chapter M of this Circular was globally replaced by a circular issued on 13 June 1997 by the IML (now replaced bythe CSSF), as amended by CSSF Circular 08/348130 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 08/348132 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 2009.135

III.Reference dateMonthly financial informationIn principle, the last day of each month shall be taken as the reference date for the preparationof the monthly financial information to be transmitted by undertakings for collective investment.However, the preceding rule is not compulsory for undertakings for collective investmentwhich calculate their net asset value at least once a week. For this category of undertakingsfor collective investment, the reference date may be the last day on which the net asset valueof that month is calculated.This derogation is also valid for those undertakings for collective investment which calculatethe per unit or per share net asset value at least monthly if the day of such calculation fallseither on the last week of the reference month or on the first week of the following month. Thefinancial information to be transmitted must then be prepared on the basis of the data availableat 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 netasset value on a monthly basis need only indicate in their monthly statements the amountseffectively booked in the accounts at the end of the month excluding any non-accountingestimates.Annual financial informationThe fiscal year-end date is the reference date for the preparation of the yearly financial informationto be transmitted by undertakings for collective investment.IV. Delay for transmissionUndertakings for collective investment must provide the monthly and yearly financial statementsto CCLux* within a period of 20 days respectively 4 months after the reference date.V. Currency used in the statementThe monthly and yearly tables must indicate in the place provided therefor the reporting currencyused for the preparation of the numbered information which they contain. This reportingcurrency must be the currency used to calculate the net asset value. All amounts are to be setout without decimals with the exception of the amounts concerning items 120, 130 and 520 ofthe monthly table which are, if required, to be indicated with decimals.VI. Undertakings for collective investment with multiple compartmentsThe monthly and yearly financial statements must be drawn up for each compartment separately.The relevant tables must indicate in the place provided for that purpose the reportingcurrency used to set out numbered information contained therein. The reporting currencymust 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 investment.* Centrale de Communications Luxembourg S.A. (CCLux) changed its name to Finesti S.A. on 28 January 2009136

VII. Identification numberThe CSSF will attribute to each undertaking for collective investment and, if applicable, toeach compartment of an undertaking for collective investment an identification number. TheCSSF will separately communicate such numbers to the undertakings for collective investmentwhich must indicate that number in the space provided for that purpose on the monthlyand annual tables.VIII. Reference periodThe annual tables must indicate in the space provided therefor the reference period whichthey cover. This period which is identical to the period covered by the annual report is to beexpressed in number of months (in principle 12 months) and, if required, in number of days ifthe period does not in its entirety cover a full month (in this last case the number of full monthsand of days remaining are to be indicated).IX. Name of staff memberIn each table it has to be indicated in the space reserved therefor the name of the staff memberresponsible for the drawing-up of the relevant table as well as the telephone number atwhich the relevant staff member may be contacted by the CSSF if appropriate.X. Date of the first drawing-up of monthly and annual financial informationThe monthly and annual financial information pursuant to tables O 1.1., O 4.1. and O 4.2. areto be drawn up for the first time at 31 December 1997.137

CHAPTER NRULES APPLICABLE TO MANAGEMENT COMPANIES OF common fundSI. Information obligation of management companies vis-à-vis the CSSF.Immediately following the approval thereof by the general meeting of shareholders, the managementcompanies of common funds must transmit to the CSSF their annual accounts togetherwith the directors’ report and the report of the external auditors responsible for the auditof 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 companymust be of sufficiently good repute and have the experience required for the performance oftheir duties.To that end, the names of the directors of the management company, and of every personsucceeding 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 managementcompany or who effectively determine the policy thereof.This raises the question as to whether the shareholders of the management company are tobe considered as directors which require the authorisation of the supervisory authority. Thisquestion must be answered in the affirmative insofar as one has to consider that the shareholdersactually determine the policy of the management company.The principal shareholders of the management company of a common fund must therefore beof sufficient good repute and have the experience required for the performance of their dutiesand must, in this respect, obtain the authorisation of the CSSF.138

CHAPTER OMARKETING RULES APPLICABLE IN LUXEMBOURGThe marketing rules which UCIs must comply with in Luxembourg when their units or sharesare 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 unfaircompetition; and- the law of 16 July 1987 on door-to-door sales, itinerant trade, display of goods and canvassingfor orders.139

CHAPTER POBLIGATION OF UCIs TO INFORM THE CSSF ON THE AUDIT MADE BY THE AUDI-TORUCIs 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 thesupervision which he must carry out pursuant to Article 89 of the law of 30 March 1988. Thedocuments to be communicated must inter alia include the written commentaries issued by theauditors which generally take the form of a management letter to the UCI.140

APPENDIXTo be forwarded to theCommission de Surveillance du Secteur FinancierL-2991 LuxembourgMONTHLY 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 relationto previous month’s value:_________________II. Percentage value of the portfolio in relation to the total net assetvalue at the end of the month:_________________III. Information concerning the amount of issues and redemptionsof 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 thereference month:1. Total amount of distributions (in millions): _________________2. Amount per unit or share: ________________________________________________________________Authorised signature(s) and stamp:name of employee(s):____________________________Tel.: ________________________141

CSSF Circular 02/77 of 27 november 2002 concerning the protection ofinvestors in case of NAV calculation error and correction of theconsequences resulting from non-compliance with the investmentrules applicable to undertakings for collective investmentLuxembourg, 27 November 2002To: All Luxembourg undertakings for collective investment and all parties involved in theoperation and supervision of such undertakingsCSSF CIRCULAR 02/77Concerns:Protection of investors in case of NAV calculation error and correctionof the consequences resulting from non-compliance with the investmentrules 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 bycollective investment professionals in Luxembourg in case of errors in the administration ormanagement of the undertakings for collective investment (“UCIs”) for which they are responsible.Errors which occur in practice are essentially those resulting from the incorrect calculationof the net asset value (“NAV”) or from non-compliance with the investment rules applicableto UCIs. In most cases, non-compliance is caused either by investments which are not incompliance with the investment policy which the UCIs define in their prospectus or because ofa 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 within strictest compliance with the rules of conduct specified in this circular. This is of a primordialimportance not only because the interests of the UCIs and/or of the investors having suffereda loss need to be protected, but it must be ensured that investors maintain their trust in theintegrity of collective management professionals which exercise their activities in Luxembourgand the effectiveness of the supervision exercised over UCIs.The corrective and compensatory actions to be taken in case of NAV calculation errors or incase of non-compliance with the investment rules applicable to UCIs are separately dealt withunder sections I. and II. hereafter. That presentation is necessary to take account of the factthat 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 errors1. Definition of a calculation errorIt is reminded that the NAV per unit/share of UCIs is obtained by dividing the valueof their net assets, meaning assets less liabilities, by the number of units/sharesoutstanding.142

Unless provided differently in their constitutional documents, the valuation of theassets of UCIs, whose investment policy provides for the investment in transferablesecurities, must be based, in case of securities admitted to official stock exchangelisting, on the last known price on such stock exchange, unless such price is notrepresentative. Securities which are not so listed or securities which are so listed butof which the last price is not representative, are valued on the basis of the reasonablyforeseeable 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 itsdetermination in the constitutional documents and prospectus of the UCI are strictlyapplied, consistently and in good faith, on the basis of the most current and mostreliable information available at the time of the calculation.An error in the NAV calculation occurs as a result of one or more factors or circumstanceswhich cause the calculation to yield an incorrect result. Generally, thesefactors 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 valuationrules provided in the constitutional documents and the prospectus of UCIs.2. The materiality concept in the context of the NAV calculation errorsIt is generally recognised that the NAV calculation process is not an exact science andthat the result of the calculation constitutes the closest possible approximation of thetrue market value of the assets of a UCI. The level of precision with which the NAVis calculated will indeed depend on a series of external factors more or less linked tothe complexity of each particular UCI such as volatility of the markets on which animportant part of the assets of the UCI are invested in, the availability at the appropriatetime of up-to-date information on market prices and/or other elements relevantfor the calculation of the NAV as well as the reliability of the price information sourcesused.In consideration of these factors, it is accepted in the majority of the principal collectivemanagement industry centres that only those calculation errors, which have a materialimpact on the NAV and whose proportion compared to the NAV reaches or exceeds acertain threshold, referred to as the materiality or tolerance threshold, must be notifiedto the CSSF and corrected in order to protect the interests of the investors concernedwhile it is indeed considered that in all other cases, the immateriality of the errors doesnot justify the recourse to relatively long and costly administration procedures whichmust be put into place in order to recalculate incorrect NAVs and indemnify affectedinvestors.Following the use and practices adopted abroad, this circular introduces the materialityconcept for Luxembourg UCIs whilst determining acceptable tolerance thresholdsat different levels depending on the type of UCI concerned by the NAV calculationerror. This differentiating approach is justified to the extent that the implicit level ofimprecision in each NAV calculation can vary from one type of UCI to the next byvirtue of the external factors referred to above and in particular market volatility. Thatfactor is indeed of a primordial importance in this context as it is generally admittedthat the volatility of a market depends to a large extent on the risks associated with thefinancial assets dealt on that market and that such volatility increases depending onwhether those assets are money market instruments, bonds/debt securities or sharesand other types of securities.143

In conformity with that approach, different tolerance thresholds are provided for UCIswhich 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 thosereferred to above (“equity or other financial assets’ UCIs”) and UCIs which follow amixed 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 NAVbond UCIs:0.50% of NAVshares and other financial assets’ UCIs:1.00% of NAVmixed UCIs:0.50% of NAV.The introduction of the materiality concept does not mean that UCI promoters willin case of calculation errors be obliged to apply the tolerance thresholds specifiedabove. On the contrary promoters are free to apply less high tolerance thresholds oreven 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 theypropose to adopt in case of NAV calculation errors are not in conflict with the requirementsthat may be applicable in those circumstances in the host countries.3. Procedures to be followed for the correction of calculation errors which have a significantimpact on the NAV.The indications given under the points below relate to the principal stages of thecorrection process and fix in detail the rules of conduct to be followed in the correctionof the calculation errors whose impact on the NAV reaches or exceeds the acceptabletolerance threshold as specified above and which are thereby considered to constitutesignificant errors. These rules of conduct concern in particular– the information to be furnished to the promoter and the custodian of the UCI andto the CSSF;– the determination of the financial impact of the calculation errors;– the indemnification of the damages which result from the calculation errors for theUCI and/or its investors;– the implication of the external auditor in the monitoring of the correction processand– the communications to be made to those investors which have to be indemnified.Significant errors not only mean isolated calculation errors which have a significantimpact on the NAV but also unprocessed simultaneous or successive calculationerrors which each remain below the acceptable tolerance threshold but which, ifconsidered on an aggregate basis, reach or exceed that threshold.The correction procedures must form an integral part of the internal control procedureswhich the head office of UCIs must put into place to limit as much as possible the riskfor calculation errors and detect any errors that occur.144

(a) The information to be furnished to the promoter and the custodian of the UCI andto the CSSFAs soon as a significant calculation error is discovered, the head office of the UCImust immediately inform the promoter and the custodian of the UCI as well as theCSSF of the occurrence of the error and submit to the promoter and the CSSFa corrective action plan dealing with the steps which are proposed or have beentaken to cure the problems which have caused the ascertained calculation errorand to put into place the improvements to the administrative and control structureswhich are necessary to avoid the subsequent occurrence of the same problems.The corrective action plan must also specify the steps which are proposed orwhich have been taken to– identify in the most appropriate way the different categories of investors whoare affected by the errors;– recalculate the NAVs which have been applied to subscription and redemptionrequests received during the period starting on the date on which the errorbecame significant and the date on which it was corrected (“the error period”);– determine, on the basis of the recalculated NAVs, the amounts which have tobe repaid to the UCI and the amounts payable by way of indemnity to investorswho 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 sorequire;– notify the error to the investors who have to be indemnified and inform them ofthe steps that will be put into place for indemnifying their losses.If, following a NAV calculation error, the indemnification amount does not exceedEUR 25,000 and the amount to be reimbursed to an investor does not exceedEUR 2,500, no corrective action plan as detailed hereabove needs to be submittedto the CSSF. In that case the head office must notify the occurrence of the significantcalculation error to the CSSF and must quickly take the measures necessaryfor correcting the calculation error and for arranging the indemnification of thedamages incurred as provided in items b), c), and e) hereafter.(b) The determination of the financial impact of significant calculation errorsIn case of a significant calculation error, the head office of the UCI must as quicklyas possible take the steps necessary to correct the error. In particular, it mustrecalculate the NAVs which have been determined during the error period andquantify the loss for the UCI and/or its investors on the basis of the correctedNAVs, provided however that the recalculation of incorrect NAVs is required onlyin case subscription or redemption requests have been processed during the errorperiod.In determining the financial impact of calculation errors, the head office of the UCImust fundamentally distinguish between– investors which have joined the UCI before the error period and which haveredeemed their units/shares during such period and– investors which have joined the UCI during the error period and which continuedto hold their units/shares after such a period,145

provided that investors other than those belonging to the above categories may beaffected depending on actual circumstances.The indications below give an overview of the situation of the UCI and the concernedinvestors 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 haveredeemed their units/shares during such period, must be indemnified of thedifference between the recalculated NAV and the undervalued NAV which wasapplied to the redeemed units/shares;– the UCI must be indemnified of the difference between the recalculated NAVand the undervalued NAV which has been applied to units/shares subscribedto 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 NAVwhich was applied to units/shares redeemed during the error period but whichwere subscribed to before that period and the recalculated NAV;– investors which have joined the UCI during the error period and which have heldtheir units/shares beyond such period must be indemnified of the differencebetween the overvalued NAV applied to the units/shares subscribed to and therecalculated NAV.The investors having suffered a loss as a result of a calculation error may beindemnified out of the assets of the UCI in case the payments due to the relevantinvestors correspond to excess sums within the assets of the UCI and the paymentof which can therefore not affect the interests of the other investors. It remainsnevertheless that the head office of the UCI or, as the case may be, its promotermay decide to take over themselves the payments necessary to indemnify affectedinvestors.There is an open issue as to whether the UCI affected by a calculation error hasthe right to require investors who have involuntarily benefited from that error tosubsequently pay to the UCI the amount not paid by them in respect of units/sharessubscribed by them on the basis of an undervalued NAV or to repay the excess ofthe sums received by them in respect of units/shares redeemed at an overvaluedNAV. Since this is a controversial issue to which no clear response can be given inthe absence of a court precedent, it is not recommended to call upon the investorsconcerned to indemnify the UCI for its losses, unless the beneficiaries are institutionalinvestors or other sophisticated investors who accept in full knowledge of thecircumstances to cover the loss of the UCI.146

In those circumstances, it is in principle the obligation of the head office of the UCIor as the case may be of its promoter, to make the payments due to the UCI inlieu of the investors who have benefited from the error. This solution is particularlyjustified because any claim on the investors having benefited from the error couldhave a negative effect on the promoter’s reputation and result therefore in a nonnegligible commercial prejudice for the promoter.As soon as the operations consisting of the recalculation of the incorrect NAVs andthe 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 theentries in the accounts of the UCI which are necessary to reflect the payments tobe received and the payments to be made by the UCI.(c) The correction of the consequences for the UCI and/or its investors of calculationerrorsThe compensation for damages is only compulsory by reference to the specificdates on which NAV calculation errors were significant. Insofar as other dates areconcerned, it is the responsibility of the governing bodies of the UCI to determinewhether it is necessary to determine the financial impact of the error and establishan indemnification plan.The head office of the UCI must diligently put into place the measures providedfor in the correction plan referred to in item a) above for the recalculation of theincorrect NAVs and the determination of the loss suffered by the UCI and/or theaffected investors.It must also act with diligence in the organisation of the indemnity payments due tothe UCI and/or the affected investors, provided however that these payments canonly be made after the external auditor has completed his special report referredto in item d) below.In order to accelerate the process of calculation error correction, the head office ofthe UCI can initiate the different stages of that process without having obtained theprior consent of the CSSF. It suffices in that case that the CSSF is informed of thesteps taken subsequently thereto.If, following a NAV calculation error, the total indemnification amount does notexceed EUR 25,000 and the amount to be reimbursed to an investor does notexceed EUR 2,500, the head office must be diligent in operating the payment ofthe amounts due as indemnification to the UCI and/or to affected investors as soonas the sums payable as indemnification will have been determined.It remains however that the CSSF can intervene in the correction process on asubsequent basis if it deems such intervention necessary in order to preserve theinterests of the UCI and/or the affected investors.In most of the main centres for collective management, UCIs are authorised by theCSSF to apply the de minimis rule to the amounts which individual investors canclaim.In accordance with that rule, the UCIs which benefit from such an authorisationmay decide not to pay to individual investors sums which do not exceed a specificamount, the level of which is generally fixed as a lump sum figure, referred toas the de minimis amount. That lump sum figure is applied in order to avoid thatinvestors who have a right to be paid lesser amounts, end up with no real benefitbecause of the bank charges (cheque collection charges for cheques issued totheir order or bank transfer charges) and other costs they have to bear.147

For the reasons specified in the preceding paragraph, Luxembourg UCIs can alsotake advantage of the de minimis rule. This document does however not introducea 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 approvalof 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 chargesand other costs which are charged to investors to whom payments are made. Thisapproach is justified because a large majority of Luxembourg UCIs are distributedabroad and that the level of those charges can appreciably vary between UCIsdepending on the geographic location of investors.Concerning the indemnification of investors who already hold units/shares at themoment of payment of the amounts due to them, UCIs may decide the attributionto 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 sincesuch investors then avoid the bank charges which would otherwise be chargedto them and since it additionally allows a complete indemnification without anyconsideration being given to the actual amounts they are entitled to, as in thosecircumstances there is no justification to apply a de minimis amount.It is clear that UCIs which issue new units/shares to indemnify affected investorsmay not deduct commissions or other entry costs in respect to those units/shares.Where affected investors have subscribed units/shares through a “nominee”, thehead office of the UCI must remit to such “nominee” the amounts which areintended for the relevant investors. In such cases, the “nominee” must commit tothe head office that it will forward the amounts received by it to the persons effectivelyentitled thereto.The term “nominee” as used herein means an intermediary who intervenesbetween the investors and the UCI they have selected and who offers nomineeservices which the investors may use in the conditions set out in the prospectus ofthe UCI.The de minimis rule can in no case be used to refuse payment to investors ofamounts which are less than the de minimis amount applicable to such investorsin case such investors expressly claim such payment.(d) The implication of the external auditor in the monitoring of the correction processAt the same time as the head office notifies the promoter and the custodian of theUCI and the CSSF of the occurrence of a significant calculation error, the headoffice of the UCI must also notify the UCI’s external auditor and instruct him toreport 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 receivedduring the error period; and– determine, on the basis of the recalculated NAVs, the amounts which must berepaid to the UCI and the amounts payable on an indemnity basis to investorswho have suffered a significant loss because of the error.148

The conclusions of the external auditor on the proposed methods must bedocumented in writing and must be attached to the correction plan referred to initem a) above.When the calculation error is discovered by the external auditor, the externalauditor must immediately notify the head office of the UCI thereof and request itto immediately inform the promoter, the custodian and the CSSF thereof. If theexternal auditor realises that the head office does not comply with that request, theexternal auditor must notify this fact to the CSSF.As soon as the head office of the UCI has carried out the entries in the accountsof the UCI which are necessary to correct the calculation error, the external auditormust draw up a special report in which he opines whether the correction processis 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 wellas to the supervisory authorities of those countries in which the units/shares of theUCI are admitted for distribution, in case such authorities so request.Finally, the external auditor must establish a confirmation in which he certifies thatthe amounts due on an indemnity basis to the UCI and/or affected investors haveeffectively been paid.A copy of that confirmation must also be forwarded to the CSSF and, as the casemay be, the foreign regulatory authorities referred to above.In the context of an NAV calculation error for which the indemnification amountdoes not exceed EUR 25,000 and the amount to be reimbursed to an investordoes not exceed EUR 2,500, the external auditor must review the correctionprocess in the course of its annual audit of the UCI. The external auditor must inthe report on its review state whether, in its opinion, the process of correction is oris 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 indemnifiedSignificant calculation errors must be brought to the attention of the investors whoare to be indemnified.If applicable, the communications which are made for that purpose throughindividual notices and/or by publication in the press must inter alia include particularson the calculation error and the steps taken to correct it and to indemnify theUCI and/or the affected investors accordingly.These communications must be submitted in draft form to the CSSF and, asthe case may be, the supervisory authorities of those countries in which theunits/shares of the UCI are admitted for distribution, in case such authorities sorequest.149

4. Responsibility for the costs resulting from the correction operations of a calculationerrorThe costs caused by the correction operations of a calculation error, including thecosts associated with the intervention of the external auditor, cannot be charged to theassets 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 theerror on the NAV.The external auditor will be responsible to ascertain within the framework of the auditof the accounting information contained in the annual reports of the UCI that the costsreferred to herein will not be charged to the UCI.II. The compensation of the consequences resulting from non-compliance with theinvestment rules applicable to UCIsPromptly upon discovering a non-compliance with investment rules, the directors 133 of theUCI concerned must take the steps which are necessary to regularise the situation of theUCI caused by such non-compliance.In case the ascertained non-compliance results from investments which do not complywith the investment policy defined in the prospectus, the UCI must realise those investments.In case the investment restrictions provided for by law or by the prospectus are breachedin circumstances other than those referred to in Article 46 of the law of 30 March 1988concerning undertakings for collective investment, the UCI must realise the excesspositions.Where the borrowing limits provided for by law or by the prospectus are breached, the UCImust reduce its borrowings to the authorised limit.In the three circumstances referred to above, the UCI must be indemnified to the extent ofany damage suffered.In the first two circumstances, the damage must be determined in principle by referenceto the loss of the UCI resulting from the realisation of the non-authorised investments. Inthe third circumstance, the UCI must in principle be indemnified to the extent of its interestand 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 concerningall the breaches.In case the corrective actions have a net positive result for the UCI, it will retain the benefitthereof. In those circumstances, it suffices for the head office of the UCI to notify theCSSF and the external auditor.By exception to the preceding principle and to the extent that there is adequate justificationtherefor, methods other than those described above may be used to determinethe suffered damage, including in particular the method which consists of determining thedamage by reference to the performance which would have been realised if the non-authorisedinvestment had been subject to the same fluctuations as the portfolio invested incompliance with the investment policy and the investment restrictions provided for by lawor the prospectus.133 The original circular uses the term “dirigeant” which includes directors, managers and officers.150

The tolerance levels which are provided for NAV calculation errors cannot beapplied to damages of UCIs resulting from non-compliance with investmentrules.Because they did not comply with their obligations it is the responsibility of the personswho have caused the losses to ensure that such losses are repaid. In case thisprinciple cannot be applied, the promoters will have to indemnify.The principles which determine the procedures to be followed for the processing ofNAV calculation errors and the treatment of NAV calculation errors for which the totalindemnification amount does not exceed EUR 25,000 and the indemnification amountto be paid to one investor does not exceed EUR 2,500 will apply mutatis mutandis inall cases where a UCI suffers a loss as a result of non-compliance with investmentrules. The principles referred to herein which have to be applied are in particular thoseconcerning– the information to be furnished to the promoter and the custodian of the UCI and tothe CSSF;– the identification of the categories of investors which are affected because of theloss suffered by the UCI;– the determination of the financial impact of the loss for individual investors and themeasures to be taken for their indemnification;– the implication of the independent auditor in the monitoring of the correctionprocess;– 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 Provisions1. Repealment provisionCSSF circular 2000/8 is repealed.2. Entry into forceThe provisions of this circular are immediately applicable in their entirety.151

CSSF Circular 02/80 of 5 december 2002 concerning the specific rulesapplicable to Luxembourg undertakings for collective investment(“UCIs”) pursuing alternative investment strategiesLuxembourg, 5 December 2002To all persons and companies supervised by the CSSFCSSF CIRCULAR 02/80Concerns:Specific rules applicable to Luxembourg undertakings for collectiveinvestment (“UCIs”) pursuing alternative investment strategies.Ladies and Gentlemen,PreambleThe law of 30 March 1988 relating to UCIs does not comprise any provisions regardingrestrictions applicable to UCIs governed by Part II of such law. Such restrictions are set outin the IML Circular 91/75 of 21 January 1991 applicable to UCIs. However, the UCIs whichadopt alternative investment strategies are not specifically covered by the provisions of theabove-mentioned circular. Therefore, in the past, the investment restrictions applicable toUCIs pursuing so called alternative investment strategies were dealt with by the Commissionfor the Supervision of the Financial Sector (“CSSF”) on a case-by-case basis.Considering the increasing number of applications for the creation and authorisation ofLuxembourg UCIs which pursue investment strategies akin to those pursued by “hedgefunds” 134 or “alternative investment funds” 134 , the CSSF intends to clarify the legal andregulatory framework applicable to such UCIs.This circular is issued in the context of the existing legal framework and its purpose isto clarify the specific rules applicable to Luxembourg UCIs which pursue so-called alternativeinvestment strategies. In this context and due to the high investment risks which theinvestment strategies pursued by the UCIs concerned by this circular may entail, the CSSFwill pay attention to the reputation, experience and financial standing of the promoters of suchUCIs. Moreover, the CSSF considers that the professional qualification and the experienceof the directors 135 of the management bodies, and, if applicable, of the investment managersand 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 IMLCircular 91/75 of 21 January 1991 applicable to UCIs other than UCITS and providing forspecific rules for three types of specialised UCIs remain unchanged. Such rules are not applicableto UCIs concerned by this circular. UCIs which pursue so-called alternative investmentstrategies are subject to Part II of the law of 30 March 1988 relating to UCIs as the rules setforth 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 thepossibility 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 andofficers. See footnote 25.152

Such UCIs have to comply with the provisions of this circular. However, the CSSF may grantderogations from the provisions set forth hereafter on the basis of an appropriate justificationor impose additional investment restrictions.A. Risk diversification rules regarding short salesA.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 stockexchange listing or dealt in on another regulated market, which operates regularlyand is recognised and open to the public. However, the UCI may hold shortpositions on transferable securities which are not quoted or not dealt in on aregulated market if such securities are highly liquid and do not represent more than10% of the assets of the UCI;b) a short position on transferable securities which represent more than 10% of thesecurities 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 theprices at which the short sales have been carried out represents more than 10% ofthe assets of the UCI or (ii) if the short position represents a commitment exceeding5% of the assets.A.2. The commitments arising from short sales on transferable securities at a given timecorrespond to the cumulative non-realised losses resulting, at that time, from the shortsales made by the UCI. The non-realised loss resulting from a short sale is the positiveamount resulting from the difference between the market price at which the short positioncan be covered and the price at which the relevant transferable security has been soldshort.A.3. The aggregate commitments of the UCI resulting from short sales may at no timeexceed 50% of the assets of the UCI. If the UCI enters into short sales transactions, itmust hold sufficient assets enabling it at any time to close the open positions resultingfrom such short sales.A.4. The short sales of transferable securities for which the UCI holds adequate coverageare 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, ofwhatever nature, on its assets to third parties in order to secure its obligations towardssuch third parties, is not to be considered as adequate coverage for the UCI’s commitments.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 specialisedin 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 ofthe securities lending transactions and (ii) the debt of the UCI owed to such lender maynot exceed 20% of the assets of the UCI. For the avoidance of doubt, it is to be notedthat UCIs may, in addition, give security by using security arrangements which do notresult in a transfer of ownership or which limit the counterparty risk by other means.153

B. BorrowingsUCIs concerned by this circular may borrow permanently and for investment purposesfrom first class professionals specialised in this type of transaction.Such borrowings are limited to 200% of the net assets of the UCI. Consequently, thevalue of the assets of the UCI may not exceed 300% of its net assets. UCIs pursuing astrategy with a high level of correlation between long positions and short positions areauthorised to borrow up to 400% of their net assets.The counterparty risk resulting from the difference between (i) the value of the assetstransferred by the UCI to a lender as security in the context of borrowing transactionsand (ii) the value of the debt of the UCI owed to such lender may not exceed 20% ofthe assets of the UCI. For the avoidance of doubt, it is to be noted that UCIs may, inaddition, give security by using security arrangements which do not result in a transferof ownership or which limit the counterparty risk by other means.The counterparty risk resulting from the sum of (i) the difference between the value ofthe assets transferred as security in the context of securities lending transactions andthe value of the amounts due referred to under item A.5 above and (ii) the differencebetween the assets transferred as security and the amounts borrowed referred to abovemay 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 theirnet assets in securities issued by the same target UCI. For the purpose of the applicationof this 20% limit, each compartment of a target UCI with multiple compartments isto be considered as a distinct target UCI provided that the principle of segregation of thecommitments of the different compartments vis-à-vis third parties is ensured. The UCImay hold more than 50% of the units of a target UCI provided that, if the target UCI isa UCI with multiple compartments, the investment of the UCI concerned by this circularin the legal entity constituting the target UCI must represent less than 50% of the netassets of the UCI concerned by this circular.These restrictions are not applicable to the acquisition of units of open-ended targetUCIs if such target UCIs are subject to risk diversification requirements comparableto those applicable to UCIs which are subject to Part II of the law of 30 th March, 1988and if such target UCIs are subject in their home country to a permanent supervisionby 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 theUCI referred to in this circular in one single target UCI provided that for the purpose ofthis limitation, each compartment of a target UCI with multiple compartments is to beconsidered as a distinct target UCI on the condition that the principle of segregation ofthe commitments of the different compartments towards third parties is ensured.UCIs which principally invest in other UCIs must make sure that their portfolio of targetUCIs presents appropriate liquidity features to enable the UCIs to meet their obligationto redeem its shares. Their investment policy must comprise an appropriate descriptionin that respect.154

D. Additional Investment RestrictionsUCIs concerned by this circular shall, in principle, not:a) invest more than 10% of their assets in transferable securities which are notadmitted to official listing on a stock exchange or dealt in on another regulatedmarket, 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 sameissuer,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 issuedor guaranteed by a member State of the OECD or its local authorities or by supranationalinstitutions and bodies with EU, regional or worldwide scope.The restrictions set forth under a), b) and c) above are not applicable to units or sharesissued by target UCIs. The restrictions set forth in section C. above are applicable toinvestments in target UCIs.E. Use of derivative financial instruments and other techniquesThe UCIs concerned by this circular are authorised to employ derivative financial instrumentsand use the techniques specified hereafter.These derivative financial instruments may, amongst others, include options, financialfutures and related options as well as swap contracts by private agreement on any typeof financial instruments. In addition, such UCIs may employ techniques consisting ofsecurities lending transactions as well as sales with right of repurchase transactionsand repurchase transactions 136 . UCIs which employ such derivative financial instrumentsand techniques must state in their prospectus the total leverage which may notbe exceeded and include in their prospectus a description of the risks arising from thetransactions which they intend to pursue. The derivative financial instruments mustbe dealt in on an organised market or contracted by private agreement with first classprofessionals specialised in this type of transactions.The aggregate commitments resulting from short sales of transferable securities togetherwith the commitments resulting from financial derivative instruments entered into byprivate agreement and, if applicable, the commitments resulting from financial derivativeinstruments dealt in on an organised market may not at any time exceed the value of theassets of the UCI.E. 1. Restrictions relating to derivative financial instruments1. Margin deposits in relation to derivative financial instruments dealt on an organisedmarket as well as the commitments arising from derivative financial instrumentscontracted 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 leastequal to the margin deposits made by the UCI. Liquid assets do not only comprisetime deposits and regularly negotiated money market instruments the remainingmaturity of which is less than 12 months, but also treasury bills and bonds issuedby Member States of the OECD or their local authorities or by supranationalinstitutions and bodies with EU, regional or worldwide scope as well as bondsadmitted 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 betweenthe two, see the description under E.3.155

which operates regularly and is open to the public, issued by first class issuersand 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 commodityfutures contracts. However, the UCI may acquire, for cash consideration, preciousmetals which are negotiable on an organised market.4. The premiums paid for the acquisition of options outstanding are included in thecalculation of the 50% limit referred to under item 1. above.5. The UCI must ensure an adequate spread of investment risks by sufficient diversification.6. The UCI may not hold an open position in any one single contract relating toa derivative financial instrument dealt in on an organised market or in a singlecontract relating to a derivative financial instrument entered into by privateagreement 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 characteristicsmay not exceed 5% of the assets.8. The UCI may not hold an open position in derivative financial instruments relatingto a single commodity or a single category of financial futures for which therequired margin (in relation to derivative financial instruments dealt in on anorganised market) as well as the commitment (in relation to derivative financialinstruments entered into by private agreement) represent 20% or more of theassets.9. The commitment in relation to a transaction on a derivative financial instrumententered into by private agreement by the UCI corresponds to the non-realisedloss resulting, at that time, from the said transaction.E. 2. Securities lending transactionsThe UCI may enter into securities lending transactions in accordance with the provisionsset forth in IML Circular 91/75. However, the limitation that securities lendingtransactions may not extend beyond a period of 30 days is not applicable where the UCIhas the right, at any time, to terminate the lending transaction and obtain the restitutionof the securities lent.E. 3. Sale with right of repurchase transactions and repurchase transactionsThe UCI may enter into sale with right of repurchase transactions which consist ofthe purchase and sale of securities where the terms reserve the right to the seller torepurchase the securities from the buyer at a price and at a time agreed between thetwo parties at the time when the contract is entered into. The UCI can also enter intorepurchase transactions which consist of transactions where, at maturity, the seller hasthe obligation to take back the asset sold whereas the original buyer either has a rightor an obligation to return the asset sold.156

The UCI can either act as buyer or as seller in the context of the aforementioned transactions.Its participation in the relevant transactions is however subject to the followingrules:1. Rules to bring the transactions to a successful conclusionThe UCI may participate in sale with right of repurchase transactions or repurchasetransactions only if the counterparties in such transactions are first class professionalsspecialised in this type of transactions.2. Conditions and limits of these transactionsDuring the duration of a sale with right of repurchase agreement where the UCIacts as purchaser, it may not sell the securities which are the subject of the contractbefore the counterparty has exercised its right to repurchase the securities or untilthe deadline for the repurchase has expired, unless the UCI has other means ofcoverage. If the UCI is open for redemption, it must ensure that the value of suchtransactions is kept at a level such that it is at all times able to meet its redemptionobligation. The same conditions are applicable in the case of a repurchase transactionon the basis of a purchase and firm re-sale agreement where the UCI acts aspurchaser (transferee).Where the UCI acts as seller (transferor) in a repurchase transaction, the UCI maynot, during the whole duration of the repo, transfer the title to the security under therepo 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 assetsto pay, if appropriate, the agreed repurchase price payable to the transferee.3. Periodical information of the publicIn its financial reports, the UCI must separately, for its sale with right of repurchasetransactions and for its repurchase transactions, indicate the total amount of theopen transactions at the date as of which the relevant reports are issued.F. Breach of investment limits otherwise than by investment decisionsIf the percentage limits referred to above are exceeded for reasons other than investmentdecisions (market fluctuations, redemptions), the priority objective of the UCI must be toremedy the situation taking due account of the interests of the investors.G. Management and supervisory bodiesConcerning their professional qualification, the directors of the management bodies and,if applicable, the investment managers and investment advisers, must have confirmedexperience in the area of the proposed investment policy.H. Specific rulesH.1. The issue prospectus must contain a description of the investment strategy of the UCIconcerned as well as a description of the specific risks inherent to its investment policy.The prospectus must, if applicable, provide that:157

– the potential losses resulting from unsecured sales on transferable securitiesdiffer from the possible losses resulting from the investment of liquid assets insuch 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 inthe transferable securities concerned;– leverage generates an opportunity for higher return and therefore more importantincome, but, at the same time, increases the volatility of the value of the assets ofthe UCI and, hence, the risk of losing capital. Borrowings generate interest costswhich may be higher than the income and capital gains produced by the assets ofthe UCI;– due to the limited liquidity of the assets of the UCI, it may not be in a positionto meet the redemption requests of its units which may be presented to it by itsinvestors.H.2. In addition, the prospectus must state that the investment in the relevant UCI entails anabove-average risk and is only appropriate for persons who can take the risk of losingtheir entire investment. If appropriate, the issue prospectus must contain a descriptionof the investment strategy in futures and options pursued by the UCI as well as theinvestment risks resulting from the investment policy. It must for example be mentionedthat the futures and options markets are extremely volatile and that the risk of incurringa loss in relation to such markets and/or in relation to uncovered sales is very high.158

CSSF Circular 02/81 of 6 december 2002 relating to the guidelinesconcerning the task of auditors of undertakings for collectiveinvestmentLuxembourg, 6 December 2002To all Luxembourg undertakings for collective investmentCSSF CIRCULAR 02/81Concerns:Guidelines concerning the task of auditors of undertakings for collectiveinvestment.Ladies and Gentlemen,The purpose of this circular it to set out the rules concerning the scope of the audit ofthe annual accounting documents and the content of the audit reports to be drawn up inthis context, pursuant to the law of 30 March 1988 relating to undertakings for collectiveinvestment (“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 theaccounting documents provided for by law. The task of the auditor is not limited to the auditof the accounting documents but also covers the analysis of the operation and proceduresof the UCI.It is understood that the task of the auditor may vary depending on the risks existing in themarkets in which the UCI is active and the quality of the control mechanisms implemented atthe level of the UCI.This circular does not amend the contents of the reports on the annual accounts to be establishedpursuant to Schedule B as provided for by the law, but aims to specify the subjectswhich need to be developed in the long form report 137 because that report constitutes,together with the report on the annual accounts and the management letter, an importantsource 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 “longform report” and that term will be used in this translation.

CONTENTSI. MandateII. Report on the annual accountsIII. Long form reportA. General principlesB. Structure of the long form reportC. Explanatory comments on the structure of the long form reportIV. Reporting to the CSSF pursuant to Article 89(3) of the law relating to UCIsV. Final provisions160

I. MandateThe auditor is appointed by the general meeting of shareholders of the UCI. For commonfunds, 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 subsequentlyspecify in writing to the auditor the terms of engagement which shall contain atleast the following provisions:1. The audit of the annual accounts has to be undertaken in accordance with the workingrecommendations of the Luxembourg Auditors’ Institute 138 . In this context, the IREprovides for the application of the International Standards on Auditing (ISAs) publishedby 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 operationsare accounted for on the balance sheet or are recorded off-balance sheet. Themandate given to the auditor cannot exclude from its scope a category of operations ora 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 procedureswhich apply to the UCI. The analysis must inter alia cover the procedures concerningcompliance with the investment restrictions, control of the calculation of the NAV andreconciliations as well as the procedures relating to the valuation methods. The auditmust indeed enable all information to be provided which is required for the report onthe 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 supervisoryauthority concerning the fight against money laundering, including inparticular circular IML 94/112 concerning the fight against money laundering andthe prevention of the use of the financial sector for money laundering purposes andits 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 moneylaundering;– 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 theone hand by a report on the annual accounts (see chapter II. hereunder) and on theother hand by a long form report (see chapter III. hereunder).In general, the UCI must immediately inform the CSSF in case the auditor resignsfrom its mandate before the end of the term or if the auditor envisages not to seek are-appointment.In the same way, the UCI must notify the CSSF, with an indication of the reasons, of itsintention to terminate the appointment of the auditor. The CSSF will in respect of eachrequest for replacement of the auditor analyse the reasons for the proposed changeand 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 andvolume of the activities of the UCI.138 Institut des Réviseurs d’Entreprises luxembourgeois (IRE)161

II. Report on the annual accountsThe report on the annual accounts contains the auditor’s attestation (attestation du réviseurd’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 withthe ISA 700 139 standards as adopted by IRE.In accordance with Article 86 (2) of the law of 30 March 1988 relating to UCIs, the reporton the annual accounts has to contain a balance sheet or a statement of assets andliabilities, a detailed income and expenditure account for the financial year, a report onthe activities of the financial year and the other information provided for in Schedule Bannexed to the prementioned law, as well as any significant information which will enableinvestors to make an informed judgment on the development of the activities and theresults of the UCI.In case the auditor announces to the UCI that it will issue a qualified attestation or that itwill 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 relatingto UCIs” hereunder).The report on the annual accounts has in any case to be submitted to the CSSF within aperiod of four months from the end of the period to which such report relates.III. Long Form ReportA. General principlesThe purpose of the long form report is to report on the findings of the auditor in thecourse of its audit concerning the financial and organisational aspects of the UCIcomprising inter alia its relationship with the head office, the custodian and the otherintermediaries (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 useby the board of directors of the UCI or the management company of the UCI as wellas the CSSF.It must detail for every item listed under III.B., the verifications which are essential topermit a precise and informed judgment on the organisation and the financial statementsof the UCI.The auditor must, in the context of its usual audits carried out in accordance withrecommendations RRC n° 21 140 of IRE, give its opinion on the compliance with theinvestment restrictions set out by law and/or regulations and must also obtain theassurance that the systems which have been put into place permit a proper calculationof the net asset value.The auditor has to indicate the NAV calculation errors and the infringements to theinvestment restrictions which it will have ascertained during its audit and which havenevertheless 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.162

In the long form report, the auditor must also analyse the NAV calculation errors or thefailures to comply with investment rules which have been the subject of a notificationin application of CSSF circular 02/77, but for which the amount of indemnification didnot exceed EUR 25,000 and for which the amount to be reimbursed to any one shareholderdid 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 beimproved which it will have ascertained during its audit. This communication can bemade in the context of the long form report or through a letter of recommendation 141addressed to the board of directors of the UCI or the management company of theUCI. The findings of the auditor must mandatorily be supplemented by comments ofthe board of directors of the UCI or the management company of the UCI. In casea management letter is drawn up, it must be annexed to the long form report. If theauditor does not issue a management letter, this must be expressly noted in the longform report.In accordance with chapter P of circular IML 91/75 of 21 January 1991 142 , the UCImust immediately communicate to the CSSF, without having been invited to do so, allother documents issued by the auditor in the context of its annual audit as referred tohereabove.The long form report has to be remitted to the CSSF within a period of four monthsfrom the end of the period to which the report refers.B. Structure of the long form reportThe 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 theauditor in its report. However, the layout of the report can be adapted to the volumeand the complexity of the activity and to the structure of the UCI. If appropriate, theauditor will have to supplement the layout set out below by those items which it will findnecessary. If one particular item of the layout does not apply to a UCI, the auditor willhave to explicitly mention this fact under the item concerned.1. Organisation of the UCI1.1. Head office1.1.1. Situation where the auditor of the UCI relies on the audit reportof the auditor of the central administration1.1.2. Situation where the audit and verifications are made by theauditor of the UCI1.1.2.1. Assessment of procedures1.1.2.2. Computer systems1.2. Custodian1.2.1. Situation where the auditor of the UCI relies on the audit reportof the auditor of the custodian1.2.2. Situation where the audit and verifications are made by theauditor of the UCI141 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 investmentgoverned by the law of 30 March 1988 on undertakings for collective investment are subject.163

1641.2.2.1. Assessment of procedures1.2.2.2. Computer systems1.2.2.3. Result of the reconciliations1.3. Relationship with the management company1.4. Relationship with other intermediaries2. Audit of the operations of the UCI2.1. Control of anti-money laundering rules2.2. Valuation methods2.3. Audit of the risk management system2.4. Specific audits2.5. Assets and liabilities and profit and loss account2.6. Publication of the NAV3. Internet4. Complaints from investors5. Follow-up on problems identified in preceding long form reports6. General conclusionC. Explanatory comments on the structure of the long form report1. Organisation of the UCIThe operations of a UCI require the recourse to specialised service providers inLuxembourg as well as abroad.Under the provisions of the law of 30 March 1988 relating to undertakings forcollective investment (as amended), the head office of the UCI must be locatedin Luxembourg. The prementioned law also provides that the custodian of a UCImust be established in Luxembourg. The entities which exercise one or severalfunctions in relation to the head office and/or the custody for the UCI play a significantrole in the operation of a UCI.To the extent that the custodian and the professional of the financial sector whichcarries out the head office duties for the UCI have been subjected by their auditorto an audit on the activities exercised for UCIs which covers at least the itemsdetailed under paragraphs 1.1.2. and 1.2.2. herebelow, the auditor of the UCI mayrefer to the long form reports of the auditor of the custodian or the professionalof the financial sector on dealing with the services provided to undertakings forcollective investment.In case the auditor of the UCI does not make use of that possibility and consideringthe important role in the organisation of the UCI assumed by the entitieswhich carry out the function of head office and/or custodian, the auditor must itselfundertake 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 ofthe UCI or the management company of the UCI that it needs to have access tocertain information on the entity concerned in order to carry out the verificationsand audits required by this circular. The board of directors of the UCI or of themanagement company of the UCI must in that case request the entity concernedto provide access to the information which is necessary for the auditor of the UCIto accomplish its mission.

For common funds the management of which is performed by a managementcompany, the auditor of the UCI will have to carry out certain audits and verificationsas defined under paragraph 1.3. hereafter. The auditor of the UCI mayfor these tasks refer to the long form report of the auditor of the managementcompany if such report covers at least the items detailed under paragraph 1.3. Incase it does not make use of that possibility, it must call upon the board of directorsof the management company of the common fund. The board of directors of themanagement company must then make available to the auditor all informationnecessary in relation to the activities exercised by the management company forthe common fund and, in case the management company has delegated certainimportant administration functions to a specialised entity, the board will have torequest that entity to provide access to the information required.It also must be noted, that in case the various head office functions are performedby more than one professional of the financial sector, the auditor of the UCI mustgive its opinion on the procedures regarding the coordination and general supervisionof the activities of the UCI.In respect of the relationship of the UCI with other service providers established inLuxembourg and/or abroad, reference is made to paragraph 1.4. below.1.1. Head office1.1.1. Situation where the auditor of the UCI relies on the audit report ofthe auditor of the head officeThe auditor of the UCI must, in its long form report, specify the auditreport of the auditor of the head office he has relied upon. He must inthis 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 internationalstandard ISA 402, type B or in accordance with US standard SAS70, type 2, or in accordance with any other equivalent standard,as well as the name of the auditor which has established thatreport.In cases where the head office functions are fulfilled by more than oneentity, the auditor of the UCI has to indicate in its long form report thedata mentioned hereabove in respect of each of these entities individually.1.1.2. Situation where the audit and verifications are made by the auditorof the UCI1.1.2.1. Assessment of proceduresIn its long form report, the auditor must indicate the exact functionsperformed by the head office on behalf of the UCI. In case thesefunctions are split among more than one professional of the financialsector and/or management body of the fund, the auditor must in itsreport indicate the allocation of the tasks between the different parties.165

The auditor must specify if the head office or the different parties arein possession of a procedures manual describing the functions whichthey perform on behalf of the UCI and which are, inter alia, set forth inchapter D. of IML Circular 91/75.In addition, the auditor has to verify if specific procedures have beenestablished in connection with the following items:a) internal control procedure on the origin of funds (anti-moneylaundering procedures),b) valuation procedure of the portfolio by the accounting agent, distinguishingbetween the different types of investment and insisting inparticular on unquoted and illiquid securities,c) internal control procedures on the investment policy and restrictions,d) internal control procedure on the accuracy of the NAV calculation,e) recording and settlement procedure of subscription/redemptionorders of units/shares,f) validation and recording procedure in relation to the acquisitionand sale of securities.The auditor must give its opinion on the adequacy of the procedures putin place.Finally, the auditor must indicate if the human resources made availableare sufficient to ensure a proper execution of the contractual obligationsof the entity for the relevant UCI.In case of splitting of the head office functions, it goes without sayingthat, in addition, the auditor must give its opinion on the proceduresregarding the coordination and the general supervision of the activitiesof the UCI.1.1.2.2. Computer systemsAs regards computer systems, the auditor will give a brief description ofthe software used by the head office and of the functions for which thesoftware is used.The auditor must indicate whether, during the financial year underreview, significant changes have occurred with respect to the computersystem and whether problems were encountered at the time of migrationfrom one system to another.The auditor must also give its opinion on the adequacy of the computersystem in consideration of the volume of the activities of the relevant UCIand, 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 isadequate in view of the type of investments made by the UCI. Manualaccounting operations and valuations and the internal control proceduresrelating thereto must be pointed out.The auditor must also verify if appropriate measures to safeguard theconfidentiality of information have been put into place.166

In addition, the auditor must outline the general principles of the contingencyplan in place which should permit the head office to operatenormally in case of a breakdown of its computer systems, including itsInternet connections.When use is made of an external processing unit, whether based inLuxembourg or abroad, the auditor must clearly indicate which functionshave been sub-delegated and to whom.The auditor must furthermore give its opinion on compliance with theprovisions of item III.1. of chapter D of IML circular 91/75.Generally, the auditor must highlight the significant deficiencies which itwill have detected during its audit and must describe them in a detailedmanner so that the CSSF can assess the situation.1.2. Custodian1.2.1. Situation where the auditor of the UCI relies on the audit report ofthe auditor of the custodianThe auditor of the UCI must in its long form report, specify the auditreport of the auditor of the custodian he has relied upon. He must in thiscontext 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 internationalstandard ISA 402, type B, or in accordance with US standard SAS70, type 2 or in accordance with any other equivalent standard, aswell 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 resultof the reconciliations between assets accounted for by the UCI and theassets deposited with the custodian as well as on the off-balance sheetoperations of the UCI.In case the auditor, during its audit, notes serious problems at the levelof the reconciliation between the positions accounted for by the UCI andthose registered with the custodian, it must make a detailed descriptionof those problems in the long form report.1.2.2. Situation where the controls and verifications are made by theauditor of the UCI1.2.2.1. Assessment of proceduresThe long form report indicates if the entity is in possession of a proceduresmanual describing the duties of the custodian and whether thismanual includes general procedures and specific procedures relating tothe activities undertaken.167

The long form report will describe in particular the correspondent banknetwork. The long form report will describe the policy of the entity asregards the selection criteria of those counterparties. The auditor willgive an outline of the third parties with which the entity has enteredinto a relationship and it will indicate if these counterparties have beenretained 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 ofduties, specifically between custody and head office duties.In case the auditor notes deficiencies, the auditor will have to indicateexactly which obligation(s) the custodian has not complied with.1.2.2.2. Computer SystemsAs regards computer systems, the auditor will give a brief description ofthe software used by the custodian.The auditor must indicate whether, during the financial year underreview, significant changes have occurred with regard to the computersystem and whether problems were encountered at the time of migrationfrom one system to another.The auditor must give its opinion on the adequacy of the computersystem and the available human resources for ensuring the properexecution by the credit institution of its contractual obligations towardsthe UCI concerned.1.2.2.3. Result of the reconciliationsThe auditor must indicate whether the custodian has established proceduresconcerning the reconciliation of positions accounted for by theUCI and those registered with the custodian. It will also give an opinionon the adequacy of those procedures.The auditor must give its opinion on the results of the reconciliationbetween the positions accounted for by the UCI and the positions registeredwith the custodian.In case the auditor would during its audit identify serious problems asregards the reconciliation between the positions accounted for by theUCI and those registered with the custodian, the auditor must give adetailed description of the problems in the long form report.1.3. Relationship with the management companyThe auditor verifies whether the management company assumes itsfunctions in compliance with legal and contractual obligations.It indicates in its long form report which functions are performed bythe management company on behalf of the UCI. To the extent thatthe management company performs all or part of the administrationfunctions, 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 providea detailed description of those problems in the long form report of theUCI.168

1.4. Relationship with other intermediariesIn 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 UCIhas been hindered by major problems encountered in the course of theoperations conducted with these other intermediaries.If this is the case, the auditor must describe in a detailed manner theproblem(s) encountered during its analysis in order to enable the CSSFto assess the situation.2. Audit of the operations of the UCI2.1. Audit of anti-money laundering rulesAs the head office of a UCI deals with subscription, redemption andtransfer requests of units or shares of UCIs, it has to ensure compliancewith the provisions set forth in the circulars relating to the fight againstmoney laundering, comprising circulars IML 94/112, BCL 98/153, CSSF00/21, CSSF 01/40 and CSSF 02/78.IML circular 94/112 has, however, taken into account the specificmanner in which UCIs are marketed, by dispensing the head officeof a UCI in Luxembourg under certain conditions from the obligationto carry out itself the identification of investors in case it makes use ofprofessionals of the financial sector subject to identification obligationsequivalent to those provided for by Luxembourg law. In this context,it has to be reminded that in respect of all intermediaries participatingin the placement of the units or shares of UCIs, the head office has tosystematically verify the conditions provided for by circular IML 94/112concerning equivalent identification. That verification has to cover interalia the status of the intermediary and its submission to the FATF recommendations.If the conditions of an equivalent identification provided forby circular IML 94/112 are not met, the head office of the UCI in Luxembourgmust itself carry out the identification of the investors in the UCI.On the basis of the description provided by the head office, the auditormust analyse the distribution channel of units or shares of the UCIin order to determine if the head office complies with its obligationsconcerning the fight against money laundering.In addition, the auditor must check whether the head office supervisesabnormal transactions.In this context, the auditor has to indicate its method of selection ofsample files checked and the percentage of the total transactionscovered.In case a non-compliance is noted, the auditor will have to provideprecise indications to the CSSF enabling it to make an appreciation ofthe situation (number of files which are incomplete, detail of the failuresnoted, etc.).In case the auditor of the UCI makes use of the possibility to base itselfon the audit report of the auditor in charge of the review of the entitywhich is responsible for compliance with anti-money laundering rules,the long form report must provide the following details:169

- name of the auditor of the entity in question- date of the audit report2.2. Valuation methodsThe law of 30 March 1988 provides that, unless otherwise providedfor in the management regulations or the Articles of incorporation,the valuation of the assets shall be based ‘in case of officially quotedsecurity’ on the latest known stock exchange quotations unless suchquotations are not representative. For securities not so quoted and forsecurities which are so quoted but for which the latest quotation is notrepresentative, these Articles provide that the valuation must be basedon the probable realisation value which must be estimated with careand in good faith.The auditor will thus check if the valuation methods are applied inaccordance with the procedures and the rules determined by themanagement regulations or the Articles of incorporation and if thesemethods are also applied in a consistent manner.The auditor must inter alia verify the application and the sincerity of thevaluation rules of the securities portfolio, securities’ lending/borrowing,repurchase and reverse repurchase agreements, sale with right ofrepurchase agreements, transactions, futures, swaps and options.In connection with the valuation of portfolio securities, it must in particularinsist on unquoted securities and illiquid securities.In addition, the auditor will request the board of directors of the UCI orthe management company of the UCI to provide details on the transactionsundertaken by the UCI to enable the auditor to verify by sampletests if these transactions were undertaken at arm’s length.In case of non-compliance with the valuation methods described in theprocedures or in the management regulations or the Articles of incorporation,the auditor must provide detailed information enabling the CSSFto assess the situation.2.3. Control of the risk management systemThe board of directors of the UCI or of the management company of theUCI is supposed to have put into place the necessary controls to ensurecompliance with the investment restrictions and policies of the UCI aswell as the management of the risks encountered by the UCI. Either itassumes all or part of the above mentioned controls itself or it delegatesthis duty to one or several third parties.The auditor must indicate the responsible persons/entities appointedby the board of directors of the UCI or the board of directors of themanagement company of the UCI which are entrusted with the controlof the different risks for which the UCI is exposed. The auditor will alsohave to specify the frequency with which risk controls are made.The long form report must indicate whether the control system put intoplace within those entities covers at least the risks inherent to the policyand the investment risks of the UCI concerned, such as:– credit risk/counterparty risk170

– market risk– settlement risk– foreign exchange riskIf appropriate:– interest rate risk– liquidity risk– risk on derivative instrumentsThe long form report must provide an analysis and an assessment ofthe systems put in place by the UCI to control and manage the differentrisks to which the UCI is exposed when it carries out its activities.If shortfalls are noted, the auditor must give precise indications enablingthe CSSF to assess of the situation.2.4. Specific auditsIn the context of his mission, the auditor must also proceed to specificaudits. These are the audit of the compliance with the investment policyand the investment restrictions and the audit of the calculation of theNAV.The auditor must under this item analyse every NAV calculation errorand every non-compliance with the investment rules for which theamount of indemnification did not exceed EUR 25,000 and for whichthe amount to be reimbursed to any one investor did not exceedEUR 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 missionand which should have been notified in accordance with the provisionsof CSSF circular 02/77;– cases of non-compliance which the auditor has detected during itsmission and which should have been notified in compliance withthe provisions of CSSF circular 02/77.In those cases, the auditor will in its long form report describe thematerial errors and the cases of non-compliance with investment rulesidentified during its audit and which have not been notified to the CSSFin compliance with CSSF circular 02/77. The auditor will thereafter dealwith these errors and cases of non-compliance with the investmentrules in accordance with the procedures set forth in CSSF circular02/77.In case no significant NAV error or in case of non-compliance with theinvestment policy will have been identified, the auditor must expresslystate so in its long form report of the UCI.2.5. Assets and liabilities and profit and loss accountThe auditor will comment on the different items of the consolidated 143balance sheet in a clear on and precise manner. The auditor must143 UCIs are not required to produce consolidated accounts. What is meant here is the combined balance sheet of themultiple compartment UCIs consisting of the combination of the balance sheets of all compartments.171

check the existence of those items, their amounts and their adequateaccounting treatment, as well as the consistent application of accountingprinciples.In addition, the auditor must examine the sale and purchase transactionsof securities made during the two weeks preceding and thetwo weeks following the end of the financial year (this period needs tobe extended if suspicious operations have been detected), in order todetermine whether transactions have been entered into for the purposeof “window dressing”.Furthermore, the auditor will have to collect statistics on portfolioturnover in order to make an appreciation whether transactions havebeen entered into for the purpose of “churning”.The auditor must also comment on the various items of the combinedprofit and loss account. The auditor will have to check the existence ofthose items, their amounts and their adequate accounting treatment, aswell as the consistent application of the accounting principles.During its mission, the auditor will have to pay particular attention to theperformance fee which may be payable to the investment managers.The auditor will also have to receive from the board of directors of theUCI or of the management company of the UCI confirmation to theeffect that neither the investment managers nor any of their connectedparties have received rebates from brokers and a confirmation on anyarrangements concerning the payment of “soft commissions” in thecontext 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 thearrangements in relation thereto.In addition, the auditor will need to receive from the board of directors ofthe UCI or the management company of the UCI confirmation indicatingwhether there have been any commission rebates and, in the affirmative,describe the nature thereof.Finally, the auditor will ask for a list of all costs, comprising transactioncosts, which have been attributed to the UCI. It is recommended thatthis list of costs refers where possible to the gross amount of the costsattributable to the UCI. In relation to the most significant costs, theauditor will have to determine whether they have been calculated incompliance with the provisions of the applicable agreements.In case of irregularities or shortfalls, the auditor will have to provideprecise indications enabling the CSSF to assess the situation.2.6. Publication of the NAVThe auditor shall indicate if the UCI has published its NAV in accordancewith Article 92 of the law of 30 March 1988.In case of non-compliance with this legal requirement, the auditor willindicate in detail the origin of this shortfall.3. InternetThe long form report will indicate whether the UCI makes direct use of the Internetas a communication or distribution channel.172

4. Complaints from investorsThe auditor will query with the board of directors of the UCI or of the managementcompany 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 theUCI had to respond.If this is not the case, the auditor will specifically mention this in its long formreport.If complaints have been received, the auditor will indicate how many complaintshave been received by the UCI in Luxembourg.5. Follow-up on problems identified in preceding reports on the audit of theactivities of the UCIThe auditor indicates in this part of its long form report the follow-up on irregularitiesand important weaknesses identified during its preceding audits and whichare detailed either in an earlier long form report or in a separate management letteraddressed to the board of directors of the UCI or of the management company ofthe UCI (see also chapter III.A. “General Principles” hereabove).6. General conclusionIn its general conclusion the auditor must give its opinion on all the important itemsof 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 conclusionscontained in the long form report. It will also indicate the main recommendationsand observations made to the board of directors of the UCI or the managementcompany of the UCI as well as the latter’s response thereto. In case the auditorissues a separate management letter to the board of directors of the UCI or of themanagement 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 longform report (see also chapter III.A. “General Principles” hereabove).IV. Reporting to the CSSF pursuant to Article 89(3) of the law relating to UCIsIn compliance with paragraph (3) of Article 89 as amended of the law on UCIs, introducedby the law of 29 April 1999 144 , the auditor must report to the CSSF any fact or decision ithas become aware of while carrying out the audit of the accounting information containedin the annual report of a UCI or any other legal task concerning a UCI where such fact ordecision is liable to:– constitute a material breach of the provisions of the law on UCIs or the regulationsadopted for its execution, or144 Law of 29 April 1999- implementing directive 95/26/EC concerning the reinforcement of prudential supervision into the law of 5 April1993 relating to the financial sector (as amended) and into the law of 30 March 1988 on undertakings for collectiveinvestment (as amended);- partially implementing Article 7 of directive 93/6/EEC on the capital adequacy of investment firms and creditinstitutions 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.173

– 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 decisionconcerning the UCI and meeting the criteria mentioned hereabove of which it has becomeaware while carrying out the audit of the accounting information contained in the annualreport of another undertaking having close links resulting from a control relationship withthe UCI for which it carries out a legal task or while carrying out any other legal taskconcerning such other undertakings.“Close link” resulting from a control relationship shall mean the link which exists betweena parent undertaking and a subsidiary in the cases referred to in Article 77 of the amendedlaw of 17 June 1992 relating to the annual accounts and the consolidated accounts ofcredit institutions or as a result of a relationship of the same type between any individualor legal entity and an undertaking; any subsidiary undertaking of a subsidiary undertakingis also considered a subsidiary of the parent undertaking which is at the head of thoseundertakings. A situation in which two or more individuals or legal persons are permanentlylinked to one and the same person by a control relationship shall also be regardedas constituting a close link between such persons.In addition, if in the discharge of its duties the auditor ascertains that the informationprovided to investors or to the CSSF in the reports or other documents of the UCI doesnot truly describe the financial situation and the assets and liabilities of the UCI, it shall beobliged to inform the CSSF forthwith.The auditor shall moreover be obliged to provide the CSSF with all information or certificatesrequired by the latter on any matters of which the auditor has or ought to haveknowledge in connection with the discharge of its duties. The same applies if the auditorascertains that the assets of the UCI are not or have not been invested according to theregulations set out by the law or the prospectus.In return for the duty to report to the CSSF, paragraph (3) also provides that any disclosurein 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 ofinformation imposed by contract and will not result in liability of any kind of the auditor.V. Final provisionsThe provisions of the present circular have to be complied with in their entirety for theannual accounts of the financial years ending on or after 31 December 2003.174

CSSF Circular 03/87 of 21 january 2003 concerning the coming intoforce of the Law of 20 December 2002 relating to undertakings forcollective investmentLuxembourg, 21 January 2003To all undertakings for collective investment and to those who act in relation to the operationand supervision of such undertakings.CSSF CIRCULAR 03/87Concerns:Coming into effect of the law of 20 December 2002 relating to undertakingsfor collective investment.Ladies and Gentlemen,We would like to draw your attention to the enactment of the law of 20 December 2002 relatingto 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 and2001/108/EC and brings about a number of changes to the Luxembourg legal framework ofundertakings for collective investment (UCIs).The purpose of this circular is to present, in summary form, to the professionals of collectivemanagement, the main changes introduced by this law of 20 December 2002 and whichrelate to:I. the definitions set forth in the text of the lawII. the extension of the investment policy of UCIs subject to Part I of the lawIII. the rules concerning management companiesIV. the simplified prospectus and the publication of documents of UCIsV. the transitional provisions.I. DefinitionsArticle 1 of the law comprises a number of definitions, most of which have been taken fromdirectives 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 adefined term whereas the English version of amended Directive 85/611/EEC uses the term “debt securities”.175

– any other negotiable securities which carry the right to acquire any such transferablesecurities 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 lawCompared to the amended law of 30 March 1988 relating to UCIs, the law extends therange 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 UCITSand/or other UCIs, in deposits and in derivative financial instruments.The transferable securities and other liquid financial assets in which UCITS subject to partI of the law may invest, must meet a certain number of criteria which are set forth in Article41 (1) of the law.While extending the eligible investments for UCITS subject to part I, the law adjusts thespecific investment limits applicable to investments in such transferable securities andother liquid financial assets referred to in Article 41 (1).The law also permits UCITS subject to part I to derogate, within specified conditions, fromcertain investment limits in order to permit them to replicate a recognised index of sharesor bonds.The detailed rules applicable to the investment policy and the investment restrictionsapplicable to UCITS subject to part I are referred to under chapter 5 of the law.III. Rules regarding management companiesPart IV of the law (chapters 13 and 14), which provides for detailed rules applicable tomanagement companies, distinguishes between management companies which act asmanagement company for one or several UCITS complying with the amended directive85/611/EEC and the other management companies subject to Luxembourg law which donot act as management company for UCITS complying with the aforesaid directive.A. Common provisions applicable to all management companiesThe law provides that the activity of a management company to manage at least oneUCI subject to Luxembourg law, requires a prior authorisation to be granted by theCSSF.Under the provisions of the law, the CSSF may only grant its authorisation if themanagement company has its central administration and registered office in Luxembourg.The law specifies that the application for authorisation must describe the structure ofthe organisation of the management company.The authorisation is subject to the condition that the management company entruststhe audit of its annual accounting documents to one or more auditors (réviseursd’entreprises), who can justify of an adequate professional experience.Management companies which exist at the date of entry into force of the law must within12 months from the date of entry into force of the law comply with the requirement toentrust the audit of their accounting documents to one or more auditors.176

B. Provisions concerning management companies complying with directive 2001/107/ECChapter 13 of the law provides for detailed rules applicable to managementcompanies complying with directive 2001/107/EC. It is applicable to all managementcompanies which manage at least one UCITS complying with the amended Directive85/611/EEC. These management companies may also manage UCIs which do notcomply with the amended directive 85/611/EEC.The law extends the permitted activities of management companies complying withDirective 2001/107/EC.The law provides that these management companies may, in addition to the collectivemanagement for UCIs, undertake discretionary management activities for the accountof individual and institutional investors, including pension funds.The law specifies the conditions for taking up business and the operating conditionsapplicable 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 whichmanage 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 ownfunds required if the assets under management exceed 250 million Euro.For the purpose of the calculation of the amount of own funds, the assets themanagement of which is delegated are taken into account, whereas the assetsmanaged by delegation are not taken into account.The law provides that the own funds of the management company shall never be lessthan the amount prescribed in Annex IV of directive 93/6/EEC.Article 78, paragraph (1), item b) provides that the persons who effectively conductthe business of the management company and which must be at least two, mustbe of sufficiently good repute and experience also in relation to the type of UCITSmanaged.IV. Simplified prospectus and publication of the documents of UCIsThe law introduces the simplified prospectus which must include, in summary form, theinformation necessary for investors to be able to make an informed judgment of theinvestment proposed to them and, in particular, of the risks attached thereto.The requirement to publish a simplified prospectus is however not applicable to UCIssubject to Part II of the law, and therefore only UCITS subject to Part I of the law mustpublish a simplified prospectus, whereas UCIs subject to Part II of the law may, but arenot obliged to publish such a simplified prospectus.The simplified prospectus is structured and written in such way that it can be easily understoodby the average investor. It can be attached to the full prospectus as a removablepart of it.It is to be noted that the simplified prospectus can be used as a marketing tool designedto be used in all Member States of the European Union without any alterations except forits translation.The content of the simplified prospectus is described in schedule C of annex I of the law.177

With respect to the publication of documents of UCIs, Article 114 of the law introduces anew provision pursuant to which the CSSF may publish or arrange the publication of thedocuments 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 UCIdocuments 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 informationon Luxembourg UCIs.V. Transitional provisionsThe law is applicable as from 1 January 2003.For reasons relating, inter alia, to the implementation provisions provided for by the twodirectives 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 transitionalprovisions which provide for a deadline expiring on 13 February 2007 to permitUCITS existing on 13 February 2002 and management companies authorised prior to13 February 2004 to comply with the new provisions, the law comprises in its transitionaland repealing provisions, a number of provisions implementing the transitional provisionsof the directives.A. Transitional provisions concerning UCIsThe law provides that UCITS subject to Part I of the amended law of 30 March 1988relating to UCIs, as amended established before 13 February 2002, may elect until13 February 2007 to remain governed by the amended law of 30 March 1988 or to begoverned by the law of 20 December 2002.As from 13 February 2007, they will ipso jure be governed by the law of20 December 2002.The law provides that the establishment of a new compartment does not affect theforegoing option. This option must be exercised in respect of the UCITS as a whole inits entirety, including all its compartments.UCITS subject to Part I of the law of 30 March 1988 relating to UCIs, as amendedand established between 13 February 2002 and 1 January 2003 may elect until13 February 2004, to remain governed by the amended law of 30 March 1988 or to begoverned by the law of 20 December 2002.As from 13 February 2004, they will be governed by the law of 20 December 2002 byoperation of law.UCITS within the meaning of Article 1 of the amended law of 30 March 1988 relatingto UCIs, excluding those concerned by Article 2 of such same law, and establishedbetween 1 January 2003 and 13 February 2004 may elect to be governed by theamended law of 30 March 1988 or by the law of 20 December 2002.As from 13 February 2004, they will ipso jure be governed by the law of 20 December2002.147 Référentiel de la place; see also CSSF circular 03/97.178

UCIs established prior to 1 January 2003 and subject to Part II of the amended law of30 March 1988 remain governed by the provisions of the amended law of 30 March1988 relating to UCIs until 13 February 2004. They may however be governed by thelaw of 20 December 2002 as from 1st January 2003.As from 13 February 2004, they will ipso jure be governed by the law of 20 December2002.UCIs established between 1 January 2003 and 13 February 2004 may elect to begoverned by the provisions of the law of 20 December 2002 or by the provisions of theamended law of 30 March 1988 relating to UCIs.As from 13 February 2004, they will ipso jure be governed by the law of 20 December2002.All UCIs established as from 13 February 2004 are governed by the law of20 December 2002, unless they are governed by a special law.An investment company is deemed to be established as from the date of its incorporationbefore a notary.A common fund is deemed established as from the date of execution of its managementregulations or from the date of entering into force of its management regulations if themanagement regulations specifically provide for such date.B. Transitional provisions concerning management companiesManagement 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 Article91 (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 2004which act as management company for UCITS governed by the amended directive85/611/EEC must comply, at the latest by 13 February 2007, with the provisions ofchapter 13.In this context, it is important to note that the amended law of 30 March 1988 willremain in force until 13 February 2007 and that, as a consequence there will be, untilsuch 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 itemsreferred to in the law of 20 December 2002. Accordingly, other CSSF circulars willprovide 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 inLuxembourg– the risk management methods and valuation methods applicable to transactionson derivative instruments.The rules set forth in Circular IML 91/75 will also be amended and adjusted by meansof a new CSSF circular.179

CSSF Circular 03/88 of 22 january 2003 concerning the classification ofundertakings for collective investment subject to the provisions ofthe Law of 20 December 2002 relating to undertakings for collectiveinvestmentLuxembourg, 22 January 2003To all Luxembourg undertakings for collective investment and to those who act in relation tothe operation and supervision of such undertakings.CSSF CIRCULAR 03/88Concerns:Classification of undertakings for collective investment subject to theprovisions of the law of 20 December 2002 relating to undertakings forcollective investment.Ladies and Gentlemen,The purpose of this circular is to clarify the classification of undertakings for collectiveinvestment (UCIs) which are subject to the law of 20 December 2002 which entered intoforce on 1 January 2003. The main changes introduced by the law of 20 December 2002 aredescribed in CSSF circular 03/87.The amended law of 30 March 1988 relating to UCIs (the law of 30 March 1988) will remainin 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 followingUCIs established under the law of 30 March 1988 must comply with the new legal provisions by13 February 2004 at the latest:– UCITS subject to Part I of the law of 30 March 1988 established between 13 February2002 and 1 January 2003;– UCITS within the meaning of Article 1 of the law of 30 March 1988, excludingthose referred to in Article 2 of such law, established between 1 January 2003, and13 February 2004, which in a first stage had elected to be governed by the law of30 March 1988;– UCIs existing on 1 January 2003, subject to Part II of the law of 30 March 1988 whichqualify 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 whichqualify 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 asUCITS under Part I of the law of 20 December 2002 or as UCIs under Part II of the lawof 20 December 2002 and which in a first stage elected to be governed by the law of 30March 1988 (Part II).All undertakings for collective investment established on and after 13 February 2004 aresubject, by operation of law, to the law of 20 December 2002 and must comply with the provisionsthereof as from the date of their establishment.180

UCITS subject to Part I of the law of 30 March 1988 established prior to 13 February 2002may elect, until 13 February 2007, either to remain subject to the law of 30 March 1988 or tobe governed by the law of 20 December 2002.I. General considerationsA UCI shall be deemed to be situated in Luxembourg if the registered office of themanagement company of the common fund or of the registered office of the investmentcompany is situated in Luxembourg.Depending on their characteristics, Luxembourg UCIs governed by the law of 20 December2002 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 December1985 on the coordination of laws, regulations and administrative provisions relatingto undertakings for collective investment in transferable securities (UCITS), asamended;– the other undertakings which do not fall within the scope of application of directive85/611/EEC, as amended.II. Definition of UCIs governed by Part I of the law of 20 December 2002Part I of the law of 20 December 2002 applies to all UCIs the exclusive object of which isthe investment in transferable securities and/or the other liquid financial assets referred toin Article 41 (1) of the law.Considering this aforementioned definition, the criterium which determines whether a UCIis subject to Part I or Part II of the law of 20 December 2002 is the intended investmentobjective. If the UCI invests in transferable securities and/or the other liquid financialassets referred to in the aforesaid Article 41 (1) of the law of 20 December 2002, it issubject 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 sincethe rules to which they are subject provide that they, directly or indirectly, redeem theirunits or shares at the request of the investors.Due attention must be given to the abovementioned transitional provisions of the law of20 th December, 2002 and, in particular, to Article 134 (5) concerning UCIs which exist onthe date of the entry into force of such law and which are capable of becoming UCITSsubject 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 mayhave to submit itself, because of its investment policy, by 13 February 2004 at the latestto the provisions of Part I of the law of 20 December 2002, unless it is excluded from PartI pursuant to Article 3 of such law.III. Definition of UCIs subject to Part II of the law of 20 December 2002Part II of the law of 20 December 2002 applies to all UCIs the principal object of whichis the investment in securities other than transferable securities and/or the other liquidfinancial assets referred to in Article 41 (1) of the law, as well as to all UCITS excludedfrom Part I.181

In its Article 3, the law of 20 December 2002 provides for exceptions to the basic rulereproduced in section II. above by excluding from the scope of application of Part I certaincategories of UCITS.The cases of exclusion, which relate to the four categories described below, are identicalto those provided for by the law of 30 March 1988. They were described in detail inIML circular 91/75. The first three categories described hereafter remain fundamentallyidentical to their description in IML circular 91/75. The fourth category has been adjustedto take account of the extension of the concept of eligible assets of UCITS as a result ofwhich certain UCIs which were excluded from Part I of the law of 30 March 1988 are nolonger 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 followingcategories: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 toa redemption if such reimbursement occurred without any request from investorspursuant to a redemption right.If the securities of a UCITS of the closed-ended type are redeemed at the request ofinvestors after a certain date, such UCITS falls within the scope of application of Part Iof the law from such date onwards, unless it belongs to one of the other categories ofUCITS referred to in paragraphs 2. to 4. hereafter. In case this feature is establishedat inception, the prospectus must, from the outset, draw the investors’ attention to thatfact and to the possible consequences arising therefrom, including those relating tothe investment policy.2. UCITS which raise capital without promoting the sale of their units or shares to thepublic 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 thecondition of the collection of public savings which all undertakings must comply within order to qualify as UCI; it simply prohibits the UCITS concerned to engage in anypromotional 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 ofadvertisement 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, eventhough they are addressed to the public, renounce any promotional activity within theEU.3. UCITS the units or shares of which may, under their constitutional documents, only besold to the public in countries which are not members of the European Union.The exclusion only applies subject to the condition that the management regulationsor the Articles of incorporation of these UCITS expressly provide that the sale of theirunits or shares is limited to the public of countries which are not members of theEuropean Union and of the European Economic Area.182

Also covered by this category are UCITS, the units or shares of which are listed on theLuxembourg Stock Exchange and which market those units or shares solely outsidethe European Union and the European Economic Area.4. Categories of UCITS determined by the CSSF for which the rules laid down in chapter5 of the law of 20 December 2002 are inappropriate in view of their investment andborrowing 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 moreof their net assets in securities other than in transferable securities and/or otherliquid financial assets referred to in Article 41 (1) of the law of 20 December2002.4.2. UCITS the investment policy of which permits the investment of 20% or moreof their net assets in venture capital. Investment in venture capital shall betaken to mean investment in securities of companies which have been recentlyformed or which are still in the course of development.4.3. UCITS the investment policy of which permits the borrowing, on a permanentbasis and for investment purposes, of amounts representing at least 25% oftheir net assets.4.4. Multiple compartment UCITS, one compartment of which is not subject toPart I of the law of 20 December 2002 by reason of its investment or borrowingpolicy.183

CSSF Circular 03/97 of 28 february 2003 concerning the publication byundertakings for collective investment in the reference database(“référentiel de la place”) of the simplified prospectuses and thefull prospectuses as well as the annual and semi-annual reportsLuxembourg, 28 February 2003To all Luxembourg undertakings for collective investment and to those who act in relation tothe operation and supervision of such undertakings.CSSF CIRCULAR 03/97Concerns:Publication by undertakings for collective investment in the referencedatabase (“référentiel de la place”) of the simplified prospectuses andthe full prospectuses as well as the annual and semi-annual reports.Ladies and Gentlemen,The purpose of this circular is to clarify the method of publication of simplified prospectusesand full prospectuses as well as the annual and semi-annual reports which undertakings forcollective investment (UCIs) must publish for the benefit of their investors pursuant to chapter17 of the law of 20 December 2002 relating to undertakings for collective investment (the lawof 20 December 2002).That law provides in its Article 114 that:(1) UCIs must send their simplified and full prospectuses and any amendments thereto, aswell as the annual and semi-annual reports, to the CSSF.(2) The CSSF may publish or cause the publication of the aforesaid documents by suchmeans as it shall consider adequate.To take into account the evolution of information technology, a reference database has beenput in place by the Centrale de Communication Luxembourg S.A. (CCLux*) in order to createan 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 LuxembourgUCIs.This platform is in line with the new European trends aiming at facilitating the distribution andthe inspection of prospectuses and annual and semi-annual reports by means of electronicsupport such as the Internet.The CSSF considers that this reference database strengthens the transparency of the informationrelating to UCIs subject to Luxembourg law and facilitates the access to such informationfor investors.On the basis of Article 114 (2) of the law of 20 December 2002, the simplified prospectusand the full prospectus, as well as the annual and semi-annual reports of the UCIs subject tothe aforesaid law must be published in the reference database. This compulsory publicationis not applicable to UCIs subject to the law of 19 July 1991 relating to UCIs the securities ofwhich are not intended to be placed with the public.* Centrale de Communications Luxembourg S.A. (CCLux) changed its name to Finesti S.A. on 28 January 2009.184

It is strongly recommended that UCIs subject to the law of 30 March 1988, relating to undertakingsfor collective investment (the law of 30 March 1988) also comply with this obligationof publication in the reference database.The publication of the prospectus must be made as soon as the latter has been approved bythe CSSF. To the extent notified by a UCI to the CSSF, the publication of the prospectus ispostponed 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 Article109 (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 tothe obligation to publish the prospectuses and the annual and semi-annual reports in thereference database.A separate circular will be issued at the time when the reference database will become operationaland will deal with the methods of transmission of the prospectuses and the annual andsemi-annual reports of UCIs to the CSSF and to CCLux*.* Centrale de Communications Luxembourg S.A. (CCLux) changed its name to Finesti S.A. on 28 January 2009.185

CSSF Circular 03/108 of 30 july 2003 concerning luxembourg managementcompanies subject to chapter 13 of the law of 20 december 2002relating to undertakings for collective investment as well as luxembourgself-managed investment companies subject to article 27 orarticle 40 of the law of 20 december 2002 relating to undertakings forcollective investmentLuxembourg, 30 July 2003To all UCIs and management companies subject to Luxembourg lawCSSF CIRCULAR 03/108Concerns:Luxembourg management companies subject to the provisions ofchapter 13 of the law of 20 December 2002 relating to undertakings forcollective investment as well as self-managed investment companiessubject to the provisions of Article 27 or Article 40 of the law of20 December 2002 relating to undertakings for collective investment.Ladies and Gentlemen,The main purpose of this circular is to clarify the way of application of certain Articles of chapter13 of the law of 20 December 2002 relating to undertakings for collective investment andamending the amended law of 12 February 1979 on value added tax (the “law of 20 December2002”) which introduces a specific regime applicable to management companies managingUCITS governed by Directive 85/611, as amended (hereafter the “Directive 85/611”). Inaddition, the circular specifies the financial information that management companies whichare subject to chapter 13 must communicate to the CSSF.Chapter 13 of the law of 20 December 2002 is applicable to all management companiessubject to Luxembourg law which manage at least one UCITS authorised in accordance withDirective 85/611, as well as their branches.Management companies which are subject to chapter 14 of the law of 20 December 2002and management companies which manage neither a Luxembourg UCI nor a UCITS, are notsubject to the provisions of this circular.It is to be noted that pursuant to the transitional provisions of Article 135 of the law of 20December 2002, management companies which are authorised or which will be authoriseduntil 13 February 2004 have the option to submit themselves to chapter 13 or to chapter 14of the law of 20 December 2002. To the extent that they are subject to chapter 14 and thatthey manage UCITS governed by Directive 85/611, they must comply with the provisions ofchapter 13 no later than 13 February 2007. Management companies which manage UCITSand which are authorised after 13 February 2004 are automatically subject to chapter 13 ofthe law of 20 December 2002.In addition, this circular is applicable mutatis mutandis to investment companies subject toDirective 85/611 as amended by the directive of the European Parliament and Council of21 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 ofa management company subject to chapter 13 of the law of 20 December 2002).186

Finally, the transitional provisions of Article 134 applicable to them must also be considered.I. Conditions for obtaining and maintaining authorisation for management companieswhich do not engage in activities other than collective portfolio management asprovided for by Article 77(2).1. Basic principlesAccess to business of management companies within the meaning of chapter 13 ofthe law of 20 December 2002 (“management companies”), is subject to prior authorisationby the CSSF (Article 77).Prior authorisation is also required for the opening by Luxembourg managementcompanies of agencies in Luxembourg or branches abroad.The right of establishment and the freedom to provide services are applicable toLuxembourg branches of management companies managing UCITS and which areauthorised and supervised by the competent authorities of another Member State.2. Programme of activityThe application for authorisation must be accompanied by a programme of activity asreferred to in Article 78(1)c) which provides, in particular, a description of a plan fordevelopment of the activities. The activity programme comprises information relatingto:a) the scope of the proposed services for the three next accounting periodsconcerning:- the collective portfolio management (number of UCITS managed directly andunder delegation, laws under which such UCITS have been set up, their netassets as well as the number and net assets of UCITS, either managed directlyor under delegation, created at the initiative of a company which is not part ofthe same group as the management company);b) the investment policies of the UCITS managed as well as the financial instrumentsand markets concerned;c) the risk management process (Article 42(1)).3. Head office and infrastructureThe head office of a management company must be situated in Luxembourg. Thisrequirement implies that a management company may not have in Luxembourg aregistered or statutory office only. This concept must be understood in a broad senseand comprises in particular the fields of infrastructure and accounting and electronicdata processing systems (Article 78(1)).a) human infrastructureThe staff of the management company must be permanent and must be adapted tothe contemplated activities. The CSSF must be informed about the number of personsworking for the management company. The staff is, in principle, employed 148 by thecompany.148 The French original of the circular uses in this sentence the term “salarié” which implies an employer/employeerelationship between the management company and its staff.187

The CSSF can grant a derogation from this requirement and can authorise that thestaff, in part or entirely, is either on secondment 149 or made available by an entity of thesame group or by a non-affiliated company. In this case, the contract governing thissecondment or availability arrangement must be submitted to the CSSF. In addition,this contract must comprise rules governing conflicts of interest between the personsconcerned 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 businessof the management company. The conduct of the company’s business must bedecided by at least two persons meeting the conditions of reputation and professionalexperience as described under item 5 of this circular. The CSSF must be able tocontact 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 CSSFconsiders essential for the performance of its supervision. At least one of thesepersons must be on site 150 .They must not necessarily be employees of the management company the businessof which they conduct, provided that there exists an agreement which precisely definestheir rights and obligations and, if applicable, with whom there exists a hierarchicalconnection. It is also not excluded that the persons concerned conduct the business ofseveral management companies, provided that the CSSF has sufficient evidence thateach of these persons is in a position to accomplish at all times his functions, takinginto account in particular the activities of the management companies concerned.The principle of independence of the management company from the depositary doesnot permit the persons who conduct the business of the management company to beemployed by the custodian of a UCITS which it manages 151 .b) technical infrastructureThe CSSF must receive a description of the IT equipment, the information sourcesand the software which is being used.The management company must have sound administrative and accounting procedures,control and safeguard arrangements for electronic data processing andadequate internal control mechanisms; it must be structured and organised in such away as to minimise the risk of UCITS’ or clients’ interests being prejudiced by conflictsof interest between the management company and its clients, between one of itsclients 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 delegationManagement companies are authorised to delegate to third parties, for the purpose ofa more efficient conduct of their business, the power to carry out on their behalf one ormore 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 inthe sense of footnote 148.150 The French original of the circular uses the terms “sur place”. This implies that the relevant person must usuallywork 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 pointof view, would imply that this portion of the sentence refers to the persons who conduct the business. In fact thesentence makes sense only if the portion of this sentence refers to the management company.188

The management company’s and the depositary’s liability shall not be affected by thefact that the management company has delegated any functions to third parties.To obtain an authorisation of delegation from the CSSF, the following preconditionsmust be complied with:- General preconditions to the authorisation of delegation- The CSSF must be informed in an appropriate manner about the delegation offunctions. To that effect, the management company must submit, in relation toeach UCITS which it manages, to the supervisory authority 152 a description withdetails of the functions which it intends to delegate, the entities to which thefunctions will be delegated as well as the procedures available to the managementcompany to control the activities of the enterprises 153 to which mandates will begiven. This description must comprise all details necessary to permit the CSSF toverify whether the conditions for delegation are complied with.- The mandate may not prevent the effectiveness of supervision over the managementcompany, and in particular, it must not prevent the management company fromacting, 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 compliancewith the rules of conduct set forth in Article 86 is ensured and can be controlled atany 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 themanagement company to monitor effectively at any time the activity of the enterpriseto which the mandate is given.This requirement imposes on the management company to put in place a monitoringinfrastructure which enables its directors 154 to have access to the data relating tothe activities performed by the agent or agents in the name and on behalf of themanagement 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, detailedreports which enable them to assess in particular:* that the assets of the UCITS are invested in accordance with its constitutivedocuments and the applicable laws;* that a risk management process exists and is employed which enables themonitoring and measurement at any time of the risk of the positions and theircontribution 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 characteristicsof 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 thelaw of 20 December 2002, the term “entreprise” but sometimes also the word “entité”. In the same manner as theEnglish version of amended Directive 85/611/EEC the term “enterprise” is used in this translation on a consistentbasis.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.189

The delegation of certain functions to third parties must not prevent the personswho conduct the activity of the management company to have access, either on areal time basis or upon simple request, to the accounting documents relating to theUCITS.- The mandate shall not prevent the persons who conduct the business of themanagement company to give at any time further instructions to the enterprise towhich functions are delegated and to withdraw the mandate with immediate effectwhen this is in the interest of investors.The content of the delegation agreement must take into account these requirementsand provide for the details thereof, comprising the circumstances in whichthe contract can be terminated with immediate effect.- The enterprise to which functions will be delegated must be qualified and capableof undertaking the functions in question, having regard to the nature of the functionsto be delegated.In addition to the authorisations which may be required by applicable regulations,the enterprises to which functions have been delegated must bring evidencethat they have appropriate human and technical resources, having regard to thedelegated functions.- The prospectuses of the UCITS list the functions which the management companyhas been permitted to delegate.The CSSF may require, if the interest of investors so warrants, that the identityof the enterprises to which functions have been delegated by the managementcompany are published in the prospectus.- Preconditions specific to the investment management function- When the delegation concerns the management of investments, the mandate mayonly be given to entities which are authorised or registered for the purpose of assetmanagement and are subject to prudential supervision.To that effect, the enterprises to which investment management functionshave been delegated must have the necessary authorisations required undertheir national laws and, if applicable, any other laws applicable to the servicesprovided.The enterprises to which investment management functions have been delegatedmust be submitted in their home state to a permanent supervision performed by asupervisory authority set up by law in order to ensure the protection of investors.- The identity of the enterprises to which investment management functions havebeen delegated must, in principle, be published in the prospectus of the UCITSconcerned.- The delegation must be in accordance with investment-allocation criteria periodicallylaid down by the management company.Therefore, the delegation agreement shall indicate the investment policy andthe investment restrictions applicable to the UCITS (and each compartment ifthe delegation concerns one or several compartments of a UCITS with multiplecompartments 155 ) and, if applicable, specific investment rules (“asset allocationcriteria”) determined by the board of directors. These provisions can be included155 These are commonly referred to as umbrella funds.190

in the delegation agreement by means of a reference to the provisions in theprospectus of the UCITS concerned, without prejudice to specific instructionswhich may be given from time to time by the board of directors of the managementcompany or by the persons who conduct the business of the managementcompany. In case of an amendment of such rules, the agreement will be amendedin due time to permit the delegates to comply with the new rules immediately whenthey come into force.- Where the mandate concerns the management of investments and is given toa third country enterprise, cooperation between the CSSF and the supervisoryauthority 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 begiven to the depositary or to any other enterprise whose interests may conflict withthose of the management company or the unitholders.This provision does not prohibit the delegation of the investment managementfunction to a company which is part of the same group as the depositary. In sucha situation, the CSSF will authorise the delegation only if it has evidence thatmeasures have been put in place to protect the interests of the managementcompany and the unitholders.4. ShareholdingThe CSSF shall not grant authorisation to take up the business of a managementcompany 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 andof the amounts of those holdings (Article 79(1)). The CSSF must be satisfied thatthe shareholders who have a qualifying holding must not only be of sufficiently goodrepute, but will perform their powers in a manner to ensure the sound and prudentmanagement of the management company. A qualifying holding means any director indirect holding in a management company which represents 10% or more ofthe capital or of the voting rights or which makes it possible to exercise a significantinfluence over the management of the management company in which that holdingsubsists (Article 1(23)) 156 .In addition, it is required that the structure of the direct and indirect shareholdingis organised in a manner that the authorities responsible for the prudential supervisionof the management company, and, if applicable, the persons with whom themanagement company has close links are clearly determined and that such supervisioncan be undertaken without hindrance (Article 78(2)).Finally, the management company must inform the CSSF about any change in thepersons that have qualifying holdings or holdings which make it possible to exercise asignificant 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 18.191

5. Good professional repute and professional experienceThe directors of the UCITS must be of sufficiently good repute and have sufficientexperience, also in relation to the type of UCITS concerned. To that end, the names ofthe directors, and of every person succeeding them in office, must be communicatedforthwith to the CSSF (Article 93(3)). “Directors” shall mean those persons who, underlaw or the constitutional documents, represent the UCITS, in this case the members ofthe board of directors, or those who effectively determine the conduct of the activitiesof the UCITS.The persons who conduct the business of the management company must also beof sufficiently good repute and be sufficiently experienced in relation to the type ofUCITS managed by the management company concerned (Article 78(1)b)) in order tobe authorised by the CSSF prior to their appointment.6. Own fundsThe requirements relating to the own funds of the management company are one ofthe major changes of the new text. There is now a requirement for an initial capitalof at least 125,000 Euro and an additional amount of own funds must be providedaccording to the portfolios under management (Article 78(1)a)).Irrespective of the amount of these requirements, the own funds of the managementcompany shall never be less than the amount prescribed in Annex IV of Directive93/6/EEC 157 .In case a management company of UCITS provides, in addition, services ofmanagement of portfolios of investments on a discretionary client-by-client basis,including those owned by pension funds, in accordance with a mandate given byinvestors, the provisions of circular CSSF 00/12 defining the ratios of own funds applicableby virtue of Article 56 of the amended law of 5 April 1993 relating to the financialsector are applicable.7. External auditManagement companies must entrust the audit of their annual accounting documentsto one or more réviseurs d’entreprises (external auditors) who can justify havingadequate professional experience (Article 80(1)).II. Conditions for obtaining and maintaining authorisation for management companieswhich engage in activities of collective portfolio management and in the managementof portfolios of investments on a discretionary client-by-client basis as contemplatedin Article 77(3).All the conditions set forth in chapter I remain applicable. In addition, requirements specificto the activity of portfolio management on a discretionary client-by-client basis are applicable.157 Investment firms shall be required to hold own funds equivalent to one quarter of their preceding year’s fixedoverheads. The competent authorities may adjust that requirement in the event of a material change in the firm’sbusiness since the preceding year. Where a firm has not completed a year’s business, including the day it startsup, the requirement shall be a quarter of the fixed overheads projected in its business plan unless an adjustmentto that plan is required by the authorities.192

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 periodsas regards:- the management of portfolios of investments on a discretionary client-by-clientbasis (number of private clients, institutional clients and pension funds as well asthe 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 tothis chapter engage are in respect of the management on a discretionary client-by-clientbasis the same services as those in which portfolio managers 158 falling within the scopeof 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 companymust be on site. The details of such specific additional requirements will, if necessary, bespecified in a circular at a later stage.III. Prudential supervision of a management company subject to chapter 13 of the lawof 20 December 2002.Article 82(2) provides that the prudential supervision of a management company shall bethe 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 upon a quarterly basis. This financial information will be used by the CSSF for the purposeof its prudential supervision of the management companies.The schedules of financial information which must be remitted periodically to the CSSFare attached hereto. The information concerned is divided in two parts.The first part is applicable on a general basis to all management companies of UCITSand 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 inwhich the management company engages (Table SG 2).All tables have to be drawn up on a quarterly basis. The reference dates of the reportsare the last day of each calendar quarter, i.e. 31 March, 30 June, 30 September and 31December; the tables must be received by the CSSF by the 20 th day of the month whichfollows the reference date. The tables have to be submitted to the CSSF for the first timeas at 31 December 2003.IV. Prudential supervision of a self-managed investment company in transferablesecurities (SIAG) 159 .Articles 27 and 40 impose on SIAGs compliance with the provisions applicable in relationto prudential supervision. The SIAGs, comprising their branches, must provide the CSSFwith specific financial information which has to be drawn up on a quarterly basis. Thisfinancial information will be used by the CSSF for the purpose of its prudential supervisionof the SIAGs.158 gérants de fortunes159 The French original of the circular uses the term “société d’investissement en valeurs mobilières autogérée” andthe abbreviation “SIAG”.193

The schedules of financial information which must be remitted periodically to the CSSFare 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 thelast 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 20 th day of the month which follows thereference date. The tables have to be submitted to the CSSF for the first time as at31 December 2003.194

Annex 1Table SG 1ACompany:Person in charge:Frequency: quarterlyASSETS1. Subscribed capital unpaid2. Incorporation expenses3. Fixed assets3.1. Fixed intangible assets3.2. Fixed tangible assets3.3. Financial fixed assetsUnits in affiliated undertakingsLoans and advances to affiliated undertakingsParticipating interestsFINANCIAL SITUATION AS AT …(in the currency of the capital)Loans and advances to undertakings in which the company hasparticipating interestsSecurities held as fixed assetsOthers4. Current assets4.1. Cash4.2. Balances in banks, balances in postal cheques accounts4.3. Loans and advances4.4. Transferable securities4.5. Others5. Prepayments and accrued income6. Various7. Loss for the financial yearTotal (1+2+3+4+5+6+7)AMOUNTLIABILITIES1. Equity capital1.1. Subscribed capital or endowment capital1.2. Share premium1.3. Revaluation reserve1.4. Legal reserve1.5. Other reserves1.6. Profit or loss brought forward2. Subordinated debts3. Provisions for liabilities and charges3.1. Provisions for pensions and similar commitments3.2. Provisions for taxes3.3. Other provisions4. Debts5. Profit for the financial yearTotal (1+2+3+4+5)AMOUNT195

Annex 2Table SG 1BCompany:Person in charge:Frequency: quarterlyPROFIT AND LOSS ACCOUNTS AS AT …(in the currency of the capital)WORDINGAMOUNT1. Interests and fees received +2. Interests and fees payable -3. Other operating income +4. Gross profit or gross loss5. Income from transferable securities +a) income from participating interests (b) income from other transferable securities (c) income from participating interests or from units inaffiliated undertakings (6. General administrative expenses -6.1. Staff costsWages 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 beingpart 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 +/-))))))))))196

Annex 3Table SG 1CCompany:Person in charge:Frequency: quarterlyMANAGEMENT OF UCIs AS AT …(in the currency of the capital)Portfolios of the UCIs managed Number Evaluation valueI. UCIs managedFCP Part IOthersSICAV Part IOthersOther UCIsTotalII.UCIs managed under delegationOwn funds of the management companyAmountNote:UCIs managed: concerns the UCIs managed by the management company including portfolios for which it has delegatedthe management function but excluding portfolios that it manages under delegation.UCIs managed under delegation: concerns UCIs managed by the management company under delegation.197

Annex 4Table sg 2Company:Person in charge:Frequency: quarterlyOTHER ACTIVITIES AS AT …(in the currency of the capital)1. Management of portfolios of investmentManagement mandatesOf which: pension fundsFees received during the quarterNumberXxxxxxxxxxxxxAmount2. Investment adviceExisting investment advisory agreementsFees received during the quarter3. Safekeeping and administration of UCI unitsDeposits of UCI unitsFees received during the quarterXxxxxxxxxxxxxNote:1. Management of portfolios of investment1) The total of the assets under management must correspond to the market value at the time of the drawing-upof the table.2) With respect to the fees received during the quarter, the table must indicate the gross amount of the feesreceived (management fees, performance fees, etc.) for the management of assets during the quarter for whichthe table is drawn up.2. Investment advice1) Investment advisory agreements: it concerns agreements made with a client in order to provide him withinvestment advice for a determined or undetermined period of time on instruments listed in section B of annexII 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 whichinvestment advice has been provided which means that there should be calculated at the end of each monthan average of the value of the portfolio of all clients advised during the current accounting year including theamount 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 feesreceived during the current quarter until the date as of which the table is drawn up.3. Safekeeping and administration of UCI units1) Deposits of UCI units: one should indicate the number of deposits, as well as the evaluation value of thesedeposits.2) Fees received during the quarter: the table must indicate the amount of the fees received in the context of thedeposit service provided for UCI units at the date of the drawing-up of the table.198

Annex 5Table SIAG 1ACompany:Status: o SICAV o OthersPerson in charge:Frequency: quarterlyFINANCIAL SITUATION AS AT …(in the currency of the capital)ASSETS1. Incorporation expenses2. Fixed asset2.1 Fixed intangible assets2.2 Fixed tangible assets2.3 Financial fixed assets3. Current assets3.1 Portfolio Securities3.1.1 Shares and other variable-yield securities3.1.1.1. Shares other than UCI units3.1.1.2. Shares admitted to listing or dealt in on anotherregulated market3.1.1.3. Shares not admitted to listing3.1.1.4. Other participating interests3.1.1.5. UCI units3.1.2 Bonds and other debt securities3.1.2.1 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 instruments3.1.4 Warrants and other rights4. Financial instruments4.1. Option contracts4.1.1. Options purchased4.1.2. Options sold4.2. Forward contracts4.3. Others5. Liquid assets6. Other assetsTotal (1+2+3+4+5+6)AMOUNTLIABILITIES1. Equity capital2. Loans3. Provisions for liabilities and charges3.1. Provisions for pensions and similar commitments3.2. Provisions for taxes3.3. Other provisions4. Debts5. Profits for the financial yearTotal (1+2+3+4+5)AMOUNT199

Annex 6Table SIAG 1BCompany:Status: o SICAV o OthersPerson in charge:Frequency: quarterlyPROFIT AND LOSS ACCOUNTS AS AT…(in the currency of the capital)Total income1. Dividends2. Interest on bonds and other debt securities3. Interest from banks4. Other incomea) Fees receivedb) OthersAMOUNTTotal charges1. Feesa) Advisory and/or management feesb) Depositary bank feesc) Other fees2. Administration chargesa) Head office (central administration) chargesb) Audit and controlling chargesc) Other administration charges3. Taxesa) Annual subscription taxb) Other taxes4. Interests paid5. Other chargesNet profit or net loss on investments6. Realised net profit or loss7. Variation of unrealised net profit or lossNet profit or net loss on operations200

CSSF CIRCULAR 03/122 of 19 December 2003 concerning Clarifications onthe simplified prospectusLuxembourg, 19 December 2003To all Luxembourg undertakings for collective investment and to those who act in relation tothe operation and supervision of such undertakings.CSSF CIRCULAR 03/122Concerns:Clarifications on the simplified prospectus.Ladies and Gentlemen,The purpose of this circular is to provide more detailed information on the simplified prospectusand in particular on the interpretation of certain elements of information in schedule C attachedto the law of 20 December 2002 relating to undertakings for collective investment (the “law of20 December 2002”).The circular’s purpose is notably to describe three elements of information of the simplifiedprospectus 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 simplifiedprospectus.I. IntroductionArticle 109(1) of the law of 20 December 2002 relating to undertakings for collectiveinvestment 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 undertakingsfor collective investment until 13 February 2007 at the latest, are not obliged byLuxembourg law to publish a simplified prospectus. However, if any such UCITS intendsto publish a simplified prospectus, it has to comply with the requirements imposed byannex I, schedule C, for the simplified prospectus of UCITS subject to Part I of the law of20 December 2002.Pursuant to Article 112 of the law of 20 December 2002, the key elements of the simplifiedprospectus 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 thefull prospectus and/or the management regulations / articles;b) the periodical updates which must be made at least once a year and which concernin particular the following elements: the historical performance, the total expense ratioand the portfolio turnover rate.201

II. Definition of elements of information of schedule Ca) objectives, investment policy and assessment of the UCITS’ risk profileIn the section short definition of the UCITS objectives, the simplified prospectusmust give a description of the objective the UCITS seeks to achieve. As the casemay be, it must mention the guarantees received from any third parties as well as therestrictions to such guarantees.For UCITS, whose objective is to reproduce the composition of a specific equity indexor bond index, the simplified prospectus must comprise, in addition to the aforementionedindications, information which permits the identification of the index or indicesand 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 certainmarkets (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 instrumentsmust indicate if this type of instruments is used for investment policy purposesor for hedging purposes only. The simplified prospectus of UCITS which reproduce anindex 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 thegeneral risks incurred by investors investing in a UCITS, it must describe the specificrisks which the UCITS incurs by reason of the specific investment policy or strategiesit 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 riskfor 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 mentionedin the simplified prospectus.If the UCITS is established as a UCITS with multiple compartments, such informationmust be provided for each compartment.b) historical performance of the UCITSThe historical performance of the UCITS is represented on a histogram 160 showingthe performance for the last three accounting periods. If the UCITS has existed forless than three years, the histogram presents the situation for the full past years. Theperformance must be calculated on the basis of the NAV, taking into account thereinvestment of dividends.If the UCITS is managed by reference to a reference index, a “benchmark” 161 , or ifthe fee structure comprises a performance fee depending on a reference index, thehistorical performance of the UCITS must be compared to the historical performanceof the reference index by reference to which the UCITS is managed or on the basis ofwhich 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.202

If the UCITS is established as a UCITS with multiple compartments, such informationmust be provided for each compartment.c) the other possible expenses and feesThe UCITS must indicate the management fee and, as the case may be, theperformance fee as well as other possible expenses and fees, distinguishing betweenthose 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 expensesof 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 UCITSeach time the NAV is calculated.The TER must be calculated at least once a year on an ex-post basis, in principle byreference to the fiscal year of the UCITS.The TER includes all the expenses levied on the assets of the UCITS such as themanagement expenses, performance fees, administration expenses, custodianexpenses, distribution expenses, remuneration of the auditor, remuneration of thelegal advisers, registration charges and duties. The TER does not include subscriptionand redemption fees directly paid by the investor.If a UCITS invests more than 20% of its assets in other investment funds whichpublish a TER in accordance with this circular, a synthetic TER corresponding to suchinvestment 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 bementioned.The simplified prospectus must indicate if the transaction costs are or are not includedin the TER.If the UCITS is established as a UCITS with multiple compartments or issues multipleclasses of shares/units, the TER is calculated per compartment and, as the case maybe, per class of shares/units.The simplified prospectus may indicate the turnover rate of the portfolio on an annualbasis, hereafter portfolio turnover rate. The portfolio turnover rate of a UCITS or, asthe case may be, of a compartment must be calculated as follows:Turnover = [(Total 1 – Total 2)/M]*100with:Total 1 = Total of securities transactions during the relevant period = X + Ywhere X = purchases of securities and Y = sales of securitiesTotal 2 = total of transactions in units/shares of the UCITS during the relevant period = S + Twhere S = subscriptions of units/shares of the UCITS and T = redemptions of units/shares of theUCITSM = average monthly assets of the UCITSThe information relating to the TER, the portfolio turnover rate and the historicalperformances can be reflected in the simplified prospectus or on a sheet annexed tothe simplified prospectus.203

III. VisaAll UCITS subject to Part I of the law of 20 December 2002 must publish a simplifiedprospectus and transmit it to the CSSF in accordance with the Articles 109 and 114 ofsuch 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 wellas 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 areprovided with the CSSF’s visa stamp and are remitted to the person who has introducedthe file.To that effect, the CSSF must receive five copies of each simplified prospectus in its finalform and presentation. The visa stamp may in no circumstances be used for commercialpurposes.204

CSSF Circular 04/146 of 17 June 2004 concerning Protection of undertakingsfor collective investment and their investors against LateTrading and Market Timing practicesLuxembourg 17 June 2004To all credit institutions, professionals of the financial sector, Luxembourg undertakings forcollective investment and all parties involved in the operation and supervision of such undertakings.CSSF Circular 04/146Concerns:Protection of undertakings for collective investment and their investorsagainst Late Trading and Market Timing practices.Ladies and Gentlemen,The purpose of this circular is to protect undertakings for collective investment (UCIs) andtheir 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 theirservice providers. These measures take into account the particularities of Luxembourg UCIswhich are frequently invested and distributed through all time zones and the marketing ofwhich is frequently undertaken by intermediaries subject to the supervision of a foreignauthority.This circular further fixes more general rules of conduct to be complied with by all professionalssubject to the supervision of the CSSF.Finally, it extends the role of the auditor of the UCI, as described in CSSF Circular 02/81, asregards the verification of the procedures and controls established by the UCI to protect theUCI against Late Trading and Market Timing practices.Late Trading is to be understood as the acceptance of a subscription, conversion orredemption order after the time limit fixed for accepting orders (cut-off time) on the relevantday and the execution of such order at the price based on the net asset value (NAV) applicableto such same day.Through Late Trading, an investor may take advantage of being aware of events or informationpublished after the cut-off time, but which events or information are not yet reflected inthe price which will be applied to such investor. This investor is therefore privileged comparedto the other investors who have complied with the official cut-off time. The advantage of thispractice to the investor is increased even more if he is able to combine Late Trading withMarket Timing.The Late Trading practice is not acceptable as it violates the provisions of the prospectusesof the UCIs which provide that an order received after the cut-off time is dealt with at a pricebased on the next applicable NAV.205

The acceptance of an order is not to be considered as a Late Trading transaction, where theintermediary in charge of the marketing of the UCI transmits to the transfer agent of the UCIafter the official cut-off time to still be dealt with at the NAV applicable on the relevant day, ifsuch an order has effectively been issued by the investor before the cut-off time. To limit therisk of abuse, the transfer agent of the UCI must ensure that such an order is transmitted tohim within a reasonable timeframe.The acceptance of an order dealt with or corrected after the cut-off time by applying the NAVapplicable on the relevant day is also not to be considered as a Late Trading transaction, ifsuch 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 systematicallysubscribes and redeems or converts units or shares of the same UCI within a shorttime period, by taking advantage of time differences and/or imperfections or deficiencies inthe 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 basisof market prices which are no longer up to date (stale prices) or if the UCI is already calculatingthe NAV when it is still possible to issue orders.The Market Timing practice is not acceptable as it may affect the performance of the UCIthrough 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 UCIand are likely to harm investors, the preventive measures recommended hereafter have tobe applied with great care.I. Prevention of Late Trading and Market Timing practicesa) protective measures to be adopted by the UCI and by certain of its service providersThe investor must, in principle, subscribe, redeem or convert the units or shares of aUCI at an unknown NAV. This implies that the cut-off time must be fixed in a mannerto precede or to be simultaneous to the moment when the NAV, on which the applicableprice is based (“forward pricing”), is calculated. A non-precise cut-off time suchas, for example, “until the close of business” is to be avoided. The prospectus mustspecifically mention that subscriptions, redemptions and conversions are dealt with atan unknown NAV and must indicate the cut-off time.The transfer agent of the UCI shall ensure that subscription, redemption and conversionorders are received before the cut-off time as set forth in the UCI’s prospectus in orderto process them at the price based on the NAV applicable on that day. In respect oforders received after such cut-off time, the transfer agent applies the price based onthe next applicable NAV. The transfer agent shall ensure that he receives within areasonable time period the orders which have effectively been issued by investorsbefore the cut-off time but which have been forwarded to the transfer agent by intermediariesin 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 ofthe UCI must adopt appropriate procedures and undertake to perform the necessarycontrols. The transfer agent undertakes either to provide the UCI on an annualbasis with a confirmation from its auditor on its compliance with the cut-off time or toauthorise the auditor of the UCI to perform its own controls on the compliance of thecut-off time.206

If intermediaries in charge of the marketing of the UCI have been appointed by the UCIto ensure the collection of orders and the control of the cut-off time with regard to theacceptance of the orders, the UCI shall ensure that it obtains from each intermediaryconcerned a contractual undertaking pursuant to which the intermediaries undertaketowards the UCI to transmit to the transfer agent of the UCI, for the processing atthe NAV applicable on such day, only such orders which it has received before suchcut-off time.The cut-off time, the time at which the securities prices which are taken into accountfor the calculation of the NAV are fixed 162 and the time at which the NAV is calculatedmust be combined in a manner so as to minimise any arbitrage possibilities arisingfrom time differences and/or imperfections/deficiencies in the method of determinationof the NAV of the UCI.UCIs which, due to their structure, are exposed to Market Timing practices must putin place adequate measures of protection and/or control to prevent and avoid suchpractices. The introduction of appropriate subscription, redemption and conversioncharges, an increased monitoring of dealing transactions and the valuation of theportfolio 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 implementthem or make certain that they are implemented.The UCI shall ensure not to permit transactions which it knows to be, or it has reasonsto believe to be, related to Market Timing and uses its best available means to avoidsuch practices.If formal contractual relationships exist between the UCI and intermediaries in chargeof its marketing, the UCI shall ensure to obtain from the intermediary concerned acontractual undertaking from the intermediary not to permit transactions which theintermediary 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 theUCI does not permit practices related to Market Timing and that the UCI reservesthe right to reject subscription and conversion orders from an investor who the UCIsuspects of using such practices and to take, if appropriate, the necessary measuresto protect the other investors of the UCI.Particular attention has to be paid to subscription, conversion or redemption ordersfrom employees of the service providers acting for the UCI or from any person whoholds or is likely to hold privileged information (e.g.: knowledge on the exact compositionof the portfolio of the UCI, etc.). Accordingly, adequate measures have to betaken by the service providers of the UCIs to avoid the risk that any such person cantake 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 theCSSFThe CSSF prohibits any express or tacit agreement which permits certain investors toundertake Late Trading or Market Timing practices.The CSSF requires that any professional subject to its supervision refrains from usingLate Trading or Market Timing practices when investing in a UCI or from processing asubscription or conversion order of units or shares of a UCI which he knows to be, orhe has reasons to believe to be, related to Late Trading or Market Timing.162 Sometimes referred to as “valuation point”.207

The CSSF requires that any professional subject to its supervision that detects oris aware of a case of Late Trading or Market Timing, informs the CSSF as soon aspossible by providing it with the necessary information to enable it to make a judgmenton the situation.II. Protection of the UCI and investors in case of the occurrence of Late Trading and/or Market Timing transactionsAny person who is guilty of knowingly undertaking or supporting Late Trading or MarketTiming practices as defined by this circular exposes himself to sanctions as well as to theobligation of repairing the damage caused to the UCI.III. Additional provisions to CSSF Circular 02/81 on the guidelines concerning the taskof the auditors of UCIsThe auditor of the UCI checks the procedures and controls put in place by the UCI so asto 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 itselfby the best possible means against such practices and describes such measures and/orcontrols in its long form report.If the auditor of the UCI, during the performance of its duties, becomes aware of a case ofLate 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 practicesduring the accounting year, the auditor must give, in the long form report, its opinionwhether investors have been adequately indemnified.208

CSSF CIRCULAR 05/177 of 6 April 2005 concerning the Abolition of anyprior control by the CSSF of advertising material used by persons andcompanies supervised by the CSSF; abrogation of point II. of ChapterL. of IML circular 91/75; abrogation of the two last sentences of pointIV. 5.11 of CSSF circular 2000/15Luxembourg, 6 April 2005To all persons and companies supervised by the CSSFCSSF CIRCULAR 05/177Concerns:Abolition of any prior control by the CSSF of advertising material used bypersons and companies supervised by the CSSF; abrogation of point II.of chapter L. of IML Circular 91/75; abrogation of the two last sentencesof point IV. 5.11 of CSSF Circular 2000/15.Ladies and Gentlemen,The present circular abrogates point II. entitled “Advertising Documents” of chapter L. ofIML Circular 91/75, as well as the two last sentences of point IV., 5.11 of CSSF Circular2000/15.From now on, persons and companies subject to the prudential supervision of the Commissionde Surveillance du Secteur Financier (“CSSF”) are no longer compelled to communicate tothe CSSF, for comments, the content of their advertising messages intended for distributionto their clients or to the public. In particular, advertising material used by persons in chargeof the distribution of units of undertakings for collective investment and their representativesdoes not need to be submitted to the CSSF for their control, even if this material is not subjectto 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 necessaryto maintain such provisions.Obviously, the persons and companies subject to the supervision of the CSSF must continueto 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 offeredand by mentioning, where necessary, the particular risks inherent to these services and inbringing to the client’s attention his own responsibility.The control of the compliance with the rules of conduct of the financial sector regarding advertisementremains within the competence of the CSSF, which has the authority to require thewithdrawal of any misleading advertisement with regard to the services offered as well as ofany inappropriate communications of information on the Luxembourg legal framework.209

CSSF CIRCULAR 05/185 of 24 May 2005 concerning Luxembourg managementcompanies subject to the provisions of chapter 13 of the law of20 December 2002 relating to undertakings for collective investmentas well as self-managed investment companies subject to the provisionsof article 27 or article 40 of the law of 20 December 2002 relatingto undertakings for collective investmentLuxembourg, 24 May 2005To all UCIs and management companies subject to Luxembourg lawCSSF CIRCULAR 05/185Concerns:Luxembourg management companies subject to the provisions of chapter13 of the law of 20 December 2002 relating to undertakings for collectiveinvestment as well as self-managed investment companies subject tothe provisions of Article 27 or Article 40 of the law of 20 December 2002relating to undertakings for collective investment.Ladies and Gentlemen,The purpose of this circular is to complete CSSF Circular 03/108 as regards the conditionsfor obtaining and maintaining authorisation for management companies which do not engagein activities other than collective portfolio management as provided for by Article 77(2) of thelaw 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 toa management company, CSSF Circular 03/108 provides that the staff of the managementcompany must be permanent and must be adapted to the contemplated activities. Incompliance with the law of 20th December 2002, CSSF Circular 03/108 provides that theconduct 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 aposition to provide all the information which the CSSF considers essential for the performanceof 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, theCSSF can also authorise a management company subject to chapter 13 of the amendedlaw of 20 December 2002 if the specific elements of a file enable the CSSF to conclude thatthe management company does not have a registered or statutory office in Luxembourgonly. These elements can be multiple and should, inter alia, be inspired by a concern forcompliance with principles of corporate governance and risk controls. Luxembourg residentboard members, the holding of regular board meetings in Luxembourg or the performanceof certain activities in Luxembourg are examples which, individually, are not necessarilysufficient or, in the presence of other elements, not necessarily required. Each file will be163 The French original of the circular uses the word “dirigeants”.210

analysed on a case by case basis, considering the specific elements which are submitted tothe CSSF to support the application for authorisation.In all cases, the managers must have at their disposal all technical and IT equipmentnecessary to enable them to assume all the responsibilities and to perform the functionswhich are imposed on them by the law of 20 December 2002 and CSSF Circular 03/108. Inparticular, it is important that appropriate procedures and processes are put in place to enablethe managers to conduct together the business of the management company.The regime provided for by this Circular is not applicable to management companies whichengage in activities of collective portfolio management and in the management of portfoliosof investments on a discretionary client-by-client basis as contemplated in Article 77(3) of thelaw of 20 December 2002 (section II of CSSF Circular 03/108).This Circular is applicable mutatis mutandis to investment companies subject to Directive85/611 which have not designated a management company.211

CSSF CIRCULAR 05/186 of 25 May 2005 concerning the Guidelines of theCommittee of European Securities Regulators (CESR) regardingthe application of transitional measures resulting from directives2001/107/CE and 2001/108/CE (UCITS III) amending directive 85/611/CEE(UCITS I)Luxembourg, 25 May 2005To all Luxembourg undertakings for collective investment and to those who act in relation tothe operation and supervision of such undertakings.CSSF CIRCULAR 05/186Concerns:Guidelines of the Committee of European Securities Regulators (CESR)regarding the application of transitional measures resulting fromdirectives 2001/107/CE and 2001/108/CE (UCITS III) amending directive85/611/CEE (UCITS I).Ladies and Gentlemen,The purpose of this circular is to draw the attention of undertakings for collective investment intransferable 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 SecuritiesRegulators (CESR) concerning the application of the transitional provisions of the directives2001/107/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 hadto be implemented in the legislations of the Member Countries of the European Union by13 February 2004 at the latest, comprise transitional provisions, also called “grandfatheringprovisions”. Under the terms of directives 2001/107/CE and 2001/108/CE, UCITS andmanagement companies subject to the amended directive 85/611/CEE must comply with therequirements of the directive by 13 February 2007 at the latest.Directives 2001/107/CE and 2001/108/CE have been implemented into Luxembourg law bythe 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 transitionalprovisions 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 Europeanpassport for management companies and for UCITS.The guidelines of the CESR fix a series of new deadlines for certain UCITS and for certainmanagement companies.These new deadlines imply that, in order to comply with the guidelines of the CESR, certainUCITS and certain management companies have to apply the rules resulting from directives2001/107/CE and 2001/108/CE before the date of 13 February 2007.212

The following extracts, which are of particular interest, can be highlighted:*) A grandfathered management company is allowed to launch UCITS of the UCITS IIItype until 30 April 2006 if it employs an appropriate risk-management process. After thisdate 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 April2006 must have received by 30 April 2006 at the latest from the competent authority theauthorisation as management company complying with the requirements of the UCITS IIIdirective. This should be stated by a special confirmation from the competent supervisoryauthority.*) A grandfathered UCITS I umbrella fund is allowed to launch new UCITS I sub-fundsuntil 31 December 2005. Grandfathered UCITS I umbrella funds which have launched asub-fund since 13 February 2002 must meet the requirements of the UCITS III directiveby 31 December 2005 at the latest.*) All UCITS (comprising UCITS of the UCITS I type) must have a simplified prospectus asfrom 30 September 2005 at the latest.Concerning the requirement to have a simplified prospectus, it can be noted that it appearsfrom the provisions of the amended law of 20 December 2002 concerning UCIs and theprovisions of CSSF circular 03/122 concerning clarifications on the simplified prospectus thatUCITS of the UCITS III type must publish a simplified prospectus when they are subject toPart I of such law.It can be noted that UCITS of the UCITS I type created before 13 February 2002 and whichhave not launched new compartments since 13 February 2002 and management companiescreated before 13 February 2004 which only manage UCITS of the UCITS I type which havenot launched new compartments since 13 February 2002 have time until 13 February 2007 tocomply with the directives 2001/107/CE and 2001/108/CE.All supervisory authorities which are members of CESR have undertaken to apply the guidelinesof the CESR.It should be highlighted that it is highly recommended that the UCITS concerned complywith the deadlines fixed by the guidelines of the CESR concerning the transitional provisionsresulting from directives 2001/107/CE and 2001/108/CE.Indeed, the non-compliance with the deadlines fixed by the guidelines of the CESR concerningthe transitional provisions resulting from directives 2001/107/CE and 2001/108/CE mayjeopardise the marketing in other Member Countries of the European Union of the UCITSand management companies concerned under the European passport.We request that you take into account the deadlines fixed by the guidelines of the CESR andto take these into consideration for the purpose of the procedures of conversion of UCITSand management companies under the regime of Part I and chapter 13, respectively, of theamended law of 20 December 2002 concerning UCITS.We recommend that you consult the guidelines of the CESR concerning the transitional provisionsof directives 2001/107/CE and 2001/108/CE.213

CSSF CIRCULAR 06/267 OF 22 November 2006 CONCERNING THE GUIDeLINESOF THE Technical specifications regarding the communication to theCSSF, under the law on prospectuses for securities, of documentsfor the approval or for filing and of notices for offers to the publicof units or shares of Luxembourg closed-end UCIs and admissionsof units of shares of Luxembourg closed-end UCIs to trading on aregulated marketLuxembourg, 22 November 2006To all Luxembourg undertakings for collective investment and to those who act in relation tothe operation and supervision of such undertakings.CSSF CIRCULAR 06/267Concerns:Technical specifications regarding the communication to the CSSF, underthe law on prospectuses for securities, of documents for the approvalor for filing and of notices for offers to the public of units or sharesof Luxembourg closed-end UCIs and admissions of units of shares ofLuxembourg closed-end UCIs to trading on a regulated market.Ladies and Gentlemen,This circular is addressed to Luxembourg closed-end UCIs whose units or shares are beingoffered to the public or admitted to trading on a regulated market within the meaning of thelaw 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 ofthe Prospectus law. For the definitions, please refer to the Part I.1. entitled “The securitiesconcerned” of the circular CSSF 05/225 of 16 December 2005. In this context, it is remindedthat a closed-end UCI under the Prospectus law is defined as a UCI for which investors donot have any repurchase rights in relation to the units concerned. In all other cases, whateverthe number or periodicity of the contemplated repurchases, the UCI is of the open-end typeand not covered by the Prospectus law.The purpose of this circular is to specify the technical procedure for communications to theCSSF of:• documents for approval by the CSSF or filing with the CSSF relating to offers to thepublic of units or shares of Luxembourg closed-end UCIs and admission to trading ona regulated market, which are subject to Community harmonisation under Directive2003/71/EC, in accordance with Articles 7, 8, 10, 11-16 of chapter 1 of Part II of theProspectus law;• requests for certificates of approval in accordance with Article 19 of chapter 2 of PartII of the Prospectus law; and• notices for offers to the public of units or shares of Luxembourg closed-end UCIsgoverned by Part II of the Prospectus law and notices for admissions of units or sharesof Luxembourg closed-end UCIs to trading on a regulated market referred to in Part IIof the Prospectus law in accordance with Articles 5 and 6 of Part II of the Prospectuslaw.214

This circular does not apply to communications to the CSSF concerning UCIs other than ofthe closed-end type.1. CompetenciesThe Prospectus law designates the CSSF as the authority competent to ensure implementationof the provisions of Part II on the drawing-up, approval and distribution of theprospectus to be published when units or shares of Luxembourg closed-end UCIs areoffered to the public and/or admitted to trading on a regulated market, which are subjectto 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 CSSFis 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/oradmission of units or shares of Luxembourg closed-end UCIs to trading on a regulatedmarket, which are subject to Community harmonisation under Directive 2003/71/EC, inthe case when Luxembourg is the home Member State. The filing of documents andnotices in accordance with Part II shall also be made with the CSSF.While the Prospectus law introduces in Luxembourg a new definition of the competencieswith respect to the prospectus approval as defined above, the competencies concerningthe decisions with respect to the admission of units or shares of Luxembourg closed-endUCIs to trading on a market and/or official listing remain unchanged. Indeed, the decisionswith respect to the admission of units or shares of Luxembourg closed-end UCIs to amarket and/or official listing continue to fall within the remit of the relevant market operatorand are taken in accordance with the provisions laid down in the rules governing thefunctioning of this operator (currently in Luxembourg: the Rules and Regulations of theLuxembourg Stock Exchange), it being understood that compliance of the underlyingdocuments with the regulations regarding prospectuses is one of the requirements to befulfilled.2. Applications for approvalBefore making an official submission in accordance with Article 7 of the Prospectus law(hereinafter “Official Submission”), the Luxembourg closed-end UCI must be approved bythe CSSF. To this end, the Luxembourg closed-end UCI shall submit an application file tothe CSSF. As soon as the CSSF has given its verbal approval, the Luxembourg closedendUCI may make an Official Submission.3. Submission of documents to be approvedThe CSSF receives the documents submitted in the context of scrutiny of applications forprospectus approval.The Official Submission to the CSSF can be validly made by an issuer, an offeror or bya person asking for the admission to trading on a regulated market or a person acting onbehalf 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 havean e-file connection; and• via e-mail to prospectus.approval@cssf.lu if the Déposant does not have the necessarye-file connection.215

If a Déposant uses other means of communication, such as filing of paper copies, thelatter must enclose an electronic support (CD, DVD, PC floppy disk). The files shall besubmitted 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:• a list stating the exact designation of all the documents comprised in the submission;• the object of the submission (indicating the Part and, where applicable, the chapter ofthe 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 whichthe admission to trading is requested);• the contact data of the Déposant and the contact person for the file (name, postaladdress, e-mail and telephone number);• the contact data of the issuer on behalf of whom the documents are filed (name, postaladdress, e-mail and telephone number);• the contact data of the person commissioned to receive, on behalf of the issuer, allthe notifications (name, function, relation with the issuer, postal address, e-mail andtelephone number);• the contact data of the person commissioned by the issuer to confirm that the versionsubmitted for final approval and publication is the final version of the prospectus(name, postal address, e-mail and telephone number); and• the timetable of the transaction and the requested date of approval.Any reference made hereabove to the issuer is to be understood, where applicable, asreference to the offeror or to the person asking for the admission of units or shares ofLuxembourg closed-end UCIs to trading on a regulated market.The Official Submission is confirmed by electronic acknowledgment of receipt:• through the e-file process, if the submission has been made via e-file;• to the address stated by the Déposant if the filing has been made throughprospectus.approval@cssf.lu.4. Enforcement of the time limits for scrutiny of an application for offers of units orshares of Luxembourg closed-end UCIs to the public and admission of units orshares of Luxembourg closed-end UCIs to trading on a regulated marketThe time limit laid down in Article 7 paragraph 2 of the Prospectus law runs from thebusiness 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 additionalinformation is needed, the CSSF informs the Déposant, either via e-file or e-mail, that thefile is incomplete in accordance with Article 7 paragraph 5. In that case, the time limitsonly run from the business day that follows the day on which the requested informationhas been provided by the Déposant in accordance with the above provisions of theProspectus law.Given the application of principles of administrative law, the decision regarding the approvalof the prospectus can still be validly notified after the expiry of the above mentioned timelimit. 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 limitsprovided in the Prospectus law as regards the notification of the decision of approval.216

The same principles apply to the applications for approval of supplements to the prospectusin accordance with Article 13 paragraph 1, for which the maximum time limit for approvalis 7 days.5. Treatment of applications for approval and approvalThe CSSF communicates the approval either via e-file or e-mail to the address statedto this end by the Déposant at the Official Submission. The CSSF confirms the approvalin writing to the postal address of the issuer, the offeror or the person asking for theadmission.6. Submissions of requests for certificates of approvalIn accordance with Article 19 of chapter 2 of Part II of the Prospectus law, the requestsfor certificates of approval for the purpose of notification by the CSSF to one or severalcompetent authorities of the host Member States shall be sent according to the sameprocedures as those referred to in point 3 above. This request shall be sent together withthe draft prospectus or separately. This request shall include the following information anddocuments:• indication of the host Member State for which the notification shall be prepared;• indication of the date on which the notification is requested;• as the case may be, the translation of the summary produced under the responsibilityof the issuer or person responsible for drawing up the prospectus.The same procedure shall apply for any supplement to the prospectus, and, as the casemay be, the summary.7. Filing of documents that are not subject to approvalThe filing of documents that are not subject to approval shall be made in accordance withthe same procedures as those referred to in point 3 above. The documents concerned arethe following:• the registration document, insofar as its approval is not sought, which shall be expresslymentioned (Article 11); and• the annual document as defined in Article 14.8. Notices for offers to the public and admission to trading on regulated marketThe notices for offers to the public of units or shares of Luxembourg closed-end UCIs andnotifices for admissions of units or shares of Luxembourg closed-end UCIs to trading on aregulated market referred to in Part II of the Prospectus law in accordance with Articles 5and 6 of Part II of the Prospectus law shall be made in accordance with the same proceduresas 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);• the name and address of the person issuing the notice, of the issuer for whom thenotice is made, as well as the contact data of the contact person(s).217

218The 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. thepersons who made an Official Submission in accordance with point 3 above, do not alsohave to submit a notice in accordance with this point 8.

CSSF Circular 07/277 OF 9 January 2007 CONCERNING THE new notificationprocedure in accordance with the guidelines of the Committee ofEuropean Securities Regulators (CESR) concerning the simplificationof the UCITS notification procedureLuxembourg, 9 January 2007To all Luxembourg undertakings for collective investment and to those who act in relation tothe operation and supervision of such undertakings.CSSF Circular 07/277Concerns:The new notification procedure in accordance with the guidelines of theCommittee of European Securities Regulators (CESR) concerning thesimplification of the UCITS notification procedure.Ladies and Gentlemen,The purpose of this circular is to draw the attention of UCITS subject to Part I of the law of30 March 1988 relating to UCIs or to Part I of the law of 20 December 2002 relating to UCIsto the new notification procedure in accordance with the guidelines of the Committee ofEuropean Securities Regulators (CESR) concerning the simplification of the UCITS notificationprocedure.This document, published by CESR on 29 June 2006 with the reference CESR/06-120b, isavailable 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 Directive85/611/EEC, as amended. The objective of the guidelines is to bring more simplicity, transparencyand certainty to the procedure of notification and to accelerate the processing of thefile.The intention of this circular is also to state more precisely the approach adopted by theCSSF as regards European passports for UCITS following the adoption of the new CESRguidelines.A. The following sections of the document CESR/06-120b, relating to the notificationprocedure of UCITS and to the modifications and updates of UCITS, can be pointedout:1. Notification procedurea) With regard to the notification procedure, the UCITS has to provide a certain numberof documents to the host State authority. The document CESR/06-120b introducesa standardised attestation letter of the home State authority (Annex I of the CESRdocument) and a standardised notification letter (Annex II of the CESR document)which shall be submitted to the host State authority.219

The UCITS shall, among other things, provide the documents listed in Annex II to theCESR document to the host State authority. A detailed list is enclosed in Annex 1 ofthis circular.b) The host authorities shall not request certification by the home State authority of thedocuments listed in Annex II of the CESR document and which have to be providedwith the notification letter. These authorities shall accept that the notifying UCITSor a third party duly empowered by the UCITS self-certifies the documents. Thiscertification must confirm that the documents attached to the notification letter arethe 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 standardmodel disclosed in Annex I of the CESR document. For the notification procedure withthe 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 updatesa) The UCITS shall request from its supervisory authority the issue of a new attestationsolely in the case where the information on the UCITS provided in the original attestationissued 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-fundin an existing UCITS.b) The UCITS shall keep all their documents up-to-date. Therefore, all modifications tothe 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 samerule applies to the latest published annual reports and any subsequent half-yearlyreports. Submission of these documents has to be made without delay after thedocuments 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 inthe original attestation of the supervisory authority are certified by the UCITS or a thirdparty duly empowered by the UCITS (“self-certification”).B. Practice adopted by the CSSF regarding the European passport for UCITSI. Luxembourg UCITS that market their units/shares in another EU Member StateUCITS that consider marketing their units/shares in another EU Member State shallsubmit 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 considerationthe following points:1. Attestation letterThe CSSF provides every UCITS with an attestation as set out in Annex I of the CESRdocument, together with a letter confirming its registration on the official list. The CSSF’sattestation 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, theCSSF provides the attestation letter in electronic form.220

The attestation letter discloses all UCITS sub-funds approved by the CSSF. The sub-fundslisted in the attestation letter shall be the same as those mentioned in the full prospectusof the UCITS.A new attestation may be requested from the CSSF by the UCITS only in the case of themodification of the information on the UCITS provided in the original attestation issued bythe CSSF, such as a change of management company or the creation of a new sub-fundin an existing UCITS.In any other cases, the procedure of self-certification mentioned in point A.2.b) aboveapplies.2. Notification letterUCITS shall use the standardised notification letter attached in Annex II of the CESRdocument 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 theCSSF 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 MemberState authorities for any further information.3. Visa of prospectusesLuxembourg UCITS shall submit three copies of their (full and simplified) prospectuses intheir final form and presentation to the CSSF. One example, bearing the Visa stamp, willbe 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 visastampedprospectus, certified by the UCITS or a third person duly empowered by theUCITS.4. Electronic filingThe CSSF accepts that the applicants submit their requests for attestation and theirdocuments electronically to the address opc@cssf.lu. Also, the applicants that haveaccess to the e-file connection may also submit their application or documents via thee-file communication platform at http://www.e-file.lu.II. Foreign UCITS established in another EU Member State that consider marketingtheir units/shares in Luxembourg1) With regard to the notification procedure, the UCITS are required to provide the CSSFwith the documents listed in Annex 2 of this circular.In addition, the UCITS shall submit specific information that relates to the marketingof units/shares in Luxembourg to the CSSF. To this end, the UCITS shall use theform disclosed in Annex 3. This form can be downloaded from the CSSF’s website athttp://www.cssf.lu, under section “Marketing of UCITS” > Marketing of units/shares ofEuropean UCITS in Luxembourg”.221

2) Only the sub-funds that the UCITS considers marketing actively in Luxembourg mustbe mentioned in the notification letter to be submitted to the CSSF by an umbrellaUCITS. 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 asmentioned above.3) The UCITS or a third party duly empowered by the UCITS may self-certify thedocuments listed in Annex 2 of this circular and that must be attached to the notificationletter. This certificate confirms that the documents that have been attached tothe notification letter are the most recent ones that have been issued or approved bythe home State authority. For the notification procedure, a true copy of the originalattestation letter in French, German or English certified by the UCITS or a third partyduly empowered by the UCTIS, shall be submitted to the CSSF.The UCITS shall submit a new attestation to the CSSF solely where the information onthe UCITS provided in the original attestation issued by the supervisory authority hasbeen amended. These modifications are, for example, the change of managementcompany or the creation of new sub-funds in an existing UCITS.The required documents may be filed with the CSSF electronically to opc@cssf.lu.Furthermore, applicants that have access to the e-file connection may also submittheir 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 oneweek after receiving the file. Within one week after the notification is deemed to becomplete, the CSSF informs the UCITS that the marketing of units/shares may startimmediately.In the case where an umbrella UCITS markets sub-funds in Luxembourg and considersmarketing new or additional sub-funds in Luxembourg, the CSSF applies the sameprocedure as that described in the previous paragraph.C. National marketing rules and other specific national regulationsAccording to the document CESR/06-120b, the EU Member States are requested topublish their national marketing rules in a standardised form specified in Annex III of thedocument in force.The rules applicable in Luxembourg are available on the CSSF’s website athttp://:www.cssf.lu, under section “Marketing of UCITS > Marketing of units/shares ofEuropean 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: opc@cssf.lu).This circular comes into force with immediate effect.222

Annex 1.List of documents that a UCITS marketing its units/shares in the European Union mustprovide to the host State authorityThe UCITS shall provide the host State authority with the documents listed in Annex II of theCESR document, i.e.:- the attestation letter granted by the home State authority drafted according to themodel 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 inthe sphere of finance or in the official language(s) of the host Member State providedthat 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 theinvestment company;- the latest version of the full and simplified prospectuses;- the latest published annual report and any subsequent half-yearly report and, asregards umbrella funds, the latest versions of the annual report and the half-yearlyreport covering all sub-funds;- details of the arrangements made for the marketing of the units/shares of the UCITSin the host Member State.The documents listed above, except for the attestation, must be attached to the notificationletter in their original version as well as in a translated version in the official language(s) of thehost 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 anEnglish version.223

Annex 2.List of documents that foreign UCITS established in another EU Member State mustsubmit to the CSSFThe foreign UCITS established in another EU Member State that considers marketing itsunits/shares in Luxembourg shall submit to the CSSF the documents listed in Annex II of theCESR document, i.e.:- the attestation letter granted by the home Member State authority drafted according tothe 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 andcan 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”;- the latest version of the management regulations and Articles of incorporation of theinvestment company;- the latest version of the full and simplified prospectuses;- the latest published annual report and any subsequent half-yearly report and, asregards umbrella funds, the latest versions of the annual report and the half-yearlyreport covering all sub-funds;- details of the arrangements made for the marketing of the units/shares of the UCITSin Luxembourg.In addition, the foreign UCITS fill in the form in Annex 3 of this circular and submit it to theCSSF. The form is available for download on the CSSF website at the same address andsection as mentioned above.The documents listed above shall be attached to the notification letter in French, German orEnglish.224

Annex 3.Specific information on the marketing in Luxembourg of units/shares of a UCITS establishedin another Member State of the European Union1) Name of the UCITS2) Home Member State3) Registered office4) Name and address of the financialservice (paying agent) in Luxembourg5) Name and address of the primarycontact in Luxembourg in chargeof the notification to the CSSF6) Name of the person(s) empoweredby mandate to certify documentson behalf of the UCITSName, first name, position, date and signature:.........................................................................................................................................................................................................225

CSSF CIRCULAR 07/308 OF 2 August 2007 CONCERNING THE Rules of conductto be adopted by undertakings for collective investment in transferablesecurities with respect to the use of a method for themanagement of financial risks, as well as the use of financial derivativeinstrumentsLuxembourg, 2 August 2007To all Luxembourg undertakings for collective investment in transferable securities (“UCITS”)and to those involved in the operation and supervision of such undertakings.CSSF CIRCULAR 07/308Concerns:Rules of conduct to be adopted by undertakings for collective investmentin transferable securities with respect to the use of a method for themanagement of financial risks, as well as the use of financial derivativeinstruments.Ladies and Gentlemen,The purpose of this circular is to notify undertakings for collective investment in transferablesecurities (hereinafter referred to as “UCITS”), subject to Part I of the amended law of 20December 2002 (hereinafter referred to as the “2002 law”), of additional information withrespect to the use of a method for the management of financial risks, within the meaning ofArticle 42 (1) of the 2002 law, as well as the use of financial derivative instruments, within themeaning of Article 41 (1) g) of this same law.I. General provisionsThe principal reason why UCITS must devote greater efforts and means to risk quantificationand oversight is that the 2002 law has expanded (as compared to the law dated 30 March1988) 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 oftheir investment policy, use financial derivative instruments. This may involve financial derivativeinstruments dealt in on a regulated market of the type set forth in points a), b) and c) ofArticle 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 techniquesand instruments which are mentioned in Article 42 (2), and which relate to transferablesecurities and money market instruments. These transactions must also comply with theprovisions of Article 41 (1) g), Article 42 and Article 43. Financial derivative instruments226

used pursuant to Article 41 (1) g) are however not automatically subject to the requirementsassociated with the efficient portfolio management referred to in Article 42 (2).To prevent UCITS from being exposed to excessive financial risks, in particular throughfinancial derivative instruments, the 2002 law imposes on UCITS the use of a “RiskManagement” 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 befollowed at the time of the implementation of such a “Risk Management” structure. Althoughthe business activities of UCITS are often exposed to a multitude of risks, this circular islimited to the financial risks directly covered in the 2002 law, namely the global exposure, thecounterparty risk and the concentration risk. Moreover, the circular’s purpose is to clarify therequirements with respect to the coverage of financial derivative instruments, a corollary toArticle 52 of the 2002 law, as well as the obligation to perform a daily valuation of the OTCfinancial 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 directlycovered in this circular, but which may cause losses to UCITS, must be the subject ofadequate supervision at the UCITS level.This circular shall, in point II, deal with the organisational requirements, as well as the RiskManagement’s field of operation as regards the above-mentioned financial risks before dealingwith, 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 processII.1. Organisational principlesArticle 42 (1) of the 2002 law requires that UCITS implement a risk management method thatenables them to monitor and measure at any time, the risk of the positions and their contributionto the overall risk profile.The Commission expects that non-sophisticated UCITS, as defined hereafter, measure andcontrol financial risks related to investments at least on a bi-monthly basis. For sophisticatedUCITS, such frequency is daily.By derogation to the foregoing, and subject to an adequate justification, other frequencies formeasuring and controlling may be utilised in particular cases with the prior approval of theCSSF.UCITS pursue more or less risky investment strategies, so that a distinction has to be madebetween 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 ofmaking portfolio management decisions, the task of identifying, quantifying, following up onand monitoring the risks associated with the portfolio’s positions.The following qualitative criteria must be fulfilled in order to allow the Risk Management unitto satisfy the Commission’s expectations in this regard:- In order to accomplish its assigned missions, as described in this circular, RiskManagement must have a sufficient number of qualified personnel with the necessaryknowledge.- Risk Management must have the necessary tools (IT and others) for accomplishingthe missions described in this circular.227

- The persons who conduct the business 164 of the management company, respectivelyof the self-managed investment company (hereinafter referred to as “SIAG”), mustbe actively associated with the risk management and monitoring. They are notably incharge of approving the adoption of the method of risk management and monitoring.- Risk Management must answer directly to the persons who conduct the business, whomust be regularly kept informed of Risk Management’s work and the risks run by theUCITS by means of risk monitoring reports. It is up to the persons who conduct thebusiness to take appropriate measures on the basis of the data reported.- The Board of Directors of management companies and investment companies areresponsible for ensuring that Risk Management complies with applicable legal andregulatory requirements and for ensuring that the mechanisms which have beenimplemented operate correctly.These organisational rules must also be complied with by UCITS classified as non-sophisticatedUCITS, but which make use of the approach of the internal model, which is explainedin greater detail in point III.The Commission allows management companies and SIAGs to delegate a portion or all ofthe risk management and control process to a third party acknowledged to be specialised inthis type of activity. Notwithstanding this delegation, the minimum requirements formulatedin this circular must be complied with by this third party, and it must be ascertained that theUCITS receives the information required for the risk evaluation regularly, in order to allow it totake the measures which are required and to permit implementation of its own independentcheck. This delegation does not, in any way, absolve the management company or, respectively,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 commitmentapproach with respect to the determination of the global exposure), the organisationalstructure of Risk Management does not have to be as developed and substantive as that ofsophisticated UCITS. It is for this reason that the Commission gives these UCITS the optionof 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 theunit in charge of portfolio management decisions (“Front Office”). In order to guarantee someindependence, a third party, independent from the UCITS, could be assigned the responsibilityof taking over all missions incumbent on Risk Management.The Commission reserves the right, in consideration of the investment strategy used and therisks associated thereto, to require non-sophisticated UCITS to comply with the qualitativecriteria formulated with respect to sophisticated UCITS.II.2. Scope of activities of Risk ManagementIn 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’spositions.In this context, special attention must be paid, along with stringent follow-ups, to transactionswith financial derivative instruments, given the specific risks (leverage effect, high volatility ofmarket 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 conductthe business of the management company (referred to in Article 78 (1) b) of the law of 20 December 2002) or theSIAG (referred to in Article 27 (1) of the law of 20 December 2002).228

At the very least, the Commission expects that the work listed below be part of Risk Management’sscope 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 financialderivative instruments (see point III.2.),- check and follow-up of the minimum requirements associated with the determinationof the global exposure and the counterparty risk (see points III.1., III.2., Appendix 1or 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 derivativeinstruments (see point IV.2.),- establishment of the risk monitoring reports for the persons who conduct the businessof 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 investmentsThe 2002 law defines a certain number of limitations with respect to the investments whichcan be made by UCITS; these are meant to ensure that the UCITS is not exposed tounreasonable risks which might imperil its continuity and, consequently, the principle of theinvestors’ protection. The limitations shall be briefly introduced at this level, before beingfurther detailed later in this circular:- In compliance with Article 42 (3), “A UCITS shall ensure that its global exposurerelating 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 underlyingassets, the counterparty risk, foreseeable market movements and the time availableto liquidate the positions”.In its application of this Article, the Commission deems that the global exposure ofUCITS may at most be doubled by the use of financial derivative instruments. TheUCITS’ total commitment is thus limited to 200%. The implications of this limitationare explained more explicitly in point III.1. Given that the counterparty risk associatedwith OTC financial derivative instruments is specifically limited for a given entity bythe provisions of Article 43, the Commission restricts the concept of global exposuresolely 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 usedfor investment purposes.- Pursuant to Article 43 (1), “The risk exposure to a counterparty of the UCITS in anOTC derivative transaction may not exceed 10% of its assets when the counterpartyis a credit institution referred to in Article 41, paragraph (1) f), or 5% of its assets inother cases”. Point III.2. shall deal with the rules with respect to the determination ofthe 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 theinvestment limits laid down in Article 43. The Commission also extends this limitationto the units of UCIs and UCITS referred to in Article 46. The purpose of these limitsis to restrict the exposure which the UCITS may take with respect to a given issuer229

or fund, i.e. concentration risk. The requirements in that regard shall be discussed inpoint III.3.III.1. Limitation of the market riskIII.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 tothe risk profile resulting from their investment policy and to the Risk Management’s level ofsophistication.More specifically, the Commission expects each UCITS to conduct a self-assessment ofits risk profile and to classify itself, on the basis of this analysis, either as a non-sophisticatedUCITS or as a sophisticated UCITS. This classification will require the approval of thepersons who conduct the business and the board of directors. The assessment process mustbe documented and must be kept available for the Commission.The following elements aim at supplying UCITS with rules of conduct to consider in the classificationprocess:• A sophisticated UCITS is a UCITS using, for an important part, financial derivativeinstruments and/or making use of more complex strategies or instruments.• A non-sophisticated UCITS is a UCITS with less and less complex positions onfinancial derivative instruments or with financial derivative instruments used solely forhedging purposes.A UCITS that wants to change its risk profile must inform the Commission in advance in orderto 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 UCITSIn the case of non-sophisticated UCITS, the global exposure related solely to positionson financial derivative instruments (including those embedded in transferable securities ormoney market instruments) must, in principle, be determined on the basis of the CommitmentApproach.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 requirements.III.1.2.1. Commitment ApproachOn the basis of this approach, the positions on financial derivative instruments must beconverted into equivalent positions on the underlying assets.The UCITS’ total commitment to financial derivative instruments, limited to 100% of theportfolio’s total net value, is then quantified as the sum, as an absolute value, of the individualcommitments, after consideration of the possible effects of netting and coverage, as describedin point III.1.2.2.Appendix 1 details the calculation method of the commitment for the financial derivativeinstruments 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 Commissionexpects the UCITS to inform it of the calculation method applied.230

If UCITS are authorised to avail themselves of repurchase transactions or the lending/borrowing of securities in order to generate additional leverage through reinvestment ofcollateral, these transactions must be taken into consideration for the determination of theglobal exposure. Any reinvestment of collateral in financial assets that yield a return greaterthan 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 adequatejustification, an approach which differs from the commitment approach may be used bya non-sophisticated UCITS (example: “add-on approach”, sensitivity approach), with theCommission’s prior approval. An approach of this kind must be based on a level of prudencesimilar to that of the commitment approach in the determination of the global exposure.III.1.2.2. Netting and position coverage processWhen applying the commitment approach, UCITS may proceed with the following nettingprocesses:- netting between buying and selling positions on financial derivative instruments withidentical underlying assets (reference rates, reference assets, ...), regardless of thecontracts’ due date (example: long position on purchase option and short position onpurchase 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 XYZshare, ...);To this is to be added the possibility of not taking into account the financial derivative instrumentswhose function is to partially or totally cover the portfolio positions against a fluctuationof the market risk 165 . This ability is strictly reserved for cases in which there is an undeniableand manifest risk reduction effect, i.e. the cash prices of the position or positions and theposition on the financial derivative instrument are moving in opposite directions and that theasset or assets to be covered and the financial derivative instruments’ underlying assetsshow an adequate similarity (i.e. adequate symmetry of the assets, term, currencies) (strongcorrelation).The netting may only be done for the amounts of equivalent commitments, either in termsof market value or in terms of risk (example: duration), and it may not result in the UCITSneglecting obvious and material risks.The netting process in question must be accompanied by an adequate follow-up by RiskManagement.III.1.3. Determination of the global exposure: sophisticated UCITSIII.1.3.1. General principleThe Commission requires all UCITS pursuing a sophisticated investment strategy to usean approach based on the internal model, taking into consideration all the sources of globalexposure (general and specific market risks 166 ), which might lead to a significant change inthe portfolio’s value.By internal model, the Commission refers to a model of the Value-at-Risk (“VaR”) type, whichmust comply with the requirements listed below.165 General or specific market risk, as defined in Appendix 2.166 As defined in Appendix 2.231

The purpose of a VaR model is the quantification of the maximum potential loss which mightbe generated by a UCITS portfolio in normal market conditions. This loss is estimated onthe basis of a given time period and a certain confidence interval. UCITS must completethis approach with stress tests, as described in Appendix 2, in order to quantify the risksassociated with possible abnormal market movements. These tests evaluate the reactions ofthe 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 thisdocument may, possibly, be deemed acceptable by the Commission. If the VaR does notappear 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 suchcases, the prior consent from the Commission is required.III.1.3.2. Limits applicable to the market riskThe investment policy pursued by a UCITS is the determining factor for the method oflimitation of the global exposure. In all cases, the process of determining the method oflimitation must be documented and kept available for the Commission. Two situations maybe distinguished:a) Relative VaR limitationFor the purposes of the limitation of the global exposure, the Commission is requesting thatUCITS ensure that the global exposure associated with the total portfolio’s positions, calculatedby means of the VaR, does not exceed two times the VaR of a reference portfolio of thesame market value as the UCITS. This management limit is applicable to all UCITS for whichit 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. Itconstitutes, in principle, a true picture of the “benchmark” 167 , by reference to which the UCITSwill compare the performance of its investments and which does not include positions onfinancial derivative instruments.The UCITS must ensure that this reference portfolio complies with the provisions of the 2002law.The process of the determination of the reference portfolio has to be done in the context ofappropriate procedures and must be closely overseen by Risk Management. Investmentmanagers may take the initiative of proposing a reference portfolio which they feel to be themost appropriate for the funds’ investment policy. However, Risk Management must analysethis proposal and formulate an opinion for the persons who conduct the business of themanagement company, respectively of the SIAG, with respect to the appropriateness of theproposed portfolio.b) Absolute VaR limitationThose UCITS which are unable or for which it is not appropriate to determine a referenceportfolio (example: an “absolute return” type UCITS) must determine an absolute VaR onall of the portfolio’s positions. The Commission expects that a UCITS, on the basis of theanalysis of the investment policy and the given risk profile, fixes a maximum VaR; thismanagement limit may not exceed the threshold of 20%.167 In principle, an external index.232

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 isconvinced that the principle of investor protection is not endangered by the granting of sucha derogation.III.1.3.3. Criteria governing the use of a VaR model by UCITSThe use of an internal model, as described above, is subject to the Commission’s priorapproval. In order to be able to be considered an acceptable model, all the criteria set forth inAppendix 2 must be complied with.III.2. Limitation of the counterparty riskIII.2.1. Maximum limit per entity / groupIn compliance with Article 43 (1) of the 2002 law, the risk exposure to a counterparty of aUCITS in an OTC derivative transaction may not exceed 10% of its assets, when the counterpartyis a credit institution referred to in Article 41, paragraph (1), point f), or 5% of its assetsin other cases.It is possible to exclude from the calculation of the use of counterparty risk limitations, alltransactions on financial derivative instruments executed on a market whose clearing housecomplies with the following three conditions:- backing by an appropriate completion guarantee;- daily valuation of the market values of the positions on financial derivative instruments;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 statusPursuant to Article 41 (1), g), counterparties to OTC derivative transactions must be institutionssubject to prudential supervision and belonging to the categories approved by theCommission. In addition, they must be specialised in this type of transaction.III.2.3. Determination of the counterparty riskIII.2.3.1. Calculation principlesIn 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 Commissionmay, subject to appropriate elements of justification, allow UCITS to use another method. Aderogation of this nature is subject to the Commission’s prior approval.- 1 st stage:For each contract, the UCITS must determine the current replacement cost by carrying out avaluation at market price. Only the contracts with positive replacement cost will be selectedfor stage 1. The rules to be observed during the valuation process of OTC financial derivativeinstruments are specified in point IV.2.233

- 2 nd stage:In order to reflect the risk which might be incurred later (potential future credit risk), theamount of the principal notional or the underlying asset of all the contracts is multiplied by thefollowing percentages (“add-on factor”):Residual Interest Exchange Ownership Otherterm rate rate title eligiblecontracts contracts contracts contractsOne year 0% 1% 6% 10%or lessMore than oneyear and less 0.5% 5% 8% 12%than five yearsMore than 1.5% 7.5% 10% 15%five yearsThose financial derivative instruments which cannot be entered in one of the first threecategories of this table, with the exception of credit derivatives, the details of which are setforth 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 tobe taken into account with regard to the future potential risk is equal to 10%, regardless ofthe contract’s residual term. However, for credit default swap contracts where the UCITS actsas a protection seller, the percentage in question may be set at 0% unless the credit defaultswap contract comprises a provision of closeout upon insolvency. In the latter case, theamount to be taken into account for the add-on factor will be limited to the premium/ interestto be received, i.e. unpaid premium at the time of the calculation.- 3 rd stage:The sum of the current replacement cost and the potential future credit risk is multiplied by aweighting factor of 20% for credit institutions and investment enterprises of EU origin or thoserecognised 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 sumof the risks of all contracts entered into.III.2.3.2. Techniques for mitigating counterparty riska) Netting of exposures vis-à-vis a given counterpartyUCITS are allowed to net their positions on OTC financial derivative instruments vis-à-vis agiven counterparty, as long as the netting procedures comply with the conditions set out inPart 7 of Annex III of Directive 2006/48/EC, and that they are based on legally binding agreements.b) Financial collateral given as guaranteesUCITS are allowed to take into consideration collateral in order to mitigate the counterpartyrisk, to the extent that this collateral:234

• is valued at market price, at a calculation frequency at least equal to the calculationfrequency of the NAV of the UCITS in question;• presents limited risks, is adequately diversified, is liquid, and does not present asignificant 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;• can be realised entirely at any time by the UCITS, i.e. the UCITS must be entitled toassert its rights over the collateral at any time.The Commission allows UCITS, in compliance with the provisions set forth above, to makeuse of the following financial collateral to reduce the counterparty risk:• cash deposits and financial instruments equivalent to cash;• debt instruments with an external credit rating at least equivalent to “investmentgrade”;• shares and convertible 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 theamount exposed to risk.For the valuation of the collateral presenting a significant risk of value fluctuation, UCITS mustapply prudent discount rates. In this context it is to be noted that collateral in the form of cashdeposits in a currency other than the currency of exposure must also be the subject of a rateof discount for risk of currency mismatch. On an indicative basis, the Commission considersthat an adjustment of 10% is appropriate.Still on an indicative basis, the Commission considers that levels of discount of approximately20%, respectively 15%, are appropriate for shares or convertible bonds which are comprisedin a main index, respectively debt securities issued by a non-governmental issuer ratedBBB.Collateral received by the counterparty to the OTC financial derivative instrument is likely toexpose the UCITS to a credit risk with respect to the trustee of the collateral. If such a riskexists, the Commission requires that UCITS take such risk into account in the context of thelimitations on deposits provided for by Article 43 (1) of the 2002 law.Moreover, the Commission expects that the UCITS back, by means of appropriate proceduresand controls, the other risks which result from the use of counterparty risk mitigationtechniques (legal, operational, etc. risks).III.2.4. Risk concentration limitsThe counterparty risk on a same entity or group must be added to the issuer risk resultingfrom the fund’s exposure on transferable securities, money market instruments and depositswith respect to this same entity or group, in compliance with the provisions of Article 43 ofthe 2002 law. The sum of the exposures shall not exceed 20% per entity, respectively pergroup.III.3. Limitation of the concentration riskIII.3.1. General principlePursuant to Article 42 (3), the Commission deems that a UCITS may invest in financialderivative instruments provided that the exposure to the underlying assets does not exceed in235

aggregate the investment limits set out in Article 43. The Commission extends this limitationto 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-sophisticatedUCITS (point III.1.2.), the financial derivative instruments are to be converted into equivalentpositions on the underlying assets. The method used to convert the financial derivativeinstruments into equivalent positions on the underlying assets must be adapted to the typeof instrument involved and must be in line with the guidelines provided in Appendix 1. Asindicated in point III.1.2., in the case of financial derivative instruments for which the calculationmethod has not been detailed in Appendix 1, the UCITS is responsible for informing theCommission of the method applied.If the conversion method of financial derivative instruments into their equivalent underlyingpositions proves to be inappropriate or technically not feasible because of the complexity ofthe financial derivative instrument in question, an approach based on the maximum potentialloss linked to this financial derivative instrument may be used. This maximum potential lossis then considered as the threshold for the estimate of the maximum loss which the UCITS isat risk to incur on this position.The financial derivative instruments embedded in transferable securities or money marketinstruments must, for the purpose of this point, be isolated, using the methods described inthis 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 nettingeffects before determining the use of the concentration limits per entity, respectively pergroup (see point III.1.2.2.).III.3.2. Specific provisionsIn compliance with Article 42 (3), UCITS may exclude from the calculation of the concentrationlimits, those financial derivative instruments based on an index:• the composition of which is sufficiently diversified,• which represents an adequate benchmark for the market to which it refers,• which is published in an appropriate manner.It should be noted that, generally, for the application of this provision, management orinvestment companies must not use financial derivative instruments based on an index whichthey have composed themselves with the intention of circumventing the concentration limitsset forth in Article 43 of the 2002 law.IV. Other provisions regulating the use of financial derivative instrumentsIV.1. Coverage rules applicable to financial derivative instrumentsGenerally, the UCITS should, at any given time, be capable of meeting the obligationsincurred 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 thephysical 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:236

• hold in its portfolio the underlying financial instrument as cover or• in case the UCITS deems that the underlying financial instrument is sufficiently liquid,it may hold as coverage other liquid assets (including liquidities), on the condition thatthese assets (after applying appropriate safeguards, i.e. discounts), held in sufficientquantities, may be used at any time to acquire the underlying financial instrumentwhich 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 appropriatesafeguard measures, i.e. discounts) to allow it to make the contractually required payments(example: margin calls, interest payments, contractual cash payments, ...). Given the numberof different situations which might arise, the Commission leaves it up to the UCITS itself todetermine the method by which it will determine the coverage level of the contracts which arepayable in cash. This method must, in any event, allow the UCITS to meet, at any time, allpayment obligations.Liquid assets, as defined by the Commission, besides cash, are liquid debt securities orother 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 thecurrent valuation of the financial instrument on its market.It is thus up to Risk Management to regularly check whether the coverage available to theUCITS, either in the form of the underlying financial instrument or in the form of liquid assetsas described above, exist in sufficient quantity to meet future obligations.IV.2. Valuation of OTC financial derivative instrumentsPursuant to Articles 41 (1) g) and 42 (1), OTC financial derivative instruments must besubjected 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 OTCfinancial derivative instruments for their entire life span. “Fair value” is defined as the amountfor which an asset may be exchanged or a liability settled, between knowledgeable, willingparties, in an arm’s length transaction.The reference to a reliable and verifiable valuation is meant to be understood as a referenceto a valuation made by the UCITS, which corresponds to the fair value, which is not onlybased on market prices supplied by the counterparty and which complies with the followingcriteria:• the valuation is based on a current market value, which was established in a reliablemanner for the instrument, or, if no such value is available, on a valuation model usingan appropriate and recognised methodology;• the verification of the valuation shall be done by one of the following entities:• an appropriate third party, independent of the counterparty to the OTC derivativeinstrument, which will proceed with the verification at an appropriate frequency andpursuant to methods allowing the UCITS to check it;• a unit of the UCITS which is independent of the department overseeing assetmanagement and which is appropriately equipped for this purpose. The UCITSmay, if applicable, make use of valuation tools, respectively data, provided bya third party subject to ensuring that they are appropriate prior to making use ofthem in the valuation process. The use of valuation models provided by a partylinked to the UCITS (for example: dealing room through which the UCITS settlesits derivative transactions) and which have not been reviewed by the UCITS, is notacceptable.237

In the event that there is no valuation of this nature for a given product, the UCITS may notmake use of it, even if the investment policy expressly allows it.IV.3. Description of risksUCITS, which use financial derivative instruments for purposes other than coverage, shouldinclude in their prospectus an appropriate description of the risks resulting from the use ofthis type of instrument, which description can include an indication of the level of leverage ormarket risk.V. Information to be provided to the CommissionPursuant to Article 42 (1) of the 2002 law, the Commission requires that each managementcompany and SIAG provides it with a certain amount of information relating to the riskassessment and control process, as well as the use of financial derivative instruments andthe associated risks.Thus, each management company and SIAG must provide the Commission with clear andprecise documentation with respect to the Risk Management process which was implementedpursuant to the rules and principles formulated in this circular. In particular, they mustensure that such documentation covers, at any given time, all UCITS (including the compartmentsof UCITS) for which they are responsible. Before the launch of a new UCITS (includinga compartment), the management company, or the SIAG, must ensure the appropriatenessof 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 mustbe made and incorporated into the above-mentioned documentation. The updated versionmust be sent to the Commission.This documentation must show possible delegations which have been made in the context ofRisk Management, in which case the procedure must comprise a clear and precise descriptionof the risk management process implemented by the delegate, as well as the monitoring doneby the management company or the SIAG.Management companies and SIAGs already approved by the CSSF, must proceed withan internal self-evaluation in order to determine the possible variances to the provisionsof 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 theCommission.The Risk Management procedure must, at a minimum, include the following information (ifapplicable):V.1. Implementation of a risk management process• organisation of the Risk Management department (flow chart, number of people, pastexperience of the people in charge, allocation of responsibilities, IT tools, etc.)• list of the UCITS to which the above-mentioned procedure is applicable, while indicatingfor each UCITS (respectively compartment) whether the UCITS is a sophisticated ornon-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); thislist may be in the form of a table, such as the one supplied below:238

UCITS Risk Market Limit (*) Reference Exposure/profile risk Portfolio MarketN-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.compartment5% UCITS1 ➔166%UCITS 2 – N-S Commitment 100% N.A. 71%OthersUCITS 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 thecommitment approach or 200% in the case of a relative VaR;(**) N-S ➔ non-sophisticated; S ➔ sophisticatedV.2. Determination and monitoring of global exposurea) Commitment approach• list of the financial derivative instruments for which the commitment approach isused, while specifying the calculation method for each instrument (with an illustrativenumbered example for each product);• details of the implementation of the other requirements listed in this circular(Appendix 1);• details with respect to the policy of netting and coverage;b) Internal model approach• list of financial instruments (cash and derivatives) for which the global exposure isquantified using an internal model;• description of the internal model (type of methodology 168 , “third party vendor model”,model which has already been approved 169 , ...) and details on the implementation ofthe requirements laid down in this circular (III.1.3., Appendix 2) such as:• process for determination of the reference portfolio and internal evaluation of theadequacy of this portfolio (“relative VaR limitation” case)• process for setting the management limit for the “absolute VaR 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: UCITSusing the internal model which is used by a credit institution and which was approved by a supervisory authorityfor the calculation of regulatory own funds requirements, ...).239

c) All approaches combined• global exposure follow-up procedures and procedures for the purpose of avoidinglimits to be exceeded (“escalation procedures, …”)• other risk indicators calculated for the purposes of the follow-up and oversight of theglobal exposure (duration, beta, exposure per rating, etc.);• details the drawing up of reportings of the risk monitoring (frequency, addressees,content, ...); attach the “main” reporting.V.3. Determination and monitoring of the counterparty risk associated with OTCfinancial derivative instruments• selection and approval process of a given counterparty;• confirmation with respect to the calculation method of the counterparty risk;• use or not of netting and collateral (sureties) agreements with indication of the type ofcollateral accepted and the processing of the residual risk on the collateral (third partytrustee);• details the drawing up of reportings of the risk monitoring (frequency, addressees,content, ...); attach the “main” reporting.• other risk indicators calculated for the purpose of the monitoring and control of thecounterparty risk.V.4. Determination and/or monitoring of the concentration risk• allocation of tasks at the UCITS level and, in particular, that of Risk Management inthe determination and/or monitoring of the concentration risk;• details the drawing up of reportings of the risk monitoring (frequency, addressees,content, etc.); attach the “main” reporting.V.5. Valuation of the OTC financial derivative instruments• description of the valuation process of OTC financial derivative instruments (position /department in charge, tools, controls made, ...).V.6. Monitoring and oversight of coverage rules• description of the monitoring and oversight process of the coverage rules and specification,in particular, of the role of Risk Management;• details the determination of the coverage associated with financial derivative instruments.VI. Repealing provisionsThis circular repeals CSSF circular 05/176 and enters into force immediately.240

AppendicesAppendix 1: Determination of the commitments associated with financial derivativeinstruments1. Calculation principlesThe purpose of this Appendix is to lay down, for a certain number of financial derivative instruments,the method used for the calculation of the commitment to be taken into account for thelimitation of the global exposure for non-sophisticated UCITS. With respect to the financialderivative instruments which are not covered below, the UCITS must inform the Commissionof the method applied.Share optionBond optionWarrantmarket value of the underlying asset, adjusted by theoption’s deltanumber of contracts x number of shares x underlying pricex deltamarket value of the underlying asset, adjusted by theoption’s deltanumber of contracts x face value x underlying price x deltamarket value of the underlying asset, adjusted by theoption’s deltaIn respect of buying positions on options and warrants, the UCITS may refer to the marketvalue of the contracts (adjusted premium) for the purpose of the limitations set forth in pointIII. 1.2.UCITS (example: UCITS with limited exposure to options) may use a delta equivalent to 1 fordetermining commitments related to options and warrants.In the case of optional contracts for which the delta method is not appropriate, given therisk profile, respectively, the “payoff” function, UCITS will not be able to use the calculationmethod set forth above (example: digital options, barrier options). An approach based on themaximum potential loss could, in this case, be applied. In all cases, the Commission expectsthe UCITS to inform it of the method used.Index futureBond futureForward exchangeInterest rate swapmarket value of the contract or the underlying assetnumber of contracts x value of 1 point x index levelmarket value of the contract or the underlying assetnumber of contracts x notional of the future contract x marketvalue of the futureornumber of contracts x notional x market price of the cheapestbond to be delivered, adjusted by the conversion factorprincipal of the contractprincipal of the contract241

Credit default swapsTotal rate of return swapprotection buyer: sum of the premiums to be paid duringthe entire life of the contractprotection seller: contract’s notional value.protection buyer & seller: contract’s notional valueThe determination of the commitment for a protection buying position through a TRORS onthe basis of the contract’s notional value is only acceptable in those cases where the buyerdoes not hold the underlying asset in the portfolio.A performance swap, the purpose of which is to swap the global return of a financial assetheld in portfolio by the UCITS for the global return of another financial asset may not betaken into consideration for the purposes of the calculation of commitments when the swapin question no longer subjects the UCITS to a market risk of the asset held and it does notinclude either leverage clauses or other additional risks as compared to a pure and simpleholding of the other financial asset, of which the UCITS will receive the return. This reasoningcan be extended to cases in which the performance swap involves several assets or eventhe entire portfolio.Currency swapsprincipal of the contractAs an exception to what is set forth above, and on the condition that there is adequatejustification, an approach which differs from the commitment approach may be used by anon-sophisticated UCITS (example: “add-on approach”, sensitivity approach, ...), with theCommission’s prior approval. An approach of this kind must be based on a level of prudencesimilar to that of the commitment approach in the determination of the global risk.2. Qualitative criteria2.1. Risk ManagementRisk Management is responsible for ensuring that the calculation of the global exposurerelating to the various derivative instruments dealt with by the UCITS is in compliance withthe calculation principles formulated above.Further information on the organisational requirements may be found above under point II ofthis circular.2.2. Documentation of the approachThe calculation approach must be the subject of appropriate documentation (calculation ofthe commitment per product).242

Appendix 2: Criteria governing the use of an internal model1. Quantitative criteria1.1. VaR calculation standardsThe calculation of the Value-at-Risk must be done according to the following calculationstandards:• unilateral confidence interval of 99%;• holding period equivalent to 1 month (20 days);• effective observation period (historic) of risk factors of at least 1 year (250 days) unlessa shorter observation period is justified by a significant increase in price volatility;• quarterly data update;• daily calculation, in principle.In principle, UCITS must apply an instant price choc equivalent to a 20 days price variationand a confidence interval of 99%.A UCITS that wishes, for a well-justified reason, to use a confidence interval or a holdingperiod which differs from those indicated above (example: calculation coherency within agroup, parameters which are better suited to the relevant portfolio’s risk profile, ...) may doso, subject to obtaining the Commission’s prior approval.However, UCITS having the benefit of such a derogation must, for market risk limitationreasons, translate their VaR figure to a VaR equivalent to 99% confidence interval and1 month holding period. This conversion can be done under the hypothesis of a normal distributionwith identical and independent distribution of risk factors returns.For example, for the conversion of the holding period, this hypothesis implies the use of multiplicationby 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 aholding period of 1 month (20 days), everything else being equal, one would have to multiplythe VaR figure by the factor √ 20 . 10In the same manner, to convert a VaR figure with a confidence interval of 95% into an equivalentnumber with a confidence interval of 99%, one would go through the quantiles of normaldistribution and multiply the VaR figure by the factor of 2,3263 . 1,6449The Commission would like to draw the UCITS’ attention to the fact that the method of calculationof a VaR equivalent to 99% confidence interval and one month holding period describedabove 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 withcaution and makes use, if appropriate, of a more conservative method or determines directlythe 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 normaldistribution) results in an underestimate of the risk for the standard calculations determined atthe beginning of this point (i.e. 99%, 1 month).243

1.2. Coverage of the risksThe sources of market risks which the VaR model (or equivalent model) must cover may bebroken down as follows:• general market risk• specific market risk.The general market risk is defined as the risk of a price fluctuation (of the debt security or theownership title, or, in the case of a financial derivative instrument, the latter’s value) causedby 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 factorsassociated with the issuer of the debt security or the ownership title, or, in the case ofa 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 thecurves of the market reference rates.• The event risk (or risk dictated by the circumstances) is the risk that the value of adebt security or an ownership title will vary suddenly as the result of an event withparticular 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 significantfluctuations or jumps of prices for the shares.For the application purposes of this point, the Commission expects that the VaR model usedby the UCITS in order to demonstrate its exposure to market risk takes into account, as aminimum, general risk and idiosyncratic risk.UCITS which can show the Commission that the idiosyncratic risk constitutes a negligible riskcomponent within the context of their investment policy may waive the obligation of coveringthis risk through the model. UCITS which, for example, within the scope of their investmentstrategy, 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 extensivelysubject to event and/or default risks (example: exotic instruments, credit derivatives, ...)take this sufficiently into account when determining market risk. If the proposed VaR modelshould prove inadequate, the Commission reserves the right to require stricter measures forsuch UCITS.1.3. Accuracy and completeness of the risk assessmentThe UCITS must be able to show the Commission that the internal model assesses therisk with reasonable accuracy. More specifically, the model must adequately cover all therisks associated with portfolio positions and, in particular, the specific risks associated withfinancial derivative instruments. It must be able to adequately catch all significant price riskswith respect to option positions or assimilated positions.All the risk factors which have a non-negligible influence on the fluctuation of the portfolio’svalue must thus be covered by the model. The model must be able to catch a sufficientnumber of risk factors which will depend on the investments which the UCITS will make invarious markets (interest rate, exchange, ownership titles, spread).244

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 questioncovers all the portfolio positions at a given point in time.1.4. Backtesting of the VaR model’s resultsUCITS must oversee the reliability and efficiency of their model (i.e. risk estimate predicationcapacity), using a backtesting program. The backtesting must supply a comparison, for eachbusiness day, between the quantification of the value-at-risk on a day calculated by theUCITS model on the basis of the positions at the end of the day and the fluctuation over aday of the portfolio’s value at the end of the following working day. UCITS must undertake thebacktesting program at least on a quarterly basis, subject to always performing retroactivelythe aforesaid comparison for each business day.The Commission encourages the UCITS to implement backtesting checks, basing themselveseither on the effective fluctuations (“dirty backtesting”) or the hypothetical fluctuations (“cleanbacktesting”) of the portfolio’s value and to take the appropriate steps to improve theirbacktesting program, if it is deemed to be insufficient.The backtesting checks on the hypothetical fluctuations of the portfolio’s value are based ona comparison between the portfolio’s value at the end of the day and its value, its positionsunchanged, 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 thevalue noted after backtesting. There is thus an excess when the fluctuation of the portfolio’svalue over one day is greater than the VaR’s quantification on a corresponding day, calculatedby the model.Once a year, the UCITS is obliged to inform the Commission of the number of instances ofexcess noted upon applying the backtesting program.In the event that numerous overages reveal that the model is not sufficiently reliable, that isto say, that the number of overages is greater than the number which was predicted by theconfidence interval selected for the calculation of the VaR, the Commission, after havinginformed the UCITS, reserves the right to impose appropriate measures in order to ensurethat the model is quickly improved, or, if need be, to disallow the use of the model for thepurpose of determining market risk.1.5. Stress testsThe Commission requires that sophisticated UCITS follow up on the risk of the occurrence ofextreme variations of the risk factors to which UCITS might be exposed through their investmentsby implementing a rigorous program of stress tests. The program must cover all therisk factors having a non-negligible influence on the portfolio’s value and must also deal withcorrelation changes between risk factors.The scenarios defined by Risk Management must be adapted to the nature of the portfolio’spositions and risks, and therefore any fundamental change in the investment strategy shouldbe accompanied by a recalibration of the crisis scenarios.The calculations’ results must be analysed by Risk Management and must, if need be, lead toamended 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.245

2. Qualitative criteriaIn order to be able to determine its global exposure though the use of a VaR model, theUCITS must be able to show compliance with the following criteria:2.1. Risk managementRisk Management is responsible for ensuring that the model is continuously adapted to theportfolio’s type and structure and shall, before its first use, undergo initial validation. Furtherdetails about the organisational requirements in this regard may be found above in point II ofthis circular.2.2. VaR model documentation and proceduresThe model must be the subject of appropriate documentation (model methodology, mathematicalhypotheses and bases, data used, backtesting, ...) and procedural supervision.246

CSSF CIRCULAR 08/339 OF 19 February 2008 relating to the Guidelines ofthe Committee of European Securities Regulators (CESR) concerningeligible assets for investment by UCITSLuxembourg, 19 February 2008To all Luxembourg undertakings for collective investment and to all those that take part in thefunctioning and control of these undertakingsCIRCULAR CSSF 08/339Re:Guidelines of the Committee of European Securities Regulators (CESR)concerning eligible assets for investment by UCITS.Ladies and Gentlemen,This circular draws the attention of UCITS subject to Part I of the amended law of 20December 2002 relating to undertakings for collective investment to the publication of thefollowing 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/07-0442) CESR’s guidelines concerning eligible assets for investment by UCITS – The classificationof 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 Directive2007/16/EC of 19 March 2007 implementing Council Directive 85/611/EEC on the coordinationof laws, regulations and administrative provisions relating to undertakings for collectiveinvestment in transferable securities (UCITS), as amended, as regards the clarification ofcertain definitions.Directive 2007/16/EC aims at clarifying certain definitions of Directive 85/611/EEC, asamended, concerning eligible assets for investment by UCITS in order to ensure uniformapplication of this Directive throughout the European Union.Directive 2007/16/EC has been transposed into Luxembourg law through the Grand-Ducalregulation of 8 February 2008 concerning certain definitions of the amended law of 20December 2002 relating to undertakings for collective investment. This regulation has beenpublished 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 February2008, the guidelines issued by CESR in the document “CESR’s guidelines concerning eligibleassets for investment in UCITS” provide additional clarifications relating to eligible assets forinvestment by UCITS covered by Directive 85/611/EEC, as amended.247

For example, point 23 of “CESR’s guidelines concerning eligible assets for investment byUCITS” provides further details in relation to Article 10 of Directive 2007/16/EC as regardstransferable securities and money market instruments embedding derivatives. It is importantto note in this context that UCITS are responsible for assessing, where applicable, whetherthese transferable securities and money market instruments embed or do not embed aderivative.Special attention should be paid to point 26 of “CESR’s guidelines concerning eligible assetsfor investment by UCITS” which provides further details on the first two indents of Article41(1)e) of the amended law of 20 December 2002 relating to undertakings for collectiveinvestment.More specifically, the above document defines in particular the factors that can be used toassess whether the supervision to which a collective investment undertaking must be subjectis equivalent in order to qualify as an eligible undertaking for collective investment in thecontext of the investment policy of a UCITS.The guidelines issued by CESR in the document “CESR’s guidelines concerning eligibleassets for investment by UCITS – The classification of hedge fund indices as financialindices” provide further specific details on the eligibility of hedge fund indices as underlyinginstruments of a financial derivative instrument. Moreover, this document specifies thatUCITS 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 guidelines.UCITS shall thus take into account these guidelines when assessing whether a specificfinancial instrument constitutes an eligible asset for investment within the meaning of therelevant 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-Ducalregulation of 8 February 2008.UCITS existing at the time of the implementation of the guidelines issued by CESR benefitfrom 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/07-044Annex II: CESR’s guidelines concerning eligible assets for investment by UCITS –The classification of hedge fund indices as financial indices – July 2007,Ref.: CESR/07-434248

CSSF CIRCULAR 08/356 OF 4 June 2008 CONCERNING THE Rules applicable toundertakings for collective investment when they employ certaintechniques and instruments relating to transferable securities andmoney market instrumentsLuxembourg, 4 June 2008To all Luxembourg undertakings for collective investment (“UCIs”) subject to the amendedlaw of 20 December 2002 relating to undertakings for collective investment and to those whoact in relation to the operation and supervision of such undertakings.CSSF CIRCULAR 08/356Concerns:Rules applicable to undertakings for collective investment when theyemploy certain techniques and instruments relating to transferablesecurities and money market instruments.Ladies and Gentlemen,The purpose of this circular is to clarify the conditions and limits under which an undertaking forcollective investment in transferable securities (“UCITS”) is authorised to employ techniquesand instruments relating to transferable securities and to money market instruments. Thetechniques and instruments covered by this circular are securities lending transactions, salewith right of repurchase transactions 170 and reverse repurchase transactions/repurchasetransactions 171 .The conditions and limits stated hereafter apply, in principle, also to other undertakings forcollective investment (“UCIs”).These techniques and instruments must be used for the purpose of efficient portfoliomanagement, 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 whichis consistent with the risk profile of the UCITS and the risk diversification rulesapplicable 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”.249

In no case may the use of these operations by the UCITS result in a change of its investmentobjectives as laid down in its management regulations/its constitutional documents, itsprospectus, or result in additional risk higher than its risk profile as described in its salesdocuments.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 differenttypes of transactions considered and clarify the purpose of these transactions as well as theconditions at and limits within which they are conducted. If the UCITS intends to reinvest cashreceived as a guarantee 172 as a result of its transactions, the UCITS’ prospectus must specifythe conditions and limits applicable to these reinvestments. If need be, the prospectus mustcontain 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 anannual shareholders’ meeting of the issuing company of the securities lent or temporarilysold.I. Techniques and instruments that may be used by UCITSThe techniques and instruments that may be used by UCITS are more fully describedhereafter.A. Securities lending transactionsA UCITS may enter into securities lending transactions provided it complies with the followingrules:1. Rules intended to ensure the proper completion of the securities lending transactions• The UCITS may lend the securities included in its portfolio to a borrower eitherdirectly or through a standardised lending system organised by a recognisedclearing institution or through a lending system organised by a financial institutionsubject to prudential supervision rules considered by the CSSF as equivalent tothose 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 equivalentto those prescribed by Community law. In case the aforementioned financialinstitution acts on its own account, it is to be considered as counterparty in thesecurities lending agreement.If the UCITS lends its securities to entities that are linked to the UCITS by commonmanagement or control, specific attention has to be paid to the conflicts of interestwhich may result therefrom.• The UCITS must receive, previously or simultaneously to the transfer of thesecurities lent, a guarantee which complies with the requirements expressedunder section II b) of this circular. At maturity of the securities lending transaction,the guarantee will be remitted simultaneously or subsequently to the restitution ofthe securities lent.172 See footnote 177.250

In case of a standardised securities lending system organised by a recognisedclearing institution or in case of a lending system organised by a financial institutionsubject to prudential supervision rules considered by the CSSF as equivalent tothose prescribed by Community law and specialised in this type of transactions,securities lent may be transferred before the receipt of the guarantee if the intermediaryin question assures the proper completion of the transaction. Such intermediarymay, instead of the borrower, provide the UCITS with a guarantee incompliance with the requirements expressed under section II b) hereafter.2. Limits to securities lending transactionsThe UCITS must ensure that the volume of the securities lending transactions is kept at anappropriate level or that it is entitled to request the return of the securities lent in a mannerthat enables it, at all times, to meet its redemption obligations and that these transactionsdo not jeopardise the management of the UCITS’ assets in accordance with its investmentpolicy.3. Periodical information of the publicIn its financial reports, the UCITS must disclose the global valuation of the securities lent onthe date of reference of these reports.B. Sale with right of repurchase transactionsa) Purchase of securities with a repurchase option 173Acting 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 timeagreed 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 repurchaseoption transactionsThe UCITS may enter into these transactions only if the counterparties to these transactionsare subject to prudential supervision rules considered by the CSSF as equivalent to thoseprescribed by Community law.2. Limits applicable to the purchase with a repurchase option transactionsFor the duration of a purchase with a repurchase option agreement, the UCITS may not sellthe securities which are the subject of the contract, before the counterparty has exercisedits option or until the deadline for the repurchase has expired, unless the UCITS has othermeans of coverage.The UCITS must ensure it maintains the value of the purchase with repurchase option transactionsat a level such that it is able, at all times, to meet its redemption obligations towardsunitholders/shareholders.173 The French original of the circular uses the term “achat de titres à réméré”.251

Securities that are the subject of purchase with a repurchase option transactions are limitedto:(i) short term bank certificates or money market instruments such as definedwithin the 2007/16/EC Directive of 19 March 2007 implementing Council Directive85/611/EEC on the coordination of laws, regulations and administrative provisionsrelating 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 publicauthorities or by supranational institutions and undertakings with EU, regional orworld-wide scope,(iii) shares or units issued by money market UCIs calculating a daily net asset value andbeing 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 MemberState or on a stock exchange of a Member State of the OECD, on the condition thatthese 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 itsportfolio, globally comply with the UCITS’ investment restrictions.3. Periodical information of the publicIn its financial reports, the UCITS must provide separate information on securities purchasedwith a repurchase option, disclosing the total amount of the open transactions on the date ofreference of these reports.b) Sale of securities with a repurchase option 174Acting as the seller, the UCITS may agree to sell securities with a repurchase option. Thesetransactions consist of the sale of securities with a clause reserving for the UCITS the right torepurchase the securities from the purchaser (counterparty) at a price and at a time agreedbetween 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 sale with repurchase optiontransactionsThe UCITS may enter into these transactions only if the counterparties to these transactionsare subject to prudential supervision rules considered by the CSSF as equivalent to thatprescribed by Community law.2. Limits applicable to the sale with repurchase option transactionsThe UCITS must ensure that, at maturity of the repurchase option, it holds sufficient assetsto be able to settle, if applicable, the amount agreed for the restitution of the securities to theUCITS.174 The French original of the circular uses the term “vente de titres à réméré”.252

3. Periodical information of the publicIn its financial reports, the UCITS must provide separate information on securities sold witha repurchase option, disclosing the total amount of the open transactions on the date ofreference of these reports.C. Reverse repurchase and repurchase agreement transactionsa) Reverse repurchase agreement transactions 175The UCITS may enter into reverse repurchase agreement transactions, which consist of aforward transaction at the maturity of which the seller (counterparty) has the obligation torepurchase the asset sold and the UCITS the obligation to return the asset received underthe transaction.Its involvement in such transactions is, however, subject to the following rules:1. Rules intended to ensure the proper completion of the reverse repurchase agreementtransactionsThe UCITS may enter into these transactions only if the counterparties to these transactionsare subject to prudential supervision rules considered by the CSSF as equivalent to thoseprescribed by Community law.2. Limits applicable to reverse repurchase agreement transactionsFor 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 othermeans of coverage.The UCITS must take care to ensure that the value of the reverse repurchase agreementtransactions is kept at a level such that it is able, at all times, to meet its redemption obligationstowards 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 definedwithin the 2007/16/EC Directive of 19 March 2007 implementing Council Directive85/611/EEC on the coordination of laws, regulations and administrative provisionsrelating 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 publicauthorities or by supranational institutions and undertakings with EU, regional orworld-wide scope,(iii) shares or units issued by money market UCIs calculating a daily net asset value andbeing 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 MemberState or on a stock exchange of a Member State of the OECD, on the condition thatthese shares are included within a main index.175 The French original of the circular uses the term “opérations de prise en pension”.253

The securities purchased through a reverse repurchase agreement transaction must conformto the UCITS’ investment policy and must, together with the other securities that the UCITSholds in its portfolio, globally respect the UCITS’ investment restrictions.3. Periodical information of the publicIn its financial reports, the UCITS must provide separate information on securities purchasedunder reverse repurchase agreements, disclosing the total amount of the open transactionson the date of reference of these reports.b) Repurchase agreement transactions 176The UCITS may enter into repurchase agreement transactions, which consist of a forwardtransaction at the maturity of which the UCITS has the obligation to repurchase the assetsold and the buyer (the counterparty) the obligation to return the asset received under thetransaction.Its involvement in such transactions is, however, subject to the following rules:1. Rules intended to ensure the proper completion of the repurchase agreement transactionsThe UCITS may enter into these transactions only if the counterparties to these transactionsare subject to prudential supervision rules considered by the CSSF as equivalent to thoseprescribed by Community law.2. Limits applicable to repurchase agreement transactionsThe UCITS must ensure that, at maturity of the agreement, it has sufficient assets to be ableto 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 transactionsis kept at a level such that it is able, at all times, to meet its redemption obligationstowards unitholders/shareholders.3. Periodical information of the publicIn its financial reports, the UCITS must provide separate information on securities sold underrepurchase agreements, disclosing the total amount of the open transactions on the date ofreference of these reports.II. Limitation of the counterparty risk and receipt of an appropriate guarantee 177a) Limitation of the counterparty riskFor each securities lending transaction, the UCITS must receive, in accordance with thefourth paragraph of section I. A. 1) of this circular, a guarantee the value of which is, duringthe 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 beunderstood as “collateral” where appropriate.254

The risk exposure to a single counterparty of the UCITS arising from one or more securitieslending 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 creditinstitution referred to in Article 41, paragraph (1)(f) of the law of 20 December 2002 or 5% ofits assets in other cases.UCITS may take into account a guarantee conforming to the requirements set out undersection II b) below in order to reduce the counterparty risk in sale with right of repurchasetransactions and/or reverse repurchase and repurchase transactions.b) Receipt of an appropriate guaranteeThe 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 provisionsto the effect that the counterparty must provide additional guarantees at very short term incase the value of the guarantee already granted appears to be insufficient in comparison withthe amount to be covered. Furthermore, the aforementioned agreement must, if appropriate,provide for safety margins that take into consideration exchange risks or market risks inherentto 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 moneymarket instruments such as defined within the 2007/16/EC Directive of 19 March 2007implementing Council Directive 85/611/EEC on the coordination of laws, regulationsand administrative provisions relating to certain UCITS as regards the clarification ofcertain definitions. A letter of credit or a guarantee at first-demand given by a first classcredit institution not affiliated to the counterparty are considered as equivalent to liquidassets,(ii) bonds issued or guaranteed by a Member State of the OECD or by their local publicauthorities or by supranational institutions and undertakings with EU, regional orworld-wide scope,(iii) shares or units issued by money market UCIs calculating a daily net asset value andbeing assigned a rating of AAA or its equivalent,(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 EuropeanUnion or on a stock exchange of a Member State of the OECD, on the condition thatthese shares are included in a main index.The guarantee given under any form other than cash or shares/units of a UCI/UCITS must beissued 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-visthe trustee of this guarantee. If such risk exists, the UCITS must take it into considerationfor the purpose of the limits on deposits prescribed by Article 43 (1) of the amended law of20 December 2002 concerning undertakings for collective investment. As a principle, theguarantee given must not be safekept by the counterparty, except if it is legally protected fromthe consequences of default of the latter.255

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 ofthe occurrence of an event requiring the execution thereof. Therefore, the guarantee mustbe available at all times, either directly or through the intermediary of a first class financialinstitution or a wholly-owned subsidiary of this institution, in such a manner that the UCITS isable to appropriate or realise the assets given as guarantee, without delay, if the counterpartydoes not comply with its obligation to return the securities.Also, the UCITS must make sure that its contractual rights relating to the relevant transactionspermit, in case of a liquidation, of a reorganisation 178 or in any other situation of equalranking 179 , to discharge its obligation to return the assets received as a guarantee, if and tothe 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 orpledged, except when the UCITS has other means of coverage.III. Reinvestment of cash provided as a guaranteeIf the guarantee was given in the form of cash, such cash may be reinvested by the UCITSin:(a) shares or units in money market UCIs calculating a daily net asset value and beingassigned 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 bysupranational 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 describedunder section I (C) a) of this circular.Financial assets other than bank deposits and units or shares of UCIs acquired by means ofreinvestment of cash received as a guarantee, must be issued by an entity not affiliated tothe counterparty.Financial assets other than bank deposits must not be safekept by the counterparty, exceptif they are segregated in an appropriate manner from the latter’s own assets. Bank depositsmust in principle not be safekept by the counterparty, unless they are legally protected fromthe consequences of default of the latter.Financial assets may not be pledged/given as a guarantee, except when the UCITS has sufficientliquid 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 of20 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”.256

The reinvestment of cash received as a guarantee is not subject to the diversification rulesgenerally applicable to UCITS, provided however, that the UCITS must avoid an excessiveconcentration of its reinvestments, both at issuer level and at instrument level. Reinvestmentsin 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 riskvis-à-vis the trustee, the UCITS must take this into consideration for the purpose of the limitson deposits prescribed by Article 43 (1) of the amended law of 20 December 2002 concerningundertakings for collective investment.The reinvestment must, in particular if it creates a leverage effect, be taken into account forthe calculation of the UCITS’ global exposure. Any reinvestment of a guarantee providedin the form of cash in financial assets providing a return in excess of the risk free rate 180 , issubject to this requirement.Reinvestments must be specifically mentioned with their respective value in an appendix tothe financial reports of the UCITS.180 The French original of the circular uses the terms “procurant un rendement supérieur au taux sans risque”.257

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, 213BBearer securities… …………………………………………………………………………… 15, 101Borrowings……………………………………………………… 5, 112, 114, 123, 125, 154, 158Branch… ……………………………………………………… 10, 11, 43, 44, 45, 46, 47, 55, 105CCapital 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, 257Collective 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, 190,258

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, 254Currency… …………… 5, 32, 74, 98, 112, 117, 119, 128, 129, 133, 136, 195, 196, 197, 198,199, 200, 235DDeduction 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, 59EEfficient 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, 183FFinancial 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, 156GGeneral 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, 257HHead 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, 223IImmovable 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, 210259

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, 220LLate 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, 112MManagement 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, 238Management regulations…………… 15, 16, 17, 18, 19, 25, 27, 49, 59, 66, 69, 96, 106, 107,108, 128, 130, 170, 179, 182, 201, 223, 224, 250Manager…………… 37, 58, 63, 99, 100, 106, 107, 123, 125, 150, 152, 157, 162, 169, 172,193, 210, 211, 232Marketing… …………………………………………………………………… 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, 88NNet 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, 225OOffer… …………………………………… 15, 20, 24, 35, 36, 37, 38, 50, 51, 53, 127, 134, 216Officially listed securities………………………………………………………… 16, 22, 38, 114260

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, 239PPar 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, 254Portfolio 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, 250Prospectus 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, 215QQualifying holdings… …………………………………………………………………… 12, 42, 191RRecently 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, 254Register……………………………………………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, 188,261

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, 92SSchedule 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, 256Securities 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, 256SICAV………………………… 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, 254Supervisory authority… …………B, 39, 44, 91, 92, 96, 97, 105, 120, 138, 154, 161, 189, 190,191, 213, 220, 222, 239Suspension of redemption………………………………………………………………………… 56Swaps………………………………………………………………………………… 117, 170, 242TTechniques and instruments… ……………………………………………… 5, 88, 115, 119, 250TER……………………………………………………………………………………………… 203262

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, 249UUCITS………… 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, 257UCITS 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, 78VValuation… ………… 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, 257Value-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, 191WWarrants… …………………………………………………………………………… 116, 190, 241263

Société de la Boursede Luxembourg SA11, av. de la Porte-NeuveBP 165L - 2011 LuxembourgT + 352 47 79 36 -1F + 352 47 32 98info @ bourse.luwww.bourse.luALFI a.s.b.l.Association of the LuxembourgFund Industry59, Boulevard RoyalL - 2449 LuxembourgT + 352 22 30 26 -1F + 352 22 30 93info @ alfi.luwww.alfi.lu