A Guide to UCITS in Ireland - Dillon Eustacedilloneustace.ie/download/1/DE UCITS Brochure FA...

A Guide to UCITSin Ireland

Contents

1. Introduction

2. Legislative Basis for UCITS in Ireland

3. Overview of UCITS Permitted Asset Classes and Investment and Borrowing Restrictions

4. Transferable Securities and Money Market Instruments

5. UCITS Money Market Funds

6. Index Tracking UCITS

7. UCITS investing in other Collective Investment Schemes

8. UCITS investing in Financial Derivative Instruments

9. UCITS investing in Derivatives on Financial Indices

10. Available Legal Structures

11. UCITS Management Companies/SMICs

12. UCITS IV

13. Taxation of UCITS in Ireland

14. UCITS Authorisation Process

15. Ongoing Supervision and General Regulatory Requirements

16. Appendices

-A.Definitions:TransferableSecuritiesofMoneyMarketInstruments

-B.UCITSInvestmentandBorrowingRestrictions

-C.UCITSManagementCompanyAuthorisationOptions

17. Contact Us

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A Guide to UCITS in Ireland

Introduction

1

AGUIDETOUCITS INIRELAND

1. Introduction

UndertakingsforCollectiveInvestmentin

TransferableSecurities,commonlyreferredto

asUCITS,arecollectiveinvestmentschemes

establishedandauthorisedunderaharmonised

EuropeanUnion(EU)legalframeworkunder

whichaUCITSestablishedandauthorised

inoneEUMemberStatecanbesoldcross

borderintootherEUMemberStateswithouta

requirementforanadditionalauthorisation.This

so-called“Europeanpassport”iscentraltothe

UCITSproductandenablesfundpromotersto

createasingleproductfortheentireEUrather

thanhavingtoestablishaninvestmentfund

productonajurisdictionbyjurisdictionbasis.

Originallyintroducedovertwentyyearsago,

UCITShavebecomethegoldstandardEU

investmentfundproduct,recognisednotonly

bytheEuropeanfinancialservicescommunity

butalsofurtherafieldwithmanynon-EU

jurisdictionsacceptingUCITSassuitablefor

retailsaleintotheirdomesticmarkets.Whilst

soldacrossthefullspectrumofinvestortypes,

UCITShavebeendesignedprincipallyforthe

retailmarketasopen-endeddiversified,liquid

productswiththeirparameters-permitted

assetclassesandinvestmentandborrowing

restrictions-beingenshrinedinEUlaw.

Importantly,UCITSisnotaproductwhichhas

stoodstill,ratherithasandcontinuestoevolve,

mostrecentlywithasignificantbroadening

ofpermittedassetclassesandmorerobust

governancerequirementsbeingintroducedin

2002andclarifiedin2007andwithaseries

ofadditionalchangesnowenvisagedunder

theUCITSIVproposalhavingastheiraima

furthersimplificationoftheEuropeanpassport

processforUCITS,theuseofmaster/feeder

typestructures,thecreationofaframeworkfor

cross-borderfundmergersandthereplacement

oftheSimplifiedProspectus.Underpinning

UCITSandtheproposedfutureevolutionsof

theproducthasbeenacommonEUapproach

withinvolvementfromsecuritiesregulatorsand

industryparticipantsacrosstheEuropeanUnion

ateachstageofthedevelopmentprocess.

Whilstattimesthepaceofchangemaybetoo

fastforsomeandtooslowforothers,todate

UCITShasgenerallyachievedtherightbalance.

IrelandhasbecomeoneoftheleadingEU

“exporting”jurisdictionsforUCITShavingbeen

pro-activeinimplementingtheUCITSregime

intodomesticlegislationin1989,introducing

asensibleinvestmentfundsfocusedfiscal

regimeandclearbutprudentialprocessfor

theauthorisationandsupervisionofUCITS

andrelevantserviceproviders.Theresult

hasbeenthatpromotersfromallacross

theworldhaveandcontinuetouseIreland

asadomicileofchoiceforUCITSproducts

seekingtoaccesstheEuropeanmarket

placeand,inmanycases,furtherafield.

2

LegislativeBasisforUCITSinIreland

2.LegislativeBasisfor UCITS in Ireland

ThelegislativebasisforUCITSinIrelandis

foundedonEuropeanlawimplemented

domestically,expandeduponbyUCITSrelated

noticesissuedbytheIrishFinancialRegulator

(the“UCITSNotices”)andwithfurther

clarificationprovidedforinaseriesofFinancial

Regulatorguidancenotes(“GuidanceNotes”)

eachofwhich–Europeananddomestic

legislationandtheUCITSNoticesand

GuidanceNotes–haveevolvedandbeen

amendedovertime.

(i) European Legislation

TheoriginalUCITSDirective(Directive

85/611/EC)of1985establishedthe

UCITSproductasapan-European

collectiveinvestmentschemewhich

benefitedfromanEU-widepassportbased

ontheconceptofmutualrecognitionof

HomeStateauthorisation,settingdownthe

legalformswhichUCITScouldtake,their

permittedinvestmentandborrowingrules,

liquidityrequirements,prospectusdisclosure

rulesandrulesrelatingtoannualand

semi-annualreportingaswellasrules

relatingtotheroleanddutiesofUCITS

custodians/depositariesandtheir

managementcompanies.

Whilstamendedin1988(Directive

88/220/EEC)inalimitedfashiontoincrease

maximumpermittedinvestmentsincertain

typesofbondsissuedbycreditinstitutions,

in1995(post-BCCIDirective95/26/EC)and

in2000(Directive2000/64/EC)withregard

toexchangeofinformationwiththird

countries,nosubstantivechangetothe

UCITSproductwasmadeuntil2002with

theintroductionoftheUCITSManagement

CompanyDirective(Directive2001/107/EC)

andtheUCITSProductDirective(Directive

2001/108/EC),theManagementCompany

andProductDirectivesreferredtogenerally

as“UCITSIII”.

UCITSIIIrepresentedamajoroverhaulof

UCITSintermsofwhattheycouldinvestin,

howtheycouldbeofferedandsoldandhow

theyweretobemanaged.

GiventheexperienceoftheoriginalUCITS

regimeandanofteninconsistent,as

betweenEUMemberStates,applicationof

itsterms,theintroductionofUCITSIIIwas

followedbythecreationofCESR,the

CommitteeofEuropeanSecurities

Regulators,whichwasrequestedtoadvise

ontheinterpretationoftermsusedwithin

UCITSIIIwiththeaimofachievinga

commonagreedpositiononitsinterpretation

andapplication.Followingaseriesof

consultations,CESRissueditsfinaladvices

inJanuary,2006,followedinMarch,2007

byaEuropeanCommissionimplementing

Directive(Directive2007/16/EC),referredto

astheEligibleAssetsDirective,whichwas

inturnaccompaniedbyCESRguidelines

concerningUCITSeligibleassets.

(ii) Irish Legislation

Theoriginal1985UCITSDirective(as

amended)wasimplementedintodomestic

IrishlawbytheEuropeanCommunities

(UndertakingsforCollectiveInvestmentin

TransferableSecurities)Regulations,1989

(the“1989UCITSRegulations”).

The1989UCITSRegulationswereamended

in1996(S.I.No.357/1996),in1999(S.I.

No.50/1999)andin2003(S.I.No.51/2003)

andwerethenrevokedandreplaced,inthe

contextofdomesticimplementationofUCITS

III,bytheEuropeanCommunities

(UndertakingsforCollectiveInvestmentin

TransferableSecurities)Regulations(S.I.No.

212/2003)(asamendedbyS.I.No.213of

2003)(the“2003UCITSRegulations”).

SubsequentlyamendedbyS.I.No.497/2003,

bytheCentralBankandFinancialServices

AuthorityAct,2004(introductionofasingle

regulatorforfinancialservicesinIreland),by

theInvestmentFunds,Companiesand

MiscellaneousProvisionsAct,2005

(introductionofsegregatedliabilityfor

umbrellainvestmentcompanies)andby

S.I.No.832/2007(implementationofEligible

AssetsDirective),thepresentlegislative

basisforUCITSinIrelandisencompassedin

the2003UCITSRegulations(asamended).

(iii) UCITS Notices

TheIrishFinancialRegulatorhasissueda

specificsetofUCITSNoticeswhichexplain

andclarifyvariousaspectsoftheUCITS

Regulatorsandwhichsetdownconditions

notcontainedwithintheUCITSRegulations

withwhichIrishUCITSarerequiredto

conform.

TheseUCITSNoticesdealwith:

Informationanddocumentrequirements

oftheFinancialRegulatorinsupportof

anapplicationforauthorisationasa

UCITS–UCITS1.

SupervisoryrequirementsforUCITS

authorisedbytheFinancialRegulator

andcertainfirmsprovidingservicesto

suchUCITS–UCITS2.

Trustees–eligibilitycriteria–UCITS3.

Trustees–dutiesandconditions–UCITS4.

Generalconditions–UCITS5.

Prospectus–UCITS6.

Informationtobeincludedinthemonthly

returns–UCITS7.

Publicationofannualandhalf-yearly

reports–UCITS8.

EligibleAssetsandInvestment

restrictions–UCITS9.

Financialderivativeinstruments–UCITS10.

Borrowingpowers–UCITS11.

TechniquesandInstrumentsincluding

Repurchase/ReverseRepurchaseand

Stocklendingforthepurposesofefficient

portfoliomanagement–UCITS12.

UmbrellaUCITS–UCITS13.

Dealingsbypromoter,manager,trustee,

investmentadviserandgroupcompanies

–UCITS14.

SupervisoryrequirementsforUCITS

authorisedinanotherMemberState

intendingtomarkettheirunitsinIreland

–UCITS15.

Codeofconductinrelationtocollective

portfoliomanagement–UCITS16.

CapitalComplianceRequirement–

Guidanceandregulatoryreport.

WerefertocertainoftheseNoticesin

particularthroughoutthisdocument.

(iv) Financial Regulator Guidance Notes and Policy Documents

TheFinancialRegulatorhasadditionally

issuedaseriesofGuidanceNoteswhich

providefurtherclarificationontheFinancial

Regulator’sapproachonparticularissues

andhasalsoissuedanumberofspecific

policydocuments.

CertainGuidanceNoteshaveapplication

toallregulatedfundtypes(bothUCITS

andNon-UCITS)suchasthosedealing

withfundpromoters,permittedmarketsfor

retailschemes,multi-adviserschemes,

MoneyMarketFunds,valuationrules,etc.,

withothershavingspecificUCITS

applicationsuchasthosedealingwith

UCITSinvestinginothercollective

investmentschemes,withUCITSinvesting

inFinancialDerivativeInstruments,with

theSimplifiedProspectus,withUCITS

investinginFinancialIndicesandwith

UCITSprospectusdisclosuresfor

StructuredProductsandComplex

TradingStrategies.

OverviewofUCITSPermittedAssetClassesandInvestmentand

BorrowingRestrictions

3

3.OverviewofUCITSPermitted AssetClassesandInvestment andBorrowingRestrictions

(i) Permitted Asset Classes

Whilstdealtwithingreaterdetailinfollowing

sections,UCITSareinsummarypermitted

toinvestin:

transferablesecuritiesandmoney

marketinstrumentswhichareeither

admittedtoofficiallistingonastock

exchangeinanEUMemberStateor

non-EUMemberStateorwhichare

dealtonamarketwhichisregulated,

operatingregularlyrecognisedand

opentothepublic;

recentlyissuedtransferablesecurities

whichwillbeadmittedtoofficiallisting

onastockexchangeorothermarket

(asdescribedabove)withinayear;

moneymarketinstruments,otherthan thosedealtinonaregulatedmarket

providedthattheissueortheissueris

itselfregulatedforthepurposeof

protectinginvestorsandsavings;

unitsofUCITSandunitsofnon-UCITS

collectiveinvestmentschemes(CIS)

(incertaincases);

depositswithcreditinstitutions;and

financialderivativeinstrumentsthat meetcertaincriteria;and


marketinstrumentsotherthanthose

referredtoabove(subjecttoamaximum

aggregatelimitofnetassetvalue).

Giventheincreasedinvestment

opportunitiesgrantedunderUCITSIII

andthesubsequentclarificationoftheterms

“transferablesecurities”and“moneymarket

instruments”,UCITSprovideforavery

broadspectrumoffundtypesand

exposures,fromrelativelyplainvanilla

equityandbondproductsthroughtoUCITS

takingexposurestohedgefundand

commoditiesindices,withUCITSfundof

funds,moneymarketandcashfundsand

indexreplicatorsalsoprovidedfor.

(ii) Investment and Borrowing Restrictions

YouwillfindthestandardUCITSinvestment

andborrowingrestrictionssetoutin

AppendixB.Inthefollowingsectionsfurther

detailisgivenontheapplicationofthose

investmentandborrowingrestrictions,

takingaccountofhowtheFinancial

Regulatorhasinterpretedand/orapplies

thoserestrictions,inthecontextofparticular

typesofUCITSproducts.

Insummary,however,itisimportanttonote:

thattheprincipalUCITSfocusison

portfoliodiversificationandliquidity;

thegeneral“5/10/40”rulerequiringthat

nomorethan10%ofaUCITSnet

assetsmaybeinvestedintransferable

securitiesormoneymarketinstruments

issuedbythesamebody,withafurther

aggregatelimitationof40%ofnetassets

onexposuresofgreaterthan5%tosingle

issuers;

thatthereareexceptionstotheabove forinvestmentsissuedorguaranteedby

governments,localauthoritiesorcertain

publicinternationalorsupra-national

bodies;

thatindexreplicatorscantake

exposuresupto20%ofnetassetsto

singleissuers,withupto35%toasingle

issuerinexceptionalmarketconditions;

thatupto100%ofnetassetscanbe

investedinothercollectiveinvestment

schemes(CIS),providednomorethan

20%investedinanyoneCIS,withan

aggregaterestrictionof30%ofnet

assetsapplyingtoinvestmentinnon-

UCITSCISaswellasstrictrules

applyingtothenatureofCISinwhicha

UCITScaninvest,aswellaslimiting

investmenttoamaximumof25%ofthe

unitsoftheunderlyingCIS;

thatnomorethan20%ofnetassetscan

beinvestedincashdepositswithany

onecreditinstitutionaspermittedbythe

FinancialRegulatorandupto10%of

netassetsmaybeheldforancillary

liquiditypurposeswithothercredit

institutions(which10%limitisraisedto

20%inthecaseofdepositsmadewith

thecustodian/trustee);

thatinvestmentsin/throughderivatives

maybemade/takentoassetsinto

whichaUCITScaninvestdirectly

includingfinancialinstrumentshaving

oneorseveralcharacteristicsofthose

assets,andtofinancialindices,interest

rates,FXratesandcurrencies;

thatthemaximumexposuretoasingle OTCderivativecounterpartyis5%,

increasingto10%forcertaincredit

institutions;

thatvariousaggregationsoftheabove restrictionsapply(seeAppendixBfor

furtherdetail);

thatthemaximumaggregateexposure tosecurities/instruments(otherthan

CIS,derivativesandcash)notlistedor

tradedonarecognisedmarketis10%of

netassets;

thatadditionalgeneralprovisionsapply includingconcentrationlimits,

prohibitionsontakinglegal/management

controlofissuers,prohibitionson

uncoveredsales;and

thatborrowingsarelimitedto10%ofnet

assetsandcanonlybeusedfor

temporarypurposes(forliquidity).

(iii) Efficient Portfolio Management Techniques and Instruments

UCITSarepermittedtousetechniques

andinstrumentsrelatingtotransferable

securitiesandmoneymarketinstruments

forefficientportfoliomanagement(EPM)

purposeswhichistakentomeanthatthey

areeconomicallyappropriateandare

enteredintowiththeaimofreducingrisk,

reducingcostorgeneratingadditional

capitalorincome(withalevelofrisk

consistentwiththeUCITSriskprofile).

DerivativesusedforEPMpurposesmust

complywithnormalrulesforinvestmentin

financialderivativeinstruments.

Repos/ReverseReposandstocklending

areexpresslypermittedwithstrictrules

regardingcollateralincludingacceptable

formsofcollateral,levelprovided,valuation

ofcollateralandhowandwhereheldand

maintained.Therearealsostrictrulesas

tocounterpartycreditrating(A2or

equivalentordeemedimpliedrating

ofA2)orindemnification.

TransferableSecurities andMoneyMarket

Instruments

4

4.TransferableSecuritiesand MoneyMarketInstruments

AstheUCITSacronymsuggests,itsoriginal

focuswasoninvestmentin“transferable

securities”althoughasyouwillnotefromthe

followingsectionsUCITSdoofferfarwider

investmentpossibilities.Additionallyaprimary

UCITSfocushasbeenon“moneymarket

instruments”.Althoughthefulldefinitionsof

bothtermsaresetoutinAppendixA,wehave

highlightedthekeyelementsofbothbelow,

particularlygiventheclarificationsprovidedin

2007bytheEligibleAssetsDirective.

A. Transferable Securities

(i) UCITS III Definitions

Whilstnotdefinedintheoriginal1985

UCITSDirective,theUCITSIIIProduct

Directivedidintroduceadefinitionofthe

term“transferablesecurities”asbeing:

sharesincompaniesandother

securitiesequivalenttosharesin

companies(“shares”);

bondsandotherformsofsecuritised

debt(“debtsecurities”);

othernegotiablesecuritieswhichcarry

therighttoacquireanysuch

transferablesecuritiesbysubscription

orexchange;

otherthanthepermittedUCITSefficient

portfoliomanagement(EPM)techniques

andinstruments.

(ii) Clarification by Eligible Asset Directive

In2007theEligibleAssetsDirective

clarifiedtheabovedefinitionbyproviding

thatthereferencetotransferablesecurities

“shallbeunderstoodasareferenceto

financialinstrumentswhichfulfilthe

followingcriteria”:

(a) thepotentiallosswhichtheUCITS

mayincurwithrespecttoholdingthose

instrumentsislimitedtotheamountpaid

forthem;

(b) theirliquiditydoesnotcompromise

theabilityoftheUCITStocomplywith

itsobligationtoprovideatleast

fortnightlyredemptionfacilities;

(c) reliablevaluationisavailableforthem

asfollows:

(ii) inthecaseofsecuritiesadmittedto

ordealtinonaregulatedmarketin

theformofaccurate,reliableand

regularpriceswhichareeither

marketpricesorpricesmade

availablebyvaluationsystems

independentfromissuers;

(iii) inthecaseofothersecurities[i.e.

theaggregate10%thatcanbe

investedintransferablesecurities

andmoneymarketinstruments

notspecificallyreferredtoinArticle

19(1)],intheformofavaluationon

aperiodicbasiswhichisderived

frominformationfromtheissuer

ofthesecurityorfromcompetent

investmentresearch;

(d) appropriateinformationisavailablefor

themasfollows:

(i) inthecaseofsecuritiesadmitted

toordealtinonaregulatedmarket

asreferredtoinsubparagraphs(a)

to(d)ofArticle19(1),intheformof

regular,accurateandcomprehensive

informationtothemarketonthe

securityor,whererelevant,onthe

portfolioofthesecurity;

(ii) inthecaseofothersecuritiesas

referredtoinArticle19(2),inthe

formofregularandaccurate

informationtotheUCITSonthe

securityor,whererelevant,on

theportfolioofthesecurity;

(e) theyarenegotiable;

(f) theiracquisitionisconsistentwiththe

investmentobjectivesortheinvestment

policy,orboth,oftheUCITS;

(g) theirrisksareadequatelycaptured

bytheriskmanagementprocess

oftheUCITS.

Itisworthnotingthatliquidityisacentral

requirementforUCITSportfoliosand,

accordingly,therearebroadprincipleslaid

downregardingpresumptionsastoliquidity,

assessmentofliquidityriskwhere

informationisavailablewhichsuggests

redemptionfacilitiescouldbecompromised

byatransferablesecurityaswellas

principlesregardingconsiderationofor

presumptionofnegotiability.

(iii) Closed Ended Funds

TheEligibleAssetsDirectivehasmadeit

clearthatcertainclosed-endedfundswillfall

withinthe“transferablesecurities”definition

andthereforebeeligibleforinvestmentby

UCITSwhere:

(i) theyfulfilthecriteriasetoutin“(ii)

ClarificationbyEligibleAssetsDirective”

above;

(ii) theyaresubjecttocorporate

governancemechanismsappliedto

companiesorequivalenttothoseapplied

tocompanies;

(iii) theyaremanagedbyanentitywhichis

(orwhereassetmanagementactivityis

carriedoutbyanotherentityonbehalfof

theclosedendedfund,thatentityis)

subjecttonationalregulationforthe

purposeofinvestorprotection.

AppendixAsetsoutsomeoftheprinciples

usedinconsideringtheequivalence

ofcorporategovernancemechanismsfor

contractualtypeclosed-endedfunds.

AUCITSmaynotmakeinvestmentin

closedendedfundsforthepurposes

ofcircumventingthenormalUCITS

investmentlimits.

(iv) Structured Financial Instruments

Structuredfinancialinstrumentscanalso

beeligibleforinvestmentas“transferable

securities”wheretheyarefinancial

instrumentswhich:

(i) fulfilthecriteriasetout“(ii)Clarification

byEligibleAssetsDirective”above;

(ii) arebackedby,orlinkedtothe

performanceof,otherassets,which

maydifferfromthosereferredtoin

Article19(1);providedthatwherea

financialinstrumentcoveredbythis

subparagraphcontainsanembedded

derivativecomponent,therequirements

regardingthederivativesrisk

managementprocess,globalexposure

andaggregationofdirectandindirect

exposuresshallapplytothat

component.

B. Money Market Instruments

Theterm“moneymarketinstruments”refers

toinstrumentsnormallydealtinonthe

moneymarketwhichareliquid,andhavea

valuewhichcanbeaccuratelydetermined

atanytime.UCITScaninvestinmoney

marketinstrumentsadmittedtotrading/dealt

inonaregulatedmarketandinmoney

marketinstrumentswhicharenotadmitted

toordealtinonaregulatedmarket.

(i) Instruments normally dealt in on the Money Market

Thereferencetomoneymarketinstruments

as“instrumentsnormallydealtinonthe

moneymarket”shallbeunderstoodasa

referencetofinancialinstrumentswhichfulfil

oneofthefollowingcriteria:

(i) theyhaveamaturityofissuanceofupto

andincluding397days;

(ii) theyhavearesidentialmaturityofupto


(iii) theyundergoregularyieldadjustments

inlinewithmoneymarketconditionsat

leastevery397days;

(iv)theirriskprofile,includingcreditand

interestraterisks,correspondstothatof

financialinstrumentswhichhavea

maturityasreferredtoinsubparagraphs

(i)or(ii),oraresubjecttoayield

adjustmentasreferredtoin

subparagraph(iii).

(ii) Instruments which are liquid


as“instrumentswhichareliquid”shallbe

understoodasareferencetofinancial

instrumentswhichcanbesoldatlimited

costinanadequatelyshorttimeframe,

takingintoaccounttheobligationofthe

UCITStorepurchaseorredeemitsunitsat

therequestofanyunitholder.

AppendixAsetsdownthefactorstobe

takenintoaccountatboththeinstrument

andfundlevelinassessingliquidity.

(iii) Instruments which have a value which can be accurately determined at any time

Thereferenceto“moneymarketinstruments

asinstrumentswhichhaveavaluewhich

canbeaccuratelydeterminedatanytime”

shallbeunderstoodasareferenceto

financialinstrumentsforwhichaccurateand

reliablevaluationssystems,whichfulfilthe

followingcriteria,areavailable:

(a) theyenabletheUCITStocalculatea

netassetvalueinaccordancewiththe

valueatwhichthefinancialinstrument

heldintheportfoliocouldbeexchanged

betweenknowledgeablewillingparties

inanarm’slengthtransaction;

(b) theyarebasedeitheronmarketdataor

onvaluationmodelsincludingsystems

basedonamortisedcosts.

Withrespecttothecriterion“valuewhich

canbeaccuratelydeterminedatanytime”,

iftheUCITSconsidersthatanamortisation

methodcanbeusedtoassessthevalueof

amoneymarketinstrument,itmustensure

thatthiswillnotresultinadiscrepancy

betweenthevalueofthemoneymarket

instrumentandthevaluecalculated

accordingtotheamortisationmethodas

setoutinGuidanceNote-/08UCITS:

Valuationofassetsofmoneymarketfunds.

Moredetailonliquidityrequirements

andongovernmentalissuesandissues

bysecuritisationvehiclescanbefound

inAppendixA.

UCITSMoneyMarketFunds

5

5. UCITSMoneyMarketFunds

WhilstmanyUCITSwillinvestprincipallyin

moneymarketinstrumentsandmayconsider

themselvestobemoneymarketfunds,there

areonlycertainfundswhicharepermitted

bytheFinancialRegulatortoreferto“money

marketfunds”initstitleandtofollowan

amortisedcostvaluationmethodology.Such

moneymarketfundsmustbeestablishedas

constantNAVFundsoraccumulatingNAVfunds

withtheprincipalobjectivetopreserveprincipal

andmaintainliquidity.Further,onlythosemoney

marketfundswhichhaveobtainedatripleA

ratingfromaninternationallyrecognisedrating

agencytogetherwithasupplementarymarket

riskrating(forexampleAAmbyStandard&

PoorsorAaa/MR1+byMoodys)orwhichhave

managementcompanies/investmentmanagers

withdemonstrableexpertiseintheoperationof

moneymarketfunds(whichuseamortisedcost

valuation)canusethetermmoneymarketfund

orUCITSmoneymarketfundintheirtitleand

followanamortisedcostvaluationmethodology.

Othertypesofmoneymarketfundsmaynot

usethetermmoneymarketfundintheirtitle

andmustvalueassetsonamarktomarket

basisinaccordancewiththevaluationrules

setoutbytheFinancialRegulatorinits

GuidanceNote1/00.

Inthissectionwedealonlywiththeformertype

ofmoneymarketfund.

(i) Key Conditions

Anumberofconditionsapplytomoney

marketfundswhichusetheamortisedcost

valuationmethodologyasfollows:

Eligible Assets:assetsmustberestricted

tocashorhigh-qualitymoneymarket

instruments;

Maturity:assetsarerestrictedtosecurities

whichcomplywithoneofthefollowing

criteria:

(a) haveamaturityatissuanceofuptoand

including397days;

(b) havearesidualmaturityofuptoand

including397days;and

(c) undergoregularyieldadjustmentsin

linewithmoneymarketconditionsat

leastevery397days;and/or

(d) theriskprofile,includingcreditand

interestraterisk,correspondtothatof

financialinstrumentswhichhavesuch

maturitiesoryieldadjustments.

Inthecaseof(c)and(d)above,themoney

marketinstrumentsinvestedinmustalso

meetwiththefinalmaturityrequirementsof

therelevantratingagency.

WAM:theweightedaveragematurityofthe

portfoliomustnotexceed60days;

Mark to Market:aweeklyreviewof

discrepanciesbetweenmarketvalue

andamortisedcostvalueofmoneymarket

instrumentsmustbecarriedoutwith

escalationproceduresbeingputinplace

toensurethatmaterialdiscrepancies

arebroughttotheattentionofinvestment

managementpersonnelwithdiscrepancies

inexcessof0.1%beingbrought

totheattentionofseniormanagement

withinthemanagementcompanyor

boardofdirectors,theinvestmentmanager

andtrustee/custodianandifdiscrepancies

inexcessof0.3%occurthenadaily

reviewmusttakeplacewiththe

managementcompany/directorsnotifying

theFinancialRegulatorofthediscrepancies

andindicatingwhataction,ifany,willbe

takentoreducethedilution.

Stress Testing:amonthlyportfolioanalysis

isrequiredtobecarriedoutincorporating

stresstestingtoexamineportfolioreturns

undervariousmarketscenariosto

determineifportfolioconstituentsare

appropriatetomeetpredeterminedlevels

ofcreditrisk,interestraterisk,marketrisk

andinvestorredemptionsandthisperiodic

analysismustbeavailableforinspectionby

theFinancialRegulator.

(ii) ECB Reporting Requirements

Moneymarketfundsarerequiredto

provideavarietyofmonthlyandquarterly

datathroughtheFinancialRegulatorfor

thepurposeofEuropeanCentralBank

reportingrequirements.GuidanceNote

GN2/99setsouttherelevantrequirements

intowhichmoneymarketfundsthe

obligationsapply.

IndexTrackingUCITS

6

6. IndexTrackingUCITS

OneofthecornerstonesofUCITSsincethe

introductionoftheoriginalUCITSDirective

in1985hasbeentheimpositionofstrict

riskspreadingrequirements.Thishasbeen

enshrinedinwhatiscommonlyknownas

the5/10/40rulewhichisthataUCITSmay

investnomorethan10%ofitsnetassets

intransferablesecuritiesormoneymarket

instrumentsissuedbythesamebody,provided

thatthetotalvalueoftransferablesecurities

ormoneymarketinstrumentsheldinissuing

bodiesineachofwhichitcaninvestmore

than5%islessthan40%.

ThisfundamentalUCITSprincipledidcreate

problemsforUCITSwhichwishedtotrackan

indexwheretheweightingofaconstituent

elementoftheindexexceededthe5%limitor

wheretherelationshipbetweentwoormore

constituentelementsoftheindexmeantthat

theywereconsideredtoconstituteasingle

issuerresultinginanaggregationofthe

exposure.

(i) 20% and 35% Rule

SincetheintroductionofaUCITSIII,UCITS

whosepolicyistoreplicateanindexisnow

permittedtoinvestupto20%ofnetassets

insharesand/ordebtsecuritiesissuedby

thesamebody,withthe20%limitbeing

raisedupto35%inthecaseofasingle

issuerwherejustifiedbyexceptional

marketconditions.Thisflexibilityis

permittedwheretherelevantindexis

recognisedbytheFinancialRegulator

onthebasisthatitissufficientlydiversified,

itrepresentsanadequatebenchmarkfor

themarkettowhichitrefersanditis

publishedinanappropriatemanner.

(ii) Index Replication

Thereferenceto“replication”ofthe

compositionofasharesordebtsecurities

indexisconsideredbytheFinancial

Regulatortomeanreplicationofthe

compositionoftheunderlyingassetsof

theindexincludingtheuseofderivatives

orotherpermittedUCITSefficientportfolio

managementtechniquesandinstruments.

(iii) Sufficient Diversification

Althoughsomewhatcircular,referenceto

anindex’scompositionbeingdiversified

referstoanindexwhichallowsfora

maximumweightingperissuerof20%with

acapacityforasingleconstituenttoexceed

20%butnotexceed35%oftheindex.

(iv) Adequate Benchmark

Thereferencetotheindexrepresenting

anadequatebenchmarkforthemarketto

whichitrefersisareferencetoanindex

whoseproviderusesarecognised

methodologywhichgenerallydoesnot

resultintheexclusionofamajorissuer

ofthemarkettowhichitrefers.

(v) Publication

Therequirementthattheindexbepublished

inanappropriatemanneristakenasa

referencetoanindexwhichisaccessible

tothepublicandwheretheindexprovideris

independentfromtheindexreplicating

UCITS.Note,however,thatthissecond

requirementdoesnotprecludeindex

providersandtheUCITSformingpartof

thesameeconomicgroupprovidedthat

effectivearrangementsforthemanagement

ofconflictsofinterestareinplace.

UCITSInvestinginOtherCollectiveInvestment

Schemes

7

7. UCITSInvestinginOther CollectiveInvestment Schemes

UCITSarepermittedtoinvestupto100%

oftheirassetsinotheropen-endedcollective

investmentschemes(“CIS”)wherethose

CISare:

otherUCITS;or

otherEUornon-EUCISthesoleobject

ofwhichisthecollectiveinvestmentin

transferableseriesand/orinotherliquid

financialassetsofcapitalraisedfromthe

publicandwhichoperateontheprinciple

ofriskspreadingandtheunitsofwhich

areattherequestofholders,repurchased

orredeemed,directlyorindirectlyoutof

thoseundertakingsassetsprovidedthat:

(a) suchotherCISareauthorisedunder

lawswhichprovidethattheyaresubject

tosupervisionconsideredbythe

FinancialRegulatortobeequivalent

tothatlaiddownincommunitylawand

thatco-operationbetweenauthorities

issufficientlyinsured;

(b) thelevelofprotectionforunitholders

intheotherCISisequivalenttothat

providedforinvestorsinaUCITSand

inparticularthattherulesonassets

segregation,borrowing,lendingand

uncoveredsalesoftransferable

securitiesandmoneymarket

instrumentsareequivalenttothe

requirementsoftheUCITS;

(c) thebusinessoftheotherCISisreported

inhalf-yearlyandannualreportsto

enableanassessmenttobemadeof

theassetsandliabilities,incomeand

operationsoverthereportingperiod;

and

(d) nomorethan10%oftheUCITSor

otherCISassets,whoseacquisition

iscontemplated,canbe,accordingto

itsrulesorinstrumentsofincorporation

investedinaggregateinunitsofother

UCITSorotheropen-endedCIS.

(i) Investment Restrictions

Inadditiontotherestrictionsonthetypes

ofnon-UCITSCISthataUCITSmayinvest

in,therearefourmaininvestment

restrictionswhichapplytoUCITSinvesting

inotherCISwhicharethat:

themaximumexposuretoanyoneCIS

maynotexceed20%ofthenetasset

valueofaUCITS(eachsub-fundofan

underlyingumbrellaCISbeingregarded

asaseparateCISforthepurposeof

applyingthislimit);

themaximumaggregateinvestmentin

non-UCITSCISmaynotexceed30%

ofthenetassetvalueoftheUCITS;

investmentinaCISwhichcanitself

investmorethan10%ofnetassetsin

otherCISisnotpermitted;and

investmentinaCISmustnotresultin

theacquisitionofmorethan25%ofthe

unitsofanysingleCIS(orsub-fundofan

umbrellaCIS).

(ii) Acceptable Types of Non-UCITS CIS

InGuidanceNote2/03,theFinancial

Regulatorhasindicateditwillpermit

investmentbyUCITSinthefollowing

categoriesofnon-UCITSCIS:

schemesestablishedinGuernseyand

authorisedasClassAschemes;

schemesestablishedinJerseyas

RecognisedFunds;

schemesestablishedintheIsleofMan

asAuthorisedSchemes;

Non-UCITSRetailCISauthorisedbythe

FinancialRegulatoritselfprovidedsuch

CIScomplyinallmaterialrespectswith

theprovisionsoftheUCITSNotices;

non-UCITSCISauthorisedinthe

MemberStateoftheEEA,theUnited

States,GuernseyortheIsleofMan

andwhichcomply,inallmaterial

respectswiththeprovisionsofthe

UCITSNotices.

(iii) Financial Regulator’s consideration of “in all material respects”

Inthisregard,theFinancialRegulator’s

considerationof“allmaterialrespects”,

includes,interalia,considerationof:

theexistenceofanindependenttrustee/

custodianwithsimilar(toIrishtrustee/

custodians)dutiesandresponsibilities

inrelationtobothsafekeepingand

supervision;

requirementsforthespreadingof

investmentrisk,includingconcentration

limits,ownershiprestrictions,leverage

andborrowingrestrictions,etc.;

availabilityofpricinginformationand

reportingrequirements;

redemptionfacilitiesandfrequency;

restrictionsinrelationtodealingsby

relatedparties.

(iv) Other Jurisdictions Tests

Asyouwillnotefromtheabove,the

FinancialRegulatorhasindicatedanumber

ofjurisdictionsandtypesofCISwhichit

considerstobeacceptableforinvestment

byaUCITS.Otherjurisdictionsandtypes

ofCISmaybeconsideredbytheFinancial

Regulatoronsubmissiontoitandin

assessinganysuchsubmissions,the

FinancialRegulatorhasindicatedinits

GuidanceNotethatitwillhaveregardto

memorandaofunderstanding(bi-lateralor

multi-lateral),membershipofan

internationalorganisationofregulatorsor

otherco-operativearrangements,(suchas

exchangeofletters)toensuresatisfactory

co-operationbetweentheFinancial

Regulatorandthecompetentauthority

oftherelevantCIS:

themanagementcompanyofthetarget

CIS,itsrulesanditschoiceoftrustee

havebeenapprovedbyitsown

regulator;

theCISisauthorisedinanOECD

jurisdiction.

(v) Financial Regulator’s consideration of “equivalence”for Non-UCITS CIS

Asindicatedabove,inorderforanon-

UCITStobeanacceptableinvestment

ofaUCITS,theFinancialRegulatorneeds

tobesatisfiedthatitisbothauthorised

underalegislativeregimewhichprovides

thatitissubjecttosupervisionconsidered

bytheFinancialRegulatortobeequivalent

tothatspecifiedincommunitylawandthat

theapplicableregulatoryregimeissuchthat

thelevelofprotectionforinvestorsis

equivalenttothatprovidedforinvestorsina

UCITS,thatrulesonsegregationofassets,

borrowing,lendinganduncoveredsalesof

transferablesecuritiesandmoneymarket

instrumentsareequivalenttothoselaid

downbytheUCITSDirective.

InitsGuidanceNote2/03,theFinancial

Regulatorhasindicatedthatitwillusethe

followingfactorstoguideitsconsideration

astowhethersuchequivalenceexists:

rulesguaranteeingtheautonomy

ofthemanagementoftheCIS,and

managementintheexclusiveinterest

oftheunitholders;

theexistenceofanindependent

trustee/custodianwithsimilarduties

andresponsibilitiesinrelationtoboth

safekeepingandsupervision.Where

anindependenttrustee/custodianis

notarequirementoflocallaw,robust

governancestructuresmayprovidea

suitablealternative;

availabilityofpricinginformationand

reportingrequirements;

redemptionfacilitiesandfrequency;

restrictionsinrelationtodealingsby

relatedparties;

theextentofassetsegregation;and

localrequirementsforborrowing,

lendinganduncoveredsalesof


marketinstrumentsregardingthe

portfoliooftheCIS.

(vi) Fees/Charges and Disclosures

WhereaUCITSintendstoinvestmore

than20%ofitsnetassetsinotherCIS,

itsprospectusmustdisclosethemaximum

levelofmanagementfeesthatmaybe

chargedtotheUCITSitselfandtothe

underlyingCIS.Inotherwords,the

aggregatemanagementfeesatboth

levelshavetobedisclosed.Inaddition,

actualaggregatemanagementfeesat

bothlevelshavetobedisclosedinthe

UCITSannualreport.

Inaddition,whereaUCITSinvestsina

linkedCIS(whereboththeUCITSand

CISaremanaged,directlyorindirectly

bydelegationbythesamemanagement

companyorwherethemanagement

companyofboththeUCITSandunderlying

CISarelinkedbycommonmanagement

orcontrolorbyasubstantialdirector

indirectholding),themanagerofthe

underlyingCISisnotpermittedtocharge

subscriptionorredemptionfeesbyaccount

oftheUCITSinvestmentinit.

(vii) Cross Investment with umbrella Investment Companies

Onesub-fundwithinaUCITSumbrella

investmentcompanytypeschemeisonly

permittedtoinvestinanothersub-fund

withinthesameumbrellawherethe

umbrellaschemeoritsdelegate(i.e.the

administrator)hasthesystemscapability

toprovidedisclosureinrelationtocross-

holdingsinaccordancewithindustry

adoptedstandards.

Whereasub-fundinvestsinoneor

moresub-fundsofanyumbrellaUCITS,

inadditiontotherequirementsabovein

relationtoinvestmentbyUCITSinalinked

CIS,theinvestingsub-fundmaynotcharge

anannualmanagementfee(orinvestment

managementfee)inrespectofthatportion

ofitsassetsinvestedinothersub-funds.

Additionally,investmentmaynotbemadein

asub-fundwhichitselfholdsunitsinother

sub-fundswithinthesameumbrellaUCITS.

UCITSinvestinginFinancialDerivative

Instruments

8

8.UCITSinvestinginFinancial DerivativeInstruments

UCITSmayinvestinfinancialderivative

instrumentsforinvestmentpurposessubjectto

avarietyofconditionsasoutlinedbelowrelating

tothenatureoftheexposurestaken,the

leveragegeneratedthroughsuchpositions,the

processemployedbytheUCITStomanagethe

risksarisingfromderivativesinvestmentaswell

asrulesrelatingtoOTCcounterpartyexposure

andtothevaluationofderivativespositions.

TheFinancialRegulatorhasprescribedindetail

throughitsUCITSNoticesandGuidanceNotes

theriskmanagementconditionsthatmustbe

metbyIrishUCITSinvestinginderivatives.

PriortotheintroductionofUCITSIII,UCITS

couldonlyemployderivativesforefficient

portfoliomanagement(“EPM”)purposes.

Regulation45oftheUCITSRegulations

nowprovidesthatUCITSmayinvestin

exchangetradedorover-the-counterderivative

instrumentsforinvestmentpurposes,subject

tocertainconditionsinparticularthoseset

downin:

UCITSNotice9–whichsetsoutinvestment

restrictionsapplicabletoUCITSincluding

limitsoncounterpartiesandcertain

counterpartycriteria;

UCITSNotice10–whichsetsouthigh

levelderivativesrulesincludingsummaryof

permittedderivatives,coverrequirements

andriskmanagementrequirements;and

GuidanceNote3/03–whichcontains

detailedprovisionsfortheuseofderivatives

byUCITS.

(i) Conditions for the use of derivatives by UCITS

AsoutlinedinUCITSNotice10,UCITSmay

investinanytypeofexchangetradedor

OTCderivativeforinvestmentpurposes,

subjecttothefollowingconditions:

theunderlyingassetrelatestoUCITS

eligibleassets(i.e.transferable

securities,moneymarketinstruments,

CIS,deposits),financialinstruments

havingoneorseveralcharacteristicsof

theseassets,financialindices,interest

rates,foreignexchangeratesor

currencies;

thecounterpartiestoOTCderivative

transactionsareinstitutionssubjectto

prudentialsupervisionandbelongto

categoriesapprovedbytheFinancial

Regulator(qualifyingcreditinstitutions,

MIFIDauthorisedinvestmentfirmsor

anentitysubjecttoregulationasa

ConsolidatedSupervisedEntitybythe

USSecuritiesandExchange

Commission)withaminimumcredit

rating(inthecaseofcounterparties

whicharenotcreditinstitutions)of

A2orequivalent,oranimpliedrating

ofA2orguaranteedbyanentitywith

aratingofA2;

theOTCderivativesaresubjectto

reliableandverifiablevaluationona

dailybasisandcanbesold,liquidated

orclosedbyanoffsettingtransactionat

anytimeattheirfairvalueatthe

initiativeoftheUCITS.

Positionsmaycreatelongorshort

exposuretotheunderlyingassetand

mayresultinleveragetotheportfolio.

UCITSthatusederivativesforinvestment

(orforEPM)purposesmustprepareaRisk

ManagementProcessandfileitforapproval

withtheFinancialRegulator.Inaddition,

adequatedisclosureofderivative

investmentsmustbemadeintheUCITS’

prospectus.Specificprovisionsinthis

regardareoutlinedinGuidanceNote3/03.

(ii) Guidance Note 3/03

GuidanceNote3/03wasproducedby

theFinancialRegulatortooutlineclearly

theparametersfortheuseofderivatives

byUCITSandtoprovideguidanceonwhat

theFinancialRegulatorexpectsinrelation

tothemeasurementandcontrolof

derivativesassociatedriskbyUCITS.

GuidanceNote3/03containsdetailed

requirementsregardingtheformatand

contentoftheRiskManagementProcess,

theoptionsformeasuringandcontrolling

riskexposureandsetsoutrequirements

andlimitsonpositionexposure,

counterpartyexposureaswellas

counterpartyrestrictions.

(iii) Risk Management Process

Inordertomonitor,measureandmanage

theriskprofileofaUCITS,itsinvestment

managermustconstructaformalRisk

ManagementProcessthatisadaptedto

thecomplexityandsophisticationofthe

derivativesusedwithintheUCITS.

(iv) Sophisticated vs. Non-sophisticated UCITS

Therulesformeasuringglobalexposure

andleveragedifferdependingonwhether

aUCITSischaracterisedas‘sophisticated’

or‘non-sophisticated’.

TheFinancialRegulatorhasnotprovided

aformaldefinitionofwhatconstitutesa

‘sophisticated’or‘non-sophisticated’UCITS,

ratherrequiringtheUCITStoclassifyitself

aseither‘sophisticated’or‘non-

sophisticated’andprovidearationale

forsuchclassification.

FactorsthatmaycauseaUCITStobe

considered‘sophisticated’includethe

following:

wheretheuseofderivativesforms

afundamentalpartoftheUCITS’

investmentobjectiveandwouldbe

expectedtobeusedinallmarket

conditions;

wheretheperformanceofthederivative

isnonlinearinrelationtotheunderlying

assetsortheperformanceisbasedon

areasonablycomplexmathematical

formula;

wheretheuseofcoverforthederivative

positionisdifferentfromtheunderlying

ofthederivative.

TheuseofOTCderivativesmightindicate

theUCITSismoresophisticatedbutthe

complexityofthetransactionshouldalso

beconsidered.

A‘non-sophisticated’UCITSwillgenerally

onlyusealimitednumberofsimple

derivativeinstrumentsfornon-complex

hedgingorinvestmentstrategies.

(v) Measurement of Global Exposure and Leverage – Non-Sophisticated UCITS

GuidanceNote3/03providesthatthe

globalexposureandleverageofanon-

sophisticatedUCITSshouldbemeasured

usingthecommitmentapproach.AUCITS’

globalexposuremaynotexceeditsnet

assetvalue.Thusaleveragelimitof100%

applies(leveragebeingglobalexposure

dividedbynetassetvalue).

Thecommitmentapproachtakesinto

accountthefollowinginseekingtoensure

thatriskismonitoredintermsofanyfuture

commitmentstowhichtheUCITSmay

beobligated:

thecurrentvalueoftheunderlying

assetsthederivativesarebasedon

(delta-adjustedinthecaseofoptions

andwarrants);

counterpartyrisk;

futuremarketmovements;and

thetimeavailabletoliquidatethe

position.

(vi) Measurement of Global Exposure and Leverage – Sophisticated UCITS

AsophisticatedUCITSisrequiredtouse

anadvancedriskmeasurement

methodologytomeasureglobalexposure.

TheFinancialRegulatorrecommendsthe

useofthe Value-at-Risk(VaR)methodand

requiresthattheVaRmodelemployed

bytheUCITSmeetscertainquantitative

andqualitativecriteriaandbecalculated

usinganacceptableproprietaryor

commerciallyavailablemodel.

AbsoluteVaRorRelativeVaRmaybe

applied. Absolute VaRistheVaRofthe

UCITScappedasapercentageofnetasset

value.Generally,theFinancialRegulator

willimposealimitonAbsoluteVaRof5%

ofnetassetvalue.

Relative VaRistheVaRoftheUCITS

dividedbytheVaRofabenchmarkora

comparable,derivatives-freeportfolio.

UnderRelativeVaR,VaRislimitedtotwice

theVaRonthebenchmarkorcomparable,

derivatives-freeportfolio.

TheVaRmodelusedmustadheretothe

followingrequirements:

theconfidencelevelshouldbe99%;

maximumholdingperiodofonemonth;

minimumhistoricalobservationperiod

ofoneyear(lessifjustified,forexample

onthegroundsofrecentsignificant

changesinpricevolatility);

stresstestscarriedoutatleastquarterly

(toassessthelikelyimpactofpotential

movementsininterestrates,currencies

andcreditquality);

backtestingoftheVaRmodel(aformal

statisticalprocesstocompareactual

portfolioreturnstotheVaRpredicted).

Detailsshouldalsobedisclosedof

thefollowing:

(i) softwareused

(ii) internalcontrolsandinternal

auditofprocedures;

(iii)additionalriskmeasurement

methodsemployed;and

(iv)profileandexpertiseofstaff

monitoringrisk.

(vii) Netting/Hedging

Hedgingpositionsmaybeoffsetand

nettingappliedbeforecalculatingglobal

exposure,counterpartyexposure,position

andcoverrequirements.

(viii) Netting

Inthecontextofglobalexposure,position

andcoverrequirements,purchasedand

soldderivativespositionsmaybenetted

subjecttothefollowingconditions:

bothpositionsmustrelatetothesame

underlyingasset/referenceitemor,

inthecaseofderivativesonfixed

incomesecurities,theymustbearahigh

degreeofnegativecorrelationinterms

ofpricemovementandbotharecash

settledwiththesamecurrencyexposure;

thepositionsshouldbeliquidand

marked-to-marketdaily;

intheeventthatoneofthepositions

isexercised,arrangementsaresuch

thattheUCITSwillhavethecover

necessarytofulfilitsactualorpotential

obligationsundertheoutstandingposition.

Inthecontextofcounterpartyexposure,

purchasedandsoldderivativespositions

maybenettedprovidedthereisa

contractualnettingagreementinplace

withthecounterparty.

(ix) Hedging

Inaddition,hedgingpositionsthatreduce

theoverallriskprofileoftheUCITSwillbe

permittedwherethetransactionexhibitsa

highnegativecorrelationwithanasset,

rateorindexofanunderlyingpositionin

theportfolio.

(x) Position Exposure

Positionexposuretotheunderlying

assetsofderivatives,whencombined

withpositionsfromdirectinvestments,

maynotexceedgeneralinvestmentlimits.

Thisexposureismeasuredusingthe

commitmentapproach(afternettingof

anylongandshortpositionstothesame

issuer,ifappropriate).

Acombinationofthefollowingissued

by,ormadeorundertakenwiththesame

bodymaynotexceed20%ofaUCITS’

netassetvalue:

transferablesecuritiesor

moneymarketinstruments;

deposits;

counterpartyriskexposuresfrom

OTCderivativetransactions;and/or

positionexposuretotheunderlying

assetsofderivatives.

Thereisnolookthroughtounderlying

assetsinrespectofindexderivatives,

providedtheindexmeetscertaincriteria.

(xi) Position Cover Requirements

Wherecashsettled,theUCITSmust

holdliquidassets(i.e.cashormoney

marketinstruments)ascover.

Wherephysicaldeliveryoftheunderlying

assetisrequiredforsettlement,theUCITS

mustholdthefollowingascover:

theunderlyingassetforthedurationof

thederivative;or

sufficientlyliquidassetswherethe

underlyingassetisahighlyliquidfixed

incomesecurityand/ortheUCITS

considersthattheexposurecanbe

adequatelycoveredwithoutholdingthe

underlyingasset,asdisclosedinthe

RMPandtheUCITS’prospectus.

(xii) Counterparty Exposure Limits

Thecounterpartyexposuremust

includeallexposurestothecounterparty

(i.e.exposurerelatedtoOTCderivatives

andanyotherexposuretothe

counterparty).Exposureislimitedto5%

ofnetassetvalueor10%inthecaseof

certaincreditinstitutionsasfollows:

acreditinstitutionauthorisedin

theEEA;

acreditinstitutionauthorisedwithin

asignatorystate(otherthanan

EEAMemberState)totheBasle

CapitalConvergenceAgreementof

July1998;or

acreditinstitutionauthorisedin

Jersey,Guernsey,theIsleofMan,

AustraliaorNewZealand.

Asindicatedabove,nettingmaybe

appliedasappropriatebeforecounterparty

exposureiscalculated.Inaddition,

riskwillbereducedwhereacounterparty

providesacceptablecollateraltothe

UCITS,inaccordancewiththeFinancial

Regulatorrequirements.

Counterpartiesmustagreetocloseout

positionsonrequestatfairvalue.

Exchange-tradedderivativesthatare

markedtomarketdailyandsubjectto

marginrequirementsaredeemedtobe

freeofcounterpartyrisk.

(xiii) Embedded Derivatives

Carealsoneedstobetakentoexamine

thetruenatureofparticularinstruments

todeterminewhetherthey“embed”

derivatives.Ifatransferablesecurityor

moneymarketinstrumentembedsa

financialderivativeinstrument(FDI),

thentheglobalexposure,issuer

concentrationandleveragecalculation

rulesreferredtoaboveapplytothe

embeddedFDIelementofthetransferable

securityormoneymarketinstrument.

ConsistentwithCESR’sconsideration

ofembeddedFDIinitsJanuary2006

advices,theFinancialRegulator’s

GuidanceNote3/03providesthat

atransferablesecurityandmoneymarket

instrumentwillbeconsideredtoembeda

FDIwhereitcontainsacomponentwhich

fulfilsthefollowingcriteria:

byvirtueofthatcomponentsome

orallofthecashflowsthatotherwise

wouldberequiredbythetransferable

securityormoneymarketinstrument

whichfunctionsashostcontractcan

bemodifiedaccordingtoaspecified

interestrate,financialinstrumentprice,

FXrate,indexofpricesorrates,credit

ratingorcreditindex,orothervariable,

andthereforevaryinawaysimilar

toastand-aloneFDI;

itseconomiccharacteristicsand

risksarenotcloselyrelatedtothe

economiccharacteristicsandrisks

ofthehostcontract;and

ithasasignificantimpactontherisk

profileandpricingofthetransferable

securityormoneymarketinstrument

in question.

BothCESRandtheFinancialRegulator

havenotedthatexamplesofstructured

financialinstrumentsthatmaybe

assumedtoembedaFDIare:

creditlinkednotes;

convertibleorexchangeablebonds;

structuredfinancialinstruments

whoseperformanceislinkedtothe

performanceof,forexample,abasket

ofsharesorabondindex,orstructured

financialinstrumentswithanominal

fullyguaranteedwhoseperformanceis

linkedtotheperformanceofabasket

ofshareswithorwithoutactive

management;

collateraliseddebtobligationsand

assetbackedsecuritiesthatcreate

leverage,i.e.theCDOisnotalimited

recoursevehicleandtheinvestors’

losscanbehigherthantheirinitial

investmentorarenotsufficiently

diversified.

UCITSusingUCITSstructuredfinancial

instrumentsembeddingFDImustrespect

theprinciplesoftheUCITSDirectivesand

theIrishUCITSRegulations,and

embeddedFDImaynotbeusedto

circumventthoseprinciplesandrules.

UCITSusingstructuredfinancial

instrumentsembeddingFDIshouldalso

refertotheCommissionRecommendation

ontheuseofFDIbyUCITSinorderto

complywiththeUCITSriskspreading

rulesasthisRecommendationsetsout

howtheunderlyingassetsofFDIshould

betakenintoaccountwhenassessing

compliancewiththerisklimitssetbythe

above-mentionedarticle.

Additionally,notethatembedded

derivativeswillgenerallynotbetakeninto

accountwhencalculatingcounterparty

limits,exceptiftheseproductsenable

theissuerofthehybridinstrumentto

passthecounterpartyriskofunderlying

derivativestotheUCITS.

ItistheresponsibilityoftheUCITSto

checkthatinvestmentinhybridinstruments

embeddingderivativescomplieswiththese

requirements.Thenature,frequencyand

scopeofchecksperformedwilldepend

onthecharacteristicsoftheembedded

derivativesandontheirimpactonthe

UCITS,takingintoaccountit’sstated

investmentobjectiveandriskprofile.

(xiv) Format and Content of Risk Management Process

TheRiskManagementProcess(RMP)

mustbepreparedinaccordancewith

theprovisionsofGuidanceNote3/03

andissubjecttoreviewandclearance

bytheFinancialRegulatorbefore

beingadopted.

TheRMPshouldgiveinformationon

thetradingprocessemployedbythe

investmentmanagerandexplainin

detailtheresponsibilitiesandexpertise

ofthepersonnelinvolvedinthederivative

tradingactivityoftheUCITS.Itshould

explainclearlythetypesofderivative

instrumentsusedbytheUCITSandtheir

specificpurpose.TheRMPmustcover

all derivatives used.

TheRMPshouldalsoexplainthe

following:

howthevariousexposures(global

exposureandleverage,counterparty

exposureetc.)aremeasured;

whatlimitsapplytoeach

suchexposure;

howtheselimitsaremonitored

andenforced;

howbreachesoflimitsarereported

andescalated.

Aworkedexampleofexposure

calculationsshouldalsobeprovided.

Thisshouldincorporateexamplesof

eachtypeofderivativeandalso

demonstratehowhedgingisused.

AnymaterialamendmentstotheRMP

mustbeaddressedinarevisedRMP

filedwiththeFinancialRegulator.Any

non-materialamendmentsorupdate

(forexamplechangeofpersonnelor

systems)shouldbeincludedinthe

annualderivativesreport.

(xiv) Annual Derivatives Report

UCITSNotice10requiresthataUCITS

mustsubmitanannualreporttothe

FinancialRegulatoronitsderivative

positions(anAnnualFDIReport)so

thattheFinancialRegulatormayreview

theuseofderivativesandanybreaches

ofrisk.

TheAnnualFDIReportshouldinclude

detailsofthefollowing:

summaryreviewontheuseof

derivativesbytheUCITSduring

theyear;

instancesofanybreachesofglobal

exposureduringtheyear,withan

explanationofremedialactiontaken

anddurationofthebreaches;

instancesofanybreachesof

counterpartyriskexposureduring

theyear,withanexplanationof

remedialactiontakenandduration

ofthebreaches;

whererelevant,asummaryof

non-materialupdatestotheRMP.

InthisinstancearevisedRMP

shouldbeattached.

InthecaseofUCITSusingVaR:

year-endVaRnumber(expressedas

apercentageofnetassetvalueofthe

UCITSorasapercentageofthe

benchmark/comparablederivatives

freeportfolio,asappropriate);

instancesofanybreachesinVaR

limitsduringtheyear,withan

explanationofremedialaction

anddurationofbreach;

confirmationastowhetherback-

testinghasbeensuccessfulin

accordancewiththerequirements

and,ifnot,whatactionstheUCITS

hastakentoaddressthesituation;

confirmationthattheUCITSdoes

haveastresstestingregime,an

overviewofthebroadassumptions

behindsuchtestingandacommentary

ontheresultsofthestresstestingand

itsapplicabilitytothedaytodayuse

ofthemodel.

UCITSinvestinginDerivatives on FinancialIndices

9

9.UCITSinvestinginDerivatives onFinancialIndices

TherearespecificUCITSrulesrelatingtowhat

willbeacceptableasapermittedfinancialindex

underlyingafinancialderivativeinstrument.The

requirementsarethattheindex:

mustbesufficientlydiversified;

mustrepresentanadequatebenchmark

forthemarkettowhichitrefers;

mustbepublishedinanappropriate

manner;and

mustbemanagedindependentlyfromthe

managementoftheUCITS.

TheFinancialRegulatorhasissuedaspecific

GuidanceNoteaddressingthoserequirements

indetail,asexplainedbelow.

(i) Prior Approval Required

Itwillbenecessarytosubmittherelevant

indextotheFinancialRegulatorforprior

approvalif(a)theindexiscomprisedof

ineligibleassetsor(b)theindexis

comprisedofeligibleassetsbutitwould

notbepossiblefortheUCITStoinvest

directlyinsuchunderlyingassetswithout

breachingtheUCITSriskspreadinglimits

(assumingtheUCITSdoesnotwishto

applyalookthroughapproach).Withany

suchsubmissionitwillbenecessaryto

demonstratetotheFinancialRegulator

thattheindexmeetsthefourprerequisites

listedabove,andexplainedfurtherbelow.

(ii) Sufficiently Diversified

Thegeneralrulerelatingtodiversification

aUCITSportfolioisthe5/10/40rulewhich

referstomaximumpermittedexposures

perissuer.Thisisprincipallyrelevantto

portfoliosoftransferablesecuritiesand

moneymarketinstrumentsbutdoeshave

relevancetoUCITSwhichusecommodity

indicesforriskdiversificationasopposed

totrackers.

TheUCITSIIIProductDirectivedidnot

explainhowthegeneraldiversificationrules

wouldapplytoindicesbasedonnon-eligible

financialinstrumentssuchascommodity

futuresbutthisissuewasaddressedin

theCESRadvicesofJanuary2006where

CESRnotedthatinthecaseofFDIon

financialindicesbasedonnon-eligible

assetsthattherulesbe“adaptedtothe

specificriskofsuchfinancialindices”.

CESRsuggestedthefollowingapproach:

whereFDIonanindexcomposedof

non-eligibleassetsareusedtotrackor

gainstrongexposuretotheindex,the

indexshouldbeatleastasdiversified

assetoutunderthediversificationratios

ofArticle22(a)(the20%weightingand

35%weighting);

whereFDIonanindexcomposedof

non-eligibleassetsareusedforrisk

diversificationpurposes,providedthe

exposureontheindividualcommodity

indicescomplieswiththe5/10/40ratios,

thereisnoneedtolookattheindividual

componentsoftheseindicestoensure

thattheyaresufficientlydiversified.

That20%/35%ruleallowsforamaximum

exposureof20%perissuerwithcapacity

fortheFinancialRegulatortopermitone

holdingtogoabove20%,ashighas35%

“wherethatprovestobejustifiedby

exceptionalmarketconditions”.Inother

words,thesehigherlimitswillbeavailable

percommodityexposureforUCITSseeking

totrackortakeahighexposuretoa

commoditiesfuturesindex.IntheJanuary

2006advicesCESRstatedthatwhen

assessingthesediversificationratios,

componentswhicharehighlycorrelated(i.e.

futuresonoiltradedondifferentregulated

markets)shouldbetreatedasgiving

exposuretothesamecommodity.Thiswas

not,however,repeatedintheimplementing

DirectiveorLevel3advices.

(iii) Adequate Benchmark

Therelevantindexmustmeasurethe

performanceofthegroupofassetsitis

purportingtorepresentandtherefore,in

thesubmissiontotheFinancialRegulator

ontherelevantindices,thereshouldbe

anexplanationastohoweachindex

meetsthatrequirement.

Informationtobeincludedshouldinclude

dataonconstituentselectioncriteria,

constituentpricecollectionprocedures,

assetallocationrulesandguidelinesetc.

Thereisalsoanexpectationthattheindex

willberevisedandrebalancedperiodically

toensurethatregulatoryrequirements

withregardtoallowedconcentrationlimits

aresatisfied.Informationmustalsobe

providedastohowtheindexcalculation

methodologyisverifiedandonanyfees

embeddedintheindex.

(iv) Publication in an appropriate manner

Theindexmustbepublishedinan

appropriatemanner.Thismeansthat

aninvestorshouldbeabletoaccess

relevantmaterialinformationontheindex

withease,forexample,viatheinternet.

Indexperformancemustbefreelyand

continuallyavailablesothat,totheextent

permittedbytheindexprovider,information

onmatterssuchasindexconstituents,

calculation,rebalancingmethodologies,

etc.shouldbeavailable.Informationthat

anindexproviderconsiderstobeofa

proprietaryandcommerciallysensitive

natureisnotexpectedtobepublished

inadetailedmanner.

(v) Independent Management

Theindexmustbeindependentlymanaged

fromthemanagementoftheUCITSandits

performancemustbecalculatedinan

independentenvironmentfreefromany

externalinfluences.

(vi) Hedge Fund Indices

Hedgefundindicesmayqualifyas“financial

indices”towhichexposurecanbetaken

throughfinancialderivativeinstruments

providedthattheymeettheindexcriteria

indicatedaboveandwhere:

theindexmethodologyhasasetof

predeterminedrulesandobjective

criteriafortheselectionandrebalancing

ofindexcomponents;

theindexproviderdoesnotaccept

paymentsfrompotentialindex

componentsforthepurposeofbeing

includedintheindex;and

back-filling(i.e.retrospectivechanges

topreviouslypublishedindexvalues)

isnotpermitted.

Thereareadditionalduediligencerequirements

imposeduponaUCITSwhichwishestogain

exposuretoahedgefundindexwhichrequires

thataUCITSconsidersthequalityoftherelevant

hedgefundindextakingintoaccount(atleast)

boththecomprehensivenessoftheindex

methodologyandavailabilityofinformation

regardingtheindexandaUCITSmustkeepa

recordoftheseassessments.

Indeterminingthecomprehensivenessofthe

indexmethodology,theUCITSshouldconsider

whetherthemethodologycontainsanadequate

explanationofmatterssuchastheweightingand

classificationofcomponentsandthetreatmentof

defunctcomponentsandwhethertheindex

representsanadequatebenchmarkforthekind

ofhedgefundstowhichitrefers.Inrelationtothe

availabilityofinformationregardingtheindex,

matterstobetakenintoaccountincludewhether

thereisaclearnarrativedescriptionofwhatthe

indexisseekingtorepresent,whethertheindex

issubjecttoanindependentauditandthescope

oftheauditaswellashowfrequentlytheindexis

publishedandwhetherthatwouldaffecttheability

oftheUCITStoaccuratelycalculateitsownNAV.

Considerationshouldalsobegiventothe

treatmentofindexcomponentsincludingthe

proceduresbywhichtheindexprovidercarries

outduediligenceontheNAVcalculation

proceduresoftheunderlyingindexcomponents,

thelevelofdetailavailableregardingindex

componentsandtheirNAVs(includingwhether

theyareinvestableornon-investableandwhether

thenumberofcomponentsintheindexachieves

sufficientdiversification).

NormalrulesregardingOTCderivatives,inthe

caseofexposuretoanindexbymeansofOTC

derivatives,apply.

AvailableLegalStructures

10

10. AvailableLegalStructures

UCITScanbeestablishedinIrelandas

variablecapitalinvestmentcompanies,

unittrusts,orascommoncontractualfunds

(*fixedcapitalinvestmentcompaniesare

alsoavailablebutnotinpracticeused).

Allthreelegalstructuresaresubjecttothe

standardUCITSinvestmentandborrowing

restrictions,thesameauthorizationprocess

andoperatingconditionsandeachmust

haveasitssoleobjectthecollective

investmentineligibleassetsofcapital

raisedfromthepublicandprovideforat

leastfortnightlyredemptionfacilities.

EachofthestructuresmusthaveanIrish

Administrator(responsibleforcalculationofthe

NAV,theaccountingfunctionandmaintenance

ofbooksandrecordsandusuallyincorporating

theTransferAgencyfunction)andanIrish

basedTrustee/Custodian(responsiblefor

safekeepingofassetsandperformanceof

certainfiduciarytypeduties).Mostwillappoint

anInvestmentManager(responsiblefor

discretionaryassetmanagementoftheUCITS

portfolio)andmanywillappointaGlobal

DistributororlocalDistributors.

Notwithstandingtheabovethereareanumber

ofdistinctionsbetweenthethreelegalstructures

assummarisedbelow.

(i) UCITS variable capital investment companies

UCITSvariablecapitalinvestment

companiesor“VCCs”arepubliclimited

liabilitycorporatevehicleswiththeirown

legalpersonality.InadditiontotheUCITS

RegulationstheyaresubjecttoIrish

companylaw(withrelevantexceptions)

asitappliestopubliclimitedcompanies.

Theirconstitutivedocumentisthe

MemorandumandArticlesofAssociation

andultimatemanagementauthorityresides

withaboardofdirectors,twoofwhom

mustbeIrishresident.VCCsissueshares

toinvestorswhichsharesdonotrepresent

alegalorbeneficialinterestintheVCCs

assets,thoseassetsbeinglegallyheldby

theCustodian,beneficiallybytheVCCitself.

UnlikebothunittrustsandCCFs,VCCsare

requiredtoconveneandholdanannual

generalmeetingofshareholdersandany

changestotheirMemorandumandArticles

ofAssociationrequireinvestorapproval.

Self-managedVCCsrequireaminimum

paidupcapitalof€300,000before

commencingoperationsandarealso

subjecttothe“substance”requirements

applicabletoManagementCompanies

(seeSection11below).

Investment Manager

InvestmentManager

InvestmentAdviser

InvestmentAdviser

Distributor

Distributor

LocalDistributor

LocalDistributor

InvestmentCompany

IrishManagementCompany

Box1–SelfManagedUCITSInvestmentCompany

Administrator/TA

Administrator/TA

Custodian

Custodian

GlobalCustodian

GlobalCustodian

InvestmentCompany

PAGE46

VCCsenterintocontractsthemselves

ascorporateentities,principallywiththe

InvestmentManager,Administratorand

Distributor(orviatheManagementCompany

ifnotself-managed)andwiththeCustodian.

VCCswhouseaManagementCompanydo

notneedtomeetthe“substance”orcapital

adequacyrequirementsforSMICs.

VCCscanbeestablishedasumbrellaschemes

andumbrellaVCCsaresubjecttospecific

statutoryprovisionsdealingwithsegregated

liabilitybetweensub-funds.

Box2–UCITSInvestmentCompanywithIrishManagementCompany

InvestmentManager

InvestmentAdviser

Distributor

LocalDistributor


Box3–UCITSUnitTrust

Administrator/TA

CustodianTrust Deed= =

GlobalCustodian

PAGE47

(ii) UCITS unit trusts

Unittrustsarecontractualarrangements

createdunderadeedoftrust(the“trust

deed”)madebetweentheManagement

CompanyandtheTrustee.Unittrustsdo

nothavetheirownlegalpersonality

andcontractsareenteredintoinrespect

ofunittrustsbytheManagementCompany

and,incertaincases,bytheTrustee.

Theultimatemanagementauthorityrests

withtheManagementCompanywhich

canactasManagementCompanyfor

multiplecollectiveinvestmentschemes

(UCITSandNon-UCITS;VCCs,unittrusts

andCCFs).TheManagementCompany

mustitselfbeauthorisedseparatelytothe

unittrust’sownUCITSauthorisationand

itmustmeetthe“substance”andcapital

adequacyrequirementsoutlinedinSection

11below.

Unit trusts issue units to investors and a

unitrepresentsanundividedbeneficial

interestintheassetsoftheunittrust.The

assetsarelegallyheldbytheTrustee.

Unittrustsarenotrequiredtoholdannual

investormeetingsand,providedboththe

ManagementCompanyandTrusteecertify

thatsuchchangesdonotprejudicethe

interestsofinvestors,changescanbemade

tothetrustdeedwithouthavingtoobtainprior

investorapproval.

(iii) UCITS Common Contractual Fund

ThecommoncontractualfundorCCFis

acontractualarrangementsimilartothe

FCP(FondsCommundePlacement)

structuresinotherEuropeanjurisdictions,

notablyLuxembourgandFrance,andthe

DutchFGR(FondsvoorGemeneRekening)

enablingtheassetsheldonbehalfof

investorstobemanagedthroughasingle

poolinproportiontotheassetsorcash

subscribedtothepool.

ACCFisconstitutedundercontract

lawbymeansofadeedofconstitution

(“deed”)executedundersealbythe

ManagementCompany.Thedeedprovides

forthesafekeepingofassetsoftheCCF

byaCustodian-whoisalsoapartytothe

deed–andspecifiesthefiduciary

responsibilitiesoftheCustodianwhichare

equivalenttothoseofcustodians/trustees

ofotherUCITSschemes.Thedeedalso

providesthattheCustodianwillbe

appointedonthetermsofacustodian

agreementtobeenteredintobythe

ManagementCompanyandCustodian.

Importantly,theCCFisanunincorporated

bodyanddoesnothavelegalpersonality.

BecauseaCCFdoesnothavelegal

personality,itmayactonlythroughthe

ManagementCompany(orinvestment

manager,ifauthorityisdelegatedtoan

investmentmanager).

ParticipantsintheCCFholdtheir

participationasco-ownersandeach

participantholdsanundividedco-ownership

interestas“tenantsincommon”withother

participants.A“tenancyincommon”isa

formofco-ownershipinwhichthejoint

owner(the“tenantincommon”)hasa

distinctbutundividedinterestorshareinthe

propertythesubjectoftheco-ownershipbut

withnorightofsurvivorship(e.g.ondeathof

oneco-owner)infavourofanyoftheother

jointowners(tenantsincommon).Investors

donothaveanybeneficialentitlementto

anyparticularasset,ratheraproportional

beneficialentitlementtoaninterestinthe

underlyingpoolofassets.

Toassistinachievingtaxtransparency

(thesecharacteristicsdifferentiateaCCF

fromanopaquecorporatebody),aCCF

willnormallyhavethefollowingadditional

characteristics:

incomederivedthroughthepooling

vehicleshouldbedistributedona

mandatorybasisannually,proratato

eachparticipant’sinvestmentinthe

CCF.Thisensuresthattheincomeis

bothaccountedforandtaxedonan

“arising”/currentbasis;

theCCFparticipantshouldbeprovided

withanannualbreakdownofincomeon

investmentsbytypeandsource;

noredemptionchargeshouldbelevied

onparticipants;

no“investor”meetings(i.e.meetings

similartoshareholdermeetings)should

bepermitted;

InvestmentManager

InvestmentAdviser

Distributor

LocalDistributor


Box4–CommonContractualFund(CCF)

Administrator/TA

Custodian

GlobalCustodian

CCFDeed=

PAGE49

theIrishtaxauthoritiesmustview

aCCFasatransparentvehiclefor

Irishtaxpurposes;

holdings/unitsinaCCFshouldnotbe

freelytransferablebutareredeemable.

Ithas,however,beenacceptedthat

unitsmaybetransferredinlimited

circumstances,i.e.withtheprior

consentof100%ofunitholdersand

theManagementCompany;and

assetsshouldbejointlyheld

byparticipantspro-ratato

theirinvestment.

(iv) Umbrellas, Sub-Funds and Classes

Whicheverlegalstructureischosen,UCITS

canbeestablishedassinglestand-alone

fundsandasumbrellafunds,andcanoffer

differentunitorshareclasseswithinafund,

thenormaldifferentiatingfactorsbeing

targetaudience(retail,professional,

institutional),minimumsubscription/holding

requirements,designatedcurrencyandfees.

Itisafundamentalprinciple,however,that

assets/liabilitieswithinasinglefundarenot

allocatedtoindividualclasses,butmaybe

“attributable”toclassesincertaincases

suchasinthecaseofhedgedcurrency

classeswherethegains/lossesare

attributedtotherelevantclasses,aswell

asotherclassliabilitiessuchasfees.

UCITSManagementCompanies/SMICs

11

11.UCITSManagement Companies/SMICs UCITSestablishedasunittrustsorasCCFs

arerequiredtohaveanIrishManagement

Company.Thisisbecauseaunittrustiscreated

byaManagementCompanyandTrustee

enteringintoatrustdeedand,inthecaseof

aCCF,itisconstitutedcontractuallybythe

ManagementCompanyunilaterallyentering

intoadeedofconstitution.UCITSestablished

asinvestmentcompanieshavetheoptionas

towhetherornottoappointamanagement

company.UCITSwhichdonotappointa

managementcompanyareknownas“self-

managedinvestmentcompanies”(“SMICs”).

(i) Management Company

Inthefundmanagementindustry,

particularlywhendealingwithcollective

investmentschemes,theterms

“ManagementCompany”and“Investment

Manager”havedifferentmeanings,different

functionsanddifferentpassports.These

distinctionscanattimesbecomeblurred,

particularlysincetheintroductionofthe

UCITSIIIDirectives,butitisimportantto

understandthedifferenceasexplained

furtherbelow.(NOTE:Theterm“Manager”

and“ManagementCompany”areused

interchangeablyandrefertothe

sameentity).

Whenwerefertoa“Management

Company”wearereferringtotheentity

whichhastheultimateresponsibilityfor

themanagementofacollectiveinvestment

scheme.Thisoverallmanagementfunction

encompassesoverallcontrolofthe

collectiveinvestmentscheme,including

thediscretionaryinvestmentmanagement

function,thefundadministrationfunction

andthedistributionfunction.

IfaManagementCompanyisusedfor

acollectiveinvestmentscheme,the

contractualarrangementsarestructured

sothattheManagementCompanyis

mandatedtocarryoutinvestment

management,fundadministrationand

distributioninrespectoftheIrishdomiciled

collectiveinvestmentschemebutthe

reality,inmostcases,hasbeenthatthe

IrishManagementCompanydelegatesout

fundadministrationtoanIrishregulated

entity,delegatesoutthedistributionactivity

toadistributorinthejurisdictionwherethe

UCITSisbeingdistributedanddelegates

theinvestmentmanagementfunctiontoan

appropriatelyregulatedInvestmentManager

which,ifitisaEuropeanentity,wouldbe

authorisedinitsHomeEUMemberState

undertheMarketsinFinancialInstruments

Directive(“MiFID”).

A“self-managed”investmentcompany

orSMIC,asitsnamesuggests,doesnot

haveanIrishManagementCompanyand

insteaddirectlyappointstheAdministrator,

theCustodian,theInvestmentManager

andDistributor.

(ii) Expansion of Opportunities for UCITS Management Companies

SincetheintroductionoftheUCITSIII

ManagementCompanyDirective,UCITS

ManagementCompanieshavebeenable

toexpandtherangeofserviceswhichthey

canprovide,thetypesofclientstowhom

theycanprovidesuchservicesandhave

(albeittoalimitedextent)obtainedthe

capacitytopassporttheirservicescross-

borderwithintheEU.

AUCITSIIIManagementCompanycan

beauthorisedforcollective portfolio

managementand,but not or,for individual

portfolio management.Thismeansthata

UCITSIIIManagementCompanycanactas

ManagementCompanytocollective

investmentschemesand,ifitwishesto

expanditsauthorisation,itcanalsoprovide

discretionaryassetmanagementservicesto

othertypesofclients(i.e.clientswhichare

notcollectiveinvestmentschemes)suchas

pensionfunds,corporates,insurance

companiesandretailinvestors.

SeeAppendixCforthefullrangeofservices

andanexplanationofthetermscollective

portfoliomanagementandindividual

portfoliomanagementastheyapplyto

UCITSManagementCompanies.

(iii) Management Company Passport

UndertheUCITSIIIManagementCompany

Directive,ManagementCompanieswere

grantedapassportwiththeintentionbeing

thatanIrishManagementCompanycould,

forexample,actasManagementCompany

ofaLuxembourgcorporatetypefund(no

passportwasgrantedtoactasManagement

Companyofaforeigncontractualtypefund

duetothelegalnatureofsuchfunds).In

practicetheManagementCompany

passporthasnotworkedforthepure

ManagementCompanyrole,although

ManagementCompanieshavebeenable

topassporttheinvestmentmanagement

elementofcollectiveportfoliomanagement

aswellasindividualportfoliomanagement,

ifauthorisedforthatservice.

Thecurrentpositionis,therefore,thata

UCITSIIItypeManagementCompanycan

beauthorisedtoactas:

ManagementCompanytoIrish

domiciledcorporatetypefundsand

contractualtypefunds(bothUCITS

andnon-UCITS);and

InvestmentManagertoIrishfunds

andnon-Irishfunds(eitherdirectlyor

bysub-delegation);

InvestmentManagertoothertypesof

Irishandnon-Irishclients(pension

funds,insurancecompanies,individual

managedaccounts,etc.)onadirect

ordelegatedbasis(providedthatitis

authorisedtocarryoutindividual

portfoliomanagement).

During2007proposalswerebrought

forwardtoaddresstheimplementation

oftheManagementCompanypassport

provisionsfromUCITSIIIaswellasto

addresscertainotherUCITSstructural

issues,principallycrossbordermergers

ofUCITSandmasterfeederstructures,

theseproposalsbeingreferredtoas

“UCITSIV”,asfurtherdescribedbelow.

AttherequestoftheEuropean

Commission,CESRissuedacallfor

evidenceontheManagementCompany

passportissue.Furtherdevelopmentsin

thisareaareexpected.

(iv) “Substance” Requirements

AUCITSIIIManagementCompanycannot

bean“emptybox”,mustbemanagedbyat

leasttwopersonsandmustperformthe

followingeightkeymanagementfunctions:

Decision taking:theremustbeclear

responsibilityandcompetencein

relationtoallmaterialdecisionsaffecting

theoperationandconductofbusiness

oftheManagementCompany.Generally

speaking,theFinancialRegulator

considersthatkeystrategicandmaterial

issues/decisionsrelatingtothe

ManagementCompanyshouldbe

consideredbyitsboardofdirectors;

Monitoring compliance:itmustputin

placeproceduresdesignedtoensure

compliancewithallapplicablelegaland

regulatoryrequirements;

Risk Management:itmustputinplace

proceduresdesignedtoensurethatall

applicableriskspertainingtotheUCITS

canbeidentified,monitoredand

managedatalltimes;

Monitoring of Investment Performance:

itmustputinplaceproceduresto

ensureavailabilityofup-to-date

informationonportfolioperformance;

Financial Control:itmustputinplace

procedurestoensureallrelevant

accountingrecordsareproperly

maintainedandarereadilyavailable

includingproductionofannualand

half-yearlyfinancialstatements;

Monitoring of Capital:itmustput

inplaceprocedurestoensure

compliancewithapplicablecapital

adequacyrequirements;

Internal Audit:itmustputinplace

procedurestoensureeffectiveinternal

auditprocedures;and

Supervision of Delegates:itmust

haveclearstructuresinplaceforthe

ongoingmonitoringofworkdelegated

tothirdparties.

ItisimportanttonotethatbothManagement

CompaniesandSMICsarerequiredto

demonstratecompliancewiththeabove

eightmanagementrequirements.

Inadvanceofcommencingoperations,

aManagementCompanymustsubmita

detailedApplicationforAuthorisationanda

BusinessPlantotheFinancialRegulator

settingouthowtheabovefunctionsare

goingtobeperformed,bywhom,whereand

whatreportinglinesareputinplace.The

eightfunctionshavetobecarriedoutbyat

least2peoplewhocanbe:-

employeesbasedinIreland

(notabroad);

fromanIrishthirdpartyengagedto

providetheservicesinIreland;or

boardmemberswhocancarryoutthe8

functions,providedthatatleastsomeof

thefunctionsarecarriedoutbyIrish

residentdirectors.

(v) Capital Adequacy

ThecapitalrequirementforaUCITS

ManagementCompanyisthehigherof

(i) theinitialcapitalrequirementof€125,000

plustheownfundsrequirement(i.e.

0.02%oftheamountofassetsunder

managementinexcessof€250m);and

(ii)onequarterofitsprecedingyear’s

fixedoverheads.

Theaggregateoftheinitialcapital

requirementof€125,000plustheown

fundsrequirementtobemaintainedbya

ManagementCompanyissubjecttoa

maximumof€10million.

TheFinancialregulatorrequiresthata

UCITSIIIManagementCompanymaintain

thehigherof:-

(i) theinitialcapitalrequirementof

€125,000;or

(ii) onequarterofitsprecedingyear’s

fixedoverheads.

(i.e.theeligibleassetsrequirement)in

cashand/orliquidassetsoutsidethe

ManagementCompany’sGroup.

Theminimumcapitalrequirementfora

SMICis€300,000anditisnotsubjectto

thefixedoverheadsortheadditionalown

fundsrequirements.

(vi) Authorisation Procedure

TheapplicationprocessforaUCITS

IIIManagementCompanyengagedin

collectiveportfoliomanagementonly

andwhichdelegatesoutthefund

administration,assetmanagementand

distributionfunctionstothirdpartiesis

assetoutbelow.Aninitialmeetingwith

theFinancialRegulatorshouldbeorganised

tointroducetheparentgroup.Thiswillbe

followedbypreparation,completionand

filingwiththeFinancialRegulatorofthe

followingdocuments:

formalApplicationforAuthorisation

(thereisaspecificapplicationform

forthispurpose);

detailedBusinessPlansettingout

thelegalnatureoftheManagement

Company,typesofactivitieswhichit

proposescarryingon,itsorganisational

structure,howitwillperformtheeight

oversightfunctions,threeyearfinancial

projections,detailsofproposed

capitalisation,overallgroupstructure,

sampleoftransactionflowsforthe

typeoftransactionstowhichitwill

beengaged;

IndividualQuestionnairesfor

eachofitsproposedDirectors

andseniormanagementincluding

ComplianceOfficer;

CodeofConduct,Anti-Money

Launderingprocedures,reporting

linesetc;

Groupstructuredetails(considerable

informationmayberequired).

Followingreviewofthesedocumentsthe

FinancialRegulatorwillthenenterinto

correspondencewiththeapplicantwhich

regularlytakestheformofsubmitting

additionaldocumentationandproviding

clarificationswhererequired.Ifindividual

portfoliomanagementisalsotobecarried

out,theApplicationandBusinessPlan

becomemorelikeaMiFIDtypeapplication.

Forreasonablycompleteapplications,the

normalauthorisationtimeisapproximately

fourmonths.

UCITSIV

12

12.UCITSIV InMarch2007,theEuropeanCommission

publishedanumberofpapersoutlining

possibleadjustmentstotheUCITSDirective.

Thesepapersincludedinitialsuggestionson

howtoaddressthenon-implementationofthe

ManagementCompanypassportprovisions

fromUCITSIIIaswellassuggestionsasto

howtoaddresscertainotherUCITSissues

suchascross-bordermarketingoffunds,

fundmergersandassetpooling,

improvementofproductdisclosuresand

strengtheningsupervisorycooperation

mechanisms,theseproposalscollectively

referredtoas“UCITSIV”.

Whiletherewaswideagreementwithregard

tomostoftheCommission’sproposedchanges,

therewassignificantdebatewithregardtothe

ManagementCompanypassportproposal,with

differingviewsastowhetherafullorpartial

ManagementCompanypassportwasthe

mostappropriatewayforward.

InJuly2008,theEuropeanCommission

issuedanannouncementadvisinghow

itintendstobringforwardtheUCITSIV

proposalsandsettingoutitsintentionto

replacetheexistingDirectiveswithanew

singletext.Thisproposalhasbeenpassed

totheEuropeanParliamentandCouncil

forconsideration.

TheproposedchangestotheUCITS

Directivewill:

(i) Remove administrative barriers to the

cross-border distribution of UCITS funds

Currentcross-bordernotificationprocedures

cantakeseveralmonthsbeforecompleted

(andentailunnecessaryred-tapeand

administrativecosts).Theproposednew

notificationprocedurewillbereducedto

asimple,electronic,regulator-to-regulator

communicationwiththedistribution

immediatelyaftersuchcommunication.

(ii) Create a framework for mergers

between UCITS funds and allow the

use of master-feeder structures

Fundmergerswillbeallowed,onbotha

domesticandacross-borderbasis,and

theirauthorisationprocedurewillbe

harmonised,aswilltherequiredlevel

ofinformationtobeprovidedtoinvestors.

Subjecttoapprovalandtheappropriate

informationofinvestors,aUCITSfund

(feeder)willbeallowedtofullyinvestits

assetsintoanotherfund(master).

(iii)Replace the Simplified Prospectus

by a Key Investor Information (KII)

TheKIIistobecontainedinashort

documentconveyingkeyfactstoretail

investorsinaclearandunderstandable

mannersoastoassisttheminmaking

aninformedinvestmentdecision.

(iv)Introduce further cooperation

mechanisms between the

national supervisors

AsregardstheManagementCompany

passport,theCommissionpointedoutin

theirJuly2008announcementthatthe

mostrecentconsultationprocessrevealed

thatthereareanumberofpotential

supervisoryandinvestorprotection

concernswhichneedtobetackled.The

Commission,therefore,decidedtoconsult

withCESRontheseissuesandtoseek

advicetoassisttheCommissiontodevelop

provisionspermittingtheintroductionof

aManagementCompanypassportunder

conditionsthatareconsistentwithhigh

levelofinvestorprotection.Following

thatadvice,theCommissionintendsto

bringforwardanappropriateproposalin

timetoallowforitsadoptionduringthe

currentEuropeanParliament’sterm.

TaxationofUCITS in Ireland

13

13. TaxationofUCITSinIreland

Irelandhasaveryfavourabletaxationregime

forUCITSandindeedfundsingeneral.AllIrish

funds(UCITSorNon-UCITS)whethertheyare

constitutedascorporateentities,unittrusts

orinvestmentlimitedpartnershipsaresubject

tothesametaxationregimesolongasthey

aredesignatedasInvestmentUndertakings

underSection739BoftheTaxesConsolidation

Act1997(asamended)(the“TCA”).

Irish Direct Tax & Withholding Tax

InvestmentUndertakings(“funds”)arenot

subjecttoIrishtaxationonanyincomeor

gainstheymayrealisefromtheirinvestments.

Inaddition,therearenoIrishwithholding

taxesinrespectofadistributionofpayments

byfundstounitholdersoranyencashment,

redemption,cancellationortransferofunits

inrespectofunitholderswhoareneitherIrish

residentnorordinarilyresidentinIreland

andwhohaveprovidedthefundwiththe

appropriaterelevantdeclarationofnon-Irish

residenceorindeedinrespectofcertain

categoriesofexemptIrishinvestors(e.g.

approvedpensionschemes,charities,other

investmentundertakings,etc)whohavealso

madetheappropriatedeclarationtothefund.

When,however,adistributionismadebythe

fundtoIrishresidentunitholders(oranordinarily

Irishresidentunitholder)whodonotfallwithin

anyoftheexemptIrishinvestorcategories,or

suchaunitholderdisposesofunitsandrealises

again,taxmustbedeductedbythefundata

rateof20%ondistributions(wherepayments

aremadeannuallyoratmorefrequentintervals)

or23%(stdrateplus3%)onanyother

distributionorgainarisingtotheunitholder.

Stamp Duty

NostampdutyispayableinIrelandonthe

issue,transfer,repurchaseorredemptionof

unitsinafund.Furthermore,nostampduty

ispayablebythefundontheconveyance

ortransferofstockormarketablesecurities

providedthatthestockormarketablesecurities

inquestionhavenotbeenissuedbyacompany

registeredinIrelandandprovidedthatthe

conveyanceortransferdoesnotrelateto

anyimmovablepropertysituatedinIreland

oranyrightoverorinterestinsuchproperty

ortoanystocksormarketablesecuritiesof

acompany(otherthanacompanywhich

isanfund)whichisregisteredinIreland.

Whereanysubscriptionfororredemptionof

unitsissatisfiedbytheinspecietransferof

securities,propertyorothertypesofassets,

considerationshouldbegiventowhether

Irishstampdutymayariseonthetransferof

suchassets(inmostcasesitshouldnot).

VAT

TherearewiderangingVATexemptionswith

regardtotheprovisionofservicestofunds(e.g.

administration,transferagency,investment

management,custodial,etc)andtotheextent

thatafundsuffersIrishVAToncertainservices

itreceives(e.g.auditandlegalfees)thefund

mayrecoverthisVATbasedonitsrecovery

rate.Therecoveryratewillbebasedoneither

(i)theextentthatsecuritiesofthefundare

investedoutsidetheEUor(ii)theextentthat

theinvestorsinthefundarelocatedoutside

theEU.TheIrishTaxAuthoritiespreferto

ruleonthefund’sVATrecoverypositionby

referencetowherethesecuritiesofthefund

areinvested,ratherthanwheretheinvestors

inthefundarelocated.Nevertheless,

whicheverbasisisused,itmustbeapplied

consistentlyfromoneperiodtothenext.

Compliance requirements

Fundshaveanobligationtoregisterwiththe

IrishTaxAuthoritiestoobtainataxreference

numberaseachfundmustfilebi-annualtax

returnswiththeIrishTaxAuthorities.These

taxreturnsshouldbeaccompaniedbythe

paymentofappropriatetax(ifapplicable)for

theperiodinquestion.Onthebasisthatthere

arenoIrishresidentorordinarilyresident

unitholders(orsuchunitholdersareexemptIrish

investors)theappropriatetaxshouldbenil.

Certainservicesreceivedfromabroad(e.g.the

serviceofnon-Irishlawyersoraccountants)

willrequireafundtoregisterandselfaccount

forVATinIreland.However,dependingon

thefund’sVATrecoveryratethefundmaybe

abletorecoversomeorallofthisIrishVAT.

UCITSAuthorisationProcess

14

14.UCITSAuthorisationProcess

TheauthorisationprocessforUCITShastwo

parts,onedealingwiththepromoterofand

serviceproviderstotheUCITSandthe

seconddealingwiththeUCITSproductitself.

A. Approval of Service Providers

InadditiontotheManagementCompany

(asoutlinedabove),theprincipalservice

providerstoaUCITSaretheInvestment

Manager,AdministratorandtheTrustee/

Custodian.Theentitypromotingthe

UCITSmustalsobeapproved.

(i) Promoter

Beforeanapplicationforauthorisation

ofaUCITScanbeconsidered,the

FinancialRegulatormustbesatisfiedthat

thePromoteroftheUCITSisacceptable

toit.TheFinancialRegulatorregardsthe

Promoterasbeingthedrivingforcebehind

theproduct(i.e.theentitywithoutwhomthe

UCITSwouldnotbebroughttothemarket).

Promotersmustbeofgoodreputeand

shouldhaveasignificantleveloffinancial

resources(atleast€635,000)anda

demonstrableandrelevanttrackrecord

inthepromotionoffunds.Inconsidering

thesuitabilityofthePromoterofaUCITS,

theFinancialRegulatorrequiresdetailed

informationtoenableitgainan

appreciationofthePromoterandthe

natureofitsbusiness.Informationtobe

providedincludes:

detailsofthemainactivitiesofthe

Promotersinceitsestablishment;

itsexperienceandexpertiseinthe

promotionandmanagementof

collectiveinvestmentschemes;

ownershipdetails;

detailsofdistributionnetworks;

latestauditedaccountsinrespectof

thePromoteranditsultimateowners;

confirmationthatthePromoteris

regulatedinitshomejurisdiction;and

auditors’confirmationthatthePromoter

hasadequatefinancialresources.

(ii) Investment Manager

WheretheassetmanagementofaUCITS

is,asisusual,delegatedtoathirdparty

InvestmentManager,theUCITSDirective

imposestwoprincipalrequirements.

Firstly,onlyInvestmentManager,whoare

authorisedorregisteredforthepurpose

ofassetmanagementandwhoaresubject

toprudentialsupervisionmaybeappointed.

Secondly,whereanon-EUInvestment

Managerisappointed,theremustbea

formofco-operationinplacebetweenthe

FinancialRegulatorandthesupervisory

authoritiesofthethirdcountry

InvestmentManager.

IftheInvestmentManagerisanentity

authorisedtocarryoutdiscretionaryasset

managementunderMiFID,theFinancial

Regulatorwillnotapplyadetailedreview

andapprovalprocessbutratherwillrequire

confirmationfromtheHomeStateregulator

thattheInvestmentManagerhasthe

appropriateregulatorystatus.

IftheInvestmentManagerisnotauthorised

tocarryoutdiscretionaryassetmanagement

underMiFID(suchasUS,Japaneseetc

InvestmentManagers),theFinancial

Regulatorwillnormallyapplyadetailed

reviewandapprovalprocess.Inbothcases,

adetailedapplicationforapprovalneedsto

besubmitted.WhereaPromoteralsoacts

asInvestmentManager,aseparate

applicationforapprovaltoactas

InvestmentManagerisnotrequired.

(iii) Administrator

TheAdministratorofaUCITSmustbe

incorporatedinIrelandandauthorisedby

theFinancialRegulatortoprovide

administrationservicesunderthe

InvestmentIntermediariesAct,1995(as

amended)and/orMiFID.Therearecertain

“minimumactivities”whichmustbecarried

outbytheAdministratorinIreland,which

cannotbedelegatedtoanentityoutside

Ireland.Derogationsfromtheseminimum

activitiesrequirementsmaybesoughton

acasebycasebasis.Theminimum

activitiesrulesmaychangeintheevent

theManagementCompanypassport

isimplemented.

(iv) Custodian/Trustee

ThecustodianofaUCITSmustbea

creditinstitutionauthorisedinIreland,an

IrishbranchofanEUcreditinstitutionor

anIrishincorporatedcompanywhichis

whollyownedbyanEUcreditinstitution

(orequivalentfromanon-EUjurisdiction)

providedthattheliabilitiesoftheIrish

companyareguaranteedbyitsparent.

Acustodian/trusteeofanIrishUCITS

hasadualrole(i)to“oversee”themanner

inwhichtheUCITSismanagedand(ii)to

safe-keeptheassetsoftheUCITS,ineach

caseinaccordancewiththerequirements

setdownbytheFinancialRegulator.

B. UCITS Documentation Requirements

Thefollowingdocumentsarerequiredtobe

submittedtotheFinancialRegulatorinsupport

ofanapplicationforauthorisationofaUCITS:

FinancialRegulatorApplicationfor

AuthorisationofaUCITS

Business Plan

Prospectus

MemorandumandArticlesofAssociation/

TrustDeed/CCFDeed*

CustodianAgreement*

AdministrationAgreement

InvestmentManagement/

AdvisoryAgreement

DistributionAgreement(optional)

PlacingAgreement(optional)

DerivativesRiskManagementProcess

IndividualQuestionnairesfordirectorsof

VCCorManagementCompany

AncillaryLetters

SimplifiedProspectus**

*the documentation required will vary

depending on the structure of the UCITS

i.e. if it is established as a variable capital

investment company, a unit trust or CCF.

**The Simplified Prospectus is intended to

provide investors with key elements of the

Prospectus in a readily accessible form.

Following first year of operation the Simplified

Prospectus should also contain performance

data, portfolio turnover rate and TER (total

expense ratio) figures for the UCITS.

Notethatcertaindocumentationforvariable

capitalinvestmentcompaniesandifnew,

ManagementCompanieswillalsoneedtobe

submittedtotheCompaniesRegistrationOffice.

C. Timing

Onaverageittakesapproximately6-8weeks

fromdateofinitialsubmissionofanapplication

totheFinancialRegulatorforauthorisationof

theUCITStoissue.

D. Regulatory Fees

TheFinancialRegulatorimposesanannual

industryfundinglevyoncollectiveinvestment

schemes.Rates(attimeofwriting)includean

annualfeeof€2,200whetheranumbrellaor

asinglestructurefund.Umbrellafundsalso

payacontributionof€550persub-fundon

thefirstfivesub-fundsresultinginamaximum

contributionforumbrellafundsof€4,950.

OngoingSupervisionandGeneralRegulatory

Requirements

15

15. OngoingSupervision andGeneralRegulatory Requirements

Setoutbelowisasummaryoftheprincipal

ongoingsupervisionandgeneralregulatory

requirementsforUCITS.

(i) Prospectus and Simplified Prospectus

AUCITSisrequiredtopublishaSimplified

ProspectusandfullProspectusbothof

whichmustbedatedandtheessential

elementsofwhichmustbekeptuptodate.

TheSimplifiedProspectusmustbeoffered

toinvestorsfreeofchargebeforethe

conclusionofacontract,withthefull

Prospectusbeingsuppliedtoinvestors

freeofchargeuponrequest.

Bothmustcontainsufficientinformationfor

investorstomakeaninformedjudgment

oftheinvestmentproposedtothemand

inparticularoftherisksattachedtothat

investmentandthefullProspectusmust

includeaclearandreadilycomprehensible

explanationoftheUCITS’riskprofile.

AdditionalrequirementsforProspectuses

aresetoutinUCITS6.4.Guidance

Note1/05dealsfurtherwiththeSimplified

Prospectus,howitsinformationshouldbe

laidoutandwhatitshouldcontainincluding

performancedata,TERdata,portfolio

turnoverrateandgeneralrequirements

astokeepingtheSimplifiedProspectus

uptodate.

(ii) Publication of Annual and Half-Yearly Reports

UCITSarerequiredtopublishanannual

auditedreportforeachfinancialyearand

anunauditedsemi-annualorhalf-yearly

report.Theannualreportmustbepublished

withinfourmonthsoftheyearend,the

semi-annualwithintwomonthsoftheperiod

endandbothmustbesenttotheFinancial

Regulator.Bothmustalsobeofferedto

investorsfreeofchargebeforethe

conclusionofacontractandsuppliedto

investorsfreeofchargeuponrequest.

Thereisalsoarequirementformonthly

statisticstobeprovidedtotheFinancial

Regulatornormallythroughthe

Administrator.

(iii) Related Party Dealings

TheFinancialRegulatorhassetout

specificrulesforrelatedpartydealings–

transactionscarriedoutwithaUCITSby

itspromoter,managementcompany,

trustee,investmentmanagerorby

associatedorgroupcompanies.The

generalprincipleisthatthesehaveto

becarriedoutasifeffectedonnormal

commercialterms,negotiatedatarm’s

lengthandmustbeinthebestinterests

oftheinvestors.Therearespecific

limitationsimposedaroundsuch

transactions.

(iv) Board Appointments

BoardappointmentstoUCITSVCCsand

toManagementCompaniesrequireprior

approvalbytheFinancialRegulator.

DeparturesfromtheBoardofDirectors

mustbenotifiedtotheFinancialRegulator

immediatelyandthereisaprohibition

oncommondirectorsbetweentheVCC/

ManagementCompanyandtheBoardof

DirectorsoftheTrustee.Twodirectors

mustbeIrishresident.

(v) Valuation Rules

TheFinancialRegulatorhassetoutspecific

rulesforthevaluationofassetsofUCITSin

itsUCITSNotices,withfurtherclarification

initsGuidanceNotes.

(vi) Changes of Investment Objectives and Policies

Changesofinvestmentobjectivesand

materialchangesofinvestmentpolicy

arerequiredtobeapprovedinadvance

onthebasisofamajorityofvotescastat

ageneralmeetingofinvestorswitha

reasonablenotificationperiodbeing

providedbytheUCITStoallowinvestors

redeemtheirholdingpriortoimplementation

ofthechanges.Inthiscontext,theterm

“material”istakentomean,althoughnot

exclusively,“changeswhichwould

significantlyaltertheassettype,credit

quality,borrowinglimitsorriskprofile

oftheUCITS”.

Appendices

16

AppendixA

TransferableSecuritiesandMoneyMarketInstruments

A. Transferable Securities

(i) UCITS III Definitions

Theterm“transferablesecurities”isdefined

intheUCITSProductDirectiveasbeing:

sharesincompaniesandother

securitiesequivalenttosharesin

companies(“shares”);

bondsandotherformsofsecuritised

debt(“debtsecurities”);

othernegotiablesecuritieswhich

carrytherighttoacquireanysuch

transferablesecuritiesbysubscription

orexchange;

otherthanthepermittedUCITSefficient

portfoliomanagementtechniques

andinstruments.

(iii) Clarification by Eligible Asset Directive

In2007theEligibleAssetsDirective

clarifiedtheabovedefinitionbyproviding

thatthereferencetotransferablesecurities

“shallbeunderstoodasareferenceto

financialinstruments”whichfulfilthe

followingcriteria:

(a) thepotentiallosswhichtheUCITS

mayincurwithrespecttoholding

thoseinstrumentsislimitedtothe

amountpaidforthem;

(b) theirliquiditydoesnotcompromise

theabilityoftheUCITStocomply

withitsobligationtoprovideatleast

fortnightlyredemptionfacilities;

(c) reliablevaluationisavailableforthem

asfollows:

(i) inthecaseofsecuritiesadmittedto

ordealtinonaregulatedmarketinthe

formofaccurate,reliableandregular

priceswhichareeithermarketprices

orpricesmadeavailablebyvaluation

systemsindependentfromissuers;

(ii) inthecaseofothersecurities(i.e.

theaggregate10%thatcanbe

investedintransferablesecurities

andmoneymarketinstrumentsnot

specificallyreferredtoinArticle19(1)),

intheformofavaluationonaperiodic

basiswhichisderivedfrominformation

fromtheissuerofthesecurityorfrom

competentinvestmentresearch;

(d) appropriateinformationisavailablefor

themasfollows:

(i) inthecaseofsecuritiesadmittedto

ordealtinonaregulatedmarketas

referredtoinsubparagraphs(a)to(d)

ofArticle19(1),intheformofregular,

accurateandcomprehensive

informationtothemarketonthe

securityor,whererelevant,onthe

portfolioofthesecurity;

(ii) inthecaseofothersecuritiesas

referredtoinArticle19(2),intheform

ofregularandaccurateinformationto

theUCITSonthesecurityor,where

relevant,ontheportfolioofthesecurity;

(e) theyarenegotiable;

(f) theiracquisitionisconsistentwiththe

investmentobjectivesortheinvestment

policy,orboth,oftheUCITS;

(g) theirrisksandtheircontributionto

theoverallriskprofileoftheportfolio

areadequatelycapturedbytherisk

managementprocessoftheUCITS

whichmustbeassessedonan

ongoingbasis.

Forthepurposeofsubparagraphs(b)and

(e),andunlessthereisinformationavailable

totheUCITSthatwouldleadtoadifferent

determination,financialinstrumentswhich

areadmittedordealtinonaregulated

marketinaccordancewithArticle19(1)shall

bepresumednottocompromisetheability

oftheUCITStocomplywithitsredemption

facilityrequirementsandshallalsobe

presumedtobenegotiable.

Forthepurposesofsubparagraph(b)

above,whereinformationisavailable

totheUCITSthatwouldleaditto

determinethatatransferablesecurity

couldcompromisetheabilityofthe

UCITStocomplywithitsredemption

facilityrequirements,theUCITSmust

assessitsliquidityrisk.

TheliquidityriskisafactorthattheUCITS

mustconsiderwheninvestinginany

financialinstrumentinordertobecompliant

withtheportfolioliquidityrequirementto

theextentrequiredbyitsredemptionfacility

requirements.Intakingthisprudent

approach,thefollowingareexamplesof

themattersaUCITSmayneedtoconsider:

thevolumeandturnoverinthe

transferablesecurity;

ifpriceisdeterminedbysupplyand

demandinthemarket,theissuesize,

andtheportionoftheissuethatthe

assetmanagerplanstobuy;also

evaluationoftheopportunityand

timeframetobuyorsell;

wherenecessary,anindependent

analysisofbidandofferpricesovera

periodoftimemayindicatetherelative

liquidityandmarketabilityofthe

instrument,asmaythecomparability

ofavailableprices;

inassessingthequalityofsecondary

marketactivityinatransferablesecurity,

analysisofthequalityandnumber

ofintermediariesandmarketmakers

dealinginthetransferablesecurity

concernedshouldbeconsidered.

Inthecaseoftransferablesecuritieswhich

arenotadmittedtotradingonaregulated

market,liquiditycannotautomaticallybe

presumed.AUCITS,therefore,needsto

assesstheliquidityofsuchsecuritieswhere

thisisnecessarytomeettherequirements

ofitsredemptionfacilityrules.

Inthecaseoftransferablesecurities

whicharenotadmittedtotradingona

regulatedmarket,negotiabilitysimilarly

cannotautomaticallybepresumed.The

UCITSmustassessthenegotiabilitycannot

automaticallybepresumed.TheUCITS

mustassessthenegotiabilityofsecurities

heldintheportfolio,withaviewtoensuring

compliancewiththerequirementsofits

redemptionfacilityrules.

(iii) Closed Ended Funds as Transferable Securities

TheEligibleAssetsDirectivehasmadeit

clearthatcertainclosed-endedfundswillfall

withinthe“transferablesecurities”definition

andthereforebeeligibleforinvestmentby

UCITSastheterm“transferablesecurities”

includes:

(a) unitsinclosed-endedfundsconstituted

asinvestmentcompaniesorasunit

trusts,whichfulfilthefollowingcriteria;

(i) theyfulfilthecriteriasetoutinSection

(ii)abovetitled“ClarificationbyEligible

AssetsDirective”above;


governancemechanismsapplied

tocompanies;

(iii)whereassetmanagementactivityis

carriedoutbyanotherentityonbehalf

oftheclosedendedfund,thatentityis

subjecttonationalregulationforthe


(b) unitsinclosed-endedfundsconstituted

underthelawofcontractwhichfulfilthe

followingcriteria:

(i) theyfulfilthecriteriasetoutinSection

(ii)abovetitled“ClarificationbyEligible

AssetsDirective”above;


governancemechanismsequivalentto

thoseappliedtocompaniesasreferred

toinsubparagraph(a)(ii)above;

(iii) theyaremanagedbyanentitywhich

issubjecttonationalregulationforthe


Inassessingwhetherthecorporate

governancemechanismsforclosedended

fundsincontractualformareequivalentto

investmentcompanies,thefollowingfactors

arestatedbytheFinancialRegulatortobe

indicatorswhichcanbeusedasaguidance:

Unitholders’ rights.Thecontractonwhich

thefundisbasedshouldprovidefor:

(i) righttovoteoftheunitholdersinthe

essentialdecisionmakingprocessesof

thefund(includingappointmentand

removalofassetmanagementcompany,

amendmenttothecontractwhichset

upthefund,modificationofinvestment

policy,merger,liquidation);

(ii) righttocontroltheinvestmentpolicyof

thefundthroughappropriatemechanisms.

Segregation of assets.Theassetsofthe

fundshouldbeseparateanddistinctfrom

thatoftheassetmanagerandthefundmust

besubjecttoliquidationrulesadequately

protectingtheunitholders.

AUCITSmaynotmakeinvestmentin

closedendedfundsforthepurposes

ofcircumventingthenormalUCITS

investmentlimits.

(iv) Structured Financial Instruments

“Transferablesecurities”alsoinclude

financialinstrumentswhich:

(i) fulfilthecriteriasetoutinSection(ii)

titled“ClarificationbyEligibleAssets

Directive”above;

(ii) arebackedby,orlinkedtothe

performanceof,otherassets,which

maydifferfromthosereferredtoin

Article19(1);providedthatwherea

financialinstrumentcoveredbythis

subparagraphcontainsanembedded

derivativecomponent,therequirements

regardingthederivativesrisk

managementprocess,global

exposureandaggregationofdirect

andindirectexposuresshallapply

tothatcomponent.

B. Money Market Instruments

Thistermmeans“instruments normally

dealt in on the money market which

are liquid, and have a value which can be

accurately determined at any time”.These

shallbeunderstoodbyareferencetothe

followingparagraphs:

(i) financialinstrumentswhichare

admittedtotradingordealtinon

aregulatedmarket(inaccordance

withsubparagraphs(a),(b)and(c)

ofArticle19);

(ii) financialinstrumentswhicharenot

admittedtotrading.


as “instruments normally dealt in on the money

market”shallbeunderstoodasareference

tofinancialinstrumentswhichfulfiloneofthe

followingcriteria:

(a) theyhaveamaturityatissuanceofupto


(b) theyhavearesidualmaturityofuptoand

including397days;

(c) theyundergoregularyieldadjustmentsin

linewithmoneymarketconditionsatleast

every397days;

(d) theirriskprofile,includingcreditandinterest

raterisks,correspondstothatoffinancial

instrumentswhichhaveamaturityas

referredtoinsubparagraphs(a)or(b),or

aresubjecttoayieldadjustmentasreferred

toinsubparagraph(c).


as “instruments which are liquid”shallbe

understoodasareferencetofinancial

instrumentswhichcanbesoldatlimited

costinanadequatelyshorttimeframe,

takingintoaccounttheobligationofthe

UCITStorepurchaseorredeemitsunits

attherequestofanyunitholder.When

assessingtheliquidityofamoneymarket

instrument,thefollowingcumulativefactors

havetobetakenintoaccount:

At the instrument level:

(i) frequencyoftradesandquotesforthe

instrumentinquestion;

(ii) numberofdealerswillingtopurchase

andselltheinstrument,willingnessofthe

dealerstomakeamarketintheinstrument

inquestion,natureofmarketplacetrades

(timesneededtoselltheinstrument,

methodforsolicitingoffersandmechanics

oftransfer);

(iii)sizeofissuance/program;

(iv)possibilitytorepurchase,redeemorsellthe

moneymarketinstrumentinashortperiod

(e.g.sevenbusinessdays),atlimitedcost,

intermsoflowfeesandbid/offerpricesand

withveryshortsettlementdelay.

At the fund level,thefollowingrelevantfactors

shouldbeconsideredinordertoensurethat

anyindividualmoneymarketinstrumentwould

notaffecttheliquidityoftheUCITSatthefund

level:

(i) unitholderstructureandconcentrationof

unitholdersoftheUCITS;

(ii) purposeoffundingofunitholders;

(iii)qualityofinformationonthefund’scashflow

patterns;

(iv)prospectuses’guidelinesonlimiting

withdrawals.

Thefactthatsomeoftheseconditionsarenot

fulfilleddoesnotautomaticallyimplythatthe

financialinstrumentsshouldbeconsidered

asnon-liquid.Theseelementsmustensure

thatUCITSwillhavesufficientplanninginthe

structuringoftheportfolioandinforeseeing

cashflowsinordertomatchanticipatedcash

flowswiththesellingofappropriatelyliquid

instrumentsintheportfoliotomeetthose

demands.


as “instruments which have a value which

can be accurately determined at any time”

shallbeunderstoodasareferencetofinancial

instrumentsforwhichaccurateandreliable

valuationssystems,whichfulfilthefollowing

criteria,areavailable:

(a) theyenabletheUCITStocalculatea

netassetvalueinaccordancewiththevalue

atwhichthefinancialinstrumentheldin

theportfoliocouldbeexchangedbetween

knowledgeablewillingpartiesinanarm’s

lengthtransaction;

(b) theyarebasedeitheronmarketdataoron

valuationmodelsincludingsystemsbased

onamortisedcosts.

Withrespecttothecriterion“value which can

be accurately determined at any time”,ifthe

UCITSconsidersthatanamortisationmethod

canbeusedtoassessthevalueofamoney

marketinstrument,itmustensurethatthiswill

notresultinadiscrepancybetweenthevalue

ofthemoneymarketinstrumentandthevalue

calculatedaccordingtotheamortisationmethod

assetoutinGuidanceNote1/08UCITS:

Valuationofassetsofmoneymarketfunds.

Thecriteriareferredtoaboveregardingliquidity

andavaluationwhichcanbeaccurately

determinedatanytimeshallbepresumedto

befulfilledinthecaseoffinancialinstruments

whicharenormallydealtinonthemoney

marketandwhichareadmittedto,ordealt

inon,aregulatedmarketinaccordance

withsubparagraphs(a),(b)or(c)ofArticle

19,unlessthereisinformationavailable

totheUCITSthatwouldleadtoadifferent

determination.Wherethepresumptionof

“liquidity”and“accuratevaluation”cannotbe

reliedupon,themoneymarketinstrument

shouldbesubjecttoanappropriate

assessmentbytheUCITS.

Thereferenceinsubparagraph(h)ofArticle19

tomoneymarketinstruments,otherthanthose

dealtinonaregulatedmarket,providedthat

theissueortheissuerisitselfregulatedforthe

purposeofprotectinginvestorsandsavings,

shallbeunderstoodasareferencetofinancial

instrumentswhichfulfilthefollowingcriteria:

(a) theyfulfiloneofthecriteriasetoutinabove

regarding“instrumentsnormallydealtinon

themoneymarket”andallthecriteriaset

outaboveregarding“instrumentswhich

areliquid”and“valuewhichcanbe

accuratelydeterminedatanytime”;

(b) appropriateinformationisavailablefor

them,includinginformationwhichallows

anappropriateassessmentofthecredit

risksrelatedtotheinvestmentinsuch

instruments,takingintoaccountregulatory

criteriaapplicabletotransferablesecurities

andmoneymarketinstruments;

(c) theyarefreelytransferable.

Formoneymarketinstrumentscoveredby

sub-paragraphs(h)(ii)and(h)(iv)ofArticle

19orforthosewhichareissuedbyalocalor

regionalauthorityofaMemberStateorbya

publicinternationalbodybutarenotguaranteed

byaMemberStateor,inthecaseofafederal

StatewhichisaMemberState,byoneofthe

membersmakingupthefederation,appropriate

informationasreferredtoinparagraph(b)

aboveshallconsistofthefollowing:

(a) informationonboththeissueorthe

issuanceprogrammeandthelegaland

financialsituationoftheissuerpriortothe

issueofthemoneymarketinstrument;

(b) updatesoftheinformationreferredto

insubparagraph(a)onaregularbasisand

wheneverasignificanteventoccurs–

CESR’sviewisthatregularupdatesshould

normallyoccuronanannualbasis;

(c) theinformationreferredtoinsubparagraph

(a)verifiedbyappropriatelyqualifiedthird

partiesnotsubjecttoinstructionsfromthe

issuer.Suchthirdpartiesshouldspecialise

intheverificationoflegalorfinancial

documentationandbecomposedofpersons

meetingprofessionalstandardsofintegrity;

(d) availableandreliablestatisticsontheissue

ortheissuanceprogramme.

Forthemoneyinstrumentscoveredby

subparagraph(h)(iii)ofArticle19,appropriate

informationasreferredtoinparagraph(b)

aboveshallconsistofthefollowing:

(a) informationontheissueortheissuance

programmeoronthelegalandfinancial

situationoftheissuerpriortotheissueof

themoneymarketinstrument;

(b) updatesoftheinformationreferredto

insubparagraph(a)onaregularbasisand

wheneverasignificanteventoccurs;

(c) availableandreliablestatisticsonthe

issueorissuanceprogrammeorother

dataenablinganappropriateassessment

ofthecreditrisksrelatedtotheinvestment

insuchinstruments.

Forallthemoneymarketinstruments

coveredbysubparagraph(h)(i)ofArticle

19,exceptthosereferredtointhecategory

abovecoveredbysub-paragraphsh(ii)and

(h)(iv)etc.andthoseissuedbytheEuropean

CentralBankorbyacentralbankfroma

MemberState,appropriateinformationas

referredtoinparagraph(b)aboveshallconsist

ofinformationontheissueortheissuance

programmeoronthelegalandfinancial

situationoftheissuerpriortotheissueof

themoneymarketinstrument.

Thereferenceinsubparagraph(h)(iii)ofArticle

19toanestablishmentwhichissubjecttoand

complieswithprudentialrulesconsideredbythe

FinancialRegulatortobeatleastasstringent

asthoselaiddownbyCommunitylawshallbe

understoodasareferencetoanissuerwhich

issubjecttoandcomplieswithprudentialrules

andfulfilsoneofthefollowingcriteria:

(a) itislocatedintheEuropeanEconomicArea;

(b) itislocatedintheOECDcountries

belongingtotheGroupofTen;

(c) ithasatleastinvestmentgraderating;

(d) itcanbedemonstratedonthebasisofan

in-depthanalysisoftheissuerthatthe

prudentialrulesapplicabletothatissuer

areatleastasstringentasthoselaiddown

byCommunitylaw.

Thereferenceinsubparagraph(h)(iv)ofArticle

19tosecuritisationvehiclesshallbeunderstood

asareferencetostructures,whetherin

corporate,trustorcontractualform,setupfor

thepurposeofsecuritisationoperations.

Thereferenceinsubparagraph(h)(iv)ofArticle

19tobankingliquiditylinesshallbeunderstood

asareferencetobankingfacilitiessecuredbya

financialinstitutionwhichitselfcomplieswiththe

subparagraph(h)(iii)ofArticle19.

AppendixB

UCITSInvestmentand BorrowingRestrictions

1 PermittedInvestments

InvestmentsofaUCITSareconfinedto:

1.1

Transferablesecuritiesandmoneymarketinstrumentswhichareeitheradmittedto

officiallistingonastockexchangeinaMemberStateornon-MemberStateorwhichare

dealtonamarketwhichisregulated,operatesregularly,isrecognisedandopentothe

publicinaMemberStateornon-MemberState.

1.2Recentlyissuedtransferablesecuritieswhichwillbeadmittedtoofficiallistingonastock

exchangeorothermarket(asdescribedabove)withinayear.

1.3Moneymarketinstruments,asdefinedintheUCITSNotices,otherthanthosedealtona

regulatedmarket.

1.4 UnitsofUCITS.

1.5 Unitsofnon-UCITSassetoutintheFinancialRegulator’sGuidanceNote2/03.

1.6 DepositswithcreditinstitutionsasprescribedintheUCITSNotices.

1.7 FinancialderivativeinstrumentsasprescribedintheUCITSNotices.

2 InvestmentRestrictions

2.1AUCITSmayinvestnomorethan10%ofnetassetsintransferablesecuritiesand

moneymarketinstrumentsotherthanthosereferredtoinparagraph1.

2.2

AUCITSmayinvestnomorethan10%ofnetassetsinrecentlyissuedtransferable

securitieswhichwillbeadmittedtoofficiallistingonastockexchangeorothermarket

(asdescribedinparagraph1.1)withinayear.Thisrestrictionwillnotapplyinrelation

toinvestmentbytheUCITSincertainUSsecuritiesknownasRule144Asecurities

providedthat:

thesecuritiesareissuedwithanundertakingtoregisterwiththeUSSecurities

andExchangesCommissionwithinoneyearofissue;and

thesecuritiesarenotilliquidsecuritiesi.e.theymayberealisedbytheUCITS

withinsevendaysattheprice,orapproximatelyattheprice,atwhichtheyare

valuedbytheUCITS.

2.3

AUCITSmayinvestnomorethan10%ofnetassetsintransferablesecuritiesor

moneymarketinstrumentsissuedbythesamebodyprovidedthatthetotalvalueof

transferablesecuritiesandmoneymarketinstrumentsheldintheissuingbodiesin

eachofwhichitinvestsmorethan5%islessthan40%.

2.4

Thelimitof10%(in2.3)israisedto35%ifthetransferablesecuritiesormoneymarket

instrumentsareissuedorguaranteedbyaMemberStateoritslocalauthoritiesorby

anon-MemberStateorpublicinternationalbodyofwhichoneormoreMemberStates

aremembers.

2.5Thetransferablesecuritiesandmoneymarketinstrumentsreferredtoin2.4shallnot

betakenintoaccountforthepurposeofapplyingthelimitof40%referredtoin2.3.


2.6

AUCITSmaynotinvestmorethan20%ofnetassetsindepositsmadewiththesame

creditinstitution.

Depositswithanyonecreditinstitution,otherthan

acreditinstitutionauthorisedintheEEA;

acreditinstitutionauthorisedwithinasignatorystate(otherthananEEAMember State)totheBasleCapitalConvergenceAgreementofJuly1988(Switzerland,

Canada,Japan,UnitedStates);or

acreditinstitutionauthorisedinJersey,Guernsey,theIsleofMan,Australiaor NewZealand

heldasancillaryliquidity,mustnotexceed10%ofnetassets.

Thislimitmayberaisedto20%inthecaseofdepositsmadewith

thetrustee/custodian.

2.7

TheriskexposureofaUCITStoacounterpartytoanOTCderivativemaynotexceed

5%ofnetassets.

Thislimitisraisedto10%inthecaseofacreditinstitutionauthorisedintheEEAor

acreditinstitutionauthorisedwithinasignatorystate(otherthananEEAMember

State)totheBasleCapitalConvergenceAgreementofJuly1988;oracreditinstitution

authorisedinJersey,Guernsey,theIsleofMan,AustraliaorNewZealand.

2.8

Notwithstandingparagraphs2.3,2.6and2.7above,acombinationoftwoormoreof

thefollowingissuedby,ormadeorundertakenwith,thesamebodymaynotexceed

20%ofnetassets:

investmentsintransferablesecuritiesormoneymarketinstruments;

deposits,and/or

riskexposuresarisingfromOTCderivativestransactions.


2.9Thelimitsreferredtoin2.3,2.4,2.6,2.7and2.8abovemaynotbecombined,sothat

exposuretoasinglebodyshallnotexceed35%ofnetassets.

2.10

Groupcompaniesareregardedasasingleissuerforthepurposesof2.3,2.4,2.6,

2.7and2.8.However,alimitof20%ofnetassetsmaybeappliedtoinvestmentin

transferablesecuritiesandmoneymarketinstrumentswithinthesamegroup.

2.11

AUCITSmayinvestupto100%ofnetassetsindifferenttransferablesecurities

andmoneymarketinstrumentsissuedorguaranteedbyanyMemberState,its

localauthorities,non-MemberStatesorpublicinternationalbodyofwhichoneor

moreMemberStatesaremembers,anygovernmentofanyOECDmembercountry

whichisnotaMemberStatewheresuchsecuritiesareratedinvestmentgrade

byaninternationalratingagency,EuropeanInvestmentBank,EuropeanBankfor

ReconstructionandDevelopment,InternationalFinanceCorporation,International

MonetaryFund,Euratom,TheAsianDevelopmentBank,EuropeanCentralBank,

CouncilofEurope,Eurofima,AfricanDevelopmentBank,InternationalBankfor

ReconstructionandDevelopment(TheWorldBank),TheInterAmericanDevelopment

Bank,EuropeanUnion,FederalNationalMortgageAssociation(FannieMae),Federal

HomeLoanMortgageCorporation(FreddieMac),GovernmentNationalMortgage

Association(GinnieMae),StudentLoanMarketingAssociation(SallieMae),Federal

HomeLoanBank,FederalFarmCreditBank,TennesseeValleyAuthorityprovidedthat

ifmorethan35%oftheassetsofaFundisinvestedinsuchsecurities,theFundmust

holdsecuritiesfromatleastsixdifferentissueswithsecuritiesfromanyoneissuenot

exceeding30%ofthenetassets.

3 InvestmentinCollectiveInvestmentSchemes(“CIS”)

3.1 AUCITSmaynotinvestmorethan20%ofnetassetsinanyoneCIS.

3.2 Investmentinnon-UCITSmaynot,inaggregate,exceed30%ofnetassets.

3.3InvestmentinaCIS,whichcanitselfinvestmorethan10%ofnetassetsinotherCIS,

isnotpermitted.

3.4

WhenaUCITSinvestsintheunitsofotherCISthataremanaged,directlyorby

delegation,bytheUCITSmanagementcompanyorbyanyothercompanywithwhich

theUCITSmanagementcompanyislinkedbycommonmanagementorcontrol,orby

asubstantialdirectorindirectholding,thatmanagementcompanyorothercompany

maynotchargesubscription,conversionorredemptionfeesonaccountoftheUCITS

investmentintheunitsofsuchotherCIS.

3.5

Whereacommission(includingarebatedcommission)isreceivedbytheUCITS’

investmentmanager/investmentadviserbyvirtueofaninvestmentintheunitsof

anotherCIS,thiscommissionmustbepaidintothepropertyoftheUCITS.

4 IndexTrackingUCITS

4.1

AUCITSmayinvestupto20%ofnetassetsinsharesand/ordebtsecuritiesissued

bythesamebodywheretheinvestmentpolicyoftheFundistoreplicateanindex

whichsatisfiesthecriteriasetoutintheUCITSNoticesandisrecognisedbythe

FinancialRegulator.

4.2Thelimitin4.1mayberaisedto35%,andappliedtoasingleissuer,wherethisis

justifiedbyexceptionalmarketconditions.

5 General Provisions

5.1

Aninvestmentcompany,ormanagementcompanyactinginconnectionwithallofthe

CISitmanages,maynotacquireanysharescarryingvotingrightswhichwouldenable

ittoexercisesignificantinfluenceoverthemanagementofanissuingbody.

5.2

AUCITSmayacquirenomorethan:

(i) 10%ofthenon-votingsharesofanysingleissuingbody;

(ii) 10%ofthedebtsecuritiesofanysingleissuingbody;

(iii) 25%oftheunitsofanysingleCIS;

(iv) 10%ofthemoneymarketinstrumentsofanysingleissuingbody.

NOTE:Thelimitslaiddownin(ii),(iii)and(iv)abovemaybedisregardedatthetime

ofacquisitionifatthattimethegrossamountofthedebtsecuritiesorofthemoney

marketinstruments,orthenetamountofthesecuritiesinissuecannotbecalculated.

5.3

5.1and5.2shallnotbeapplicableto:

(i) transferablesecuritiesandmoneymarketinstrumentsissuedorguaranteedby

aMemberStateoritslocalauthorities;

(ii) transferablesecuritiesandmoneymarketinstrumentsissuedorguaranteedby

anon-MemberState;

(iii) transferablesecuritiesandmoneymarketinstrumentsissuedbypublic

internationalbodiesofwhichoneormoreMemberStatesaremembers;

iv) sharesheldbyaUCITSinthecapitalofacompanyincorporatedinanon-

memberStatewhichinvestsitsassetsmainlyinthesecuritiesofissuing

bodieshavingtheirregisteredofficesinthatState,whereunderthelegislation

ofthatStatesuchaholdingrepresentstheonlywayinwhichtheUCITScan

investinthesecuritiesofissuingbodiesofthatState.Thiswaiverisapplicable


5.3

onlyifinitsinvestmentpoliciesthecompanyfromthenon-MemberStatecomplies

withthelimitslaiddownin2.3to2.10,3.1,3.2,5.1,5.2,5.4,5.5and5.6,and

providedthatwheretheselimitsareexceeded,paragraphs5.5and5.6below

areobserved.

(v)Sharesheldbyaninvestmentcompanyorinvestmentcompaniesinthecapital

ofsubsidiarycompaniescarryingononlythebusinessofmanagement,advice

ormarketinginthecountrywherethesubsidiaryislocated,inregardtothe

repurchaseofunitsatunit-holders’requestexclusivelyontheirbehalf.

5.4

AUCITSneednotcomplywiththeinvestmentrestrictionshereinwhenexercising

subscriptionrightsattachingtotransferablesecuritiesormoneymarketinstruments

whichformpartoftheirassets.

5.5

TheFinancialRegulatormayallowrecentlyauthorisedUCITStoderogatefromthe

provisionsof2.3to2.11,3.1,3.2,4.1and4.2forsixmonthsfollowingthedateoftheir

authorisation,providedtheyobservetheprincipleofriskspreading.

5.6

IfthelimitslaiddownhereinareexceededforreasonsbeyondthecontrolofaUCITS,

orasaresultoftheexerciseofsubscriptionrights,theUCITSmustadoptasapriority

objectiveforitssalestransactionstheremedyingofthatsituation,takingdueaccount

oftheinterestsofitsshareholders.

5.7

Neitheraninvestmentcompany,noramanagementcompanyoratrusteeactingon

behalfofaunittrustoramanagementcompanyofacommoncontractualfund,may

carryoutuncoveredsalesof:

transferablesecurities;

moneymarketinstruments;

unitsofCIS;or

financialderivativeinstruments.


5.8 AUCITSmayholdancillaryliquidassets.

6 FinancialDerivativeInstruments(‘FDIs’)

6.1AUCITS’sglobalexposure(asprescribedintheUCITSNotices)relatingtoFDImust

notexceeditstotalnetassetvalue.

6.2

PositionexposuretotheunderlyingassetsofFDI,includingembeddedFDIin

transferablesecuritiesormoneymarketinstruments,whencombinedwhererelevant

withpositionsresultingfromdirectinvestments,maynotexceedtheinvestmentlimits

setoutintheUCITSNotices.(Thisprovisiondoesnotapplyinthecaseofindexbased

FDIprovidedtheunderlyingindexisonewhichmeetswiththecriteriasetoutinthe

UCITSNotices.)

6.3

AUCITSmayinvestinFDIsdealtinover-the-counter(OTC)providedthat

thecounterpartiestoover-the-countertransactions(OTCs)areinstitutions

subjecttoprudentialsupervisionandbelongingtocategoriesapprovedby

theFinancialRegulator.

6.4InvestmentinFDIsaresubjecttotheconditionsandlimitslaiddownbythe

FinancialRegulator.

7 RestrictionsonBorrowingandLending

(a)AUCITSmayborrowupto10%ofitsNetAssetValueprovidedsuchborrowingisona

temporarybasis.AUCITSmaychargeitsassetsassecurityforsuchborrowings.

7 RestrictionsonBorrowingandLending

(b)

AUCITSmayacquireforeigncurrencybymeansofa“backtoback”loan

agreement.Foreigncurrencyobtainedinthismannerisnotclassifiedasborrowing

forthepurposesoftheborrowingrestrictionssetoutat(a)aboveprovidedthatthe

offsettingdeposit:

(i) isdenominatedinthebasecurrencyoftheUCITS;and

(ii) equalsorexceedsthevalueoftheforeigncurrencyloanoutstanding.

AppendixC

ManagementCompanyAuthorisationOptions

Management Companies authorised under the UCITS III Management Company Directive are able to carryout the following activities:

2.1themanagementofunittrusts/common

fundsandofinvestmentcompanies

(collective portfolio management).

Thisincludes:

Investmentmanagement

Administration

- legalandfundmanagementaccounting

services

- customerenquiries

- valuationandpricing(includingtax

returns)

- regulatorycompliancemonitoring

- maintenanceofunit-holderregister

- distributionofincome

- unitissuesandredemptions

- contractsettlements(includingcertificate

dispatch)

- recordkeeping

Marketing

2.2(a) managementofportfoliosof

investments,includingthoseowned

bypensionfundsinaccordance

withmandatesgivenbyinvestorson

adiscretionaryclient-by-clientbasis

(individual portfolio management),

wheresuchportfoliosincludingone

ormoreoftheinstrumentslistedin

SectionBoftheAnnextothe

InvestmentServicesDirective;

2.3(b) asnon-coreservices:

investmentadviceconcerningone

ormoreoftheinstrumentslistedin

SectionBoftheAnnextothe

InvestmentServicesDirective

safekeepingandadministration

inrelationtounitsofcollective

investmentundertakings

ItisimportanttonotehoweverthatManagement

Companymaynotbeauthorisedsolelyto

providetheservicesreferredtoin2.2(a)or(b)

and,furthermore,mayonlybeauthorisedto

providethenon-coreservicesreferredtoin2.2

(b)wheretheyareauthorisedforactivity2.2(a).

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