17.11.2009

EN

Official Journal of the European Union

L 302/32

DIRECTIVE 2009/65/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

of 13 July 2009

on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS)

(recast)

(Text with EEA relevance)

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Article 47(2) thereof,

Having regard to the proposal from the Commission,

Acting in accordance with the procedure laid down in Article 251 of the Treaty (1),

Whereas:

(1)

Council Directive 85/611/EEC of 20 December 1985 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) (2) has been substantially amended several times (3). Since further amendments are to be made, it should be recast in the interests of clarity.

(2)

Directive 85/611/EEC has largely contributed to the development and success of the European investment funds industry. However, despite the improvements introduced since its adoption, in particular in 2001, it has steadily become clear that changes need to be introduced into the UCITS legal framework in order to adapt it to the financial markets of the twenty-first century. The Commission Green Paper of 12 July 2005 on the enhancement of the EU framework for investment funds launched a public debate on the way in which Directive 85/611/EEC should be amended in order to meet those new challenges. That intense consultation process led to the largely shared conclusion that substantial amendments to that Directive are needed.

(3)

National laws governing collective investment undertakings should be coordinated with a view to approximating the conditions of competition between those undertakings at Community level, while at the same time ensuring more effective and more uniform protection for unit-holders. Such coordination facilitates the removal of the restrictions on the free movement of units of UCITS in the Community.

(4)

Having regard to those objectives, it is desirable to provide for common basic rules for the authorisation, supervision, structure and activities of UCITS established in the Member States and the information that they are required to publish.

(5)

The coordination of the laws of the Member States should be confined to UCITS other than of the closed-ended type that promote the sale of their units to the public in the Community. It is desirable that UCITS be permitted, as part of their investment objective, to invest in financial instruments, other than transferable securities, which are sufficiently liquid. The financial instruments which are eligible to be investment assets of the portfolio of the UCITS should be listed in this Directive. The selection of investments for a portfolio by means of an index is a management technique.

(6)

Where a provision of this Directive requires that UCITS take action, that provision should be understood to refer to the management company in cases where the UCITS is constituted as a common fund managed by a management company and where a common fund is not in a position to act by itself because it has no legal personality of its own.

(7)

Units of UCITS are considered to be financial instruments for the purposes of Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments (4).

(8)

An authorisation granted to the management company in its home Member State should ensure investor protection and the solvency of management companies, with a view to contributing to the stability of the financial system. The approach adopted in this Directive is to ensure the essential harmonisation necessary and sufficient to secure the mutual recognition of authorisation and of prudential supervision systems, making possible the grant of a single authorisation valid throughout the Community and the application of the principle of home Member State supervision.

(9)

In order to ensure that the management company will be able to fulfil the obligations arising from its activities and thus to ensure its stability, initial capital and an additional amount of own funds are required. To take account of developments, particularly those pertaining to capital charges on operational risk, within the Community and other international forums, those requirements, including the use of guarantees, should be reviewed.

(10)

It is necessary, for the protection of investors, to guarantee the internal overview of every management company in particular by means of a two-person management system and by adequate internal control mechanisms.

(11)

By virtue of the principle of home Member State supervision, management companies authorised in their home Member States should be permitted to provide the services for which they have received authorisation throughout the Community by establishing branches or under the freedom to provide services.

(12)

With regard to collective portfolio management (management of unit trusts/common funds or investment companies), the authorisation granted to a management company in its home Member State should permit the company to pursue in host Member States the following activities, without prejudice to Chapter XI: to distribute, through the establishment of a branch, the units of the harmonised unit trusts/common funds managed by that company in its home Member State; to distribute, through the establishment of a branch, the shares of the harmonised investment companies, managed by that company; to distribute the units of the harmonised unit trusts/common funds or shares of the harmonised investment companies managed by other management companies; to perform all the other functions and tasks included in the activity of collective portfolio management; to manage the assets of investment companies incorporated in Member States other than its home Member State; to perform, on the basis of mandates, on behalf of management companies incorporated in Member States other than its home Member State, the functions included in the activity of collective portfolio management. Where a management company distributes the units of its own harmonised unit trusts/common funds or shares of its own harmonised investment companies in host Member States, without the establishment of a branch, it should be subject only to rules regarding cross-border marketing.

(13)

With regard to the scope of activity of management companies and in order to take into account national law and permit such companies to achieve significant economies of scale, it is desirable to permit them also to pursue the activity of management of portfolios of investments on a client-by-client basis (individual portfolio management), including the management of pension funds as well as some specific non-core activities linked to the main business without prejudicing the stability of such companies. However, specific rules should be laid down in order to prevent conflicts of interest when management companies are authorised to pursue the business of both collective and individual portfolio management.

(14)

The activity of management of individual portfolios of investments is an investment service covered by Directive 2004/39/EC. In order to ensure a homogeneous regulatory framework in this area, it is desirable to subject management companies, the authorisation of which also covers that service, to the operating conditions laid down in that Directive.

(15)

A home Member State should be able, as a general rule, to establish rules stricter than those laid down in this Directive, in particular as regards authorisation conditions, prudential requirements and the rules on reporting and the prospectus.

(16)

It is desirable to lay down rules defining the preconditions under which a management company may delegate, on the basis of mandates, specific tasks and functions to third parties so as to increase the efficiency of the conduct of its business. In order to ensure the correct functioning of the principle of the home Member State supervision, Member States permitting such delegations should ensure that the management company to which they granted authorisation does not delegate the totality of its functions to one or more third parties, so as to become a letter-box entity, and that the existence of mandates does not hinder an effective supervision over the management company. However, the fact that the management company has delegated its functions should not affect the liabilities of that company or of the depositary vis-à-vis the unit-holders and the competent authorities.

(17)

In order to ensure a level playing field and appropriate supervision in the long term, it should be possible for the Commission to examine the possibilities for harmonising delegation arrangements at Community level.

(18)

The principle of home Member State supervision requires that the competent authorities withdraw or refuse to grant authorisation where factors, such as the content of programmes of operations, the geographical distribution or the activities in fact pursued indicate clearly that a management company has opted for the legal system of one Member State for the purpose of evading the stricter standards in force in another Member State within the territory of which it intends to pursue or does pursue the greater part of its activities. For the purposes of this Directive, a management company should be authorised in the Member State in which it has its registered office. In accordance with the principle of home Member State supervision, only the competent authorities of the management company’s home Member State should be considered competent to supervise the organisation of the management company, including all procedures and resources to perform the function of administration referred to in Annex II, which should be subject to the law of the management company’s home Member State.

(19)

Where the UCITS is managed by a management company authorised in a Member State other than the UCITS home Member State, that management company should adopt and establish appropriate procedures and arrangements to deal with investor complaints, such as through appropriate provisions in distribution arrangements or through an address in the UCITS home Member State, which should not need to be an address of the management company itself. Such a management company should also establish appropriate procedures and arrangements to make information available at the request of the public or the competent authorities of the UCITS home Member State, such as through the designation of a contact person, from among the employees of the management company, to deal with requests for information. However, such a management company should not be required by the law of the UCITS home Member State to have a local representative in that Member State in order to fulfil those duties.

(20)

The competent authorities that authorise the UCITS should take into account the rules of the common fund or the instruments of incorporation of the investment company, the choice of the depositary and the ability of the management company to manage the UCITS. Where the management company is established in another Member State, the competent authorities should be able to rely on an attestation, issued by the competent authorities of the management company’s home Member State, regarding the type of UCITS that the management company is authorised to manage. Authorisation of a UCITS should not be subject to an additional capital requirement at the level of the management company, the location of the management company’s registered office in the UCITS home Member State, or the location of any activity of the management company in the UCITS home Member State.

(21)

The competent authorities of the UCITS home Member State should be competent to supervise compliance with the rules regarding the constitution and functioning of the UCITS, which should be subject to the law of the UCITS home Member State. To this end, the competent authorities of the UCITS home Member State should be able to obtain information directly from the management company. In particular, the competent authorities of the management company’s host Member State may require management companies to provide information on transactions concerning the investments of the UCITS authorised in that Member State, including information contained in books and records of those transactions and fund accounts. To remedy any breach of the rules under their responsibility, the competent authorities of the management company’s host Member States should be able to rely on the cooperation of the competent authorities of the management company’s home Member State and, if necessary, should be able to take action directly against the management company.

(22)

It should be possible for the UCITS home Member State to provide for rules regarding the content of the unit-holder register of the UCITS. The organisation of the maintenance and the location of that register should, however, remain part of the organisational arrangements of the management company.

(23)

It is necessary to provide the UCITS home Member State with all means to remedy any breach in the rules of the UCITS. To that end, the competent authorities of the UCITS home Member State should be able to take preventive measures and adopt penalties as regards the management company. As a last resort, the competent authorities of the UCITS home Member State should have the possibility to require the management company to cease managing the UCITS. Member States should provide for the necessary provisions in order to arrange for an orderly management or liquidation of the UCITS in such a case.

(24)

In order to prevent supervisory arbitrage and promote confidence in the effectiveness of supervision by the home Member State’s competent authorities, authorisation should be refused where a UCITS is prevented from marketing its units in its home Member State. Once authorised, UCITS should be free to choose the Member State(s) where its units are to be marketed, in accordance with this Directive.

(25)

To safeguard shareholders’ interests and secure a level playing field in the market for harmonised collective investment undertakings, initial capital is required for investment companies. Investment companies which have designated a management company will, however, be covered through the management company’s additional amount of own funds.

(26)

Where there are applicable rules on the conduct of business and the delegation of functions and where such delegation by a management company is allowed under the law of its home Member State, authorised investment companies should comply with such rules, mutatis mutandis, either directly, where they have not designated a management company authorised in accordance with this Directive, or indirectly, where they have designated such a management company.

(27)

Despite the need for consolidation between UCITS, mergers of UCITS encounter many legal and administrative difficulties in the Community. It is therefore necessary, in order to improve the functioning of the internal market, to lay down Community provisions facilitating mergers between UCITS (and investment compartments thereof). Although some Member States are likely to authorise only contractual funds, cross-border mergers between all types of UCITS (contractual, corporate and unit trusts) should be permitted and recognised by each Member State without the need for Member States to provide for new legal forms of UCITS in their national law.

(28)

This Directive concerns those merger techniques which are most commonly used in Member States. It does not require all Member States to introduce all three techniques into their national law, but each Member State should recognise a transfer of assets resulting from those merger techniques. This Directive does not prevent UCITS from using other techniques on a purely national basis, in situations where none of the UCITS concerned by the merger has been notified for cross-border marketing of its units. Those mergers will remain subject to the relevant provisions of national law. National rules on quorum should neither discriminate between national and cross-border mergers, nor be more stringent than those laid down for mergers of corporate entities.

(29)

In order to safeguard investors’ interests, Member States should require proposed domestic or cross-border mergers between UCITS to be subject to authorisation by their competent authorities. For cross-border mergers, the competent authorities of the merging UCITS should authorise the merger so as to ensure that the interests of the unit-holders who effectively change UCITS are duly protected. If the merger involves more than one merging UCITS and such UCITS are domiciled in different Member States, the competent authorities of each merging UCITS will need to authorise the merger, in close cooperation with each other, including through appropriate information-sharing. Since the interests of the unit-holders of the receiving UCITS also need to be adequately safeguarded, they should be taken into account by the competent authorities of the receiving UCITS home Member State.

(30)

Unit-holders of both the merging and the receiving UCITS should also be able to request the repurchase or redemption of their units or, where possible, to convert them into units in another UCITS with similar investment policies and managed by the same management company or by a linked company. That right should not be subject to any additional charge, save for fees, to be retained exclusively by the respective UCITS, to cover disinvestment costs in all situations, as set out in the prospectuses of the merging and the receiving UCITS.

(31)

Third-party control of mergers should also be ensured. The depositaries of each of the UCITS involved in the merger should verify the conformity of the common draft terms of the merger with the relevant provisions of this Directive and of the UCITS fund rules. Either a depositary or an independent auditor should draw-up a report on behalf of all the UCITS involved in the merger validating the valuation methods of the assets and liabilities of such UCITS and the calculation method of the exchange ratio as set out in the common draft terms of merger as well as the actual exchange ratio and, where applicable, the cash payment per unit. In order to limit costs connected with cross-border mergers, it should be possible to draw up a single report for all UCITS involved and the statutory auditor of the merging or the receiving UCITS should be enabled to do so. For investor protection reasons, unit-holders should be able to obtain a copy of such report on request and free of charge.

(32)

It is particularly important that the unit-holders are adequately informed about the proposed merger and that their rights are sufficiently protected. Although the interests of the unit-holders of the merging UCITS are most concerned by the merger, those of the unit-holders of the receiving UCITS should also be safeguarded.

(33)

The provisions on mergers laid down in this Directive are without prejudice to the application of the legislation on control of concentrations between undertakings, in particular Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (the EC Merger Regulation) (5).

(34)

The free marketing of the units issued by UCITS authorised to invest up to 100 % of their assets in transferable securities issued by the same body (State, local authority, etc.) should not have the direct or indirect effect of disturbing the functioning of the capital market or the financing of the Member States.

(35)

The definition of transferable securities included in this Directive applies only for the purposes of this Directive and does not affect the various definitions used in national legislation for other purposes such as taxation. Consequently, shares and other securities equivalent to shares issued by bodies such as building societies and industrial and provident societies, the ownership of which cannot, in practice, be transferred except by the issuing body buying them back, are not covered by this definition.

(36)

Money market instruments comprise transferable instruments which are normally dealt in on the money market rather than on the regulated markets, for example treasury and local authority bills, certificates of deposit, commercial papers, medium-term notes and bankers’ acceptances.

(37)

The concept of regulated market in this Directive corresponds to that in Directive 2004/39/EC.

(38)

It is desirable to permit a UCITS to invest its assets in units of UCITS and other collective investment undertakings of the open-ended type which also invest in liquid financial assets referred to in this Directive and which operate on the principle of risk spreading. It is necessary that UCITS or other collective investment undertakings in which a UCITS invests be subject to effective supervision.

(39)

The development of opportunities for a UCITS to invest in UCITS and in other collective investments undertakings should be facilitated. It is therefore essential to ensure that such investment activity does not diminish investor protection. Because of the enhanced possibilities for UCITS to invest in the units of other UCITS and collective investment undertakings, it is necessary to lay down certain rules on quantitative limits, the disclosure of information and prevention of the cascade phenomenon.

(40)

In order to take into account market developments and in consideration of the completion of economic and monetary union it is desirable to permit UCITS to invest in bank deposits. To ensure adequate liquidity of investments in deposits, those deposits should be repayable on demand or have the right to be withdrawn. If the deposits are made with a credit institution the registered office of which is located in a third country, the credit institution should be subject to prudential rules equivalent to those laid down in Community law.

(41)

In addition to the case in which a UCITS invests in bank deposits in accordance with its fund rules or instruments of incorporation, it should be possible to allow all UCITS to hold ancillary liquid assets, such as bank deposits at sight. The holding of such ancillary liquid assets may be justified, inter alia, in order to cover current or exceptional payments; in the case of sales, for the time necessary to reinvest in transferable securities, money market instruments or in other financial assets provided for in this Directive; or for a period of time strictly necessary when, because of unfavourable market conditions, the investment in transferable securities, money market instruments and in other financial assets is suspended.

(42)

For prudential reasons it is necessary to avoid excessive concentration by a UCITS in investments which expose it to counterparty risk to the same entity or to entities belonging to the same group.

(43)

UCITS should be expressly permitted, as part of their general investment policy or for hedging purposes in order to reach a set financial target or the risk profile indicated in the prospectus, to invest in financial derivative instruments. In order to ensure investor protection, it is necessary to limit the maximum potential exposure relating to derivative instruments so that it does not exceed the total net value of the UCITS’ portfolio. In order to ensure constant awareness of the risks and commitments arising from derivative transactions and to check compliance with investment limits, those risks and commitments should be measured and monitored on an ongoing basis. Finally, in order to ensure investor protection through disclosure, UCITS should describe their strategies, techniques and investment limits governing their derivative operations.

(44)

It is necessary for measures to address the potential misalignment of interests in products where credit risk is transferred by securitisation, as envisaged with regard to Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006 relating to the taking up and pursuit of the business of credit institutions (6) and Directive 2006/49/EC of the European Parliament and of the Council of 14 June 2006 on the capital adequacy of investment firms and credit institutions (7), to be consistent and coherent in all relevant financial sector regulation. The Commission will put forward the appropriate legislative proposals, including as regards this Directive, to ensure such consistency and coherence, after duly considering the impact of such proposals.

(45)

With regard to over-the-counter (OTC) derivatives, requirements should be set in terms of the eligibility of counterparties and instruments, liquidity and ongoing assessment of the position. The purpose of such requirements is to ensure an adequate level of investor protection, close to that which they obtain when they acquire derivatives dealt in on regulated markets.

(46)

Operations in derivatives should never be used to circumvent the principles or rules set out in this Directive. With regard to OTC derivatives, additional risk-spreading rules should apply to exposures to a single counterparty or group of counterparties.

(47)

Some portfolio management techniques for collective investment undertakings investing primarily in shares or debt securities are based on the replication of stock indices or debt-security indices. It is desirable to permit UCITS to replicate well-known and recognised stock indices or debt-security indices. It may therefore be necessary to introduce more flexible risk-spreading rules for UCITS investing in shares or debt securities to this end.

(48)

Collective investment undertakings falling within the scope of this Directive should not be used for purposes other than the collective investment of the capital raised from the public according to the rules laid down in this Directive. In the cases identified by this Directive, it should be possible for a UCITS to have subsidiaries only when necessary to pursue effectively, on its own behalf, certain activities, also defined in this Directive. It is necessary to ensure effective supervision of UCITS. The establishment of a subsidiary of a UCITS in a third country should therefore be permitted only in the cases identified and in accordance with the conditions laid down in this Directive. The general obligation to act solely in the interests of unit-holders and, in particular, the objective of increasing cost efficiencies, never justify a UCITS undertaking measures that could hinder the competent authorities from effectively exercising their supervisory functions.

(49)

The original version of Directive 85/611/EEC contained a derogation from the restriction on the percentage of its assets that a UCITS can invest in transferable securities issued by the same body, which applied in the case of bonds issued or guaranteed by a Member State. That derogation allowed UCITS to invest, in particular, up to 35 % of their assets in such bonds. A similar but more limited derogation is justified with regard to private sector bonds which, even in the absence of a State guarantee, offer special guarantees to the investor under the specific rules applicable thereto. It is necessary, therefore, to extend the derogation to the totality of private sector bonds which fulfil jointly fixed criteria, while leaving it to the Member States to draw up the list of bonds to which they intend, where appropriate, to grant a derogation.

(50)

Several Member States have enacted provisions that enable non-coordinated collective investment undertakings to pool their assets in one so-called master fund. In order to allow UCITS to make use of those structures, it is necessary to exempt feeder UCITS wishing to pool their assets in a master UCITS from the prohibition to invest more than 10 % of their assets or, as the case may be, 20 % of their assets in a single collective investment undertaking. Such an exemption is justified as the feeder UCITS invests all or almost all of its assets into the diversified portfolio of the master UCITS, which itself is subject to UCITS diversification rules.

(51)

In order to facilitate the effective operation of the internal market and to ensure the same level of investor protection throughout the Community, master-feeder structures should be allowed both where the master and the feeder are established in the same Member State and where they are established in different Member States. In order to allow investors better to understand master-feeder-structures and regulators to supervise them more easily, notably in a cross-border situation, no feeder UCITS should be able to invest into more than one master. In order to ensure the same level of investor protection throughout the Community the master should itself be an authorised UCITS. In order to avoid an undue administrative burden, provisions on notification of cross-border marketing should not apply if a master UCITS does not raise capital from the public in a Member State other than that in which it is established, but has only one or more feeder UCITS in that other Member State.

(52)

In order to protect the feeder UCITS’ investors, the feeder UCITS’ investment into the master UCITS should be subject to prior approval by the competent authorities of the feeder UCITS home Member State. Only the initial investment into the master UCITS, by which the feeder UCITS exceeds the limit applicable for investing into another UCITS, requires approval. In order to facilitate the effective operation of the internal market and to ensure the same level of investor protection throughout the Community, the conditions which must be met and the documents and information which are to be provided for approving the feeder UCITS’ investment into the master UCITS should be exhaustive.

(53)

In order to allow the feeder UCITS to act in the best interests of its unit-holders and notably place it in a position to obtain from the master UCITS all information and documents necessary to perform its obligations, the feeder and the master UCITS should enter into a binding and enforceable agreement. If both feeder and master UCITS are managed by the same management company, however, it should be sufficient that the latter establish internal conduct of business rules. Information-sharing agreements between the depositaries or the auditors respectively of the feeder UCITS and the master UCITS should ensure the flow of information and documents that is needed for the feeder UCITS’ depositary or auditor to fulfil its duties. This Directive should ensure that, when complying with those requirements, the depositaries or the auditors are not to be found in breach of any restriction on disclosure of information or of data protection.

(54)

In order to ensure a high level of protection of the interests of the feeder UCITS’ investors, the prospectus, the key investor information, as well as all marketing communications should be adapted to the specificities of master-feeder structures. The investment of the feeder UCITS into the master UCITS should not affect the ability of the feeder UCITS itself either to repurchase or redeem units at the request of its unit-holders or to act in the best interests of its unit-holders.

(55)

Under this Directive, unit-holders should be protected from being charged unjustified additional costs by a prohibition against master UCITS charging feeder UCITS subscription and redemption fees. The master UCITS should, however, be able to charge subscription or redemption fees to other investors in the master UCITS.

(56)

The conversion rules should enable an existing UCITS to convert into a feeder UCITS. At the same time they should sufficiently protect unit-holders. As conversion is a fundamental change of the investment policy, the converting UCITS should be required to provide its unit-holders with sufficient information in order to enable them to decide whether to maintain their investment. The competent authorities should not require the feeder UCITS to provide more or information other than that specified in this Directive.

(57)

Where the competent authorities of the master UCITS home Member State are informed of an irregularity with regard to the master UCITS or detect that the master UCITS does not comply with the provisions of this Directive, they may decide, where appropriate, to take relevant action to ensure that unit-holders of the master UCITS are informed accordingly.

(58)

Member States should make a clear distinction between marketing communications and obligatory investor disclosures provided for under this Directive. Obligatory investor disclosure includes key investor information, the prospectus and annual and half-yearly reports.

(59)

Key investor information should be provided as a specific document to investors, free of charge, in good time before the subscription of the UCITS, in order to help them to reach informed investment decisions. Such key investor information should contain only the essential elements for making such decisions. The nature of the information to be found in the key investor information should be fully harmonised so as to ensure adequate investor protection and comparability. Key investor information should be presented in a short format. A single document of limited length presenting the information in a specified sequence is the most appropriate manner in which to achieve the clarity and simplicity of presentation that is required by retail investors, and should allow for useful comparisons, notably of costs and risk profile, relevant to the investment decision.

(60)

The competent authorities of each Member State may make available to the public, in a dedicated section of their website, key investor information concerning all UCITS authorised in that Member State.

(61)

Key investor information should be produced for all UCITS. Management companies or, where applicable, investment companies should provide key investor information to the relevant entities, in accordance with the distribution method used (direct sales or intermediated sales). Intermediaries should provide key investor information to clients and potential clients.

(62)

UCITS should be able to market their units in other Member States subject to a notification procedure based on improved communication between the competent authorities of the Member States. Following transmission of a complete notification file by the competent authorities of the UCITS home Member State, it should not be possible for the UCITS host Member State to oppose access to its market by a UCITS established in another Member State or challenge the authorisation given by that other Member State.

(63)

UCITS should be able to market their units subject to their taking the necessary measures to ensure that facilities are available for making payments to unit-holders, repurchasing or redeeming units and making available the information which UCITS are required to provide.

(64)

In order to facilitate cross-border marketing of units of UCITS, control of compliance of arrangements made for marketing of units of UCITS with laws, regulations and administrative procedures applicable in the UCITS host Member State, should be performed after the UCITS has accessed the market of that Member State. That control could cover the adequacy of arrangements made for marketing, in particular the adequacy of distribution arrangements and the obligation for marketing communications to be presented in a manner that is fair, clear and not misleading. This Directive should not prevent the competent authorities of the host Member State from verifying that marketing communications, not including key investor information, the prospectus and annual and half-yearly reports, comply with national law before the UCITS can use them, subject to such control being non-discriminatory and not preventing that UCITS from accessing the market.

(65)

For the purpose of enhancing legal certainty there is a need to ensure that a UCITS which markets its units on a cross-border basis has easy access, in the form of an electronic publication and in a language customary in the sphere of international finance, to complete information on the laws, regulations and administrative provisions applicable in the UCITS host Member State, which specifically relate to the arrangements made for marketing of units of UCITS. Liabilities relating to such publications should be subject to national law.

(66)

To facilitate access of UCITS to the markets of other Member States, the UCITS should be required to translate only the key investor information into the official language or one of the official languages of a UCITS host Member State or a language approved by its competent authorities. Key investor information should specify the language(s) in which other obligatory disclosure documents and additional information are available. Translations should be produced under the responsibility of the UCITS, which should decide whether a simple or a sworn translation is necessary.

(67)

To facilitate the access to the markets of other Member States, it is important that notification fees are disclosed.

(68)

Member States should take the necessary administrative and organisational measures to enable cooperation between national authorities and competent authorities of other Member States, including through bilateral or multilateral agreements between those authorities, which could provide for the voluntary delegation of tasks.

(69)

It is necessary to enhance convergence of powers at the disposal of competent authorities so as to bring about the equal enforcement of this Directive throughout the Member States. A common minimum set of powers, consistent with those conferred upon competent authorities by other Community financial services legislation should guarantee supervisory effectiveness. In addition, Member States should lay down rules on penalties, which may include criminal or administrative penalties, and administrative measures, applicable to infringements of this Directive. Member States should also take the measures necessary to ensure that those penalties are enforced.

(70)

It is necessary to reinforce provisions on exchange of information between national competent authorities and to strengthen the duties of assistance and cooperation between them.

(71)

For the purpose of cross-border provision of services, clear competences should be assigned to the respective competent authorities so as to eliminate any gaps or overlaps, in accordance with the applicable law.

(72)

The provisions in this Directive relating to the competent authorities’ effective exercise of their supervisory functions covers supervision on a consolidated basis which must be exercised over a UCITS or an undertaking contributing towards its business activity where the provisions of Community law so provide. In such cases, the authorities applied to for authorisation must be able to identify the authorities competent to exercise supervision on a consolidated basis over that UCITS or an undertaking contributing towards its business activity.

(73)

The principle of home Member State supervision requires that the competent authorities withdraw or refuse to grant authorisation where factors such as the content of programmes of operations, the geographical distribution or the activities actually pursued indicate clearly that a UCITS or an undertaking contributing towards its business activity has opted for the legal system of one Member State for the purpose of evading the stricter standards in force in another Member State within whose territory it pursues or intends to pursue the greater part of its activities.

(74)

Certain behaviour, such as fraud or insider offences, is liable to affect the stability, including integrity, of the financial system, even when involving undertakings other than UCITS or undertakings contributing towards their business activity.

(75)

It is appropriate to provide for the possibility of exchanges of information between the competent authorities and authorities or bodies which, by virtue of their function, help to strengthen the stability of the financial system. In order to preserve the confidential nature of the information forwarded, however, the addressees of such exchanges should remain within strict limits.

(76)

It is necessary to specify the conditions under which such exchanges of information are authorised.

(77)

Where it is stipulated that information may be disclosed only with the express agreement of the competent authorities, these may, where appropriate, make their agreement subject to compliance with strict conditions.

(78)

Exchanges of information between the competent authorities on the one hand and central banks, bodies with a function similar to central banks, in their capacity as monetary authorities, or, where appropriate, other public authorities responsible for supervising payment systems on the other, should also be authorised.

(79)

The same obligation of professional secrecy on the authorities responsible for authorising and supervising UCITS and the undertakings contributing towards such authorising and supervising and the same possibilities for exchanging information as those granted to the authorities responsible for authorising and supervising credit institutions, investment firms and insurance undertakings, should be included in this Directive.

(80)

For the purpose of strengthening the prudential supervision of UCITS or of undertakings contributing towards their business activity and protection of clients of UCITS or of undertakings contributing towards their business activity, auditors should have a duty to report promptly to the competent authorities, wherever, as provided for by this Directive, they become aware, while carrying out their tasks, of facts which are likely to have a serious effect on the financial situation or the administrative and accounting organisation of a UCITS, or an undertaking contributing towards its business activity.

(81)

Having regard to the aim in this Directive, it is desirable for Member States to provide that such a duty should apply in all circumstances where such facts are discovered by an auditor during the performance of his tasks in an undertaking which has close links with a UCITS or an undertaking which contributes towards its business activity.

(82)

The duty of auditors to communicate, where appropriate, to the competent authorities certain facts and decisions concerning a UCITS or an undertaking contributing towards its business activity which they discover during the performance of their tasks in an entity which is neither a UCITS nor an undertaking contributing towards the business activity of a UCITS does not, alone, change the nature of their tasks in that entity nor the manner in which they must perform those tasks in that entity.

(83)

This Directive should not affect national rules on taxation, including arrangements that may be imposed by Member States to ensure compliance with those rules in their territory.

(84)

The measures necessary for the implementation of this Directive should be adopted in accordance with Council Decision 1999/468/EC of 28 June 1999 laying down the procedures for the exercise of implementing powers conferred on the Commission (8).

(85)

In particular, the Commission should be empowered to adopt the following implementing measures. As regards management companies, the Commission should be empowered to adopt measures specifying the details of organisational requirements, risk management, conflicts of interest and rules of conduct. As regards depositaries, the Commission should be empowered to adopt measures specifying the measures to be taken by depositaries in order to fulfil their duties in regard to UCITS managed by a management company, established in a Member State other than the UCITS home Member State and the particulars of the agreement between the depositary and the management company. Those implementing measures should facilitate a uniform application of the obligations of management companies and depositaries but should not be a precondition for implementing the right of management companies to pursue the activities for which they have been authorised in their home Member State throughout the Community by establishing branches or under the freedom to provide services including the management of UCITS in another Member State.

(86)

As regards mergers, the Commission should be empowered to adopt measures designed to specify detailed content, format and way to provide information to unit-holders.

(87)

As regards master-feeder structures, the Commission should be empowered to adopt measures designed to specify the content of the agreement between master and feeder UCITS or of the internal conduct of business rules, the content of the information-sharing agreement between either their depositaries or their auditors, the definition of measures appropriate to coordinate the timing of their net asset value calculation and publication in order to avoid market timing, the impact of the merger of the master on the authorisation of the feeder, the type of irregularities originating from the master to be reported to the feeder, the format and the way to provide information to unit-holders in case of conversion from a UCITS to a feeder UCITS, the procedure for valuing and auditing the transfer of assets from a feeder to a master, and the role of the depositary of the feeder in this process.

(88)

As regards the provisions on disclosure, the Commission should be empowered to adopt measures designed to specify the specific conditions to be met when the prospectus is provided in a durable medium other than paper or by means of a website which does not constitute a durable medium, the detailed and exhaustive content, form and presentation of the key investor information taking into account the different nature or components of the UCITS concerned, and the specific conditions for providing key investor information in a durable medium other than paper or by means of a website which does not constitute a durable medium.

(89)

As regards notification, the Commission should be empowered to adopt measures designed to specify the scope of the information on the applicable local rules to be published by host Member State competent authorities and the technical details on access by host Member State competent authorities to stored and updated UCITS documents.

(90)

The Commission should also be empowered, inter alia, to clarify definitions and align terminology and framing definitions in accordance with subsequent acts on UCITS and related matters.

(91)

Since the measures referred to in Recitals 85 to 90 are of general scope and are designed to amend non-essential elements of this Directive, by supplementing it with new non-essential elements, they must be adopted in accordance with the regulatory procedure with scrutiny provided for in Article 5a of Decision 1999/468/EC.

(92)

Since the objectives of this Directive cannot be sufficiently achieved by the Member States in so far as they involve the adoption of rules with common features applicable at Community level and can therefore, by reason of the scale and effects of those rules, be better achieved at Community level, the Community may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty. In accordance with the principle of proportionality, as set out in that Article, this Directive does not go beyond what is necessary to achieve those objectives.

(93)

The obligation to transpose this Directive into national law should be confined to those provisions that represent a substantive change as compared with the directives that it recasts. The obligation to transpose the provisions which are unchanged arises under the earlier directives.

(94)

This Directive should be without prejudice to the obligations of the Member States relating to the time limits for transposition into national law and application of the Directives set out in Annex III, Part B.

(95)

In accordance with point 34 of the Interinstitutional Agreement on better law-making (9), Member States are encouraged to draw up, for themselves and in the interest of the Community, their own tables illustrating, as far as possible, the correlation between this Directive and the transposition measures, and to make them public,

HAVE ADOPTED THIS DIRECTIVE:

CONTENT

CHAPTER I

CHAPTER II

CHAPTER III

SECTION 1

SECTION 2

SECTION 3

SECTION 4

CHAPTER IV

CHAPTER V

SECTION 1

SECTION 2

SECTION 3

CHAPTER VI

SECTION 1

SECTION 2

SECTION 3

CHAPTER VII

CHAPTER VIII

SECTION 1

SECTION 2

SECTION 3

SECTION 4

SECTION 5

SECTION 6

CHAPTER IX

SECTION 1

SECTION 2

SECTION 3

CHAPTER X

CHAPTER XI

CHAPTER XII

CHAPTER XIII

CHAPTER XIV

SECTION 1

SECTION 2

ANNEX I

ANNEX II

ANNEX III

Part A

Part B

ANNEX IV

CHAPTER I

SUBJECT MATTER, SCOPE AND DEFINITIONS

Article 1

1. This Directive applies to undertakings for collective investment in transferable securities (UCITS) established within the territories of the Member States.

2. For the purposes of this Directive, and subject to Article 3, UCITS means an undertaking:

(a)

with the sole object of collective investment in transferable securities or in other liquid financial assets referred to in Article 50(1) of capital raised from the public and which operate on the principle of risk-spreading; and

(b)

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

Member States may allow UCITS to consist of several investment compartments.

3. The undertakings referred to in paragraph 2 may be constituted in accordance with contract law (as common funds managed by management companies), trust law (as unit trusts), or statute (as investment companies).

For the purposes of this Directive:

(a)

‘common funds’ shall also include unit trusts;

(b)

‘units’ of UCITS shall also include shares of UCITS.

4. Investment companies, the assets of which are invested through the intermediary of subsidiary companies, mainly other than in transferable securities, shall not be subject to this Directive.

5. The Member States shall prohibit UCITS which are subject to this Directive from transforming themselves into collective investment undertakings which are not covered by this Directive.

6. Subject to the provisions in Community law governing capital movements and subject to Articles 91 and 92 and the second subparagraph of Article 108(1), no Member State shall apply any other provisions in the field covered by this Directive to UCITS established in another Member State or to the units issued by such UCITS, where those UCITS market their units within the territory of that Member State.

7. Without prejudice to this Chapter, a Member State may apply to UCITS established within its territory requirements which are stricter than or additional to those laid down in this Directive, provided that they are of general application and do not conflict with the provisions of this Directive.

1. For the purposes of this Directive the following definitions apply:

(a)

‘depositary’ means an institution entrusted with the duties set out in Articles 22 and 32 and subject to the other provisions laid down in Chapter IV and Section 3 of Chapter V;

(b)

‘management company’ means a company, the regular business of which is the management of UCITS in the form of common funds or of investment companies (collective portfolio management of UCITS);

(c)

‘management company’s home Member State’ means the Member State in which the management company has its registered office;

(d)

‘management company’s host Member State’ means a Member State, other than the home Member State, within the territory of which a management company has a branch or provides services;

(e)

‘UCITS home Member State’ means the Member State in which the UCITS is authorised pursuant to Article 5;

(f)

‘UCITS host Member State’ means a Member State, other than the UCITS home Member State, in which the units of the UCITS are marketed;

(g)

‘branch’ means a place of business which is a part of the management company, which has no legal personality and which provides the services for which the management company has been authorised;

(h)

‘competent authorities’ means the authorities which each Member State designates under Article 97;

(i)

‘close links’ means a situation in which two or more natural or legal persons are linked by either:

(i)

‘participation’, which means the ownership, direct or by way of control, of 20 % or more of the voting rights or capital of an undertaking; or

(ii)

‘control’, which means the relationship between a ‘parent undertaking’ and a ‘subsidiary’, as defined in Articles 1 and 2 of Seventh Council Directive 83/349/EEC of 13 June 1983 based on the Article 54(3)(g) of the Treaty on consolidated accounts (10) and in all the cases referred to in Article 1(1) and (2) of Directive 83/349/EEC, or a similar relationship between any natural or legal person and an undertaking;

(j)

‘qualifying holding’ means a direct or indirect holding in a management company which represents 10 % or more of the capital or of the voting rights or which makes it possible to exercise a significant influence over the management of the management company in which that holding subsists;

(k)

‘initial capital’ means the funds as referred to in Article 57(a) and (b) of Directive 2006/48/EC;

(l)

‘own funds’ means own funds as referred to in Title V, Chapter 2, Section 1 of Directive 2006/48/EC;

(m)

‘durable medium’ means an instrument which enables an investor to store information addressed personally to that investor in a way that is accessible for future reference for a period of time adequate for the purposes of the information and which allows the unchanged reproduction of the information stored;

(n)

‘transferable securities’ means:

(i)

shares in companies and other securities equivalent to shares in companies (shares);

(ii)

bonds and other forms of securitised debt (debt securities);

(iii)

any other negotiable securities which carry the right to acquire any such transferable securities by subscription or exchange;

(o)

‘money market instruments’ means instruments normally dealt in on the money market which are liquid and have a value which can be accurately determined at any time;

(p)

‘mergers’ means an operation whereby:

(i)

one or more UCITS or investment compartments thereof, the ‘merging UCITS’, on being dissolved without going into liquidation, transfer all of their assets and liabilities to another existing UCITS or an investment compartment thereof, the ‘receiving UCITS’, in exchange for the issue to their unit-holders of units of the receiving UCITS and, if applicable, a cash payment not exceeding 10 % of the net asset value of those units;

(ii)

two or more UCITS or investment compartments thereof, the ‘merging UCITS’, on being dissolved without going into liquidation, transfer all of their assets and liabilities to a UCITS which they form or an investment compartment thereof, the ‘receiving UCITS’, in exchange for the issue to their unit-holders of units of the receiving UCITS and, if applicable, a cash payment not exceeding 10 % of the net asset value of those units;

(iii)

one or more UCITS or investment compartments thereof, the ‘merging UCITS’, which continue to exist until the liabilities have been discharged, transfer their net assets to another investment compartment of the same UCITS, to a UCITS which they form or to another existing UCITS or an investment compartment thereof, the ‘receiving UCITS’;

(q)

‘cross-border merger’ means a merger of UCITS:

(i)

at least two of which are established in different Member States; or

(ii)

established in the same Member State into a newly constituted UCITS established in another Member State;

(r)

‘domestic merger’ means a merger between UCITS established in the same Member State where at least one of the involved UCITS has been notified pursuant to Article 93.

2. For the purposes of paragraph 1(b), the regular business of a management company shall include the functions referred to in Annex II.

3. For the purposes of paragraph 1(g), all the places of business established in the same Member State by a management company with its head office in another Member State shall be regarded as a single branch.

4. For the purposes of point (i)(ii) of paragraph 1, the following shall apply:

(a)

a subsidiary undertaking of a subsidiary undertaking shall also be considered to be a subsidiary of the parent undertaking which is at the head of those undertakings;

(b)

situations in which two or more natural or legal persons are permanently linked to the same person by a control relationship shall also be regarded as constituting a close links between such persons.

5. For the purposes of paragraph 1(j), the voting rights referred to in Articles 9 and 10 of Directive 2004/109/EC of the European Parliament and of the Council of 15 December 2004 on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market (11) shall be taken into account.

6. For the purposes of paragraph 1(l), Articles 13 to 16 of Directive 2006/49/EC shall apply mutatis mutandis.

7. For the purposes of paragraph 1(n), transferable securities shall exclude the techniques and instruments referred to in Article 51.

The following undertakings are not subject to this Directive:

(a)

collective investment undertakings of the closed-ended type;

(b)

collective investment undertakings which raise capital without promoting the sale of their units to the public within the Community or any part of it;

(c)

collective investment undertakings the units of which, under the fund rules or the instruments of incorporation of the investment company, may be sold only to the public in third countries;

(d)

categories of collective investment undertakings prescribed by the regulations of the Member States in which such collective investment undertakings are established, for which the rules laid down in Chapter VII and Article 83 are inappropriate in view of their investment and borrowing policies.

For the purposes of this Directive, a UCITS shall be deemed to be established in its home Member State.

CHAPTER II

AUTHORISATION OF UCITS

1. No UCITS shall pursue activities as such unless it has been authorised in accordance with this Directive.

Such authorisation shall be valid for all Member States.

2. A common fund shall be authorised only if the competent authorities of its home Member State have approved the application of the management company to manage that common fund, the fund rules and the choice of depositary. An investment company shall be authorised only if the competent authorities of its home Member State have approved both its instruments of incorporation and the choice of depositary, and, where relevant, the application of the designated management company to manage that investment company.

3. Without prejudice to paragraph 2, if the UCITS is not established in the management company’s home Member State, the competent authorities of the UCITS home Member State shall decide, on the application of the management company, to manage the UCITS pursuant to Article 20. Authorisation shall not be subject either to a requirement that the UCITS be managed by a management company having its registered office in the UCITS home Member State or that the management company pursue or delegate any activities in the UCITS home Member State.

4. The competent authorities of the UCITS home Member State shall not authorise a UCITS if:

(a)

they establish that the investment company does not comply with the preconditions laid down in Chapter V; or

(b)

the management company is not authorised for the management of UCITS in its home Member State.

Without prejudice to Article 29(2), the management company or, where applicable, the investment company, shall be informed, within two months of the submission of a complete application, whether or not authorisation of the UCITS has been granted.

The competent authorities of the UCITS home Member State shall not authorise a UCITS if the directors of the depositary are not of sufficiently good repute or are not sufficiently experienced also in relation to the type of UCITS to be managed. To that end, the names of the directors of the depositary and of every person succeeding them in office shall be communicated forthwith to the competent authorities.

Directors shall mean those persons who, under the law or the instruments of incorporation, represent the depositary, or who effectively determine the policy of the depositary.

5. The competent authorities of the UCITS home Member State shall not grant authorisation if the UCITS is legally prevented (for example, through a provision in the fund rules or instruments of incorporation) from marketing its units in its home Member State.

6. Neither the management company nor the depositary shall be replaced, nor shall the fund rules or the instruments of incorporation of the investment company be amended, without the approval of the competent authorities of the UCITS home Member State.

7. The Member States shall ensure that complete information on the laws, regulations and administrative provisions implementing this Directive which relate to the constitution and functioning of the UCITS are easily accessible at a distance or by electronic means. Member States shall ensure that such information is available at least in a language customary in the sphere of international finance, provided in a clear and unambiguous manner, and kept up to date.

CHAPTER III

OBLIGATIONS REGARDING MANAGEMENT COMPANIES

SECTION 1

Conditions for taking up business

1. Access to the business of management companies shall be subject to prior authorisation to be granted by the competent authorities of the management company’s home Member State. Authorisation granted under this Directive to a management company shall be valid for all Member States.

2. No management company shall engage in activities other than the management of UCITS authorised under this Directive, with the exception of the additional management of other collective investment undertakings which are not covered by this Directive and for which the management company is subject to prudential supervision but the units of which cannot be marketed in other Member States under this Directive.

The activity of management of UCITS shall include, for the purpose of this Directive, the functions referred to in Annex II.

3. By way of derogation from paragraph 2, Member States may authorise management companies to provide, in addition to the management of UCITS, the following services:

(a)

management of portfolios of investments, including those owned by pension funds, in accordance with mandates given by investors on a discretionary, client-by-client basis, where such portfolios include one or more of the instruments listed in Annex I, Section C to Directive 2004/39/EC; and

(b)

as non-core services:

(i)

investment advice concerning one or more of the instruments listed in Annex I, Section C to Directive 2004/39/EC;

(ii)

safekeeping and administration in relation to units of collective investment undertakings.

Management companies shall not be authorised under this Directive to provide only the services referred to in this paragraph, or to provide non-core services without being authorised for the services referred to in point (a) of the first subparagraph.

4. Article 2(2) and Articles 12, 13 and 19 of Directive 2004/39/EC shall apply to the provision of the services referred to in paragraph 3 of this Article by management companies.

1. Without prejudice to other conditions of general application laid down by national law, the competent authorities shall not grant authorisation to a management company unless the following conditions are met:

(a)

the management company has an initial capital of at least EUR 125 000, taking into account the following:

(i)

when the value of the portfolios of the management company exceeds EUR 250 000 000, the management company must be required to provide an additional amount of own funds which is equal to 0,02 % of the amount by which the value of the portfolios of the management company exceeds EUR 250 000 000 but the required total of the initial capital and the additional amount must not, however, exceed EUR 10 000 000;

(ii)

for the purposes of this paragraph, the following portfolios must be deemed to be the portfolios of the management company:

—

common funds managed by the management company including portfolios for which it has delegated the management function but excluding portfolios that it is managing under delegation,

—

investment companies for which the management company is the designated management company,

—

other collective investment undertakings managed by the management company including portfolios for which it has delegated the management function but excluding portfolios that it is managing under delegation;

(iii)

irrespective of the amount of those requirements, the own funds of the management company must at no time be less than the amount prescribed in Article 21 of Directive 2006/49/EC;

(b)

the persons who effectively conduct the business of a management company are of sufficiently good repute and are sufficiently experienced also in relation to the type of UCITS managed by the management company, the names of those persons and of every person succeeding them in office being communicated forthwith to the competent authorities and the conduct of the business of a management company being decided by at least two persons meeting such conditions;

(c)

the application for authorisation is accompanied by a programme of activity setting out, at least, the organisational structure of the management company; and

(d)

the head office and the registered office of the management company are located in the same Member State.

For the purposes of point (a) of the first subparagraph, Member States may authorise management companies not to provide up to 50 % of the additional amount of own funds referred to in point (i) of point (a) if they benefit from a guarantee of the same amount given by a credit institution or an insurance undertaking which has its registered office in a Member State, or in a third country where it is subject to prudential rules considered by the competent authorities as equivalent to those laid down in Community law.

2. Where close links exist between the management company and other natural or legal persons, the competent authorities shall grant authorisation only if those close links do not prevent the effective exercise of their supervisory functions.

The competent authorities shall also refuse authorisation if the laws, regulations or administrative provisions of a third country governing one or more natural or legal persons with which the management company has close links, or difficulties involved in their enforcement, prevent the effective exercise of their supervisory functions.

The competent authorities shall require management companies to provide them with the information they require to monitor compliance with the conditions referred to in this paragraph on a continuous basis.

3. The competent authorities shall inform the applicant within six months of the submission of a complete application whether or not authorisation has been granted. Reasons shall be given where an authorisation is refused.

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

5. The competent authorities may withdraw the authorisation issued to a management company subject to this Directive only where that company:

(a)

does not make use of the authorisation within 12 months, expressly renounces the authorisation or has ceased the activity covered by this Directive more than six months previously, unless the Member State concerned has provided for authorisation to lapse in such cases;

(b)

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

(c)

no longer fulfils the conditions under which authorisation was granted;

(d)

no longer complies with Directive 2006/49/EC if its authorisation also covers the discretionary portfolio management service referred to in Article 6(3)(a) of this Directive;

(e)

has seriously or systematically infringed the provisions adopted pursuant to this Directive; or

(f)

falls within any of the cases where national law provides for withdrawal.

1. The competent authorities shall not grant authorisation to take up the business of management companies until they have been informed of the identities of the shareholders or members, whether direct or indirect, natural or legal persons, that have qualifying holdings and of the amounts of those holdings.

The competent authorities shall refuse authorisation if, taking into account the need to ensure the sound and prudent management of a management company, they are not satisfied as to the suitability of the shareholders or members referred to in the first subparagraph.

2. In the case of branches of management companies that have registered offices outside the Community and are taking up or pursuing business, the Member States shall not apply provisions that result in treatment more favourable than that accorded to branches of management companies that have registered offices in Member States.

3. The competent authorities of the other Member State involved shall be consulted beforehand in relation to the authorisation of any management company which is one of the following:

(a)

a subsidiary of another management company, an investment firm, a credit institution or an insurance undertaking authorised in another Member State;

(b)

a subsidiary of the parent undertaking of another management company, an investment firm, a credit institution or an insurance undertaking authorised in another Member State; or

(c)

a company controlled by the same natural or legal persons as control another management company, an investment firm, a credit institution or an insurance undertaking authorised in another Member State.

SECTION 2

Relations with third countries

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

For the purposes of this Directive, the terms ‘investment firm’ and ‘investment firms’ referred to in Article 15 of Directive 2004/39/EC shall mean, respectively, ‘management company’ and ‘management companies’; the term ‘providing investment services’ referred to in Article 15(1) of Directive 2004/39/EC shall mean ‘providing services’.

2. Member States shall inform the Commission of any general difficulties which UCITS encounter in marketing their units in any third country.

SECTION 3

Operating conditions

1. The competent authorities of the management company’s home Member State shall require that the management company which they have authorised complies at all times with the conditions laid down in Article 6 and Article 7(1) and (2).

The own funds of a management company shall not fall below the level specified in Article 7(1)(a). If they do, however, the competent authorities may, where the circumstances so justify, allow such firms a limited period in which to rectify their situations or cease their activities.

2. The prudential supervision of a management company shall be the responsibility of the competent authorities of the management company’s home Member State, whether the management company establishes a branch or provides services in another Member State or not, without prejudice to those provisions of this Directive which confer responsibility to the competent authorities of a management company’s host Member State.

1. Qualifying holdings in management companies shall be subject to the same rules as those laid down in Articles 10, 10a and 10b of Directive 2004/39/EC.

2. For the purposes of this Directive, the terms ‘investment firm’ and ‘investment firms’ referred to in Article 10 of Directive 2004/39/EC, mean, respectively, ‘management company’ and ‘management companies’.

1. Each Member State shall draw up prudential rules which management companies authorised in that Member State, with regard to the activity of management of UCITS authorised according to this Directive, shall observe at all times.

In particular, the competent authorities of the management company’s home Member State, having regard also to the nature of the UCITS managed by a management company, shall require that each such company:

(a)

has sound administrative and accounting procedures, control and safeguard arrangements for electronic data processing and adequate internal control mechanisms including, in particular, rules for personal transactions by its employees or for the holding or management of investments in financial instruments in order to invest on its own account and ensuring, at least, that each transaction involving the UCITS may be reconstructed according to its origin, the parties to it, its nature, and the time and place at which it was effected and that the assets of the UCITS managed by the management company are invested according to the fund rules or the instruments of incorporation and the legal provisions in force;

(b)

is structured and organised in such a way as to minimise the risk of UCITS’ or clients’ interests being prejudiced by conflicts of interest between the company and its clients, between two of its clients, between one of its clients and a UCITS, or between two UCITS.

2. Each management company the authorisation of which also covers the discretionary portfolio management service referred to in Article 6(3)(a) shall:

(a)

not be permitted to invest all or a part of the investor’s portfolio in units of collective investment undertakings it manages, unless it receives prior general approval from the client;

(b)

be subject with regard to the services referred to in Article 6(3) to the provisions laid down in Directive 97/9/EC of the European Parliament and of the Council of 3 March 1997 on investor-compensation schemes (12).

3. Without prejudice to Article 116, the Commission shall adopt, by 1 July 2010, implementing measures specifying the procedures and arrangements as referred to under point (a) of the second subparagraph of paragraph 1 and the structures and organisational requirements to minimise conflicts of interests as referred to under point (b) of the second subparagraph of paragraph 1.

Those measures, designed to amend non-essential elements of this Directive by supplementing it, shall be adopted in accordance with the regulatory procedure with scrutiny referred to in Article 112(2).

1. If the law of the management company’s home Member State allows management companies to delegate to third parties for the purpose of a more efficient conduct of the companies’ business, to carry out on their behalf one or more of their own functions, all of the following preconditions shall be complied with:

(a)

the management company must inform the competent authorities of its home Member State in an appropriate manner; the competent authorities of the management company’s home Member State must, without delay, transmit the information to the competent authorities of the UCITS home Member State;

(b)

the mandate must not prevent the effectiveness of supervision over the management company, and, in particular, must not prevent the management company from acting, or the UCITS from being managed, in the best interests of its investors;

(c)

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

(d)

where the mandate concerns the investment management and is given to a third-country undertaking, cooperation between the supervisory authorities concerned must be ensured;

(e)

a mandate with regard to the core function of investment management must not be given to the depositary or to any other undertaking whose interests may conflict with those of the management company or the unit-holders;

(f)

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

(g)

the mandate must not prevent the persons who conduct the business of the management company from giving further instructions to the undertaking to which functions are delegated at any time or from withdrawing the mandate with immediate effect when this is in the interest of investors;

(h)

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

(i)

the UCITS’ prospectuses must list the functions which the management company has been allowed to delegate in accordance with this Article.

2. The liability of the management company or the depositary shall not be affected by delegation by the management company of any functions to third parties. The management company shall not delegate its functions to the extent that it becomes a letter-box entity.

1. Each Member State shall draw up rules of conduct which management companies authorised in that Member State shall observe at all times. Such rules shall implement at least the principles set out in this paragraph. Those principles shall ensure that a management company:

(a)

acts honestly and fairly in conducting its business activities in the best interests of the UCITS it manages and the integrity of the market;

(b)

acts with due skill, care and diligence, in the best interests of the UCITS it manages and the integrity of the market;

(c)

has and employs effectively the resources and procedures that are necessary for the proper performance of its business activities;

(d)

tries to avoid conflicts of interests and, when they cannot be avoided, ensures that the UCITS it manages are fairly treated; and

(e)

complies with all regulatory requirements applicable to the conduct of its business activities so as to promote the best interests of its investors and the integrity of the market.

2. Without prejudice to Article 116, the Commission shall adopt, by 1 July 2010, implementing measures, with a view to ensuring that the management company complies with the duties set out in paragraph 1, in particular to:

(a)

establish appropriate criteria for acting honestly and fairly and with due skill, care and diligence in the best interests of the UCITS;

(b)

specify the principles required to ensure that management companies employ effectively the resources and procedures that are necessary for the proper performance of their business activities; and

(c)

define the steps that management companies might reasonably be expected to take to identify, prevent, manage or disclose conflicts of interest as well as to establish appropriate criteria for determining the types of conflicts of interest whose existence may damage the interests of the UCITS.

Those measures, designed to amend non-essential elements of this Directive by supplementing it, shall be adopted in accordance with the regulatory procedure with scrutiny referred to in Article 112(2).

Management companies or, where relevant, investment companies shall take measures in accordance with Article 92 and establish appropriate procedures and arrangements to ensure that they deal properly with investor complaints and that there are no restrictions on investors exercising their rights in the event that the management company is authorised in a Member State other than the UCITS home Member State. Those measures shall allow investors to file complaints in the official language or one of the official languages of their Member State.

Management companies shall also establish appropriate procedures and arrangements to make information available at the request of the public or the competent authorities of the UCITS home Member State.

SECTION 4

Freedom of establishment and freedom to provide services

1. Member States shall ensure that a management company, authorised by its home Member State, may pursue within their territories the activity for which it has been authorised, either by the establishment of a branch or under the freedom to provide services.

Where a management company so authorised proposes, without establishing a branch, only to market the units of the UCITS it manages as provided for in Annex II in a Member State other than the UCITS home Member State, without proposing to pursue any other activities or services, such marketing shall be subject only to the requirements of Chapter XI.

2. Member States shall not make the establishment of a branch or the provision of the services subject to any authorisation requirement, to any requirement to provide endowment capital or to any other measure having equivalent effect.

3. Subject to the conditions set out in this Article, a UCITS shall be free to designate, or to be managed by a management company authorised in a Member State other than the UCITS home Member State in accordance with the relevant provisions of this Directive, provided that such a management company complies with the provisions of:

(a)

(b)

Articles 19 and 20.

Article 17

1. In addition to meeting the conditions imposed in Articles 6 and 7, a management company wishing to establish a branch within the territory of another Member State to pursue the activities for which it has been authorised shall notify the competent authorities of its home Member State accordingly.

2. Member States shall require every management company wishing to establish a branch within the territory of another Member State to provide the following information and documents, when effecting the notification provided for in paragraph 1:

(a)

the Member State within the territory of which the management company plans to establish a branch;

(b)

a programme of operations setting out the activities and services according to Article 6(2) and (3) envisaged and the organisational structure of the branch, which shall include a description of the risk management process put in place by the management company. It shall also include a description of the procedures and arrangements taken in accordance with Article 15;

(c)

the address in the management company’s host Member State from which documents may be obtained; and

(d)

the names of those responsible for the management of the branch.

3. Unless the competent authorities of the management company’s home Member State have reason to doubt the adequacy of the administrative structure or the financial situation of a management company, taking into account the activities envisaged, they shall, within two months of receiving all the information referred to in paragraph 2, communicate that information to the competent authorities of the management company’s host Member State and shall inform the management company accordingly. They shall also communicate details of any compensation scheme intended to protect investors.

Where the competent authorities of the management company’s home Member State refuse to communicate the information referred to in paragraph 2 to the competent authorities of the management company’s host Member State, they shall give reasons for such refusal to the management company concerned within two months of receiving all the information. The refusal or any failure to reply shall be subject to the right to apply to the courts in the management company’s home Member State.

Where a management company wishes to pursue the activity of collective portfolio management referred to in Annex II, the competent authorities of the management company’s home Member State shall enclose with the documentation sent to the competent authorities of the management company’s host Member State an attestation that the management company has been authorised pursuant to the provisions of this Directive, a description of the scope of the management company’s authorisation and details of any restriction on the types of UCITS that the management company is authorised to manage.

4. A management company which pursues activities by a branch within the territory of the host Member State shall comply with the rules drawn up by the management company’s host Member State pursuant to Article 14.

5. The competent authorities of the management company’s host Member State shall be responsible for supervising compliance with paragraph 4.

6. Before the branch of a management company starts business, the competent authorities of the management company’s host Member State shall, within two months of receiving the information referred to in paragraph 2, prepare for supervising the compliance of the management company with the rules under their responsibility.

7. On receipt of a communication from the competent authorities of the management company’s host Member State or on the expiry of the period provided for in paragraph 6 without receipt of any communication from those authorities, the branch may be established and start business.

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

9. In the event of a change in the particulars communicated in accordance with the first subparagraph of paragraph 3, the competent authorities of the management company’s home Member State shall inform the competent authorities of the management company’s host Member State accordingly.

The competent authorities of the management company’s home Member State shall update the information contained in the attestation referred to in the third subparagraph of paragraph 3 and inform the competent authorities of the management company’s host Member State whenever there is a change in the scope of the management company’s authorisation or in the details of any restriction on the types of UCITS that the management company is authorised to manage.

Article 18

1. Any management company wishing to pursue the activities for which it has been authorised within the territory of another Member State for the first time under the freedom to provide services shall communicate the following information to the competent authorities of the management company’s home Member State:

(a)

the Member State within the territory of which the management company intends to operate; and

(b)

a programme of operations stating the activities and services referred to in Article 6(2) and (3) envisaged which shall include a description of the risk management process put in place by the management company. It shall also include a description of the procedures and arrangements taken in accordance with Article 15.

2. The competent authorities of the management company’s home Member State shall, within one month of receiving the information referred to in paragraph 1, forward it to the competent authorities of the management company’s host Member State.

The competent authorities of the management company’s home Member State shall also communicate details of any applicable compensation scheme intended to protect investors.

Where a management company wishes to pursue the activity of collective portfolio management as referred to in Annex II, the competent authorities of the management company’s home Member State shall enclose with the documentation sent to the competent authorities of the management company’s host Member State an attestation that the management company has been authorised pursuant to the provisions of this Directive, a description of the scope of the management company’s authorisation and details of any restriction on the types of UCITS that the management company is authorised to manage.

Notwithstanding Articles 20 and 93, the management company may then start business in the management company’s host Member State.

3. A management company which pursues activities under the freedom to provide services shall comply with the rules drawn up by the management company’s home Member State pursuant to Article 14.

4. Where the content of the information communicated in accordance with paragraph 1(b) is amended, the management company shall give notice of the amendment in writing to the competent authorities of the management company’s home Member State and of the management company’s host Member State before implementing the change. The competent authorities of the management company’s home Member State shall update the information contained in the attestation referred to in paragraph 2 and inform the competent authorities of the management company’s host Member State whenever there is a change in the scope of the management company’s authorisation or in the details of any restriction on the types of UCITS that the management company is authorised to manage.

Article 19

1. A management company which pursues the activity of collective portfolio management on a cross-border basis by establishing a branch or under the freedom to provide services shall comply with the rules of the management company’s home Member State which relate to the organisation of the management company, including delegation arrangements, risk-management procedures, prudential rules and supervision, procedures referred to in Article 12 and the management company’s reporting requirements. Those rules shall be no stricter than those applicable to management companies conducting their activities only in their home Member State.

2. The competent authorities of the management company’s home Member State shall be responsible for supervising compliance with paragraph 1.

3. A management company which pursues the activity of collective portfolio management on a cross-border basis by establishing a branch or in accordance with the freedom to provide services shall comply with the rules of the UCITS home Member State which relate to the constitution and functioning of the UCITS, namely the rules applicable to:

(a)

the setting up and authorisation of the UCITS;

(b)

the issuance and redemption of units and shares;

(c)

investment policies and limits, including the calculation of total exposure and leverage;

(d)

restrictions on borrowing, lending and uncovered sales;

(e)

the valuation of assets and the accounting of the UCITS;

(f)

the calculation of the issue or redemption price, and errors in the calculation of the net asset value and related investor compensation;

(g)

the distribution or reinvestment of the income;

(h)

the disclosure and reporting requirements of the UCITS, including the prospectus, key investor information and periodic reports;

(i)

the arrangements made for marketing;

(j)

the relationship with unit-holders;

(k)

the merging and restructuring of the UCITS;

(l)

the winding-up and liquidation of the UCITS;

(m)

where applicable, the content of the unit-holder register;

(n)

the licensing and supervision fees regarding the UCITS; and

(o)

the exercise of unit-holders’ voting rights and other unit-holders’ rights in relation to points (a) to (m).

4. The management company shall comply with the obligations set out in the fund rules or in the instruments of incorporation, and the obligations set out in the prospectus, which shall be consistent with the applicable law as referred to in paragraphs 1 and 3.

5. The competent authorities of the UCITS home Member State shall be responsible for supervising compliance with paragraphs 3 and 4.

6. The management company shall decide and be responsible for adopting and implementing all the arrangements and organisational decisions which are necessary to ensure compliance with the rules which relate to the constitution and functioning of the UCITS and with the obligations set out in the fund rules or in the instruments of incorporation, and with the obligations set out in the prospectus.

7. The competent authorities of the management company’s home Member State shall be responsible for supervising the adequacy of the arrangements and organisation of the management company so that the management company is in a position to comply with the obligations and rules which relate to the constitution and functioning of all the UCITS it manages.

8. Member States shall ensure that any management company authorised in a Member State is not subject to any additional requirement established in the UCITS home Member State in respect of the subject matter of this Directive, except in the cases expressly referred to in this Directive.

1. Without prejudice to Article 5, a management company which applies to manage a UCITS established in another Member State shall provide the competent authorities of the UCITS home Member State with the following documentation:

(a)

the written agreement with the depositary referred to in Articles 23 and 33; and

(b)

information on delegation arrangements regarding functions of investment management and administration referred to in Annex II.

If a management company already manages other UCITS of the same type in the UCITS home Member State, reference to the documentation already provided shall be sufficient.

2. In so far as it is necessary to ensure compliance with the rules for which they are responsible, the competent authorities of the UCITS home Member State may ask the competent authorities of the management company’s home Member State for clarification and information regarding the documentation referred to in paragraph 1 and, based on the attestation referred to in Articles 17 and 18, as to whether the type of UCITS for which authorisation is requested falls within the scope of the management company’s authorisation. Where applicable, the competent authorities of the management company’s home Member State shall provide their opinion within 10 working days of the initial request.

3. The competent authorities of the UCITS home Member State may refuse the application of the management company only if:

(a)

the management company does not comply with the rules falling under their responsibility pursuant to Article 19;

(b)

the management company is not authorised by the competent authorities of its home Member State to manage the type of UCITS for which authorisation is requested; or

(c)

the management company has not provided the documentation referred to in paragraph 1.

Before refusing an application, the competent authorities of the UCITS home Member State shall consult the competent authorities of the management company’s home Member State.

4. Any subsequent material modifications of the documentation referred to in paragraph 1 shall be notified by the management company to the competent authorities of the UCITS home Member State.

1. A management company’s host Member State may, for statistical purposes, require all management companies with branches within its territory to report periodically on their activities pursued in that host Member State to the competent authorities of that host Member State.

2. A management company’s host Member State may require management companies pursuing business within its territory through the establishment of a branch or under the freedom to provide services, to provide the information necessary for the monitoring of their compliance with the rules under the responsibility of the management company’s host Member State that apply to them.

Those requirements shall not be more stringent than those which the same Member State imposes on management companies authorised in that Member State for the monitoring of their compliance with the same standards.

Management companies shall ensure that the procedures and arrangements referred to in Article 15 enable the competent authorities of the UCITS home Member State to obtain directly from the management company the information referred to in this paragraph.

3. Where the competent authorities of a management company’s host Member State ascertain that a management company that has a branch or provides services within its territory is in breach of one of the rules under their responsibility, those authorities shall require the management company concerned to put an end to that breach and inform the competent authorities of the management company’s home Member State thereof.

4. If the management company concerned refuses to provide the management company’s host Member State with information falling under its responsibility, or fails to take the necessary steps to put an end to the breach referred to in paragraph 3, the competent authorities of the management company’s host Member State shall inform the competent authorities of the management company’s home Member State accordingly. The competent authorities of the management company’s home Member State shall, at the earliest opportunity, take all appropriate measures to ensure that the management company concerned provides the information requested by the management company’s host Member State pursuant to paragraph 2 or puts an end to the breach. The nature of those measures shall be communicated to the competent authorities of the management company’s host Member State.

5. If, despite the measures taken by the competent authorities of the management company’s home Member State or because such measures prove to be inadequate or are not available in the Member State in question, the management company continues to refuse to provide the information requested by the management company’s host Member State pursuant to paragraph 2, or persists in breaching the legal or regulatory provisions, referred to in the same paragraph, in force in the management company’s host Member State, the competent authorities of the management company’s host Member State may, after informing the competent authorities of the management company’s home Member State, take appropriate measures, including under Articles 98 and 99, to prevent or penalise further irregularities and, in so far as necessary, to prevent that management company from initiating any further transaction within its territory. Member States shall ensure that within their territories it is possible to serve the legal documents necessary for those measures on management companies. Where the service provided within the management company’s host Member State is the management of a UCITS, the management company’s host Member State may require the management company to cease managing that UCITS.

6. Any measure adopted pursuant to paragraphs 4 or 5 involving measures or penalties shall be properly justified and communicated to the management company concerned. Every such measure shall be subject to the right to apply to the courts in the Member State which adopted it.

7. Before following the procedure laid down in paragraphs 3, 4 or 5 the competent authorities of the management company’s host Member State may, in emergencies, take any precautionary measures necessary to protect the interests of investors and others for whom services are provided. The Commission and the competent authorities of the other Member States concerned shall be informed of such measures at the earliest opportunity.

After consulting the competent authorities of the Member States concerned, the Commission may decide that the Member State in question must amend or abolish those measures.

8. The competent authorities of the management company’s home Member State shall consult the competent authorities of the UCITS home Member State before withdrawing the authorisation of the management company. In such cases, the competent authorities of the UCITS home Member State shall take appropriate measures to safeguard investors’ interests. Those measures may include decisions preventing the management company concerned from initiating any further transactions within its territory.

Every two years the Commission shall issue a report on such cases.

9. Member States shall inform the Commission of the number and type of cases in which they refuse authorisation under Article 17 or an application under Article 20 and of any measures taken in accordance with paragraph 5 of this Article.

Every two years the Commission shall issue a report on such cases.

CHAPTER IV

OBLIGATIONS REGARDING THE DEPOSITARY

1. The assets of a common fund shall be entrusted to a depositary for safe-keeping.

2. A depositary’s liability as referred to in Article 24 shall not be affected by the fact that it has entrusted to a third party all or some of the assets in its safe-keeping.

3. A depositary shall:

(a)

ensure that the sale, issue, repurchase, redemption and cancellation of units effected on behalf of a common fund or by a management company are carried out in accordance with the applicable national law and the fund rules;

(b)

ensure that the value of units is calculated in accordance with the applicable national law and the fund rules;

(c)

carry out the instructions of the management company, unless they conflict with the applicable national law or the fund rules;

(d)

ensure that in transactions involving a common fund’s assets any consideration is remitted to it within the usual time limits;

(e)

ensure that a common fund’s income is applied in accordance with the applicable national law and the fund rules.

1. A depositary shall either have its registered office or be established in the UCITS home Member State.

2. A depositary shall be an institution which is subject to prudential regulation and ongoing supervision. It shall also furnish sufficient financial and professional guarantees to be able effectively to pursue its business as depositary and meet the commitments inherent in that function.

3. Member States shall determine which of the categories of institutions referred to in paragraph 2 shall be eligible to be depositaries.

4. The depositary shall enable the competent authorities of the UCITS home Member State to obtain, on request, all information that the depositary has obtained while discharging its duties and that is necessary for the competent authorities to supervise the UCITS compliance with this Directive.

5. Where the management company’s home Member State is not the UCITS home Member State, the depositary shall sign a written agreement with the management company regulating the flow of information deemed necessary to allow it to perform the functions set out in Article 22 and in other laws, regulations or administrative provisions which are relevant for depositaries in the UCITS home Member State.

6. The Commission may adopt implementing measures in relation to the measures to be taken by a depositary in order to fulfil its duties regarding a UCITS managed by a management company established in another Member State, including the particulars that need to be included in the standard agreement to be used by the depositary and the management company in accordance with paragraph 5.

Those measures, designed to amend non-essential elements of this Directive by supplementing it, shall be adopted in accordance with the regulatory procedure with scrutiny referred to in Article 112(2).

A depositary shall, in accordance with the national law of the UCITS home Member State, be liable to the management company and the unit-holders for any loss suffered by them as a result of its unjustifiable failure to perform its obligations or its improper performance of them.

Liability to unit-holders may be invoked directly or indirectly through the management company, depending on the legal nature of the relationship between the depositary, the management company and the unit-holders.

1. No company shall act as both management company and depositary.

2. In the context of their respective roles, the management company and the depositary shall act independently and solely in the interest of the unit-holders.

The law or the fund rules shall lay down the conditions for the replacement of the management company and the depositary and rules to ensure the protection of unit-holders in the event of such replacement.

CHAPTER V

OBLIGATIONS REGARDING INVESTMENT COMPANIES

SECTION 1

Conditions for taking up business

Access to the business of an investment company shall be subject to prior authorisation to be granted by the competent authorities of the investment company’s home Member State.

Member States shall determine the legal form which an investment company must take.

The registered office of the investment company shall be situated in the investment company’s home Member State.

No investment company may engage in activities other than those referred to in Article 1(2).

1. Without prejudice to other conditions of general application laid down by national law, the competent authorities of the investment company’s home Member State shall not grant authorisation to an investment company that has not designated a management company unless the investment company has a sufficient initial capital of at least EUR 300 000.

In addition, when an investment company has not designated a management company authorised pursuant to this Directive, the following conditions shall apply:

(a)

the authorisation must not be granted unless the application for authorisation is accompanied by a programme of operations setting out, at least, the organisational structure of the investment company;

(b)

the directors of the investment company must be of sufficiently good repute and be sufficiently experienced also in relation to the type of business pursued by the investment company and, to that end: the names of the directors and of every person succeeding them in office must be communicated forthwith to the competent authorities; the conduct of an investment company’s business must be decided by at least two persons meeting such conditions; and ‘directors’ shall mean those persons who, under the law or the instruments of incorporation, represent the investment company, or who effectively determine the policy of the company; and

(c)

where close links exist between the investment company and other natural or legal persons, the competent authorities must grant authorisation only if those close links do not prevent the effective exercise of their supervisory functions.

The competent authorities of the investment company’s home Member State shall also refuse authorisation if the laws, regulations or administrative provisions of a third country governing one or more natural or legal persons with which the investment company has close links, or difficulties involved in their enforcement, prevent the effective exercise of their supervisory functions.

The competent authorities of the investment company’s home Member State shall require investment companies to provide them with the information they need.

2. Where an investment company has not designated a management company, the investment company shall be informed, within six months of the submission of a complete application, whether or not authorisation has been granted. Reasons shall be given whenever an authorisation is refused.

3. An investment company may start business as soon as authorisation has been granted.

4. The competent authorities of the investment company’s home Member State may withdraw the authorisation issued to an investment company subject to this Directive only where that company:

(a)

does not make use of the authorisation within 12 months, expressly renounces the authorisation or has ceased the activity covered by this Directive more than six months previously, unless the Member State concerned has provided for authorisation to lapse in such cases;

(b)

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

(c)

no longer fulfils the conditions under which authorisation was granted;

(d)

has seriously or systematically infringed the provisions adopted pursuant to this Directive; or

(e)

falls within any of the cases where national law provides for withdrawal.

SECTION 2

Operating conditions

Articles 13 and 14 shall apply mutatis mutandis to investment companies that have not designated a management company authorised pursuant to this Directive.

For the purpose of the Articles referred to in the first paragraph, ‘management company’ means ‘investment company’.

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

Each investment company’s home Member State shall draw up prudential rules which shall be observed at all times by investment companies that have not designated a management company authorised pursuant to this Directive.

In particular, the competent authorities of the investment company’s home Member State, having regard also to the nature of the investment company, shall require that the company has sound administrative and accounting procedures, control and safeguard arrangements for electronic data processing and adequate internal control mechanisms including, in particular, rules for personal transactions by its employees or for the holding or management of investments in financial instruments in order to invest its initial capital and ensuring, at least, that each transaction involving the company may be reconstructed according to its origin, the parties to it, its nature, and the time and place at which it was effected and that the assets of the investment company are invested according to the instruments of incorporation and the legal provisions in force.

SECTION 3

Obligations regarding the depositary

1. The assets of an investment company shall be entrusted to a depositary for safe-keeping.

2. A depositary’s liability as referred to in Article 34 shall not be affected by the fact that it has entrusted to a third party all or some of the assets in its safe-keeping.

3. A depositary shall ensure the following:

(a)

that the sale, issue, repurchase, redemption and cancellation of units effected by or on behalf of an investment company are carried out in accordance with the law and with the investment company’s instruments of incorporation;

(b)

that in transactions involving an investment company’s assets any consideration is remitted to it within the usual time limits; and

(c)

that an investment company’s income is applied in accordance with the law and its instruments of incorporation.

4. An investment company’s home Member State may decide that investment companies established on its territory which market their units exclusively through one or more stock exchanges on which their units are admitted to official listing are not required to have depositaries within the meaning of this Directive.

Articles 76, 84 and 85 shall not apply to such investment companies. However, the rules for the valuation of such investment companies’ assets shall be stated in the applicable national law or in their instruments of incorporation.

5. An investment company’s home Member State may decide that investment companies established on its territory which market at least 80 % of their units through one or more stock exchanges designated in their instruments of incorporation are not required to have depositaries within the meaning of this Directive provided that their units are admitted to official listing on the stock exchanges of those Member States within the territories of which the units are marketed, and that any transactions which such an investment company may effect outwith stock exchanges are effected at stock exchange prices only.

The instruments of incorporation of an investment company shall specify the stock exchange in the country of marketing the prices on which shall determine the prices at which that investment company will effect any transactions outwith stock exchanges in that country.

A Member State shall avail itself of the derogation provided for in the first subparagraph only if it considers that unit-holders have protection equivalent to that of unit-holders in UCITS which have depositaries within the meaning of this Directive.

Investment companies referred to in this paragraph and in paragraph 4, shall, in particular:

(a)

in the absence of national law to this effect, state in their instruments of incorporation the methods of calculation of the net asset values of their units;

(b)

intervene on the market to prevent the stock exchange values of their units from deviating by more than 5 % from their net asset values;

(c)

establish the net asset values of their units, communicate them to the competent authorities at least twice a week and publish them twice a month.

At least twice a month, an independent auditor shall ensure that the calculation of the value of units is effected in accordance with the law and the instruments of incorporation of the investment company.

On such occasions, the auditor shall ensure that the investment company’s assets are invested in accordance with the rules laid down by law and the instruments of incorporation of the investment company.

6. Member States shall inform the Commission of the identities of the investment companies benefiting from the derogations provided for in paragraphs 4 and 5.

1. A depositary shall either have its registered office or be established in the same Member State as that of the investment company.

2. A depositary shall be an institution which is subject to prudential regulation and ongoing supervision.

3. Member States shall determine which of the categories of institutions referred to in paragraph 2 shall be eligible to be depositaries.

4. The depositary shall enable the competent authorities of the UCITS home Member State to obtain, on request, all information that the depositary has obtained while discharging its duties and that is necessary for the competent authorities to supervise compliance of the UCITS with this Directive.

5. Where the management company’s home Member State is not the UCITS home Member State, the depositary shall sign a written agreement with the management company regulating the flow of information deemed necessary to allow it to perform the functions set out in Article 32 and in other laws, regulations or administrative provisions which are relevant for depositaries in the UCITS home Member State.

6. The Commission may adopt implementing measures in relation to the measures to be taken by a depositary in order to fulfil its duties regarding a UCITS managed by a management company established in another Member State, including the particulars that need to be included in the standard agreement to be used by the depositary and the management company in accordance with paragraph 5.

Those measures, designed to amend non-essential elements of this Directive by supplementing it, shall be adopted in accordance with the regulatory procedure with scrutiny referred to in Article 112(2).

A depositary shall, in accordance with the national law of the investment company’s home Member State, be liable to the investment company and the unit-holders for any loss suffered by them as a result of its unjustifiable failure to perform its obligations, or its improper performance of them.

Article 35

1. No company shall act as both investment company and depositary.

2. In carrying out its role as depositary, the depositary shall act solely in the interests of the unit-holders.

The law or the instruments of incorporation of the investment company shall lay down the conditions for the replacement of the depositary and rules to ensure the protection of unit-holders in the event of such replacement.

CHAPTER VI

MERGERS OF UCITS

SECTION 1

Principle, authorisation and approval

For the purposes of this Chapter, a UCITS shall include investment compartments thereof.

Article 38

1. Member States shall, subject to the conditions set out in this Chapter and irrespective of the manner in which UCITS are constituted under Article 1(3), allow for cross-border and domestic mergers as defined in Article 2(1)(q) and (r) in accordance with one or more of the merger techniques provided for in Article 2(1)(p).

2. The merger techniques used for cross-border mergers as defined in Article 2(1)(q) must be provided for under the laws of the merging UCITS home Member State.

The merger techniques used for domestic mergers as defined in Article 2(1)(r) must be provided for under the laws of the Member State, in which the UCITS are established.

Article 39

1. Mergers shall be subject to prior authorisation by the competent authorities of the merging UCITS home Member State.

2. The merging UCITS shall provide the following information to the competent authorities of its home Member State:

(a)

the common draft terms of the proposed merger duly approved by the merging UCITS and the receiving UCITS;

(b)

an up-to-date version of the prospectus and the key investor information, referred to in Article 78, of the receiving UCITS, if established in another Member State;

(c)

a statement by each of the depositaries of the merging and the receiving UCITS confirming that, in accordance with Article 41, they have verified compliance of the particulars set out in points (a), (f) and (g) of Article 40(1) with the requirements of this Directive and the fund rules or instruments of incorporation of their respective UCITS; and

(d)

the information on the proposed merger that the merging and the receiving UCITS intend to provide to their respective unit-holders.

That information shall be provided in such a manner as to enable the competent authorities of both the merging and the receiving UCITS home Member State to read them in the official language or one of the official languages of that Member State or those Member States, or in a language approved by those competent authorities.

3. Once the file is complete, the competent authorities of the merging UCITS home Member State shall immediately transmit copies of the information referred to in paragraph 2 to the competent authorities of the receiving UCITS home Member State. The competent authorities of the merging and the receiving UCITS home Member State shall, respectively, consider the potential impact of the proposed merger on unit-holders of the merging and the receiving UCITS to assess whether appropriate information is being provided to unit-holders.

If the competent authorities of the merging UCITS home Member State consider it necessary, they may require, in writing, that the information to unit-holders of the merging UCITS be clarified.

If the competent authorities of the receiving UCITS home Member State consider it necessary, they may require, in writing, and no later than 15 working days of receipt of the copies of the complete information referred to in paragraph 2, that the receiving UCITS modify the information to be provided to its unit-holders.

In such a case, the competent authorities of the receiving UCITS home Member State shall send an indication of their dissatisfaction to the competent authorities of the merging UCITS home Member State. They shall inform the competent authorities of the merging UCITS home Member State whether they are satisfied with the modified information to be provided to the unit-holders of the receiving UCITS within 20 working days of being notified thereof.

4. The competent authorities of the merging UCITS home Member State shall authorise the proposed merger if the following conditions are met:

(a)

the proposed merger complies with all of the requirements of Articles 39 to 42;

(b)

the receiving UCITS has been notified, in accordance with Article 93, to market its units in all Member States where the merging UCITS is either authorised or has been notified to market its units in accordance with Article 93; and

(c)

the competent authorities of the merging and the receiving UCITS home Member State are satisfied with the proposed information to be provided to unit-holders, or no indication of dissatisfaction from the competent authorities of the receiving UCITS home Member State has been received under the fourth subparagraph of paragraph 3.

5. If the competent authorities of the merging UCITS home Member State consider that the file is not complete, they shall request additional information within 10 working days of receiving the information referred to in paragraph 2.

The competent authorities of the merging UCITS home Member State shall inform the merging UCITS, within 20 working days of submission of the complete information, in accordance with paragraph 2, whether or not the merger has been authorised.

The competent authorities of the merging UCITS home Member State shall also inform the competent authorities of the receiving UCITS home Member State of their decision.

6. Member States may, in accordance with the second subparagraph of Article 57(1), provide for a derogation from Articles 52 to 55 for receiving UCITS.

Article 40

1. Member States shall require that the merging and the receiving UCITS draw up common draft terms of merger.

The common draft terms of merger shall set out the following particulars:

(a)

an identification of the type of merger and of the UCITS involved;

(b)

the background to and rationale for the proposed merger;

(c)

the expected impact of the proposed merger on the unit-holders of both the merging and the receiving UCITS;

(d)

the criteria adopted for valuation of the assets and, where applicable, the liabilities on the date for calculating the exchange ratio as referred to in Article 47(1);

(e)

the calculation method of the exchange ratio;

(f)

the planned effective date of the merger;

(g)

the rules applicable, respectively, to the transfer of assets and the exchange of units; and

(h)

in the case of a merger pursuant to point (p)(ii) of Article 2(1) and, where applicable, point (p)(iii) of Article 2(1), the fund rules or instruments of incorporation of the newly constituted receiving UCITS.

The competent authorities shall not require that any additional information is included in the common draft terms of mergers.

2. The merging UCITS and the receiving UCITS may decide to include further items in the common draft terms of merger.

SECTION 2

Third-party control, information of unit-holders and other rights of unit-holders

Article 41

Member States shall require that the depositaries of the merging and of the receiving UCITS verify the conformity of the particulars set out in points (a), (f) and (g) of Article 40(1) with the requirements of this Directive and the fund rules or instruments of incorporation of their respective UCITS.

Article 42

1. The law of the merging UCITS home Member States shall entrust either a depositary or an independent auditor, approved in accordance with Directive 2006/43/EC of the European Parliament and of the Council of 17 May 2006 on statutory audits of annual accounts and consolidated accounts (13), to validate the following:

(a)

the criteria adopted for valuation of the assets and, where applicable, the liabilities on the date for calculating the exchange ratio, as referred to in Article 47(1);

(b)

where applicable, the cash payment per unit; and

(c)

the calculation method of the exchange ratio as well as the actual exchange ratio determined at the date for calculating that ratio, as referred to in Article 47(1).

2. The statutory auditors of the merging UCITS or the statutory auditor of the receiving UCITS shall be considered independent auditors for the purposes of paragraph 1.

3. A copy of the reports of the independent auditor, or, where applicable, the depositary shall be made available on request and free of charge to the unit-holders of both the merging UCITS and the receiving UCITS and to their respective competent authorities.

1. Member States shall require merging and receiving UCITS to provide appropriate and accurate information on the proposed merger to their respective unit-holders so as to enable them to make an informed judgement of the impact of the proposal on their investment.

2. That information shall be provided to unit-holders of the merging and of the receiving UCITS only after the competent authorities of the merging UCITS home Member State have authorised the proposed merger under Article 39.

It shall be provided at least 30 days before the last date for requesting repurchase or redemption or, where applicable, conversion without additional charge under Article 45(1).

3. The information to be provided to unit-holders of the merging and of the receiving UCITS, shall include appropriate and accurate information on the proposed merger such as to enable them to take an informed decision on the possible impact thereof on their investment and to exercise their rights under Articles 44 and 45.

It shall include the following:

(a)

the background to and the rationale for the proposed merger;

(b)

the possible impact of the proposed merger on unit-holders, including but not limited to any material differences in respect of investment policy and strategy, costs, expected outcome, periodic reporting, possible dilution in performance, and, where relevant, a prominent warning to investors that their tax treatment may be changed following the merger;

(c)

any specific rights unit-holders have in relation to the proposed merger, including but not limited to the right to obtain additional information, the right to obtain a copy of the report of the independent auditor or the depositary on request, and the right to request the repurchase or redemption or, where applicable, the conversion of their units without charge as specified in Article 45(1) and the last date for exercising that right;

(d)

the relevant procedural aspects and the planned effective date of the merger; and

(e)

a copy of the key investor information, referred to in Article 78, of the receiving UCITS.

4. If the merging or the receiving UCITS has been notified in accordance with Article 93, the information referred to in paragraph 3 shall be provided in the official language, or one of the official languages, of the relevant UCITS host Member State, or in a language approved by its competent authorities. The UCITS required to provide the information shall be responsible for producing the translation. That translation shall faithfully reflect the content of the original.

5. The Commission may adopt implementing measures specifying the detailed content, format and method by which to provide the information referred to in paragraphs 1 and 3.

Those measures, designed to amend non-essential elements of this Directive by supplementing it, shall be adopted in accordance with the regulatory procedure with scrutiny referred to in Article 112(2).

Where the national laws of Member States require approval by the unit-holders of mergers between UCITS, Member States shall ensure that such approval does not require more than 75 % of the votes actually cast by unit-holders present or represented at the general meeting of unit-holders.

The first paragraph shall be without prejudice to any presence quorum provided for under national laws. Member States shall impose neither more stringent presence quorums for cross-border than for domestic mergers nor more stringent presence quorums for UCITS mergers than for mergers of corporate entities.

Article 45

1. The laws of Member States shall provide that unit-holders of both the merging and the receiving UCITS have the right to request, without any charge other than those retained by the UCITS to meet disinvestment costs, the repurchase or redemption of their units or, where possible, to convert them into units in another UCITS with similar investment policies and managed by the same management company or by any other company with which the management company is linked by common management or control, or by a substantial direct or indirect holding. That right shall become effective from the moment that the unit-holders of the merging UCITS and those of the receiving UCITS, have been informed of the proposed merger in accordance with Article 43 and shall cease to exist five working days before the date for calculating the exchange ratio referred to in Article 47(1).

2. Without prejudice to paragraph 1, for mergers between UCITS and by way of derogation from Article 84(1), Member States may allow the competent authorities to require or to allow the temporary suspension of the subscription, repurchase or redemption of units provided that such suspension is justified for the protection of the unit-holders.

SECTION 3

Costs and entry into effect

Article 46

Except in cases where UCITS have not designated a management company, Member States shall ensure that any legal, advisory or administrative costs associated with the preparation and the completion of the merger shall not be charged to the merging or the receiving UCITS, or to any of their unit-holders.

Article 47

1. For domestic mergers, the laws of the Member States shall determine the date on which a merger takes effect as well as the date for calculating the exchange ratio of units of the merging UCITS into units of the receiving UCITS and, where applicable, for determining the relevant net asset value for cash payments.

For cross-border mergers, the laws of the receiving UCITS home Member State shall determine those dates. Member States shall ensure that, where applicable, those dates are after the approval of the merger by unit-holders of the receiving UCITS or the merging UCITS.

2. The entry into effect of the merger shall be made public through all appropriate means in the manner prescribed by the laws of the receiving UCITS home Member State, and shall be notified to the competent authorities of the home Member States of the receiving and the merging UCITS.

3. A merger which has taken effect as provided for in paragraph 1 shall not be declared null and void.

Article 48

1. A merger effected in accordance with point (p)(i) of Article 2(1) shall have the following consequences:

(a)

all the assets and liabilities of the merging UCITS are transferred to the receiving UCITS or, where applicable, to the depositary of the receiving UCITS;

(b)

the unit-holders of the merging UCITS become unit-holders of the receiving UCITS and, where applicable, they are entitled to a cash payment not exceeding 10 % of the net asset value of their units in the merging UCITS; and

(c)

the merging UCITS cease to exist on the entry into effect of the merger.

2. A merger effected in accordance with point (p)(ii) of Article 2(1) shall have the following consequences:

(a)

all the assets and liabilities of the merging UCITS are transferred to the newly constituted receiving UCITS or, where applicable, to the depositary of the receiving UCITS;

(b)

the unit-holders of the merging UCITS become unit-holders of the newly constituted receiving UCITS and, where applicable, they are entitled to a cash payment not exceeding 10 % of the net asset value of their units in the merging UCITS; and

(c)

the merging UCITS cease to exist on the entry into effect of the merger.

3. A merger effected in accordance with point (p)(iii) of Article 2(1) shall have the following consequences:

(a)

the net assets of the merging UCITS are transferred to the receiving UCITS or, where applicable, the depositary of the receiving UCITS;

(b)

the unit-holders of the merging UCITS become unit-holders of the receiving UCITS; and

(c)

the merging UCITS continues to exist until the liabilities have been discharged.

4. Member States shall provide for the establishment of a procedure whereby the management company of the receiving UCITS confirms to the depositary of the receiving UCITS that transfer of assets and, where applicable, liabilities is complete. Where the receiving UCITS has not designated a management company, it shall give that confirmation to the depositary of the receiving UCITS.

CHAPTER VII

OBLIGATIONS CONCERNING THE INVESTMENT POLICIES OF UCITS

Article 49

Where UCITS comprise more than one investment compartment, each compartment shall be regarded as a separate UCITS for the purposes of this Chapter.

Article 50

1. The investments of a UCITS shall comprise only one or more of the following:

(a)

transferable securities and money market instruments admitted to or dealt in on a regulated market as defined in Article 4(1)(14) of Directive 2004/39/EC;

(b)

transferable securities and money market instruments dealt in on another regulated market in a Member State, which operates regularly and is recognised and open to the public;

(c)

transferable securities and money market instruments admitted to official listing on a stock exchange in a third country or dealt in on another regulated market in a third country which operates regularly and is recognised and open to the public provided that the choice of stock exchange or market has been approved by the competent authorities or is provided for in law or the fund rules or the instruments of incorporation of the investment company;

(d)

recently issued transferable securities, provided that:

(i)

the terms of issue include an undertaking that an application will be made for admission to official listing on a stock exchange or to another regulated market which operates regularly and is recognised and open to the public, provided that the choice of stock exchange or market has been approved by the competent authorities or is provided for in law or the fund rules or the instruments of incorporation of the investment company; and

(ii)

the admission referred to in point (i) is secured within a year of issue;

(e)

units of UCITS authorised according to this Directive or other collective investment undertakings within the meaning of Article 1(2)(a) and (b), whether or not established in a Member State, provided that:

(i)

such other collective investment undertakings are authorised under laws which provide that they are subject to supervision considered by the competent authorities of the UCITS home Member State to be equivalent to that laid down in Community law, and that cooperation between authorities is sufficiently ensured;

(ii)

the level of protection for unit-holders in the other collective investment undertakings is equivalent to that provided for unit-holders in a UCITS, and in particular that the rules on asset segregation, borrowing, lending, and uncovered sales of transferable securities and money market instruments are equivalent to the requirements of this Directive;

(iii)

the business of the other collective investment undertakings is reported in half-yearly and annual reports to enable an assessment to be made of the assets and liabilities, income and operations over the reporting period; and

(iv)

no more than 10 % of the assets of the UCITS or of the other collective investment undertakings, whose acquisition is contemplated, can, according to their fund rules or instruments of incorporation, be invested in aggregate in units of other UCITS or other collective investment undertakings;

(f)

deposits with credit institutions which are repayable on demand or have the right to be withdrawn, and maturing in no more than 12 months, provided that the credit institution has its registered office in a Member State or, if the credit institution has its registered office in a third country, provided that it is subject to prudential rules considered by the competent authorities of the UCITS home Member State as equivalent to those laid down in Community law;

(g)

financial derivative instruments, including equivalent cash-settled instruments, dealt in on a regulated market referred to in points (a), (b) and (c) or financial derivative instruments dealt in over-the-counter (OTC) derivatives, provided that:

(i)

the underlying of the derivative consists of instruments covered by this paragraph, financial indices, interest rates, foreign exchange rates or currencies, in which the UCITS may invest according to its investment objectives as stated in its fund rules or instruments of incorporation;

(ii)

the counterparties to OTC derivative transactions are institutions subject to prudential supervision, and belonging to the categories approved by the competent authorities of the UCITS home Member State; and

(iii)

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

(h)

money market instruments other than those dealt in on a regulated market, which fall under Article 2(1)(o), if the issue or issuer of such instruments is itself regulated for the purpose of protecting investors and savings, provided that they are:

(i)

issued or guaranteed by a central, regional or local authority or central bank of a Member State, the European Central Bank, the Community or the European Investment Bank, a third country or, in the case of a Federal State, by one of the members making up the federation, or by a public international body to which one or more Member States belong;

(ii)

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

(iii)

issued or guaranteed by an establishment subject to prudential supervision, in accordance with criteria defined by Community law, or by an establishment which is subject to and complies with prudential rules considered by the competent authorities to be at least as stringent as those laid down by Community law; or

(iv)

issued by other bodies belonging to the categories approved by the competent authorities of the UCITS home Member State provided that investments in such instruments are subject to investor protection equivalent to that laid down in points (i), (ii) or (iii) and provided that the issuer is a company whose capital and reserves amount to at least EUR 10 000 000 and which presents and publishes its annual accounts in accordance with Fourth Council Directive 78/660/EEC of 25 July 1978 based on Article 54(3)(g) of the Treaty on the annual accounts of certain types of companies (14), is an entity which, within a group of companies which includes one or several listed companies, is dedicated to the financing of the group or is an entity which is dedicated to the financing of securitisation vehicles which benefit from a banking liquidity line.

2. A UCITS shall not, however:

(a)

invest more than 10 % of its assets in transferable securities or money market instruments other than those referred to in paragraph 1; or

(b)

acquire either precious metals or certificates representing them.

UCITS may hold ancillary liquid assets.

3. An investment company may acquire movable or immovable property which is essential for the direct pursuit of its business.

1. A management or investment company shall employ a risk-management process which enables it to monitor and measure at any time the risk of the positions and their contribution to the overall risk profile of the portfolio.

It shall employ a process for accurate and independent assessment of the value of OTC derivatives.

It shall communicate to the competent authorities of its home Member State regularly in regard to the types of derivative instruments, the underlying risks, the quantitative limits and the methods which are chosen in order to estimate the risks associated with transactions in derivative instruments regarding each managed UCITS.

2. Member States may authorise UCITS to employ techniques and instruments relating to transferable securities and money market instruments under the conditions and within the limits which they lay down provided that such techniques and instruments are used for the purpose of efficient portfolio management.

When those operations concern the use of derivative instruments, the conditions and limits shall conform to the provisions laid down in this Directive.

Under no circumstances shall those operations cause the UCITS to diverge from its investment objectives as laid down in the UCITS’ fund rules, instruments of incorporation or prospectus.

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

The exposure is calculated taking into account the current value of the underlying assets, the counterparty risk, future market movements and the time available to liquidate the positions. This shall also apply to the third and fourth subparagraphs.

A UCITS may invest, as a part of its investment policy and within the limit laid down in Article 52(5), in financial derivative instruments provided that the exposure to the underlying assets does not exceed in aggregate the investment limits laid down in Article 52. Member States may provide that, when a UCITS invests in index-based financial derivative instruments, those investments are not required to be combined for the purposes of the limits laid down in Article 52.

When transferable securities or money market instruments embed a derivative, the derivative shall be taken into account when complying with the requirements of this Article.

4. Without prejudice to Article 116, the Commission shall adopt, by 1 July 2010, implementing measures specifying the following:

(a)

criteria for assessing the adequacy of the risk management process employed by the management company in accordance with the first subparagraph of paragraph 1;

(b)

detailed rules regarding the accurate and independent assessment of the value of OTC derivatives; and

(c)

detailed rules regarding the content of and procedure to be followed for communicating the information referred to in the third subparagraph of paragraph 1 to the competent authorities of the management company’s home Member State.

Those measures, designed to amend non-essential elements of this Directive by supplementing it, shall be adopted in accordance with the regulatory procedure with scrutiny referred to in Article 112(2).

1. A UCITS shall invest no more than:

(a)

5 % of its assets in transferable securities or money market instruments issued by the same body; or

(b)

20 % of its assets in deposits made with the same body.

The risk exposure to a counterparty of the UCITS in an OTC derivative transaction shall not exceed either:

(a)

10 % of its assets when the counterparty is a credit institution referred to in Article 50(1)(f); or

(b)

5 % of its assets, in other cases.

2. Member States may raise the 5 % limit laid down in the first subparagraph of paragraph 1 to a maximum of 10 %. If they do so, however, the total value of the transferable securities and the money market instruments held by the UCITS in the issuing bodies in each of which it invests more than 5 % of its assets shall not exceed 40 % of the value of its assets. That limitation shall not apply to deposits or OTC derivative transactions made with financial institutions subject to prudential supervision.

Notwithstanding the individual limits laid down in paragraph 1, a UCITS shall not combine, where this would lead to investment of more than 20 % of its assets in a single body, any of the following:

(a)

investments in transferable securities or money market instruments issued by that body;

(b)

deposits made with that body; or

(c)

exposures arising from OTC derivative transactions undertaken with that body.

3. Member States may raise the 5 % limit laid down in the first subparagraph of paragraph 1 to a maximum of 35 % if the transferable securities or money market instruments are issued or guaranteed by a Member State, by its local authorities, by a third country or by a public international body to which one or more Member States belong.

4. Member States may raise the 5 % limit laid down in the first subparagraph of paragraph 1 to a maximum of 25 % where bonds are issued by a credit institution which has its registered office in a Member State and is subject by law to special public supervision designed to protect bond-holders. In particular, sums deriving from the issue of those bonds shall be invested in accordance with the law in assets which, during the whole period of validity of the bonds, are capable of covering claims attaching to the bonds and which, in the event of failure of the issuer, would be used on a priority basis for the reimbursement of the principal and payment of the accrued interest.

Where a UCITS invests more than 5 % of its assets in the bonds referred to in the first subparagraph which are issued by a single issuer, the total value of these investments shall not exceed 80 % of the value of the assets of the UCITS.

Member States shall send to the Commission a list of the categories of bonds referred to in the first subparagraph together with the categories of issuers authorised, in accordance with the laws and supervisory arrangements mentioned in that subparagraph, to issue bonds complying with the criteria set out in this Article. A notice specifying the status of the guarantees offered shall be attached to those lists. The Commission shall immediately forward that information to the other Member States together with any comments which it considers appropriate and shall make the information available to the public. Such communications may be the subject of exchanges of views within the European Securities Committee referred to in Article 112(1).

5. The transferable securities and money market instruments referred to in paragraphs 3 and 4 shall not be taken into account for the purpose of applying the limit of 40 % referred to in paragraph 2.

The limits provided for in paragraphs 1 to 4 shall not be combined, and thus investments in transferable securities or money market instruments issued by the same body or in deposits or derivative instruments made with this body carried out in accordance with paragraphs 1 to 4 shall not exceed in total 35 % of the assets of the UCITS.

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

Member States may allow cumulative investment in transferable securities and money market instruments within the same group up to a limit of 20 %.

1. Without prejudice to the limits laid down in Article 56, Member States may raise the limits laid down in Article 52 to a maximum of 20 % for investment in shares or debt securities issued by the same body when, according to the fund rules or instruments of incorporation, the aim of the UCITS’ investment policy is to replicate the composition of a certain stock or debt securities index which is recognised by the competent authorities, on the following basis:

(a)

its composition is sufficiently diversified;

(b)

the index represents an adequate benchmark for the market to which it refers; and

(c)

it is published in an appropriate manner.

2. Member States may raise the limit laid down in paragraph 1 to a maximum of 35 % where that proves to be justified by exceptional market conditions in particular in regulated markets where certain transferable securities or money market instruments are highly dominant. The investment up to that limit shall be permitted only for a single issuer.

1. By way of derogation from Article 52, Member States may authorise UCITS to invest in accordance with the principle of risk-spreading up to 100 % of their assets in different transferable securities and money market instruments issued or guaranteed by a Member State, one or more of its local authorities, a third country, or a public international body to which one or more Member States belong.

The competent authorities of the UCITS home Member State shall grant such a derogation only if they consider that unit-holders in the UCITS have protection equivalent to that of unit-holders in UCITS complying with the limits laid down in Article 52.

Such a UCITS shall hold securities from at least six different issues, but securities from any single issue shall not account for more than 30 % of its total assets.

2. The UCITS referred to in paragraph 1 shall make express mention in the fund rules or in the instruments of incorporation of the investment company of the Member States, local authorities, or public international bodies issuing or guaranteeing securities in which they intend to invest more than 35 % of their assets.

Such fund rules or instruments of incorporation shall be approved by the competent authorities.

3. Each UCITS referred to in paragraph 1 shall include a prominent statement in its prospectus and marketing communications drawing attention to such authorisation and indicating the Member States, local authorities, or public international bodies in the securities of which it intends to invest or has invested more than 35 % of its assets.

Article 55

1. A UCITS may acquire the units of UCITS or other collective investment undertakings referred to in Article 50(1)(e), provided that no more than 10 % of its assets are invested in units of a single UCITS or other collective investment undertaking. Member States may raise that limit to a maximum of 20 %.

2. Investments made in units of collective investment undertakings other than UCITS shall not exceed, in aggregate, 30 % of the assets of the UCITS.

Member States may, where a UCITS has acquired units of another UCITS or collective investment undertakings, provide that the assets of the respective UCITS or other collective investment undertakings are not required to be combined for the purposes of the limits laid down in Article 52.

3. Where a UCITS invests in the units of other UCITS or collective investment undertakings that are managed, directly or by delegation, by the same management company or by any other company with which the management company is linked by common management or control, or by a substantial direct or indirect holding, that management company or other company shall not charge subscription or redemption fees on account of the UCITS’ investment in the units of such other UCITS or collective investment undertakings.

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

Article 56

1. An investment company or a management company acting in connection with all of the common funds which it manages and which fall within the scope of this Directive shall not acquire any shares carrying voting rights which would enable it to exercise significant influence over the management of an issuing body.

Pending further coordination, Member States shall take account of existing rules defining the principle stated in the first subparagraph in the law of other Member States.

2. A UCITS may acquire no more than:

(a)

10 % of the non-voting shares of a single issuing body;

(b)

10 % of the debt securities of a single issuing body;

(c)

25 % of the units of a single UCITS or other collective investment undertaking within the meaning of Article 1(2)(a) and (b); or

(d)

10 % of the money market instruments of a single issuing body.

The limits laid down in points (b), (c) and (d) may be disregarded at the time of acquisition if at that time the gross amount of the debt securities or of the money market instruments, or the net amount of the securities in issue, cannot be calculated.

3. A Member State may waive the application of paragraphs 1 and 2 as regards:

(a)

transferable securities and money market instruments issued or guaranteed by a Member State or its local authorities;

(b)

transferable securities and money market instruments issued or guaranteed by a third country;

(c)

transferable securities and money market instruments issued by a public international body to which one or more Member States belong;

(d)

shares held by a UCITS in the capital of a company incorporated in a third country investing its assets mainly in the securities of issuing bodies having their registered offices in that country, where under the legislation of that country such a holding represents the only way in which the UCITS can invest in the securities of issuing bodies of that country; or

(e)

shares held by an investment company or investment companies in the capital of subsidiary companies pursuing only the business of management, advice or marketing in the country where the subsidiary is established, in regard to the repurchase of units at unit-holders’ request exclusively on its or their behalf.

The derogation referred to in point (d) of the first subparagraph of this paragraph shall apply only if in its investment policy the company from the third country complies with the limits laid down in Articles 52 and 55 and in paragraphs 1 and 2 of this Article. Where the limits set in Articles 52 and 55 are exceeded, Article 57 shall apply mutatis mutandis.

1. UCITS are not required to comply with the limits laid down in this Chapter when exercising subscription rights attaching to transferable securities or money market instruments which form part of their assets.

While ensuring observance of the principle of risk spreading, Member States may allow recently authorised UCITS to derogate from Articles 52 to 55 for six months following the date of their authorisation.

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

CHAPTER VIII

MASTER-FEEDER STRUCTURES

SECTION 1

Scope and approval

Article 58

1. A feeder UCITS is a UCITS, or an investment compartment thereof, which has been approved to invest, by way of derogation from Article 1(2)(a), Articles 50, 52 and 55, and Article 56(2)(c), at least 85 % of its assets in units of another UCITS or investment compartment thereof (the master UCITS).

2. A feeder UCITS may hold up to 15 % of its assets in one or more of the following:

(a)

ancillary liquid assets in accordance with the second subparagraph of Article 50(2);

(b)

financial derivative instruments, which may be used only for hedging purposes, in accordance with Article 50(1)(g) and Article 51(2) and (3);

(c)

movable and immovable property which is essential for the direct pursuit of the business, if the feeder UCITS is an investment company.

For the purposes of compliance with Article 51(3), the feeder UCITS shall calculate its global exposure related to financial derivative instruments by combining its own direct exposure under point (b) of the first subparagraph with either:

(a)

the master UCITS’ actual exposure to financial derivative instruments in proportion to the feeder UCITS’ investment into the master UCITS; or

(b)