Proposal for a European Parliament and Council Directive amending Directive 85/611/EEC on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) with a view to regulating management companies and simplified prospectuses
Date: 1998-07-17
Institutions: European Commission
Subjects: approximation of laws, financial legislation, freedom to provide services, investment company, securities

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels,  17.07.1998 
COM(1998) 451  final 

98/ 0242 (COD) 

Proposal for a 

EUROPEAN PARLIAMENT AND COUNCIL DIRECTIVE 

AMENDING  DIRECTIVE 85/611/EEC ON THE COORDINATION  OF LAWS,  REGULATIONS 

AND ADMINISTRATIVE  PROVISIONS RELATING TO UNDERTAKINGS  FOR  COLLECTIVE 

INVESTMENT IN TRANSFERABLE SECURITIES (UCITS) WITH A VIEW TO REGULATING 

MANAGEMENT COMPANIES AND SIMPLIFIED  PROSPECTUSES 

(presented by the Commission) 

EXPLANATORY  MEMORANDUM 

1. 

INTRODUCTION 

With the adoption  of the UCITS Directive (l)  in  1985 the first important  step was taken 

toward  co-ordinating  the  laws  and  regulations  for  certain  collective 

investment 

undertakings.  The  Directive 

laid  down ' provisions  concerning 

the  authorisation, 

supervision,  investment policy  and transparency  requirements  for  UCITS  ("undertakings 

for  collective  investment  in  transferable  securities").  The  main  purpose  of  the  co 

ordination  was  to  approximate  the  conditions  of  competition  between  UCITS  at 

Community  level  and  to  ensure  effective  and  uniform  protection  for  investors.  The 

Directive  also  introduced  -  for  the  first  time  in  the  financial  sector-  the  principle  of 

mutual  recognition  on the basis of which a UCITS  authorised  in its home  Member  State 

is  permitted  to  market  its  units  in  other  Member  States  without  being  subject  to  any 

further authorisation by host Member States. 

The  collective  investment  undertakings  which,  for  the  time  being,  are  covered  by  the 

Directive  are  those  of  the  open-ended  type  which  promote  the  sale  of  their  units  to  the 

public  and  the  sole  objective  of  which  is  to  invest  in  transferable  securities  (e.g. 

essentially  in listed  shares and bonds). However at the time of adoption  of the  Directive 

there  was  a  consensus  that  other  types  of  collective  investment  undertakings  should  be 

harmonised at a later stage (2). 

The Commission  presented  in  1993 a proposal  amending  the UCITS  Directive  the  main 

aim  of  which  was  to  extend  the  scope  of  the  Directive  to  other  types  of  collective 

investment  undertakings.  However,  Member  States  failed  to  agree  on  a  common 

approach. It was therefore necessary for the Commission to explore new solutions. 

1  Council  Directive  85/611/EEC  of  20  December  1985  on  the  co-ordination  of  laws,  regulations  and 
administrative  provisions  relating  to  undertakings  for  collective  investment  in  transferable  securities 
(UCITS), OJN°L  375, 31.12.1985, p.3. 

2 

Sixth recital of the preamble of Directive 85/611/EEC. 

2 

As  highlighted  by  the  Commission  Action  Plan  for  the  Single  Market  which  was 

endorsed  by  the  European  Council  in  June  1997,  the  sector  of  collective  investment 

undertakings  is  one  of  the  financial  services  areas  in  which  the  Single  Market  is  still 

incomplete.  Existing  barriers  to  a free cross-border  marketing  of  units  issued  by  such 

undertakings  need  urgently  to  be  removed  through  further  legislative  actions  which 

extend  the  Single  Market benefits  to other types of collective  investment  undertakings, 

while preserving a uniform minimum level of protection of investors. For the completion 

of  the  Single  Market  in  this  area,  the  Action  Plan  also  considered  it  necessary  to 

introduce  harmonised  market  access  rules  and  operating  conditions  for  management 

companies  -  completely  lacking  for  the  time  being -  so  as  to  ensure  the  level-playing 

field among operators in the financial  services area. 

The  Commission  has  therefore  prepared  a  package  of  measures  distributed  in  two 

separate proposals: one ("proposal n°  1") focusing essentially on the "product" (the types 

of  investment  funds),  the  other  ("proposal  n°  2")  focusing  essentially  on  the  "service 

provider" (the management company) and on prospectuses for UCITS. The separation of 

topics  involving  different  problems  could  facilitate  the  negotiating  process  in  the 

Council.  It will  not matter if one of the two Directives is adopted more rapidly than the 

other one. 

Summary 

The aim of proposal n° 2 is to reinforce the Single Market in the field of UCITS by: 

a  Up-dating the regulation for management companies, aligning it with that existing for 

other  operators  of  the  financial  services  area  (banks,  investment  firms, insurance 

companies)  which  is of  utmost  importance  considering  the ongoing  growth  of this 

sector. In particular, these operators would receive a European Passport, which -  in 

accordance with the principles of the Treaty -  would allow them to set up branches in 

other  Member  States  and  to  operate  within  the  EU  under  the  freedom  to  provide 

services; 

a  Revising  the  current  restrictions  which  prevent  management  companies  from 

engaging in activities other than the management of the assets of common  funds/unit 

trusts  and  investment  companies  (collective  portfolio  management).  In  the  future, 

such companies  will be permitted  to provide, in addition to the collective  portfolio 

management,  individual  portfolio  management  services  (to  single  private  or 

institutional  investors,  such  as  pension  funds),  as  well  as  some  specific  non-core 

activities linked to the core-business; 

• 

Identifying the functions comprised in the activity of collective portfolio management 

and  defining  the  conditions  under  which  such  functions  can  be delegated  to  third 

parties; 

•  Modernising  the  information  documents  to  be  given  to  investors.  The  proposal 

introduces simplified prospectuses. 

2.  GENERAL CONSIDERATIONS 

2.1.  The approach of the UCITS Directive is quite different  from that adopted later by 
the Directives of the financial services area of the second generation (i.e.  the 2nd Banking 

Co-ordinating Directive, the third Life Assurance Directive and the Investment Services 

Directive). While these Directives focused  more on the "service provider",  the UCITS 

Directive  laid  down  rules  referring  essentially  to  the  "product"(3)  which  bears  the EU 

passport, whereas the regulation for management companies is very poor 

In fact, the UCITS Directive contains no harmonised market access rules for management 

companies (including minimum capital requirements), no prudential regulation, no rules 

ensuring the monitoring of the relevant shareholders in such companies. 

2.2.  Moreover, the cross-border activity is regulated only from the point of view of the 

distribution  of  the  "product"  (the  units  of  the  collective  investment  undertakings), but 

nothing is said as to who may distribute units (for  instance, it does not say whether the 

management  company  itself  may  market  the  units)  and  no  provisions  regulating  -  in 

accordance  to the principles  of the Treaty  - the establishment  of branches  and the  free 

provision of services by management companies are foreseen. 

2.3.  Moreover, the UCITS Directive confines the scope of management companies to 

the  sole  activity  of  collective  portfolio  management  (i.e.  management  of  the assets of 

common funds and of investment companies). On several occasions such a restriction has 

been criticised by Member State and by operators, as it prevents important economies of 

scale and creates an irrational  segmentation  between collective and individual  portfolio 

management. 

2.4.  Regarding  the regulation of the activity  of collective portfolio  management, the 

UCITS Directive gives ra*se to some further relevant questions: 

(1) 

It contains no definition of "collective portfolio management". As a consequence, 

it is not clear which types of functions  a management company may carry out. In 

particular,  there  are  doubts  as  to  whether  the  activity  is  limited  to  investment 

management (i.e. the investment of the funds  raised from  the public in securities 

and  other  financial  instruments)  or whether  it  includes other  functions  (such as 

marketing  and  administration  activities.).  The  solutions  adopted  differ  in  all 

Member States. 

3 

I.e.: the way  in which  the assets of the UCITS  have to be  invested;  information  to be provided  to the 
supervisory authorities and to investors; rules concerning the cross-border marketing of the units, etc. 

(2) 

If we assume that the activity  of a management  company  may comprise  a variety 

of functions,  some of which may refer  to different  markets, it is not clear whether 

the  entire  activity  has  to  be  carried  out  directly  by  the  management  company  or 

whether for  a more efficient  organisation  of its business, it may delegate, its tasks 

to third  parties. As a matter of fact,  the  structure  of the  investment  fund  industry 

in  Member  States  is  divergent:  while  in  some  Member  States  management 

companies  are normally  allowed to delegate their own functions,  in others such a 

delegation is essentially forbidden  or admitted only in limited cases. 

In consideration  of the increasing  importance of the investment  fund  industry  in Europe, 

these  loopholes  in the  existing  UCITS  Directive  can  no.longer  be justified  and  must  be 

urgently  solved,  as  they  create  legal  uncertainties,  prevent  a  real  level  playing  field 

among  operators  of  the  financial  services  area,  hinder  an  effective  supervision  and  an 

effective  investor protection and, in general, undermine the stability and reliability  of the 

financial  system in Europe. 

Moreover, the introduction of a single currency and of a single monetary policy  increases 

the need to prevent crises and irregularities in the financial  services area which may also 

have  a negative  impact  on other  economic  systems. It is the Commission's  challenge to 

put in place all the necessary measures eliminating existing grey zones in the community 

legislation  of  the  financial  services  area  amL^nforcing  the  soundness  of  the  financial 

system. 

3.  MAIN  OBJECTIVES 

The main objective  of this proposal  is to amend the UCITS Directive  in order to up-date 

the regulation of the management company through: 

3.1. The introduction of a European Passport for management companies. 

For  that  purpose,  the proposal  lays  down  an  authorisation  procedure,  adapting  it to  that 

existing  for  competing  operators  in the  financial  services  area  (banks, investment firms, 

insurance companies). Accordingly, many of the Articles of this proposal  reflect,  mutatis 

mutandis,  the  provisions  of  the  2nd  banking,  investment  services  and  life  assurance 

Directives. 

On  the  basis  of  such  authorisation,  management  companies  will  be  allowed  to  set  up 

within  the  EU  their  own  distribution  networks  for  the units of the collective  investment 

undertakings they manage (e.g. branches, electronic distribution channels, etc.). 

Taking  into  account  discussions  with  Member  States,  the  proposal  also  clarifies  in  its 

preamble that: 

• 

in order to prevent the use of "letter box" companies and to limit the phenomenon  of 

"forum  shopping", the European Passport can be granted only by the Member State in 

which the management company carries out effectively  the main part of its activity; 

• 

the  principle  of  home  country  supervision  fully  applies  also  in  the  case  of 

management  of common funds/unit  trust: the approval of the fund  rules will  continue 

to  fall  within  the  competence  of  the  supervisory  authorities  of  a  management 

company's home country. 

3.2. The revision of the existing restriction of the scope of management companies. 

The  aim  of  the  existing  principle  of  exclusivity  is  to  achieve  investor  protection  by 

ensuring an optimum  level of specialisation of the management  company. Moreover,  the 

fact  that  a  management  company  may  not  carry  out  investment  business  on  its  own 

behalf prevents conflicts  of interest and problems of stability of such intermediaries. This 

objective needs to be preserved. 

However,  taking  into  account  the  evolution  of  national  legislation  which  tends  to 

overcome 

the  existing  segmentation  between  collective  portfolio  management 

(management  of  collective 

investment  undertakings)  and 

individual  portfolio 

management  (management  of  the  portfolios  of  individual  clients,  including  those  of 

pension  funds),  the proposal  allows Member  States to authorise  management  companies 

to  engage  in  both  types  of  management  activities  and  in  two  non-core  activities 

(investment advice and safe-keeping  of units of collective investment undertakings). 

For  the  sake  of  investor  protection,  management  companies  shall  not  be  permitted  to 

carry out additional activities. 

Given that  the  service  of  individual  portfolio  management  is already  regulated  by the 
Investment Services Directive (ISD) (4), it is necessary to ensure a coherent solution with 

that Directive. Thus, the proposal states that management companies, the authorisation of 

which  covers  also  the  individual  portfolio  management  service,  are  subject  -  for  that 

activity only -  to ISD provisions and consequently, as is already the case for banks, to the 
CAD regime (5). 

3.3. The clarification of crucial aspects concerning the management company's activity. 

Considering  that  today  Member  States  have  a  different  understanding  on  how  the 

business of "collective portfolio  management" should be conceived and organised, it is 

necessary to ensure the mutual recognition of the different  solutions adopted by Member 

States. The aim of the proposal is therefore to make clear: 

•  which  functions  can  be  considered  to  be  comprised  in  the  activity  of  collective 

portfolio management (a list will be included in the new Annex 2); 

• 

that  Member  States  may  permit  management  companies  to  delegate,  for  a  more 

rational organisation of their business, functions to third parties, provided that certain 

pre-conditions  are  respected.  The  proposal  underlines  that  in  no  case  can  the 

management  company's  liabilities  be affected  by the fact  that  it delegated  its own 

functions. 

3.4. A more rational regulation of the notification  procedure in the case of cross- border 

distribution of units. 

Up to now the cross-border distribution of the units has been subject to a double ex-ante 

notification:  one to the competent authorities of the home Member State and another to 

the competent authorities to the host Member State. The proposal aligns the procedure to 

that provided for the cross-border provision of services, which is more consistent with the 

principle  of  home  country  control.  The  management  company  will  therefore  have  to 

4  Directive 93/22/EEC on Investment Services, OJ N° L 141, 11.6.1993. 

5  Directive 93/6/EEC on the capital adequacy of investment firms  and credit institutions of 15.3.1993, 

OJN°L  141, 11.6.1993 

notify  its  intention  to  distribute  -  either  via  own  branches  or  under  the  freedom  to 

provide services - the units of the collective  investment undertakings  it manages to the 

competent authorities of its home Member State, which will then inform  the authorities 

of the host country. 

As the implementation of and the supervision of compliance with the marketing rules still 

falls within the competence of the host country, the proposal will not change the existing 

rule according to which the distribution of the units may begin only after the expiry of a 

certain period of time (two months), during which the host country authorities may check 

the compliance with such rules. In the case of cross-border distribution of units without 

establishment  of  branches,  the  proposal  reduces  that  period  from  two  months  to  one 

month. 

3.5. The introduction of simplified prospectuses. 

Up  to  now  it  has  been  considered  appropriate  to  provide  investors  with  a  substantial 

amount of detailed information,  in order to allow them to make an informed judgement 

on the quality and desirability of the proposed  investment  in units of a given collective 

investment undertaking. 

In  recent  years, however,  it  has  become  widely  accepted  that  the  current  information 

framework  of the UCITS Directive is unsatisfactory, in the sense that it does not fit well 

into the needs of the average investor and that investor protection can be achieved more 

effectively  through the provision of clear, simple and essential information. 

The  proposal  therefore  introduces  simplified  prospectuses,  which  shall  contain  the 

information  listed  in the  scheme  included  in the  new  Schedule  C, to  be  added  to the 

existing Annex of the Directive. 

The simplified prospectus is conceived as a mandatory information document, which has 

always to be offered  to the potential investor before the conclusion of the contract. The 

distribution of the full prospectus, containing more detailed information on the UCITS as 

well  as  the  fund  rules  (or,  in  the  case  of  an  investment  companies,  instruments  of 

incorporation)  will  no  longer  be  compulsory.  These  documents  could  however  be 

obtained free of charge at the investor's request. 

Several  Member  States  have  already  adopted  a  similar  approach  and  introduced 

simplified  prospectuses.  The  European  fund  industry  also  has  been  promoting  such  a 

reform for some time. 

4. 

COMMENTARY ON INDIVIDUAL AMENDMENTS 

Article  1 -Amendments  of Directive 85/611/EEC 

Amendment n° 1 

This sets out definitions of a certain number of terms used in the Directive. 

Amendment n° 2- Article 4 (authorisation  of UCITS) 

This is  a technical  amendment referring  to  the pre-conditions  the competent  authorities 

have to verify when granting authorisation to a UCITS. 

The criteria for granting authorisation to the management company are now mentioned in 

the new Articles 5, 5a and 5b. 

Amendment n° 3 - Articles 5 and 6 (management company) 

This amendment  introduces a number of new Articles,  replacing  the existing  Articles 5 

and 6 and referring to the new regulation of management companies. 

Article  5 

This Article announces: 

• 

the  principle  of  mutual  recognition  of  the  authorisation  granted  to  management 

companies; 

a 

that management companies may only manage the assets of common funds/unit trusts 

and investment companies (collective portfolio  management); the functions  included 

in that activity are listed in a new Annex to be added to the Directive; 

Q  that Member States may however authorise management companies to carry out the 

additional  service  of  individual  portfolio  management.  As  this  service  is  already 

covered by the ISD,  management companies will  be subject - for that service  only 

and in accordance with the solution adopted for banks - to relevant ISD provisions (a 
10 

cross  reference  to  the  ISD  rules,  including  Article  8  (2),  which  refers  to  the 

application of CAD provisions is included). 

a 

that Member States may authorise management companies to engage in two specific 

non-core  activities  considered  to  be  functionally  linked  to  the  core  activities: 

investment advice and safekeeping of units of collective investment undertakings. 

Article 5a 

This Article sets out the criteria for granting authorisation in the home Member State to a 

management company and the cases in which the authorisation has to be withdrawn. It is 

based on comparable requirements provided for by the ISD for investment  firms. 

The proposal  also  lays down rules establishing  the  minimum  amount  of  initial  capital 

which  management  companies  need  to  have  for  receiving  authorisation.  The  proposal 

distinguishes between: 

a) management  companies,  the  authorisation  of  which  covers  only  the  collective 

portfolio  management activity: a minimum capital of 50.000 ECU is foreseen. This 
amount  would  be consistent  with the  solution  adopted  by. the  CAD  (6) for firms 

which are not permitted to hold investors' money or securities (which is the case of 

management  companies  which  have to deposit  the  assets  of the  investment  funds 

they manage with a depositary); 

b) management  companies,  the  authorisation  of  which  also  covers  the  activity  of 

individual portfolio management: such companies would need to have, in addition to 

50.000  ECU,  the  initial  capital  provided  for  in  the  CAD  for  investment  firms 

carrying  out  the  same activity  (i.e. either  125.000  ECU  which  can  be  reduced  to 

50.000  ECU  if  the  company  is  not  authorised  to  hold  the  investors'  money  or 

securities). 

Finally, taking into account the provisions laid down in the so-called BCCI Directive on 
the reinforcement  of supervision (7), the amendment  introduces rules requiring that the 

6  Directive  93/6/EEC on the capital adequacy of  investment  firms  and credit  institutions  of  15.3.1993, 

OJN°L  141,  11.6.1993 

7  Directive 95/26/EC of 29 June 1995, OJ N° L 168 

11 

competent  authorities may  grant authorisation to the management company  only  if they 

have verified  that, notwithstanding the existence of close links between the management 

company  and any  natural  or  legal  person,  the  effectiveness  of  supervision  will  not  be 

undermined. 

Article  5b 

This Article parallels similar provisions  of the ISD (Articles 4,  5 and 6). It requires the 

competent authorities to comply with further criteria when granting an authorisation: 

a 

to verify  the identity of the shareholders having direct or indirect qualifying  holdings 

in the management company's capital (paragraph 1); 

a  not  to  accord  to  branches  of  non-EU  management  companies  a  more  favourable 

treatment  than that  applied  to  branches  of  management  companies  established  in a 

Member State (paragraph 2); 

a 

to  consult  beforehand  the  competent  authorities  of  another  Member  State  if  the 

management  company  is  a  subsidiary  of  another  financial 

institution  (bank, 

investment firm, another  management  company)  or  controlled  by  the  same  person 

who also controls other financial institutions (paragraph 3). 

Article 5c 

This extends to  non-EU  management  companies the reciprocity  regime  provided  for  in 

the ISD for investment  firms. 

Article 5d 

This Article provides that the rules laid down for initial authorisation must continue to be 

respected once the management company has started to carry out its activity. 

The  home  country  supervisors  are  responsible  for  monitoring  compliance  with  these 

requirements  in  the  case  of  management  companies  carrying  out  business  in  other 

Member States. 

12 

Article  5e 

This  Article  applies  to  management  companies  the  ISD  provisions  concerning  the 

monitoring  of qualifying  holdings in such companies'  capital and of the relevant  changes 

of such holdings. 

ArticleSf 

This Article refers to the prudential rules which the home Member States authorities have 

to  lay  down  for  management  companies  managing  only  investment  funds.  Companies 

which will also be authorised to carry out the activity of individual portfolio  management 

will  have  to  comply  -  with  regard  to  that  service  only  -  with  the  prudential  rules  laid 

down in the ISD. 

In  order  to  ensure  a  professional  and  reliable  conduct  of  the  business,  the  Article 

underlines 

the  need 

that  management  companies  be  provided  with  adequate 

organisational  structures and internal control mechanisms. 

The second  paragraph  of this Article  contains some rules preventing conflict  of  interests 

which may arise in the case where a management company  is authorised to provide both 

the collective and individual portfolio management service. 

Article 5g 

This  Article  regulates  the  conditions  under  which  Member  States  may  permit 

management companies to delegate their own functions  to third parties.. 

Recent  discussions  with  Member  States  and  operators  show that  - due  also  to  different 

legal  traditions  -  the  structure  of  the  investment  fund  industry  varies  considerably  in 

Member  States. While in some Member  States the use of delegation mechanisms  is quite 

common, in other Member States it is either not foreseen  or allowed only in very  specific 

cases. 

With the  aim  of ensuring  the mutual  recognition  of  authorisation  and of the  supervisory 

regime  and  adequate  investor  protection,  this  amendment 

lays  down  minimum 

requirements  which  the  competent  home  country  authorities  have  to  verify  before 

approving any mandate given by a management company to a third party. 

13 

The amendment underlines that in no case must the management company's liability be 

affected  by the fact that it delegated functions to third parties. 

Article 5h 

For  the  time  being  no  harmonised  rules  for  compensation  mechanisms  exist  ensuring 

minimum  cover  to  unit  holders  in  the  event  of  a  UCITS  being  unable  to  meet  its 

obligations to its unit-holders. 

This  Article  therefore  announces  that,  depending  on  the  outcome  of  the  report  the 

Commission  has  to  submit  no  later  than  31  December  1999  to  the  Council  and  the 

Parliament on the application of Directive 97/9/EC on Investor Compensation  Schemes 
(8), the Commission may consider it appropriate to submit a proposal for the introduction 

of compensation arrangements for unit-holders of UCITS. 

Article 6 

The Article sets out the rule that once a management company has been authorised by its 

home  Member  State,  it  may  carry  out  its  business  throughout  the  EU  either  by  the 

establishment of branches or under the freedom to provide services, without being subject 

to further requirements or authorisation by Member States. 

Article 6a 

This Article  deals with the notification  to be made and formalities  to be accomplished 

when a branch is opened in a host Member State. The Article parallels similar provisions 

in  the  ISD  which  have  been  adapted  to  the  case  where  a  management  company  is 

intended to market the units of the investment funds it manages. 

Given that the implementation of and the supervision of compliance with the marketing 

rules  of  the  product  (the  units  of  the  UCITS)  still  fall  within  the  competence  of  the 
country  of  distribution  (host  country)  (9), paragraph  5 of  this  Article  incorporates  the 

8  Directive 97/9/EC of 3 March 1997, OJ N° L 84, 26.3.1997 

9 

It should be noted that one of the existing requirements for  UCITS wishing to market their units in 
another Member State is to ensure in that State facilities (i.e. contact points) for payments to be made 
to unit-holders, redemptions/re-purchasing  of units and the distribution of the mandatory  information 
documents. 

14 

existing rule of the UCITS Directive, according to which the marketing of the units may 

begin  only  after  the expiry  of a certain period  of time, during  which  the  host  country 

authorities may check the compliance with such rules (two months, which is also the time 

necessary for the host country to prepare for supervision). 

Article 6b 

This provides for the notification  to be made when  services and the distribution  of the 

units are intended to be carried out in the host  Member  State without  establishment of 

branches. 

Paragraph 3 of this Article refers to the marketing of the units. Like the previous Article 

6a, this Article too incorporates the existing rule of the UCITS Directive which gives the 

competent authorities of the host Member State the possibility to verify  the compliance 

of the UCITS with the marketing rules in force  in that country. The period  of time has 

been reduced from two months to one month. 

Paragraph 5 underlines that in the case of cross-border distribution of the units, including 

the case where the management company entrusted this to a third party, the  notification 

procedure laid down in this Article has always to be respected. 

Article 6c 

This Article is based on Article  19 of the ISD. It deals with the powers of host Member 

States  as  regards  management  companies  from  other  Member  States  which  establish 

branches or operate under the freedom to provide services within the territory of the host 

country. 

Amendment n° 4 

This is a formal amendment aiming at keeping separate -  through the inclusion of a new 

Section  Ilia  (only  the  title)  -  the  rules  referring  to  management  companies  from  that 

referring to depositaries. 

15 

Amendment n° 5 - Article 27 (1) 

This  amendment  includes  the  simplified  prospectus  among  the  documents  which 

management  companies  have  to  publish  for  each  fund  they  manage.  The  obligation  is 

extended to investment companies. 

Amendment n° 6 - Article 28 (1) 

Paragraphs  1 and  2 refer  to technical  consequences  of including  simplified  prospectuses 

in the list of information  documents to be published by UCITS. 

Paragraph  3  refers  to  the  substantial  and  formal  pre-conditions  simplified  prospectuses 

have to comply with, listed in a new Schedule C to be added to the existing Annex of the 

Directive.  This  paragraph  also  gives  Member  States  the  possibility  of  simplified 

prospectuses  as a removable  part  of the  full  prospectus  (a  sort  of  summary  and  reading 

guide of the latter). 

Taking  into  account  the  development  of  new  information  systems,  paragraph  4 

recognises  the  possibility  of  incorporating  the  simplified  prospectus  in  mediums  other 

than written documents (i.e. electronic texts), having equivalent legal status and approved 

by the competent authorities. 

Amendments n°  7,8,9 - Articles 29,30 and 32 

They refer to technical consequences of the introduction of simplified  prospectuses. 

Amendment n°  10 - Article 33 

It underlines  that  it will  become  compulsory  to  offer  to  investors, before  the  conclusion 

of  the  contract,  a  simplified  prospectus  (instead  of  the  full  prospectus).  This  will 

represent the fulfilment  of the legal obligation under this Directive to provide  information 

to investors. 

The  full  prospectus, 

together  with  the  fund  rules  (or,  in  the  case  of  investment 

companies, the  instruments  of  incorporation),  and the periodical  reports  can be  obtained 

by the investor at any time free  of charge on his/her request. 

16 

Amendment n° 11 - Article 35 

It refers to technical consequences of the introduction of simplified prospectuses. 

Amendment n° 12 - Article 46 

This Article originally  referred  to the notification  procedure in the case of cross-border 

distribution of the units of UCITS. 

Given  that  the  proposal  introduces  a  separate  notification  procedure  when  units  are 

distributed  across  the  borders  by  a  management  company,  (see  new  Article  6b),  the 

amended Article would refer only to the cross-border distribution of the units of UCITS 

structured as investment companies not carried out by a management company. 

The amendment reduces from two months to one month the period of time within which 

the  host  Member  States'  competent  authorities  may  verify  the  compliance  with  the 

marketing rules in force in that country. 

Amendment n° 13 - Article 47 

It regulates the language regime of both the simplified prospectus and the full prospectus 

when the units are marketed in a host Member State. 

As  regards  the  simplified  prospectus,  given  that  it  is  conceived  as  an  information 

document  suitable for average investors, the prospectus offered  to the investor shall be 

written in a language which is easily understandable for such investors. That could be the 

official  language(s) of the host Member State or other languages spoken by the investor. 

As  to  the  full  prospectus  and  the  other  information  documents  to  be  published, 

considering  that  these  documents  contain  information  relevant  for  experienced  or 

professional  investors  and  for  supervisors,  these  documents  shall  be  translated  into at 

least one of the official  language of the host  country, or in another  language normally 

used  in sphere  of  finance  and  accepted  by  the  host  country.  The proposed  solution  is 
coherent with that adopted in the so-called "Eurolist" Directive (10). 

10  Directive 94/18/EC of 30 May  1994, OJ N° L 135 

17 

Amendment n° 14 - Articles 52a and  52b 

This Article is based on Article 23 (3) and 24 of the ISD and deals with the  co-operation 

between  supervisors  of  different  Member  States  in  the  case  of  a management  company 

carrying out business across the borders. 

Amendment n° 15 - Schedule A of the existing Annex 

It  aligns  the  information  to  be  included  in  the  full  prospectus  to  that  provided  for  the 

simplified  prospectus. 

Article  2-  Transitional andfinal  provisions 

Paragraph  1 would  permit  ISD  firms  wishing  to  specialise  in  portfolio  management  LO 

demand  authorisation  according  the  new  UCITS  Directive  for  both  collective  and 

individual portfolio*iaanagement, giving up the ISD licence. 

Paragraph  2  contains  a  "grandfathering"  provision  for  management  companies  having 

obtained  authorisation  under  the  UCITS Directive  before  the  entrance  into  force  of  this 

proposal.  Such  companies,  whose  existing  authorisation  meets  the  proposal's  standards 

do not need to be authorised again when the Directive enters into force. 

Paragraph 3 gives management  companies whose authorisation does not comply  with the 

rules  of  this  proposal  the  possibility  of  continuing  business,  provided  that  they  adapt 

themselves  to  the  new  regime  and  receive-  within  a  certain  period  of  time  -  a  new-

authorisation. 

The new Annex 2 

It identifies  the functions  which are considered to be included in the activity  of collective 

portfolio  management.  It refers  not only to the investment  activity, but also to  marketing 

and administration  functions. 

*  18 

5. 

J U S T I F I C A T I ON 

ÔF 

T HE 

P R O P O S AL 

IN 

T HE 

L I G HT 

OF 

T HE 

P R I N C I P LE 

OF 

SUBSIDIARITY 

5.1.  What  are  the  objectives  of  the  proposed  action  with  respect  to  the 

obligations placed upon the Community? 

The objective  is to strengthen  the internal  Market  in the field of collective  investment 

undertakings,  by  up-dating  the  rules  for  management  companies  and  of  information 

requirements  for  UCITS  so  as  to  ensure  the  level  playing  field  among  competing 

operators  of  the  financial  services  area,  reinforce  supervision  and  increase  investor 

protection. 

5.2. 

Is the action envisaged a matter of exclusive Community competence or 

one shared with Member States? 

Considering  that  the  major  objective  of  this  proposal  is  to  introduce  a  harmonised 

authorisation  procedure  for  management  companies,  a  regulation  for  the  opening  of 

branches  and  the free  provision  of services by  such  companies,  rules ensuring  the co 

operation of supervisors of different  Member States, the improvement of the quality of 

information  to be provided to the investing public, only a binding Community Directive 

can achieve the desired objectives. 

5.3.  What means of action are available to the Community? 

Only  a  Community  Directive  laying down agreed  minimum  standards  can achieve the 

desired objective. 

5.4.  Are uniform rules necessary? 

Apart from  the basic minimum standards, Member States are free  to define  in detail the 

regulation  for  management  companies  and  simplified  prospectuses,  prescribing  even 

stricter  and  additional  requirements. The  scope  left  for  national  discretion  is  therefore 

large. 

19 

PROPOSAL FOR A EUROPEAN  PARLIAMENT AND COUNCIL DIRECTIVE  AMENDING 

DIRECTIVE 85/611/EEC ON THE COORDINATION OF LAWS,  REGULATIONS  AND 

ADMINISTRATIVE  PROVISIONS RELATING TO UNDERTAKINGS  FOR  COLLECTIVE 

INVESTMENT  IN TRANSFERABLE  SECURITIES (UCITS) WITH A VIEW TO  REGULATING 

MANAGEMENT COMPANIES AND SIMPLIFIED PROSPECTUSES 

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION 

Having regard to the Treaty establishing the European Community and  in particular Article 57(2) thereof, 

Having regard to the proposal from  the Commission^), 

Having regard to the opinion of the Economic and Social Committee(2), 

Acting  in accordance with the procedure  laid down  in Article  189b of the Treaty, 

1.  Whereas  Directive  85/611/EEC  on  undertakings  for  collective  investment  in  transferable  securities 

(UCITS) (3), as  last amended  by Directive 88/220/EEC (4), has already  contributed  substantially  to the 

achievement  of the Single Market  in this field,  laying down - for the first  time in the financial  services 

sector -  the  principle  of  mutual  recognition  of authorisation  and  other  provisions  which  facilitate  the 

free  circulation  within the  European  Union of the units of the collective  investment  undertakings  (unit 

trusts/common  funds  or as investment companies) covered by that Directive; 

2.  Whereas,  however,  Directive  85/611/EEC  does  not  regulate  to  a  great  extent  the  companies  which 

manage  collective 

investment  undertakings  (so-called  "management  companies");  whereas,  in 

particular,  Directive  85/611/EEC  does  not  lay  down  provisions  assuring  in  all  Member  States 

equivalent  market  access  rules  and  operating  conditions  for  such  companies;  whereas,  Directive 

85/611/EEC  does  not  lay  down  provisions  regulating  the  establishment  of  branches  and  the  free 

provision of services by such companies  in Member States other than their home Member State; 

3.  Whereas,  authorisation  granted  in  the  management  company's  home  Member  State  must  ensure 

investor protection  and the stability  of the  financial  system; whereas the approach  adopted  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 European Union and the application of the home Member State supervision; 

1  OJNoC 

2  OJNoC 

3  OJ No L 375,31.12.1985 

4  OJ No L  100,  19.4.1988 

2o 

4.  Whereas  it  is necessary,  for  the  protection  of  investors,  to  guarantee  the  internal  supervision  of  every 

management  company  in  particular  by  means  of  a  two-man  management  and  by  adequate  internal 

control  mechanisms; 

5.  Whereas  by  virtue  of  mutual  recognition,  management  companies  authorised  in  their  home  Member 

States shall be permitted to carry on the services for which they have received  authorisation  throughout 

the  European  Union  by  establishing  branches  or  under  the  freedom  to  provide  services;  whereas  the 

approval  of the  fund  rules of common  funds/unit  trusts falls  within the competence  of the  management 

company's  home Member State; 

6.  Whereas,  with  regard  to  collective  portfolio  management  (management  of  unit  trusts/common  funds 

and  investment companies), the authorisation  granted to a management company authorised  in its home 

Member  State should  permit the company to carry on  in host Member States the following  activities: to 

distribute  the units of the unit trusts/common  funds  set  up by that company  in  its home  Member  State; 

to distribute  the shares of the  investment  companies,  managed  by  such  a company;  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;" 

7.  Whereas this Directive represents therefore  an important step to complete the Single Market  in the  field 

of collective  investment undertakings; 

8.  Whereas  the  principles  of mutual  recognition  and  of  home  Member  State  supervision  require  that  the 

Member States' competent authorities should not grant or should withdraw authorisation  where  factors, 

such as the content  of programmes of operations, the geographical  distribution  or the activities  actually 

carried  on  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  carry  on  or does  carry  on  the greater  part  of  its activities;  whereas,  for 

the purpose of this Directive, a management company  must be authorised  in the Member  State  in which 

it has  its registered  office;  whereas,  in accordance with the principle of the home country  control,  only 

the  Member  State  in  which  the  management  company  has  its  registered  office  can  be  considered 

competent  to  approve  the  fund  rules  of  unit  trusts/common  funds  set  up  by  such  a company  and  the 

choice of the depositary; 

9.  Whereas  Directive  85/611/EEC  limits  the  scope  of  management .companies  to  the  sole  activity  of 

management  of  unit  trusts/common  funds  and  of 

investment  companies  (collective  portfolio 

management);  whereas,  in  order  to  take  into  account  recent  developments  in  national  legislation  of 

Member  States and to permit such companies to achieve important economies of scale, it is desirable to 

revise  this  restriction;  whereas  therefore  it  is desirable  to  permit  such  companies  to  carry  out  also  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  assome  specific  non-core  activities 

linked  to the main business; whereas such an extension  of the scope of the activity  of the management 

company would not prejudge the stability  of such companies; whereas, however, specific  rules shall be 

introduced  preventing  conflicts  of  interest  when  management  companies  are  authorised  to  carry  on 

both the business of collective and individual portfolio  management; 

10. Whereas  the  activity  of  management  of  portfolios  of  investments  is  an  investment  service  already 

covered  by  Directive  93/22/EEC (Investment  Services  Directive -  ISD); whereas,  in order to  ensure a 

homogeneous  regulatory  framework  in this  area,  it  is desirable  to  subject  management  companies  the 

authorisation  of which covers also that service to the operating conditions laid down  in the ISD; 

11. Whereas  a  home  Member  State  may,  as a general  rule, establish  rules  stricter  than  those  laid  down  in 

this Directive, in particular as regards authorisation  conditions, prudential  requirements and the rules of 

reporting and prospectuses; 

12. Whereas  it  is  desirable  to  lay  down  rules  defining  the  pre-conditions  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;  whereas,  in  order  to  ensure  the  correct 

functioning  of  the  principles  of  mutual  recognition  of  the  authorisation  and  of  the  home  country 

control,  Member  States  permitting  such  delegations  shall  ensure  that  the  management  company  to 

which  they  granted  an  authorisation  does  not  delegate  globally  its  functions  to  one  or  more  third 

parties,  so  as  to  become  an  empty  entity,  and  that  the  existence  of  mandates  does  not  hinder  an 

effective  supervision  over the management  company; whereas, however, the fact  that the  management 

company  delegated  own  functions  shall  in  no  case  affect  the  liabilities  of  that  company  and  of  the 

depositary vis-à-vis the unit holders and the competent authorities; 

13. Whereas  to  take  into  account  developments  of  information  techniques,  it  is  desirable  to  revise  the 

current  information  framework  provided  for  in  Directive  85/611/EEC;  whereas,  in  particular,  it  is 

desirable  to  introduce,  in addition  to the existing  full  prospectus,  a new type  of prospectus  for  UCITS 

(simplified  prospectus); whereas  such  a new  prospectus should  be  designed  to  be an  investor-friendly 

and should therefore  represent  a source of valuable  information  for the average  investor; whereas  such 

a  prospectus  should  give  key  information  about  the  UCITS  in  a  clear,  synthetic  and  easy 

understandable  way;  whereas,  however,  the  investor  must  always  be  informed,  by  an  appropriate 

statement to be included  in the simplified  prospectus,  that more detailed  information  is contained  in the 

full  prospectus and in the UCITS yearly and half-yearly  report, which  can be obtained  free  of charge at 

his/her request; whereas the simplified  prospectus shall always be offered  free  of charge to  subscribers 

before  the conclusion  of the contract; whereas this shall  be a sufficient  pre-condition  to meet  the  legal 

obligation  under  this  Directive  to  provide  information  to  subscribers  before  the  conclusion  of  the 

contract; 

SUL 

14. Whereas,  considering  the  need  to  ensure the  level-playing  field  among  intermediaries  in the  financial 

services  area  when  providing  the  same  services  and  a  harmonised  minimum  degree  of  investor 

protection;  whereas  a  harmonised  minimum  degree  of  harmonisation  of  the  conditions  for  taking  up 

business and operating conditions represents the essential pre-condition  to complete the internal market 

for  these  operators;  whereas,  therefore,  only  a  binding  Community  Directive  laying  down  agreed 

minimum  standards  can  achieve  the  desired  objectives;  whereas  this  Directive  effects  only  the 

minimum harmonisation  required; 

15.  Whereas, for the time being, no harmonised rules for compensation  arrangements for unit-holders exist 

when a management company or an investment company  is unable to redeem or to repurchase the units 

from  unit-holders;  whereas  Directive  97/9/EC  provides  harmonised  rules  for  compensation 

arrangements  for  investors  demanding  investment  services  from  investment  firms  (including  banks); 

whereas,  according  to  Article  14  of  that  Directive,  the  Commission  will  submit  no  later  than  31 

December  1999 to the Council and the Parliament a report on the application of the Directive; whereas, 

depending  on  the  outcome  of  that  report,  the  Commission  might  consider  it  appropriate  to  submit  a 

proposal for the introduction of compensation arrangements for unit-holders; 

HAVE ADOPTED THIS DIRECTIVE 

Directive  85/611/EEC is amended as follows: 

1) The following  Article  la is inserted: 

Article  1(5) 

"Article  la 

For the purposes of this Directive: 

1.  depositary  shall  mean  any  institution  entrusted  with  the  duties  mentioned  in  Articles  7  and  14  and 

subject to the other provisions laid down in Sections III and IV; 

2.  management  company  shall  mean  any  company  the  regular  business  of  which  is the  management  of 

unit trusts/common funds  and of investment companies (collective portfolio  management); 

3.  a management  company's  home Member  State  shall  mean  the  Member  State  in which  is situated  the 

management company's registered  office; 

4.  a  management  company's  host  Member  State  shall  mean  the  Member  State,  other  than  the  home 

Member State, within the territory of which a management company has a branch or provides services; 

Changes compared with the text of the existing Directive 85/611/EEC are underlined. 

^3 

5.  a  UCITS home  Member State shall mean: 

a)  with  regard  to  a  UCITS  constituted  as  unit  trust/common  fund,  the  Member  State  in  which  is 

"situated the management company's registered  office; 

b)  with  regard  to  a  UCITS  constituted  as  investment  company,  the  Member  State  in  which  is 

situated the investment company's registered  office; 

6. a  UCITS  host  Member  State  shall  mean  a  Member  State  in which  the  units  of  the  common  fund/unit 

trust or of the investment company are marketed; 

7. branch shall mean  a place of business which  is a part of the management  company, which  has no  legal 

personality  and  which  provides  the  services  for  which  the management  company  has been  authorised;  all 

the places  of  business  set  up  in the  same  Member  State by  a management  company  with  headquarters  in 

another Member  State shall be regarded as a single branch; 

8. competent  authorities  shall mean  the  authorities  which  each  Member  State  designates  under Article  49 

of Directive  85/611/EEC; 

9.  close links shall mean a situation as defined  in Article 2, paragraph  1  of Directive 95/26/EC (§.); 

10.  qualifying  holdings  shall  mean  any  direct  or  indirect  holding  in  a  management  company  which 

represents  10%  or  more  of  the  capital  or  of  the  voting  rights  or  which  makes  it  possible  to  exercise  a 

significant  influence  over the management of the management company  in which that holding subsists. 

For the purpose  of this definition,  the voting rights referred  to in Article 7 of Directive  88/627/EEC  (I) 

shall be taken  into account; 

//.  ISP  shall mean Directive 93/22/EEC on Investment Services (i). 

6  O J N oL  168/9,  18.7.1995 

7  OJ No L 348,  17.12.1988, p. 62 

8  OJNo.L  141/33,  11.6.1993 

JL</ 

2) In Article 4, paragraph  3 shall be replaced by the  following: 

"3.  The competent  authorities  may  not authorise  a UCITS if the management  company  does not  comply 

with the pre-conditions  laid down  in Section  III of this Directive. Moreover the competent  authorities  may 

not  authorise  a  UCITS  if  the  directors  of  the  investment  company  or  of  the  depositary  are  not  of 

' sufficiently  good  repute  or  lack  the  experience  required  for  the  performance  of their  duties.  To  that  end, 

the  names  of  the  directors  of  the  investment  company  and  of  the  depositary  and  of  every  person 

succeeding them in office  must be communicated  forthwith  to the competent authorities. 

Directors  shall  mean  those  persons  who,  under  the  law  or  the  instruments  of  incorporation,  represent  the 

investment company  or the depositary, or who effectively  determine the policy of the  investment  company 

or the depositary." 

3) Articles 5 and 6 shall be replaced by the  following: 

"Section III 

Obligations regarding management companies 

Title A 

Conditions for  taking up business 

Article 5 

1. The  access  to  the  business  of  management  companies  is  subject  to  prior  official  authorisation  to  be 

granted by the home Member State's competent authorities. Authorisation  granted under this Directive to a 

management company shall be valid for all Member States. 

2.  No  management  company  may  engage  in  activities  other  than  the  management  of  unit  trusts/common 

funds  and of investment companies. 

The  activity  of  management  of  unit  trusts/common  funds  and  of  investment  companies  includes,  for  the 

purpose of this Directive,  the activities mentioned  in Annex  2. 

3.  By  the  way  of  derogation  of  paragraph  2,  Member  States  may  authorise  management  companies  to 

provide,  in  addition  to  the  management  of  unit  trusts/common  funds  and  of  investment  companies,  the 

following  services: 

c2r 

-  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 Section B of the Annex of the ISP; 

as non-core services: 

a)  investment advice concerning  one or more of the  instruments  listed  in Section  B of the annex  of 

the ISP; 

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

Management  companies  may  in  no  case  be  authorised  under  this  Directive  to  provide  only  the  services 

mentioned  in this paragraph. 

4.  Articles  2  (4),  8  (2),  10,  11,  12  (1)  and  13  of  the  ISP  shall  apply  to  management  companies,  the 

authorisation  of which covers the discretionary  portfolio  management  service mentioned  in the first  indent 

of paragraph 3. 

Article 5a 

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: 

-  it has sufficient  initial capital of the following  amount: 

a)  if it is authorised  to  manage  only  unit trusts/common  funds  and  investment  companies, 

50.000 ECU; 

b)  if  its  authorisation  covers  also  the  discretionary  portfolio  management  service 

mentioned  in  Article  5  (3),  first  indent,  in  addition  to  the  capital  mentioned  in  the 

previous  letter  a),  an  amount  of  capital  to  be  determined  in  accordance  with  the  rules 

laid down  in Article  3, paragraphs  1 and 2 of Pirective  93/6/EEC  (?-) having  regard  the 

nature of the service in question; 

-  the persons who effectively  direct the business of a management company  are of sufficiently  good 

repute  and  are  sufficiently  experienced  also  in  relation  to  the  type  of  UC1TS  managed  by  the 

management  company.  The  direction  of  a  management  company's  business  must  be  decided  by  at 

least two persons meeting these conditions; 

9  OJNo.L  141/1,  11.6.1993 

cQA 

-  the application  for  authorisation  is accompanied  by a programme  of activity setting out,  inter alia, 

the organisational structure of the management  company; 

-  both  its head office  and its registered office  are located  in the same Member State. 

2.  Moreover, where close links exist between the management company and other natural or legal persons, 

the competent  authorities  shall grant authorisation  only  if those  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  non-member  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 indent on a continuous basis. 

3.  An applicant shall be informed,  within  six months of the submission  of a complete application,  whether 

or not authorisation  has been granted. Reasons shall be given whenever an authorisation  is  refused. 

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

5.  The competent authorities may withdraw the authorisation  issued to a management company  subject  to 

this Pirective only where that company: 

a)  does  not  make  use  of  the  authorisation  within  12  months,  expressly  renounces  the 

authorisation  or  has  ceased  *.l e  activity  covered  by  this  Pirective  more  than  6  months 

previously  unless the Member  f:tate 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  Pirective  93/6/EEC  if  its  authorisation  covers  also  the  discretionary 

portfolio  management service mentioned  in Article 5 (3), first  indent,; 

e)  has seriously and systematically  infringed  the provisions adopted pursuant to this Pirective; 

f) 

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

£* 

Article 5b 

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 

aforementioned  shareholders or members. 

2.  In  the  case  of  branches  of  management  companies  that  have  registered  offices  outside  the  European 

Union  and  are  commencing  or  carrying  on  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  on  the 

authorisation  of any management company which is : 

-  a  subsidiary  of  another  management  company,  an  investment  firm  or  a  credit  institution  authorised  in 

another Member State, 

-  a subsidiary  of the  parent  undertaking  of another management  company,  an  investment  firm  or a credit 

institution authorised  in another Member State, 

or 

-  controlled  by the same natural or legal persons as control another  management  company, an  investment 

firm  or a credit institution authorised  in another Member State. 

Title B 

Relations with third countries 

Article 5 c 

1. Relations  with  third  countries  are  regulated  according  to  the  relevant  rules  laid  down  in  Article  7  of 

Directive 93/22/EEC. 

For the purpose of this Directive, the expressions "firm/investment  firm" and "investment  firms"  contained 

in  Article  7  of  the  ISP  shall  be  read  respectively  as  "management  company"  and  "management 

£P 

companies";  the  expression  "providing  investment  services"  in  Article  7  (2)  of  the  ISP  shall  be  read  as 

"providing services". 

2.  The  Member  States  shall  also  inform  the  Commission  of  any  general  difficulties  which  UCITS 

encounter  in marketing their units in any third country. 

Title C 

Operating conditions 

Article 5d 

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  imposed  in 

Articles 5 and 5a  (1) and (2) of this Pirective. 

2.  The  prudential  supervision  of  a  management  company  shall  be  the  responsibility  of  the  competent 

authorities of the 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 Pirective which  give 

responsibility to the authorities of the host country. 

Article 5e 

1. Qualifying  holdings  in management  companies  shall  be subject  to the  same rules as those  laid  down  in 

Articled  of the ISP. 

For the, purpose of this Pirective, the expressions "firm/investment  firm" and "investment  firms"  contained 

in  Article  9  of  the  ISP  shall  be  read  respectively  as  "management  company"  and  "management 

companies". 

Article 5f 

1.  Each  home  Member  State  shall  draw  up  prudential  rules  which  management  companies,  the 

authorisation of which covers only the activity of management of unit trusts/common  funds  and  investment 

companies, shall observe at all times. 

J*9 

In particular,  the competent  authorities of the home  Member  State having  regard  also to the nature  of  the 

UCITS  managed  by  a  management  company,  shall  require  that  each  such  company  has  sound 

administrative  and  accounting  procedures,  control  and  safeguard  arrangements  for  electronic  data 

processing  and  adequate  internal  control  mechanisms  ensuring  -  inter  alia  -  that  the  assets  of  the  unit 

trusts/common  funds  or  of the  investment companies  managed  by the  management  company  are  invested 

according to the fund  rules or the instruments of incorporation and the legal provisions in force . 

2.  Each  management  company  the  authorisation  of  which  covers  also  the  discretionary  portfolio 

management service mentioned  in Article 5 (3), first  indent: 

-  shall  not  be  permitted  to  invest  all  or  a  part  of  the  investor's  portfolio  in  units  of  unit  trusts/common 

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

-  shall not be permitted to provide the discretionary  portfolio  management  service to the depositary  which 

performs  for that management company the duties mentioned  in Articles 7 and  14 of this Pirective; 

shall  be  subject  to  the  provisions  laid  down  in  Pirective  97/9/EC  on 

investor-compensation 

schemes (19.). 

Article 5g 

1.  When  a  Member  State  permits  a  management  company  to  delegate  to  third  parties,  on  the  basis  of 

specific  mandates and  for  the purpose  of a more efficient  conduct  of the company's  business, to carry  out 

on  its  behalf  one  or  more  of  the  functions  included  in  the  activity  of  collective  portfolio  management 

mentioned in Annex 2, each mandate must be submitted to the competent authorities for prior approval. 

2. The competent authorities  shall approve the mandate only after  having verified  the compliance  with  the 

following  pre-conditions: 

-  the mandate shall not prevent the effectiveness  of supervision over the management company; 

-  in order to prevent  conflicts  of interest,  the mandate  shall  not be given  to the depositary  and  to  persons 

having qualifying  holdings in the management company's or the depositary's capital or to any other person 

whose interests may conflict  with those of the management company or the unit-holders; 

10  OJ No. L 84/22,26.3.1997 

3* 

-  measures  shall  exist  which  enable  the  persons  who  direct  the  business  of the  management  company  to 

monitor at any time the activity of the person to whom the mandate  is given; 

-  the mandate shall not prevent the persons who direct the business of the management company to give at 

any time further  instructions to the person to whom functions  are delegated and to withdraw the mandate at 

any time; 

-  having  regard  to  the  nature  of  the  functions  to  be  delegated,  the  person  to  whom  functions  will  be 

delegated  must furnish  sufficient  professional  and financial  guarantees; 

- 

the  UCITS'  prospectuses  and  any  promotional  literature  list  the  functions  which  the  management 

company has been permitted to delegate. 

3.  In no case  the  management  company's  and  the  depositary's  liabilities  shall  be  affected  by the  fact  that 

the management company delegated own functions  to third parties. 

Article 5h 

The Council  and the Parliament  note the Commission's  statement to the effect  that, based on the outcome 

of  the  report  the  Commission  will  submit,  according  to  Article  14  of  Pirective  97/9/EC  on  investor 

compensation  schemes  no  later  than  31  Pecember  1999  to  the  Council  and  the  Parliament,  it  may,  if 

appropriate, propose the introduction of compensation arrangements for unit-holders of UCITS. 

Title D 

The right of establishment and the freedom to provide  services 

Article 6 

1. Member  States  shall  ensure  that  a management  company,  authorised  in accordance  with  this  Pirective 

by the competent  authorities of another Member State, may carry on 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. 

2.  Member  States may  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. 

^ 

Article 6a 

1. In addition to meeting the conditions imposed in Article 5 and 5a, any management company wishing to 

establish  a branch within the territory of another Member State shall notify  the competent  authorities of its 

home Member State. 

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 : 

I. general  information: 

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

branch; 

b)  a programme of the activity envisaged and the organisational structure of the branch; 

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

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

II. information  concerning the distribution, by the branch, of the units of the unit trusts/common  funds  and 

of the investment companies subject to this Directive which are managed by the management  company: 

a)  details  about  the  planned  distribution  and  of  the  arrangements  made  for  the  marketing  of  the 

units in that other Member State; 

b)  for  each  unit  trust/common  fund  and  investment  company  concerned:  the  fund  rules  or  the 

instruments of incorporation; the prospectuses and, where appropriate, its latest annual report and 

any subsequent half-yearly  report; 

3.  Unless the  competent  authorities  of the  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  three  months  of  receiving  all  the  information  referred  to  in 

paragraph 2, communicate that information  to the competent authorities of the host Member State and shall 

inform  the management company  accordingly. 

They shall also communicate: 

-  details of any compensation  scheme intended to protect investors; 

-  an attestation for each unit trust/common fund  or investment company, the units of which are distributed 

in the host country, that it fulfils  the conditions imposed by this Directive. 

2.2-

Where  the  competent  authorities  of  the  home  Member  State  refuse  to  communicate  the  information 

referred to in paragraph 2 to the competent authorities of the host Member State, they shall give reasons for 

their refusal  to the management company concerned within two months of receiving all the  information. 

That refusal or failure to reply shall be subject to the right to apply to the courts in the home Member State. 

4. Before the branch of a management company commences business, the competent authorities of the host 

Member State shall, within two months of receiving the information referred to in paragraph 2, prepare for 

the supervision of the management company and, if necessary, indicate the conditions, including the rules 

mentioned in Articles 44 and 45 in force in the host Member State and the rules of conduct to be respected 

in the case of provision of the portfolio  management service mentioned  in Article 5 (3),  under which, in 

the interest of the general good, that business must be carried on in the host Member State. 

5.  On  receipt  of  a  communication  from  the  competent  authorities  of  the  host  Member  State  or  on the 

expiry  of  the  period  provided  for  in  paragraph  4  without  receipt  of  any  communication  from  those 

authorities, the branch  may be established  and commence business.  From that moment the management 

company  may  also  begin  distributing  the  units  of  the  unit  trusts/common  funds  and  of  the  investment 

companies subject to this Directive which it manages, unless the competent authorities of the host Member 

State  establish,  in  a  reasoned  decision  taken  before  the  expiry  of  that  period  of  two  months  -  to  be 

communicated to the competent authorities of the home Member State -  that the arrangements  made for 

the marketing of the units do not comply with the provisions referred to in Articles 44(1) and 45. 

6.  In the event of change of any particulars communicated in accordance with paragraph 2 subparagraph I 

(b), (c) or (d) and subparagraph II, a management company shall give written notice of that change to the 

competent  authorities  of the home and host Member States at  least one month before  implementing the 

change so that the competent authorities of the home Member  State may take a decision  on the change 

under paragraph 3 and the competent authorities of the host Member State may do so under paragraph  4. 

7. In the event of a change in the particulars communicated in accordance with the second subparagraph of 

paragraph  3, the authorities of the home Member  State shall  inform  the authorities  of the host  Member 

State accordingly. 

Article 6b 

1. Any management company wishing to carry on business 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 its home Member State: 

I. general information: 

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

b)  a programme of the activity envisaged. 

2\ 

II.  information  concerning  the  distribution,  in  the  host  Member  State,  of  units of  the  unit  trusts/common 

funds  and of the investment companies subject to this Directive which are managed by the management 

company: 

a)  details  about  the  planned  distribution  and  of  the  arrangements  made  for  the  marketing  of 

the 

units in that other Member State; 

b)  for  each  unit  trust/common  fund  and  investment  company  concerned:  the  fund  rules  or  the 

instruments of incorporation; the prospectuses and, where appropriate, its latest annual report and 

any subsequent half-yearly  report; 

2.  The  competent  authorities  of  the  home  Member  State  shall,  within  one  month  of  receiving  the 

information  referred  to in paragraph  1, forward  it to the competent authorities of the host Member State. 

They shall also communicate: 

-  details of any compensation  scheme intended to protect investors; 

-  an attestation  for each unit trust/common fund  or investment company, the units of which are distributed 

in the host country, that it fulfils  the conditions imposed by this Directive. 

3. The management  company  may then commence  business  in the host  Member  State. The distribution  of 

the  units  of  the  unit trusts/common  funds  and  of  the  investment  companies  subject  to  this  Directive  may 

begin one month after the host Member State's competent authorities receive of the information  referred  to 

in paragraphs  1 and 2, unless the competent  authorities  of the host  Member  State  establish,  in a  reasoned 

decision  taken  before  the  expiry  of  that  period  of  one  month  to  be  communicated  to  the  competent 

authorities  of the  home  Member  State, that  the  arrangements  made  for  the  marketing  of the  unfa  do  not 

comply with the provisions referred to in Articles 44(1) and 45. 

When  appropriate, the competent  authorities  of the  host Member State shall, on receipt of the  information 

referred  to  in  paragraph  1,  indicate  to  the  management  company  the  conditions,  including  the  rules  of 

conduct to be respected  in the case of provision  of the portfolio  management  service  mentioned  in Article 

5 (3),  with  which,  in the  interest of the general  good, the management  company  must  comply  in the  host 

Member State. 

4. Should the content of the information  communicated  in accordance with paragraph  1, subparagraph  I (b) 

and subparagraph  II be amended, the management  company shall give notice of the amendment  in writing 

to the competent authorities of the home Member State and of the host Member  State before  implementing 

the  change,  so  that  the  competent  authorities  of  the  host  Member  State  may,  if  necessary,  inform  the 

company of any change or addition to be made to the information  communicated under paragraph 2. 

5. A management  company  shall  also be subject  to the notification  procedure  laid down  in this  Article  in 

the case where it entrusts a third party with the marketing of the units in a host Member State. 

3v 

Article  6c 

1.  Host  Member  States  may,  for  statistical  purposes,  require  all  management  companies  with  branches 

within  their  territories  to  report  periodically  on  their  activities  in  those  host  Member  States  to  the 

competent authorities of those host Member States. 

2.  In  discharging  their responsibilities  under  this  Directive,  host  Member  States  may  require  branches  of 

management  companies  to  provide  the  same  particulars  as  national  management  companies  for  that 

purpose-

Host  Member  States  may  require  management  companies,  carrying  on  business  within  their  territories 

under  the  freedom  to  provide  services,  to  provide  the  information  necessary  for  the  monitoring  of  their 

compliance  with  the  standards  set  by  the  host  Member  State  that  apply  to  them,  although  those 

requirements  may not be more  stringent  than  those which  the  same  Member  State  imposes on  established 

management companies for the monitoring of their compliance with the same standards. 

3.  Where the competent authorities of a host Member  State ascertain  that a management company that has 

a  branch  or provides services within  its territory  is in breach  of the  legal or regulatory  provisions  adopted 

in that State pursuant to those provisions of this Directive which confer  powers on the host Member  State's 

competent authorities, those authorities shall require the management  company concerned  to put an end to 

its irregular situation. 

4. If the management company concerned  fails to take the necessary steps, the competent  authorities of the 

host  Member  State  shall  inform  the  competent  authorities  of  the  home  Member  State  accordingly.  The 

latter  shall,  at  the  earliest  opportunity,  take  all  appropriate  measures  to  ensure  that  the  management 

company  concerned,  puts  an  end  to  its  irregular  situation.  The  nature  of  those  measures  shall  be 

communicated to the competent authorities of the host Member State. 

5. If,  despite the measures taken by the home Member State or because such, measures prove inadequate or 

are  not  available  in  the  State  in  question,  the  management  company  persists  in  violating  the  legal  or 

regulatory  provisions  referred  to  in  paragraph  2  in  force  in  the  host  Member  State,  the  latter  may,  after 

informing  the competent authorities of the home  Member State, take appropriate measures to prevent or to 

penalise  further  irregularities  and,  in  so  far  as  necessary,  to  prevent  that  management  company  from 

initiating  any  further  transaction  within  its  territory.  The  Member  States  shall  ensure  that  within  their 

territories  it  is  possible  to  serve  the  legal  documents  necessary  for  those  measures  on  management 

companies. 

6. The foregoing  provisions shall not affect  the powers of host Member States to take appropriate measures 

to  prevent  or  to  penalise  irregularities  committed  within  their  territories  which  are  contrary  to  legal  or 

regulatory  provisions  adopted  in  the  interest  of  the  general  good.  This  shall  include  the  possibility  of 

3r 

preventing  offending  management  companies  from 

initiating  any  further  transactions  within  their 

territories. 

7. Any measure adopted pursuant to paragraphs 4, 5 or 6 involving penalties or restrictions on the activities 

of  a  management  company  must  be  properly  justified  and  communicated  to  the  management  company 

concerned.  Every  such  measure  shall  be  subject  to  the  right  to  apply  to  the  courts  in  the  Member  State 

which adopted  it. 

8. Before  following  the procedure  laid down  in paragraphs 3, 4 or 5  the competent  authorities of the 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  must 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. 

9. In the event of the withdrawal of authorisation, the competent authorities of the host  Member  State shall 

be  informed  and  shall  take  appropriate  measures  to  prevent  the  management  company  concerned  from 

initiating  any  further  transactions  within  its territory and to safeguard  investors'  interests. Every two years 

the Commission  shall  submit  a report on such cases to the Contact  Committee  set  up according  to  Article 

5_L 

10.  The Member  States shall inform  the Commission of the number and type of cases in which there have 

been  refusals  pursuant  to  Article  6a or measures  have been  taken  in accordance  with  paragraph  5.  Every 

two years the Commission  shall submit a report on such cases to the Contact  Committee  set up  according 

to Article 53 of this Directive. 

4) Before  Article 7 the following  shall be included: 

'Section III a 

Obligations regarding the depositary" 

5) Article 27, paragraph  1  shall be replaced by the  following: 

1. An  investment  company  and,  for  each  of  the  unit  trusts  it  manages,  a  management  company,  must 

publish : 

3Q 

-  a simplified  prospectus, 

-  a full  prospectus, 

-  an annual report for each financial  year, and 

-  a half-yearly  report covering the first six months of the financial  year." 

6) Article 28, paragraph  1  shall be replaced by the  following: 

" 1. Both the simplified  and the full  prospectuses must include the information  necessary for  investors to be 

able to make an informed judgement of the investment proposed to them. 

2.  The  full  prospectus  shall  contain  at  least  the  information  provided  for  in  Schedule  A  annexed  to  this 

Directive,  insofar  as  that  information  does  not  already  appear  in  the  fund  rules  or  instruments  of 

incorporation  annexed to the full  prospectus in accordance with Article 29(1). 

3.  The  simplified  prospectus  shall  contain  synthetically  at  least  the  key  information  provided  for  in 

Schedule  C annexed  to this  Directive.  It shall  be structured  and written  in such a way that  it can  be easily 

understood  by the average  investor.  Member  States may permit  that  the simplified  prospectus  be  attached 

to the full  prospectus as a removable part of it. 

4.  Both the  full  and the simplified  prospectus can  be incorporated  in a written document  or  in any  durable 

medium having an equivalent legal status approved by the competent authorities." 

7) Article 29 shall be replaced by the  following: 

"Article 29 

1. The  fund  rules  or  an  investment  company's  instruments  of  incorporation  shall  form  an  integral  part  of 

the full  prospectus and must be annexed thereto. 

2. The documents referred  to in paragraph  1 need not, however, be annexed to the full  prospectus  provided 

that the unit-holder  is informed  that on request he or she will be sent those documents or be apprised of the 

place  where,  in  each  Member  State  in  which  the  units  are  placed  on  the  market,  he  or  she  may  consult 

them." 

?? 

8) Article 30 shall be replaced by the  following: 

The essential elements of the simplified  and the full  prospectuses must be kept up to date." 

"Article 30 

9) Article 32 shall be replaced by the  following: 

"Article 32 

UCITS  must  send  their  simplified  and  full  prospectuses  and  any  amendments  thereto,  as  well  as  their 

annual and half-yearly  reports, to the competent authorities." 

10) Article 33 shall be replaced by the  following: 

"Article 33 

1. The  simplified  prospectus  must  be  offered  to  subscribers  free  of  charge  before  the  conclusion  of  the 

contract. 

In addition, the  full  prospectus  and the  latest published  annual  and half-yearly  reports shall  be supplied  to 

subscribers free  of charge on request. 

2. The annual and half-yearly  reports shall be supplied to unit-holders free of charge on request. 

3. The annual and half-yearly  reports must be available to the public at the places, or through  other  means 

approved  by the competent authorities, specified  in the full  and simplified  prospectus." 

11) Article 35 shall be replaced by the  following: 

"Article 35 

All publicity comprising an invitation to purchase the units of UCITS must indicate that prospectuses exist 

and the places where they may be obtained by the public or how the public may have access to them." 

2C 

12) Article 46 shall be replaced by the  following: 

"Article 46 

If  an  investment  company  proposes  to  market  its  units, in  a  Member  State  other  than  that  in  which  it  is 

situated,  it  must  first  inform  the  competent  authorities  of  that  other  Member  State  accordingly.  It  must 

simultaneously send the latter authorities: 

-  an  attestation  by  the  competent  authorities  to  the  effect  that  it  fulfils  the  conditions  imposed  by  this 
Directive; 

- 

its instruments of  incorporation; 

-  its full  prospectus and its simplified  prospectus; 

-  where appropriate, its latest annual report and any subsequent half-yearly  report and 

-  details of the arrangements made of the marketing of its units in that other Member States. 

An  investment  company  may  begin  to  market  its  units  in  that  other  Member  State  one  month  after  such 

communication,  unless  the  authorities  of  the  Member  States  concerned  establish,  in a reasoned  decision 

taken  before  the expiry of that period of one month, that the arrangements made for the marketing of units 

do not comply with the provisions referred  to in Articles 44 (1) and 45." 

13) Article 47  shall be replaced by the  following: 

"Article 47 

If a UCITS markets  its units  in a Member  State other than  that  in which  it is situated,  it must distribute in 

that  other  Member  State,  in  accordance  with  the  same  procedures  as  those  provided  for  in  the  home 

Member State: 

(1) 

the  simplified  prospectus  and  the  other  information  provided  for  in  Articles  29  and  30  of  this 

Directive  in  a  language  which  is  easily  understandable  for  the  investors  concerned  in  the  host 

Member State; 

(2) 

the full  prospectus  and the annual and half-yearly  reports  in the official  language or in one of the 

official  languages of the host Member  State or  in another  language, provided that  in the  Member 

State  in  question  that  other  language  is  customary  in  the  sphere  of  finance,  accepted  by  the 

competent  authorities  and,  when  appropriate,  such  further  conditions  as  they  may  impose  are 

complied with." 

^ 

14) After  Article 52 the following  Articles shall be added: 

"Article 52a 

1.  Where, through the provision  of services or by the establishment  of branches, a management  company 

operates in one or more host Member States, the competent authorities of all the Member States concerned 

shall collaborate closely. 

They  shall  supply  one  another  on  request  with  all  the  information  concerning  the  management  and 

ownership  of  such  management  companies that  is  likely to  facilitate  their  supervision  and  all  information 

likely  to  facilitate  the  monitoring  of  such  companies.  In  particular,  the  authorities  of  the  home  Member 

State shall co-operate to ensure that the authorities of the host Member State collect the particulars  referred 

to in Article  6c (2). 

2.  In  so  far  as  it  is  necessary  for  the  purpose  of  exercising  their  powers  of  supervision,  the  competent 

authorities  of the home Member  State shall be informed  by the competent  authorities of the host  Member 

State of  any  measures  taken  by the host  Member  State pursuant  to  Article  6c (6) which  involve  penalties 

imposed on a management company or restrictions on a management company's activities. 

Article 52b 

1. Each host Member State shall ensure that, where a management company authorised in another Member 

State  carries  on  business  within  its  territory  through  a  branch,  the  competent  authorities  of  the 

management  company's  home  Member  State  may,  after  informing  the  competent  authorities  of  the  host 

Member  State, themselves  or through  the  intermediary  of persons they  instruct  for  the  purpose,  carry  out 

on-the-spot verification  of the information  referred  to in Article 52a. 

2.  The  competent  authorities  of  the  management  company's  home  Member  State  may  also  ask  the 

competent  authorities  of the management  company's  host  Member  State to  have  such  verification  carried 

out. Authorities which receive such requests must, within the framework  of their powers, act upon them by 

carrying  out  the  verifications  themselves,  by  allowing  the  authorities, who  have  requested  them  to  carry 

them out or by allowing auditors or experts to do so. 

3.  This  Article  shall  not  affect  the  right  of  the  competent  authorities  of  the  host  Member  State,  in 

discharging  their  responsibilities  under  this  Directive,  to  carry  out  on-the-spot  verifications  of  branches 

established within their territory." 

<* 

15) Schedule A of the Annex shall be amended as follows: 

Under  the  column  "Information  concerning  the  investment  company",  after  paragraph  1.2.  the  following 

shall be added: 

"1.3.  In the case  of investment  companies  having different  investment  compartments, the  indication  of the 

compartments." 

Under  the  column  "Information  concerning  the  investment  company",  in  paragraph  1.13.  the  following 

sentence shall be added: 

"In  the  case  of  investment  companies  having  different  investment  compartments,  information  on  how  a 

unit-holder may pass from  one compartment  into another and the charges applicable in such cases." 

After paragraph  4 the following  paragraphs 5 and 6 shall be added: 

"5. Other  investment  information 

5.1.  Historical  performance  of  the  unit  trust/common  fund  or  of  the  investment  company  (where 

applicable); 

5.2. Profile  of the typical  investor the unit trust/common fund  or the investment  company  is designed 

for 

6. Economic  information 

6.1.  Possible  expenses  or  fees,  other  than  the  charges  mentioned  in  paragraph  1.17,  distinguishing 

between  those  to  be  paid  by  the  unit-holder  and  those  to  be  paid  out  of  the  unit  trust's/  common 

fund's  or of the investment company's assets." 

Transitional  and final provisions 

Article 2 

1.  Investment  firms,  as  defined  in  Article  1 (2)  of  the  ISD,  authorised  to  carry  out  only  the  services 

provided  for  in  Section  A  (3)  and  in  Section  C  (1)  and  (6)  of  the  annex  of  Directive  93/22/EEC,  may 

obtain  authorisation  under  this  Directive  to  manage  unit  trusts/common  funds  and  investment  companies 

and  to qualify  themselves  as "management  companies".  In that  case, such  investment  firms  must  give  up 

the authorisation  obtained under the ISD. 

Q, 

2.  Management  companies  already  authorised  before  31  December  2002,  in  their  home  Member  State 

under  Pirective  85/61 l/EEC  to  manage  unit  trusts/common  funds  and  investment  companies  shall  be 

deemed  to be authorised  for  the purposes  of this directive  if the  laws of those  Member  States provide that 

to take  up  such  activity  they  must  comply  with  conditions  equivalent  to those  imposed  in  Articles  5a and 

5b. 

3.  Management  companies,  already  authorised  before  31  Pecember  2002, which  are  not  included  among 

those referred  to  in paragraph  2 may continue such activity provided that, no later than 31 Pecember  2005 

and  pursuant  the  provisions  of  their  home  Member  State,  they  obtain  authorisation  to  continue  such 

activity  in accordance with the provisions adopted  in implementation  of this Pirective. 

Only  the  grant  of  such  authorisation  shall  enable  such  management  companies  to  qualify  under  the 

provisions of this Pirective on the right of establishment and the freedom  to provide services. 

Article 3 

No  later than  30 June 2002  Member  States shall adopt the  laws, regulations  and administrative  provisions 

necessary for them to comply with this Pirective. 

These provisions shall enter into force  no later than 31 Pecember 2002. The Member States shall  forthwith 

inform the Commission thereof. 

When  Member  States adopt these provisions they shall  include a reference  to this Pirective  or  accompany 

them  with  such  a  reference  on  the  occasion  of  their  official  publication.  The  manner  in  which  such 

references  are to be made shall be laid down by the Member States. 

Article 4 

This  Pirective  shall  enter  into  force  20  days  after  the  date  of  publication  in  the  Official  Journal  of  the 

European  Communities. 

Article 5 

This Pirective  is addressed to the Member States. 

Done at  Brussels 

For the European Parliament 

The President 

For  the Council 

The President 

^JL 

SCHEDULE C 

CONTENTS OF THE SIMPLIFIED PROSPECTUS 

Brief presentation of the UCITS 

•  when the unit trust/common  fund  or the investment  company  was created and 
indication  of  the  Member  State  where  the  unit  trust/common  fund  or  the 
investment company has been registered/incorporated 

management company (when applicable) 

expected period of existence (when applicable) 

depositary 

auditors 

financial group (e.g. a bank) promoting the UCITS 

Investment information 

short definition of the UCITS' objectives 

in the case of investment companies having different  investment compartments, 
the indication of this circumstance 

the unit trust's/common fund's or the investment company's investment policy 

historical  performance  of  the  common  fund/  investment  company  (where 
applicable) 

profile  of  the  typical  investor  the  unit  trust/common  fund  or  the  investment 
company is designed for 

Economic information 

• 

tax regime 

•  entry and exit commissions 

•  other possible expenses or fees, distinguishing  between those to be paid by the 
unit-holder  and  those  to  be  paid  out  of  the  unit  trust's/common  fund's  or  the 
investment company's assets 

^? 

Commercial  information 

•  how to buy the units 

•  how to sell the units 

• 

in the case of  investment companies  having different  investment  compartments 
how  to  pass  from  one  investment  compartment  into  another  and  the  charges 
applicable in such cases 

•  when and how dividends (if applicable) are distributed 

• 

• 

frequency and where/how prices are published or made available 

indication of a contact point (person/department, timing, etc.)  where additional 
explanations may be obtained if needed 

Additional  information 

• 

statement that, on request, the full prospectus, the annual and half-yearly reports 
may  be  obtained  free  of  charge  before  the  conclusion  of  the  contract  and 
afterwards. 

^ <f 

Annex 2 

Functions included in the activity of 

collective portfolio management 

• 

Investment activity: 

a)  Investment management; 

b)  Investment administration (such as: instructing brokers, arranging settlement, 

instructing the depositary on the exercise of voting rights) 

•  Marketing: 

a) production of literature 

b) distribution of the units of the unit trusts/common funds and of the investment 

companies managed by the management company 

c) relations with distribution agents 

Administration: 

a) legal and fund management accounting services 

b) customer inquiries 

c) valuation and pricing (including tax returns) 

d) regulatory compliance monitoring 

e) maintenance of unit-holder register 

f) distribution of income 

g) unit issues and redemptions 

h) contact settlements (including certificate dispatch) 

i) record keeping 

^ 

ISSN 0254-1475 

COM(98) 451  final 

DOCUMENTS 

EN 

06  09  10  17 

Catalogue number  :  CB-CO-98-462-EN-C 

ISBN  92-78-38210-8 

Office  for Official  Publications of the European Communities 

L-2985 Luxembourg 

t,r