Common Position (EC) No 23/2001 of 5 June 2001 adopted by the Council, acting in accordance with the procedure referred to in Article 251 of the Treaty establishing the European Community, with a view to adopting a Directive of the European Parliament and of the Council amending Council 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: 2001-06-05
Institutions: Council of the European Union
Subjects: approximation of laws, business management, financial legislation, investment company, securities, simplification of formalities

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COMMON POSITION (EC) No 23/2001

adopted by the Council

on 5 June 2001 with a view to adopting Directive 2001/.../EC of the European Parliament and of
the Council of ... amending Council 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

(2001/C 297/02)

THE EUROPEAN PARLIAMENT AND
THE COUNCIL OF THE EUROPEAN UNION,

provisions regulating the establishment of branches and
the free provision of services by such companies in
Member States other than their home Member State.

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

Having regard to the proposal from the Commission (1),

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

Acting in accordance with the procedure laid down in
Article 251 of the Treaty (3),

Whereas:

(1)

(2)

Council Directive 85/611/EEC of 20 December 1985 on
undertakings for collective investment in transferable
securities (UCITS) (4), has already contributed signifi-
cantly 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.

However, Directive 85/611/EEC does not regulate to a
great extent the companies which manage collective
investment undertakings (‘management companies’). In
particular, Directive 85/611/EEC does not lay down
provisions ensuring in all Member States equivalent
market access rules and operating conditions for such
companies. Directive 85/611/EEC does not lay down

(1) OJ C 272, 1.9.1998, p. 7 and OJ C 311 E, 31.10.2000, p. 273.
(2) OJ C 116, 28.4.1999, p. 1.
(3) Opinion of the European Parliament of 17 February 2000 (OJ
C 339, 29.11.2000, p. 228), Council Common Position of 5 June
2001 and Decision of the European Parliament of ... (not yet
published in the Official Journal).

(4) OJ L 375, 31.12.1985, p. 3. Directive as last amended by Directive
2000/64/EC of the European Parliament and of the Council (OJ
L 290, 17.11.2000, p. 27).

(3)

(4)

(5)

(6)

Authorisation granted in the management company’s
home Member State should ensure investor protection
and the solvency of management companies, with a
view to contributing to the stability of the financial
system. The approach adopted 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.

is necessary,

for the protection of

It
to
guarantee the internal overview of every management
company in particular by means of a two-man manage-
ment and by adequate internal control mechanisms.

investors,

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

forums,

By virtue of mutual recognition, management companies
authorised in their home Member States should 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. The approval of the fund rules of
common funds/unit trusts falls within the competence
of the management company’s home Member State.

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(7) With regard to collective portfolio management (man-
agement 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: distribution of the units of the
harmonised unit trusts/common funds managed by the
company in its home Member State; distribution of
the shares of the harmonised investment companies,
managed by such a company; performance of all the
other functions and tasks included in the activity of
collective portfolio management; management of the
assets of investment companies incorporated in Member
States other than its home Member State; performance,
on the basis of mandates, on behalf of management
companies incorporated in Member States other than its
home Member State, of the functions included in the
activity of collective portfolio management.

(8)

The principles of mutual recognition and of home
the Member
Member State supervision require that
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. For the
this Directive, a management company
purpose of
should be authorised in the Member State in which it
has its registered office. In accordance with the principle
of 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 depositary.
In order to prevent
supervisory arbitrage and to promote confidence in the
effectiveness of supervision by the home Member State
authorities, a requirement for authorisation of a UCITS
should be that it should not be prevented in any legal
way from being marketed in its home Member State.
This does not affect the free decision, once the UCITS
has been authorised, to choose the Member State(s)
where the units of the UCITS are to be marketed in
accordance with this Directive.

this restriction. It is therefore desirable to permit such
companies to carry out also the activity of management
investments portfolios on a client-by-client basis
of
(individual portfolio management) including the man-
agement of pension funds as well as some specific non-
core activities linked to the main business. Such an
extension of the scope of the activity of the management
company would not prejudge the stability of such
companies. However, specific rules preventing conflicts
of interest should be introduced when management
companies are authorised to carry on the business of
both collective and individual portfolio management.

(10) The activity of management of investments portfolios is
an investment service already covered by Council Direc-
tive 93/22/EEC of 10 May 1993 on investment services
in the securities field (1). In order to ensure a homo-
geneous regulatory framework in this area, it is desirable
to subject management companies, the authorisation of
which also covers that service, to the operating con-
ditions laid down in that Directive.

(11) 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 on reporting and the full
prospectus.

(12)

the conduct of

It is desirable to lay down rules defining the precon-
ditions 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
In order to ensure
its business.
the correct functioning of the principles of mutual
recognition of authorisation and of home country
control, Member States permitting such delegations
should ensure that the management company to which
they granted an authorisation does not delegate its
functions globally to one or more third parties, so as to
become a letter box entity, and the existence of mandates
does not hinder an effective supervision over the man-
agement company. However, the fact that the manage-
ment company has delegated its own functions should
in no case affect the liabilities of that company and of the
depositary vis-à-vis the unit holders and the competent
authorities.

(9)

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). In order to take into
account recent developments in national legislation of
Member States and to permit such companies to achieve
significant economies of scale, it is desirable to revise

(1) OJ L 141, 11.6.1993, p. 27. Directive as last amended by Directive
2000/64/EC of the European Parliament and of the Council (OJ
L 290, 17.1.2000, p. 27).

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

(17) The Commission may consider proposing codification

in due time after adoption of the proposals,

HAVE ADOPTED THIS DIRECTIVE:

Article 1

(14) Articles 5g and 5h should always be complied with by
authorised investment companies, either by the com-
pany directly according to Article 13b or indirectly, due
to the fact that if an authorised investment company
chooses to designate a management company, that
management company should be authorised in accord-
ance with the Directive and thus obliged to comply with
Articles 5g and 5h.

Directive 85/611/EEC is hereby amended as follows:

1.

the following Article 1a shall be inserted:

‘Article 1a

For the purposes of this Directive:

(15) To take into account development of information tech-
niques, it is desirable to revise the current information
framework provided for in Directive 85/611/EEC. In
particular, it is desirable to introduce, in addition to the
existing full prospectus, a new type of prospectus for
UCITS (simplified prospectus). Such a new prospectus
should be designed to be investor-friendly and should
therefore represent a source of valuable information for
the average investor. Such a prospectus should give key
information about the UCITS in a clear, concise and
easily understandable way. However, the investor should
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 on request. The simplified
prospectus should always be offered free of charge to
subscribers before the conclusion of the contract. This
should be a sufficient precondition to meet the legal
obligation under this Directive to provide information
to subscribers before the conclusion of the contract.

(16) There is a need to ensure a level playing field among
intermediaries in the financial services area when provid-
ing the same services and to ensure a harmonised
minimum degree of investor protection. A minimum
degree of harmonisation of the conditions for taking
up business and operating conditions represents the
essential precondition for achieving the internal market
for these operators. Therefore, only a binding Com-
munity directive laying down agreed minimum stan-
dards in this respect can achieve the desired objectives.
This Directive effects only the minimum harmonisation
required, and does not go beyond what is necessary in
order to achieve the objectives pursued in accordance
with Article 5(3) of the Treaty.

1.

2.

3.

4.

“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 IIIa and IVa;

“management company” shall mean any company,
the regular business of which is the management of
UCITS in the form of unit trusts/common funds
and/or of investment companies (collective portfolio
management of UCITS); this includes the functions
mentioned in Annex II;

a “management company’s home Member State”
shall mean the Member State, in which the manage-
ment company’s registered office is situated;

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;

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
the management company’s registered office is
situated;

(b) with regard to a UCITS constituted as an
investment company,
the Member State in
which the investment company’s registered
office is situated;

6.

a “UCITS host Member State” shall mean the Member
State, other than the UCITS home Member State, in
which the units of the common fund/unit trust or
of the investment company are marketed;

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7.

8.

9.

10.

11.

12.

13.

“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;

“competent authorities” shall mean the authorities
which each Member State designates under
Article 49 of this Directive;

“close links” shall mean a situation as defined in
Article 2(1) of Directive 95/26/EC (*);

“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 (**)
shall be taken into account;

“ISD” shall mean Council Directive 93/22/EEC of
10 May 1993 on investment services in the securities
field (***);

“parent undertaking” shall mean a parent undertak-
ing as defined in Articles 1 and 2 of Directive
83/349/EEC (****);

“subsidiary” shall mean a subsidiary undertaking as
defined in Articles 1 and 2 of Directive 83/349/EEC;
any subsidiary of a subsidiary undertaking shall also
be regarded as a subsidiary of the parent undertaking
which is the ultimate parent of those undertakings;

(*****) OJ L 126, 26.5.2000, p. 1. Directive as amended
by Directive 2000/28/EC of the European Parlia-
ment and of the Council (OJ L 275, 27.10.2000,
p. 37).

(******) OJ L 141, 11.6.1993, p. 1. Directive as last
amended by Directive 98/33/EC of the European
Parliament and of
(OJ L 204,
21.7.1998, p. 29).’.

the Council

2. Article 4(3) shall be replaced by the following:

‘3. The competent authorities may not authorise a UCITS
if the management company or the investment company
does not comply with the preconditions laid down in this
Directive, in sections III and IV respectively.

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

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

3a. The competent authorities shall not grant authoris-
ation if the UCITS is legally prevented (e.g. through a
provision in the fund rules or instruments of incorpor-
ation) from marketing its units or shares in its home
Member State.’;

3.

the title of Section III and Articles 5 and 6 shall be
replaced by the following:

14.

“initial capital” shall mean Article 34(2)(1) and (2) of
Directive 2000/12/EC (*****);

‘SECTION III

15.

“own funds” shall mean own funds as defined in
Title V, Chapter 2, Section 1 of Directive
2000/12/EC;
this definition may, however, be
amended in the circumstances described in Annex V
of Directive 93/6/EEC (******).

(*)

(**)
(***)

OJ L 168, 18.7.1995, p. 7. Directive as last
amended by Directive 93/22/EC (OJ L 141,
11.6.1993, p. 27).
OJ L 348, 17.12.1988, p. 62.
OJ L 141, 11.6.1993, p. 27. Directive as last
amended by Directive 2000/64/EC of the Euro-
pean Parliament and of the Council (OJ L 290,
17.11.2000, p. 27).

(****) OJ L 193, 18.7.1983, p. 1. Directive as last
amended by the 1994 Act of Accession.

OBLIGATIONS REGARDING MANAGEMENT COM-
PANIES

Title A

C o n d i t i o n s f o r t a k i n g u p b u s i n e s s

Article 5

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

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2. No management company may engage in activities
other than the management of UCITS authorised accord-
ing to this Directive except the additional management of
other collective investment undertakings which are not
covered by this Directive and for which the management
company is subject to prudential supervision but which
cannot be marketed in other Member States under this
Directive.

The activity of management of unit trusts/common funds
and of investment companies includes, for the purpose
of this Directive, the functions mentioned in Annex II
which are not exhaustive.

3. By way of derogation from 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 ser-
vices:

(a) management of investments portfolios,

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 to the ISD;

(b)

as non-core services:

— investment advice concerning one or more of
the instruments listed in section B of the Annex
to the ISD,

— 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 men-
tioned in this paragraph or to provide non-core services
without being authorised for the service referred to in
point (a).

4. Articles 2(4), 8(2), 10, 11 and 13 of the ISD shall
apply to the provision of the services mentioned in
paragraph 3 of this Article by management companies.

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:

(a)

the management company has an initial capital of
at least EUR 125 000:

— when the value of the portfolios of the manage-
ment company, exceeds EUR 250 000 000,
the management company shall be required to
provide an additional amount of own funds.
This additional amount of own funds shall be
equal to 0,02 % of the amount by which the
value of the portfolios of the management
company exceeds EUR 250 000 000. The
required total of the initial capital and the
additional amount shall not, however, exceed
EUR 10 000 000,

— for the purpose of this paragraph, the following
portfolios shall be deemed to be the portfolios
of the management company:

(i)

unit trusts/common funds managed by
the management company including port-
folios for which it has delegated the
management function but excluding port-
folios that it is managing under delegation;

(ii)

investment companies for which the man-
agement company is the designated man-
agement company;

(iii) other collective investment undertakings
managed by the management company
including portfolios for which it has del-
egated the management
function but
excluding portfolios that it is managing
under delegation,

— irrespective of the amount of these require-
ments, the own funds of the management
company shall never be less than the amount
prescribed in Annex IV to Directive 93/6/EEC,

— Member States may authorise management
companies not to provide up to 50 % of the
additional amount of own funds referred to in
the first indent if they benefit from a guarantee
of the same amount given by a credit institution
or an insurance undertaking. The credit insti-
tution or insurance undertaking must have its
registered office in a Member State, or in a non-
Member State provided that it is subject to
prudential rules considered by the competent
authorities as equivalent to those laid down in
Community law,

— no later than ... (*),

the Commission shall
present a report to the European Parliament
and to the Council on the application of
this capital requirement, accompanied where
appropriate by proposals for its revision;

(*) Sixty months after the entry into force of this Directive amending

Directive 85/611/EEC.

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(b)

the persons who effectively conduct the business of
a management company are of sufficiently good
repute and are sufficiently experienced also in
relation to the type of UCITS managed by the
management company. To that end, the names of
these persons and of every person succeeding them
in office must be communicated forthwith to the
competent authorities. The conduct of a manage-
ment company’s business must be decided by at
least two persons meeting such conditions;

(c)

the application for authorisation is accompanied by
inter alia,
a programme of activity setting out,
the organisational structure of
the management
company;

(d) both its head office and its registered office are

located in the same Member State.

2. Moreover where close links exist between the manage-
ment company and other natural or legal persons, the
competent authorities shall grant authorisation only if
their
those do not prevent
supervisory functions.

the effective exercise of

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 func-
tions.

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

3. 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 start business as soon
as authorisation has been granted.

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

(a)

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

(b) has obtained the authorisation by making false

statements or by any other irregular means;

(c)

no longer fulfils the conditions under which author-
isation was granted;

(d) no longer complies with Directive 93/6/EEC if its
authorisation also covers the discretionary portfolio
management service referred to in Article 5(3)(a) of
this Directive;

(e)

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

(f)

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

Article 5b

1. The competent authorities shall not grant authoris-
ation 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 starting 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)

(b)

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

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

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(c)

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

2. For the purpose of this Directive, the expressions
“firm/investment firm” and “investment firms” contained
in Article 9 of the ISD shall be construed respectively as
“management company” and “management companies”.

Title B

R e l a t i o n s w i t h t h i r d c o u n t r i e s

Article 5f

Article 5c

1. Relations with third countries shall be regulated in
accordance with the relevant rules laid down in Article 7
of the ISD.

For the purpose of this Directive, the expressions “firm/-
investment firm” and “investment firms” contained in
Article 7 of the ISD shall be construed respectively as
“management company” and “management companies”;
the
in
Article 7(2) of the ISD shall be construed as “providing
services”.

expression “providing investment

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

O p e r a t i n g c o n d i t i o n s

Article 5d

1. The competent authorities of the management com-
pany’s home Member State shall require that the manage-
ment company which they have authorised complies at
all times with the conditions laid down in Articles 5 and
5a(1) and (2) of this Directive. The own funds of a
management company may not fall below the level
specified in Article 5a(1)(a). If they do, however, the
competent authorities may, where the circumstances
justify it, allow such firms a limited period in which to
rectify their situation or cease their activities.

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 Directive which give responsibility to
the authorities of the host country.

Article 5e

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

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

(a)

has
sound administrative and accounting pro-
cedures, control and safeguard arrangements for
electronic data processing and adequate internal
control mechanisms including, in particular, rules
for personal transactions by its employees or for the
holding or management of investments in financial
instruments in order to invest own funds and
ensuring, inter alia, that each transaction involving
the fund may be reconstructed according to its
origin, the parties to it, its nature, and the time and
place at which it was effected and that the assets of
the 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 pro-
visions in force;

(b)

is structured and organised in such a way as to
minimise the risk of UCITS’ or clients’ interests being
prejudiced by conflicts of
interest between the
company and its clients, between one of its clients
and another, between one of its clients and a UCITS
or between two UCITS. Nevertheless, where a branch
is set up, the organisational arrangements may not
conflict with the rules of conduct laid down by the
host Member State to cover conflicts of interest.

2. Each management company the authorisation of
which also covers the discretionary portfolio manage-
ment service mentioned in Article 5(3)(a):

1. Qualifying holdings in management companies shall
be subject to the same rules as those laid down in
Article 9 of the ISD.

— 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,

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— shall be subject with regard to the services referred
to in Article 5(3) to the provisions laid down in
Directive 97/9/EC of the European Parliament and
of
the Council of 3 March 1997 on investor-
compensation schemes (*).

Article 5g

1. If Member States permit management companies to
delegate to third parties for the purpose of a more
efficient conduct of the companies’ business the carrying-
out on their behalf one or more of their own functions
the following preconditions have to be complied with:

(a)

(b)

the competent authority must be informed in an
appropriate manner;

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

(c) when the delegation concerns the investment man-
agement, the mandate may only be given to under-
takings which are authorised or registered for the
purpose of asset management and subject to pruden-
tial supervision; the delegation must be in accord-
ance with investment-allocation criteria periodically
laid down by the management companies;

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

(e)

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

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

(g)

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

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

(i)

the UCITS’ prospectuses list the functions which
the management company has been permitted to
delegate.

2. In no case shall the management company’s and the
depositary’s liability be affected by the fact that the
management company delegated any functions to third
parties, nor shall the management company delegate its
functions to the extent that it becomes a letter box entity.

Article 5h

Each Member State shall draw up rules of conduct which
management companies authorised in that Member State
shall observe at all times. Such rules must implement at
least the principles set out in the following indents. These
principles shall ensure that a management company:

(a)

(b)

(c)

(d)

(e)

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

interests of

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

has and employs effectively the resources and pro-
cedures that are necessary for the proper perform-
ance of its business activities;

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

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

Title D

T h e r i g h t o f e s t a b l i s h m e n t a n d t h e f r e e -
d o m t o p r o v i d e s e r v i c e s

Article 6

1. Member States shall ensure that a management com-
pany, authorised in accordance with this Directive 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.

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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 com-
pany wishing to establish a branch within the territory
of another Member State to provide the following
information and documents, when effecting the notifi-
cation provided for in paragraph 1:

(a)

(b)

(c)

(d)

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

a programme of operations setting out the activities
and services according to Article 5(2) and (3)
envisaged and the organisational structure of the
branch;

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

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

3. Unless the competent authorities of the home Member
State have reason to doubt the adequacy of the adminis-
trative structure or the financial situation of a manage-
ment company, taking into account the activities envis-
aged, 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.

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 starts
business, the competent authorities of the host Member
State shall, within two months of receiving the infor-
mation referred to in paragraph 2, prepare for the
supervision of the management company and, if necess-
ary, 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) and of investment advisory services and
custody, 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 start 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 a change in any particulars communi-
cated in accordance with paragraphes 2(b), (c) or (d), a
management company shall give written notice of that
change to the competent authorities of the home and
least one month before
host Member States
implementing the change so that the competent auth-
orities 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.

at

7. In the event of a change in the particulars communi-
cated in accordance with the first 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:

(a)

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

(b)

a programme of operations stating the activities and
services referred to in Article 5(2) and (3) envisaged.

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 applicable
compensation scheme intended to protect investors.

3. The management company may then start business in
the host Member State notwithstanding the provisions of
Article 46.

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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
including the rules of conduct to be
the conditions,
respected in the case of provision of
the portfolio
management service mentioned in Article 5(3) and of
investment advisory services and custody, with which, in
the interest of the general good, the management com-
pany must comply in the host Member State.

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.

4. Should the content of the information communicated
in accordance with paragraph 1(b) be amended, the
management company shall give notice of the amend-
ment 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 auth-
orities 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 3.

5. A management company shall also be subject to the
notification procedure laid down in this Article in cases
where it entrusts a third party with the marketing of the
units in a host Member State.

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 Direc-
tive, host Member States may require branches of man-
agement companies to provide the same particulars as
national management companies for that purpose.

Host Member States may require management compani-
es, 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 com-
petent authorities, those authorities shall require the
management company concerned to put an end to its
irregular situation.

5. If, despite the measures taken by the home Member
State or because such measures prove inadequate or are
not available in the Member State in question,
the
management company persists in breaching 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 preventing offending
management companies from initiating any further trans-
actions 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 para-
graphs 3, 4 or 5 the competent authorities of the host
Member State may, in emergencies, take any precaution-
ary measures necessary to protect the interests of inves-
tors 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.

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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 under Article 53.

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 under Article 53.

(*) OJ L 84, 26.3.1997, p. 22.’;

4.

the following shall be inserted before Article 7:

‘SECTION IIIa

OBLIGATIONS REGARDING THE DEPOSITARY’;

5.

the title of section IV and Article 12 shall be replaced by
the following:

‘SECTION IV

OBLIGATIONS REGARDING INVESTMENT COMPANIES

Title A

C o n d i t i o n s f o r t a k i n g u p b u s i n e s s

Article 12

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

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

6.

the following Articles shall be inserted after Article 13:

‘Article 13a

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

In addition, when an investment company has not
designated a management company authorised pursuant
to this Directive:

— the authorisation shall not be granted unless the
application for authorisation is accompanied by a
programme of activity setting out,
inter alia, the
organisational structure of the investment company,

— the directors of the investment company shall be of
sufficiently good repute and be sufficiently experi-
enced also in relation to the type of business carried
out by the investment company. To that end,
the names of the directors and of every person
succeeding them in office must be communicated
forthwith to the competent authorities. The conduct
of an investment company’s business must be
decided by at
two persons meeting such
conditions. Directors shall mean those persons who,
under the law or the instruments of incorporation,
represent the investment company, or who effec-
tively determine the policy of the company,

least

— moreover, where close links exist between the
investment company and other natural or legal
persons, the competent authorities shall grant auth-
orisation only if those 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 investment company has
close links, or difficulties involved in their enforcement,
prevent the effective exercise of their supervisory func-
tions.

The competent authorities shall require investment com-
panies to provide them with the information they require.

2. 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.

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

4. The competent authorities may withdraw the authoris-
ation issued to an investment company subject to this
Directive only where that company:

(a)

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

(b) has obtained the authorisation by making false

statements or by any other irregular means;

(c)

no longer fulfils the conditions under which author-
isation was granted;

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(d) has seriously and/or systematically infringed the
provisions adopted pursuant to this Directive; or

— a full prospectus,

(e)

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

— an annual report for each financial year, and

Title B

O p e r a t i n g c o n d i t i o n s

the financial year.’;

— a half-yearly report covering the first six months of

Article 13b

Articles 5g and 5h shall apply to investment companies
that have not designated a management company author-
ised pursuant to this Directive. For the purpose of this
Article “management company” shall be construed as
“investment company”.

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

Article 13c

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

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

7.

the following shall be inserted before Article 14:

‘SECTION IVa

OBLIGATIONS REGARDING THE DEPOSITARY’;

8. Article 27(1) shall be replaced by the following:

‘1. An investment company and, for each of the unit
trusts and common funds it manages, a management
company, must publish:

— a simplified prospectus,

9. Article 28 shall be replaced by the following:

‘Article 28

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, and, in particular, of the risks attached
thereto. The latter shall
the
instruments invested in, a clear and easily understandable
explanation of the fund’s risk profile.

independent of

include,

2. The full prospectus shall contain at least the infor-
mation provided for in Schedule A, Annex I to this
Directive, in so far 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 in summary
form the key information provided for in Schedule C,
Annex I 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. The simplified prospectus can
be used as a marketing tool designed to be used in all
Member States without alterations except translation.
Member States may therefore not require any further
documents or additional information to be added.

4. Both the full and the simplified prospectus may be
incorporated in a written document or in any durable
medium having an equivalent legal status approved by
the competent authorities.

5. The annual report must include a balance sheet or a
statement of assets and liabilities, a detailed income and
expenditure account for the financial year, a report on the
activities of the financial year and the other information
provided for in Schedule B, Annex I to this Directive, as
well as any significant information which will enable
investors to make an informed judgment on the develop-
ment of the activities of the UCITS and its results.

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include at

6. The half-yearly report must
the
information provided for in Chapters I to IV of Sched-
ule B, Annex I to this Directive; where a UCITS has paid
or proposes to pay an interim dividend, the figures must
indicate the results after tax for the half-year concerned
and the interim dividend paid or proposed.’;

least

10. Article 29 shall be replaced by the following:

14. 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.’;

‘Article 29

15. Article 46 shall be replaced by the following:

1. The fund rules or an investment company’s instru-
ments 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
in each Member State in which the units are
where,
placed on the market, he or she may consult them.’;

11. Article 30 shall be replaced by the following:

‘Article 30

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

12. 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.’;

13. Article 33 shall be replaced by the following:

‘Article 33

‘Article 46

If a UCITS 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 auth-
orities:

— an attestation by the competent authorities to the
effect that it fulfils the conditions imposed by this
Directive,

— its fund rules or its instruments of incorporation,

— its full and simplified prospectuses,

— 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 State.

An investment company or a management company may
begin to market its units in that other Member State two
months after such communication, unless the authorities
of the Member States concerned establish, in a reasoned
decision taken before the expiry of that period of two
months, that the arrangements made for the marketing
of units do not comply with the provisions referred to in
Articles 44(1) and 45.’;

1. The simplified prospectus must be offered to sub-
scribers 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.

16. 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, the full
and simplified prospectuses, the annual and half-yearly
reports and the other information provided for in
Articles 29 and 30.

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.’;

These documents shall be provided in the or one of the
languages of the host Member State or in a
official
language approved by the competent authorities of the
host Member State.’;

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17.

the following Articles 52a and 52b shall be added after
Article 52:

19. Schedule A of Annex I shall be amended as follows:

‘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 cooperate 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 com-
pany’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.’;

18.

the Annex to Directive 85/611/EEC shall be renumbered
as Annex I;

1. Under the column ‘Information concerning the
investment company’, after paragraph 1.2 the fol-
lowing shall be added:

‘1.3. In the case of investment companies having
different investment compartments, the indi-
cation of the compartments.’;

2. Under the column ‘Information concerning the
investment company’, in paragraph 1.13 the follow-
ing 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.’;

3.

The following paragraphs 5 and 6 shall be added
after paragraph 4:

‘5.

Other investment information

5.1. Historical performance of the unit trust/com-
mon fund or of the investment company
(where applicable) — such information may
be either included in or attached to the
prospectus

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

6.

Economic information

6.1. Possible expenses or fees, other than the
charges mentioned in paragraph 1.17, dis-
tinguishing between those to be paid by the
unit holder and those to be paid out of
the
the unit
investment company’s assets’;

trust’s/common fund’s or of

20.

the text of Annex I to this Directive shall be added to
Annex I to Directive 85/611/EEC;

21. Annex II to this Directive shall be added as Annex II to

Directive 85/611/EEC.

Transitional and final provisions

Article 2

1.
Investment firms, as defined in Article 1(2) of Directive
93/22/EEC, authorised to carry out only the services provided
for in Section A(3) and in Section C(1) and (6) of the Annex to
that Directive, may obtain authorisation under this Directive
to manage unit trusts/common funds and investment com-
panies and to qualify themselves as ‘management companies’.
In that case, such investment firms must give up the authoris-
ation obtained under Directive 93/22/EEC.

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2. Management companies already authorised before ... (*)
in their home Member State under Directive 85/611/EEC to
manage UCITS in the form of 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 ... (*)
which are not included among those referred to in paragraph 2
may continue such activity provided that, no later than ... (**)
and pursuant
their home Member
State, they obtain authorisation to continue such activity in
accordance with the provisions adopted in implementation of
this Directive.

to the provisions of

Only the grant of such authorisation shall enable such
management companies to qualify under the provisions of this
Directive on the right of establishment and the freedom to
provide services.

Article 3

No later than ... (***) Member States shall adopt the laws,
regulations and administrative provisions necessary for them
to comply with this Directive. They shall forthwith inform the
Commission thereof.

They shall apply these measures no later than ... (*).

When Member States adopt these measures they shall contain
a reference to this Directive or shall be accompanied by such
reference on the occasion of their official publication. The
methods of making such a reference shall be laid down by the
Member States.

Article 4

This Directive shall enter into force on the date of
publication in the Official Journal of the European Communities.

its

This Directive is addressed to the Member States.

Article 5

Done at ...

For the European Parliament

The President

For the Council

The President

(*) Twenty-four months after the entry into force of this Directive.
(**) Sixty months after the entry into force of this Directive.
(***) Eighteen months after the entry into force of this Directive.

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ANNEX I

‘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

— In the case of UCITS having different investment compartments, the indication of this circumstance

— 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

— The unit trust’s/common fund’s or the investment company’s investment policy and a brief assessment of the
information according to Article 24a and by investment

if applicable,

fund’s risk profile (including,
compartment)

— Historical performance of the unit trust/common fund/investment company (where applicable) and a warning
that this is not an indicator of future performance (such information may be either included in or attached to
the prospectus)

— 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 UCITS having different investment compartments how to pass from one investment compartment

into another and the charges applicable in such cases

— When and how dividends on units or shares of the UCITS (if applicable) are distributed

— Frequency and where/how prices are published or made available.

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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

— Competent authority

— Indication of a contact point (person/department, timing, etc.) where additional explanations may be obtained

if needed

— Publishing date of the prospectus.’

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ANNEX II

‘ANNEX II

Functions included in the activity of collective portfolio management:

— Investment management

— Administration:

(a)

(b)

(c)

(d)

legal and fund management accounting services;

customer enquiries;

valuation and pricing (including tax returns);

regulatory compliance monitoring;

(e) maintenance of unit holder register;

(f)

distribution of income;

(g)

unit issues and redemptions;

(h)

contract settlements (including certificate dispatch);

(i)

record keeping

— Marketing’

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STATEMENT OF THE COUNCIL’S REASONS

I.

INTRODUCTION

1.

2.

3.

On 17 July 1998, the Commission put forward a proposal (1) for a directive of the European
Parliament and of the Council amending Council Directive 85/611/EEC on the coordination
of laws, regulations and administrative provisions relating to undertakings for collective
investment in transferable securities (UCITS) (2) with a view to regulating management
companies and simplified prospectuses.

The Economic and Social Committee adopted its opinion at its session on 24 and 25 February
1999 (3).

At the request of the Council, the European Central Bank gave its opinion on 16 March
1999 (4).

4.

On 17 February 2000, the European Parliament adopted 13 amendments at first reading (5).

5.

On 30 May 2000, the Commission put forward its amended proposal (6).

6.

On 5 June 2001, in accordance with Article 251 of the Treaty establishing the European
Community, the Council adopted its Common Position and these reasons.

II.

AIM OF THE PROPOSAL

The two main objectives of the Commission proposal are to regulate the activities of management
companies and to regulate simplified prospectuses.

The proposal aims at aligning the rules for management companies with those governing other
operators in the financial services area (banks, investment firms, insurance companies) which is
important given the growth of this sector and the enlarged opportunities for investment which will
flow from the other proposal amending Directive 85/611/EEC with regard to the investments of
UCITS.

The simplified prospectus is being introduced to modernise the information given to investors and
to facilitate comparison and thus the sale of units or shares in UCITS.

The Council supports these two objectives and believes that the activities of investment companies
should also be regulated by means of the Directive in order to ensure that competition between
UCITS managed by management companies and UCITS organised as investment companies is not
distorted.

(1) OJ C 272, 1.9.1998, p. 7.
(2) OJ L 375, 31.12.1985, p. 3. Directive as last amended by Directive 2000/64/EC of 7 November 2000 (OJ L 290,

17.11.2000, p. 27).

(3) OJ C 116, 28.4.1999, p. 1.
(4) OJ C 285, 7.10.1999, p. 9.
(5) OJ C 339, 29.11.2000, p. 228.
(6) OJ C 311 E, 31.10.2000, p. 273.

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III. ANALYSIS OF THE COMMON POSITION

The provisions concerning investment companies are set out in a new section IV of the Directive.

The existing provisions concerning the depositary for unit trusts/common funds are contained in a
new Section IIIa and the provisions concerning the depositary for investment companies in a new
Section IVa, but they have not been otherwise amended.

All cross references in the text have been adapted accordingly.

The recitals have been amended in accordance with the amendments to the enacting provisions.

1. MANAGEMENT COMPANIES

The Common Position largely follows the Commission’s amended proposal with some
exceptions explained below, concerning,
the own funds of management
companies and the rules of conduct which they must comply with.

in particular,

In the definition of management companies in Article 1a(2), the Council has taken on board
the definition proposed by the Commission in its amended proposal, except for the reference
to the assets of UCITS, which the Council considers too restrictive since the functions of a
management company are not limited to asset management. In so doing, the Council has also
accepted some elements of Amendment 23 from the European Parliament.

Concerning the authorisation of management companies, the Council fully agrees that UCITS
which may not market their units in their home member State should not be authorised, but
considers the right place for this provision to be between paragraphs 3 and 4 of Article 4,
rather than in Article 5(5) as was the case in the Commission’s amended proposal. In order also
to cover UCITS constituted as investment companies, the Council has furthermore added the
marketing of shares.

Article 5(2) basically follows the Commission’s amended proposal, but the Council considers
‘UCITS authorised according to this Directive’ more appropriate than the phrase proposed by
the Commission. It also limits the scope of the activities a management company may
undertake by adding a requirement that other funds managed by the management company
should be supervised, or that the management company should at least be subject to supervision
with respect to those funds. The Council has also simplified and restructured the list of
functions included in the activity of collective portfolio management in Annex II finding the
structure in the Commission’s amended proposal too detailed and inflexible.

The Council is of the opinion that there is no need to restrict the second indent of Article 5(3)(b)
and the words ‘which are managed by the management company’ proposed by the Commission
in its amended proposal have therefore been deleted.

Nor has the Council included Article 12(1) of the ISD in the list in Article 5(4) of articles
applicable to the provision of services mentioned in Article 5(3) since Article 12 was repealed
by Directive 97/9/EC on investor compensation schemes. The issue of investor compensation
is covered in Article 5f(2) second indent, which stipulates that management companies which
are authorised to do individual portfolio management must be subject to Directive 97/9/EC on
investor compensation schemes.

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The provision set out in Article 5(5) of the Commission’s amended proposal has been moved
to Article 4(3a) of the Common Position (see above). Amendment 24 is included in recital 8,
drafted as in the Commission’s amended proposal, which the Council finds adequate in this
respect. The Council has thus taken account of the spirit of Amendment 24 to the same extent
as the Commission in its amended proposal.

Article 5a(1) of the Common Position, which lays down conditions for the authorisation of
management companies, has undergone considerable change compared to the Commission’s
amended proposal which took account of Amendment 41/rev. The Council agrees with the
European Parliament and the Commission that higher capital requirements than those proposed
in the original Commission proposal are necessary. While the Council finds the Commission’s
amended proposal insufficient in case of UCITS investing in transferable securities, it finds the
European Parliament’s amendment too burdensome given that all the assets of a UCITS engaged
only in collective portfolio management must be entrusted to a depositary for safekeeping, and
that it is mainly operational risks which need to be covered. Individual portfolio management
is covered by Article 5(4) of the Common Position, which requires the application of
Article 8(2) of the investment services Directive to all individual portfolio management by
management companies, which in its turn requires compliance with the capital adequacy
Directive.

The Council has therefore struck a different balance between the need to ensure that
management companies are adequately funded and the need to avoid placing an unduly heavy
burden and unjustified restrictions upon management companies:

— the Council requires all management companies to have initial capital of at least
than

EUR 125 000 (in line with the Commission’s amended proposal)
EUR 150 000 as in Amendment 41/rev.,

rather

— concerning the ongoing capital requirements the Common Position requires an additional
amount of own funds corresponding to 0,02 % of the amount by which the assets under
management exceed EUR 250 million. However, the total of the initial capital and this
additional amount shall not exceed EUR 10 million,

— since the 0,02 % requirement might in certain cases be unnecessarily burdensome, the
Council has made provisions for Member States to authorise management companies to
substitute up to 50 % of the additional amount of own funds for a guarantee provided by
a credit institution or insurance undertaking,

— for the purpose of calculating the additional amount of own funds, the Common Position

defines the portfolios to be included,

— irrespective of the amount of the initial and ongoing capital requirements, the management
company’s own funds shall never be less than the amount laid down in Annex IV to the
capital adequacy directive,

— since such capital requirements are new in European legislation, the Common Position
provides for the Commission to report to the European Parliament and to the Council on
the application of the capital requirements for management companies within five years
of the entry into force of the Directive in order to evaluate their function.

The Council supports the requirement in Article 5a(1) of the Commission’s amended proposal
that management company directors should be experienced and fit to direct the company, and
in paragraph 1(b) has strengthened the amended proposal further on this point by adding a
requirement for management companies to communicate the names of their directors to the
competent authorities.

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Article 5a(3), (4) and (5) of the Common Position essentially follow the amended Commission
proposal, except that the provision in paragraph 5(e) has been strengthened by substituting
‘and/or’ for ‘and’ so that even one serious infringement, or less serious but systematic
infringements, of the provisions adopted according to the Directive may lead to the withdrawal
of the authorisation. Amendment 35 is thus not included in the Common Position.

The Council has extended Article 5b(3) on consultation with other Member States, compared
to the Commission’s amended proposal, to include cases where a management company is a
subsidiary of, or otherwise closely linked to, an insurance company authorised in other Member
States.

In Article 5d, the Council has supplemented the provisions on capital requirements and
modified the Commission’s amended proposal by making it clear that a company must cease
its activities if its own funds fall below the requirements in Article 5a(1)(a). Alternatively, the
competent authorities have the option,
in line with Article 4(3) of the capital adequacy
Directive, to grant the management company a limited period in which to rectify the situation.

Article 5f of the Common Position concerning prudential rules contains a number of
modifications to the Commission’s amended proposal:

— in paragraph 1, the Council believes that ‘with regard to the activity of management of
UCITS authorised according to this Directive’ is more appropriate than the corresponding
wording proposed by the Commission in its amended proposal,

— the Council has strengthened the wording in paragraph 1(a) by stressing the importance
of management companies having rules for personal transactions and rules for the
investment of own funds,

— the Council preferred Amendment 25 in paragraph 1(a) to the version put forward by the

Commission in its amended proposal,

— a new indent has been added in paragraph 1 relating to conflicts of interest in order to

protect the interests of all the clients of a management company,

— in paragraph 2 the Council has deleted the second indent of the Commission’s amended
proposal, which it believes is unnecessary. The question of the regulation of depositaries
according to the Directive will be the subject of a report which the Council has invited the
Commission to present within one year from the entry into force of the present amending
directive,

— finally, the Council agrees with the Commission that home Member States should not be
able to exempt management companies from any part of paragraph 2. It has therefore
not included Amendment 26 in its common position.

In Article 5g, the Council decided to merge paragraphs 1 and 2 of the Commission’s amended
proposal
into a new paragraph 1, since both of the Commission’s paragraphs contain
requirements for authorising management companies to delegate some of their functions. In
so doing, the Council has redrafted several of those requirements, incorporating some aspects
of Amendment 27:

— the Council has opted for ‘if’ rather than ‘when’ at the outset of the paragraph to stress

that delegation is subject to Member State approval,

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— the requirement to notify the authorities has been rendered more flexible,

— in paragraph 1(c), the Council has introduced a provision concerning delegation of
investment management which stipulates that the recipient of the mandate must be
authorised or registered for the purposes of asset management,

— in paragraph 1(d), concerning delegation to third-country undertakings the Council has
made minor adjustments to the wording of the Commission’s amended proposal and to
Amendment 27, notably by deleting ‘prudential’ and the end of the European Parliament’s
amendment, which it considers superfluous,

— the Council agrees with the spirit of Amendment 27 and the Commission’s amended
proposal, which prohibits delegation of core functions to the depositary and paragraph 1(e)
of the Common Position includes the third indent of paragraph 2 of the amended
Commission proposal with slightly modified wording,

— the Council has made paragraph 1(g) more specific than the Commission’s amended
proposal by stipulating that the mandate can be withdrawn with immediate effect when
that is in the interest of investors.

With the aim of strengthening the last paragraph of Article 5g, in order to ensure proper
supervision of the company, the Council has added a provision ruling out delegation to such
an extent that the management company becomes a letter box entity.

The Council is of the opinion that rules of conduct, which management companies would have
to observe at all times, should be drawn up in the interest of investors and in order to create a
level playing field between management companies and investment companies. It has therefore
added a new Article 5h outlining the contents of such rules. These rules are based on the rules
of conduct for investment companies set out in Article 11(1) of the investment services
Directive.

Articles 6 to 6c concerning the right of establishment and the freedom to provide services
largely follow the Commission’s amended proposal with a few minor changes.

The Council has not included in Article 6a(2) the requirement that a management company
seeking to establish a branch in another Member State shall provide a list of the UCITS managed
by it and intended for marketing in the host Member State since the marketing of units in a
host Member State is regulated by section VIII of Directive 85/611/EEC. In Article 6a(4), the
Council has incorporated Amendment 28 by taking on board the Commission’s amended
proposal in this respect.

Finally, the Council believes it is more appropriate to refer to paragraph 3 at the end of
Article 6b(4).

2.

INVESTMENT COMPANIES

In order to avoid any distortion of competition between UCITS constituted as investment
companies and UCITS managed by management companies, the Council finds it necessary to
introduce specific rules for investment companies. This has been done in a new section IV
concerning investment companies and a new section IVa, which brings together the provisions
relating to the depositary of an investment company.

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The rules for investment companies are modelled on the rules for management companies and
mostly apply to self-managed investment companies that have not designated a management
company, since the conditions for the investment companies which are managed by a
management company in relevant parts are met through the management company. The main
features of the rules are as follows:

— as was the case in the original Directive 85/611/EC, investment companies must be

authorised before taking up business (Article 12),

— initial capital of at least EUR 300 000 is required for authorisation of investment
companies which have not designated a management company [Article 13a(1)]. Invest-
ment companies which have designated a management company are covered by the own
funds of the management company [Article 5a(1)],

— an investment company which has not designated a management company must fulfil a
number of preconditions for authorisation, modelled on the rules for management
companies, regarding,
inter alia, the programme of activity, the qualifications of the
directors, conflicts of interest and obligations to inform the competent authorities
[Article 13a(1)],

— rules are laid down for the withdrawal of an authorisation [Article 13a(4)],

— investment companies must at all times comply with Article 5g concerning delegation
and Article 5h concerning rules of conduct; either directly in accordance with Article 13b
or indirectly in that, where an authorised investment company chooses to designate a
management company, that management company must be authorised in accordance
with the Directive and is thus obliged to comply with Articles 5g and 5h,

— prudential rules shall be drawn up by Member States and observed by investment

companies that have not designated a management company (Article 13c).

As a consequence of these additions and amendments concerning investment companies, the
Council has also modified Article 4(3) where appropriate.

3.

SIMPLIFIED PROSPECTUSES

In essence, the Common Position follows the Commission’s amended proposal as regards
Articles 27 to 35. In including in its Common Position Article 28(1) as proposed by the
Commission in its amended proposal, the Council has also taken on board Amendments 29
and 30, albeit in a modified form in the case of Amendment 30. However, the Council did not
consider Amendment 31 a useful addition since rules of conduct are regulated in Articles 5h
and 13b.

As regards Schedule C, the Council has rearranged certain items of information in order to
achieve a more logical structure. It has added some new aspects, namely a warning linked to
the indication of historical performance, the publishing date of the prospectus and an indication
of the competent authority.

In accepting the Commission’s amended proposal as far as investment policy and risk profiles
are concerned (with the exception of the reference to Article 24b, which is no longer relevant),
the Council has also taken on board the essence of Amendment 32.

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4.

CROSS-BORDER MARKETING

The Council has essentially followed the Commission’s amended proposal for amendments to
Articles 46 and 47 concerning cross-border marketing with a few exceptions:

— the beginning of Article 46 has been simplified by referring to UCITS marketing their

units,

— in order to give the competent authorities sufficient time to assess the information
submitted by such UCITS, the Council has extended to two months the one-month period
proposed by the Commission in Article 46,

— the Council has simplified Article 47 with respect to the languages in which information
must be made available, leaving it to the competent authorities of the host Member State
to approve information in other languages than the official language(s) of that country.

Articles 52a and 52b are unchanged compared to the Commission’s amended proposal.

5.

OTHER PROVISIONS

The Council has added four definitions to Article 1a (parent undertaking, subsidiary, initial
capital, own funds) in order to avoid any misinterpretation of subsequent articles in which
these terms appear. On the other hand,
it has not included in its Common Position
Article 1a(12) of the Commission’s amended proposal since the term group is already defined
in the other proposal amending Directive 85/611/EEC with regard to investments of UCITS for
the purposes of the rules on risk-spreading. The Council has further clarified the definition of
the host Member State of a UCITS in Article 1a(6).

As regards the modifications to Schedule A relating to the full prospectus, the Council has
essentially followed the amended Commission proposal and has added only one slight
clarification to paragraph 5(1) in order to make it clear that historical information may be
attached to the full prospectus.

As regards a possible future codification of the Directive (Amendment 22), the Council fully
endorses the idea but has, in recital 17, opted for the wording of the Commission’s amended
proposal, which it believes to be more in keeping with the latter institution’s right of initiative.

IV. CONCLUSION

In its Common Position, the Council has been able to incorporate fully, partly or in essence 10 of
the European Parliament’s 13 amendments at first reading.

The Council is of the opinion that all the amendments made to the Commission’s amended proposal
are fully in line with the objectives of the proposed directive, and that the Common Position is a
balanced text, in particular when seen against the backdrop of its Common Position with a view to
adopting the Directive of the European Parliament and of the Council amending Directive
85/611/EEC on the coordination of laws, regulations and administrative provisions relating to
UCITS, with regard to investments of UCITS.