INVESTMENT SERVICES ACT (CONTRACTUAL FUNDS) REGULATIONS (contractualfunds)

SUBSIDIARY LEGISLATION 370.16

INVESTMENT SERVICES ACT

(CONTRACTUAL FUNDS) REGULATIONS

7th January, 2011

LEGAL NOTICE 3 of 2011.

The title of these regulations is the Investment Services

Act (Contractual Funds) Regulations.

(1)

In these regulations, unless the context otherwise

requires

"the Act" means the Investment Services Act;

"contractual fund" shall have the meaning assigned to it in

regulation 3;

"deed o f co nst it ut ion " mea ns the co nt rac t und er w hi ch a

contractual fund is constituted;

"custodian" means the person responsible for the safekeeping

and custody of the assets of the contractual fund and for carrying

out such duties specified in Investment Services Rules issued by

the competent authority or in the contractual fund’s licence

conditions;

"currency" means, in addition to the Euro, any convertible

currency in terms of article 186 of the Companies Act;

"fractional unit" means a fraction of a whole unit in any class of

units issued by the contractual fund;

"management company" or "manager" means the person

responsible for the proper administration and management of the

contractual fund, the general supervision of the contractual fund’s

affairs and for carrying out such duties specified in Investment

Services Rules issued by the competent authority or as part of the

contractual fund’s licence conditions;

"multi class scheme" means a scheme falling within the terms of

regulation 11;

"multi fund scheme" means a scheme falling within the terms of

regulation 13;

"Special Investment Vehicle" or "SIV" means a company

established in accordance with regulation 4;

"sub-fund" means a separate portfolio of assets and liabilities

maintained by a contractual fund in accordance with its deed of

constitution;

"unit- holder" means the holder of one or more units of a

contractual fund and references to a unit holder in such a

contractual fund shall be construed accordingly.

(2) Words and expressions which are also used in the Act shall

have the same meaning as in the Act.

(1) A contractual fund is a collective investment scheme

within the meaning of article 2 of the Act, established by means of

a deed of constitution entered into for such purpose by the manager

and the custodian of such a collective investment scheme, under

which the unit holders participate and share in the property of the

collective investment scheme as evidenced by units issued by the

manager in terms of regulation 8.

(2) A contractual fund shall not have legal personality and its

property shall be represented by freely transferable units.

(3) A contractual fund may be constituted by a public deed or

by private writing.

(4) A contractual fund may be established either as an open

ended collective investment scheme or as a closed ended collective

investment scheme.

(5) The provisions of the deed of constitution of a contractual

fund shall be binding on the unit holders as if such persons had

been party to the deed.

(6) The liabilities of a unit holder in a contractual fund shall be

limited to the amount agreed to be contributed by the unit holder

for the subscription of units therein.

(7) A contractual fund, whose deed of constitution is entered

into by a manager and custodian in terms of these regulations, shall

be deemed to be domiciled in Malta and shall be subject to the laws

of Malta.

(1) A contractual fund set up in terms of these regulations

may establish a company, formed and constituted under the laws of

Malta, to act as a Special Investment Vehicle for the sole purpose of

investing and holding assets on behalf of the fund in accordance

with the fund’s deed of constitution and prospectus.

(2) A Special Investment Vehicle established in terms of

subregulation (1) shall be licensed and regulated by the competent

authority under the same licence of the contractual fund

establishing it in terms of article 4 of the Act. The Special

Investment Vehicle shall accordingly be subject to that contractual

fund’s licence conditions as well as to any other licence conditions

that may be made specifically applicable to that Special Investment

Vehicle.

(3) The competent authority may, following advance

notification to the contractual fund or to the Special Investment

Vehicle, vary or revoke any licence condition or impose any new

condition or conditions as it may deem appropriate.

(4) Where the competent authority suspends or cancels a

licence of a contractual fund in accordance with the provisions of

the Act, such suspension or cancellation shall extend to a Special

Investment Vehicle established by that contractual fund. The

competent authority may however make specific provisions

regulating the Special Investment Vehicle in these circumstances.

(5) Any act or omission by the Special Investment Vehicle

which, had it been made by the contractual fund, would have

amounted to a breach of a licence condition that may lead to

suspension or cancellation of the licence of the contractual fund

under the Act, may be considered by the competent authority as if it

had been made by the contractual fund and may lead to the

suspension or cancellation of the licence of that contractual fund.

(6) For the better carrying out of the provisions of these

regulations the competent authority may, from time to time, issue

and publish Investment Services Rules which shall be binding on

contractual funds Special Investment Vehicles and any other

persons as may be specified therein.

(1) The deed of constitution of a contractual fund should

specify whether the fund is being established as a closed ended or

open ended collective investment scheme and shall provide for the

following

(a) the name of the contractual fund;

(b) the duration, if any, of the contractual fund;

(c) the name of the management company and of the

custodian;

(d) the investment policy of the contractual fund;

(e) the distribution policy, if any, of the income of the

contractual fund;

(f)

the remuneration and expenditure which the

management company is empowered to charge the

fund and the method of calculation of such

remuneration;

(g) the date of the closing of the accounts of the fund;

(h) the dissolution of the contractual fund, without

prejudice to the requirements set out in regulation 21;

(i)

the procedure for the amendment to the deed of

constitution;

(j)

the procedure for the removal and replacement of the

manager and the custodian of the contractual fund;

(k) the procedure for the issue of units to participants;

(l)

the minimum percentage of holding required to

requisition a meeting in terms of regulation 20;

(m) the procedure for the redemption of units and the

conditions under which redemptions may be carried

out or suspended;

(n) the method of valuation of the contractual fund’s

assets;

(o) the law governing the contractual fund;

(p) any other matter which the competent authority may,

by Investment Services Rules published for this

purpose, require.

(2) Where the use of a Special Investment Vehicle is envisaged,

the deed of constitution and the offering memorandum of a

contractual fund must clearly indicate the intention to establish

such a vehicle, and any reports prepared by the contractual fund

shall include such information on its Special Investment Vehicle as

the competent authority or any applicable Investment Services

Rules issued under the Act may require.

(1) The deed of constitution shall comply with the

requirements of these regulations and any applicable Investment

Services Rules, and shall be submitted to the competent authority

for approval prior to its signature.

(2) Upon approval of the terms of the deed of constitution by

the competent authority, a certified true copy thereof shall be

submitted to the competent authority.

(3) The aforesaid submission shall be made by the manager or

the custodian or their authorised agents.

(4) The competent authority shall publish a copy of the deed of

constitution of a contractual fund licensed in terms of the Act on its

website.

(1) Where a contractual fund is required to issue a

prospectus, it shall submit a draft copy thereof to the competent

a u th o r i t y f o r it s a p pr o v al p r i or t o th e is su e o f th e f o r m o f

application for the subscription of units in the contractual fund.

(2) Upon approval, a signed copy of the prospectus of the

contractual fund shall be submitted to the competent authority.

Such copy shall be signed by at least two persons duly authorised in

writing by the Board of Directors of the management company of

the contractual fund.

(3) A certified true copy of the contractual fund’s prospectus

may be submitted to the competent authority in lieu of the signed

copy indicated in subregulation (2).

(4) The competent authority shall publish a copy of the

prospectus of a contractual fund licensed in terms of the Act on its

website.

(1) The management company of a contractual fund shall

issue registered certificates or contract notes representing written

confirmation of entry in the register of units.

(2) Certificates issued in accordance with subregulation (1)

shall be signed by the management company and by the custodian

of the contractual fund.

(1) A contractual fund, may, if so authorised by its deed of

constitution, issue fractional units up to such number of decimal

places, not being less than three, as shall be specified in the said

deed and under such terms and conditions as may be specified

therein.

(2) Fractional units shall be automatically consolidated into a

whole unit when the fractional units held by one unit holder

become equal to a whole unit.

(1) The property of a contractual fund and of each of its

sub-funds, if any, shall constitute a separate patrimony and shall be

separate and distinct from the property of its unit holders, manager

and custodian.

(2) The creditors of the unit holders in a contractual fund, or of

the manager or of the custodian thereof, may not enforce their

rights on the property of the contractual fund.

(1) A contractual fund may be constituted as a multi class

scheme if, in terms of its deed of constitution, the units which are

issued by its management company are capable of being divided

into different classes of units not constituting a distinct sub-fund.

(2) A multi class contractual fund may, with the written

approval of the competent authority, issue a new class or classes of

units. Such class or classes of units shall not constitute a distinct

sub-fund or sub-funds of the contractual fund.

(3) Each class of shares in a multi class contractual fund may

be denominated in a different currency provided that a class of

units may be denominated only in one currency.

(4) A multi class contractual fund may not elect for the

segregation of any of its assets and liabilities.

(1) A multi class scheme having its units denominated in

different currencies shall draw up its annual accounts in any one of

such currencies.

(2) The provision of subregulation (1) shall mutatis mutandis

apply to the drawing up of any other reports or financial statements

which may be required by the competent authority.

(3) For the purposes of subregulations (1) and (2), the

conversion from the base currency of a class of units into the

currency in which the annual accounts of the multi class scheme are

to be drawn up shall be in accordance with generally accepted

accounting principles.

(1) A contractual fund may be constituted as a multi fund

scheme where, in terms of its deed of constitution, its property is or

is capable of being divided into different groups of units where one

group would constitute a distinct sub-fund of the contractual fund.

(2) A multi fund scheme may, with the written approval of the

competent authority, create and issue a new group of units which

may constitute a new sub-fund or be comprised in any existing sub-

fund of the contractual fund.

(3) A group of units constituting a sub-fund in a multi class

scheme fund may be denominated in a different currency provided

that a group of units may be denominated in only one currency.

(4) For the purposes of this regulation, a "sub-fund" means the

distinct group of units constituting that sub-fund in a multi class

scheme to which are allocated assets and liabilities distinct from

other assets and liabilities allocated to the other sub-funds in the

same contractual fund.

(1) A contractual fund having its units denominated in

different currencies shall draw up its annual accounts in any one of

such currencies.

(2) The manager of a contractual fund shall maintain proper

accounting records of the assets and liabilities of each sub-fund in

the base currency of any group of units constituting that sub-fund.

(3) The provisions of subregulation (1) shall mutatis mutandis

apply to the drawing up of any other reports or financial statements

which may be required by the competent authority in terms of

Investment Services Rules issued for this purpose.

(4) For the purposes of subregulations (1) and (3), the

conversion from the base currency of a group of units into the

currency in which the annual accounts of the umbrella fund are to

be drawn up shall be in accordance with generally accepted

accounting principles.

(1) A multi fund scheme may, in terms of its deed of

constitution, have the assets and liabilities of each sub-fund treated

for all intents and purposes of law as a patrimony separate from the

assets and liabilities of each other sub-fund of the multi fund

scheme. Where a multi fund scheme is so constituted, the assets

and liabilities of each sub-fund shall, for all intents and purposes of

law, be deemed to constitute a patrimony separate from the assets

and liabilities of each other sub-fund of such a multi fund scheme.

(2) Subregulation (1) shall not apply to such proportion of the

liabilities of a multi fund scheme which, by virtue of the deed of

constitution of such a scheme, or by virtue of the terms of issue of

the units constituting a sub-fund are, or are to be attributable to,

one or more sub-funds in the proportion established therein.

(3) The liabilities incurred in respect of each sub-fund shall be

paid out of the assets forming part of its patrimony and the

creditors in respect thereof shall have no claim or right of action

against the other assets forming part of the multi fund scheme, and

proceedings against the management company or the custodian in

relation to the multi fund scheme shall respect the legal status of

each sub -f un d as a pat ri mo ny separ ate fr om th e assets and

liabilities of each other sub-fund of the multi fund scheme, in terms

of this regulation.

"Proceedings" in this regulation shall mean the procedures which

must be followed in respect of the dissolution and the liquidation of

the common fund in terms of regulation 21.

(4) The management company of a contractual fund shall hold

or cause to be held such separate records, accounts, statements and

other documents as may be necessary to evidence the liabilities and

assets of each sub-fund as distinct and separate from the assets and

liabilities of other sub-funds in the same multi fund scheme.

Unless the context otherwise requires and unless otherwise

provided in Investment Services Rules issued by the competent

authority applying specifically to contractual funds, any rules and

regulations applicable in general to collective investment schemes

and their managers and custodians, shall also apply to contractual

funds, their managers and custodians.

A contractual fund shall keep proper books of accounts and

shall be required to submit to the competent authority its annual

ac co u n t s an d a ny o t h er f i n an c i al st a t em e n t s an d an y o t h er

regulatory returns in terms of the Investment Services Rules.

The duties of the management company or of the custodian

in respect of a contractual fund shall cease

(a) upon the voluntary withdrawal of the management

company, provided that the competent authority has

approved such withdrawal;

(b) upon the voluntary withdrawal of the custodian or of

its removal by the management company;

(c) where the competent authority cancels the licence

issued to the management company or to the

custodian;

(d) where the competent authority removes the

management company or the custodian or suspends

their appointment;

(e) where the authorisation of the management company

or of the custodian is withdrawn;

(f)

where the management company or the custodian has

been declared bankrupt, has entered into a compromise

with creditors, has obtained a suspension of payment,

or has been dissolved;

(g) in other cases provided for in the deed of constitution

Provided that when the functions of a manager or of a custodian

of a contractual fund cease in terms of this regulation

(i)

the custodian or manager must be replaced

within two months of its removal or such longer

period as may be authorized in writing by the

competent authority; and

(ii) during the intervening period, the custodian or

the manager, whichever remains in office, shall

take all necessary steps for safeguarding the

interests of unit holders.

Decisions affecting the rights of unit holders shall be taken

by the manager of the contractual fund in agreement with the

custodian of such fund.

Unit holders in a contractual fund may request, in writing,

the management company to convene a meeting for unit holders to

vote on certain issues as may be determined by the deed of

constitution of such fund.

(1) A contractual fund shall be dissolved

(a) upon the expiry of the period, if any, fixed by the deed

of constitution of the said contractual fund;

(b) in the event of bankruptcy or cessation of duties by the

management company or by the custodian, if these are

not replaced within two months;

(c) with the consent of the unit holders in the contractual

fund as may be specified in the deed of constitution;

(d) in other circumstances as indicated in the deed of

constitution.

(2) Notice of the dissolution shall be published without delay,

and in any event within seven working days from the event giving

rise to the dissolution, by the management company or the

custodian, in a newspaper in circulation in Malta. In default, such

notice shall be published by the competent authority at the expense

of the contractual fund.

(3) As soon as the event giving rise to the dissolution of the

contractual fund occurs, the issue of units shall be prohibited, on

penalty of nullity. The redemption of units, where applicable, shall

remain possible, provided the equal treatment of unit holders is

ensured.

(1) The provisions of Title V of Part I of Book Second of

the Civil Code shall not apply to property held in a contractual

fund.

(2) The provisions of Title III of the Second Schedule to the

Civil Code shall not apply to contractual funds.