Regulation containing rules establishing the general criteria investment funds must comply with (adopted by the Minister of the Treasury, the Budget and Economic Planning with Decree 228/1999 and subsequently amended by Decree 180/2000 and Decree 47/2003)(1)
Title I
General provisions
Article 1
(Definitions)
1. In this regulation:
a) "Consolidated Law on Finance" shall mean Legislative Decree 58/1998;
b) "Consolidated Law on Banking " shall mean Legislative Decree 385/1993;
c) "fund" shall mean investment fund as defined in Article 1.1j) of the Consolidated Law on Finance;
d) "harmonized funds" shall mean mutual funds falling within the scope of the relevant Community directives that can be marketed in the European Union subject to mutual recognition;
d-bis) "real-estate funds" shall mean funds that invest exclusively in property, property rights and equity interests in property companies;(2)
e) "regulated market" shall mean a market entered in the list referred to in Article 63.2 of the Consolidated Law on Finance or in the special section referred to in Article 67.1 of such law or another regulated market specified in the fund rules that is regularly operating, recognized and open to the public;
f) "pension fund" shall mean the forms of supplementary pension referred to in Legislative Decree 124/1993, as amended;
g) "banking foundations" shall mean the foundations governed by Legislative Decree 153/1999, as amended;(3)
g-bis) "equity interests in property companies" shall mean equity interests in companies that build, enhance the value of, buy, sell and manage buildings;(4)
h) "qualified investors" shall mean: investment firms, banks, stockbrokers, asset management companies, SICAVs, pension funds, insurance companies, financial companies heading banking groups and companies entered in the lists referred to in Articles 106, 107 and 113 of the Consolidated Law on Banking; foreign intermediaries authorized under the law in force in their home country
to perform the same activities as those performed by the intermediaries specified immediately above; banking foundations; natural and legal persons and other entities possessing specific expertise and experience in transactions involving financial instruments expressly declared in writing by the natural person or the legal representative of the legal person or entity;
h-bis) "qualifying groups" shall mean groups defined pursuant to Article 11.1a) of the Consolidated Law on Finance.(5)
2. The expressions used in this regulation shall have the same meaning as indicated in the historical text except where they are defined differently.
Article 2
(Financial reports)
1. In addition to the financial reports prescribed for commercial firms by the Civil Code, and using the same procedures, an asset management company must:
a) keep a daybook of the fund in which the transactions concerning the management of the fund and the transactions in relation to the issue and redemption of fund units must be recorded:
b) prepare a statement of operations of the fund within 60 days of the end of each financial year or of the shorter period in relation to which earnings are distributed;
c) prepare a half-yearly report on the management of the fund within 30 days of the end of the half year;
d) fill in a table showing the unit value of the units and the total value of open-end funds with a periodicity at least equal to the issue or redemption of units.
Article 3
(Disclosure)
1. The documents referred to in Articles 2.1b), 2.1c) and 2.1d) must be kept available for consultation by the public at the head office of the asset management company.
2. The documents referred to in Articles 2.1b) and 2.1c) shall be made available to the public within 30 days of their preparation and the document referred to in Article 2.1d) shall be made available not later than the day following the reference day and published in the newspaper specified in the fund rules.
3 The last statement of operations of the fund and the last half-yearly report must also be made available to the public at the head office of the depositary bank and in the branches of the latter specified in the fund rules; investors also have the right to receive copies of these documents at home free of charge.
4. The report on operations must specify the benchmark chosen by the fund for the purpose of comparing results.
5. Funds referred to in Articles 15 and 16 may adopt different forms of disclosure from those specified in the preceding paragraphs provided they are specified in the fund rules.
5-bis. The fund rules referred to in Article 12-bis shall establish, in accordance with the principles established by Consob for disclosure in connection with public offerings, the forms of disclosure, including by way of extracts, of:
a) valuation reports;
b) contribution, purchase and sale instruments, the persons contributing, purchasing or selling and the groups they belong to;
c) loans obtained for the financing of redemptions as provided for in Article 12-bis, paragraph 8;
d) the group the financial intermediary referred to in Article 12-bis, paragraph 3b), belongs to;(6)
Title II
Common provisions
Article 4
(Investment policy)
1. Asset management companies may set up investment funds that invest in one or more of the assets specified in paragraph 2. Funds shall invest in conformity with the criteria, prohibitions and prudential rules for limiting and spreading risk established by the Bank of Italy under Article 6.1c) of the Consolidated Law on Finance.
2. Funds shall invest in the following assets:
a) financial instruments listed on a regulated market;
b) financial instruments not listed on a regulated market;
c) bank deposits of cash;
d) property, property rights and equity interests in property companies;(7)
e) claims and securities representing claims;
f) other assets for which a market exists and that have a value that can be determined with certainty at least once every half year.
Article 5
(Listing of certificates)
1. The fund rules shall specify whether it is intended that the certificates representing the units of a fund will be listed on a regulated market.
2. Application for listing shall be mandatory for closed-end funds that provide for the minimum subscription to be less than € 25,000.
3. In the case of the listing of closed-end funds, the application for listing of the units must be submitted by the asset management company within 24 months of the close of the offering.(8)
Article 6
(Duration)
1. The duration of funds must be consistent with the nature of the investments. In no case may it exceed the duration of the asset management company that promoted them and set them up.
2. Without prejudice to paragraph 1, the duration of closed-end funds may not exceed 30 years, excluding any extension granted under Article 14.6.
Article 7
(Initial subscription value)
1. In every case in which provision is made for a minimum subscription, the initial value of each unit/share may not be less than such amount. Units may not be split subsequently either if they are not admitted to trading on a regulated market.
Title III
Types and characteristics of funds
Chapter I
Open-end funds
Article 8
(Harmonized open-end funds)
1. Harmonized funds shall invest in the assets specified by the relevant Community directives in conformity with the limits and criteria established in this article and by the Bank of Italy in implementing the Community directives.
2. Harmonized funds may not be used to:
a) buy metals or precious stones or certificates representing the same;
b) grant loans or guarantees in any form whatsoever;
c) take short positions in financial instruments, except as established by the Bank of Italy;
d) invest in shares issued by the asset management company that manages the fund or the company promoting it if different from the manager;
3. Harmonized funds may be set up exclusively in the form of mutual funds.
Article 9
(Non-harmonized open-end funds)
1. Non-harmonized open-end funds shall invest in the assets referred to in Articles 4.2a), 4.2b) and 4.2c) in conformity with the limits and criteria established by the Bank of Italy.
2. The minimum amount of each subscription of units of funds that are invested in derivative financial instruments as specified by the Bank of Italy may not be less than € 50,000.
3. Article 12.3 shall apply.
Article 10
(Manner of participating in open-end funds)
1. The subscription of units of an open-end fund, or units of a sub-fund of such a fund if it is divided into sub-funds, shall be either by paying an amount corresponding to the value of the units or, if the fund rules so provide, by contributing financial instruments whose composition reproduces the index in accordance with which the fund invests.(9)
2. Asset management companies shall calculate the value of the units, inter alia for the purpose of issuing and redeeming the same, at least once a week.
3. Unit-holders are entitled to request the redemption of their units at any time. Units must be redeemed within 15 days of the request. In the exceptional cases specified in the fund rules, an asset management company may suspend the right of redemption for a period not longer than one month. The company shall inform the Bank of Italy and Consob of the suspension immediately.
4. In the case of suspension of the redemption of the units of a harmonized fund that markets them in other EU countries, the company must also inform the regulatory authorities of such countries.
Article 11
(Scope of the rules)
1. The provisions of this regulation concerning open-end funds shall apply to SICAVs.
2. The criteria established by this regulation shall apply to each sub-fund of a given fund or SICAV.
Chapter II
Closed-end funds
Article 12
(Closed-end funds)
1. Investment funds shall be set up as closed-end funds where they are more than 10 per cent invested, in conformity with the limits and criteria established by the Bank of Italy, in the assets specified in Articles 4.2d), 4.2e) and 4.2f) and those specified in Article 4.2b) except units of mutual funds.
2. The minimum amount of each subscription of units of funds that are invested prevalently in the assets referred to in Articles 4.2b) and 4.2f) and in claims referred to in Article 4.2e) may not be less than € 50,000.
2-bis. Closed-end funds may obtain loans for the early redemption of units for an amount not exceeding 10 per cent of the value of the fund. Such early redemptions shall be pro rated if the sums needed to make them exceed those acquired through new issues and permitted loans.(10)
3. Funds may not invest in assets sold or contributed directly by a shareholder, director, general manager or member of the board of auditors of the asset management company or a company belonging to the same group, nor may such assets be sold directly or indirectly to such persons. Neither may funds invest in financial instruments deriving from securitizations of receivables assigned by
shareholders of the management company or other persons belonging to their group for an amount exceeding 3 per cent of the value of the fund.(11)
Article 12-bis(12)
(Real-estate funds)
1. Real-estate funds shall be set up as closed-end funds.
2. Real-estate funds shall invest, in conformity with the limits and criteria established by the Bank of Italy, inter alia pursuant to Articles 6.1a) and 6.1c), points 1 and 5, of the Consolidated Law on Finance, in the assets referred to in Article 4.2d) for an amount equal to not less than two thirds of the fund's total value. Such percentage shall be reduced to 51 per cent if not
less than 20 per cent of the fund is invested in financial instruments deriving from securitizations of property, property rights or mortgage-backed receivables. The investment limits specified in this paragraph must be reached within 24 months of the start of operations.
3. Units of a real-estate fund or of a sub-fund of such a fund may be subscribed, if the fund rules so provide, either when the fund is set up or subsequently, by the contribution of assets referred to in Article 4.2d). In the event of such contributions, the real-estate fund must:
a) obtain, unless the assets in question are traded on regulated markets, a valuation report prepared, not more than 30 days before the signing of the contribution instrument, by independent experts referred to in Article 17.10. The value stated in the report must not be less than the value of the units issued for the assets contributed.
b) obtain the opinion of a financial intermediary charged with ascertaining the compatibility and profitability of the assets contributed with respect to the policy pursued by the fund for the solicitation of investors. Such opinion may be expressed by the appraiser referred to in subparagraph a) if it possesses the necessary professional qualifications.
4. The prohibition referred to in Article 12.3 shall not apply to shareholders of the management company of real-estate funds or of companies in the qualifying group it belongs to. Such transactions may be carried out subject to the following safeguards:
a) the value of each good sold, bought or contributed may not exceed 10 per cent of the value of the fund; the total value of the transactions carried out, directly or indirectly, with shareholders of the management company may not exceed 40 per cent of the value of the fund; the total value of transactions carried out, directly or indirectly, with shareholders and persons belonging to
their qualifying group may not exceed 60 per cent of the value of the fund;
b) after the first issue of units, the value of each good sold, bought or contributed and in any case the total value of the transactions carried out, directly or indirectly, with shareholders of the management company may not exceed 10 per cent of the value of the fund on an annual basis;
c) the assets bought or sold by the fund must be the subject of a valuation report prepared by independent experts satisfying the requirements specified in Article 17.10.
d) fund units subscribed by means of contributions must be held by the contributor for an amount equal to 30 per cent of the value of the subscription and for a period equal to at least two years from the date of the contribution. The fund rules shall establish how persons making contributions shall undertake to fulfill this obligation;
e) the financial intermediary referred to in paragraph 3.b) must not belong to the same group as the contributor;
f) the resolution of the governing body of the asset management company must explain the interest of the fund and its subscribers in the transaction and must be adopted after a favourable opinion has been expressed by the control body of the company.
5. The safeguards referred to in paragraphs 4a), 4b) and 4c) shall not apply to funds set up in accordance with Articles 15 and 16.
6. The safeguards referred to in paragraphs 4a) and 4b) shall not apply to funds whose units are equal to or more than € 250,000.
7. Real-estate funds may obtain loans up to 60 per cent of the value of the property, property rights and equity interests in property companies and 20 per cent of other assets. Such loans may also be obtained for the purpose of operations to enhance the value of the assets in which the fund is invested, including changing the use for which a building is authorized and dividing up a
building.
8. Real-estate funds may obtain loans for the early redemption of units within the limits specified in paragraph 7 and in any case for an amount not exceeding 10 per cent of the value of the fund.
Article 13
(Public-contribution real-estate funds)
1. The contribution of buildings to funds referred to in Article 14-bis of Law 86/1994, as amended, shall be reserved to the persons referred to in such article and carried out in the manner specified therein.
2. Without prejudice to the application of the special provisions contained in the above-mentioned Article 14-bis, the funds referred to therein shall be subject to the provisions of this regulation and of the other measures provided for by the Consolidated Law on Finance with reference to closed-end funds that are invested in real estate, except for the limits established in Article
12-bis, paragraph 4, insofar as they are compatible with this regulation and not penalizing with respect to private-contribution funds.(13)
3. Repealed(14)
Article 14
(Manner of participating in closed-end funds)
1. Persons wishing to participate in a closed-end fund may subscribe for units of the fund, or units of a sub-fund of such a fund if it is divided into sub-funds, by paying an amount equal to the value of the units acquired.
2. Funds must derive from one or more issues, in accordance with the procedures established in the fund rules, of units of equal unit value, which must be subscribed for within 18 months of the date of the publication of the prospectus referred to in Article 94.3 of the Consolidated Law on Finance or, if the units are not offered to the public, from the date of the Bank of Italy's
approval of the fund rules. The fund rules shall establish how issues after the first are to be made.(15)
3. At the expiration of such time limit, if fund units have been purchased for an amount not less than the minimum amount specified in the fund rules, the asset management company may downsize the fund in accordance with the fund rules and inform the Bank of Italy accordingly.
4. If a fund is oversubscribed, the asset management company may increase its size in accordance with the fund rules and inform the Bank of Italy accordingly.
5. Payments for units that have been subscribed for must be made within the time limit established in the fund rules. In the case of reserved funds referred to in Article 15, payments must be made in instalments on the basis of an undertaking by the subscriber to pay at the request of the asset management company according to the investment needs of the fund.
6. The units of participants in a fund must be redeemed, in the manner established in the fund rules, at the end of the fund's duration or early. The Bank of Italy may, if the fund rules so provide, agree to an extension of a fund's duration of not more than 3 years for the completion of the sale of its investments.
6-bis. If the fund rules provide for issues after the first, early redemptions shall be made with the same frequency and at the same time as the new issues. At the same date the periodic determination of the value of the fund units shall be carried out.
Chapter III
Reserved funds, guaranteed funds and hedge funds(16)
Article 15
(Reserved funds)
1. Asset management companies may set up open- and closed-end funds reserved to qualified investors and shall specify the categories of investors to which a fund is reserved.
2. The fund rules shall specify the assets to be invested in from among those indicated in Article 4.2 and the manner of participating with reference to the subscription and redemption of units.
3. The fund rules may establish investment limits different from those established on a general basis in the prudential rules for limiting and spreading risk issued by the Bank of Italy.
4. Holders of units of funds reserved to qualified investors may not place them with or sell them on to persons other than those specified in the fund rules, either directly or as part of the provision of the investment service referred to in Article 1.5d) of the Consolidated Law on Finance.
Article 15-bis(17)
(Guaranteed funds)
1. Asset management companies, in conformity with the investment criteria and prudential rules on spreading risk established by the Bank of Italy, may set up funds that guarantee the return of the capital invested or payment of a minimum return by entering into agreements with banks, investment firms that provide dealing for own account, insurance companies or financial intermediaries
entered in the register referred to in Article 107 of the Consolidated Law on Banking that satisfy the requirements specified by the Bank of Italy or by means of other forms of guarantee the latter may specify.
2. Guaranteed funds may be of the open- or closed-end type.
3. The fund rules shall establish how the guarantee referred to in paragraph 1 is to be provided.
Article 16
(Hedge funds)
1. Asset management companies may set up hedge funds which shall invest in assets, including assets different from those specified in Article 4.2, by way of derogation from the prudential rules for limiting and spreading risk issued by the Bank of Italy pursuant to Article 6.1c) of the Consolidated Law on Finance.
2. The number of participants in each hedge fund may not be more than 200.(18)
3.The minimum initial subscription may not be less than € 500,000. In no case may units of hedge funds be split.
4.Units of hedge funds may not be the subject of a public offering.
5.The fund rules must indicate the riskiness of the investment and specify that the fund's investments are made by way of derogation from the prohibitions and prudential rules for limiting and spreading risk established by the Bank of Italy.
6.The fund rules shall specify the assets to be invested in and the manner of participating with reference to the subscription and redemption of units.
7.The Bank of Italy shall indicate the cases in which funds governed by this article may be set up or managed only by asset management companies whose object is exclusively the setting up or management of such funds in view of the potential effects on the stability of the company.
Title IV
Valuation of assets
Article 17
(Independent experts)
1. The independent experts referred to in Article 6.1c), point 5, of the Consolidated Law on Finance may be natural or legal persons chosen by the asset management company.
2. When engaging independent experts, the boards of directors of asset management companies shall verify that the requirements specified in paragraphs 4, 5 and 6 are satisfied. An asset management company may engage experts satisfying such requirements for the valuation of individual assets.
3. Valuations must be shown in a report signed by all the independent experts engaged. If the independent experts are legal persons, the report must be signed by at least one of the directors satisfying the requirements specified in paragraph 4.
4. Independent experts must have been a member without interruption for at least 5 years of a professional order membership of which implies the ability to carry out technical or economic assessments of assets in which a fund is invested. They must also satisfy the integrity requirements for members of the governing bodies of asset management companies referred to in Article 13 of the
Consolidated Law on Finance.
5. If independent experts are legal persons, they may not belong to the same group as the asset management company, as defined in Article 11.1a) of the Consolidated Law on Finance.
6. Independent experts that are legal persons must satisfy the following requirements:
a) the corporate object must expressly include the valuation of the assets in which the fund invests;
b) the organizational structure must be commensurate with the engagement they intend to accept.
7. Independent experts shall abstain from making valuations in cases of conflicts of interest with respect to the assets to be valued and shall promptly inform the asset management company of the fact.
8. Persons may not be engaged as independent experts who:
a) are shareholders, directors or members of the board of auditors of the asset management company conferring the engagement or of other companies or entities that control the asset management company or that are controlled by such companies or entities or the asset management company itself or who were so in the three years preceding the conferment of the engagement;
b) are tied to the asset management company conferring the engagement or to other companies or entities that control the asset management company or that are controlled by such companies or entities or the asset management company itself by an employment or a self-employment relationship or who were so in the three years preceding the conferment of the engagement;
c) are related by affinity or consanguinity within the fourth degree to shareholders, directors, members of the board of auditors or general managers of the asset management company conferring the engagement or of other companies or entities that control the asset management company or that are controlled by such companies or entities or the asset management company itself;
d) are in any case in a situation that could prejudice their independence vis-à-vis the asset management company conferring the engagement.
9. If one of the above-mentioned situations arises in the course of an engagement, the interested party is required to notify the fact immediately to the asset management company, which shall revoke the engagement and replace the expert within 30 days of the notification and inform the Bank of Italy and Consob accordingly.
10. Repealed.(19)
11. Valuation engagements referred to in this article may not be for a duration of more than 3 years and may be renewed only once.(20)
Article 18
(Fees)
1. The total amount of the fees payable for valuations referred to in Article 17 shall be borne by the fund and must be commensurate with the work and professionalism required to carry out the engagement, taking into account the nature, quantity and geographical location of the assets to be valued and whether an active market exists. Depending on the characteristics of the engagement, the
fees may be agreed by way of derogation from the minimum levels established by the professional tariffs of independent experts.
2. Without prejudice to paragraph 1, the fees for the initial valuations of buildings contributed to funds referred to in Article 14-bis of Law 86/1994 may not exceed 0.6 per thousand of the lower of the value estimated by the contributor and the value resulting from the valuation.
___________
footnotes:
1. The decree and the attached regulation were published in Gazzetta Ufficiale no. 164 of 15.7.1999. Decree 180/2000 was published in Gazzetta Ufficiale no. 153 of 3.7.2000 and Decree 47/2003 in Gazzetta Ufficiale no. 70 of 25.3.2003.
2. Subparagraph added with Decree 47/2003.
3. Subparagraph as amended by Decree 47/2003.
4. Subparagraph added by Decree 47/2003.
5. Subparagraph added by Decree 47/2003.
6. Subparagraph added by Decree 47/2003.
7. Subparagraph amended by Decree 47/2003.
8. Paragraph amended by Decree 47/2003.
9. Paragraph amended Decree 47/2003.
10. Paragraph added by Decree 47/2003.
11. Paragraph amended by Decree 47/2003.
12. Article amended by Decree 47/2003.
13. Paragraph amended by Decree 47/2003.
14. Paragraph repealed by Decree 47/2003.
15. Paragraph amended by Decree 47/2003.
16. Title amended by Decree 47/2003.
17. Article added by Decree 47/2003.
18. Paragraph amended by Decree 47/2003.
19. Paragraph deleted by Minister of the Treasury, the Budget and Economic Planning Decree 180/2000.
20. Paragraph amended by Minister of the Treasury, the Budget and Economic Planning Decree 180/2000.
