12.) Fund Documentation Flashcards by Tom Dorey

Define the acronym COBO

The Control of Borrowing (Jersey) Order 1958

The circulation in Jersey of offers for subscription, sale or exchange of securities (including units in a unit trust) originating outside the Island is governed by the Control of Borrowing (Jersey) Order 1958 as amended (the “COBO”).

The COBO restricts the circulation of such prospectuses in Jersey without the consent of the Commission but the COBO does provide wide exceptions. If the criteria for the exceptions are met then there is no need to obtain any permission for the circulation of such prospectuses. If they are not, the prior consent of the Commission must be obtained

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Define the documents that an investor in a fund can expect to receive

Prospectus

Key features document and application form

Application form

Reports and accounts

Fund updates/market information

Fund literature - management services

Other funds and products

Contract note

Statement of account

Share certificate

Dividend vouchers

Investors are also entitled to see the trust deed/memorandum of articles of association

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Define the Trust Deed/Memorandum and Articles of Association, one of the key documents for the operation of a fund

This document will contain all the information necessary for the operation of the fund.

A Trust Deed sets up a Unit Trust, whereas a Company must have a Memorandum and Articles of Association in order to be set up

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Define the (essential) information that MUST be included in a Trust Deed/Memorandum and Articles of Association

Name of the Scheme

Authorised status - category of fund, e.g. securities fund, money market fund, property fund, etc

Base currency of the fund

Governing law - applicable jurisdiction

For company - details of share capital

For trust - statement that deed is binding on each holder as if he had been party to it

Declaration of trust

Holder’s liability to pay - holders have limited liability

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Define the (additional) information that IS OFTEN included in a Trust Deed/Memorandum and Articles of Association

Duration of the scheme, if the fund has a limited lifespan and its ultimate winding up

Charges - details of maximum initial charge and exit charge

Investment policy and restrictions

Determination of NAV

Rules for issue/redemption of shares

Riesling for suspension of redemptions/share dealings

Dividend policy and procedures

Accounting date and production of annual costs

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Define the additional information included in a Trust Deed for a trust

Remuneration of the trustee

Duties of the trustee

Changing trustee

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Define the additional information included in a Memorandum and Articles of Association for a company

Details of directors - duties and powers

Shareholders meetings

Details of share premium and reserves

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Define how the documents relating to a fund may be divided

Documents for the operation of the fund

AND

Documents for Investors

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Define Agreements, one of the key documents for the operation of a fund

The agreements will set out the duties of the service provider, e.g. manager, custodian, investment adviser, etc.

The agreement will be between the fund and the service provider.

If the service provider is outsourcing their functions, there will be a separate agreement between the relevant parties, however this doesn’t remove the responsibility of the service provider to provide the service to the fund.

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Define the documents required for the operation of a fund

Trust deed

Memorandum and Articles of Association (Company)

Agreements, I.e. fund manager, custodian, registrar

Permit

COBO consent (the Control of Borrowing (Jersey) Order 1958) - restricts the circulation (subscribe, exchange, sell), etc of securities originating from outside Jersey, so consent must be obtained from the JFSC in order to do so.

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Define the information that will be included in the agreements of a fund, one of the key documents for the operation of a fund

The agreements will contain the following information:

) Full description of the duties and responsibilities of the service provider
) Details for the resignation of the service provider
) Details of how the fund may replace the service provider
) Details of the ability of the service provider to use other organisations to meet the requirements of the agreement, e.g. outsource of certain functions, use of sub-custodians, etc
) Details of fees and any other expenses to which they may be entitled

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Define and describe Functionary Permits, one of the key documents for the operation of a fund

A functionary can only act for the fund once the Commission (JFSC) has granted them a permit to do so. If the functionary is Jersey Company or Jersey Limited Partnership, a permit is required regardless of where the function is carried on.

The functionary pays an annual permit fee to the JFSC

The permit contains details of what functions may be performed for a specific fund and any restrictions that apply

The functionary must adhere to the requirements set out on the permit

The functionary must have a permit for each fund for which they provide services

Breach of permit conditions may be seen as a breach of legislation and is treated seriously by the JFSC

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Define and describe COBO Consent, one of the key documents for the operation of a fund

The issue of shares or units in a collective investment fund and the circulation of the prospectus is requires COBO (Control Of Borrowing Order) consent

The COBO consent will set out the maximum number of shares/units and class of shares that can be issued. It is possible to apply to the JFSC to increase the number of shares/units that can be issued

A fund cannot issue more shares than are detailed on the COBO consent

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Define the key documents for an investor in a fund

Prospectus

Key Features Document

Financial Reports and Accounts

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Define and describe the prospectus, one of the key documents for an investor in a (Jersey) fund

Every fund issues a prospectus.

It contains the same information that is in the trust deed (trust)/memorandum of association (company)

It’s a legal document and is binding on the Fund Management Company.

Shares are offered for sale on the basis of the information available in the prospectus

The prospectus provides prospective (hence the name-memory aid for revision) investors with information, enabling them to make an informed judgement about the merits of investing in the fund and the likely risks attached to such an investment. It must be available to all potential investors

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Define and describe the regulations that Recognised and Unclassified Funds (the 2 types of classification of public retail fund in Jersey) that are established in Jersey must comply with

The prospectus of a Recognised Fund must comply with the requirements of Collective Investment Funds (Recognised Funds) (Rules) (Jersey) Order 2003. This details the information that must be included in the prospectus.

The prospectus of an unclassified fund established in Jersey, with a corporate or unit trust structure, must comply with the Collective Invetsment Funds (Unclassified Funds) (Prospectuses) (Jersey) Order 1995

Define and describe the key information that a prospectus, one of the key documents for an investor in a (Jersey) fund, would contain

Details of minimum investment levels

Details of the fund, e.g. country of registration, fund type, etc

Investment objective and investment policy

Investment and borrowing restrictions

Dividend policy

Procedures for buying/selling shares - where to apply, dealing times and days, pricing basis and settlement instructions

Shareholders information and meetings

Details of report and accounts and other documents sent to shareholders

Details of charges and fees paid by the fund

Details of how the NAV is calculated

General information regarding taxation of the fund and investors

Details of key parties - directors, managers, custodian/trustee, auditors and other advisors

Details regarding where the fund is authorised

Define and describe the Key Features Document, one of the key documents for an investor in a (Jersey) fund

This contains a summary of the key features of a fund.

It’s often used as a marketing tool to make potential investors aware of the range of funds available.

Investors must be offered the prospectus as well as the key features document if making an investment.

An application form is also usually included in this pack of information

Define and describe Financial Reports and Accounts, one of the key documents for an investor in a (Jersey) fund

All funds are required by law to produce accounts, which have to be made available to shareholders.

Annual accounts must be audited, and are presented for shareholder approval at the AGM (company)

The prospectus will state when the report and accounts will be sent to shareholders - those of Recognised Funds must be sent to shareholders within 2 months of the accounting date, whilst the accounts of Unclassified Funds must be sent out within 10 months of the year-end

Whilst the fund accounts will usually comply with international accounting standards, Recognised Funds must prepare their accounts in accordance with the CIF Recognised Fund Rules

Where the funds are registered in other countries, it may be necessary to produce the accounts in other languages, as well as including any additional disclosures required to comply with the legislation in that country. Often, one multi-language document is produced rather than printing the accounts in other languages

The Manager of the fund, who may outsource this to the administrator or another third party, will usually prepare the accounts

Define which functionary of a fund will prepare the (Financial Reports and) Accounts, one of the key documents for an investor in a (Jersey) fund

The Manager of the fund, who may outsource this to the administrator or another third party, will usually prepare the accounts

Define the time-frame within which the financial report and accounts, one of the key documents for an investor in a (Jersey) fund, of Recognised and Unclassified Funds must be sent out to shareholders by

Whilst the fund accounts will usually comply with international accounting standards, Recognised Funds must prepare their accounts in accordance with the CIF Recognised Fund Rules

Define the documents that make up the contents of all sets of annual financial statements for open-ended funds

Balance sheet, also called statement of net assets, details all assets, liabilities, capitals and reserves

Revenue account - details all income, expenses and dividend payments

Movement in net assets - details all the movements in cash and investments, reconciles previous NAV to current NAV

Statement of total recognised gains and losses - details all income and capital gains for the year

Notes to the accounts - details the accounting policies of the fund, movements in share capital and provides explanation of figures in the financial statements

Investment portfolio - details investments held at accounting date, together with nominal held, market value and % NAV for each investment

Investment managers report on the performance and activities of the fund

Director’s report

Details of key parties to the fund

Details of dividend payments for the period

Auditors report

Notice of AGM (company)

Note that many specialist funds such as hedge funds, SPVs, Venture Capital funds, etc will have their own reporting requirements and as international accounting standards change, so will the contents of their accounts

Define the additional requirements that make up the contents of sets of annual financial statements for Recognised Funds

Movements in portfolio during the period

Performance figures - highest and lowest NAV for previous 10 years, NAV and NAV per share for past 3 years

Report of the custodian

Define and describe the users of financial statements/accounts of a fund

There are a number of users of the accounts apart from the actual shareholders.

The accounts must be sent to the Regulators of the fund at the same time as they are sent to the shareholders.

If the fund is a company, a copy should also be sent to the Company Registry.

Depending on where the fund is registered, and if it has a stock exchange listing, there may be other statutory bodies that need to receive the accounts.

Included in the people who use the accounts/financial statements are:

) Regulators of the fund - they will review the accounts to ensure that the fund is meeting its regulatory obligations and that there are no issues regarding the liquidity of the fund
) Existing investors/shareholders - the accounts must be made available to them
) New investors - they will receive the latest report and accounts with the prospectus prior to investing
) Pension planners/financial advisors for investors who hold shares in the fund
) Independent financial advisors - they may be recommending the fund to investors

Define the main components of the financial statements/accounts of a fund

Balance sheet Income and Expenditure (Revenue Account) Investment Portfolio Directors Report Notes to the Accounts

Define and describe the balance sheet, one of the main components of the financial statements/accounts of a fund

This will show the assets and liabilities of the fund at the financial year-end It contains the same core information as the unit cost sheet of the fund and it should be possible to reconcile this to the valuation of the same date It shows how the NAV of the fund has grown/reduced over the period

Define and describe the Income and Expenditure (Revenue Account), one of the main components of the financial statements/accounts of a fund

This will detail the income and expenses of the fund for the period Both the income and the expenses will be broken down into the relevant category and the total charge shown separately, e.g. Management Fee, Audit Fee, Legal costs, etc The distribution payments made by the fund are also included in this statement

Define and describe the Investment Portfolio, one of the main components of the financial statements/accounts of a fund

This will show details of all the investments held by the fund at the year-end The investments are sometimes split into geographical or industrial classifications depending on he type of fund For each investment, the market value and the % of the NAV of the fund is also shown

Define and describe the Directors Report, one of the main components of the financial statements/accounts of a fund

The directors will include a report detailing any significant issues in respect of the fund and activities undertaken during the year The report will also contain a statement detailing the responsibilities of the directors, including the preparation of the accounts If the fund is paying a dividend, details of this will be included in the report

Define and describe the Notes to the Accounts, one of the main components of the financial statements/accounts of a fund

These are found at the back of the accounts, and provide an explanation of the key figures in the financial statements, as well as other information relating to the financial statements The notes will show the movement in reserves and share capital, and will reconcile the figures between the previous and current balance sheet The notes will usually contain information on the main investment transactions carried out by the fund during the year The notes will detail the accounting policies of the fund and the way in which the fund manages its exposure to risk

Define and describe the role of investment reports and updates, one of the documents sent out to an investor in a fund

These are usually prepared by the investment manager and contain an update of what's happening in the market. They may take the form of a newsletter or investment update, and may also contain details of any special offers or new products. These investment reports and updates may be prepared on a regular basis, e.g. quarterly, and may also contain performance figures for some of the funds. They usually contain details on a range of funds managed by the fund manager They will be sent to existing investors and may also be made available on the manager's website

Define and describe how Jersey funds are marketed, in terms of Recognised and Unclassified Funds

Recognised Funds - these funds can be marketed directly to the general public in the UK,as Jersey has designated territory status. A number of other jurisdictions also allow Recognised Funds to be freely marketed, however they'll usually need to be registered with the relevant authority first Whilst the legislation for Recognised Funds is equivalent to the legislation for UCITS funds, because Jersey isn't part of the EU, the funds cannot be freely marketed in the same way as UCITS funds. Unclassified Funds - these may be marketed in the UK, but only via authorised intermediaries. The manager will need to register the fund in any jurisdictions in which they wish to market the fund

Define the acronym UCITS

Undertaking for Collective Investment in Transferable Securities A public limited company that coordinates the distribution and management of unit trusts amongst countries within the European Union. These funds can be marketed within all countries that are a part of the European Union, provided that the fund and fund managers are registered within the domestic country. The regulation recognizes that each country within the European Union may differ on their specific disclosure requirements.

Define Jersey's political status with regard to the UK and the EU

Jersey is a British crown dependency and under the UK's accession treaty with the EU, Jersey forms part of the single market, but is outside of the EU fiscal area

Define the marketing methods that managers use to market their funds

Mail shot documents Other marketing methods, e.g. Internet, television and radio, newspapers and magazines

Define mail shot documents, one of the marketing methods that managers use to market their funds

Fund managers often use mail shots as a way of advertising their funds and services to existing and potential clients. They will contain details of any special offers or promotions, as well as details of any new products that are being launched. They can either be sent out on their own or sometimes they will be sent out with statements or distribution vouchers that are being sent to existing shareholders There are a number of documents used by managers to market their funds. The information contained in the marketing literature must be clear and not misleading. Any special features in respect of the product must be clearly marked. Usually, the compliance department approves the literature before it's sent out. The literature must contain a statement saying that the JFSC regulates them

Define marketing methods other than mail shot documents that managers use to market their funds

As well as direct marketing to individuals, the managers will also use other methods to advertise their funds. Whatever medium is used, the wording must be clear and not misleading. Also, the manager will need to ensure that they are able to market the fund in the particular jurisdiction and that they meet any regulatory requirements. For example, these methods will include Internet, television and radio, newspapers and magazines There are a number of documents used by managers to market their funds. The information contained in the marketing literature must be clear and not misleading. Any special features in respect of the product must be clearly marked. Usually, the compliance department approves the literature before it's sent out. The literature must contain a statement saying that the JFSC regulates them