12.) Fund Documentation Flashcards
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
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
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
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
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
Define the additional information included in a Trust Deed for a trust
Remuneration of the trustee
Duties of the trustee
Changing trustee
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
Define how the documents relating to a fund may be divided
Documents for the operation of the fund
AND
Documents for Investors
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.
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.
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
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
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
Define the key documents for an investor in a fund
Prospectus
Key Features Document
Financial Reports and Accounts
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
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
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
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
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 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
