The SIF is a regulated, operationally flexible and fiscally efficient multipurpose investment fund regime for an institutional and qualified investor base.

1. <br />Dr. Pierre Alexandre DELAGARDELLE<br />Partner / Ph.D. / Avocat à la Cour<br />Luxembourg, <br />a domicile of choice for “SIFs” <br /> <br /> <br /> <br />The law on specialised investments funds (“SIFs”) was enacted by the Luxembourg Parliament and entered into force on 13 February 2007 (the “SIF Law”). <br />The SIF is a regulated, operationally flexible and fiscally efficient multipurpose investment fund regime for an institutional and qualified investor base. Compared to institutional funds, created under part II of the law of 20 December 2002 on undertakings for collective investment (“Part II Funds”), the SIF is characterized by greater flexibility with regard to the investment policy, the risk diversification rules, broadening of the sphere of investors, and a more relaxed regulatory regime.<br />Replacing the 1991 Funds<br />The reform to meet specific institutional investor’s needs began with a law dated 19 July 1991 (the “1991 Law”). The 1991 Law was however a law “by reference” in that it mainly referred to the law dated 30 March 1988 on undertakings for collective investment (the “UCIs”. As the latter came to an end on 13 February 2007 (end of the transitional period of UCITS III), there was an opportunity for new legislation. The SIF Law hence succeeded and replaced the 1991 Law.<br />The main changes as compared to the 1991 Law concern:<br />the scope of eligible investors;<br />the risk diversification requirements;<br />the promoter (no longer required); <br />the publication of a net asset value (“NAV”) (no longer required);<br />the semi-annual report or long form report (no longer required).<br />Existing 1991 funds became ipso facto a SIF on 13 February 2007.<br />Prospectus Directive <br />Only applicable if the SIF is closed ended;<br /> <br />Open-ended SIFs may make a public offer in Luxembourg on the basis of their issue document compliant with the SIF Law. <br />Supervision by the CSSF<br />Licensed & limited supervision. <br />A SIF may start its activities without CSSF prior approval provided that an application is filed with the CSSF within one month of its creation. <br />In practice, it is advisable to seek the CSSF’s prior approval if the SIF displays unusual features. The CSSF will approve:<br />the articles of incorporation or management regulations, prospectus and agreements with main service providers;<br />the directors / managers (must be experienced and reputable);<br />the choice of depositary and auditor.<br />Any replacement of the custodian, management or amendment to the incorporation document is subject to CSSF approval. <br />Promoter<br />In contrast to regular investment funds, a SIF’s promoter is not supervised by the CSSF, nor does the SIF Law require CSSF authorisation of the promoter.<br />Eligible investors<br />Institutional investors;<br />Professional investors;<br />Well-informed investors.<br />Entity type<br />SICAV/F (SA, SCA, S. à r.l., SCoSA);<br />FCP;<br />Other (e.g., fiduciary structure).<br />Eligible assets / Strategies<br />The purpose of SIFs is to invest their funds in “values”. The use of the term “value” seems to indicate that almost any type of investment is accepted. The SIF may hence invest in a broad range of assets, including derivatives, real estate, hedge funds and private equity. <br />Risk diversification requirements<br />No investment or borrowing restrictions are defined in the SIF Law, with the exception of the principle of risk-spreading: <br />A SIF may not invest more than 30% of its assets or commitments to subscribe in securities of the same nature issued by the same issuer. <br />Short sales may not result in the SIF holding an open position on securities of the same nature issued by the same issuer representing more than 30% of its assets. <br />When using derivative financial instruments, a SIF must ensure risk-spreading comparable to the above via an appropriate diversification of such derivatives’ underlying assets. <br />Segregated sub-funds<br />The SIF Law provides for compartments or sub-funds in a SIF. Each compartment can have its own specific investment policy and, as applicable, with securities of a different par value or no nominal value. <br /> <br />The constitutional documents of the SIF must expressly provide for the creation of compartments or sub-funds. A multiple compartment SIF, by itself, is an individual legal entity. However, in contrast to the Luxembourg Civil Code, the assets and liabilities of each compartment are segregated and are only subject to the liabilities of that specific compartment, unless otherwise provided for in the constitutional documents.$<br />Substance in Luxembourg / nationality or residency requirements<br />The head office of SIF-SICAV/F (or of management company of SIF-FCP) must be in Luxembourg;<br />No nationality / residency requirements for directors / managers.<br />Required service providers in Luxembourg<br />Depositary (credit institution);<br />Administrative agent;<br />Independent auditors.<br />Capital<br />Fixed or variable capital<br />Minimum capital / net assets requirements<br />For FCPs<br /> <br />Net assets must reach EUR 1.25 Mio within 12 months from authorisation.<br /> <br />For SICAV/Fs<br />Upon incorporation:<br />SA/SCA: EUR 31,000 ;<br /> <br />S.à r.l.: EUR 12,500.<br />Subscribed share capital and share premium must reach EUR 1,25 Mio within 12 months of authorisation.<br />Structuring of capital calls and issue of shares / units<br />Capital calls may be organized either by way of capital commitments or through the issue of partly paid shares (to be paid up to 5% at least) or units.<br /> <br />The issue of shares of a SICAV does not require an amendment of the articles of incorporation before a public notary.<br /> <br />The issue price may be freely determined in accordance with the principles laid down in the articles of incorporation / management regulations.<br />For SICAVs, existing shareholders have no pre-emptive right of subscription, unless otherwise provided for in the articles of incorporation.<br />Distribution of Dividends<br />For SIF-FCPs and SIF-SICAVs<br /> <br />There are no statutory restrictions on payments of (interim) dividends (except for compliance with minimum net assets / capital requirement).<br />For SICAFs<br />Distributions may not reduce the SICAF’s assets, as reported in the last annual reports, to an amount less than one-and-a-half times the total amount of the SICAF’s liabilities to its creditors.<br />Interim dividends are subject to statutory conditions.<br />Calculation of NAV<br />The NAV must be determined in accordance with the rules laid down in the articles of incorporation or management regulations of the SIF. <br /> <br />Assets are to be valued at fair value.<br />Financial reports / Consolidation<br />Audited annual report (within 6 months from end of relevant period);<br />Explicit exemption from consolidation requirements.<br />Tax regime<br />SIF level<br /> <br />Any SIF is exempt from corporate income tax, municipal business tax and net wealth tax.<br /> <br />In addition to a specific registration tax of EUR 75, the only tax payable by a SIF is the annual subscription tax which amounts to 0,01%, levied on the net asset value of the SIF as per the last day of each quarter. <br /> <br />Exemptions from the annual subscription tax are available.<br /> <br />Investor level<br /> <br />No withholding tax is levied on income distributed by the SIF to investors unless the “European Savings Directive” is applicable.<br /> <br />A VAT exemption is applicable to management services rendered to a SIF.<br /> <br />For corporate SIF’s, the benefits of some of the double tax treaties concluded by Luxembourg may be available.<br />INFORMATION SOURCES<br />www.cssf.lu;<br />The Commission de Surveillance du Secteur Financier (Luxembourg Financial Supervisory Commission).<br /> <br />www.alfi.lu <br />The Association of Luxembourg Fund Industry.<br />