International Funds

Documentation 147

legislation). Managers of funds operated from jurisdictions subject to the EU Savings

Directive (including non-EU countries such as the Isle of Man, BUI and Cayman) may

also currently be re-assessing their forms, so as to ensure that they elicit sufficient infor-

mation to satisfy the relevant residence tests for the purpose of the Directive. In many

cases this may require some work, since the due diligence which is satisfactory for anti-

money laundering purposes may not be to that used for EU Savings Directive purposes;

alignment of the two will be desirable where it is possible, so as to keep administration to

a minimum and reduce the hurdles to investment.

An example of the contents of an application form (which has not been adapted for

EU Savings Directive purposes) is given in Figure 6.1.

Where a prospective investor applies to subscribe by contacting the manager direct,

by letter, telephone, fax or e-mail, and if for some reason no further subscription form

is needed, a registration form will still need to be sent to him by following post so that

the registrar has details of the account name, the holder’s address, and any designation

details.

6.12 Contract note

Promptly following the sale or repurchase of shares/units in a fund, the manager

should issue the investor with a contract note setting out the details of the transac-

tion. In many jurisdictions the regulator will lay down minimum turnaround times

for this.

Contract notes are nowadays of increasing importance as more and more funds

move to non-certificated status (see Section 6.14 below). In effect, the contract note is

now perceived as the main document acknowledging the investor’s subscription or

redemption; although in practice his position is protected by the trustee and/or regis-

trar, whose records provide the definitive evidence of who holds what.

6.13 Cancellation forms

In certain jurisdictions, including the United Kingdom and many countries operating

similar investor protection regimes, private investors are permitted by law to change

their minds about investments they have made, provided they do so within a short

period of submitting their application. These rights are called ‘cancellation’ rights.

Where such regimes are in operation, managers are normally required to send out

notices advising new investors of these rights, immediately on investment and along

with their contract notes. Investors wishing to take advantage of the facility then com-

plete the form and return it to the manager, within a set period (usually limited to

14 days or so).

The cancellation regime is not intended to protect investors from poor investment

timing and/or falls in the markets; only from being sold products which they then real-

ize, on reflection, are not appropriate to their needs or risk profile. For this reason an

investor exercising his rights will receive back the sum he originally invested (i.e. with

initial charges reimbursed), less any shortfall arising from falls in the NAV of the

shares/units.