Originally published on 24 July 1999

The law defines an investment enterprise as consisting of assets which have been acquired by public subscription and which assets are to be invested and investments spread according to the basic principle of portfolio diversification and which assets are managed by third parties. This form of investment has long been known in the Anglo-American investment banking culture as mutual funds or investment trusts or unit trusts.

The basic idea is collective portfolio management. It gives the small investor the opportunity to have good earnings from let us say dividends or equity investments which generally pay better than debt investments (bank interest) and which investment is adequately protected through spreading the risk of loss by investing in various equities. Generally speaking the legal form of the investment enterprise can be in the form of a trust or fund in which investors buy units (unit trust or investment trust) or may also be in the form of a joint-stock company which may have a variable or fixed capital.

The law differentiates between three types of investment enterprises, namely investment enterprises for securities, investment enterprises for other types of assets and investment enterprises for the purpose of acquiring real property.

UMBRELLA FUND

The law also permits the formation of umbrella funds being funds with various segments in which an investor can invest in a segment of his or her own choice.

If the investment enterprise takes the form of the trust, the relationship between the trustees representing the trust fund and the individual investor who buys a unit is a relationship based upon contract. If, on the other hand, the investment enterprise takes the form of a joint-stock company the relationship between the investor and the investment enterprise is governed by company law provisions concerning the relationship between a shareholder and a joint-stock company.

The Liechtenstein law incorporates the European directives concerning investment enterprises and is based upon similar legislation which has been enacted in Luxembourg and Switzerland. These directives guarantee absolute transparency in particular with respect to investment risks for the investor and also allow investment enterprises which have been established in Liechtenstein to compete in all European markets.

The sole objects of the investment enterprise are to raise money by public subscription and to invest the same in a highly diversified portfolio with a view to making a profit.

The basic organisational requirements are the existence of a qualified management and a deposit bank which must be absolutely independent of each other. The deposit bank acts as fiduciary or escrow agent and holds the securities and other assets on deposit for the investment enterprise.

Management must be adequately qualified to carry on the duties of the administration of an investment enterprise and in this regard it must be duly licensed by the Principality of Liechtenstein. Management may delegate to other experts both in Liechtenstein and abroad some or all of its duties; however such a delegation does not exonerate it from its liability to the investors and to third parties. Management must be in the form of a joint-stock company or an establishment and have a juridical existence which is absolutely independent of the investment enterprise. It must have a stated capital of at least CHF. 1.000.000,-- which must be fully paid in.

THE DUTIES OF MANAGEMENT

Management has a duty of care to the investor to manage the fund in his or her best interest. Management must ensure that annual and semi-annual reports are presented to investors and that auditing and notification as well as prospectus requirements are met. Furthermore management must meet certain portfolio diversification requirements. Management must calculate the unit price for the purpose of the sale or resale of shares or units in an investment enterprise.

CONSUMER PROTECTION

The basic consumer protection requirements are found in the licensing requirements, requirements regarding the function of the business operations, requirements concerning portfolio diversifications and prospectus requirements as well as the requirements concerning the auditing and the preparation of annual and semi-annual reports. Furthermore, certain notification requirements exist with a view to protecting the consumer.

AUDITING

Management must present an audited business report and financial statements within four months after the close each business year.

PROSPECTUS REQUIREMENTS

The prospectus must be continually updated and investment guidelines must be available for the investor.

TAXATION

The investment fund itself is subject to a tax on capital comprising 0,1 % of the networth of the fund from time to time. There are no further taxes in the Principality of Liechtenstein.

Management or the management company is taxed as any normal company which carries on commercial activities in the Principality of Liechtenstein. Management must be in the form of a joint-stock company or an establishment. It must have a stated capital of at least CHF. 1.000.000,-- which must be fully paid in.

Please contact Arcomm Trust Company directly for an update on the subject matter.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.