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Sweden

In February 2004 the Swedish parliament is expected to approve a new Swedish Investment Funds Act (lag om investeringsfonder). The Act will implement the amendments adopted in 2002 (European Community directives 2001/107/EC and 2001/108/EC) to the EC directive regarding undertakings for collective investment in transferable securities (Ucits). The Act contains provisions on harmonized funds and so-called mutual funds (värdepappersfonder), as well as funds that are not harmonized with the Ucits Directive, such as hedge funds (which are called special funds (specialfonder) under the Act). Mutual funds and special funds are collectively called investment funds under the Act.

Among other things, the Act requires that a management company meet new requirements regarding its management and its capital. Fund management companies are required to maintain a certain level of capital when conducting their business. The Act also confers new management abilities on management companies, for example, they may be authorized to manage portfolios of financial instruments on a discretionary client-by-client basis, as well as managing investment funds.

The new rules will increase the right to invest the assets of a mutual fund in other mutual funds and to trade in derivatives. A mutual fund may still not invest in real estate or commodities but special funds may in certain circumstances trade in derivatives where the underlying asset is a commodity. As a result of new rules on diversifying investments, it will also be possible to set up index funds as harmonized mutual funds with the aim of replicating the composition of a certain recognized stock or debt securities index.

Implementing the directives has led to new requirements and standards regarding information to be provided to investors. For each investment fund, fund management companies must prepare a fund prospectus and an information sheet (a simplified fund prospectus). If the fund has a higher risk profile or a certain investment policy, that information must also appear on all marketing material relating to the fund.

The new act on investment funds is still subject to parliamentary approval but, if approved, will enter into force on April 1 2004. Management companies that conduct fund operations under the Swedish Mutual Funds Act of 1990 may continue to do so under the existing act until February 13 2007. A management company that has not obtained a licence under the new act by then must cease to conduct its fund operations, and funds whose rules have not been approved under the new act by then will be dissolved.

The Act will broaden investment funds' ability to invest in different instruments but will also result in additional costs for the management companies as a result of the new provisions regarding information to investors. The Act will also result in Swedish management companies being required to apply for new licences to conduct fund operations and also to apply for approval of their fund rules to conform with the Act after February 13 2007.

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