Volume 4, Number 26, Page 2

Investment Funds

by Jonas Bergstein

The following is a brief explanation of the most important aspects of investment funds (“FI”) as regulated by the Law of Investment Funds, FI No. 16.774 of September 27, 1996, and Circular No. 1.549 of June 3, 1997, of the Central Bank of Uruguay (“BCU”).

FI Formation

The FI is formed by individuals or companies wishing to make a group investment in assets. The contributors are co-owners of the goods that comprise the FI.

The FI is not a society. It should be handled by an administrative entity (la administradora), which acts for the contributors or shareholders (cuota partistas). The FI is not responsible for the contributors’ debts or for the administrative debts.

Participation in an FI can take the form of titles or stocks, which can be nominative or made out to the bearer. Issuance of a title should include its value, denomination and administration address.

Administration

The administration should take the form of a corporation with nominative stocks (escriturales). Banks and other financial intermediaries may establish or integrate an administration.

The BCU must authorize the administration before it can begin operation.

The assets of the FI are independent from the administration. The administration should make available accurate, verifiable information concerning the administration, including the essential information that a diligent investor would consider relevant.

The administrators, the board of directors and managers of the FI may not acquire stocks, bonds or other assets of the FI that they oversee.

Constitution of the Fund

The regulations that apply to the relationship between the administration and the contributors address the following issues:

• whether the FI will have a limit on investment amounts;
• the nominal value and number of shares (cuotapartes);
• the investment policy;
• issuance and refund procedures, as well as protection of the investments; and
• the payment of commissions, administrative expenses, custody of the goods and other matters.

The administration should produce a prospectus for selling shares. The prospectus should state whether the FI will be listed in the stock market exchange.

The BCU should also be provided information with regard to the entity that will have the goods in custody and hold the certificates of the FI.

Investments

The FI can invest in the following:

• the registered values in the Stock Registry of BCU;
• national or foreign public stocks;
• fixed rate deposits in companies of financial intermediaries;
• certain foreign stocks; and
• other stocks and investments authorized by the BCU.

The BCU has the power to dictate norms concerning the following: the maximum percentage of FI that can be invested in the same stock; the minimum percentage of the FI that has to be invested in fixed rate investments; and the maximum deposits in foreign financial intermediaries.

Other Issues

The BCU is assigned regulation and comptrollership jurisdiction over FIs.

Standard confidentiality rules that apply to banks also apply to FIs.

Jonas Bergstein is a lawyer with Estudio Bergstein in Montevideo, Uruguay.