Norm on Minimum Requirements for Investment Fund Prospectuses

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Resolution No. CD-SIBOIF-847-3-AGOST8-2014
Dated August 8, 2014

NORM ON MINIMUM REQUIREMENTS FOR INVESTMENT FUND PROSPECTUSES

The Board of Directors of the Superintendence of Banks and Other Financial Institutions.

CONSIDERING

I
That Article 12 of Law No. 587, Capital Markets Law, published in La Gaceta, Official Diary No. 222, of November 15, 2006, establishes, in its relevant parts, that the prospectus must contain all necessary information for investors to form a well-founded judgment on the operation proposed to them, especially regarding the offeror, the offer, and the risks of the operation.

II
That Article 13 of the aforementioned Law provides that both the aspects indicated by Article 12 mentioned above, as well as the remaining aspects of the prospectus, shall be determined by general norm, and that through this same path, the different categories of prospectuses to be required shall be regulated, which may differ based on the nature of the issuing entities, characteristics of the securities subject to the offer, amount of the operations, or any other factor that so requires.

III
That according to Article 6, letter b) and Article 208, of the aforementioned Law 587, Capital Markets Law, it is the faculty of the Board of Directors of the Superintendence of Banks and Other Financial Institutions to issue general norms aimed at regulating the functioning of the securities market.

IV
That the proposal for the Norm on Minimum Requirements for Investment Fund Prospectuses is linked to the Norm on Administrator Companies and Investment Funds, and to the Norm Reforming Article 39 of the Norm on Public Offer of Securities in the Primary Market; in a didactic manner, the reforming Norm is incorporated into this present act.

In exercise of its powers,

HAS ISSUED

The following,

Resolution No. CD-SIBOIF-847-3-AGOST8-2014
NORM ON MINIMUM REQUIREMENTS FOR INVESTMENT FUND PROSPECTUSES

CHAPTER I
CONCEPTS, OBJECT, AND SCOPE

Article 1. Concepts.- For the purposes of applying the provisions contained in this norm, the terms indicated in this article, both in uppercase and lowercase, singular or plural, shall have the following meanings:

a. Group of Economic Interest: Natural or legal persons who are related parties of the natural or legal persons referred to in the Scope of this norm, including those with which they maintain significant linkages, by direct or indirect means, in accordance with the provisions of Art. 55 of Law 561, General Law of Banks, Non-Banking Financial Institutions and Financial Groups.

b. Capital Markets Law: Law No. 587, Capital Markets Law.

c. Administrator Company: Administrator company of investment funds.

d. Superintendence: Superintendence of Banks and Other Financial Institutions.

e. Superintendent: Superintendent of Banks and Other Financial Institutions.

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Article 2. Object.- This norm aims to establish the minimum requirements that administrator companies must include in their prospectuses and summaries of the investment funds they administer, as referred to in the regulations governing the matter on administrator companies and investment funds.

Likewise, this norm aims to establish the minimum requirements that must contain the annexes to the prospectus of real estate development funds, as referred to in the regulation mentioned in the previous paragraph.

Article 3. Minimum Precepts.- The precepts established in this norm are of a minimum nature. The administrator company has the responsibility to incorporate all additional information in the prospectus, summary, and annexes that allows the investor to have the criteria to decide if the fund adapts to their investment objectives and needs.

In the case of investment funds subject to the restricted public offer regime, the complete prospectus and its summary may be integrated into a single document, in accordance with the guidelines indicated in this norm.

Article 4. Scope.- The provisions of this norm are applicable to administrator companies of investment funds, under the terms provided herein.

CHAPTER II
GUIDE FOR THE PREPARATION OF PROSPECTUSES, SUMMARIES, ANNEXES, AND REPORTS

Article 5. Guide for the preparation of prospectuses and prospectus summaries.- For the registration of an investment fund, the prospectus and its summary must be presented. The prospectus summary contains the fundamental characteristics, risks of the investment fund, and the profile of the investor to whom the product is directed.

The guidelines for the minimum content of the prospectus and its summary are established in Annex 1, which is an integral part of this norm; however, the following additional minimum provisions must be complied with:

1. Prospectus:

a. Comply with the minimum content established in Section I of Annex 1. b. Use a font size no smaller than Arial 10 or its equivalent.
c. Number all pages in the following format: “Page 1 of XX” (total pages). If the prospectus includes annexes with independent numbering, the table of contents or index must indicate the initial and final page number of each annex, without the need for this numbering to be consecutive with that of the prospectus, which allows providing the investor with an idea of the content and extent of each annex.
d. Include a table of contents or index.

2. Prospectus Summary:

a. Comply with the minimum content established in Section II of Annex 1 Guide for the Preparation of Investment Fund Prospectuses. b. Consider a maximum length of three pages. This length may be extended up to five pages for guaranteed investment funds, real estate funds, and funds intended for sophisticated and institutional investors.
c. Use a font size no smaller than Arial 10 or its equivalent.
d. Number all pages in the following format: “Page 1 of XX” (total pages).

Article 6. Name of Investment Funds.- In defining the name of investment funds, the following aspects must be considered:

a. Incorporate the term “Investment Fund”. b. In applicable cases, expressions for funds for sophisticated and institutional investors and non-diversified fund must be included, as established in the regulation governing the matter on administrator companies and investment funds.

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c. The name of the fund may be expressed in another language, provided that the meaning of the words comprising it is explained in the prospectus and its summary, and that the translation does not disrespect what is indicated in this article.
d. Only funds subject to the prudential regulation established for these types of funds may include the expression “Real Estate”.

Article 7. Prospectus Annexes.- For the incorporation into real estate development funds of a development project, prior presentation to the Superintendent is required of an annex that complies with the minimum content established in Section I of Annex 2 of this norm. The asset may be incorporated into the fund only once the Superintendent’s approval is obtained.

Article 8. Communication of Real Estate Acquisitions.- The acquisitions of real estate by real estate funds must be communicated as a Relevant Event, with the content defined in Annex 3 of this norm.

Article 9. Progress and Closing Reports.- For each real estate development project, a progress report and a closing report must be prepared, as provided in the regulation governing the matter on administrator companies and investment funds, whose minimum content is established in Section II of Annex 2.

CHAPTER III
FINAL PROVISIONS

Article 10. Annexes.- The Superintendent is authorized to make modifications to the annexes attached to this norm when the case so requires.

Article 11. Repeal.- The Norm on Requirements for Investment Fund Prospectuses, contained in Resolution No. CD-SIBOIF-502-1-OCT3-2007, dated October 3, 2007, published in La Gaceta, Official Diary No. 216, of November 9, 2007, is hereby repealed.

Article 12. Effectiveness.- This Norm shall enter into effect upon its notification, without prejudice to its subsequent publication in La Gaceta, Official Diary.

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ANNEX 1
GUIDE FOR THE PREPARATION OF INVESTMENT FUND PROSPECTUSES

SECTION I. CONTENT OF THE PROSPECTUS

1. HEADER
   On the first page of the prospectus, the following must be included:

1.1. Title: “PROSPECTUS”
1.2. Full name of the investment fund, and its object according to the classification contained in the regulation on rating agencies and investment funds.
1.3. In the case of non-diversified funds, the following expression must be included in a font size larger than that used in the rest of the document, in bold, in red color, and enclosed in a box:
NON-DIVERSIFIED FUND
1.4. Name of the administrator company.
1.5. Date and number of the resolution authorizing the public offer.
1.6. Date of preparation of the prospectus and legend: “Check if there are subsequent modifications through annex or relevant event.”

2. IMPORTANT NOTES FOR INVESTORS
   On the first page of the prospectus, the following must be included:

2.1. Legend: “Dear Investor: This document is a complete prospectus containing detailed information about the investment fund (name of the fund) regarding the description of the investment policy and risks; characteristics of the participation titles and procedures for subscription, redemption, and distribution of benefits; commissions, premiums, and costs; information available for consultation; and information on the administrator company and its group of economic interest. The information contained may be modified in the future, for which the administrator company will notify you in a timely manner. There is also a summary of this prospectus that must be delivered to every investor before making the first investment.”
2.2. In the case of non-diversified funds, legend: “This is a non-diversified fund, therefore you assume higher credit and market risks than in a diversified fund. Consult your investment advisor.”
2.3. Legend: “The authorization and registration to conduct a public offer do not imply a rating of the Fund nor the solvency of its Administrator Company.”

The Superintendent may request the incorporation of additional legends, if deemed convenient, to provide the investor with more elements to substantiate their investment decision.

3. DESCRIPTION OF THE FUND
   The following must be disclosed:

3.1. Description of the investor profile for which the fund is designed, which must consider, at least, the following aspects:
a. Investment horizon. b. Capacity to withstand losses, temporary or even permanent, in the value of their investments.
c. Current and future liquidity needs of the investor, as well as expectations of additional income in the future.
d. Knowledge and prior experience in the securities market.

The following examples are shown strictly as orientative:

Real Estate Fund:
“Investor Profile: The fund is directed at investors with a medium or long-term investment horizon and interested in diversifying their investments in the real estate sector and with the possibility of obtaining periodic benefits from rental incomes and sales of real estate. These investors possess moderate risk tolerance, thus recognizing that the value of their assets may be subject to short-term volatility. The suggested term for investment is at least X years. This fund is not directed at investors who require short-term liquidity and who do not have prior experience in the securities market or knowledge of real estate. The returns recognized to the investor are distributed in (indicate periodicity) form.”

3.2. Type of fund, according to the scheme presented below:

Classification Category Type of Fund Description Financial Investment Fund Medium or Long Term Fund Funds that invest in financial assets that offer the investor capital appreciation in the medium or long term, or a periodic payment of returns, or a combination of the foregoing. Non-Financial Real Estate Fund that invests in real estate for exploitation through rent. Securitization Processes Funds that invest in a set of assets and their current or future cash flows. Real Estate Development Funds that invest in real estate projects in various phases of design and construction, for their completion and sale, or leasing. Megafund Financial Funds that invest in other investment funds, offering the investor capital appreciation in the medium or long term, or a periodic payment of returns, or a combination of the foregoing.

3.3. Nature of the fund: open or closed.
3.4. Portfolio diversification: diversified and non-diversified.
3.5. In the case of financial funds, type of income: fixed income or variable income.
3.6. In the case of closed funds: Amount of authorized issuance, number of participations, nominal value of each participation, and term or maturity of the fund, detail of each of the series or classes, and ISIN code.
3.7. Currency for subscription and redemption of participations, which is considered as the currency for accounting records and for the provision of periodic information.
3.8. Name of the portfolio manager and date of appointment.
3.9. Indication that the fund is subject to rating by a risk rating agency and disclosure of the places where the granted rating can be consulted.

In the case of guaranteed funds, additionally, the following must be included:

3.10. Name of the guarantee entity.
3.11. Percentage of the participation value that is guaranteed.
3.12. Beneficiaries of the guarantee and indication of the process for its execution.
3.13. Description of the conditions that, if presented, exempt the guarantee entity from its obligation.
3.14. Legend: “The guaranteed fund aims to secure the invested capital at its maturity, subject to the conditions and restrictions established in the prospectus. The return or the participation value before its maturity is not guaranteed.”

4. INVESTMENT POLICY
   The fund’s investment policies must be disclosed explicitly, without including references to articles of the Capital Markets Law or norms. At least the following must be considered:

4.1. Financial Investment Funds:

a. Limits for the securities portfolio: These must be presented as a range, minimum and maximum percentage, with respect to the total asset of the fund. At least the following must be considered:
i. Types of securities in which the fund may invest
ii. Countries and economic sectors to which the issuers of the securities may belong
iii. Currency in which the securities are issued
iv. Risk rating required from issuers or securities
v. Liquidity required from the securities
vi. Target duration of the fund’s portfolio
vii. Concentration in foreign securities (considers the country of origin of the issuer, regardless of the market where the securities are registered)

Additionally, the maximum percentages of participation in a single issuance or security as a percentage of the outstanding issuance must be established.

In the case of non-diversified funds, those limits that differ from those established in the regulation governing the matter on administrator companies and investment funds must be clearly disclosed, and it must be expressly indicated that it departs from the limits established in the regulation.

b. Securities in which investment is prohibited: A section detailing the securities not permitted in the investment fund may be included.
c. Debt policy: The percentage of debt (liability with respect to the total assets of the fund) and the purpose for which the resources will be used must be disclosed. Indicate the currency in which credits may be contracted.
d. Liquidity administration and control policy: In the case of open funds, indicate the policy and the values that will be used for its administration.

The following example is shown strictly as orientative:

Diversified Growth Fund:
“Investment Policy:

1. Limits for the securities portfolio
   The securities portfolio of this fund will be composed of cash, bonds, structured notes, participations in other open and closed investment funds, and common or preferred shares. These securities may be registered in the Securities Registry of the Superintendence or be from private or sovereign issuers of the United States and the European Union, traded in organized markets. The following table shows the concentration by type of security.

Security Range (%) Min - Max
Cash 3-20
Investment Funds 0-20
Bonds or Structured Notes 50-100
Common or Preferred Shares 0-20

To obtain adequate diversification of the securities portfolio that contributes to the reduction of the investment fund’s risk, it is additionally established that:
a. The fund’s portfolio will be composed of at least 10 different issuers or funds, none of which exceeds 10%. The limits by sector are established below:

Sector Range (%) Min - Max
Nicaraguan Sovereign Securities 0-10
Foreign Sovereign Securities 0-50
Securities from National or Foreign Private Issuers without limitation of economic activity 0-50

b. The securities may be denominated in cordobas, dollars, or euros.
c. Only bonds or shares that possess high liquidity in the markets where they are traded may be acquired.
d. Only foreign bonds or structured notes that possess a risk rating of A or higher according to Standard & Poor’s, Moody’s, or Fitch Ratings may be acquired. No risk rating limits are established for securities from national issuers. e. The portion of the securities portfolio of bonds and structured notes will maintain an average duration not exceeding 5 years. f. Foreign securities may only be acquired up to 75% of the total assets of the fund. g. Structured notes may only be acquired up to 20% of the total assets of the fund, without any issuer exceeding 10%. h. Common or preferred shares may only be acquired up to 10% of the total outstanding securities of the issuer. For the rest of the securities, a maximum concentration of 50% of the outstanding balance in a single issuance or security is established.

This investment fund cannot acquire or participate in the following securities or contracts:

• Individual debt securities of entities subject to the supervision of the Superintendence
• Short sales
• Futures, options, or swaps contracts
• Securities lending

2. Debt:
   The fund may obtain credits, loans from non-banking financial intermediaries, and from financial entities abroad, for the purpose of covering temporary liquidity needs, up to a maximum of 10% of the fund’s assets, provided that the term of the credit does not exceed three months. In exceptional cases, the Superintendent may raise the percentage up to a maximum of 30% of the fund’s total assets. The credits, loans, and stock market operations contracted by the fund must be contracted in cordobas or US dollars.

3. Liquidity administration and control policy:
   It shall be the fund’s policy to maintain a liquidity coefficient to attend to unprogrammed redemptions by investors, for a minimum of 3% of the total assets. This percentage may be raised with prior approval of the investment committee up to 20%.”

4.2. Non-Financial Investment Funds:

Separate into two sections those related to the investment policy of the securities portfolio and to the fund’s specialization portfolio. In the case of the securities portfolio, the information requested in point 4.1 above must be disclosed. For the non-financial asset portfolio, at least the following must be considered:

a. Real Estate Funds: Disclosure of the fund’s investment policies, criteria used for the selection of assets, and policies for contracting insurance. At least the following must be considered:
i. Type of real estate in which the fund may invest
ii. Regions of the country where the real estate may be located
iii. Minimum criteria required for real estate that may form part of the fund.
iv. Maximum concentration per tenant. This limit must be presented in percentage form with respect to the fund’s total income.
v. Maximum concentration that a lessee which is a company of the same group of economic interest to which the administrator company belongs may possess.
vi. Minimum conditions that will be required for the insurance contracts subscribed to cover the fund’s assets, incorporating at least the degree of coverage and the value on which it is insured.
vii. Policy for estimating uncollectible amounts for receivable rents.
viii. Percentage of debt (liability with respect to the total assets of the fund) and the purpose for which the resources will be used. Indicate the currency in which credits may be contracted.

b. Securitization Process Funds:

i. Description of the criteria for the selection of the cash flow or asset portfolio and quantity in each package, based on the concept of assets with common characteristics, in accordance with what is established in the Capital Markets Law and the regulation on administrator companies and securitization funds.
ii. Credit enhancement policies.
iii. Procedures for the assignment of assets.
iv. Policy for the administration of the collection of assets or cash flows.
v. Mechanisms for the sale of assets assigned to the fund, if applicable.
vi. Percentage of debt (liability with respect to the total assets of the fund) and the purpose for which the resources will be used. Indicate the currency in which credits may be contracted.

c. Real Estate Development Funds: Disclosure of selection criteria and other investment policies of the fund:

i. Type of projects to be developed (residential, tourist, industry, office, commercial, among others), and target market for the sale of the projects.
ii. Regions of the country where the projects may be located.
iii. Minimum criteria required for the projects that may form part of the fund. Indicate the phase in which the projects may be found (design, construction, among others).
iv. Indication of whether the fund will develop one or multiple projects.
v. Form of planned financing (pre-sale, ...)