The EU's new UCITS III regulations will affect any Securities & Futures Commission-authorised funds which are domiciled in EU member states, including Luxembourg, Ireland and the UK.

To provide investors with a basic understanding of the new regulations, and to increase awarenes of the implications for their existing or potential investments, the SFC has posted a set of frequently asked questions.

The FAQs aim to address some basic queries regarding UCITS III and to provide investors with general information about what they need to do and where they can obtain more information concerning the UCITS III conversion.

Broadly speaking, UCITS III is the most recently introduced set of legislation adopted by the EU Commission regulating many investment funds from EU member states.

In essence, its main objectives are to widen the range of investment possibilities and assist the cross-border marketing of funds throughout Europe.

Not all European invested funds affected

Most of the funds established under the UCITS I regulations in the EU member states, including Germany, France, Luxembourg, Ireland and the UK, will need to comply with these new regulations.

A fund that invests in European markets or is managed by a European fund manager is not necessarily affected by UCITS III regulations.

Investors should check the domicile and type of their fund to see if it will be affected. The domicile and type of fund is disclosed in the offering document.

In general, funds domiciled in EU member states which are set up under the previous UCITS I regulations must comply with the set of new regulations and convert into UCITS III funds by February 2007.

However, certain funds may elect to or may be required to convert into UCITS III funds earlier.

Seek advice if doubts remain

If you are unclear as to whether and when your fund will be required to convert into a UCITS III fund, you should seek additional advice.

In terms of investment strategy, UCITS III regulations give UCITS funds domiciled in EU member states more investment flexibility by expanding the range and type of permissible financial instruments such as transferable securities and money market instruments, bank deposits, units of other investment funds, financial derivative instruments and index tracking funds.

However, it is up to the fund manager of each fund to decide whether or not to use such investment flexibility.

Each fund conversion is unique and you should therefore read the fund's notice or revised offering document carefully regarding the extent to which the its investment strategy will change or expand, paying particular attention to the fund's investment objectives, policies, risk factors and strategies, if applicable.