ADVANCE INVEST PROSPECTUS

Transcription

1 ADVANCE INVEST Mutual Fund PROSPECTUS For public offering of units of a mutual fund, whose main objective is to provide unit-holders with an increase of their investments through capital gains by assuming moderate to high risk The Prospectus contains information needed by investors to perform informed assessment and take a decision on investing in the units issued by the Fund, including the risks related to the proposed investment. It is in the investors interest to get acquainted with the Prospectus before deciding to invest in the Fund s units. THE FINANCIAL SUPERVISION COMMISSION HAS CONFIRMED THE PRESENT PROSPECTUS, HOWEVER, THIS DOES NOT MEAN THAT THE COMMISSION APPROVES OR DISAPPROVES THE INVESTMENT IN THE OFFERED FINANCIAL INSTRUMENTS, NOR THAT IT ASSUMES RESPONSIBILITY FOR THE AUTHENTICITY OF THE INFORMATION PROVIDED HEREIN. The members of the Board of Directors of Karoll Capital Management EAD are solely responsible for the damages caused by false, misleading or incomplete data in the Prospectus. The persons under Art. 34, Para. 1 and Para. 2 of the Accountancy Act (the persons preparing the financial statements of the Fund) shall be jointly responsible with the persons under the previous sentence for damages caused by false, misleading or incomplete data in the financial statements of the Fund and the certified auditor for the damages caused by the financial statements audited by him/her. Prospectus date:

2 CONTENTS NUMBER AND TITLE PAGE 1. ASSET MANAGEMENT COMPANY INFORMATION INFORMATION ABOUT THE MEMBERS OF THE BOARD OF DIRECTORS OF THE ASSET MANAGEMENT COMPANY INFORMATION ABOUT THE MUTUAL FUND LOCATION WHERE THE FUND RULES, THIS PROSPECTUS, KEY INVESTOR INFORMATION DOCUMENT AND THE PERIODIC STATEMENTS ARE AVAILABLE TO INVESTORS TAX REGIME ACCOUNTING DATES AND DIVIDEND DISTRIBUTION DATES INFORMATION ABOUT THE AUDITORS NUMBER AND FACE VALUE OF THE FUND UNITS UNITS TYPE AND RELATED RIGHTS FUND TERMINATION REGULATED MARKETS WHERE THE FUND UNITS ARE LISTED FOR TRADING PROCEDURE FOR TRANSFERING UNITS AT SECONDARY TRADING TERMS AND PROCEDURES FOR ISSUING AND SALE OF THE UNITS PLACE FOR SUBMISSION OF WRITTENT ORDERS FOR THE PURCHASE OF FUND UNITS CONDITIONS AND MEANS FOR THE PURCHASE OF UNITS CONDITIONS AND TERMS FOR THE EXECUTION OF THE ORDERS FOR PURCHASE OF FUND UNITS CONFIRMATION OF EXECUTED ORDERS FOR THE PURCHASE OF FUND UNITS CONDITIONS AND TERMS FOR THE REDEMPTION OF UNITS AND CONDITIONS FOR HALTING THE REDEMPTIONS OBLIGATION FOR REDEMPTION CONDITIONS AND TERMS FOR THE TEMPORARY HALTING OF REDEMPTIONS CONDITIONS FOR THE REDEMPTION OF FUND UNITS REDEMPTION PRICE OF THE FUND UNITS PLACES FOR THE SUBMISSION OF WRITTEN ORDERS FOR THE REDEMPTION OF FUND UNITS TERMS AND CONDITIONS FOR THE EXECUTION OF ORDERS FOR THE REDEMPTION OF UNITS CALCULATING THE TOTAL VALUE OF THE ORDER EXECUTION TERM FOR UNIT REDEMPTION ORDERS AND METHOD OF PAYMENT OF THE AMOUNTS DUE CONFIRMATION OF EXECUTED UNIT REDEMPTION ORDERS DESCRIPTION OF THE RULES FOR DETERMINING THE INCOME DESCRIPTION OF THE INVESTMENT OBJECTIVES, INVESTMENT POLICY AND INVESTMENT RESTRICTIONS OF THE MUTUAL FUND. TECHNIQUES AND INSTRUMENTS FOR EFFICIENT PORTFOLIO MANAGEMENT. LOAN USAGE INVESTMENT OBJECTIVES OF THE FUND INVESTMENT POLICY OF THE FUND OTHER INVESTMENT STRATEGIES, TECHNIQUES AND INSTRUMENTS REPURCHASE AGREEMENTS (REPURCHASE AND REVERSE REPURCHASE TRANSACTIONS) TRANSACTIONS WITH DERIVATIVE FINANCIAL INSTRUMENTS

3 LIMITATIONS ON THE ASSET STRUCTURE AND THE RELATIVE SHARES IN FINANCIAL INSTRUMENTS OF ONE TYPE OR ANOTHER OTHER RESTRICTIONS. LOAN USAGE LIQUIDITY REQUIREMENTS RISK PROFILE OF THE MUTUAL FUND. EXPECTED RISKS RISK PROFILE EXPECTED RISKS RELATED TO THE INVESTMENT PORTFOLIO. METHODS FOR MANAGING SUCH RISKS ASSET VALUATION RULES TERMS AND PROCEDURE FOR DETERMINING THE UNIT ISSUE PRICE AND REDEMPTION PRICE FEES AND COMMISSIONS AT PURCHASE AND SALE OF UNITS EXPENSES AND FEES. DIFFERENTIATION BETWEEN EXPENSES AND FEES PAYABLE BY UNIT-HOLDERS AND THOSE PAYABLE USING FUND RESOURCES TRANSACTION COSTS FOR INVESTORS/UNIT-HOLDERS ANNUAL OPERATIONAL COSTS INFORMATION ABOUT THE CUSTODY BANK INFORMATION ABOUT THE CONSULTING COMPANIES OR EXTERNAL CONSULTANTS PROVIDING ADVICE AT CONTRACTUAL TERMS WHOSE REMUNERATION IS PAID FROM THE FUND ASSETS DESCRIPTION OF THE MUTUAL FUND INVESTMENT ACTIVITY DURING THE YEARS PRECEDING THE PROSPECTUS PUBLICATION OR UPDATING DATE THE INFORMATION BELOW REFERS TO THE FUND RESULTS FROM THE TIME IT WAS AN INVESTMENT COMPANY BEFORE ITS TRANSFORMATION INTO A CONTRACTUAL FUND INFORMATION ABOUT THE APPROVED AND USED LOANS PROFILE OF THE TYPICAL INVESTOR FOR WHOM THE MUTUAL FUND IS INTENDED AND TO WHOM THE FUND ACTIVITY IS TARGETED INFORMATION ABOUT THE PLACE, TIME AND METHOD OF RECEIVING ADDITIONAL FUND INFORMATION AND DOCUMENTS SUPERVISORY STATE INSTITUTION, NUMBER AND DATE OF THE PERMIT FOR ESTABLISHMENT AND MANAGEMENT OF THE MUTUAL FUND DATE OF PROSPECTUS PUBLISHING 50 Potential investors may receive the Prospectus, the Fund Rules, the Key Investor Information Document, the annual and 6-month report, as well as any additional information every business day from 10:00 to 17:00 hours (Bulgarian time) at the office of Karoll Capital Management EAD Asset Management Company at the following address: Sofia, 57 Hristo Botev Blvd., tel.: 02/ , as well as at all offices of Karoll Capital Management EAD in Bulgaria: Sofia, 1 Zlatovrah Str., tel.: (+359 2) Plovdiv, 15 Patriarh Evtimiy Str., floor 1, office 8, tel.: ( ) Varna, 20 Preslav Str., tel.: ( ) Burgas, 75 Slavyanska Str., floor 1, office 2, tel.: ( ) , ( ) Stara Zagora, 113 Hristo Botev Str., Entr. A, floor 1, flat 3, tel.: ( ) Ruse, 4 Ferdinand Str., tel.: ( ) The Prospectus, the Fund Rules, the Key Investor Information Document, the annual and 6-month report are available through the web site of the Asset Management Company at Karoll Capital Management EAD informs the potential investors that the investment in the offered units ADVANCE INVEST implies certain risks described in detail on pp in item 17 of the present Prospectus. 3

4 1. INFORMATION ABOUT THE ASSET MANAGEMENT COMPANY Name: Karoll Capital Management EAD Seat: Republic of Bulgaria, Sofia Registered address: Republic of Bulgaria, Sofia, Sofia Municipality, Vazrazhdane Section, 57 Hristo Botev Blvd. UIC: Telephone: (+359 2) Fax: (+359 2) Е-mail: Електронна страница: Date of establishment: 21 April 2003 Number and date of the licence issued by the Financial Supervision Commission: 328-УД of 21 August 2003, relicensed by decision 11-УД / Registered and paid-in capital: BGN 1,000,000 Short information about the company professional experience: in addition to the portfolio of ADVANCE INVEST, at present Karoll Capital Management AD manages also Advance Conservative Fund, Advance Eastern Europe Mutual Fund, Advance IPO Fund, and Advance Global Trends Mutual Fund. Country of origin: the country of origin of ADVANCE INVEST, organised and managed by Karoll Capital Management EAD Asset Management Company, and of the Karoll Capital Management EAD Asset Management Company is the Republic of Bulgaria. 2. INFORMATION ABOUT THE MEMBERS OF THE BOARD OF DIRECTORS OF THE ASSET MANAGEMENT COMPANY STANIMIR MARINOV KAROLEV Chairman of the Board of Directors Stanimir Karolev is founder and Chairman of the Board of Directors of Karoll AD, one of the leading nonbanking financial institutions in Bulgaria with leading positions in investment services and asset management. Under his management the company has won numerous awards of the market institutions and gained the respect of the investment community in Bulgaria and abroad. Mr. Karolev is also a member of the Board of Directors of Karoll Investment EAD a company providing consulting and analyses on the financing of the activity of other companies, their shareholder structure, market strategy, company transformation, acquisition transactions and mergers, etc. During his eighteen-year professional practice, Mr. Karolev has supported the development of the financial markets in Bulgaria. Being one of the pioneers in this field, he participates in the drafting of important normative acts defining the development of the capital markets and infrastructure. Mr. Karolev holds a Master s degree in Macroeconomics from the University of National and World Economy. He has attended post-graduate specialisations in finance and investment in the USA and the United Kingdom. He has participated in a number of international conferences, trainings and seminars on topics related to the capital market development in the region. DANIEL YOVCHEV GANEV Managing Director Daniel Ganev is Managing Director at Karoll Capital Management and in this capacity he oversees the administrative functions of the firm, the overall business strategy and product development, and serves on several investment committees. His expertise is primarily in the Eastern European capital markets. In 2003 Daniel pioneered the launch of the first local equity fund Advance Invest Mutual Fund, and became its Portfolio Manager. Before this project, Daniel worked at Karoll as a Capital Markets Analyst. Prior to joining the firm Mr. Ganev received professional training in the USA at Merrill Lynch, Sony Electronics, etc. Daniel holds a degree in Business Administration from William Paterson University, USA, and is currently studying 4

5 for an Executive MBA at Cambridge University, U.K. He also holds an Investment Consultant licence by the Financial Supervision Commission. Mr. Ganev is a member of BoD of the Bulgarian Association of Asset Management Companies. He has had numerous publications and interviews in the media, and has been on road shows and seminars at major financial hubs in Europe, America and Asia. ALEXANDER LYUDMILOV NIKOLOV Vice Chairman of the Board of Directors Alexander Nikolov is a Vice Chairman of the Board of Directors of Karoll Capital Management and has been with the company since its establishment in He serves on the investment committees for all products of the company. Since early 2006 he has been in charge of the Advance Eastern Europe Fund Project, and currently he is the fund's portfolio manager. Alexander is responsible for the fund's global asset allocation strategy as well as for its day-to-day operations. Mr. Nikolov joined Karoll in 1997 as a technical analyst, and since 2000 has managed the international capital markets department. From 1999 to 2003 he was an Assistant Professor in Economics at the University of National and World Economy. He has also been a regular Distinguished Lecturer at the American University in Bulgaria, the City University, Pravetz and the Frederick University, Cyprus. Mr. Nikolov holds a BA and MA in Economics from the University of National and World Economy Sofia, and completed a graduate studies program at the University of Delaware. He has participated in numerous economics and finance conferences, workshops and roundtables in Europe and the USA. He has authored a number of articles on the application of technical analysis in the Stocks&Commodities Magazine, Traders.com Advantage, as well as in a number of Bulgarian media, and he is also a frequent guest on The Business programme on btv and other financial programmes. Alexander is a Manager of Trend Recognition EOOD, whose scope of activity is related mainly to the provision of educational, marketing, information and consulting services. Mr. Nikolov is a member of the Managing Board of the Centre for Corporate and Social Development Karol Foundation. NIKOLAY KONSTANTINOV KOLEV Member of the Board of Directors Nikolay Kolev joined the Karoll Capital Management team in March 2010 having gained rich international experience. The last position he used to occupy was Deputy Managing Director of TCX Investment Management Company BV, asset manager of The Currency Exchange Fund NV. With this company he was in charge for the Fund s transactions, with the Fund reaching a size of the managed assets of more than USD 550 mln. Since 2004 until 2007 Mr. Kolev was Senior Treasury Specialist at the African Development Bank Group where his responsibilities included private offering of financial instruments, swap trade, etc. He possesses experience in structuring of derivative products at the Global Equity Derivatives Department of Deutsche Bank Securities, Johannesburg. In that period he became a broker and used to trade at the Johannesburg Stock Exchange and the South African Futures Exchange. Mr. Kolev holds Master s degrees from the Wharton School University of Pennsylvania, Fu Foundation School Columbia University and Tepper School Carnegie Mellon University. He also has post-graduate qualification in international capital markets from the London Securities Institute, a Dealer Certificate from the South African Futures Exchange and is a licensed trader at the Johannesburg Stock Exchange. 3. INFORMATION ABOUT THE MUTUAL FUND Name: ADVANCE INVEST ADVANCE INVEST was established as an investment company with Decision of the Constituent Assembly on 6 th October 2003 and entered into the Trade Register with Decision from On the General Shareholders Assembly of the company decided in favor of its transformation from an investment company into a contractual fund and accepted to make the necessary changes in its Statutes. At a Board of Directors meeting of Karoll Capital Management a decision was made to form and manage the mutual fund. The Financial Supervision Commission issued a permission to transform the investment company into a contractual fund with decision number 479 ИД / The fund originates with its entry into the FSC register. Date of establishment of the mutual fund: Term of operation: the existence and operation of the Fund are not limited in time. Closed period: No closed period is envisaged. 5

6 4. LOCATION WHERE THE FUND RULES, THIS PROSPECTUS, KEY INVESTOR INFORMATION DOCUMENT AND THE PERIODIC STATEMENTS ARE AVAILABLE TO INVESTORS The place where the rules of the Mutual Fund, the present Prospectus, the Key Investor Information Document and the regular reports will be available to investors is in Sofia, 57 Hristo Botev Blvd. and at the offices of Karoll Capital Management in Bulgaria, as well as on the web site of the the Asset Management Company 5. TAX REGIME Pursuant to the provisions of the Corporate Income Tax Act (CITA), the collective investment schemes admitted to public offering in the Republic of Bulgaria are not subject to corporate tax. The dividends and liquidating dividends allocated in favour of a mutual fund are not subject to withholding tax. Pursuant to the provisions of the Corporate Income Tax Act (CITA), the income from disposition of units of collective investment schemes is not subject to withholding tax if the disposition is performed at a regulated market within the meaning of Art. 73 of the Markets in Financial Instruments Act, as well as the transactions concluded under the terms and provisions of redemption by collective investment schemes admitted to public offering in the Republic of Bulgaria or in another European Union Member State, or in a country, which is a party to the Agreement on the European Economic Area. Pursuant to the provisions of the Personal Income Tax Act (PITA), the income from transactions with units of collective investment schemes performed at a regulated market within the meaning of Art. 73 of the Markets in Financial Instruments Act is not subject to withholding tax, as well as the transactions concluded under the terms and provisions of redemption by collective investment schemes admitted to public offering in the Republic of Bulgaria or in another European Union Member State, or in a country, which is a party to the Agreement on the European Economic Area. Taxable is the income formed by the positive difference between the selling price and the documentproven price of acquisition of units of collective schemes in favour of foreign natural persons, which are not domiciled for tax purposes in a European Union Member State or in another country of the European Economic Area. The obligation for declaring and paying the tax lies with the person that has received the income. The tax is final and its size is 10 per cent. If there exists a convention for the avoidance of double taxation, the more favourable regime for the person that has received the income should be applied. Pursuant to the Value Added Tax Act, the activity management of mutual funds is an exempt supply and therefore no VAT is charged on the remuneration of the asset management company. We recommend that the investors consult tax experts on tax issues. 6. ACCOUNTING DATES AND INCOME DISTRIBUTION DATES Счетоводни дати Accounting Dates ADVANCE INVEST presents to the Financial Supervision Commission and the public: - Annual financial statements as at 31 December within 90 days of the end of the financial year; - Six-month financial statements as at 30 June covering the first six months of the financial year within 30 days of the end of the reporting period. The Management Company of ADVANCE INVEST is required to submit to the FSC to the 10th of the month following the reporting, monthly balance sheet and information on: 6

7 - volume and structure of investment portfolio by issuers and types of securities and other financial instruments; - types of derivative instruments, the main risks associated with the underlying assets of derivative instruments, quantitative restrictions and the methods chosen to evaluate the risk associated with transactions in derivative instruments. The information received shall not be made public and serves only to supervisory objectives of the FSC. Income Allocation Dates ADVANCE INVEST will not allocate income (annual profit) under the issued units and will not pay the holders of such units such income or dividends. The Fund reinvests the income (annual profit) in assets following its investment strategy and policy. 7. INFORMATION ABOUT THE AUDITORS The annual financial statements of ADVANCE INVEST as an investment company for the years 2012, 2011 and 2010 are audited by: Name of the auditor: BDO Bulgaria OOD Headquarters and management address: Sofia 1404, 51 B Bulgaria Boulevard, floor 4 Tel: (+359 2) Website: Е-mail: [email protected] Responsible partner: Stoyanka Apostolova 8. NUMBER AND FACE VALUE OF THE FUND UNITS The Fund may issue an unlimited number of units depending on the demand by investors. The face value of a single unit is EUR 1 (one). 9. UNITS TYPE AND RELATED RIGHTS Mutual Fund Units The units are registered dematerialised transferable financial instruments, the Fund issuing units from one class only. The units provide equal rights to all unit-holders. The units are recorded in the registers of the Central Depository AD. The units are issued in denominations of 1 unit. Share Right over the Fund s Property Each unit gives a right over the respective part of the Fund s property. Liquidation Quota Right Each unit gives a right over the respective part of the Fund s property at its realisation in case of liquidation (winding up) expressed in cash. Redemption Right Each unit-holder has the right at any time to order his/her units being redeemed by the Fund through the Management Company except when such redemption is impossible in the cases stipulated by the law or the present Prospectus. The redemption order may be related to some or all of the units owned by the investor. 7

8 The redemption orders for Fund units are executed at the first redemption price announced after the date of submitting the order. Right of information Each investor and/or owner of units has the right: To use the information contained in the Prospectus, the Key Investor Information Document and the regular reports of the Fund, as well as any other public information related to it or its activity; To get acquainted with and receive a copy of the Fund Rules; To receive information about material changes in the activity of the Managing Company, as well as other information about it as stipulated by the law. 10. FUND TERMINATION The termination of the Fund is performed under the terms and provisions of Chapter 14, Section V of the Law on the Activities of Collective Investment Schemes and Other Collective Investment Ventures (LACISOCIV). In addition to the provisions of Art. 363, items a and b of the Obligations and Contracts Act, the Mutual Fund is to be terminated by force: 1. In case the Management Company has been deprived of the permit for organising and managing the Mutual Fund; 2. If within three months of cancellation of the permit, termination of or declaring the Management Company insolvent, new management company has not been selected or the Fund has not been transformed by a merger or infusion. The Commission cancels the provided permit for organising and managing the Mutual Fund: fund; 1. If the asset management company explicitly gives up the permit to organize and manage the mutual 2. If the Fund has not performed its activity for more than 6 months; 3. If during 6 consecutive months the net average monthly value of the Fund assets is lower than BGN 500,000; 4. If untrue data has been stated that has served as grounds for issuance of the permit for organising and managing the Mutual Fund; 5. If the Mutual Fund no longer meets the criteria, under which the permit for its organisation and management has been issued; 6. If the Mutual Fund does not meet the liquidity requirements stipulated in the Ordinance on the implementation of the LACISOCIE; 7. If a new management company of the Mutual Fund has not been selected or the Mutual Fund has not been transformed in the cases under Art. 157, Para. 1, item 2 of the LACISOCIE; 8. If this is required to protect the investors interests. In case of cancellation of the operation permit, at termination of or declaring the Mutual Fund Management Company insolvent, the Management Company shall terminate the Fund management and shall immediately, and not later than 5 days after that, deliver to the Fund Depositary Bank the whole information and documentation at its disposal related to the Fund management. Until the conclusion of a contract with another management company or transformation of the Fund by merger or infusion, as an exception the Depositary Bank may carry out management activities for a period not longer than three months. If no management company is selected or approved to manage, respectively transform the Mutual Fund or if the Financial Supervision Commission refuses to issue a permit to the new management company to manage the Fund, or transform it respectively, a procedure for termination of the Mutual Fund is to be started regardless of the expiry of the 3-month period stated in the previous sentence. 8

9 At termination of the Fund a liquidator will be appointed who has to cash down the Fund s property and distribute the received monies to the Fund creditors and unit-holders. The unit-holders have the right to receive a liquidation quota, i.e. a part of the cashed down Fund property proportionate to the units held by the investor, from which the creditors receivables are deducted. A unit-holder has no right to demand his/her share in the Fund in kind. 11. REGULATED MARKETS, AT WHICH THE FUND UNITS ARE LISTED FOR TRADING The Fund units will not be registered for trading at a regulated market. 12. PROCEDURE FOR TRANSFERING UNITS AT SECONDARY TRADING The ownership over the units issued by the Fund may be transferred freely without limitations and conditions, however only through an investment broker while observing the provisions of the Public Offering of Securities Act, the Markets in Financial Instruments Act, the Law on the Activity of the Collective Investment Schemes and Other Collective Investment Enterprises, the Regulations on their implementation and the Rules of the Central Depositary AD. Since the Fund units will not be registered for trading at a regulated market, the transactions with them may be concluded only off-exchange (OTC). The transfer of ownership over the units will be deemed as completed at the moment of registration of the transaction with the Central Depositary AD. To purchase or sell units at the secondary market (off the counter), the investors submit an order for off-exchange transaction to their servicing investment broker. Upon conclusion of the transaction, the investment broker performs the necessary actions for registration and settlement of the transaction at the Central Depositary AD, whereby the units are transferred from the seller s account to the buyer s account. The Purchase and Sale Agreement may be concluded directly by the parties and the broker only registers the transfer in his/her capacity of registration agent. The transfer of the ownership over the Fund units in case of donation and inheritance is performed through a licensed investment broker operating as a registration agent. 13. TERMS AND PROCEDURES FOR ISSUANCE AND REDEMPTION OF UNITS The Management Company offers permanently Fund units to investors at issue price, which is determined and announced as per the provisions of the Prospectus below Places for submission of written orders for subscription of Fund units The places for submission of written orders for subscription to Fund units are: - To the registered address of Karoll Capital Management EAD: Sofia, 57 Hristo Botev Blvd, tel.: (+359 2) ; - At the offices of Karoll Capital Management EAD in Bulgaria: Sofia, 1 Zlatovrah Str., tel.: (+359 2) Plovdiv, 15 Patriarh Evtimiy Str., floor 1, office 8, tel.: ( ) Varna, 20 Preslav Str., tel.: ( ) Burgas, 75 Slavyanska Str., floor 1, office 2, tel.: ( ) , ( ) Stara Zagora, 113 Hristo Botev Str., Entr. A, floor 1, flat 3, tel.: ( ) Ruse, 4 Ferdinand Str., tel.: ( )

10 13.2. Terms and conditions for purchasing units Purchasing units of DF ADVANCE INVEST is done based on a written agreement with the customer pursuant to Art. 59 of the Ordinance on the requirements for the activity of the collective investment schemes, close investment companies and management companies. The written form is considered observed if the agreement has been concluded by electronic statements signed with a qualified electronic signature within the meaning of the Electronic Documents and Electronic Signature Act. Issuance (sale) of units of a collective investment scheme may be performed only if the unit issue price has been paid in full. To purchase Fund units, an investor submits a unit subscription order along with the attachments to it. The issue price is equal to the amount of the net asset value per unit at the date of its estimation. The issue price is calculated by the Management Company under the control of the Depositary Bank pursuant to Rules for portfolio evaluation and determining the net value of the Fund assets adopted by the Management Company and approved by the Financial Supervision Commission. The issue price is determined twice a week on Mondays and Thursdays, and is published on the Internet site of the Management Company. Should any Monday or Thursday be a non-working day, the determination of the issue price is performed on the first following working day. The applicant shall pay for each unit a price equal to the full issue price. All unit subscription orders received in the period between two determinations and announcements of the issue price are executed at one and the same price. The amounts are to be deposited at the moment of submission of the unit purchase order as follows: - In cash, at the places where the unit purchase orders are submitted; - To the bank account of the Mutual Fund with the Custody Bank; BGN Bank Account Account holder: ADVANCE INVEST IBAN: BG30BPBI BIC: BPBIBGSF EUROBANK Bulgaria AD headquarters EUR Bank Account Account holder: ADVANCE INVEST IBAN: BG39BPBI BIC: BPBIBGSF EUROBANK Bulgaria AD headquarters Payment details buy order for DF ADVANCE INVEST units The unit purchase orders may be submitted every working day between 10:00 and 17:00 hours (Bulgarian time). A unit purchase order is to be submitted by the applicant or his/her proxy/representative. A unit purchase order becomes irrevocable at the closest date of determination of the issue price. Necessary documents to be submitted by the applicant at the conclusion of the written agreement pursuant Art. 59 of the Ordinance on the requirements for the activity of the collective investment schemes, close investment companies and management companies: By a natural person applicant ID card; By a legal entity applicant certificate of good standing, ID card of the authorised representative; By a proxy of the applicant notary certified power of attorney stating the representative power for performing management and dispositive actions with financial instruments. The Management Company archives the presented original power of attorney or its notary certified transcript. 10

11 By a legal representative of a natural person applicant a notary certified copy of a document attesting the right to representative power (birth certificate, marriage certificate, guardian or trustee appointment certificate) Payments in cash for purchase of Mutual Fund units are performed while observing the provisions of the Limitation on Cash Payments Act. At transactions and payments for purchase of Mutual Fund units by foreign investors, the latter shall observe the special provisions of the Currency Act regarding the import of BGN and foreign currency in cash Conditions and term for execution of the unit purchase orders Calculation of the total number of purchased units The Management Company executes a unit purchase order up to the amount deposited by the investor, which is divided by the determined price per unit based on the issue price for the closest day following the day, on which the order has been submitted, while the number of the purchased units is rounded to the smaller whole number. Using the remainder of the deposited amount the investor acquires a partial unit of the Fund. Should the Management Company take a decision for temporary discontinuation of the issuance (sale) and the redemption of units as per the terms and provisions of the present Prospectus, the orders submitted after the last announcement of the redemption price before the starting date of the temporary discontinuation term will not be executed. The Management Company reimburses the amounts of the investors who have submitted unit purchase orders to their bank accounts or at the company cash desk by the end of the working day following the day of order submission. The issue price and the redemption price upon resumption of the redemption are announced on the day preceding the resumption. The subsequent determination and announcement of the issue price and redemption price is performed on the days stated in the Prospectus Term for the execution of orders for the purchase of fund units Unit purchase orders are executed within 7 days of the date of their submission. A purchase order is deemed executed at the moment of transaction registration at the Central Depositary AD Confirmation of executed orders for the purchase of fund units At sale of Fund units, the Management Company shall inform the unit-holder as soon as possible about the order execution, using a hard copy or respectively through electronic communication means, if applicable. The conformation must be done not later than the first working day after the execution or if the Management Company has received confirmation from a third person not later than the first working day upon receiving the third-person confirmation. The provision of the previous sentence does not apply if a confirmation would contain the same information as the confirmation that is sent immediately to the unit-holder by another person. For the purposes of providing information via electronic communication means regarding the execution of a Fund unit sale order, the provisions of Art. 106, Para. 3 of the Ordinance on the requirements for the activity of the collective investment schemes, close investment companies and management companies will apply. 14. CONDITIONS AND TERMS FOR THE REDEMPTION OF UNITS AND CONDITIONS FOR HALTING THE REDEMPTIONS Redemption obligation The Management Company shall redeem the Fund units at the redemption price determined and announced as provided for below in the Prospectus. 11

12 With the exception of the cases of temporary discontinuation of the redemption, the Fund, through the Management Company, upon request of the unit-holders, redeems its units at a price based on the net asset value per unit. The redemption price is to be reduced, as compared to the net asset value per unit, by the redemption costs, which are covered by the investor and amount to 0.15% of the net asset value per unit. Should the Management Company temporarily discontinue the redemption of the Mutual Fund units pursuant to the terms and procedure of the present Prospectus, the redemption orders that have not been executed until the moment of taking the decision are not subject to execution. In such cases the unit redemption, upon its resumption, is performed by submission of new orders pursuant to the procedure of the present Section of the Prospectus Terms and procedure for temporary suspension of the redemption The redemption of units of DF ADVANCE INVEST can be discontinued temporarily by a decision of the Board of Directors of the Management Company. The temporary discontinuation is allowed only in exceptional cases, if the circumstances require this and the discontinuation is grounded with a view to the unitholders interests, including in the following cases: - If at a regulated market, at which a material part of the Fund units are admitted or are being traded the conclusion of transactions is discontinued, suspended or subject to restrictions; - If the Fund assets or liabilities cannot be correctly valued or it cannot dispose with them without damaging the interests of unit-holders; - If a decision is taken for termination or transformation through merger or infusion of the collective investment scheme under the terms and procedure of Chapter 14 of the LACISOCIE; - If the execution of the redemption orders would lead to breach of the requirements for maintaining minimum liquid resources of the Fund as stipulated in the current legislation and in the Prospectus and Fund Rules; - If the performance of the obligations by the Depositary Bank pursuant to the Depositary Services Agreement is impossible or if the unit-holders interests may be damaged, including at termination of the agreement with the Depositary Bank, at cancellation of the agreement with the Depositary Bank, including because of non-performance of its obligations under it, at cancellation of the banking activity licence of the Depositary Bank or at imposing other limitations on its activity, and also if the Depositary Bank is excluded from list of depositary banks approved by the Deputy Chairperson of the Financial Supervision Commission, pursuant to Art. 35 of the LACISOCIE, as well as in the other cases related to the replacement of the Depositary Bank stated in the Fund Rules. Should any of the above-mentioned circumstances occur, the Management Company shall discontinue the issue and redemption of Fund units while stating the term of the temporary discontinuation /if any/ and informing about this the Financial Supervision Commission, the Depositary Bank, the regulated securities market /if the Fund units are admitted for trading at a regulated market/, the respective competent authorities of all EU Member States, in which the Fund units are offered /if so/ and the unit-holders by the end of the working day, respectively inform about the resumption of the redemption by the end of the working day, preceding the resumption. At taking the decision for temporary discontinuation of the redemption, the Management Company shall immediately discontinue also the issue of units for the term of temporary discontinuation of the redemption. If extension is required of the Fund unit redemption temporary discontinuation term, the Management Company shall communicate this, following the procedure stated in the law, the Financial Supervision Commission, the Depositary Bank, the regulated market, at which its units are traded /if the Fund units are admitted for trading at a regulated market/, the respective competent authorities of all EU Member States, in which the Fund units are offered /if so/ and the unit-holders not later than 7 days before expiry of the initially defined term. If the discontinuation term is shorter than 7 days, including in the cases when the redemption 12

13 has been suspended because of technical reasons, the Management Company shall perform the notification under the previous sentence by the end of the working day preceding the date, on which the redemption had to be resumed. The notification of the unit-holders about the taken decision for discontinuation of the redemption, as well as at a subsequent decision for its resumption, is to be done through the Internet site of the Management Company At resumption of the redemption, the issue (sale) of units is automatically resumed, too. The issue price and redemption price are announced on the day preceding the resumption. The subsequent determination and announcement of the issue price and redemption price is performed on the days stated in the Prospectus. Unit sale (issue) orders and redemption orders submitted in the period after the last announcement of the issue price, respectively of the redemption price, and before the starting date of the redemption temporary discontinuation term will not be executed. The Management Company reimburses the amounts of the investors who have submitted unit purchase orders to their bank accounts or at the company cash desk by the end of the working day following the day of order submission. The Commission can take a decision to halt the redemption in the event that the interests of unit-holders or those of the market so require. The Financial Supervision Commission makes the decision to stop the redemption upon revocation of the license, termination or bankruptcy of the asset management company managing the mutual fund, or upon imposing such restrictions on its activities that make it impossible to perform its duties toward the mutual fund and could harm the fund s unit-holders up to the appointment of a new asset management company Conditions for the redemption of units The redemption of DF ADVANCE INVEST units is performed pursuant to a written agreement with the customer. The written form is considered observed if the agreement has been concluded by electronic statements signed with a qualified electronic signature within the meaning of the Electronic Documents and Electronic Signature Act. For an investor to order the redemption of the Fund units held by him/her, he/she should submit a Fund units redemption order along with the attachments to it. The written Fund unit redemption order is submitted to the addresses stated in item 14.5 of the Prospectus ( Places for submission of written Fund unit redemption orders ). The unit redemption orders are executed within 10 days of the date of their submission Redemption price of the fund units The redemption price is equal to the net asset value per unit at the date of its calculation. The redemption price is calculated by the Management Company under the control of the Depositary Bank pursuant to Rules for portfolio evaluation and determining the net value of the Fund assets adopted by the Management Company and approved by the Financial Supervision Commission. The unit redemption price is determined twice a week on Mondays and Thursdays, and is published on the Internet site of the Management Company. Should any Monday or Thursday be a non-working day, the determination of the redemption price is performed on the first following working day. The Management Company shall redeem the Fund units at a price equal to the redemption price determined for the closest day following the day of submission of the redemption order. The closest day following the day of submission of the redemption order means the first day following the day of submission of the redemption order, on which a new redemption price has been determined. All unit redemption orders received in the period between two determinations and announcements of the redemption price are executed at one and the same price. The unit redemption orders may be submitted every working day between 10:00 and 17:00 hours (Bulgarian time). A unit redemption order is to be submitted by the applicant or his/her proxy/representative. 13

14 14.5. Places for the submission of written orders for the redemption of fund units The places for submission of written orders for redemption of Fund units are: - To the registered address of Karoll Capital Management EAD: Sofia, 57 Hristo Botev Blvd, tel.: (+359 2) ; - At the offices of Karoll Capital Management EAD in Bulgaria; A unit redemption order becomes irrevocable at the closest date of determination of the redemption price. Documents required to be submitted by the applicant at the conclusion of the written agreement pursuant Art. 59 of the Ordinance on the requirements for the activity of the collective investment schemes, close investment companies and management companies: By a natural person applicant ID card; By a legal entity applicant certificate of good standing, ID card of the authorised representative; By a proxy of the applicant notary certified power of attorney stating the representative power for performing management and dispositive actions with financial instruments. The Management Company archives the presented original power of attorney or its notary certified transcript. By a legal representative of a natural person applicant a notary certified copy of a document attesting the right to representative power (birth certificate, marriage certificate, guardian or trustee appointment certificate); Payments in cash related to the redemption of Mutual Fund units are performed while observing the provisions of the Limitation on Cash Payments Act. At transactions and payments related to the redemption of Mutual Fund units by foreign investors, the latter shall observe the special provisions of the Currency Act regarding the import of BGN and foreign currency in cash Terms and conditions for the execution of orders for the redemption of units Calculation of the total value of the order The unit redemption orders are executed according to the number of units placed for redemption and at a redemption price stated pursuant to item 14.4 of the Prospectus ( Fund unit redemption price ). The repayment of the monies is performed in a manner defined in the order while observing the limitations on the methods of payment pursuant to the current legal provisions. At repayment of the monies by bank transfer, the investor covers the bank fees for the performed transfer Execution term for unit redemption orders and method of payment of the amounts due Unit redemption orders are executed and paid within 10 (ten) days of the date of their submission. The repayment of the monies is performed as follows: - In cash, at the places under item 14.5 of the Prospectus ( Places for submission of written Fund unit redemption orders ) in case payment in cash is stated in the ; - To the bank account stated in the unit redemption order; A redemption order is deemed executed at the moment of transaction registration at the Central Depositary AD Confirmation of executed unit redemption orders At redemption of Fund units, the Management Company shall inform the unit-holder as soon as possible about the order execution, using a hard copy or respectively through electronic communication means, if applicable. The conformation must be done not later than the first working day after the execution or if the Management Company has received confirmation from a third person not later than the first working 14

15 day upon receiving the third-person confirmation. The provision of the previous sentence does not apply if a confirmation would contain the same information as the confirmation that is sent immediately to the unitholder by another person. For the purposes of providing information via electronic communication means regarding the execution of a Fund unit redemption order, the provisions of Art. 106, Para. 3 of the Ordinance on the requirements for the activity of the collective investment schemes, close investment companies and management companies will apply. The Management Company may conclude an agreement by virtue of which it may delegate to a third party functions and tasks on the sale and redemption of FUND units while observing the provisions of the relevant legal and regulatory acts regulating the FUND operation. 15. DESCRIPTION OF THE RULES FOR DETERMINING THE INCOME DF ADVANCE INVEST will not allocate income (annual profit) under the issued units and will not pay the holders of such units such income or dividends. The Fund reinvests the income (annual profit) in assets following its investment strategy and policy. The net income from investing DF ADVANCE INVEST assets is reflected as the change of the Fund assets net value and thence on its unit value. 16. DESCRIPTION OF THE INVESTMENT OBJECTIVES, INVESTMENT POLICY AND INVESTMENT RESTRICTIONS OF THE MUTUAL FUND. TECHNIQUES AND INSTRUMENTS FOR EFFICIENT PORTFOLIO MANAGEMENT. LOAN USAGE Investment objectives of the Fund The main objective is to provide unit-holders with an increase of their investments through capital gains by assuming moderate to high risk in the long term. The Fund's active portfolio management is the foundation of its strategy to realize gains through the selection of financial instruments with high growth potential, as determined by fundamental and technical parameters. The asset manager aims to achieve these objectives by focusing the fund s investments in Bulgarian and Romanian and other Eastern European stocks. There is no certainty that the ADVANCE INVEST will achieve the stated investment objectives INVESTMENT POLICY OF THE FUND The Fund can invest in the following types of assets, as allowed by the Law on the Activities of Collective Investment Schemes and Other Collective Investment Ventures, and the respective ordianances: 1. Transferable securities and financial market instruments admitted to or traded at regulated markets as per Art. 73 of the Markets in Financial Instruments Act; 2. Transferable securities and money market instruments traded at a regulated market, other than the one under Art. 73 of the Markets in Financial Instruments Act, in the Republic of Bulgaria or another Member State, regularly functioning, accepted and publicly accessible, as well as securities and money market instruments issued in the Republic of Bulgaria or another Member State; 3. Transferable securities and money market instruments admitted to trading at an official Stock Exchange market or traded at other regulated markets in a third country, regularly functioning, accepted and publicly accessible, which are included in a list approved by the Deputy Chairperson of the Financial Supervision Commission or are stipulated in the Mutual Fund Rules; 4. Recently issued transferable securities, the issue of which includes a condition for assuming liability for requesting admission and within a term not longer than a year after their issuance to admitted to trading at an 15

16 official stock exchange market or another regulated market, regularly functioning, accepted and publicly accessible, which are included in a list approved by the Deputy Chairperson of the Financial Supervision Commission or are stipulated in the Mutual Fund Rules; 5. Units of collective investment schemes and/or other collective investment enterprises that correspond to the provisions of Art. 4, Para. 1 of the LACISOCIV, regardless of whether they are seated in a Member State, provided they meet the requirements of Art. 38, Para. 1, item 5, letter a) of LACISOCIV and their Statutes or Rules envisage that they can invest not more than 10 per cent of their assets in other collective investment schemes or other collective investment enterprises; 6. Deposits in credit institutions payable upon request or that can be withdrawn at any time, maturing within 12 months; credit institutions in third-party states must abide by the rules and be subject to regulation, and which the Vice-Chairman considers equivalent to those according to the laws of the European Union 7. Derivative financial instruments, including equivalent instruments, under which the liabilities may be settled through cash payment, traded at regulated markets as per items 1 3 of LACISOCIV; 8. derivative financial instruments, traded over the counter, while observing the related legislation 9. Money market instruments, other than the ones traded at a regulated market and listed in 1, line 6 while observing the legal requirements; 10. cash 11. other financial instruments outside the above listed ones while observing the legal restrictions Investment policy and strategy To achieve its investment objectives the Fund will apply an active portfolio management model based on the market conditions through the selection of financial instruments with high growth potential, as determined by fundamental and technical parameters. The investments will be focused in shares of Bulgarian, Romanian and other Eastern European companies. The main criterion for choosing these instruments is considerable asset undervaluation (undervalued stocks) or growth potential greater than that of the economy as a whole (growth stocks). Such instruments can be certain Bulgarian and foreign equities, which will comprise the major part of the Fund s holdings. This requires the selection of shares of industry leaders with expanding market shares that are managed professionally in the best interest of their stockholders. These companies would have revenues and earnings that are fast growing and that are expected to continue growing rapidly in the future. Bulgarian stocks that meet the fund's requirements are usually components of the Bulgarian Stock Exchange indices SOFIX and BG40, and other relatively high-liquidity stocks that possess high growth potential (i.e. growth stocks) or attractive fundamental characteristics (i.e. value stocks.) In Romania the fund can invest in stocks that are components of the BET index as well small & mid-caps listed on the RASDAQ segment. With regard to other international markets, the fund can pick some of the stocks included in the indices of EU-member states, such that are affirmed by the Deputy Chairman of the Financial Supervision Commission, Head of the Investment Supervision Division, as well as other smaller stocks with promising fundamentals. Another important criterion that is related to the active portfolio management model is the requirement for the assets to be of relatively high liquidity, i.e. the ability to be liquidated at any moment, in normal market conditions, without affecting adversely their market prices. Therefore, these securities should be traded actively on a regulated market in volumes large enough to provide a fair estimate of their value. Last, but not least, the securities will be chosen in such a way that the investment portfolio is effectively diversified and protected as much as possible - against unfavorable price movements of the market. With regard to industry allocation, the actual industry allocation of the investments will depend on our analyses of the prevailing conditions in the respective industry and its components. Consequently, industries that the managers view as promising and therefore the price appreciation potential of its components is the highest, will pull larger weights in the fund's portfolio. Despite the fund's focus in equities, the active portfolio management implies that in periods of anticipated stock market decline, a greater portion of the fund's assets to be allocated toward cash, bonds and other more conservative instruments. 16

17 Structure of the fund assets: Types of Assets Stocks admitted to or traded on a regulated market of art. 10 of the Law on the market of financial instruments in the Republic of Bulgaria or another member state of the EU; Share (%) of the total assets up to 95% Stocks, traded on a regulated market other than the ones listed in art. 73 of the Law on the market of financial instruments in the Republic of Bulgaria or another member state, functioning regularly, acknowledged and publicly accessible; Stocks, admitted to trading on an official market of a stock exchange or other regulated market in a third country, functioning regularly, acknowledged and publicly accessible, included in the list approved by the vice-chairman or included in the Rules of the collective investment scheme; up to 50% Bonds and money market instruments, admitted to or traded on a regulated market of art. 73 of the Law on the market of financial instruments in the Republic of Bulgaria or another member state of the EU or traded on a regulated market other than the ones listed in art. 73 of the Law on the market of financial instruments in the Republic of Bulgaria or another member state, functioning regularly, acknowledged and publicly accessible; up to 50% Foreign bonds, admitted to trading on an official market of a stock exchange or other regulated market in a third country, functioning regularly, acknowledged and publicly accessible, included in the list approved by the vice-chairman or included in the Rules of the collective investment scheme; up to 30% Recently issued transferable securities, whose issue s conditions include an obligation for admission within one year of their issuance, to trading on an official market of a stock exchange or other regulated market, functioning regularly, acknowledged and publicly accessible, included in the list approved by the vice-chairman or included in the Rules of the collective investment scheme; up to 30% Units of collective investment schemes and/or other collective investment vehicles in line with the conditions of art. 4, line 1 of LACISOCIV, regardless of whether they are based in a member state or not, provided that their statutes and rules envision the option to no more than 10% of their assets in other collective investment schemes or other collective investment vehicles, and the other collective investment vehicles comply with the requirements of art. 38, line 1, p.5 а) of LACISOCIV up to 10% Derivative financial instruments, including equivalent instruments, under which the obligations in line with the may be performed by payment of money, traded at regulated markets under art. 38, line 1 p. 1-3 of legal LACISOCIV, and derivative financial instruments traded at off-exchange markets that meet the legal requirements requirements Financial instruments other than the listed ones according to art. 38, line 1 of LACISOCIV up to 10% Cash, bank deposits and other payment vehicles up to 50% 17

18 Other investment strategies, techniques and instruments DF ADVANCE INVEST will use techniques and instruments for efficient management of the asset portfolio in compliance with the legal provisions. The used techniques and instruments will not lead to a change of the investment objectives and restrictions or to worsening of the Fund s risk profile Repurchase agreements (repurchase and reverse repurchase transactions) Karoll Capital Management EAD intends to conclude repurchase agreements (repurchase and reverse repurchase transactions) on behalf and at the expense of ADVANCE INVEST. This type of transactions are concluded under the condition that they are economically relevant, the risks ensuing from them are adequately identified in the process of risk management and provided that they serve for fulfilling at least one of the following objectives: 1. Reducing the risk; 2. Reducing the expenses; 3. Generating additional proceeds for the Fund with a risk level corresponding to its risk profile and to the risk diversification rules; The concluded repurchase transactions may not lead to a change of the investment objectives and restrictions or to worsening of the risk profile of Advance Invest. The Fund may conclude repurchase transactions only with regard to financial instruments, in which it has the right to invest. The counter-parties under the repurchase transactions of the Fund should be credit or financial institutions, which are subject to prudential supervision by a financial regulator of a European Union Member State or another country, which is a party to the Organisation for Economic Co-operation and Development Convention. The risk exposition of the Fund to each individual counter-party at conclusion of repurchase transactions cannot exceed 10 per cent of its assets, if the counter-party is a bank as per Art. 38, Para. 1, item 6 of the LACISOCIV, and 5 per cent of the assets in the rest of the cases. The value of the repurchase transactions concluded by the Fund cannot hinder the execution of its obligation to redeem units at any time by request of their owners. The financial instruments that may be the subject of repurchase transactions are: 1. Money market instruments within the meaning of Art. 38, Para. 1, item 9 of the LACISOCIV; 2. Bonds issued or secured by a Member State or another country, which is a party to the Organisation for Economic Co-operation and Development Convention, their central banks, their local government authorities, by the European Central Bank, the European Investment Bank or by a public international organisation, of which at least one Member State is a member, as well as qualifying debt securities issued or secured by third countries with a credit rating not less than an investment grade, awarded by a credit rating agency registered or certified pursuant to Regulation No. 1060/2009 of the European Parliament and of the Council of 16 September 2009 on credit rating agencies (OJ, L 302/1 of 17 November 2009); 3. Stocks or units issued by a collective investment scheme as per Art. 38, Para. 1, item 5 of the LACISOCIE; 4. Bonds traded at a regulated market in a Member State or another country, which is a party to the Organisation for Economic Co-operation and Development Convention, where the trade with such bonds must be sufficiently liquid; 5. Shares traded at a regulated market in a Member State or another country, which is a party to the Organisation for Economic Co-operation and Development Convention, provided such shares are included in an index maintained by such a market. 18

19 Transactions with derivative financial instruments The Management Company can conclude transactions with derivative instruments on behalf and at the expense of the Fund: - With investment purpose, according to the Fund s investment policy and risk profile as determined in its Rules; - With the purpose of risk management for hedging against a market, currency and credit risk. The types of derivative instruments that the Fund can use, as well as the special requirements to them are stipulated in the Fund Rules for Risk Evaluation and Management. There is no certainty that such transactions and techniques will be successful if they are performed. The possibility for using the stated strategies and techniques may be limited by the market conditions and by the regulatory provisions and requirements. In cases when the derivative instruments are used with hedging purpose, the Fund may appear to be incapable of achieving its investment objectives. If the derivative instruments are used with investment purpose, this will not affect the risk profile of Advance Invest. In all cases the total value of the Fund s exposition related to derivative financial instruments cannot exceed the net value of its assets Limitations on the asset structure and the relative shares in financial instruments of one type or another Pursuant to the provisions of the LACISOCIV, the regulatory acts on its execution and the Fund Rules, the following restrictions will be observed on the structure of the assets and the relative shares in securities of one type or another: 1. The Fund cannot invest more than 5 per cent of its assets in transferable securities or money market instruments issued by a single entity. 2. The Fund cannot invest more than 20 per cent of its assets in deposits in a single bank. 3. The risk exposition of the Fund to the counter-party in a transaction with derivative financial instruments traded off-exchange cannot exceed 10 per cent of its assets, if the counter-party is a credit institution as per Art. 38, Para. 1, item 6 of the LACISOCIV, and 5 per cent of the assets in the rest of the cases. 4. The Fund can invest 10 per cent of its assets in transferable securities or in money market instruments issued by a single entity only if the total value of the investment in the entities, in which the Fund invests more than 5 per cent of its assets, does not exceed 40 per cent of the Mutual Fund Assets. The restriction under the previous sentence does not apply with regard to the deposits in credit institutions, over which prudential supervision is exercised, nor to the transactions with these institutions with derivative financial instruments traded off-exchange. At calculation of the total value of the assets under the first sentence, the transferable securities and the money market instruments as per item 6 will not be taken into account. 5. In addition to the restrictions under items 1 3, the total value of the Mutual Fund investment in transferable securities or money market instruments, issued by one entity, the deposits with such an entity, as well as the exposition to the same entity, occurred as a result of transactions with derivative financial instruments traded off-exchange, cannot exceed 20 per cent of the Fund assets. 6. The Fund can invest up to 35 per cent of its assets in transferable securities or money market instruments issued by one entity if the securities and money market instruments are issued or secured by the Republic of Bulgaria, another Member State, their regional or local authorities, a third country or an international organisation, of which at least one Member State is a member. 7. The investment restrictions under items 1 6 cannot be combined. The total value of the Fund investment in transferable securities or money market instruments issued by a single entity, the deposits with this entity, as well as the exposition occurred as a result of transactions with derivative financial instruments pursuant to items 1 6 cannot exceed 35 per cent of the Mutual Fund Assets. 19

20 8. Companies included in a certain group for the purpose of preparation of consolidated financial statements in accordance with the recognised accounting standards are treated as a single entity at the application of the restrictions under items The total value of the investment in transferable securities or money market instruments issued by the companies within a given group cannot exceed 20 per cent of the value of the Mutual Fund assets. 10. The Fund can invest not more than 10 per cent of its assets in units of a single collective investment enterprise as per Art. 38, Para. 1, item 5 of the LACISOCIV, regardless of whether it is seated in a Member State or not. 11. The total value of the investment in units of collective investment enterprises, other than a collective investment scheme, cannot exceed 10 per cent of the Fund assets. 12. The Karoll Capital Management EAD Management Company, acting at the expense of all collective investment schemes or other collective investment enterprises managed by it, cannot acquire voting shares that would enable it to exercise substantial influence on an issuer s management. 13. The Fund cannot acquire more than: а) 10 per cent of the non-voting shares issued by a single entity; b) 10 per cent of the bonds or other debt securities issued by a single entity; c) 25 per cent of the units of one and the same collective investment scheme or another collective investment enterprise that fulfils the requirements of Art. 4, Para. 1 of the LACISOCIV; d) 10 per cent of the money market instruments issued by a single entity. The restrictions under item 13, letters b), c) and d) does not apply if at the moment of acquisition of the said instruments the Fund cannot calculate the gross value of the debt securities, the money market instruments or the net value of the issued securities. 14. The Fund can invest not more than 10 per cent of its units in other transferable securities and money market instruments, other than those under Art. 38, Para. 1 of the LACISOCIV. 15. The Fund cannot acquire precious metals and certificates for them. 16. The total value of the Fund s exposition related to derivative financial instruments cannot exceed the net value of its assets. 17. The Fund can invest in derivative financial instruments while observing the restrictions under items 7 9 and provided that the exposition to the basic assets in total does not exceed the investment restrictions under items 1 9. The above-mentioned restrictions does not apply if the Mutual Fund exercises subscription rights, deriving from transferable securities and money market instruments, which are a part of its assets. While observing the principle of risk distribution, the Fund, within 6 months of receiving the operation permit, is allowed not to apply the restrictions under items In case of breach of the investment restrictions for reasons beyond the control of the Mutual Fund or as a result of exercising subscription rights, the Fund must in due time, but not later than two months of the occurrence of the breach, bring its assets in compliance with the investment restrictions through sale transactions, while taking into account the interests of the unit-holders. In the cases under the previous sentence, the Fund is obliged within 7 days of performing the breach to notify the Financial Supervision Commission by providing information about the reasons for the breach and the measures undertaken for its elimination Other restrictions. Loan usage. The Mutual Fund cannot use loans, with the exception of: - Compensation loans for acquisition of foreign currency pursuant to Art. 27, Para. 2 of the LACISOCIV and Art. 56 of Ordinance No. 44 on the requirements for the activity of the collective investment schemes, close investment companies and management companies; 20

21 - Loans, the total amount of which within a certain period of time does not exceed 10 per cent of the Fund assets, where for the utilisation of each loan a permit has been issued by the Deputy Chairperson of the Financial Supervision Commission, and each loan meets all of the following conditions: the loan is for a term not longer than 3 months, it is necessary to cover Fund unit redemption obligations and the terms of the loan agreement are not less favourable than usual at the market. A lender may be only a bank, excluding the Custody Bank. The Management Company and the Custody Bank, when acting at the expense of the Mutual Fund, cannot provide loans, nor be guarantors of third parties. Regardless of the restrictions under the previous sentence, the Management Company and the Custody Bank, when acting at the expense of the Mutual Fund, may acquire transferable securities, money market instruments or other financial instruments as per Art. 38, Para. 1, items 5, 7, 8 and 9, in the cases when their value is not paid in full. The Management Company and the Custody Bank, when operating at the expense of the Mutual Fund, cannot conclude agreements for short sale of transferable securities, money market instruments or other financial instruments as per Art. 38, Para. 1, items 5, 7, 8 and 9 of the LACISOCIV. At amendment of the LACISOCIE and of the respective legal and regulatory acts regulating the Fund activity the new provisions shall apply Liquidity requirements The Fund must have at its disposal at any time minimum liquid funds as follows: 1. Cash, securities, money market instruments as per Art. 38, Para. 1, items 1 3 of the LACISOCIV and units of collective investment schemes and/or other collective investment enterprises as per Art. 38, Para. 1, item 5 of the LACISOCIV, whose fair value is not calculated using valuation techniques and generally accepted methods as per the Rules for portfolio evaluation and determination of the asset value of the ADVANCE INVEST, money market instruments as per Art. 38, Para. 1, item 9 of the LACISOCIV and shortterm receivables to the amount of not less than 100 per cent of the weighted current liabilities of the Fund; 2. Cash, securities and money market instruments issued by the Republic of Bulgaria or another Member State, and money market instruments as per Art. 38, Para. 1, item 9, letter a of the LACISOCIV to the amount not less than 70 per cent of the weighted current liabilities of the Fund, excluding the liabilities related to participation in the increase of capital of public companies. The Fund calculates its weighted current liabilities as a sum of its current liability amounts at net book value distributed in three groups depending on their remaining term, multiplied by weighting adjustments that decrease at increase of the remaining term of the liabilities as follows: - With a term of up to 1 month weight 1,00; - With a term from 1 to 3 months weight 0,50; - With a term from 3 months 1 year weight 0,25. The maximum remaining terms of the Mutual Fund current liabilities at their distribution by groups, unless anything else is provided for by the law or ensues from their nature, are as follows: 1. Budget payables, social security payables and personnel payables weight 1,00; 2. Remuneration of the Management Company and the Custody Bank weight 1,00 and the remaining liabilities weight 0,25; 3. Loans received as per the terms of the loan agreement. In case of pledge of assets or if there exist a restriction on their use by the Fund, these will not be included in the amount of the minimum liquid funds. 21

22 The structure of the Fund s assets and liabilities should meet the following requirements: 1. Not less than 70 per cent of the investment in assets as per Art. 38, Para. 1 of the LACISOCIV must be in assets whose fair value is not calculated using valuation techniques and generally accepted methods as per the Rules for portfolio evaluation and determination of the asset value of the ADVANCE INVEST; 2. The Fund cash resources must not be less than 5 per cent of its assets. 17. RISK PROFILE OF THE MUTUAL FUND. EXPECTED RISKS The present section contains information about the investment risks that are borne directly or indirectly by the investors at their purchase of units of ADVANCE INVEST. If the investors are not ready to assume these risks, these securities are not a suitable investment for them Risk profile The Mutual Fund has a moderate to high risk profile. There is no certainty that the Fund will achieve the stated investment objectives; the investors may lose money that they invest in the Fund. The investment in mutual funds and investment companies is not insured or guaranteed by the State or any state agency. It must be noted that according to the investment strategy described above the Fund has the intention of investing the bigger part of the funds raised in Bulgarian and other Eastern European stocks. Typically, investments in equity securities are more risky than investments in Treasuries, corporate bonds, and municipal bonds. In this sense, the risk for ADVANCE INVEST shareholders is higher than the risk for shareholders in mutual funds that invest mainly in Treasuries or other debt instruments. The considerable portfolio diversification and the professional selection of the individual securities that comprise the portfolio should reduce this risk. However, if there is a significant negative price change in the stock market, the value of the Fund s shares could decrease Expected risks related to the investment portfolio. Methods for managing such risks Market risk the possibility of incurring losses due to unfavourable changes of the financial instrument prices, market interest rates, currency rates, etc. The components of the market risk are: - Interest rate risk the risk of decrease of the amount of investment in a given security due to a change of interest rates. The Management Company measures the interest rate risk by calculating the duration. The duration is the main measure for the sensitivity of a given security to the change of interest rate levels. The Management Company uses the method of modified duration to measure the interest rate risk related to each security based on an interest rate such as bonds, interest swaps, futures based on interest rates, and futures based on bonds; - Currency risk the risk of decrease of the amount of investment in a given security or deposit denominated in a currency other than BGN or EUR, due to a change of the exchange rate of such currency to the BGN or EUR. The currency risk is measured by using the historic volatility of the exchange rate of the respective currency to the BGN or EUR relative to the net currency exposition; - Price risk related to investment in shares or other equity securities the risk of decrease of the amount of investment in a given security at unfavourable changes of the market price levels. The Management Company measures the price risk related to investment in shares by tracing the historic volatility measured by standard deviation or calculation of the β-ratio to the indices of the respective market. 22

23 Credit risk the possibility of decrease in value of the position in a given financial instrument at unexpected events of credit nature related to the issuers of financial instruments, the counter-party in exchange and off-exchange transactions, as well as the states, in which they operate. This risk reflects also the possibility of bankruptcy of a credit or financial institution, in which Fund s resources are kept and/or in whose deposits investments have been made. There are three types of credit risks: - Counter-party risk is the risk of non-performance of the obligations by the counter-party in off-exchange and repurchase transactions; - Settlement risk is the risk ensuing from the possibility that the Mutual Fund does not receive cash resources or financial instruments by a counter-party at the settlement date after the Fund has fulfilled its obligations on certain transactions toward such a counter-party. The Management Company measures this risk through the value of all unsettled transactions with a given counter-party as a percentage of the value of the managed portfolio. Transactions concluded under settlement condition of delivery versus payment and performed at markets with functioning clearing mechanism are not included; - Investment credit risk is the risk of decrease in value of the investment in a given debt security due to a credit event at the issuer of this instrument. A credit event would include announcement in bankruptcy, insolvency, material change in the capital structure, decrease of the credit rating, etc. The transaction limits and risk levels related to the credit risk are approved and reviewed each quarter by the Board of Directors of the Managing Company following a proposal by the Head of the Risk Management Department. Operational the possibility of incurring losses related to mistakes or imperfections in the organisation system, insufficiently qualified personnel, negligent conduct by employees, unfavourable external circumstances of non-financial nature. Two groups of operational risks are distinguished: А. Internal operational risks: - Risks related to personnel: the risk of suffering loss as a result of employees mistakes, negligent/malicious conduct by employees, insufficient qualification; - Risk of performing transactions with persons related to the Management Company, the terms of which differ from the market terms: this is the risk of causing harm to the interests of the Fund and its unit-holders as a result of transactions (acquisition or sale of assets by and of the Fund off-exchange, depositing of funds in a credit institution, external service contracts, etc.) with persons related to the Management Company at more disadvantageous terms than the market ones. Such a risk arises also at conclusion of transactions outside a regulated market of financial instruments, including conclusion of repurchase transactions (these transactions are concluded only as OTC transactions and due to the collateral nature of the transferred financial instruments, the transaction price is always different from the market one), at which one of the parties is a related entity to the Management Company and the other party is the Management Company itself, acting on behalf and at the expense of the collective investment scheme it manages; - Technological risk: risk of suffering loss caused by imperfections of the used technologies, inadequacy of the performed operations, lack of precision of the data processing methods, poor quality of the data used in the Fund s activity. B. External operational risks: these are the risks operating outside the Fund that may have material impact on its activity. The Fund is not able to influence external risks but accounts for their impact on its activity. The Risk Management Department has identified the following external risks related to the Fund s activity: - Legislation risk risk of unexpected amendments of laws and regulations that may limit the Fund activities and development; - Macroeconomic risk risk of disturbance of the macroeconomic stability of the markets, at which the Fund invests or operates; 23

24 - Inflation risk risk of inflation rise to levels that limit growth, decrease domestic demand at the market, at which the Fund invests or operates, and reduce the actual profitability that the Fund yields; - Risk of physical interference risk of suffering losses because of robbery, unauthenticated intrusion in the information systems of the Fund or the Management Company. The operational risk is managed and reduced pursuant to the Fund Rules for Risk Evaluation and Management. Liquidity risk the risk of the possibility of losses because of indispensable sale of assets at unfavourable market conditions to settle unexpected short-term liabilities; Concentration risk the possibility of losses because of incorrect diversification of expositions to issuers, groups of related issuers, issuers of one and the same economic sector, geographic area or occurred from one and the same activity, that can cause material loss, as well as the risk related to big indirect credit expositions; The influence of the particular techniques and instruments, used for efficient management of the Fund asset portfolio, on the Fund s risk profile is determined in item Other investment strategies, techniques and instruments and sub-items Repurchase agreements (repurchase and reverse repurchase transactions) and Transactions with derivative financial instruments of the present Prospectus. The particular methods and organisation for managing the above-mentioned risks are determined in the Rules for Risk Evaluation and Management of DF ADVANCE INVEST. THE UNIT VALUE OF DF ADVANCE INVEST AND THE INCOME FROM THEM MAY DECREASE, THE PROFIT IS NOT GUARANTEED AND THE INVESTORS ASSUME THE RISK OF NOT BEING ABLE TO RECOVER THEIR INVESTMENTS IN THEIR FULL SIZE. THE INVESTMENTS IN THE MUTUAL FUND ARE NOT GUARANTEED BY A GUARANTEE FUND ESTABLISHED BY THE STATE OR BY ANY OTHER GUARANTEE. PREVIOUS RESULTS OF THE FUND ACTIVITY CANNOT BE RELATED IN ANY WAY TO ITS FUTURE RESULTS. IT IS POSSIBLE THAT THE NET VALUE OF THE FUND ASSETS BE SUBJECT TO FLUCTUATIONS DUE TO THE COMPOSITION OF OR THE TECHNIQUES FOR MANAGING ITS PORTFOLIO. 18. ASSET VALUATION RULES The Rules for portfolio evaluation and determining the net value of DF ADVANCE INVEST s assets, adopted by a decision dated and amended as of by the Board of Directors of the KAROLL CAPITAL MANAGEMENT EAD contain detailed information about: Principles of asset valuation; System for collecting information related to determining the net asset value, including the types of information sources; Methods of asset valuation; Methods of liability valuation; Methods for determining the net asset value; Procedure and technology for determining the net asset value, the net asset value per unit, the issue price and the redemption price; Persons determining and exercising control on the determination of the net asset value, the net asset value per unit, the issue price and the redemption price; Safe-keeping the documents and information protection measures; Software availability; 24

25 Rules for avoidance of conflict of interests; Asset valuation principles The main principles, which the asset valuation of DF ADVANCE INVEST s assets are based on are: The valuation of assets at their initial acquisition (recognition) is done at the price of its acquisition including the transaction related expenses. The valuation of assets at their subsequent pricing is done based on their fair value including using different valuation techniques and generally accepted methods, whose essence and sequence are described in detail in the current rules. The purchase and sale of financial instruments is recognized as of the settlement date. Financial assets denominated in foreign currency different from BGN are converted to BGN at the central rate determined by the Bulgarian National Bank, the reference quotes determined by the European Central Bank (ECB) and the rates of the central banks of the countries where the fund invests valid for the day for which the valuation applies. Documentary support; Representativeness and credibility of sources of information for the valuation; Compliance and control of the valuation activities at all phases System for the collection of information related to the net asset value calculation information sources and types In order to ensure the representativeness and reliability of information for valuation DF ADVANCE INVEST uses a system to collect information covering the following sources by type: 2.1. For cash and their movements - bank statements in the name of the Fund's bank accounts; 2.2. For financial assets and liabilities denominated in foreign currency the official website of the Bulgarian National Bank, the European Central Bank (ECB) and the central banks in the countries where the Fund invests; 2.3. For subsequent valuation (revaluation) of securities and money market instruments issued by the Republic of Bulgaria in the country - the primary dealers of government securities; 2.4. For revaluation of securities and money market instruments issued by the Republic of Bulgaria abroad, as well as subsequent valuation of securities and money market instruments issued by another Member State - electronic systems for pricing information; 2.5. For revaluation of Bulgarian and foreign transferable securities and money market instruments, including stocks, rights, warrants and bonds listed or traded on a regulated market in the Republic of Bulgaria or in another Member State - the relevant trading systems or Exchange Bulletin; 2.6. For revaluation of Bulgarian and foreign transferable securities and money market instruments admitted to or traded on a regulated market in a third country functioning regularly, recognized and publicly available - Electronic Systems for pricing information on securities; 2.7. To calculate the fair value using valuation techniques and generally accepted methods - official financial statements of companies and historical pricing information for the Securities; 2.8. In the case of acquisition of rights in a company with a capital increase, as in the case of acquisition of shares of a corporation as a result of the IPO and the formation of a new joint-stock company - prospectus for initial public offering and the company's instruments of issuers; 2.9. The revaluation of the shares of collective investment schemes - the official website of the issuer; For revaluation of ETFs and other exchange-traded products (ETFs, ETPs, ETNs and ETCs), admitted to or traded on foreign regulated markets functioning regularly, recognized and publicly accessible - Electronic Systems for pricing information for securities or official electronic pages to the issuer For revaluation of other financial instruments in which the Fund may invest according to its investment policy and investment restrictions, including derivative financial instruments traded on regulated markets, derivative financial instruments traded OTC, money market instruments other than those traded on regulated market as referred to in 1, item 6 of the Supplementary Provisions of LACISOCIV and transferable securities and money market instruments other than those referred to in Article 38, para. 1 LACISOCIV - electronic systems for pricing information, official financial statements of companies, historical price and statistical information Information on dividends, interest payments, capital increases and others. is obtained from the relevant stock newsletters stock exchanges and / or information received by the Custodian. 25

26 18.2 Asset valuation rules The total assets value includes the value of each separate asset of DF ADVANCE INVEST on the balance sheet at the date of the evaluation. The valuation of assets at their acquisition (recognition) is carried at cost, including transaction costs. The asset revaluation is done based on their fair value as follows: 1. The revaluation of securities and money market instruments issued by the Republic of Bulgaria in the country, traded on trading venues in active markets is based on the arithmetic mean of the "bid" prices at market close on the last working day, announced by at least two primary dealers of government securities In the event that the securities of p.1 no deals on the day of assessment, revaluation shall be based on the arithmetic mean of the "bid" prices at market close, quoted by at least two primary dealers of government securities securities to the nearest day of the 30-day period preceding the day of the assessment In cases where there is no trading with the securities of p.1 at venues in the country on working days, the revaluation is based on the arithmetic mean of the "bid" prices at market close on the day of the last trading session preceding the date of valuation declared by at least two primary dealers in government securities. In case no deals on the day of the last trading session before the day of the assessment, the valuation shall be based on the arithmetic mean of the "bid" prices at market close, quoted by at least two primary dealers of government securities to the nearest day of the 30-day period preceding the day of the assessment If the price is determined on the basis of gross rates of primary dealers, it is used directly. Provided that it is net, based on the interest characteristics and frequency of coupon payments, it is converted to gross and then used for valuation. 2. If unable to apply p. 1, the discounted cash flows shall be used. The basis for calculations shall be the prices of recently issued Treasuries with corresponding maturities that the primary dealers are obliged to quote. These latest values of corresponding maturity are subsequently referred to as "basic issues". The issue the price of which must be determined is called "unknown issue." For calculation purposes the prices of basic values shall be calculated in accordance with p The price calculation of the respective issues by the method of linear interpolation goes through the following stages: а) The yield curve is formed based on the average prices of the main issues; b) The unknown issue's location in relation to the nearest preceding and nearest following issue is determined according to the remaining term to maturity c) The difference (in days) between the periods left until the maturity of the two basic issues, as well as the difference in their returns until maturity is determined; d) A factor is calculated by dividing the difference in the returns by the difference between the number of days to maturity; e) The difference between the number of days to the maturity of the issue to be valued and the previous main issue is determined; f) This difference is multiplied by the factor from the previous step in order to calculate the difference in the returns until the maturity of the issue to be valued and the main issue; g) The yield to maturity of the issue to be valued is obtained by adding the difference in returns calculated in the previous step to the return on the main issue preceding the one to be valued; h) On the basis of the obtained yield to maturity of the issue to be valued its gross price is calculated using the following formula: P C / n N i 1 w i r n 1 1 (1 / ) F i w 1 r / n where: P price of the security F principal of the security C annual coupon of the bond n number of interest payments per annum N total number of interest payments r discount factor (equal to the yield to maturity) 26

27 i sequential number of the interest payment number of days until the next interest payment w total number of days between two interest payments 2.2. The price calculated using this formula is a gross price and shall be used directly for the purposes of the revaluation of the debt security in question. 3. Revaluation of securities and money market instruments issued abroad by the Republic of Bulgaria and securities and money market instruments issued by another Member State traded on trading venues in an active market is done: а) by the bid price quoted in the electronic system containing securities price information at the market close on the day of NAV determination; b) if the securities market is not closed by 3 pm on the day of NAV determination by the bid price quoted in the electronic system containing securities price information at the market close of the last trading day; c) in the event that the date of valuation no transactions involving securities under item 3, subsequent assessment shall be carried out based on the "bid" price quoted in the electronic system for price information at the close of the nearest day during the 30-day period preceding the day of the assessmen d) if the foreign market is not working on the day of the valuation - by the "bid" price at the close of the last trading session preceding the valuation day quoted in the electronic system. In case there are no deals for the last trading session, revaluation shall be carried out based on the "bid" price quoted in the electronic system for price information at the close for the day closest to the 30-day period preceding the valuation day e) in the event that the price of the letters "a" - "d" is gross, it is used directly. Provided that it is net, based on the interest characteristics and frequency of coupon payments, it is converted to gross and then used for valuation f) If the the methods of letters "a" - "d" cannot be used, the rules of section 2 are used for the valuation. 4. Revaluation of Bulgarian and foreign shares and rights listed or traded on a regulated market in the Republic of Bulgaria and the Bulgarian shares and rights listed or traded traded on regulated markets in Member States is carried out: 4.1. at the weighted average price of transactions entered into during the current business day designated by the trading system or stock exchange bulletin, if the volume of transactions concluded for the day is not less than 0.02 per cent of the volume of the respective issue if the price cannot be determined using on the previous point, the price of the shares or the rights are defined as the average of the highest "bid" on contracts that are valid at the time of close of the regulated market in the current day and the weighted average price of the respective securities conducted on the same day. The price is determined in this way only if there are transactions and submitted bid prices if 4.2. cannot be applied, the price of the shares or the rights is the weighted average price of transactions concluded on the next day during the last 30-day period preceding the date of the assessment, for which there are completed transactions. If in the preceding 30-day period there has been an increase in capital or a stock split or dividend payment of the issuer is declared, the weighted average price in the first sentence is corrected by the ratio of the increase of capital, or the stock split or by the amount of the dividend if the closest day in the last 30-day period at the valuation date, which are completed transactions is: - before the day on which the shareholders are not allowed to participate in the capital increase, or respectively - before the stock split, or respectively - before the ex-dividend date In the event that the regulated market is not closed until 3 pm Bulgarian time, the revaluation is done in the following way: а) by the last price of the transaction concluded with them the previous day; b) if "a" can not be applied, the revaluation is performed using the last "bid" for the previous day In the event that under current rules the revaluation of the shares held by the Fund is to be made at a price of the day that is: 27

28 - before the day on which the shareholders are not allowed to participate in the capital increase, or - before the stock split, or - before the ex-dividend date, then the price, based on which the valuation shall be made, is corrected with the capital increase ratio, respectively the stock split ration, or respectively by the amount of the dividend. 5. If it is impossible to use the valuation methods of shares under p.4., as well as for shares which are not traded on regulated markets, the valuation shall be carried out by the consecutive implementation of the following methods: - Price Earnings ratios of comparable companies, - Net book value of assets, and - Discounted net cash flow. These methods shall be applied in the sequence described below provided that the method mentioned first cannot be applied The Price Earnings ratio of the comparable companies method consists of: a) Calculating the value of the shares of the company subject to valuation by multiplying its earnings per share by a market factor. The market factor shows the ratio between the price of the comparable company and its earnings per share. b) The earnings of the comparable company and the company subject to valuation is determined on the basis of financial statements covering the most recent annual period as from the latest published financial statement. The earnings per share is determined by dividing the net profit of the company by the total number of shares. c) The factor is calculated on the basis of the weighted average price of the transactions involving shares of the comparable company completed during the current business day. d) The source of primary information for the above-mentioned calculations shall be the accounting statements of the public companies included in the register of the FSC and the BNB, or a reliable source of information on the respective foreign regulated market. e) Methods and criteria for determining comparable companies: A comparable company is a company that provides a sufficiently adequate basis for comparison with regard to the investment characteristics of the company subject to valuation. The selection of comparable companies must be justified by a comparison analysis and assessment of their characteristics and the degree of comparability with the characteristics of the company subject to valuation. The comparable company shall be selected in accordance with the above-mentioned criteria among the companies traded on a regulated securities market in the country where the head office of the issuer is situated. The criteria which the comparable company must satisfy are: - sector of the economy where the company operates; - comparable product range; - the company shall have published financial statements which provide the opportunity for analysing the most recent annual period; - transactions involving the shares of the company must have been completed during the current business day. Other criteria used for the justification of the selection of the comparable company are the comparable equity and comparable financial indicators. where: 5.2. The net book value of assets method consists of calculating the value of the shares of the company subject to valuation by dividing the equity of the company (on the basis of the latest financial statements) by the total number of shares outstanding. A L PS P N P value of the ordinary shares of the company subject to valuation A assets L liabilities 28

29 PS value of the preferred shares N total number of shares outstanding 5.3. The discounted net cash flows method is used for determining the value of an ordinary share of the company by dividing the value of the capital of common stock holders is divided by the number of common shares outstanding. The value of the capital of common stock holders can be calculated in two ways: Discounted net cash flows to ordinary shareholders (Free Cash Flows to Equity method) by discounting the net cash flows which remain for the shareholders after all expenses, financial liabilities, necessary investments and changes in the working capital are met: a) In this method the net cash flows, which remain after all expenses are met and all financial liabilities (including principals and interest on company debts), necessary investments and changes in the working capital are covered, are used. b) The net cash flows are calculated in the following way. The estimated net profit after interest and tax is: - increased by the estimated depreciation costs, - decreased / increased by the absolute value of the estimated changes in the net working capital, - increased by the estimated value of new debts as well as with the receivables from issues of preferred shares, - decreased by the forecast investments in fixed assets, - decreased by the forecast payments of principals on debts, - decreased by the forecast dividends for privileged shares. The following formula shall be used: FCFE NI Dep FCInv WCInv PP PD ND, where: FCFE net cash flows for ordinary shareholders NI net profit Dep depreciation FCInv investments in fixed assets WCInv changes in the net working capital PP payments of principal PD dividends for preferred shares ND new debts as well as receivables from issues of preferred shares c) In this method the net cash flows are discounted at the price of financing with own capital. d) The price of financing with own capital is the rate of return required by ordinary shareholders and is calculated as follows: - using the risk-free interest rate plus a risk premium: ke k RF RP where k e price of financing with own capital, k RF risk-free interest rate, RP risk premium. - using the Capital Asset Pricing Model - CAPM: k e k RF k m k RF where k e price of financing with own capital, k RF risk-free interest rate, (k m - k RF) market risk premium, k m expected market return β beta coefficient, representing a measure of the sensitivity and systematic risk related to a specific asset and showing how its return fluctuates when the market return changes by 1. It is calculated as follows: Cov(k e, k m ) Var(k ) m 29

30 k e where - using the discounted cash flows method: D1 g, P0 k e price of financing with own capital, D 1 expected next dividend for one common share, P 0 price of one common share, g expected growth rate Discounted cash flows to the firm (Free Cash Flows to the Firm method) - by discounting the net cash flows for all shareholders and other investors, reduced by all debts of the company and other receivables of investors other than shareholders. The net cash flows to all investors in the company are used owners of shares, debt and preferred shares. The net cash flows are calculated using two approaches: а) In the first approach the net cash flows are calculated in the following way. The estimated net profit after interest and profit tax is: - increased by the estimated depreciation costs, - decreased by the estimated changes in the net working capital, - decreased by the forecasted investments in fixed assets. The following formula shall be used: FCFF EBIT 1 TR Dep FCInv WCInv, where: FCFF net cash flows to the firm EBIT profit before interest and tax TR tax rate of the firm Dep depreciation FCInv investments in fixed assets WCInv changes in the net working capital b) In the second approach the following formula shall be used: FCFF FCFE Int 1 TR PP ND PD where: FCFF net cash flows to the firm FCFE net cash flows to the common shareholders Int interest costs TR tax rate of the firm PP payments of principal PD dividends for preferred shares ND new debts as well as proceeds from issues of preferred shares c) The net cash flows shall be discounted at the weighted average cost of capital of the company. When determining the relative shares of the different sources of capital their market values shall be used. d) The weighted average cost of the capital of the company shall be determined using the following formula: E D PS WACC k e k d 1 t k, ps E D PS E D PS E D PS where: WACC weighted average cost of capital, k e price of financing with own capital, k d price of debt financing before taking into account the tax effect of interest costs, t tax rate of the firm, k ps price of financing with preferred shares, Е market value of the shares of the company, D market value of the debt of the company, PS market value of the preferred shares of the company. When the market value of the debt cannot be determined, its book value shall be used Each method for determining the value of the equity capital can use one of the two models for discounting: a) Steady growth rate, where it is assumed that the growth of the company is constant and stable. 30

31 The formula to be used is as follows: FCF1 P0, r g where: P 0 present value of the free cash flows; FCF is either FCFE or FCFF; r is the corresponding discount rate; g is the steady growth rate of the company. b) Two-stage growth rate, where it is assumed that two periods exist. During the first period the net cash flows are forecasted for each year separately. For the second period it is assumed that the net cash flows will grow at a stable rate or will remain unchanged. The formula to be used is as follows: t n FCFt Pn P 0, t n t 1 1 r 1 r where: P 0 present value of the free cash flows; FCF t is either FCFE or FCFF in year t; r is the corresponding discount rate during the first period; P n is the value of the free cash flows at the beginning of the second period of sustainable growth; P n shall be calculated as follows: FCFn Pn 1, rn g n where: r n is the corresponding discount rate during the period of steady growth rate; g n is the e steady growth rate of the company. Since we assume that the net cash flows will not change over the second period, g n = Shares acquired as a result of capital increase procedures using own funds of the issuing company or through splitting the existing shares shall be marked to market as follows: a) Where (new) shares of a given company are acquired as a result of capital increase procedures using own funds, receivables are recognised from the date from which shareholders of the company do not have the right to obtain shares from the capital increase the date after which the transactions completed with the shares do not affect the right to acquire new shares until the date of registration of the capital increase and its entering in the Central Depository AD or the relevant depository institution. The value of the receivables is equal to the number of new shares multiplied by the price of one new share. R N n P n, where R receivables, N n number of new shares, P n price of one new share. The price of one new share is obtained by dividing the last price (as marked to market) of one old share by the sum of the number of the new shares acquired in exchange for one old share and 1 old share. P0 P, n N r 1 where P n price of one new share, P 0 latest assessed price of one old share, N r number of the new shares acquired in exchange for one old share. From the date of entering of the new shares in the Central Depository AD or the relevant depository institution till the date of their introduction for trading on the Bulgarian Stock Exchange Sofia or another regulated market, the new shares are recognised at a price calculated using the following formula: P0 P n N r 1 where P n price of one new share, 31

32 P 0 latest assessed price of one old share, N r number of the new shares acquired in exchange for one old share. After the new shares are introduced for trade on the Bulgarian Stock Exchange Sofia or another regulated market their revaluation shall be carried out using the methods for valuation of securities traded on regulated markets. b) Where (new) shares of a given company are acquired as a result of a split of already existing shares, receivables are recognised from the date from which the new shares are already split from the existing shares the date after which the transactions completed with the shares do not affect the right to acquire new shares until the date of registration of the new number of shares in the Central Depository AD or the relevant depository institution. The value of the receivables is equal to the number of new shares multiplied by the price of one new share. The price of one new share is obtained by dividing the last price (as marked to market) of one old share by the number of the new shares acquired in exchange for one old share. 1 R N n P0, N r where R receivables, N n number of new shares, P 0 latest assessed price of one old share, N r split ratio. From the date of entering of the new shares in the Central Depository AD or the relevant depository institution until the date of their introduction for trading on the Bulgarian Stock Exchange Sofia or another regulated market, the new shares are recognised at a price calculated using the following formula: P = P 0 x 1 / N r where P price of one new share, P 0 latest assessed price of one old share, N r split ratio. After the new shares are introduced for trading on the Bulgarian Stock Exchange Sofia or another regulated market their revaluation shall be carried out using the methods for valuation of securities traded on regulated markets The methods for determining the fair value of securities described above in p. 5.1, 5.2, 5.3, 5.4 can be adjusted with the help of coefficients, justified on the basis of information and circumstances constituting disclosed insider information in the sense of art. 28, para. 2 of Ordinance No.2 from 2003 on the prospectuses for public offering of securities and the disclosure of information by the public companies and other issuers of securities 6. When rights in a given company are acquired as a result of a capital increase procedure through issuing of shares, receivables (of rights) are recognised from the date from which the owners of shares of the company do not have the right to obtain rights for subscribing shares from the capital increase (the date after which the transactions completed with the shares do not affect the right to acquire rights) until the date of registration of the rights in the Central Depository AD or the relevant depository institution. The value of the receivables is calculated using the following formula: Rr N P r where R r receivables N number of rights P r price of one right The price of the right is calculated using the following formula: Pl Pi N r Pr Pl N r 1 where: 32

33 P r price of one right P l price from the latest valuation of the shares (before the detaching of the rights) P i issuing value of the new shares N r number of shares in one right From the date of registration of the rights in the Central Depository AD or the relevant depository institution they are recognised as an asset in the portfolio at the price determined using the formula above When it is impossible to apply the methods of valuation under p.4, the revaluation of rights shall be carried out at a price which is the difference between the price of the existing shares of the company, determined under the requirements of p.4, and the issue value of the new shares from the capital increase, multiplied by the ratio of the number of shares in one right From the date of shares subscription as a result of capital increases until the date of registration of the capital increase and entering it into the Central Depository AD or the relevant depository institution, the shares subscribed are reflected as receivables formed by multiplying the number of shares subscribed by the sum total of the value of one right as per the latest valuation before the subscription, divided by the number of shares in one right, and the issue value of one share. Pr R N n P, i N r where R receivable, N n number of shares subscribed, P i issue value of one share, P r value of one right, N r number of shares in one right. From the date of subscribing the shares as a result of exercising the rights until the date on which their issue value is paid a liability to the issuing company exists From the date of entering of the new shares in the Central Depository AD or the relevant depository institution until the date of their introduction for trading on the Bulgarian Stock Exchange Sofia or another regulated market, the new shares are recognised at a price calculated using the following formula: Pr P Pi N r where: Р price of the share P i issue value of one share P r value of one right N r number of shares in one right After the new shares are introduced for trading on the Bulgarian Stock Exchange Sofia or another regulated market their revaluation shall be carried out using the methods for valuation of securities traded on regulated markets Where shares are acquired by non-public joint-stock company as a result of IPO shares are recognized from the date of their registration with the depository institution (the date of subscription of the shares at the date of their registration with the depository institution subscriptions are recorded as a receivable in an amount equal to the issue price paid). Subsequent valuation of the shares on the date of their registration with the depository institution and the date of admission of shares to trading on a regulated market shall be at a price equal to the issue price per share. After the introduction of shares to trading on the regulated market subsequent assessment, the methods for valuation of securities admitted to or traded on a regulated market In the event that, within one year from the date of issue of the shares subject to the IPO, they are not listed for trading on a regulated market, the revaluation of these shares is done on methods of determining fair value in accordance with sections 5.1, 5.2,

34 6.5. Where shares are acquired in the formation of a new joint stock company, the shares are valued at their issue price and the date of admission of shares to trading on the regulated market. After the introduction of shares to trading on the regulated market subsequent assessment, the methods for valuation of securities admitted to or traded on a regulated market In the event that, within one year from the date of issue of the shares of the newly established company under item 6.5. they are not listed for trading on a regulated market, the revaluation of these shares is determined using the fair value in accordance with sections 5.1, 5.2, If the shares are recorded at the formation of a new joint-stock company, which does not provide for subsequent registration for trading on a regulated market (as far as is permitted by the rules of the Fund), they are valued at their issue price and the date of entry of the company in commercial Register. After entering the subsequent valuation of the shares shall be made in accordance with sections 5.1, 5.2, In the case of acquisition of rights in a company at issue warrants underlying future issue of shares of the Company recognizes a receivable (rights) from the date on which the holders of shares in the company have the right to receive subscription rights of Warrants (the date, after which the transactions with shares not affect the right to acquire rights) until the date of registration of the rights to the depository institution. R The value of receivables is calculated using the following formula: N, r P r where: Rr receivable; N number of rights; Pr price of the right. The price of the right is calculated using the following formula: P r Pl ( Pi Pw N Pl N 1 r r where: Pr price of the right; Pl price of the last valuation of the share (before separation of rights); Pi - issue price of the underlying asset (the exercise price of the warrants); Pw issue price of the warrants; Nr number of rights in one right. From the date of registration of the rights to the depository institution, they are recognized as an asset in the portfolio at a price determined by the formula specified above Failing to apply the valuation methods under item 4, the revaluation of rights at issue of warrants is carried at cost which is the difference between the price of the existing shares of the Company, as determined by the requirements of paragraph 4, and the sum of the issue price of the underlying asset value and issue price of the warrants, multiplied by the ratio of the number of warrants in one right From the date of registration of the warrants as a result of exercising the rights to the date of registration of the warrants and their entry into the depository institution enrollment warrants are recorded as a receivable, which is formed as enrollment warrants multiplied by the sum of the value of a law last assessment before signing the warrants, divided by the number of warrants in one right and the issue price of a warrant. P r R N n Pw, N r where: R receivable; N n number of sunscribed warrants; P w issue value of one warrant; P r valu of one right; 34

35 N r number of warrants in one right. From the date of registration of the warrants as a result of exercising the rights to the date of payment of the issue value a liability arises to the issuer of the warrants From the date of entry of the warrants by the depository institution and the date of admission to trading on a regulated market, the warrants are recognized at a price calculated by the following formula: Pr P Pw, Nr where: Р price of the warrant; Pw issue value of one warrant; Pr value of one right; Nr number of warrants in one right. After introduction to trading on the regulated market of the warrants subsequent assessment, the methods for valuation of securities listed or traded on a regulated market Upon subscription of shares of non-public joint-stock company, which does not provide for subsequent registration for trading on a regulated market (as far as is permitted by the rules of the Fund), the revaluation of shares shall be effected by the methods for measuring fair value in accordance with sections 5.1, 5.2, Revaluation of units of collective investment schemes and / or other collective investment undertakings under art. 38, para. 1, item 5 LACISOCIV, including in the case of suspension of redemption shall be made at the latest published redemption price Revaluation of the shares issued by ETFs and other exchange-traded products (ETFs, ETNs and ETCs), including units of collective investment schemes and / or other collective investment undertakings under art. 38, para. 1, item 5 LACISOCIV where there are restrictions on the purchase and redemption for a certain class of investors and / or a certain amount of contract as a result of these restrictions Mutual Fund may not purchase shares held directly by the issuer and, accordingly, bring redemption units held, the financial instruments are measured: а) At the closing price of the transactions concluded on the regulated market of securities which are traded shares and shares of ETFs, ETNs and ETCs, announced through the trading system or exchange bulletin on the business day preceding the valuation day. b) If impossible to implement item "a", units and shares of ETFs, ETNs and ETCs are valued at the last calculated and announced by the relevant regulated market indicative net asset value per share (inavindicative net asset value). c) If impossible to apply the method of evaluation in the previous point, as in the case of suspension of redemption of units / shares in the ETFs, ETNs and ETCs for a period longer than 30 days, they are valued at the last determined and published by the publisher net asset value per unit / share. 8. The revaluation of Bulgarian and foreign bonds listed on or accepted for trading for trading on regulated securities markets in the Republic of Bulgaria, as well as Bulgarian and foreign bonds listed on or accepted for trading on regulated securities markets in EU member states is carried out as follows: a) if the volume of the transactions completed during the day is not smaller than 0.01 percent of the volume of the respective issue - at the weighted average price of the transactions completed with them during the current business day, as announced in the trading platform or the stock exchange bulletin; b) if the price cannot be determined under a), the bonds shall be revalued at the weighted average price within the last 30-day period of the valuation date, provided that there were completed transactions on that day; c) In the event that the regulated market is not closed by 3pm, the revaluation is carried out in accordance with p.3. b), and in the event that the market is closed on the valuation day in accordance with p.3. c); d) Bonds, where there is an upcoming interest payment, and the price of the transactions completed with them during the current business day, as announced in the stock exchange bulletin, or the bid price is a net price, will be revalued by adding the interest coupon owed as at the valuation date to the price announced in the bulletin: The value of the interest accrued is determined with the help of the following formula: 35

36 C A AccInt F * * n E Where: AccInt interest coupon accrued F principal (the nominal value) of the bond C annual interest coupon n number of interest payments per annum A number of days for which interest is due from the beginning of the interest period to the date of calculating. The days shall be calculated on the basis of 30 days in a month or as actual number of days depending on the regulations in the prospectus of the corresponding issue. E number of days in the current interest period. The days shall be calculated on the basis of 360, 364, 365, 366 days in a year or as actual number of days depending on the regulations in the prospectus of the corresponding issue. The interest coupon accrued as at the valuation date shall be added to the net price and the gross price calculated in this way shall be used for the revaluation of the bond. 9. If it is impossible to apply p. 8 a), b) and c) for determining the value of bonds traded on regulated markets, as well as for bonds which are not traded on regulated securities markets, the discounted cash flow method shall be applied using the formula below. The discount rate shall be as follows: a) the current yield to maturity of securities with similar characteristics (type, payment conditions and maturity), traded on regulated securities markets, adjusted with a risk premium reflecting the risk of the issuer. The choice of the security the yield to maturity of which will be used as a discount rate, as well as the choice of the risk premium which will be used to adjust the chosen discount rate, shall be justified with the help of a comparative analysis. The source of information about the comparable characteristics shall be the daily bulletin of the Bulgarian Stock Exchange, the official bulletins of the foreign regulated markets where the securities are traded, or another electronic system for securities price information; b) the current yield to maturity of government bonds with similar payment conditions and maturity, adjusted with a risk premium reflecting the risk of the issuer and the security. c) the following formula shall be used in the discounted cash flow method: N C n F P / i 1 w i w i r n r n 1 1 (1 / ) 1 / where: P price of the security F principal of the security C annual coupon of the bond n number of interest payments per annum N total number of interest payments r discount rate (equal to the yield to maturity) i sequential number of the interest payment number of days until the next interest payment w total number of days between two interest payments 10. The revaluation of foreign securities listed for trading on regularly functioning, recognised and publicly accessible regulated securities markets abroad shall be marked to market as follows: For securities listed on regulated markets and official markets of stock exchanges, which are closed by 3pm Bulgarian local time at the valuation day: a) at the last price of a transaction completed with them at the regulated market on the valuation date; b) if the price cannot be determined under a), the revaluation shall be carried out at the best bid price, announced in an electronic price information system for the current business day at the time of closing of the regulated market; c) if the price cannot be determined under item b) as well, the revaluation is carried out at the last price of transactions completed with these securities within the last 30-day period For securities listed on regulated markets and official markets of stock exchanges, which are not closed by 3pm Bulgarian local time at the valuation day: 36

37 a) at the last price of a transaction completed with them at the regulated market on the day preceding the valuation date; b) if the price cannot be determined under a), the revaluation shall be carried out at the best bid price, announced in an electronic price information system on the day preceding the valuation date at the time of closing of the regulated market; c) if the price cannot be determined under item b) as well, the revaluation is carried out at the last price of transactions completed with these securities within the last 30-day period If the price cannot be determined in accordance with p and 10.2., the securities revaluation is carried out according to p.5., p.6., and p The revaluation of derivatives shall be carried out in accordance with p and If it is impossible to apply p. 11for determining the price of options traded on regulated securities markets, the marking to market shall be carried out using the Black-Scholes approach for determining prices of options. The Black-Scholes model covers the valuation of call options that is why the value of the put options will be a function of the price of a call option for the corresponding asset under the same conditions. Formula for determining the price of a put option: P = C+Xe -rt -S 0 where: С price of the call option calculated using the Black-Scholes model. Х strike price. е , the base of the natural logarithm function. r risk-free interest rate. T time until the maturity of the option in years. Xe -rt = PV (X) present value of the strike price. S 0 current price of the base asset (the asset for which the option is constituted) Calculation of С the price of the call option for the corresponding asset with the same parameters (Black-Scholes formula): C 0 =S 0 N(d 1 )- Xe -rt N(d 2 ) where 2 ln(s0 / X ) ( r / 2) T d1 T d 2 d 1 T and where С 0 current value of the call option S 0 current value of the base asset N(d) probability of a random experiment on the standard normal distribution having a value lower than d. The corresponding values can be found in tables showing the values of the standard normal distribution. X strike price e , the base of the natural logarithm function r risk-free interest rate T time until the maturity of the option in years Xe -rt = PV (X) present value of the strike price ln natural logarithm function - standard deviation of the rate of return on an annual basis (continually capitalised) of the base asset (volatility). The standard deviation of the rate or return for n observations is calculated using the following formula: n n 1 n t 1 ( r r ) t n 2 37

38 where r is the average return for the period of the sample. The rate of return on day t is determined in accordance with the continual capitalisation as r t =ln(s t /S t-1 ). 12a. If p. 11 cannot be applied in determining the price revaluation of warrants listed for trading on regulated markets, the valuation shall be carried out using the formula in section 12 of the calculation of the cost of purchase options (call options). 13. If it is impossible to apply p. 11 for determining the price of futures traded on regulated securities markets, the marking to market shall be carried out as follows: F = {S PV(D,0,T)}* (1+Rf) T, where: F price of a futures contract; S spot price of a base asset; PV(D,0,T) present value of an expected dividend; Rf risk-free interest rate; Т number of days in the contract divided by а. The subsequent measurement of derivative financial instruments traded OTC, is carried at cost "buy" market maker at market close on the business day preceding the valuation date. If this rule cannot be applied: 13а.1. revaluation of options traded OTC, is done using the formula in section 12; 13а.2. revaluation of currency forward contracts is performed using the formula given below. When the maturity of foreign exchange forward contracts is less than 1 month and if there are minor differences in the values of interest rates due to the short term and negligible impacts discount factors, it is assumed that the forward exchange rate to the date of the follow-up assessment (t) is equal to the current spot exchange rate. V t N C P T t T t 1 i A 1 ib where: V t - value of the forward contract; N size of the forward contract; C - current spot rate between the two currencies; P forward exchange rate agreed at the conclusion of the forward contract; Both the exchange rate expressed as units of currency in exchange for one unit of A. i A risk-free rate for currency A; i B risk-free rate for currency B; T maturity date of the forward contract; t current date. 13а.3. subsequent evaluation of forwards, other than those mentioned t.13a.2., shall be carried out using the formula in section 13; 14. In cases where no trade takes place on a regulated market in the country working days or when certain securities are suspended from trading for revaluation of the securities admitted to or traded on a regulated market, the value valid for the day of the last trading session is taken. When bonds are valued under the first sentence the interest accrued for the relevant days is taken into account. This also applies in cases where a regulated market does not conduct trading session due to nonworking day in the respective country, which is a working day in Bulgaria. This rule does not apply where the regulated market is not trading sessions held for more than 5 working days. In this case, the revaluation is carried out by applying section 5, 6, 9, 12 and Bank deposits, cash in hand, short-term receivables and receivables due but not received dividend shall be valued at the date of assessment as follows: a) bank deposits - at face value; 38

39 b) cash - at face value; c) demand deposits - at face value; d) short-term receivables with no stated interest rate or yield - at cost; e) short-term receivables with an interest rate or yield - at cost; f) taking overdue but not received a dividend from a company whose shares are listed or shown on the assets in the portfolio - at cost. 16. Financial assets denominated in foreign currencies are translated to BGN equivalent using the exchange rate of the Bulgarian National Bank, valid for the date of the valuation, and if it is missing, determined by reference rates announced by the European Central Bank (ECB ) and the rates of the central banks in the countries in which the Fund invests are valid for the date of the valuation. 17. Revaluation of the money market instruments admitted to or dealt in on a regulated market shall be determined in accordance with paragraph 10.1 and Failing to implement and so t , and money market instruments which are not admitted to or dealt in on a regulated market, using the following formulas: The value of the certificate of deposit is determined by the following formula: MV P CD, d 1 i 365 where: c d MV N P CD is the value of the CD; MV the value of the CD at maturity; N par value of the CD; d number of days between the valuation date and the maturity; i discount rate; c interest payable upon the deposited amount shown on the certificate. The value of the short-term Treasury (T-bill) is determined according the formula below: d P Tb N 1 i 365 P Tb is the price of the T-bill; N par value; i discount rate; d number of days between the valuation date and the maturity. The discount rate in the formulas above is determined according to p.9 a) or p. 9 c) of these rules. 18. Revaluation of transferable securities, financial instruments and money market instruments admitted to trading on more than one regulated market shall be made at prices made public by the regulated market on which the relevant day is traded at a large volume of relevant transferable securities, financial instruments and money market instruments. 19. Repurchase and reverse repo transactions Repo transaction here the fund sells securities with a commitment to repurchase them at a specified future date at a price agreed in the contract to repurchase. The funds provided to the Fund under repurchase agreement are valued at nominal value, and the liabilities arising under the transaction are valued with the accrued interest, agreed upon the repo transaction. Provided securities are not written off and are valued by the methods of valuation of the securities mentioned above Reverse repo transaction here the fund buys securities with a commitment to sell them back at a specified future date at a price agreed in the contract to repurchase. The funds provided by the Fund under an reverse repo shall be deducted at face value. The value of the asset is increased by an amount comprising the 39

40 nominal value of the incurred claims and accrued interest, agreed under the repo transaction. The resulting papers are not assigned to the assets of the Fund and are not revalued for the purposes of calculating its net asset value Liabilities valuation methods The value of the liabilities of the Fund is equal to the sum of the book value of short and long-term liabilities on the balance sheet. Liabilities denominated in currencies other than lev is translated to BGN equivalent using the exchange rate of the Bulgarian National Bank, the reference rate announced by the European Central Bank (ECB) and the rates of the central banks in the countries in which the Fund invests valid the day of the valuation. Liabilities are valued in accordance with the accounting practices at the time of the assessment Determining the net asset value The net asset value of the Fund is calculated by deducting the liabilities of the Fund from the total value of all assets valued according to the methodology above. 19. TERMS AND PROCEDURE FOR DETERMINING THE UNIT ISSUE PRICE AND REDEMPTION PRICE The issue and redemption price of units of the Fund are calculated by the Management Company under the control of the Custodian in accordance with the Rules for valuation and determination of the net asset value of the Fund adopted by the company and approved by the FSC. The Management Company determines the net asset value per share issue price and the redemption price twice a week - on Monday and Thursday, no later than 5 pm (Bulgaria time) and announces them publicly 5 pm (Bulgaria time) of the same day. If a Monday and Thursday is a holiday, a determination is made on the next business day. The procedure for determining the net asset value, net asset value per share, the issue price and the redemption price of DF ADVANCE INVEST in the NAV calculation days is as follows: each day the Management Company receives information from the "Central Depository" AD on the number of units of the Fund outstanding as at the calculation of the net asset value using the number of shares in circulation at the time of the determination. until 1pm the assets and asset prices traded in markets that are used where the prices of the business day preceding the valuation date under the current rules are determined. until 3:30pm the posting of all the operations of the Fund and the revaluation of assets and liabilities is conducted. Information for the valuation of assets of the Fund shall be collected from bank statements, quotations of primary dealers, stock newsletters, stock exchange, electronic pricing information, official financial statements of companies, historical price and statistical information, the official website of relevant collective investment schemes and / or information received by the Custodian carrying out the role of a global custodian for the assets of the Fund. until 3:40pm, all assets and liabilities are translated at the exchange rate lev the Bulgarian National Bank, the reference rate announced by the European Central Bank (ECB) and the rates of central banks in the countries in which the Fund invests, valid for the day the valuation. until 3:50pm the net asset value, net asset value per unit issue price and the redemption of Fund units is determined. The net asset value per share is determined by dividing the net asset value of the Fund divided by the number of Fund units outstanding at the time of such determination. until 4:00pm a notification to the Custodian on the designated net asset value, net asset value per share, issue price, redemption price of the shares of DF ADVANCE INVEST, as well as the Fund's units in circulation is submitted until 4:40pm a confirmation by the Custodian of the correctness of the calculated net asset value, net asset value per unit issue price and the redemption of shares of DF ADVANCE INVEST / when deviations are noted, adjustments are made / is expected. until 5:00pm notification to the FSC by the issue price and the redemption price of the units of DF ADVANCE INVEST are sent. Notifications are sent to all offices of Karoll Capital Management after 5 pm the information published on the website of the Management Company. The announcement of the issue price and the redemption price is made by: 40

41 publication on the management company s website on the day of determination; announcement to the Financial Supervision Commission on the date of determination; announcement at the places under p.13.1 and of this Prospectus ("Places for submitting written requests for subscription of units of the Fund" and "Places for submitting written requests for redemption of Fund") on the day of determination; announcement on the website of the Bulgarian Association of Asset Management Companies The issue price is equal to the net asset value per share at the date of its calculation, increased with the issuance costs, calculated as a percentage of net asset value per share as follows: per cent of the net asset value per share if the the total investment is up to BGN ; - 1 per cent of the net asset value per share if the invested amount is between BGN and ; percent of net asset value per share if the invested amount is between BGN and ; - 0 percent of the net asset value per share if the total investment is over BGN The management company executes orders for the purchase of shares at a price per share based on the issue price for the nearest day following the day on which the order was made. All orders for subscription of units produced between two determinations and the announcement of the issue price are executed at the same price. The redemption price is equal to the amount of the net asset value per share at the date of determination. The Management Company executes redemption order at a price equal to the redemption price determined on the next business day following the day of submission of the request for redemption. Any redemption received between two redemption price determinations and publications are executed at the same price. Prerequisite for the calculation of the issue price and the redemption price is the lack of grounds to suspend the issue (sale) and redemption of units of the Fund as defined in Section of this Prospectus (the "Terms and Conditions for suspension of redemption"). In calculating the net asset value per share, the issue price and the redemption price will be rounded to the fourth digit after the decimal. 20. FEES AND COMMISSIONS AT PURCHASE AND SALE OF UNITS When buying shares, investors pay the issue price equal to the net asset value per share increased by the cost of issuance, calculated as a percentage of net asset value per share as follows: For orders of up to BGN (one hundred thousand leva) inclusive, the fee for each purchased unit is in the amount of 1.5% (one point five percent) of the net asset value per unit. For orders between BGN (one hundred thousand leva) and BGN (five hundred thousand leva) inclusive the fee for each purchased unit is in the amount of 1% (one percent) of the net asset value per unit. For orders between BGN , 01 (five hundred thousand and one hundredth leva) and BGN до (one million leva) inclusive the fee for each purchased unit is in the amount of 0.5% (zero point five percent) of the net asset value per unit. For orders of above BGN (one million leva) the fee for each purchased unit is in the amount of 0% (zero percent) of the net asset value per unit. Investors do not pay redemption fees upon redemption of DF ADVANCE INVEST units at Karoll Capital Management. At secondary trading of Mutual Fund units over-the-counter or at another transfer of Fund units /donation, inheritance/, investors may be required to pay additional fees and commissions as per the tariff of the investment broker they have selected to perform such transfers. 41

42 In case upon placing a Fund unit purchase order investors pay the issue price by bank transfer, the respective bank charges related to the transfer are borne by them. Investors cover also any bank charges at repayment of amounts by the Management Company to investors, in case an investor has requested its monies to be paid by bank transfer or if this method of payment is obligatory pursuant to the current legal provisions. 21. EXPENSES AND FEES. DIFFERENTIATION BETWEEN EXPENSES AND FEES PAYABLE BY UNIT-HOLDERS AND THOSE PAYABLE USING FUND RESOURCES The purpose of this section is to inform investors about the expenses related to their investment in ADVANCE INVEST units, including: (1) expenses directly covered by a particular investor/unit-holder at purchase and redemption of Mutual Fund units ( Transaction costs for investors/unit-holders ); and (2) annual costs related to the Fund activity ( Operational costs ), which are covered by all unit-holders and are paid using Mutual Fund resources Transaction costs for investors/unit-holders When buying shares, investors pay the issue price equal to the net asset value per share increased by the cost of issuance, calculated as a percentage of net asset value per share as follows: For orders of up to BGN (one hundred thousand leva) inclusive, the fee for each purchased unit is in the amount of 1.5% (one point five percent) of the net asset value per unit. For orders between BGN (one hundred thousand leva) and BGN (five hundred thousand leva) inclusive the fee for each purchased unit is in the amount of 1% (one percent) of the net asset value per unit. For orders between BGN , 01 (five hundred thousand and one hundredth leva) and BGN до (one million leva) inclusive the fee for each purchased unit is in the amount of 0.5% (zero point five percent) of the net asset value per unit. For orders of above BGN (one million leva) the fee for each purchased unit is in the amount of 0% (zero percent) of the net asset value per unit. Investors do not pay redemption fees upon redemption of DF ADVANCE INVEST units at Karoll Capital Management. Unitholders of the Fund do not directly pay any other fees for the issuance or redemption of units, other than the ones described above. There are other costs that are indirectly borne by all unitholders and are described in detail in the next section. At change of the amount of expenses on issue and redemption of Fund units, the Management Company shall inform the unit-holders though a publication on the web site of the Managing Company immediately after the changes of the Mutual Fund Rules have been approved but at the latest on the following day after it has become aware of the changes approval Annual operational costs These costs are deducted from the assets of ADVANCE INVEST, thus being indirectly covered by all unit-holders. They are the second component of the expenses that investors should bear in mind when investing in the Mutual Fund. The table below shows the maximum annual operational costs of ADVANCE INVEST, presented as a percentage of the mean annual net value of its assets, as these costs have been planned by the Management Company: 42

43 Annual operational costs of the Fund presented as a percentage of the mean annual net asset value of the Fund: Remuneration for the Management Company 2.5 % Other Operational Costs 2 % Total Operational Costs 4.5 % Other Operational Costs include main predictable operational cost that the Management Company incurs at the expense of the Fund such as: - Expenses for remuneration of the Depositary Bank, the certified auditors, consultants, storage fees for the Fund securities and cash in Bulgaria and abroad, etc.; - Expenses for advertising, marketing and PR, provision of information to and contacts with Fund investors and unit-holders; - Expenses for current supervision and membership fees and similar charges payable to the Financial Supervision Commission, the security regulated market, the Central Depositary AD, state authorities and institutions related to the Fund activity; - Legal and other costs related protecting the unit-holders interests; - Expenses for sending documents related to unit purchase and redemption to the investors addresses; - Other expenses directly related to the Fund activity; - Expenses incurred at change of the Depositary bank. The remuneration of the Custodian shall be determined pursuant to a contract of and includes fees for safekeeping and transfer of financial instruments to confirm the net asset value, fees for corporate actions, and other charges under the contract and its annexes. Detailed breakdown of all costs charged to the Fund's assets and different from the costs in p.21.1 of this Prospectus, for the last three years is set out on page 52 of this document. The "Other operating expenses" in the first year of the establishment of the Fund shall includes the costs associated with its establishment, including fees for supervisory and other institutions. Management company shall take measures to limit the total amount of the above "Other operating expenses" to 2 per cent of the average annual net asset value, while keeping the total annual operating expenses of the Fund including his remuneration and management of the Fund, to 4.5 percent of average annual net asset value on the balance sheet of the Fund. The limit under the preceding sentence shall not include costs to transactions in securities and investing the assets of the Fund on the revaluation of investments in securities, cost of exchange losses, extraordinary expenses, which are not the fault of the officials or due of reasons beyond the control of the Management Company, and other expenses as provided by law. The Management Company cannot collect fees that are not provided for or exceed the amounts stipulated in the present Prospectus and the Fund Rules. The same applies also to the expenses determined in the present Prospectus and the Fund Rules related to the issue and redemption of Fund units (so called Transaction costs for investors/unit-holders ). 22. CUSTODY BANK INFORMATION Name: Eurobank Bulgaria AD Headquarters and management address : Sofia, Vitosha district, 260 Okolovrasten pat blvd. UIC: Tel: (+359 2) Fax: (+359 2) Е-mail: [email protected] Website: License to conduct bank activities: License Б 05/ , issued by BNB; The Management Company cannot collect fees that are not provided for or exceed the amounts stipulated in the present Prospectus and the Fund Rules. The same applies also to the expenses determined in 43

44 the present Prospectus and the Fund Rules related to the issue and redemption of Fund units (so called Transaction costs for investors/unit-holders ).Pursuant to an Agreement of г. and subsequent annexes Eurobank EFG Bulgaria AD, in its capacity of a Depositary Bank of the Fund, performs the following activities, for a consideration: Storage of ADVANCE INVEST cash amounts; Storage of available ADVANCE INVEST securities; Performance of all payments on behalf and at the expense of the ADVANCE INVEST within the legally defined terms; Maintaining accounts for dematerialised financial instruments owned by the ADVANCE INVEST under its sub-accounts with the Central Depositary AD, the Bulgarian National bank or another depositary institution; Ensuring the issue /sale/, redemption and invalidation of the Mutual Fund units pursuant to the law, the regulations on its implementation, the Prospectus and the ADVANCE INVEST Rules; Exercising control on the calculation of the issue price and the redemption price of the Mutual Fund units by the Management Company, where such calculation must comply with the law, the rules, the Prospectus and the ADVANCE INVEST Asset Valuation Rules; Ensuring that the collection and utilisation of the Mutual Fund income complies with the law and the Fund Rules and that the Management Company remuneration is calculated and paid in pursuance with the Law and the Fund Rules. While providing the depositary services, the Depositary Bank shall keep the entrusted assets as follows: - The dematerialised financial instruments owned by the FUND will be filed with a depositary institution under a sub-account of the Depositary Bank; - The remaining FUND assets are stored on its behalf at the Depositary Bank. The Depositary Bank will not be liable to its creditors with the Fund assets. The Depositary Bank will dispose with the Fund assets entrusted to it only upon instructions by the authorised persons. 23. INFORMATION ABOUT THE CONSULTING COMPANIES OR EXTERNAL CONSULTANTS PROVIDING ADVICE AT CONTRACTUAL TERMS WHOSE REMUNERATION IS PAID FROM THE FUND ASSETS There are not consulting companies or external consultants that provide advice at contractual terms whose remuneration is paid from the DF ADVANCE INVEST assets. 24. DESCRIPTION OF THE MUTUAL FUND INVESTMENT ACTIVITY DURING THE YEARS PRECEDING THE PROSPECTUS PUBLICATION OR UPDATING DATE The below data refers to the performance of the collective investment scheme as an investment company, its form prior to its transformation from an investment into a mutual fund. 44

45 Percentage change of the Price of Advance Invest vs. the SOFIBET Benchmark* Адванс Инвест Бенчмарк *index constructed by Karoll comprising 50% SOFIX-Bulgaria and 50% BET-Romania ADVANCE INVEST Portfolio Structure as of *България Bulgaria; Румъния Romania, Парични средства Cash, Други - Other 45

46 Sector breakdown of the portfolio as of : Потребителски стоки Consumer discretionary Финансови услуги Financial Services ДРУГИ OTHER Индустриални Industrial Инфраструктура Infrastructure Комунални услуги Utitilities Здравеопазване Healthcare ПАРИЧНИ СРЕДСТВА CASH Финанси и недвижимости Finance and real estate Енергетика Energy Холдинги - Conglomerates Selected Financial Information: INDICATOR Value at Value at г. Value at г. NAV per share at the beginning of the period Income from investment deals per share (in BGN) 4.00% -0.23% 7.71% Net income from investments Capital gains from securities realized Capital gains from securities unrealized Total income from investment deals Weighted average number of shares outstanding Dividends and other distributions per share: Dividends from net income from investments Distributions from capital gains Total dividends and distributions NAV per share at the end of the period

47 Total return per share (in percentages) % % -5.02% Additional information: Total NAV at the end of the period Weighted average NAV Operating expenses Expense to average NAV ratio 4.60% 4.14% 4.61% Net income (in BGN) Net income to average NAV ratio -1.80% -4.75% 6.28% Portfolio turnover (in percentages) 8.80% 14.32% 16.78% *The Income from investment deals per share indicator is calculated as the ratio between the total income from investment deals and the weighted average number of shares outstanding for the period. Net income from investments accounts for the revenues from interest payments and dividends. Capital gains realized and unrealized accounts for the fund's net income as a result of the price changes of portfolio holdings during the respective period. The Portfolio turnover indicator shows the ratio of the lesser value of sales or purchases of securities for the fund's portfolio to the weighted-average annual NAV of the fund. Expenses Breakdown by Type Title Operating Expenses Amount in BGN at % of average annual NAV 47 Amount in BGN at % of average annual NAV Amount in BGN at % of average annual NAV Remuneration of the management company % % % Remuneration of the custody bank % % % Remuneration for Citibank Romania % % % Safekeeping of foreign securities % % Remuneration of the Board of Directors % % % Salaries % % % Social, pension and health assurance % % % Advertisement expenses % % Financial Supervision Commission fees % % % Subscription fees % %

48 Audit expenses Expenses for foreign tax agents Other % % % % % % % % % TOTAL Operating Expenses % % % Share subscription expenses % % % Other Selected indicators: INDICATOR Value at Value at Value at Minimum issue value Maximum issue value Minimum redemption value Maximum redemption value Weighted average redemption price Weighted average issue price per share for orders up to BGN Weighted average issue price per share for orders between BGN and Weighted average issue price per share for orders BGN and Weighted average issue price per share for orders above BGN INDICATOR Number of shares outstanding Shares issued during the period Shares redeemed during the period Value at Value at Value at

49 25. INFORMATION ABOUT THE APPROVED AND USED LOANS Since its establishment to date the collective investment vehicle has not applied for not used any loans. THE UNIT VALUE OF ADVANCE INVEST AND THE INCOME FROM THEM MAY DECREASE, THE PROFIT IS NOT GUARANTEED AND THE INVESTORS ASSUME THE RISK OF NOT BEING ABLE TO RECOVER THEIR INVESTMENTS IN THEIR FULL SIZE. THE INVESTMENTS IN THE MUTUAL FUND ARE NOT GUARANTEED BY A GUARANTEE FUND ESTABLISHED BY THE STATE OR BY ANY OTHER GUARANTEE. PREVIOUS RESULTS OF THE FUND ACTIVITY CANNOT BE RELATED IN ANY WAY TO ITS FUTURE RESULTS. IT IS POSSIBLE THAT THE NET VALUE OF THE FUND ASSETS BE SUBJECT TO FLUCTUATIONS DUE TO THE COMPOSITION OF OR THE TECHNIQUES FOR MANAGING ITS PORTFOLIO. 26. PROFILE OF THE TYPICAL INVESTOR FOR WHOMM THE MUTUAL FUND IS INTENDED AND TO WHOM THE FUND ACTIVITY IS TARGETED The policy of DF ADVANCE INVEST presumes a focus on equity investmentss, which means that the Fund is oriented toward a higher expected return and consequently higher risk. To achieve its investment objectives DF ADVANCE INVEST will focus its activities on both individual and institutional investors. Individual investors are characterized by the dynamics of dominant moods and the heterogeneity of the investor groups. The good understanding of the needs and views of investors provides a possibility for their segmentation. Segmentation means investor classification in relatively homogeneous groups that can be offered a specific product adapted to their specific demands. The following criteria can be used for defining the different segments: Amount of savings; Amount and type of incomes; Investors age; Professional groups; Expected income preferences; Life status /married, single, workers, retirees/; Psychological profile /readiness for risk taking, maturity of the decisions, inclination for novelty ADVANCE INVEST will target its activities mainly at the so-called active investors. These investors receive high incomes and possess considerable savings between the ages of 25 and 45. The potential ADVANCE INVEST shareholders are people with high risk tolerance, who have an inclination for novelty and have some knowledge in the field of finance. Professional groups who tend to be active investors include entrepreneurs, physicians, accountants, lawyers, people with liberal professions, and teachers. These are mainly working and married people, whose main objective is to reach financial independence in the long term and whose return expectations are measured in double-digit figures. The management s expectations are that, as the Bulgarian public s investment culture improves, representatives of other categories of investors and professional groups will join the Fund. In the near future, more legal persons with free cash will start to pay greater attention to the excellent profit potential from operations with riskier securities. Institutional investors include banks, mutual funds, insurance companies, pension funds and other companies operating with securities. Until recently, these investors had adopted a rather conservative investment approach, and their portfolios consisted mostly of fixed income securities. In line with the expansion of the Bulgarian economy and the resulting income and the savings growth, the assets of the mentioned companies have been rising. Meanwhile, with the development of the Bulgarian capital market, these investors have become more willing to increase the risky part of their portfolios and to invest in the stock market more confidently, including indirectly by purchasing Fund shares such as those of ADVANCE INVEST. 49

50 With the EU accession of Bulgaria, ADVANCE INVEST intends to direct its activities toward international investors too natural persons as well as institutional investors that are interested in the emerging Eastern European market, which lie within the fund's focus. 27. INFORMATION ABOUT THE PLACE, TIME AND METHOD OF RECEIVING ADDITIONAL FUND INFORMATION AND DOCUMENTS Investors can receive the Prospectus, the Fund Rules, the Key Investor Information Document, the annual and 6-month report, as well as any additional information free of charge prior to conclusion of an agreement and after that every business day from 10:00 to 17:00 hours (Bulgarian time) at the office of Karoll Capital Management EAD Asset Management Company at the following address: Sofia, 57 Hristo Botev Blvd., tel.: 02/ , as well as at all offices of Karoll Capital Management EAD in Bulgaria. The Prospectus, the Fund Rules, the Key Investor Information Document, the annual and 6-month report are also available through the web site of the Asset Management Company at SUPERVISORY STATE INSTITUTION, NUMBER AND DATE OF THE PERMIT FOR ESTABLISHMENT AND MANAGEMENT OF THE MUTUAL FUND The Supervisory state institution is the Financial Supervision Commission. The number and date of the permit for establishment and management of ADVANCE INVEST is 561 of , when FSC issued the license for an investment company, and later with decision 736 ДФ / a permit to operate ADVANCE INVEST is issued to the transformation of the fund. 29. DATE OF PROSPECTUS PUBLISHING This prospectus was published on Karoll Capital Management EAD, acting on behalf of contractual fund ADVANCE INVEST, has drafted the current prospectus. The undersigned legal representatives of Karoll Capital Management EAD declare that the Prospectus complies with the legal requirements: Daniel Ganev Managing Director of Karoll Capital Management EAD Alexander Nikolov Vice-Chairman of BoD of Karoll Capital Management EAD 50