Slovakia Regulation FUNDS AND FUND MANAGEMENT Type of funds. An open-ended mutual fund. A closed-ended mutual fund. Special mutual fund:

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1 Slovakia Regulation FUNDS AND FUND MANAGEMENT Type of funds The following types of funds may be formed under Slovak law: An open-ended mutual fund A closed-ended mutual fund Special mutual fund: o o o Risk special mutual fund Diversified special mutual fund Real estate mutual fund Risk and diversified special mutual funds may only take form of an open-ended fund while real estate mutual fund may take both an open-ended as well as a closed- ended mutual fund. Units in a mutual fund are called participation certificates. Mutual funds are not legal entities. 2.2 Laws Business activity in the area of collective investment is primarily regulated by the Act No. 594/2003 Coll. on collective investment as amended. Other applicable laws include the following laws: Act No. 513/1991 Coll. Commercial Code as amended Act No. 566/2001 Coll. on securities and investment services as amended Act No. 429/2002 Coll. on stock exchange as amended Act No. 530/1990 Coll. on bonds as amended

2 2 Slovakia Regulation Act No. 595/2003 Coll. on income tax as amended 2.3 Managers and custodians Managers Mutual funds are established and administered by investment companies (i.e. asset management companies), that can only be established as joint stock companies. A license issued by the National Bank of Slovakia is required to establish an investment company and to manage mutual funds. An investment company has to comply with the following requirements: Its share capital has to be at least EUR 1 million and it has to be paid up before the application for a license is filed. Changes in ownership structure exceeding 20 percent, 30 percent, or 50 percent of voting rights or share capital or to become a subsidiary are subject to approval by the National Bank of Slovakia. Its minimum capital should not be lower than EUR 1 million plus 0.02 percent of total assets managed by the company exceeding EUR 250 million but maximum of EUR 10 million or 25 percent of total operating expense for previous calendar year. An investment company may only issue the following securities: bookentered, registered shares. The scope of permissible business activities is limited to management of mutual funds, portfolio-management, investment advisory services, custodian services, and certain investment management services. A mutual fund is not a separate legal entity and the establishing of a mutual fund requires permission of the regulator. Separate accounts must be kept for the investment company and for each of its mutual funds. There are no limits for remuneration of the investment company for the management of open-ended fund. An investment company with its seat in other EU Member State may act as a manager of investment funds in Slovakia through its branch with the permission of the National Bank of Slovakia. As of 1 May 2004 investment companies with their seat in EU Member State may provide their services in the territory of other Member States based on a European passport.

3 3 Slovakia Regulation Custodians A custodian of an investment company or a mutual fund may only be an entity with banking license that also has a license to act as a custodian. In general, an investment company administering mutual funds cannot also be a custodian of the same funds. There are no limits on remuneration of a custodian; however, the amount shall be stated in the agreement between the custodian and the investment company. Charges for the following activities are not involved in the remuneration of a custodian: Acquisition and settlement of trades in securities Custody and administration of foreign securities which the custodian pays to foreign entities Management of bank accounts and money transfer Remuneration of expert valuers for valuation of real estates 2.4 Investment restrictions The minimum amount of the net value of assets in open-ended mutual fund (value of assets of the mutual fund less its payables) must be at least EUR 1.5 million. In general, mutual funds may only invest in the following financial instruments: Transferable securities being traded on regulated stock market or a stock exchange where it is being actively traded New securities offerings which will be quoted on a regulated stock market or a stock exchange within one year Participation certificates of other mutual funds (subject to special requirements) Money deposited on current accounts and term accounts of banks up to 12 months Financial derivates (subject to special requirements) Other money market instruments (subject to special requirements) Funds may not invest in precious metals, not even in a certificate form.

4 4 Slovakia Regulation The quantitative representation of individual groups of securities in the fund s portfolio is subject to special rules. Open-ended mutual funds generally face more investment restrictions than closed-ended and special mutual funds Borrowing Mutual funds are allowed to take loans with maturity not exceeding one year. The total of such loans received may not exceed 10 percent of the value of assets of the mutual fund. 2.6 Accounts and prospectus The investment company has to keep separate accounting records and prepare financial statements for itself and also for each fund that it manages. Financial statements of investment companies and mutual funds must be audited. Except the annual financial statements, an investment company is obliged to prepare interim financial statements on a quarterly basis. The investment company is obliged to issue for each mutual fund under its management the following documents: Statute Prospectus Simplified prospectus Annual report Semiannual report Every marketing tool of a mutual fund must include a warning for the investors that there is a risk involved and the historical yield gives no guarantee that the fund will achieve the similar yield in the future. 2.7 Supervision The Slovak supervisory authority in the area of collective investment in Slovakia is the National Bank of Slovakia, the address of which follows:. Národná banka Slovenska Imricha Karvaša č Bratislava 2 Slovak Republic

5 5 Slovakia Regulation As Slovakia recently adopted the strategy of a single supervisory body, supervisory and regulatory competencies were moved from the Financial Services Authority to the National Bank of Slovakia in Fund ownership There is no restriction with respect to the percentage of units in a fund which may be held by a person or by a group of persons. The property of the fund is in the common ownership of the holders of participation certificates. In general, risk funds may only be established for the period up to 10 years. Risk special funds may not have more than 50 shareholders. 2.9 Fund structure A participation certificate of a mutual fund can be issued as a registered certificate or a bearer certificate. Participation certificates of other open-ended mutual funds may not exceed 20 percent of the assets of the open-ended mutual fund Stock exchange As regards the quotation of participation certificates on a stock exchange, the same rules as for other securities shall apply. Participation certificates may be traded on a stock exchange provided they meet the requirements of the Act No. 429/2002 Coll. on stock exchange as amended Bank secrecy Slovakia has laws against money laundering. In case the amount of trade exceeds EUR 15,000 investment companies are obliged to identify the ownership of financial funds of their clients. This is to be done by written declaration of the investor that the financial funds are his own and the transaction is made on his behalf Fund set-up An investment company or a mutual fund can only be established with permission of the National Bank of Slovakia, which has to decide within six months from the day of filing an application. The investment company must register with the commercial register.

6 6 Slovakia Regulation The minimum share capital of an investment company amounts to EUR 1 million. The minimum net asset value of the mutual fund must be at least EUR 1.5 million European funds As of 1 May 2004 investment companies with a registered seat in an EU Member State may provide their services in the territory of other Member States based on a European passport. European funds willing to operate in the territory of the Slovak Republic shall announce it to the national bank of Slovakia in advance. The announcement shall be accompanied by the following: certificate of compliance with Directive issued by home Member State supervisory body based on Undertakings for Collective Investment in Transferable Securities UCITS (for pan-european investment funds); statute of the fund or a similar document; selling prospectus and simplified selling prospectus; the most recent annual and semi-annual report; information for the ways of public offering of the fund s securities in the territory of the Slovak republic; and information on the measures to ensure the rights of securities owners in the territory of the Slovak Republic Use of the internet There are no legal restrictions on using Web sites as a marketing tool in Slovakia. Use of the internet by investment companies is common practice. Marketing of mutual funds is regulated by the Act No. 594/2003 Coll. on collective investment as amended.

7 7 Slovakia Regulation KPMG in Slovakia Bronislava Bracokova KPMG Slovensko Advisory, k.s. Mostova 2 Bratislava Slovakia Tel Fax bbracokova@kpmg.sk The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation.