The Present Law Shall Govern the Following Activities

I BASIC PROVISIONS

Subject-matter of Regulation

Article 1

The present Law shall govern the following activities:

1) organization and management of open-ended investment funds (hereinafter referred to as: open-ended fund);

2) establishment and management of closed-ended investment funds (hereinafter referred to as: closed-ended fund);

3) establishment and management of private investment funds (hereinafter referred to as: private investment fund);

4) establishment, activities and business operations of investment fund management company (hereinafter referred to as: management company);

5) assignments and duties of custody bank, in terms of the present Law;

6) competence of the Securities Commission (hereinafter referred to as: the Commission);

7) other issues significant for the investment funds field.

Meaning of Specific Terms

Article 2

In terms of the present Law, particular terms shall have the following meanings:

1) investment fund management company - business company that organizes, establishes and manages investment funds, in compliance with law;

2) investment fund - collective investment institution that raises and invests monetary funds into different types of assets with the goal to make income and to lessen the investment risk;

3) custody bank - bank that maintains investment fund account and conducts other custody services for investment fund account, and in terms of investment fund funds it is the bank that follows management company’s orders which are in compliance with law and investment fund prospectus;

4) member, i.e. shareholder of investment fund - individual or legal entity with investment units and/or investment fund shares registered in their name;

5) investment unit - proportional accounting stake in investment fund entire net assets;

6) qualified participation - entity who is direct or indirect shareholder, and/or holder of other rights on basis of which it acquires 10 percent or more of capital participation or voting rights of other entity shall be considered as to posses the qualified participation;

7) prospectus - investment fund basic document which provides complete and clear information for the purpose of making potential investors decide to invest;

8) related entities - legal entities mutually related by means of management, capital or in any other way for the purpose of accomplishing joint business goals in such a way that business activities or business results of one entity may significantly influence business activities or business results of other entity. In terms of the present Law, related entities shall also be considered the following mutually related entities:

- family members;

- one entity, and/or entities considered as related entities, jointly, directly or indirectly participate in other entity, in terms of the present Article;

- same entity, and/or entities considered as related entities in terms of the present Article participate in both entities;

- entities related in compliance with law that governs legal status of business companies;

- management board or supervisory board members, and family members of these entities.

9) in terms of the present Law, family members shall be considered the following:

- spouses, and/or persons living together in a relationship which has the same legal capacity as marriage;

- descendants and ancestors in direct line without limitations;

- side relatives up to the third relationship degree, including in-law relationship;

- adopter and adoptees, including adoptees’ descendants;

- foster parent and wards, including wards’ descendants.

Ban to Use Term "Investment Fund"

Article 3

Legal entity and entrepreneur may not use term "investment fund", nor any term derived from that term, in their business names or titles, and/or names of their products or services, unless using those terms in compliance with the present Law.

II MANAGEMENT COMPANY

Legal Form

Article 4

Management company shall be established only as a closed-ended joint stock company.

Provisions of law that governs business companies shall be applied to management companies, unless otherwise specified by the present Law.

Management Company Business Activities

Article 5

Management company shall conduct the following business activities:

1) it shall organize and manage open-ended fund;

2) it shall establish and manage closed-ended fund;

3) it shall manage private fund.

Management company may not conduct any other business activity besides business activities specified in paragraph 1 of the present Article.

Management company shall manage investment fund by making investment decisions and by conducting administrative and marketing operations and activities.

Management company may entrust conduct of administrative and marketing operations and activities to other entities, providing such an act does not exclude management company’s responsibility.

Management company may organize, establish and manage several investment funds.

When conducting its business activities, management company shall respect provisions of law that governs market of securities, rules on safe and adequate business activities, and rules on use and announcement of privileged information.

Management company that manages investment fund shall have the voting right based on shares that constitute investment fund assets.

Business Activities Limitations

Article 6

Unless otherwise provided by the present Law, management company may not, directly or through related entities, participate in capital and management of other legal entities.

Management company may, directly or through related entities, acquire investment units, and/or shares of investment fund managed by it, but not exceeding 20 percent of net value of assets of the fund.

Amount of Initial Capital

Article 7

Pecuniary portion of the management company’s initial capital on the establishment day shall be no less than EUR 200.000 (two hundred thousand) in dinar equivalent calculated in accordance with the National Bank of Serbia medium exchange currency rate valid on the payment day.

Pecuniary portion of initial capital shall be fully paid to temporary bank account before management company is registered in the Business Companies Registry.

When performing its business activities, management company shall ensure that pecuniary portion of company’s initial capital never goes under EUR 200.000 (two hundred thousand) in dinar equivalent.

Management company may transfer its pecuniary portion of initial capital into securities issued by the Republic of Serbia (hereinafter referred to as: the Republic) or the National Bank of Serbia, with due date up to one year.

Organizational and Technical Ability

Article 8

Management company shall engage and permanently employ at least one portfolio manager.

Management of the management company shall issue decisions and other legal enactments by which it defines the investment policy and the investment objective of investment fund, while portfolio manager shall carry out the mentioned policy and/or objective, enact corresponding decisions on specific investments, and shall be responsible for his work to the company management.

Management company shall meet minimum conditions in terms of organizational, manpower and technical qualification prescribed by the Commission.

Provisions of law that govern the market of securities shall apply to issuing and revoking license for conducting activities of portfolio manager.

Use of Business Name

Article 9

Management company’s business name shall contain words "investment fund management company".

Legal entity which has not acquired the management company license may not use name "investment fund management company" or other similar name when conducting legal transactions.

Filing Application for Work License

Article 10

Entity that intends to establish management company shall file an application to the Commission to have the management company work license issued (hereinafter referred to as: work license).

Domestic and foreign individuals and legal entities may establish management company. One domestic and foreign individual and legal entity and related entities may not posses a qualified participation in more than one management company.

Domestic legal entity with majority capital owned by state, i.e. by society, or other related entity may not be the founder of management company.

Exceptionally from the provisions specified in paragraph 3 of the present Article, banks and insurance companies with majority capital owned by state, i.e. by society, may be the founders of management company.

Entities specified in paragraph 1 of the present Article which acquire qualified participation, either when being established or in the process of conducting management company’s business activities, shall meet conditions specified in the Article 11, paragraph 1, item 4) of the present Law.

The Commission shall decide on issuing work license and it shall keep the Management Companies Registry.

Entity shall submit the following documents along with an application to have the work license issued:

1) management company’s establishment enactment;

2) evidence of initial capital payment at bank’s temporary account;

3) evidence of initial capital origin;

4) management company’s Business Rules;

5) management company’s organizational diagram;

6) list of shareholders in terms of their family names, names and addresses for individuals, and/or copy from the Business Companies Registry for legal entities - management company’s shareholders, i.e. verified translation of a copy from the foreign legal entities registry;

7) evidence of organizational and technical ability;

8) list of persons who shall conduct activities of portfolio managers and certified internal auditors, with evidence of professional qualifications presented, and list of nominated management board members.

When management company founders are banks, insurance companies, other financial institutions, and/or entities controlled by them, than entity filing documents specified in paragraph 7 of the present Article shall also file to the Commission the report on their safety and soundness issued by domestic, and/or foreign body in charge of controlling business activities of banks, insurance companies and other financial institutions.

Issuing Work License

Article 11

The Commission shall issue work license when it finds that requirements specified in the Article 10 of the present Law have been met and when it estimates the following:

1) that initial capital origin is clear and without any doubts, on the grounds of presented evidences;

2) that evidences specified in the Article 10 paragraph 7 of the present Law are convincing;

3) that structure of related entities is not preventing efficient supervision of business activities;

4) that on the grounds of received information it may be concluded that entities possessing the qualified participation are suitable and reliable.

The Commission shall render its decision on issuing work license within a period of 30 days starting from the day the application is filed, when it finds that conditions defined by the present Law have been met and that adequate protection of interests of members, and/or shareholders of the investment fund is provided.

When new entity intends to acquire qualified participation in the management company it must previously inform the Commission about it and the Commission shall than conduct an estimation specified in paragraph 1 of the present Article and give its approval.

The entity which acquired qualified participation contrary to provisions of the present Law and/or without consent of the Commission shall forfeit the right to vote on the ground of shares acquired in such a way.

The Commission shall prescribe closer conditions in order to determine criteria for suitability and reliability of entities acquiring qualified participation, and/or of management board members and management company director.

Management Company Management

Article 12

Law that governs business companies shall apply to management company bodies, unless otherwise specified by the present Law.

A person who has not been effectively convicted for crimes against labour relations, business activities, property, judiciary, public order and legal transactions, line of duty, bribe and corruption, for crimes and corporate offences defined by laws that govern market of securities, privatization, insurance, banks and other financial organizations, may be appointed for the management company director and management board member posts.

Management company director and management board member shall not be the following persons:

1) management board member or employee of other management company;

2) management board member or employee of custody bank the management company has signed the contract with;

3) official, appointed and/or designated person or public servant;

4) person related with persons specified in items 1) and 2) of the present Article.

Management company director and management board members shall hold the university-level diploma, providing that director and at least one half of management board members have minimum three year work experience gained when conducting the following activities related to securities, either in the country or abroad:

1) in a brokerage house;

2) in the securities, and/or financial derivatives market;

3) in the bank;

4) in the management company that manages investment funds or voluntary pension funds;

5) in the insurance company;

6) in the central bank or other state agency or organization;

7) in the legal entity that conducts activities related to securities on behalf of the state as entrusted activities.

Giving Consent to Appointing Management Company Management Board Member

Article 13

The Commission shall give its consent to appointing nominated management company director and management board members.

The Commission shall render its decision on giving consent to appointing nominated management board director and management board members on the basis of evidences that conditions specified in the Article 12 of the present Law have been met and when it estimates that nominated director and management board members are suitable and reliable.

When rendering its decision on giving consent specified in paragraph 1 of the present Article the Commission may, if necessary, require nominated director and management board members to personally attend an interview.

The Commission shall render its decision on giving consent to appointing nominated management board director and management board members simultaneously with decision on issuing management company work license.

Revoking Consent to Appointing Management Company Management Board Member

Article 14

The Commission shall revoke its consent given to appointing management company director, and/or management board member, when it defines the following:

1) decision was rendered on the grounds of untrue and inaccurate data;

2) appointed person no longer meets conditions specified in the Article 12 of the present Law;

3) appointed person has harshly violated the provisions of the present Law, rules of business ethics, conscientious business activities and rules on managing the risk or has in some other way harshly jeopardized interests of investment fund members, and/or shareholders, the management company manages;

4) appointed person has been pronounced as not having a full working ability by effective court decision.

Director, and/or management board member shall not conduct any activity within the management company as of the day the decision on revoking the given consent is delivered to him/her.

Management company management board shall nominate new management board members, and/or director, no later than in a period of 15 days after the decision specified in paragraph 2 of the present Article is delivered.

Business Secret

Article 15

Management company director and management board members, as employees of that management company and its related entities, shall keep it as a business secret and shall not reveal the following information:

1) information on investment fund or its management company that could create wrong image on business activities of that company, and/or investment fund;

2) information on management company’s future activities and business plans, except in cases specified by law;

3) information on accounts balance and transactions of investment fund and its members;

4) information on other data significant for investment fund business activities which they have come across when conducting management company business activities.

Exceptionally from the provisions of paragraph 1 of the present Article, data may be announced and placed at third party’s disposal in the process of supervising legality of business activities, on the grounds of the court, and/or competent body order, or if law stipulates so.

Management Company General Enactments

Article 16

Management company general enactments shall be the establishment act, Business Rules and other general enactments.

Business Rules

Article 17

Management company Business Rules shall govern the following business activities:

1) business activities conducted by management company, conditions and modes for conducting them;

2) mutual relations between management company and investment fund members, and/or shareholders;

3) conditions for management board members and management company employees to invest their own funds into investment funds managed by the management company;

4) administrative and accounting procedures;

5) controlling and safety measures for processing and filing data;

6) internal control system;

7) procedures for preventing the conflict of interests and measures for preventing management company to use investment fund assets for its own interests;

8) measures for preventing abuse of privileged information;

9) other issues significant for management company business activities.

The Commission shall prescribe detailed regulations of business rules.

Amendments on General Enactments

Article 18

Management company shall inform all members, and/or shareholders of investment fund about amendments on Business Rules and other general enactments, within a period of 15 days before their application begins.

The Commission shall render its decision on giving consent to amended Business Rules and other general enactments once it finds amendments are not opposed to law and investment fund members’ and/or shareholders’ interests, within a period of 15 days starting from the day the request is received.

Filing into Registry

Article 19

Management company shall, within a period of 30 days starting from the day the decision on issuing work license and decision on giving consent to appointing director and management board members of management company is rendered, file an application to register itself, in compliance with law that governs the registration of business companies.