Slovenia_Funds and fund management.2010.KPMG

Slovenia Regulation

FUNDS AND FUND MANAGEMENT 2010

2.1

Type of funds

There are three kinds of investment funds known in the Slovene jurisdiction:

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mutual funds (open-end)

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investment companies (closed-end)

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pension funds

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umbrella funds

Mutual fund

A mutual fund is an investment fund, made up of assets that are separated from the assets of the management company. The assets are divided into several equal units (shares), which contain value. This value of the shares should be paid out of the assets on the demand of holder of the shares. Persons, (legal or natural), become the owner of the mutual funds, when the purchase of shares is paid. A mutual fund is not a legal person. The mutual fund is managed by the management company located in the Republic of Slovenia. It is formed and managed exclusively in favor of its owners. Only a management company can form a mutual fund. The management company defines the rules of the mutual fund and concludes a contract regarding the trustee’s services with the trustee and receives the permit from the Securities Market Agency (agency). A mutual fund from the Member State is a mutual fund, which is managed by the management company resident in the Member State. A foreign mutual fund is a mutual fund, which is managed by a management company, which is resident in a foreign country. Investment company

© 2010 KPMG poslovno svetovanje, d.o.o., a Slovenia limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

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An investment company is a joint-stock company that is established exclusively for public collecting of pecuniary resources and investment of pecuniary resources collected in this way in transferable securities in accordance with the principle of limitation and spreading of risk. The lowest amount of subscribed capital of an investment company amounts to EUR 800,000. Shares of the investment company are freely transferable. They are traded on the Organized Securities Market. In Slovenia, only the following shares can be sold publicly:

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Shares of an investment company

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Shares of an investment company from the Member State, under the condition, that the management company from the Member State has the power of attorney according to the law for selling shares in the territory of Republic Slovenia

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Shares of other investment companies from a Member State, if the management company has the permit issued by the agency for establishing the branch office in Slovenia

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Shares of a foreign investment company, if the management company has the permit issued by the agency for establishing the branch office in Slovenia.

Pension funds A pension fund can be formed as a mutual pension fund or established as a mutual pension company. A mutual pension fund can be an open mutual pension fund or a closed mutual pension fund. A closed mutual pension fund includes only those persons who have voluntary insurance and whose employer is the founder of the fund. An open mutual pension fund is a fund whose membership is not conditional on employment by a defined employer. A pension company is a corporate body with its representative office in the Republic of Slovenia, established as a joint-stock company with permission to perform the activities of voluntary insurance. Umbrella funds Umbrella fund shall be a mutual fund, composed of two or more subfunds, which are designed as separate assets.

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Each sub-fund of the same umbrella fund shall differ from other sub-funds of this umbrella fund by one or more characteristics. An umbrella fund shall not be a legal person. A management company shall establish an umbrella fund by adopting umbrella fund rules and concluding a contract with a custodian to provide custodian services. At least two sub-funds must be established with the establishment of an umbrella fund. Prior to accepting payments of sub-fund asset units, a management company shall obtain an authorization of the agency for the management of an umbrella fund and an authorization for the management of each individual sub-fund. A management company may at any time during the operations of an umbrella fund establish new sub-funds by supplementing umbrella fund rules in the part that relate to new sub-funds.

2.2

Laws

Provisions relating to investment funds can be found in the following laws:

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Act on Investment Funds and Management Companies (Official Gazette of the Republic of Slovenia No. 110/02, 109/07, 65/08)

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Companies Act (Official Gazette of the Republic of Slovenia Nos. 30/93, 29/94, 45/94, 82/94, 20/98, 32/98, 37/98, 84/98, 6/99, 54/99, 36/00, 45/01, 59/01,50/02, 42/06, 10/08, 65/09)

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Market in Financial Instruments Act (Official Gazette of the Republic of Slovenia No. 67/07, 40/09)

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Pension and Invalidity Insurance Act (Official Gazette of the Republic Slovenia No 109/06, 91/07)

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Insurance Act (Official Gazette of the Republic of Slovenia No 13/00, 91/00, 12/01,21/02,52/02, 13/09, 19/09, 49/09)

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Prevention of Money Laundering and Terrorist Financing Act (Official Gazette of the Republic of Slovenia No 79/01, 59/02, 60/07)

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2.3

Managers, trustees, and custodians

Managers Management companies Investment funds are managed by management companies, which are established exclusively for this purpose. A management company can be established as a joint stock company or a limited liability company. Investment funds can be managed by a management company, which is located in Slovenia, in a Member State or in a foreign state. All the above-mentioned have to obtain a permit for the managing of investment funds issued by the agency or the institution in their country. A management company from a Member State can do business in Slovenia directly itself or through a branch office. This provision, regarding a management company from a Member State, will come in to force when Slovenia joins the European Union. Until then for the managing of investment funds by management companies from other Member States, the provisions of the law regarding the foreign management companies are used. A management company from a foreign country can do business in Slovenia only through a branch office. The law defines the conditions for establishing a branch office in Slovenia. The minimum subscribed capital of a management company, which manages only one investment fund, is EUR 200,000. Should the total value of assets under management, which a management company manages on behalf of investment funds, exceed EUR 250 million, the management company must, besides the capital stock referred to in the first paragraph of this article, provide the additional capital to the amount equal to 0.02 percent of the difference between the assets managed by the management company for the account of investment funds, and the amount of EUR 250 million. Notwithstanding the provisions of the preceding paragraph a management company shall be obliged to ensure additional capital only to the amount where the total sum of additional capital and capital stock referred to in the first paragraph of this article does not exceed EUR 10 million. Partners and/or shareholders of a management company can be natural or legal persons that are organized as a limited liability company or a joint-stock company. A management company manages a mutual fund in its own name and on behalf of the investment fund.

ÂŠ 2010 KPMG poslovno svetovanje, d.o.o., a Slovenia limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

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A management company manages an investment fund in accordance with the management contract. This contract obliges the management company to manage the investment fund and the investment fund is obliged to pay a fee to it. A management company can transfer the managing services of the investment fund to another management company. They conclude a special contract, which the agency has to approve. The agency can prohibit the contract in cases where there are some reasons, which are defined in Law. Mutual pension fund An insurance company or a bank must manage a mutual pension fund. Limits related to managers in a management company Managers in a management company must have the necessary experience and educational qualifications and acquire a license from the Securities Market Agency for the performance of this function. The insurance company, the bank, or pension company who manages the pension fund, must acquire a license for performing the management function of the pension funds. The manager can transfer the function of managing the pension fund to a management company on the basis of a contract. In compliance with the Act on Investment Funds and Management Companies, the above-mentioned company has to present a license for managing investment funds. If a bank or an insurance company manages a closed-end pension fund, which was established as an employer, it is obliged to transfer the fundâ&#x20AC;&#x2122;s assets to a management company. Amount of management fee Mutual fund A management company is entitled to fees from deposits and payments of investment coupons and to a fee for mutual fund management. The management company is entitled to an annual fee for the mutual fund management, which is agreed in the rules of the investment fund. Investment company An investment company is obliged to pay to the management company a fee determined in the contract of the investment company management. Annually, ÂŠ 2010 KPMG poslovno svetovanje, d.o.o., a Slovenia limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

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it does not exceed 1.5 percent of the average annual net value of investment company assets. Mutual pension fund The manager of the mutual pension fund is entitled to a refund of costs as well as to an annual commission for performing management work. The initial costs are charged as a percentage of the paid in premium at its inception. The surrender costs are charged in the percentage of the redemption value at encashment or at the payout of the units of property. The commission for managing the mutual pension fund is defined by the percentage of the average annual net asset value of the mutual pension fund. Trustees A management company as well as a trustee should conclude a contract with a mutual pension fund. The Trustee of the assets of the investment fund or mutual pension fund or the covered assets of the pension company can be:

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trustee bank, established according to the Bank Act;

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branch office of the bank from the Member State, established on the territory of Slovenia according to the Bank Act, which has the permit issued by the Bank of Slovenia for trustee’s services;

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other financial institutions, established according to the Securities Market Act, whose main activities are services in respect of the securities. These institutions also have to have been issued a permit by the agency for trustee’s services; or

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a branch office of other financial institutions mentioned in the previous line, if it has the permit issued from the agency for trustee’s services.

A trustee provides for the keeping of records relating to investments and for the transfer of securities arising from transactions concluded on the account of investment funds, maintains the accounts of the immaterialized securities, ensures that the management fee is paid, and the obligations from the business done by the management company are fulfilled according to the law. The management company should conclude a contract with a trustee that has a license for providing trustee services. The contract has to be approved by the agency. The law does not limit the fees that a management company pays to the trustee. © 2010 KPMG poslovno svetovanje, d.o.o., a Slovenia limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

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2.4

Investment restrictions

Allowed forms of assets An investment fund can invest in:

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without restrictions and conditions in: o

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securities that are listed on organized and supervised securities market in Republic of Slovenia or in a Member State.

under the restrictions and conditions in law in: o

securities that are listed on organized and supervised securities market in a foreign state;

securities acquired by the management company on behalf of the investment fund in the procedure of their first sale;

units of a mutual fund or shares of an investment company, not more than 10 percent of all assets;

money deposits;

investment in non-marketable securities;

derived financial instruments according to the Securities Market Act ;

additional liquid assets, that are adjusted by the agency; and

mutual funds can have at most 10 percent of all assets and an investment company at most 20 percent also in other securities and instruments of the money market.

The investment rules for insurance companies are also applicable for pension funds.

Spreading of investments and investments limits A management company has to define for every investment fund the technique of spreading the investments and prepare a plan of the investment restrictions. The information should be defined in the special plan (prospectus). The management company has to report to the agency about the content of the special plan.

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An investment fund should spread its investments in securities of various issuers and not more than 5 percent of its investments, and in the case of an investment company not more than 10 percent should be made in investments of the same issuer and issuers related to it. If the rules of the investment fund define a higher limit, the highest limit of such an investment should be 10 percent for a mutual fund and 20 percent for an investment company. An investment fund cannot have more than 20 percent of its liquid assets invested in deposits of one credit institution. For transactions in the market of institutional investors, the highest limit of the investment is 10 percent of the assets of the investment fund if the investor is a credit institution, and 5 percent in the case of other investors in the market of institutional investors. Such investments cannot be higher than 40 percent of all assets of the investment fund. The above-mentioned limits do not apply to market securities and derived financial instruments, made in the market of the institutional investors (such as, securities issued by the Republic Slovenia, local foundations, regional foundations, Member State, foreign state, and public international organization). Investments of the investment fund into units of a mutual fund or shares of an investment company should not be more than 10 percent of all assets, unless the agency defines otherwise, but not more than 20 percent of the value of the assets of the investment fund. The investment fund be can made up 100 percent of investments in securities issued or guaranteed by the Republic of Slovenia or Member State if these investments consist of at least six different issues where an individual issue should not exceed 30 percent of all investments in an investment fund.

Prohibition of investments in certain legal persons A management company should not take a controlling interest in a personal company or any other company, where it would be personally responsible for the obligatory of the company. A trustee and its partners cannot have investment coupons or shares in the investment fund for which it provides trustee services. A natural person, who manages the assets of the trustee, cannot be a trustee at the same time. The regulations for pension funds are the same as those applied by the insurance companies.

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2.5

Borrowing

A management company and trustee shall not take credit or make some kind of borrowing on behalf of the investment fund. The law defines one exception: the management company can borrow resources in its own name and on behalf of a mutual fund of up to 10 percent of the value of a mutual fund’s property, by receiving loans with a date of maturity of a maximum of six months and in the case of the investment company, by the receiving loans with a date of maturity of a maximum of five years. The rules of the investment fund have to define such borrowing. Neither trustee nor the management company should give loans or bail on behalf of the investment fund. Also the assets of the investment fund cannot be pawned.

2.6

Accounts and prospectus

Publication of information on investment fund operation A management company should publish the following information relating to the operation of an investment fund:

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Prospectus on the public sale of investment coupons of a mutual fund and/or the shares of an investment company

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Annual and half-yearly report on the operation of a separate investment fund

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Report of all important business events that may have an influence on the price of the investment coupons or shares of the investment company

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Report on the composition of investments in an investment fund

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Value of investment coupons of a mutual fund and/or shares of an investment company

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Cancellation of the contract with the trustee and concluding with another trustee

Prospectus A prospectus is a quotation document that should be made for a public offer of investment coupons and/or shares of an investment company. The prospectus should be published and made available to the public at the beginning of the public offer of investment coupons and/or shares of an

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investment company. The Securities Market Agency should approve the prospectus prior to its publication. The management company has to also make the extract from the prospectus. The extract has to define the basic information from the prospectus. The same rule applies to it, as for the prospectus. The management company is responsible for making good any losses caused by buying shares or investment coupons based on the prospectus or the extract where unreal or imperfect information was written. The essential document of the mutual pension funds and the pension companies is the prospectus, endorsed by the Minister for Labor and including conditions in connection with the additional pension insurance (such as, rights from the insurance, ways and terms of paying the premium, terms and conditions of rights assessment, terms of paying out the insurance amount in a lump sum, and terms of withdrawal from the pension scheme).

Annual report The annual report of a management company should be published with the audited financial statements. The law defines the information that is required to be published. Financial statements of an investment fund should be audited and submitted to the agency by the 30 April of the next year. The law defines the information that has to be published. The pension company is a joint-stock company and thus is subject to audit.

2.7

Supervision

The supervisory authority for operation of investment funds and management companies is the Securities Market Agency with its head office at Poljanski nasip 6 in Ljubljana. The supervision over the management of pension funds is carried out by the Stock Market Agency in co-operation with the authority for Insurance Supervision.

2.8

Fund ownership

No limits of the ownership are prescribed. A minimum number of owners of an investment fund is not prescribed.

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Pension companies A license from the Authority for Insurance Supervision shall be required for the conduct of acquisition of the pension company’s shares on the basis of which a person becomes directly or indirectly a shareholder of 10 percent, 20 percent, 33 percent, or 50 percent of all the pension company’s shares.

2.9

Fund structure

A sub-fund of a fund is permitted in Slovenian legislation, even though our legislation does not define the umbrella funds or hedge funds. Fund of funds should have at least 90 percent of the value of its assets invested in investment funds. This kind of investment policy should be documented in the rules of the investment fund, in the prospectus and in the extract of the prospectus. The minimum number of owners in investment funds is not determined. An investment coupon of a mutual fund is made in the name of the shareholder. They have to be transferable or not transferable. Shares of an investment company are registered shares and their transferability should not be limited. The first sale of the investment company shares is done under the procedure of a public sale. The lowest amount of subscribed capital of an investment company amounts to EUR 800,000). Shares of the investment company have to be paid in money. Under certain conditions of the law, the enlargement or reduction of the capital is allowed. The law specifically defines the condition for collecting the investment company’s own shares.

2.10 Stock exchange Investment coupons of mutual funds are transferable or not transferable; therefore, the coupons not transferable cannot be quoted on the stock exchange. The transferable coupons must be quoted on the stock exchange as soon as the agency define more specific conditions and also the mutual fund must be completely adherent to the new legislation. The sale and purchase of the transferable investment coupons outside the stock exchange are not allowed. Nevertheless, the above-mentioned rules do not apply for the sale and purchase of the investment coupons between a management company and the holders of the investment coupons. The same conditions apply to the admission of shares of investment companies to the stock exchange quotation as to shares of other joint-stock companies. Conditions for the admission of securities of foreign issuers to the stock exchange quotation are identical to those valid for securities of Slovene issuers. © 2010 KPMG poslovno svetovanje, d.o.o., a Slovenia limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

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2.11 Bank secrecy The Prevention of Money Laundering and Terrorist Financing Act (Official Gazette of the Republic of Slovenia Nos. 79/01, 60/07). This act shall stipulate measures, competent authorities and procedures for detecting and preventing money laundering and terrorist financing. Money laundering shall mean any conduct for the purpose of disguising the origin of money or other property obtained by an offence and shall include:

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conversion or any transfer of money or other property derived from criminal activity; and

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concealment or disguise of the true nature, origin, location, movement, disposition, ownership or rights with respect to money or other property derived from criminal activity.

For the purposes of this act, terrorist financing shall mean direct or indirect provision or collection of funds or other property of legal or illegal origin, or attempted provision or collection of such funds or other property, with the intent that they be used or in the knowledge that they are to be used in full or in part by a terrorist (hereinafter: terrorist) or terrorist organization. The measures mainly refer to the following:

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Exchange or any other transfer of money or assets, which originate from a criminal offence

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Acquisition, possession, use of money or assets, which originate from a criminal offence

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Concealment of legal nature, origin, appearance, movement, disposal, ownership, or rights with reference to money or assets, which originate from a criminal offence

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Concealment of illegally gained social stock and social capital at transformation of social ownership

Measures for discovery and prevention of money laundering are implemented also in investment and pension funds, investment and pension companies, management companies for managing investment funds and other financial organizations.

2.12 Fund set-up The set-up of a mutual fund takes approximately two months. The procedure of establishing an investment company takes longer since a license from the Securities Market Agency should be acquired for the establishment, and registration of the investment company as a joint-stock company.

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2.13 Foreign funds The investment fund is located in the country, where the management company has its registered office.

Mutual fund In the territory of the Republic of Slovenia, the public sale of the investment coupons is only allowed in the case of a:

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mutual fund, which is managed by a Slovenian management company;

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mutual fund, which is managed by a management company from a Member State, which has the power of attorney to sell the units of the mutual fund in Slovenia; or

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mutual fund, which is managed by a foreign management company, which has obtained a permit from the agency for the establishment of a branch office, which has the power of attorney to sell the units of the investment fund in the territory of Republic of Slovenia.

Investment company

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investment company, which is managed by a Slovenian management company

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investment company, which is managed by a management company from a Member State, which has the power of attorney to sell the shares of the investment company in Slovenia

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investment company, which is managed by a management company from a Member State, which has obtained a permit from the agency to the branch office in the territory of the Republic of Slovenia

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investment company, which is managed by a foreign management company, which has obtained a permit from the agency for the establishment of the branch office, which has the power of attorney to sell the shares of the investment company in the territory of the Republic of Slovenia

2.14 Bearer shares Investment coupons of mutual funds are either transferable or not transferable; therefore, the not transferable cannot be quoted on the stock exchange. The transferable coupons must be quoted in the stock exchange as soon as the agency define more specific conditions and also the mutual fund must be completely adherent with the new legislation. © 2010 KPMG poslovno svetovanje, d.o.o., a Slovenia limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

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Shares of an investment company are made in the name of a shareholder and their transferability should not be limited. Bearer shares are not allowed.

2.15 Use of the internet Marketing and/or operation of investment funds via the Internet has not been regulated in Slovenia yet. There are several fund management companies, which use the Internet for informing and attracting investors. Trading via the internet is not possible. Certain fund management firms have provided to the investors with the option of online access to their accounts, enabling them to invest in new funds and to monitor their existing investments.

2.16 Miscellaneous No major changes or novelties are expected to incur in the area of the Slovenian investment funds in 2010 as regards the legislation.

KPMG in Slovenia Katarina Gašperin KPMG Slovenija d.o.o. Železna c. 8A Ljubljana 1000 Slovenia Tel. 00386 1 4201070 Fax 00386 1 4201158 e-Mail: katarina.gasperin@kpmg.si

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.