Investment fund: what it is?

The Government bond fund (Valsts obligāciju fonds) was founded by the investment company Baltikums Asset Management as an open-end investment fund (OIF).

The open-end "Government bond fund" was registered by the LR Capital and Financial Markets Commission on 27 July, 2001. Its issue registration number is 162. The fund acts under the supervision of the LR Capital and Financial Markets Commission. Assets of the fund are managed by the Baltikums Asset Management.

The fund is not a legal entity.

The open-end Government bond fund is the only mutual fund registered in Latvia that invests its assets into domestic bonds and eurobonds issued and guaranteed by sovereign governments.

The core difference between investing into a mutual fund and personally managing one's own assets stems out of the advantages granted by pooling many clients' financial resources, i.e. economies of scale - minimization of costs in the process of asset management, as well as professional skills of the Baltikums Asset Management team operating in the capital markets in the clients' interests. 

Investment fund: aim

A mutual fund, shares of which are publicly offered, attracts financial resources in order to invest those for the purpose of gaining profit. It serves as a vehicle to pool private savings which promotes investment in the securities market with total risk reduced by means of diversification.

Fund share

The fund share is a security issued by the asset management company and certifies investor's ownership of a certain part of the fund's assets as well as the rights arising thereof.

The fund share price is not constant and is set on a daily basis, simultaneously with the fund's Net asset value. The daily prices of the Government bond fund shares are published in the newspapers “Dienas bizness”, "Biznes & Baltija", "Telegraf", as well as on the Riga Stock Exchange web-page (www.rfb.lv).

Investment policy

Assets of the Government bond fund are invested into the fixed income securities, issued by the governments of Latvia, other Baltic states and OECD countries, central banks, financial institutions and corporates that are residents of these countries.

Fund's assets are invested into securities of the following types:

• Up to 100% - fixed income securities issued and guaranteed by sovereign Baltic states and OECD member countries, incl. eurobonds
• Up to 10% - bonds, mortgage bonds and other debt securities issued by corporates and financial institutions - residents of the Baltic states and OECD member countries
• Short-term deposits in the banks of the Baltic states and OECD member countries.

Fund shares: how to buy

All operations with the mutual fund shares - purchase and sale, settlement in each of these cases, are executed in accordance with the Latvian Central Depository regulations and instructions, as well as the Fund prospectus stipulations.

Fund shares may be purchased by any person owning a securities account with any of the relevant institutions that are members of the Latvian Central Depository. No one is granted superior rights in the purchase of the Fund shares. Investors may purchase shares of the open-end investment fund Government bond fund as stipulated for in the Fund prospectus.

In order to purchase Fund shares one must have a securities account and a current account. Then she/he should fill in the mutual fund shares purchase application and hand it in to Baltikums Asset Management. The application is to be in four copies: two copies for the Investor, and two -- for the Asset management company.

One of the Investor's copies is left in his disposal, while the other one is to be handed over to the securities account holder. This application serves as the order to the securities account holder to perform the DVP (delivery versus payment) transaction with the Fund's custodian.

The client has the right to perform purchase and sale of the Fund shares without the interbank DVP transaction.

In order to perform the above-mentioned transaction, Investor has to:

• Open a current account and a securities account in any bank that is a member of the Latvian Central Depository;
• Fill in the Fund shares purchase/sale application at the official distributor or the Fund manager -- Baltikums Asset Management -- office;
• Transfer the relevant sum for the transaction with the Fund shares to the open-end mutual fund bank account.
• The Fund will simultaneously order its Custodian bank to transfer the relevant amount of Fund shares to the Investor's securities account. This transaction is performed within one banking day.

When handing in the Fund shares purchase application to the securities account holder, Investor has to ensure that the relevant sum is available on his current account in order to be paid for the Fund shares. When the Fund shares are purchased, the Asset manager transfers to its Custodian an order on new Fund shares issue and on a DVP transaction with the Investor's account holder.

On receiving the order, the Bank of Latvia performs the cash settlement of the transaction, which is then confirmed to the Latvian Central Depository (LCD) and allows the latter to perform the securities settlement. Upon reception of the DVP transaction order on the new Fund shares issue, LCD makes necessary provisions ensuring that no later than within three days the Fund shares are transferred to the Client's securities account indicated in the application and the cash funds for the Fund shares are paid into the Fund's account with the Custodian bank.

The Asset management company shall execute only correctly filled in applications on the Fund shares purchase. Investor is responsible for the information being authentic and presented in full.

Regardless of the sum invested into the Fund, Investor pays the Asset management company a fixed commission for each DVP transaction on Fund shares purchase -- 2 LVL, as well as any relevant commissions of the securities account holder.

Fund shares: how to sell

The open-end mutual fund Government Bond Fund asset management company, Baltikums Asset Management has the obligation to buy Fund shares back immediately upon the Fund investors' request. The asset management company buys back shares in the order of buy-back request reception and registration.

The cash funds corresponding to the Fund shares sell price are paid into the investor's current account no later than three banking days after the fund shares transfer to the Fund issue account.

The Fund shares sell price paid out to the investor is equal to the last published sell price for the open-end mutual fund Government Bond Fund shares at the time of buy-back request reception.

Upon the sale of Fund shares, which are then taken out of circulation, investor loses all the rights previously associated with ownership of the Fund shares, with the exception of the call rights in the amount of the Fund shares buy-back price.

Transactions with the Fund shares

Fund shares pricing in the secondary securities market.

In accordance with the LR legislation a mutual fund share is a security that is freely transferable and the Asset manager is not entitled to determine its price in the secondary market. Equally, the Asset manager is not responsible for the fluctuations of the Fund shares price in the secondary market. The Fund investors can sell the Fund shares without any restrictions.
The Fund shares may be used as a collateral for transactions and loans.

Investment risks

Principal risks associated with investments of the open-end mutual fund Government Bond Fund are:

• sovereign risk, which assumes possibility of changes in the relevant state legislation, political system, monetary policy, etc.;
• economic risk - the risk of adverse shocks reducing the demand for mutual funds - banking crisis, changes in investors' demand, exchange rate fluctuations.

Partners

Komercbanka Baltikums

Commercial bank Baltikums (JSC Akciju Komercbanka Baltikums) is the official distributor of the open-end mutual fund Government Bond Fund shares. 

Komercbanka Baltikums acts solely in the Fund investors' interests.

Komercbanka Baltikums is also the Custodian bank for the Government Bond Fund. The Custodian bank acts independently of the Asset management company and solely in the Fund investors' interests, provided it is in full accordance with the LR legislation, Commission regulations, Fund prospectus and Fund management provisions.

The Custodian bank holds the Fund assets in accordance with the LR legislation and the Custody agreement.

The Custodian bank bears full responsibility to the Fund investors, Asset management company and third parties for any losses that occur when the Custodian bank, on purpose or unintentionally, has broken the law or the Custody agreement, as well as for the losses occurring as a result of the Custodian neglecting its duties.

The Commission on Financial and Capital Markets is a lawful and independent state institution, which duties include regulating and monitoring the financial and capital markets, as well as the activity of these markets participants.

Fund assets value and net asset value

All the Fund assets and liabilities are accounted for their fair value. The fair value is assumed to be the sum of cash funds, which can be received in exchange of the corresponding asset, or which can be used in order to settle the corresponding liability, provided the transaction is performed between the competent and independent parties on the basis of mutual agreement.

The Fund assets value is determined on the basis of the last deal price -- for those securities included into the Fund's balance sheet that are listed on the Stock exchange, and on the basis of the calculated price -- for the fixed income securities that are not listed on the Stock exchange.

The Fund assets value, incl. its assets and liabilities value, is determined on a daily basis -- for each banking day.

The Fund investor receives the income associated with the Fund shares only when the shares are sold to the third party, or requesting the Asset management company to buy the shares back from her/him.

Value of a single Fund share (Net asset value) is calculated as the product of the Fund assets total value division by the amount of shares outstanding.