Investment fund: what it is?

The Baltic Index fund (Baltic Index fonds) is a diversified open-end mutual fund founded by the investment company Baltikums Asset Management.

The open-end "Government bond fund" was registered by the LR Capital and Financial Markets Commission on June 6, 2000. Fund shares issue registration number is 149. The fund acts under the supervision of the LR Capital and Financial Markets Commission. Assets of the fund are constituted by clients' invested financial resources and are managed by the Baltikums Asset Management.

The Baltic Index fund is not a legal entity.

The open-end Baltic Index fund is the only mutual fund listed on the Official list of Riga Stock Exchange.

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 IJSC Baltikums Asset Management team operating in the capital markets in their 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.

Investment policy

Assets of the Baltic Index fund are invested into the portfolio of stocks listed on the three Baltic states stock exchanges, with the fund structure closely reflecting that of the Baltic Index. In case the Fund assets allocation pattern dictated by the Baltic Index structure prevents compliance with the predefined investment restrictions, provided it is in the Fund investors' interests, the assets are invested into securities issued and guaranteed by the governments of the Baltic states and OECD (Organisation for Economic Co-operation and Development) member states.

Fund's assets may be invested solely into freely floating securities, provided those are listed on a stock exchange situated in Latvia or any other OECD member state.

Baltic Index is a price index constituted by the stocks of Latvian, Lithuanian and Estonian enterprises, included into the Baltic List. Value of the index reflects changes in the prices of those stocks. Value of the Baltic Index is calculated on the basis of data provided by Riga Stock Exchange, Tallinn Stock Exchange and Lithuanian National Stock Exchange.

Value of the index is calculated following each trading session results, i.e. 5 times a week.

Fund share

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

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 Baltic Index fund shares are published in the newspapers “Dienas bizness”, "Biznes & Baltija", "Telegraph", as well as on the Riga Stock Exchange web-page (www.rfb.lv).

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 Central Depository of Latvia 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 Baltic Index fund as stipulated for in the Fund prospectus.

In order to purchase fund shares one must have both 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. 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 payment for the Fund shares.

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:

• Fill in the Fund shares purchase/buy-back 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.

Fund shares: how to sell

The open-end mutual fund Baltic Index Fund asset management company, Baltikums Asset Management has the obligation to buy-back Fund shares on 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 buy-back 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 buy-back price paid out to the investor is equal to the last published buy-back price for the open-end mutual fund Baltic Index Fund shares at the time of the 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 risk - investors should be well aware of the fact that both the securities prices and returns on those securities are highly volatile by nature, which directly influences Fund net asset value and price of the Fund shares owned by investors.

Liquidity risk - this risk is associated with the availability of opportunities to sell certain assets owned by the Fund at a specific point in time. This is the risk of securities prices quotations on the stock exchange not being regular enough. In the specific case of the Baltic Index fund portfolio, liquidity risk is connected with availability of real opportunities to sell stocks constituting the Baltic Index in the necessary amount at the price which was used in the calculations of the Baltic Index value on that date.

Issuer risk - this risk reflects the possibility that the securities issuer will not fulfil his obligations to the holders of those securities. At the stage of investment policy planning the Asset management company takes into account the credit risk associated with the specific country and specific company-issuer by means of analysing credit ratings of the respective country and issuer.

Legal risk or legislation risk - the risk stemming from possible amendments adopted to the domestic and foreign country legislation (e.g. tax policy), potentially resulting into additional costs incurred by the Fund.

Financial risk - the risk of the mutual fund's financial difficulties which is principally associated with the situation when under the influence of external objective factors a substantial portion of the Fund investors simultaneously request their shares buy-back which then results into diminished efficiency of the Fund operation.

Foreign investment risks:

• Political economic risk;
• Accounting and double-taxation risk - potentially present as a result of applying different accounting principles in the securities accounting systems. This may put additional pressure on foreign investment, as well as on domestic investment as non-residents' investment abroad may be subject to tax at a higher rate.
• Currency risk - taking into account the fact that the investments into the Fund are denominated in LVL but Fund's assets are partially allocated in currencies other than LVL, the currency risk is present. That is the risk of changes in the foreign currency exchange rate versus Latvian Lat.

Partners

Komercbanka Baltikums

Commercial bank Baltikums (JSC Akciju Komercbanka Baltikums) is the official distributor of the open-end mutual fund Baltic Index Fund shares. Komercbanka Baltikums acts solely in the Fund investors' interests.

SEB Latvijas Unibanka

SEB Latvijas Unibanka - the Custodian bank for the Baltic Index Fund assets.

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 in case 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.

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 share represents the ownership rights equivalent to one Fund share value. 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.

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.