The Law of Ukraine 

On Mutual Funds (Share and Corporate Investment Funds)

 Date of Entry into Force:

April 24, 2001

The Law defines legal and organizational principles of creation, activity and responsibility of subjects of joint investment, peculiarities of management of their assets, sets requirements to structure and storage of assets, peculiarities of distribution and circulation of securities of mutual funds, the procedure for and volume of disclosure of information to mutual funds for attraction and efficient distribution of investors' financial resources.

The Law defines such terms and concepts as: assets of mutual fund, value of net wealth of mutual find, open subscription, open sale, redemption of securities of mutual funds, issue of securities, depositary, investment declaration, investment certificate, mutual fund, asset management company and other.

The Law classifies mutual funds.

Mutual funds (MF) depending on the procedure for conducting their activity may be of open, interval and closed type.

MF may be fixed-term or termless.

MF may be of diversified and non-diversified type.

Pursuant to the Law, corporate investment fund is the MF which is created in the form of public join-stock company and performs exclusively joint investment activity. The Law sets the peculiarities of establishment of corporate investment fund, its documents, requirements to the statutory fund (capital), the procedure for activity and limitation of activity of corporate investment fund and management bodies.

According to the Law, share investment fund is the assets which belong to the investors on the right of joint share property, are managed by the asset management company and are registered by the latter separately from the results of its economic activity.

The Law sets the procedure for establishment of share investment fund and its management, requirements to regulations of share investment fund and participation in it, the concept of investment certificates, as well as the procedure for replacement of asset management company, liquidation of share investment fund and distribution of assets of share investment fund in case of its liquidation.

MF assets shall be managed by the asset management company. The asset management company may be a legal entity established according to the legislation of Ukraine. The state share in the statutory fund (capital) of the asset management company shall not exceed 10 per cent.

It shall be prohibited to combine activity related to asset management with other types of professional activity at the security market.

The Law sets limitations of activity of the asset management company.

Reward of the asset management company (except for the venture fund asset management company) shall be set in ratio to the value of MF net wealth. Reward of the venture fund assets management company shall be set in ratio to the value of distributed emission of investment certificates at their nominal value and difference between expenses for acquisition of fund assets and incomes from their sale.

Activity related to management of MF assets shall be performed by the asset management company on the basis of license.

The Law determines structure of MF assets. During open subscription to MF open and interval type securities not less than 10 per cent of assets of such MF shall be held in money saved at separate deposit bank accounts opened for this purpose by MF.

Emission and circulation of MF securities shall be regulated by the legislation of Ukraine taking into account peculiarities set by this Law.

The term of distribution of MF securities, which is set in order to achieve the norms of MF activity, shall be determined by the MF securities emission outline and shall not exceed six months starting from the day of its registration.

Distributed MF securities shall be distributed and redeemed by the asset management company directly or through MF security dealers with which the asset management company concluded respective agreements.

The Law also sets the procedure for and volume of disclosure of MF information. The MF open or interval type asset management company shall transfer to the State Commission for Securities and Stock Market of Ukraine not later than on April 30^th the MF securities emission outline for the current year with the changes introduced according to the results of MF activity for the previous year.

MF assets in the form of securities shall be deposited with the keeper (except for the venture fund assets). The keeper shall render services regarding storage of MF securities, registration of property rights thereto, as well as service of MF transactions.

The keeper shall perform activity according to the legislation on the basis of the statute and the MF service agreement concluded with the corporate investment fund or the asset management company of share investment fund.

The keeper shall not use MF assets for own transactions.

Money of corporate investment fund shall be transferred to its bank account according to the conditions of MF service agreement.

Money of share investment fund shall be transferred to the special bank account of the asset management company separately from own money of the asset management company, money of other share investment funds and according to the conditions of MF service agreement.

The Law also defines requirements to the agreements between the corporate investment fund and the asset management company and between the corporate investment fund and the keeper, and regarding the share investment fund - between the asset management company and the keeper.

The state control in the sphere of joint investment shall be performed by the State Commission for Securities and Stock Market of Ukraine and other state bodies within the limits of their authorities for observation of legislation and protection of investors' rights.

Summary version from 15.03.2001