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Panama's New Securities Law in a Nutshell Page 3/4  n D. INVESTMENT FUNDS The Law-Decree regulates investment funds, in their open as well as in the close version, according to the redemption offer and empowers the CNV to establish investment funds categories based on the type of risk, portfolio and assets, level of indebtedness or liquidity and other guidelines deemed convenient. In the same manner, the Law regulates "foreign" investment funds, which are those constituted pursuant to the laws of a foreign State or those which main investment manager has his/her/its main domicile outside Panama and manages the goods or assets of the investment fund outside Panama. Likewise, current legislation authorizes the registration of investment funds with only one kind of share participation and one investment portfolio (simple version), umbrella funds, investment funds of different classes and funds of funds. Investment funds that publicly offer their participation shares/units/quotas in Panama must register with the CNV, provided that said offering is deemed as a public offer as provided for by the Law-Decree; and those managed in or from the Republic of Panama. An investment fund is deemed managed in or from Panama if any of the following circumstances occurs: if an investment manager is appointed in Panama; if its main domicile is Panama or the prospectus or other advertising material indicates that the same is located in Panama; if a custodian is appointed in Panama; if the amount of directors necessary to adopt a resolution of the board of directors has its domicile in Panama. On the contrary, an investment fund is not deemed as managed in or from Panama due to the sole occurrence of one of the following circumstances: that it is constituted pursuant to the laws of Panama; that it is domiciled in Panama, if this is not its main domicile and the prospectus or advertising material does not infer otherwise; that one or more of its directors, officers, attorneys or employees has their domicile in Panama, provided that the amount thereof is not the necessary number to adopt the decisions for the investment fund; that administrative services (for example, accounting, secretarial, registry or bookkeeping, and transference and similar services) are provided to the investment fund in or from Panama. The prospectus of these companies must contain a detailed description of the objectives and investment policies, levels of indebtedness, mechanism for the subscription or redemption of participation shares, manners in which the net value per participation share, commissions and charges is estimated, dividend and distribution policy, investment and custodian manager, and any other information established by the CNV. No less than 20% of the directors (or persons with similar powers) shall be independent from the investment fund. The following are not deemed as independent persons from the investment fund: The investment manager, the investment advisor, the custodian and the offeror that distributes shares quotas; the investment corporation’s external (independent) auditors; any person that directly or indirectly is the owner of over 10% of the shares issued and outstanding of any of the persons mentioned in foregoing separate paragraphs. directors, officers, employees, brokers, dealers and analysts from any of the persons mentioned in the foregoing paragraphs; the person that has any family relationship within the second level of kinship or relationship with any of the aforementioned persons. Investment funds should keep their accounts, books and accounting according to the standards and practices determined by the CNV13 and should have their books and registries available for inspection by the CNV’ staff, as well as submit reports and financial statements (interim and audited) before the CNV. On the other hand, the Law foresees the so called "private" investment fund, which are managed in or from Panama, which share quotas are not offered in Panama and which constitution document has one the following limitations: a 50 person limit as "effective owners"14 of their share quotas or that mandates that the offering of their quotas be communicated privately and not through public communication means, a provision that establishes that their quotas may only be offered to qualified investors15 in minimum initial investment amounts of US$100,000.00 These investment funds must appoint a representative in Panama, who should have sufficient powers to represent the fund before the CNV and to receive administrative and judicial notices (service of process). The representative has the duty of maintaining in his/her files the constitutional documents of the investment fund, the prospectus used for the offer of the participation units/shares, documents crediting their appointment, a certificate crediting the existence of the investment fund, the names and addresses of the investment manager, the offeror and the custodian, as well as the main executive thereof. These documents and information should be delivered by the investment fund before commencing operations.  » Investment Managers To act as investment manager it is mandatory to have a license regardless that services are rendered to investment funds registered or not before the CNV. In the same manner, those companies that manage funds for State employees’ Savings and Pensions Capitalization System ("SIACAP", in Spanish) should obtain a license. Under the provisions of the Law-Decree, the outsourcing of investment management services is viable. Foreign investment managers should have a license granted by a foreign jurisdiction. Foreign managers are those that manage, administer, invest and in general, perform their obligations as investment managers outside Panama. In specific cases for foreign investment managers, the CNV is authorized to grant exemptions to compliance with the requirements of the Law. Investment managers are obliged to file reports and financial statements before the CNV, which must also be provided to their investors. <-- Back Next --> 13. May be under US GAAP. See CNV Regulation 02-00 of 2000. 14. See note 5 supra. 15. A qualified investor is an investor whose business includes the trading of securities or that has a patrimony or net worth of no less than one million US dollars.