ederal Commission on Securities.
Page 2(3)

Federal Commission on Securities and the Capital Market
of the Government of the Russian Federation.

Regulation No. 2

On Procedures for Registering the Rules of Unit Investment Funds and Prospectuses for Issues of Investment Units of Unit Investment Funds.

January 11, 1996

(Note: This text is not to be considered an official translation of this regulation.)

In accordance with Decree No. 765 of the President of the Russian Federation, "On Measures to Raise the Effectiveness of the Investment Policy of the Russian Federation," the Federal Commission on Securities and the Capital Market of the Russian Federation resolves:

1. To approve the attached Regulation on Procedures for Registering the Rules of Unit Investment Funds and Prospectuses for Issues of Investment Units of Unit Investment Funds.

2. To introduce the following changes to the Standard Rules of an Interval Unit Investment Fund, as confirmed by Regulation No. 14 of the Federal Commission on Securities and the Capital Market of the Government of the Russian Federation (October 1, 1995):

In Paragraph 3, Clause 4, the words "distribution price" are to be replaced by the words "redemption price."

In Footnote 9, the word "open" is to be replaced by the word "interval."

3. To introduce the following changes to the Standard Prospectus for an Issue of Investment Units, as confirmed by Regulation 15 of the Federal Commission on Securities and the Capital Market of the Government of the Russian Federation (October 18, 1995):

In Paragraph 4, Clause 80, the words "distribution price" are to be replaced by the words "redemption price."

Regulation On Procedures for Registering the Rules of Unit Investment Funds
and Prospectuses for Issues of Investment Units of Unit Investment Funds

This Regulation defines procedures for accepting and registering the rules of unit investment funds and prospectuses for issues of investment units of unit investment funds in accordance with Decree No. 765 of the President of the Russian Federation, "On Additional Measures to Raise the Effectiveness of the Investment Policy of the Russian Federation" (July 26, 1995).

1. The following terms are used in this Regulation:

"Federal Commission" -- the Federal Commission on Securities and the Capital Market of the Government of the Russian Federation;

"Management Company" -- the management company in whose trust management the property of an interval unit investment fund is held;

"Specialized Depository" -- the Specialized Depository of unit investment funds, which engages in its activities on the basis of a license issued by the Federal Commission;

"Fund" -- an open or interval unit investment fund;

"Issue Prospectus" -- the prospectus for an issue of investment units of an open or interval unit investment fund;

"Rules of the Fund" -- rules of an open or interval unit investment fund;

"Investment Unit" -- a registered security attesting to the right of its holder to demand from the management company redemption of his investment unit in accordance with the rules of the fund.

2. Only management companies which have been granted licenses by the Federal Commission to exercise trust management of fund assets have the right to redeem investment units.

3. Registration of the rules of funds and of issues prospectuses is carried out by the Federal Commission.

4. Distribution of investment units without registering the fund rules and the issue prospectus with the Federal Commission is forbidden.

5. Investment units can be issued in one of the following forms:

• Registered certificated investment units;
• Registered uncertificated investment units.

Investment units in certificated form are issued only on the basis of a special decision of the Federal Commission, to be made on a case-by-case basis.

The type of fund (open or interval unit investment fund) selected by the Management Company in accordance with requirements of acts of the Federal Commission and the form of issuing investment units must be specified in the fund rules and the issue prospectus.

A failure by the Management Company to fulfill the indicated requirements serves as grounds for a refusal to register the fund rules and the issue prospectus.

An investment unit does not have a nominal value. Interest and dividends are not accrued to investment units and are not to be paid.

6. An investment unit is a registered security attesting to the right of its holder to demand from the Management Company redemption of his investment unit in accordance with fund rules. Each investment unit provides its holder with the same quantity of rights.

The rights of holders of investment units are recorded in the register of holders of investment units of the Fund. Credit and debit entries in the personal accounts of holders of investment units are introduced into the register of holders of investment units in accordance with the Temporary Regulation on the Maintenance of a Register of Holders of Investment Units of a Unit Investment Fund, approved by a resolution of the Federal Commission, and with the fund rules.

Extracts from the register of holders of investment units of a fund (if investment units are uncertificated) or certificates of investment units (if investment units are certificated) are issued to the holders of investment units only after the introduction of the corresponding entry into the personal account of the holders of investment units into the register of holders of investment units of the fund.

7. The procedure for accepting and registering fund rules and issues prospectuses includes the following stages:

• A decision by the Management Company to approve the fund rules and to issue investment units;
• Registration of fund rules and an issue prospectus;
• For certificated forms of issues, preparation of the certificates of investment units;
• Disclosure of the information contained in the fund rules and the issue prospectus in accordance with acts of the Federal Commission;
• Initial distribution of investment units;
• Registration of a report on the results of the initial distribution of investment units;
• Disclosure of information about the results of the initial distribution of investment units of the fund.

8. The rules of the fund are developed in accordance with the Standard Rules of an Open Unit Investment Fund, as confirmed by Resolution No.13 of the Federal Commission (October 12, 1995), and the Standard Rules of an Interval Unit Investment Fund, as confirmed by Resolution No.14 of the Federal Commission (October 16, 1995) (hereafter, the Standard Rules), and the issue prospectus, in accordance with the Standard Prospectus for an Issue of Investment Units, as confirmed by Resolution No.15 of the Federal Commission (October 18, 1995) (hereafter, the Standard Issue Prospectus). The fund rules and the issue prospectus also can contain other material that does not contradict the provisions of the Standard Rules and Standard Issue Prospectus.

9. Registration of the fund rules and the issue prospectus is carried out on the basis of an application by a Management Company that intends to create a fund.

For registration of the fund rules and the issue prospectus, the Management Company must provide to the Federal Commission the following:

• A decision by the Management Company to approve the fund rules and the issue prospectus;
• The fund rules and the issue prospectus (2 copies);
• A notarized copy of the license issued by the Federal Commission to exercise trust management of the assets of unit investment funds;
• Rules for maintaining the register of holders of investment units of the fund by the Specialized Depository (Specialized Registrar) of the fund, developed in accordance with acts of the Federal Commission;
• A notarized copy of the contract on providing depository services to the Management Company, concluded with the Specialized Depository;
• A notarized copy of the license issued by the Federal Commission to act as a Specialized Depository;
• A list of agents for distribution and redemption of investment units, with an indication of their location and appended the contract concluded with the Management Company and an authorization from the Management Company to carry out distribution and redemption of investment units in its name;
• A notarized copy of the contract with an Auditor to carry out a review of the records and accounting related to trust management of assets of the fund;
• A notarized copy of the Standard Contract on appraising the assets of a fund (for interval unit investment funds).

The Management Company appends to the indicated documents additional documents describing the procedures for accepting applications to acquire and redeem investment units, for accepting cash funds from investors upon their submission of applications to acquire investment units, for payment of cash funds to holders of investment units upon their submission of applications to redeem investment units, procedures for controlling the full and timely deposit of cash funds of investors into the bank accounts of the fund, the accurate and timely settlement with holders of investment units who have submitted applications to redeem investment units, with an indication of the corresponding obligations and responsibilities of the Management Company, the Specialized Depository, the Specialized Registrar and the agents for distribution and redemption of investment units.

10. All the documents submitted to the Federal Commission are registered upon their receipt.

11. The Federal Commission is responsible for the correspondence of the information provided in the fund rules and the issue prospectus with the list of information which is required by the Standard Rules and Standard Issue Prospectus.

The Federal Commission has the right to review information that is provided to it upon registration of the fund rules and the issue prospectus.

12. The Federal Commission is required to register the issue prospectus and fund rules or to deny their registration no later than 30 days after the date of receipt of the documents indicated in this Regulation.

Registration of an issue prospectus and fund rules can be denied only on the grounds provided for in this Regulation.

13. Grounds to deny registration of fund rules or an issue prospectus include:

• A violation by the Management Company of requirements of legislation of the Russian Federation on securities or acts of the Federal Commission, including the presence in the documents provided of information leading the conclusion that the conditions of redemption and circulation of investment units are contradictory to acts of the Federal Commission;
• A failure of the provided documents and their informational contents to comply with the requirements of this Regulation;
• The inclusion of any false information or information that does not correspond to fact (unreliable information) in the fund rules, the issue prospectus or other documents that serve as grounds for registering the fund rules and the issue prospectus.

14. If there are no claims against the documents provided by the Management Company, a letter must be sent, confirming the fact of registration of the rules of the fund and the issue prospectus. In the indicated letter, the following information must be included:

• The data of introduction of the fund into the register of unit investment funds;
• The name and type of the Fund;
• The legal name of the Management Company and the period of its activity according to its license to exercise trust management of assets of funds;
• The period for which the fund is created;
• The registration number and date of registration of the issue prospectus of investment units;
• The registration number and date of registration of the fund rules.

Also, one copy of the fund rules and issues prospectus, stitched and sealed by the Federal Commission and stamped "Registered" is to be returned to the Management Company. The second copies of the indicated documents are retained by the Federal Commission.

15. The issue prospectus and fund rules registered by the Federal Commission are published by the Management Company in a quantity sufficient for informing all interested parties. The indicated documents are also to be provided by the Management Company to the agents for distribution and redemption of investment units, to holders of investment units and to all other interested parties upon their request, prior to the acquisition of investment units by the indicated parties.

After registration of the fund rules and the issue prospectus, the Management Company is to publish in a print medium of no less than 50,000 copies, an announcement of the issue of investment units, which includes the following information about the fund:

• The full name and type of the fund;
• The name of the Management Company, the number and date of issue of its license by the Federal Commission;
• The name of the Specialized Depository of the fund;
• The date of the beginning of initial distribution of the investment units;
• The price for distribution of investment units, including the surcharge;
• A list of agents for distribution and redemption of investment units who accept applications to redeem and distribute the investment units, with an indication of their location;
• The size of the remuneration of the Management Company in a percentage of the average net asset value of the fund over the course of the financial year, in accordance with the fund rules and the issue prospectus.
• The maximum amount of expenditure on paying remuneration to the Specialized Depository, the Specialized Registrar, the Auditor and the Independent Appraiser of the fund, in a percentage from the average net asset value over the course of the financial year, in accordance with fund rules;
• Procedures for disclosing information about the fund and the Management Company, including information about places where a potential investor can study the issue prospectus and fund rules.

The announcement can also contain also necessary information that does not contradict the fund rules and the issue prospectus.

The Management Company is to disclose the information that is included in the fund rules and the issue prospectus in accordance with procedures established by the Federal Commission.

16. The Management Company has the right to carry out initial distribution of investment units only after registration of the fund rules and the issue prospectus.

The initial distribution of investment units must occur no later than 180 calendar days after the registration of the fund rules and issue prospectus.

The period of initial distribution of investment units is established by the fund rules and cannot exceed 3 months.

The quantity of investment units issued is unlimited.

Distribution of investment units during the period of initial distribution is carried out according to a fixed price, including the surcharge to the distribution price. The price for distribution and the amount of the surcharge are established by fund rules. The size of the surcharge may not exceed 5 percent of the fixed distribution price. The indicated surcharge is applied only if applications are submitted to agents for the distribution and redemption of investment units.

Upon the expiration of the period of initial distribution of the investment units, the value of fund assets must constitute:

• for open unit investment funds, no less than 2.5 billion rubles;
• for interval unit investment funds, no less than 5 billion rubles.

If, upon the expiration of the period of initial distribution of investment units, the value of the fund assets is less than the indicated amount, the fund is subject to liquidation in accordance with the fund rules and acts of the Federal Commission.

Upon submission of an application to acquire investment units during the period of their initial distribution, the application must indicate the requisites of the investors' bank account, to which cash funds are to be send upon liquidation of the fund, if, upon the completion of the initial distribution period, the value of fund assets is less than 2.5 billion rubles for open unit investment funds or 5 billion rubles for interval unit investment funds.

Cash funds, submitted in payment for investment units (with the exception of the amount of the surcharge to the cost of an investment unit) during the initial distribution period, are subject to mandatory accrual into the account where the cash funds of the fund are held.

During the period of initial distribution of investment units, the Management Company has the right to use cash funds of the fund only for investing in government short-term couponless bonds and federal loans obligations.

If, upon the expiration of the period of initial distribution of investment units, the value of the fund assets is less than the minimal value of assets indicated in this clause, the Management Company is required to suspend the acceptance of applications to acquire investment units and take actions to liquidate the fund, in accordance with fund rules and acts of the Federal Commission.

17. Initial distribution of investment units can be carried out only on the basis of a contract concluded by the Management Company and agents for the distribution and redemption of investment units, and also an authorization document.

Requirements for agents for distribution and redemption of investment units and also for the provision of services involving the distribution and redemption of investment units are established by acts of the Federal Commission.

18. The Management Company is required to provide to the Federal Commission, no later than the day after the expiration of the period of initial distribution of investment units, a report on the results of the initial distribution of investment units in the form of a report on the net asset value of the fund (including all necessary addenda).

19. The report of the net asset value of a fund on the date of expiration of the period of initial distribution of investment units is subject to publication in the print medium where the preliminary announcement of an issue of investment units was published, no later than five days after the expiration of the initial distribution of investment units.

Subsequently, the report on the net asset value of the fund is to be published by the Management Company according to procedures and a schedule established by fund rules and acts of the Federal Commission.

20. Initial distribution of investment units can be suspended or declared invalid by the Federal Commission upon discovery of the following violations:

• A violation of requirements of acts of the Federal Commission by the Management Company in the course of the issue of investment units;
• Discovery of unreliable information in the issue prospectus or the fund rules;
• If, upon expiration of the period of initial distribution of investment units, the value of fund assets is less than 2.5 billion rubles for an open unit investment fund and less than 5 billion rubles for an interval unit investment fund, and the Management Company does not liquidate the fund according to procedures established in fund rules;
• Upon the discovery of violations of procedures for issuing investment units, established by the Federal Commission, it is also possible to suspend the issue until the elimination of the violations within the limits of the period of initial distribution. The issue can be resumed upon a special decision of the Federal Commission;
• If an issue of investment units is declared invalid, all certificated securities of this issue are subject to return to the Management Company, and the funds received by the Management Company from the distribution of investment units must be returned to the holders of investment units and persons who have submitted applications to acquire investment units and have paid the cost of one investment unit proportion to the quantity of investment units they own;
• An announcement that an issue of investment units has been declared invalid (annulment of state registration) is to be presented to the Management Company in written form, and also published in the printed medium where the announcement of an issue of investment units and the report of the net asset value of the fund upon expiration of the initial distribution period, were published.

21. The Federal Commission exercises control over the publication in the printed media of information, with the purpose of preventing advertising of issues of investment units before their state registration.

22. A decision to annul the state registration of an issue of investment units is to be presented by the Federal Commission to the Management Company within 5 days in written form, and can be appealed in the courts.

23. A report of registered investment units is to be introduced by the registering agency of the Federal Commission into the register of unit investment funds in accordance with acts of the Federal Commission.

24. The fund rules and issue prospectus can be changed and (or) supplemented by the Management Company.

The introduction of changes and (or) additions to the fund rules and issue prospectus come into effect conditionally upon their registration by the Federal Commission and the publication by the Management Company of an announcement of this fact and also the full text of the registered changes and (or) additions, according to procedures established in this Regulation for the disclosure of information on the registration of fund rules and issues prospectuses.

The Federal Commission must be informed of changes and (or) additions introduced into the rules for maintaining the register of holders of investment units.

The particularities of the procedures under which changes and (or) additions to the rules of an interval unit investment fund come into effect are established by the fund rules.

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