Technical Standards for Closed-End Real Estate Development Investment Funds

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THE COMMITTEE OF NORMS OF THE CENTRAL RESERVE BANK OF EL SALVADOR, CONSIDERING:

I. That Article 5 of the Investment Funds Law establishes that Investment Fund Managers, their operations, and other participants regulated by the Law are subject to the supervision of the Superintendence of the Financial System.

II. That Article 45 of the Investment Funds Law establishes that in a Closed Fund, investors may make contributions in addition to money in real estate assets, which must be free of all encumbrances and accompanied by the investor's tax solvency certificate from the Tax Administration.

III. That Article 47, third paragraph of the Investment Funds Law, regulates that the content of the extract of the Fund's Internal Regulations and the Placement Prospectus of participation quotas shall be established by the Central Reserve Bank of El Salvador through Technical Standards.

IV. That Article 62 of the Investment Funds Law refers to the documents that the Investment Fund Manager must accompany with the application to be recorded in the Register of Investment Funds kept by the Superintendence of the Financial System.

V. That Article 63 of the Investment Funds Law establishes that Closed-End Investment Funds, as well as their issuances, must be recorded in the Register kept by the Superintendence of the Financial System for such purposes and subsequently must be registered in a stock exchange, complying with the requirements established in the Securities Market Law insofar as they do not contradict the aforementioned Law.

VI. That Article 97, third paragraph of the Investment Funds Law establishes that Closed-End Investment Funds may invest in real estate located in El Salvador.

VII. That Article 99, second paragraph of the Investment Funds Law establishes that in the case where the investment policy of an Investment Fund includes real estate, it must consider minimum and maximum limits.

VIII. That Article 6, letter m) of the Securities Market Law establishes that the Public Stock Register will have a special Register of Closed-End Investment Funds.

IX. That Article 9, second paragraph, numbers 10 and 11 of the Special Law for the Prevention, Control, and Sanction of Money Laundering, Terrorism Financing, and Financing of the Proliferation of Weapons of Mass Destruction, regulates that

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obligated subjects must establish internal audit mechanisms, using the principle of risk-based administration, to verify compliance with what is prescribed in said Law; and have external or specialized risk management audit to evaluate and issue reports on the evaluation of the management of the prevention system. (4)

X. That Article 15, first paragraph of the Special Law for the Prevention, Control, and Sanction of Money Laundering, Terrorism Financing, and Financing of the Proliferation of Weapons of Mass Destruction, establishes that obligated subjects to achieve identifying their clients and users, including the controller, recipient, or ultimate beneficiary, managing the risks associated with them and obtaining appropriate information about the commercial relationships entered into or their continuity, must take reasonable measures to carry out due diligence procedures. (4)

THEREFORE,

by virtue of the regulatory powers conferred by Article 99 of the Law of Supervision and Regulation of the Financial System,

AGREES to issue the following:

TECHNICAL STANDARDS FOR CLOSED-END REAL ESTATE DEVELOPMENT INVESTMENT FUNDS

CHAPTER I OBJECT, SUBJECTS, AND TERMS

Object Art. 1.- These Standards aim to establish the provisions applicable to Closed-End Real Estate Development Investment Funds regarding their registration, operation, operability, policies, valuation of their investments, the limitations they must observe, and other related aspects.

Closed-End Investment Funds that include in their investment policy the development of real estate located in El Salvador for their completion or sale will apply the provisions established in these Standards.

Subjects Art. 2.- The subjects obligated to comply with the provisions established in these Standards are: a) Investment Managers of Closed-End Real Estate Development Investment Funds, authorized by the Superintendence of the Financial System, who work for an Investment Fund Manager; b) Investment Fund Managers authorized by the Superintendence of the Financial System that administer Closed-End Real Estate Development Investment Funds in accordance with what is established in the Investment Funds Law; and c) Marketing Entities or Agents.

Terms Art. 3.- For the purposes of these Standards, the terms indicated below have the following meaning: a) Investment Manager: natural person who is employed by an Investment Fund Manager for the purposes of managing the decision-making and execution of investments made with resources from Closed-End Real Estate Development Investment Funds in accordance with the internal regulations and investment policy thereof. This category includes the Investment Manager or whoever acts in their place, according to the organizational structure of the Manager; b) Central Bank: Central Reserve Bank of El Salvador; c) Stock Exchange: Stock Exchange constituted in El Salvador and registered in the Superintendence of the Financial System; d) House: Stockbrokerage firm, authorized and registered in the Superintendence of the Financial System; e) Financial Conglomerate: in accordance with Article 113 of the Banks Law, it is a set of companies characterized by the fact that more than fifty percent of their respective share capital is owned by a controlling company, which is also a member of the Conglomerate. The controlling company of the Conglomerate may be a company with exclusive purpose or a bank constituted in the country; f) Quotas: participation quotas; g) Marketing Entity or Agent: Stockbrokerage firm as well as any other legal entity authorized by the Superintendence of the Financial System for the marketing of Investment Fund quotas and which has signed an agency contract with an Investment Fund Management Company for the marketing of quotas of Closed-End Real Estate Development Investment Funds; h) Funds: Investment Funds; i) Real Estate Development Funds: Closed-End Real Estate Development Investment Funds are independent estates administered by an Investment Fund Management Company on behalf and at the risk of the participants, which have as their object the investment in real estate projects for their completion, sale, or leasing with the objective of generating profitability for the Fund participants; j) Manager: Investment Fund Management Company; k) Business Group: in accordance with Article 5, letter n) of the Securities Market Law, it is that in which a company or set of companies have a common controller, who acting directly or indirectly participates with at least fifty percent in the share capital of each of them or that have common shareholders who, directly or indirectly, are holders of at least fifty percent of the capital of another company, which allows to presume that the economic and financial performance is determined by common interests or subordinate to the group; l) Investor: natural or legal person interested in acquiring participation quotas of an Investment Fund; m) Special Law for the Prevention of Money Laundering: Special Law for the Prevention, Control, and Sanction of Money Laundering, Terrorism Financing, and Financing of the Proliferation of Weapons of Mass Destruction; (4) n) Funds Law: Investment Funds Law; o) Market Law: Securities Market Law; p) Supervision and Regulation Law: Law of Supervision and Regulation of the Financial System; q) Participant: investor in an Investment Fund; r) Related Persons: in accordance with Article 29 of the Funds Law, those regulated in Article 204 of the Banks Law will be considered related persons to the Manager; s) Investment Policy: in accordance with Article 99 of the Funds Law, it corresponds to the investment policy defined in the internal regulations and prospectus of each Investment Fund, and which indicates the minimum and maximum investment limits in each of the types of assets contemplated in Article 34 of these Standards; t) Placement Prospectus: placement prospectus of participation quotas; u) Register: Public Stock Register of the Superintendence of the Financial System; v) Internal Regulations: document containing all the specific characteristics and rules governing the operation of a certain Investment Fund; and w) Superintendence: Superintendence of the Financial System.

CHAPTER II GENERAL PROVISIONS ON REAL ESTATE DEVELOPMENT FUNDS

Applicable Regulations Art. 4.- The provisions contained in the following Standards approved by the Central Bank through its Committee of Norms are applicable to Real Estate Development Funds in everything that does not contradict these Standards: a) “Technical Standards for the Authorization of Constitution, Start of Operations, Registration, and Management of Operations of Investment Fund Managers” (NDMC-02); b) “Technical Standards for the Authorization and Registration of Investment Managers of Investment Funds” (NDMC-03);

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c) “Technical Standards for the Authorization, Registration, and Operation of Investment Funds” (NDMC-06); d) “Technical Standards for the Investments of Investment Funds” (NDMC-07); e) “Technical Standards for the Calculation of the Value of the Participation Quota and Assignment of Participation Quotas” (NDMC-11); f) “Technical Standards for the Submission and Disclosure of Information of Investment Funds” (NDMC-13); g) “Technical Standards for the Transfer or Merger of Investment Funds” (NDMC-16); h) “Technical Standards for Closed-End Real Estate Investment Funds” (NDMC-17); and i) “Technical Standards for the Registration of Appraisers and their Professional Obligations” (NRP-27). (2)

Real Estate Development Projects Art. 5.- Real Estate Development Funds may invest in projects that meet the following: a) Be located in the national territory; b) Have a deadline for their completion; c) Have a project feasibility study in accordance with Annex No. 1 of these Standards; and d) The construction carried out by Real Estate Development Funds must be performed by a third party.

Characteristics of a Real Estate Development Fund Art. 6.- Real Estate Development Funds are constituted as Closed Funds with a defined term, have as their object the investment in real estate projects for their completion, sale, or leasing with the objective of generating profitability for the Fund participants. The investments they make in real estate may only assume the risks inherent to the development, completion, and leasing thereof. Participants of these Funds may only receive what corresponds to them from their participation quotas at the end of the Fund's term, as established in the Funds Law, and their quotas may be negotiated in the secondary market. Regarding the leasing of real estate, the obligations stipulated in the “Technical Standards for Closed-End Real Estate Investment Funds” (NDMC-17), approved by the Central Reserve Bank through its Committee of Norms, must be considered.

Identification and Investor Profile Art. 7.- The Manager must clearly and precisely establish in the internal regulations the risk profile of the investor to which the Real Estate Development Fund is oriented, which must be in accordance with the object of the Fund. The Manager must have policies and procedures to determine the risk profile of investors in order to correctly categorize them and determine those that match the investor profile to which the Real Estate Development Fund is directed; for this, the Manager must inform clearly, timely, and precisely about its characteristics, explaining at least that Real Estate Development Funds are of medium or long term and that if the investor decides to obtain liquidity from their quotas in the secondary market in a stock exchange, this will depend on the market conditions existing at that time. It is the responsibility of the Manager to ensure that the quotas of Real Estate Development Funds are marketed to investors whose risk profile coincides with the investor profile to which the Fund has been directed. In the case that the Manager markets its quotas to investors whose risk profile does not coincide with the profile required by the Fund, it must comply with what is established in Chapter VI of the “Technical Standards for the Process and Registration of Buy and Sell Orders of Securities of Stockbrokerage Firms” (NDMC-01), approved by the Central Reserve Bank through its Committee of Norms, documenting that the Manager issued a warning to the investor about the main risks and characteristics of the quotas, the object and investment policy of the Fund, and that said Fund is not in accordance with the risk profile determined in the analysis performed on the investor, additionally specifying the client category determined by the Manager or agent. The aforementioned document must be signed by the participant and by the General Manager in accordance with what is established in the Technical Standards referenced in this article. If the marketing of quotas is done through a House, it must carry out the procedure described in this article and Article 8 of these Standards.

Promotion of the Real Estate Development Fund Art. 8.- Real Estate Development Funds must express their object in their internal regulations, as well as in any document sent to participants and in any information regarding the Real Estate Development Fund disseminated by the Manager through its website or any advertising material. Likewise, they must express in their internal regulations the types of construction projects in which they will invest their resources; said projects must have a set time for their construction and have a specific result according to the Fund's internal regulations. In the disclosure of information and advertising regarding the Real Estate Development Fund, it is the responsibility of the Manager to ensure that the name and object of the Fund do not induce error or confusion in investors or participants regarding its investment policy, its risk, or the liquidity of the quotas.

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The Manager and the persons who perform the function of marketing quotas in accordance with Article 26 of the Funds Law will be responsible for explaining to the investor the characteristics of the Real Estate Development Fund, specifying the types of projects it will develop as well as the valuation methods of the investments made in accordance with what is established in the internal regulations and placement prospectus of the Fund.

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CHAPTER III AUTHORIZATION AND REGISTRATION OF REAL ESTATE DEVELOPMENT FUNDS

Registration Application of a Real Estate Development Fund and Authorization of Documents Art. 9.- For the authorization of entry in the Register of Closed Funds, the legal representative or attorney of the Manager must present to the Superintendence an application accompanied by the following information and documentation: a) Certification of the agreement of the Board of Directors of the Manager in which the constitution of the Real Estate Development Fund was agreed upon, as well as the approval of the internal regulations and the placement prospectus; b) Draft of the deed of issuance of participation quotas; c) Project feasibility study in accordance with Annex No. 1 of these Standards; d) Internal regulations, which must include the minimum content defined in Annex No. 2 of these Standards; e) Placement prospectus of quotas, which must include the minimum content defined in Annex No. 3 of these Standards; f) Certified copy of the construction permit necessary for the realization of the project, which must be approved by the corresponding authority in the jurisdiction where the real estate is located; it will be the responsibility of the Manager to ensure that the project has the necessary permits for its development; g) Document ensuring the promise of sale of the real estate; h) Model of subscription contract of quotas between the Manager and the participant; i) Draft of the documents related to the guarantee, which the Manager will constitute or modify for the Real Estate Development Fund according to its nature, in consideration of what is established in Article 22 of the Funds Law; j) Certification of the agreement of the Board of Directors of the Manager in which the entity that will be the representative of the beneficiaries of the guarantee is designated; k) Acceptance of the entity as representative of the beneficiaries of the guarantee; l) Method of valuation of the assets of the Real Estate Development Fund; m) Procedures manual and policies for the handling of operations carried out in the administration of the Real Estate Development Fund, responsible personnel who will intervene in said procedures, including flowcharts that describe the process of the management of the Real Estate Development Fund in which the activities, departments, the hierarchical levels that intervene in them, and the models of forms that will be used in the administration thereof are identified, such as: signature registration, client identification forms, account statements, daily availability control, guidelines for payments in concept of work progress, and all those related to the development of the project, among others; n) Name of the person(s) designated as investment manager(s), specifying the date of authorization of the registry entry by the Superintendence; o) Projections of income and expense cash flows for the first five years of the Real Estate Development Fund. If the term is less than that established in this letter, the projections will be presented for the maturity term of the Fund; p) Accounting system of the Real Estate Development Fund, which will be used by the Manager and the description of the computer platform on which it has been developed, its information systems, description of information backups, security, and controls in the systems. The accounting systems must be presented in accordance with the “Accounting Manual for Investment Funds” (NDMC-08); and q) Other documentation and information necessary due to the nature of the Real Estate Development Fund. In the application, the means to receive notifications and the designation of the persons commissioned for such effect must be established. (3) The projections referred to in letter o) of this article will be carried out in accordance with the model established by the Manager, documenting the basic assumptions of said projections, which must be coherent, supporting each of the variables of the model used.

The procedure for the entry of the Fund may be initiated without the presentation of the information required in letter f) of this article, but said requirement will be necessary for the authorization of the entry of the Fund in the Register at the Superintendence. The application and documentation may be presented through the means made available by the Superintendence, which may be electronic. In any case, the term referred to in the first paragraph of Article 12 of these Standards will begin to run from the next business day after the application has been presented. (3)

Model of Subscription Contract of Participation Quotas Art. 10.- The model of subscription contract of participation quotas must include at least what is established in the “Technical Standards for the Authorization, Registration, and Operation of Investment Funds” (NDMC-06), approved by the Central Reserve Bank through its Committee of Norms, and will observe what is regulated in Article 22 of the Law of

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