Rules of Operation

Both the Arka BZ WBK Property Market Fund founded in 2004, as well as Arka BZ WBK Property Market Fund 2, founded in 2008, currently in the process of building its portfolio, rely on the same assumption - profit potential for the Funds’ participants which consists of:

• Income from the lease of commercial property,
• Increase in commercial property value, and
• Income from the development and sale of property.

To increase the profit potential for investors even more, both property market funds may employ financial leverage. However, we continue to place priority on investment security.

Arka BZ WBK Property Market Fund and Arka BZ WBK Property Market Fund 2 focus on four market segments. Investments in the commercial sector mainly consist of office buildings, warehouses and shopping malls. The funds’ investment portfolio is complemented by development investments related to residential and commercial development.

The core investment area for both Funds is Poland. The portfolio may, however, acquire investments in other countries of Central and Eastern Europe. Arka BZ WBK Property Market Fund 2 may invest a full 50% of its holdings outside Poland.

Since the managers of Arka investment funds place particular emphasis on investment process security, property is not acquired directly but through Special Purpose Vehicles. A maximum amount of 20 percent of the Fund’s assets may be invested in one SPV.

Each Polish investment of the new Fund is to be conducted by a dedicated limited joint-stock partnership in which the Fund is the majority shareholder. As a result, the Fund itself will not assume the responsibility for the liabilities of any particular SPV, hence limiting the investment risk to one project.

Limited joint-stock partnerships are not corporate income taxpayers. Profits earned by them are booked by their shareholders of which the majority one is the investment fund which is legally exempt from corporate income tax. Income from property leases and income from property sales are therefore taxed neither at the SPVs which own these properties nor at the Fund. Thanks to this, the degree of return on investment for shareholders of the Fund is higher.

The legal life of Arka BZ WBK Property Market Fund is set at eight and a half years and the life of Arka BZ WBK Property Market Fund 2 is eight years. It is possible to change these terms if, in the managers’ opinion, there is a risk that on the planned date the assets may be sold at depressed prices, or at prices which do not correspond to their market value.

The Fund’s first stage has been dedicated to building of the Property Market Portfolio. Usually, this process takes three years. Assets which are not included in the Property Market Portfolio at a given time are included in the Liquid Asset Portfolio and invested mainly in debt securities. The Funds aim to invest all the capital collected through public subscriptions to Property Market Portfolios.

The second stage is the management of the Property Market Portfolio. During this period commercial buildings are leased and development investments lasting a few years are made. In this stage, it is also possible to divest selected investments and use the funds obtained in this manner to buy others.

The Funds’ last stage consists of the sale of all assets both from the Property Market Portfolio and from the Liquid Asset Portfolio, after which time the Fund is liquidated. This stage should not exceed a year and a half.