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JADRAN INVEST d.o.o. Zagreb, Savska cesta 141
Investment Fund Establishment and Management Company

JADRAN CAPITAL d.d.
Closed-end Real Estate Investment Fund

P R O S P E C T U S

The Prospectus contains all key data necessary for potential investors, when making their decision on investing in the JADRAN KAPITAL d.d. ZATVORENI INVESTICIJSKI FOND S JAVNOM PONUDOM ZA ULAGANJE U NEKRETNINE translated as JADRAN CAPITAL PLC PUBLICLY-OFFERED CLOSED-END REAL ESTATE INVESTMENT FUND hereinafter referred to as JADRAN CAPITAL.
Prior to any investment decision, each investor should read the Prospectus and Charter to become familiar with the type of investment and the associated risks.

PART I

INTRODUCTION

JADRAN KAPITAL d.d. (herein referred to as the Fund) has been established to provide investors with strategic investment opportunities specifically focused on one of the most exciting developing economies in Europe. The Fund's objective is to provide Shareholders with long-term capital growth from a diversified portfolio of real estate investments and property development projects.

The Fund's Management Board intends to invest not less than 90% of the Fund's assets in the territory of the Republic of Croatia.
The Fund's principal focus will be on developmental opportunities in Croatia's coastal belt, although projects in the country's interior will also be accorded due consideration. The objective of these investments is to take advantage of the burgeoning tourism industry and the demographic trend wherein buyers from Northern Europe are moving into the Mediterranean region. The Fund's strategy is to play an active role in following these trends by bringing its know-how and expertise in local, regional and national project development to international financial markets.

Investments will be diversified through a range of projects, such as tourism and property development as well as investments in land (construction sites and agricultural land). The Fund will also be used to invest in commercial projects (shopping malls, parking garages, sports and recreational facilities) to exploit the infrastructure needs of the growing local and tourism market.
The Management Board currently sees Croatia as the premier economic partner in regional development, and as such opportunities for joint investments with local partners in some of these high-growth will be actively sought out. The Management Board expects to invest up to 10% of the Fund's assets in this manner.

Croatia and specifically the Dalmatian coastline currently represent an attractive investment opportunity as a result of a number of key factors, which, among others include the legal and political reforms implemented in preparation for accession to the European Union (expected in 2009). However, thorough and in-depth knowledge of the local market, its legal system and procedures is a prerequisite for successful investment. The Fund and it's managers have been specifically structured to avoid the pitfalls that many international investment groups and developers have experienced.
The Management Board will make use of local experts and contacts when gathering and preparing projects to ensure a sufficient number of projects for secure and lucrative capital investments.

The Management Board will list the Fund on the Zagreb Stock Exchange with a mixture of domestic and international investors. Within a period not to exceed one year after the Fund's registration with the Commercial Court, a capital injection will be planned to complete existing Fund investments in projects by minimising the likelihood of capital stagnating in financial instruments or cash deposits. Over and above the existing listing on the Zagreb Stock Exchange, this secondary float is expected to include a listing on the London Stock Exchange's AIM market to take full advantage of international investor interest in this region.

JADRAN INVEST d.o.o.

The Fund will be managed by Jadran Invest d.o.o. Zagreb, Croatian-based company. The investment management company was set up as a partnership involving local market knowledge and international financial market expertise. The founding directors and shareholders of Jadran Invest d.o.o., through many years of cumulative experience of the Croatian real estate market, have identified a gap between the requirements and interests of international capital investors and the ability of large multi-national developers to penetrate the local market. With this gap in mind, we have brought together an exceptional team of local project managers, consultants, legal experts and property developers and teamed them up with respected and experienced experts on international financial markets and real estate. We believe this blend of intellectual assets will address and indeed capitalise on the opportunities and cultural differences involved in doing business on the Croatian real estate market.

The Croatian government and public are extremely sensitive to the negative impact of the tourism boom in other Mediterranean countries, specifically the Spanish and Portuguese examples. Blessed with a coastline of internationally renowned natural beauty, these concerns are well-founded and have proved to be a major hurdle to development progress. By fusing local know-how with quality projects, we aim to leap over these hurdles and provide shareholders with long-term growth and exposure to one of the fastest-growing tourism markets.

JADRAN INVEST's strategy in Croatia

The company's overall strategy will be to identify those areas of development where the greatest return to feasibility ratio can be found. Following 30 years of under-investment in the regional and tourism infrastructure of the region, local and national authorities are striving to generate and spur on quality developmental strategies. By means of adaptation and timely responses to new conditions in cooperation with the national and local authorities, the company will maximise return and minimise lead-times into projects.

The company will source projects from local agents, business contacts, developers, regional and town authorities and governmental agencies. By bringing to these potential partners a thorough understanding of their requirements and a long-term investment approach, we should give the Fund with a significant advantage over potential competition.

By developing partnerships with large and medium-size over-diversified industrial companies with legacy portfolios of non-core property assets, we hope to take advantage of these opportunities while providing them with assistance in clearing their post-socialist structures and securing prime real estate assets for the Fund.

INVESTMENT POLICY

In compliance with Croatia's legislation governing investment funds, the Management Board will invest not less than 60% of the Fund's assets in real estate and property development projects. At the time of acquisition, each individual real estate property may not exceed 20% of the Fund's net asset value.
A lack of quality real estate in Croatia generally precludes investment in finished projects, i.e. existing facilities, so the Management Board therefore plans to invest up to 20% of the Fund's assets in finished projects.
To meet the needs of developmental investment projects, the Fund will invest in other companies whose sole or major activity will be sales and acquisition, rental and leasing of real estate and real estate management.
By investing in other companies, the Fund will make strategic investments in companies that will use their own funds to acquire high-quality construction sites and/or agricultural land with plans for their further development. The Management Board expects considerable yields from this type of investment, given that the companies in which the Funds invests will be able to use financial leverage. When necessary, they will take out investment loans to engage in developmental projects and thereby raise the profitability of such projects.
With a view to long-term investments, when investing in other companies, the Management Board will consider investing in companies owned or partially owned by local governments, particularly in cases of infrastructure projects, thereby securing stable investment yields over the course of several years.
When investing in other companies, the Fund's Management Board and/or Supervisory Board will apply the same risk management policy and investment procedure in the course of decision-making as in the case of the Fund's own direct investments in projects.

The Management Board expects that up to 60% will be invested tourism-related and/or residential real estate, with the objective of generating medium-term earnings, while up to 20% will be invested in construction sites or future construction sites, with the objective of generating long-term earnings. According to projections, up to 20% of the Fund's assets will be invested in business and/or commercial real estate, up to 10% in agricultural land, and up to 10% in securities.

Other real estate investments, in compliance with the provisions of Article 80(3)5 of the Act, encompass:

Investment in agricultural land, enabling further investment in new crops and farm production;
Investment in agricultural infrastructure (irrigation, etc.);
Investment in office space;
Investment in tourist accommodation capacity;
Investment in industrial zones and/or parks, free trade zones, office parks and technology parks;
Investment in shopping malls;
Investment in business centres;
Investment in residential buildings;
Infrastructure investments (utilities in housing districts, utilities in industrial zones, etc.);
Investment in parking garages and lots;
Investment in special-purpose health-care facilities (retirement homes, specialised clinics, polyclinics, hospitals, etc.);
Investment in property required to manage real estate (equipment and furniture, accommodation capacity, machinery, etc.);
Investment in cultural monuments;
Investment in stakes or shares of companies solely or largely involved in acquisition and sales, rental and leasing of real estate and real estate management, stakes or shares in other real estate funds, or other securities, derivatives or certificates stipulated by the relevant authority, which prices based on real estate;
Shares in companies solely or largely involved in construction, provided that real estate accounts for not less than 75% of total company assets;
Shares in companies in which real estate accounts for over 50% of total assets;

The Fund, in line with sound business practices, will invest available assets that cannot immediately be channelled into investment projects into securities and cash deposits, adhering to the principle of risk diversification, in compliance with the Investment Fund Act and the Charter and Prospectus. The Management Board will thereby place not more than 30% of the fund's asset value in securities quoted on public markets within the EU and OECD member countries, and the balance of assets will be held in cash deposits as per the Croatian Investment Law.

In the case that the Fund managers appraise that instability in the property market could affect the portfolio up to 40% of the funds assets may be allocated to financial securities and cash deposits in order to safeguard investors within the scope of the Croatian Investment Law.

The Management Board also expects to invest up to 10% of the Fund's total assets in neighbouring countries such as Bosnia-Herzegovina, Serbia-Montenegro, and so forth. These investments will be carefully assessed, taking into account the risk factors in these countries. Such investments will generally be joint ventures, aimed at taking advantage of potentially high returns available there.

The Fund's expected return will be set at 12% per annum.

Initial Portfolio

Jadran Invest has constructed an initial portfolio of investments that it believes should give the Fund with a diversified and well-balanced toe-hold on the market and achieve its objective of constructing a portfolio that will provide long-term capital growth. The Management Board has held a series of preliminary meetings which constituted the foundation for preparation of preliminary contracts and/or letters of intent with real estate owners. Brief descriptions of some of these projects can be found below.
All projects have been selected for a target amount of the Fund's assets upon completion of the public offer for share subscription. In the event that the amount of subscribed capital is less than expected, the Management Board has already identified potential co-investors for financially less demanding projects (banks, construction firms, private investors) with whom it shall embark upon the aforementioned projects jointly. In case of financially more demanding projects, the problem of finances will be resolved by means of the Fund's aforementioned capital injection.

1. Business/residential centre in Split

This project foresees the purchase of a plot with free-and-clear title in Dalmatia's largest city, Split. The plot is located near downtown Split, close to one of the main thoroughfares leading into the city, with optimum infrastructure. The plot will be used to construct two towers, one commercial and the other residential. The residential units will be sold during and upon completion of construction, while the business premises will be either sold or leased on a long-term basis.
The total gross developed space will be 14,400 m2. According to projections, it will take approximately 6 months to secure construction permits, and approximately 2 more years to complete construction. The expected total investment cost is roughly €12 million. Preliminary contracts have been concluded with the plot's title-holder, and a down payment has already been made. The Fund's Management Board plans to invest €3 million of its own assets in the project.
The above investment is expected to be in the region of 10% of initial assets.

2. Family home project in Samobor

The total surface area of the land is 75,000 m2 of which 64,000 m2 is intended for construction, while 11,000 m2 is forest.
The plots are located within the greenery zone just above downtown Samobor, with a view of the old castle, downtown Samobor and Zagreb, and outer edges encircled by forest.
The plots can be approached from three sides, which will make them easily accessible from the city of Samobor once the local traffic infrastructure is completed. The minimum construction plot size is 3,000 m2 on which buildings with maximum floor-space of 500 m2 can be constructed.
The preliminary designs call for parcelization of a single large plot (after securing the relevant site permit) into 17 plots, of which each would cover a surface of 3,000 m2 to 4,000 m2. After regulation of the plots and installation of all necessary infrastructure hook-ups (electricity, water, natural gas, sewage, telephone lines, traffic access), they will be offered on the market as licensed plots ready for construction of large family homes.
Preliminary contracts have been concluded with the land's title-holders. The total investment in land and parcelization and regulation of construction plots is approximately €4 million, which the Fund would invest in this project. Total investment would be €10 million.
The above investment is expected to be in the region of 13% of initial assets.

3. Island of Žut - Kornati Archipelago

The total surface area of 312,000 m2, including an islet called Babuljas Plot, stretches over a width of 150 m and length of 2 km from one side of the island to the other. Currently there is no infrastructure present, but the plot is approximately 1 km from the ACI Marina on the island.
The Kornati Archipelago with its National Park consists of around 140 islands. We expect that of all islands in the Kornati Archipelago (Žut is outside the national park) this is the perfect choice for limited development to take place as it is by far the largest island outside the park. The Management Board expects the development plan to commence by the end of the year. Due to these unique elements, we are very confident in a positive outcome. The completion time of this development plan, after being accepted, is expected to run between 12 to 18 months. Evaluation of similar sites once plans are approved, indicates a return of 100% on this project.
Title is free and clear, and the projected purchase price is €8 million. The Management Board plans to invest €5 million of the Fund's own assets in this project.
The above investment is expected to be in the region of 17% of initial assets.

4. Agricultural land

Croatia has about 3 million ha of agricultural land. About 1 mil ha is publicly-owned. Croatia's Ministry of Agriculture, Forestry and Water Management has recently identified the need to sell or grant long-term leases on agricultural land to interested investors.
The Fund's objective is to invest in agricultural land by means of purchasing businesses that own arable land (at least 20 ha in size in order to organise modern and profitable agricultural production). Through direct deals with the Agriculture Ministry, the Fund also plans to buy off State-owned areas that are likely to produce long-term crops. As the current price of State-owned land is relatively low in comparison to market prices and the price of privately-owned land (of similar quality) in the European Union, investing in agriculture is deemed highly profitable for the Fund.
The above investment is expected to be as per the general guidelines given in the prospectus and the statute.

Risk management

The Fund will seek investment opportunities that offer the prospect of sustainable long-term capital growth. All investments will be made to minimise risk as much as possible, and they will comply with the following risk management policy:

No property development will be undertaken and no works will be conducted on existing buildings without proper due diligence and project assessment.
Land transactions will only be conducted on the basis of thorough research and a wealth of local knowledge, so that the Management Board is satisfied that the investment is viable and balanced. Agricultural land will also be analyzed through a process dedicated first to undervalued assets and then to economies of scale, which will contribute strongly to long-term capital growth.
Due diligence will be conducted with the help of the best available local attorneys and consultants to be better attuned to the local considerations in any project appraisal. Project management analysis and support will be out-sourced at the international level through our advisors, who have many years of experience in these types of projects, and through our local advisors and occasional joint venture proposals that may be entertained with other international construction firms and development investors.
Title: investments will be thoroughly vetted for clear title and documentation prior to approval. The Management Board will ensure that all legal matters are satisfactory prior to taking action on any investment.
When considering direct investment in other companies (whose sole or principal activities are sales and acquisition, rental and leasing of real estate and real estate management, and whose sole or principal core activity is construction, provided that real estate forms not less than 75% of total company assets and in companies in which real estate forms not less than 50% of total assets), the Fund will adhere to a policy of selecting companies that are unburdened by debt, losses and/or encumbrances, and companies free of current or potential lawsuits against the company itself, its owner(s), supervisory board or management. By the same token, the Management Board will directly oversee all company operations, and be able to guide such operations by means of a majority share package or by appointment of its own representative in the top management or supervisory bard of said company.
When investing in other companies, the Fund will take advantage of its ownership status to foster employment of local project engineers and construction firms, while ensuring strict application of international standards and quality to finished works so that projects can be completed in minimum time with maximum quality.

Investment process outline

The investment process conducted by the Management Board will broadly adhere to the following guidelines:

Sourcing investments
Information on investment opportunities will be sourced from the public sector, banks, agents and other contacts. If the project is approved by the Management Board, a comprehensive project assessment will be compiled for the Supervisory Board. Approval of the Board will be necessary for investments exceeding 10% of the Fund's assets before the Management Board can move to implementation.

Management/Board approval
At the time any investment proposal is presented to the Board for approval, the Management Board will have considered the following project-specific areas:

Land-status and tenure, land registration and cadastral issues;
Planning - the status of any existing planning permission and the likelihood of the Fund achieving the planning consent necessary to meet its objectives in relation to the project;
Design - a rough layout of the facility and its infrastructure to facilitate preparation of a construction cost estimate;
Construction - estimated construction cost with several competing estimates from approved local contractors, along with a construction timetable and list of available and qualified construction firms and suppliers;
Operating plan - a plan explaining how suitably qualified personnel and adequate equipment can be made available for the operation and maintenance of the facility, along with preliminary budgets;
Economics - an investment appraisal providing indicative capital costs, operating costs and computations of internal rates of return;
Legal - a list of contracts and agreements, title deeds and cadastral documentation that will be required to complete the transaction, along with a suitable list of consultants and cost estimates.

Ongoing project oversight
The Management Board will oversee the construction process to ensure timely completion and attainment of agreed specifications. After project completion, there will be a commissioning period, again monitored by the Management Board, whereafter the project will be finalised.

Once projects are completed, the Management Board reports to the Supervisory Board as needed. This will typically involve the scrutiny of accounts and reports, attendance where necessary at project shareholder meetings and reporting on exceptional or extraordinary matters.

Cash management

Pending investment, the Fund initially intends to place all its cash on deposit in several different bank accounts and invest it in other funds, in compliance with Croatia's Investment Fund Act, and the Fund's Prospectus and Charter. Depending on the rate of investment of initial funds in projects, the Fund may consider appointing an appropriate fund manager to advise it on the investment of its cash balances. At all times, the Management Board will re-invest returns into the Fund and continue to ensure sound long-term growth prospects.

Distribution and repurchase of ordinary shares

The proceeds generated by investments in the Real Estate Portfolio will be available for further re-investment. The Board will duly consider the distribution of capital gains.

If the Fund completes a construction project or purchase of real estate and thereafter generates rental income through leases, a portion of rental income (net of expenses) may be distributed by way of an annual dividend (or more frequently at the Management Board's discretion if the amount available for distribution is significant).

Disbursements may be made by way of dividend or repurchase of shares, at the discretion of Management Board. Disbursements may give rise to a tax liability on income or capital gains, depending on a shareholder's individual taxpayer status.

Discount management

The Management Board intends to pursue an active policy in managing the price at which shares trade in order to ensure that such shares do not trade at a significant discount on the Fund's net asset value.

The Board will consider all appropriate policies to reduce the discount, including use of the following policies:

the Fund will pursue an active investor relations programme to provide existing and potential investors with information on the Fund;
the Fund has the authority, until the next annual general meeting, to buy back ordinary shares which it intends to utilise where there is a significant imbalance between supply and demand for ordinary shares; and
the Fund will return capital that it does not wish to retain for further investment derived from the realisation of investments in the most efficient possible way, including use of special dividends and share buy backs at or above net asset value within legally-stipulated limits.

PART II

Croatia's market background

Introduction

Croatia declared its independence from the multi-ethnic state of Yugoslavia in 1991 but was then caught up in the war in the Balkans that persisted until 1998. Political stability was established in 2000, and Croatia opened up to the West, resulting in progressive democratisation and economic transformation. The country's new stable political scene has been facilitated by the European Union and the commencement of EU accession negotiations. This stability trend is expected to continue as EU commitments uphold the development of stronger national institutions. The target date for EU accession is the end of the decade (2009). Since the mid-1990s the economy has enjoyed a period of strong growth, averaging more than 4% per annum, which exceeds the average of the eight new Central and Eastern European EU members.

Political stability

Since 2000 Croatia has enjoyed a period of political stability, and in 2004 the Croatian Democratic Union, or HDZ (a centre-right party), was elected for a four-year term. The current government came to power with a mandate for stimulating economic growth, reforming state institutions and promoting Croatia's accession to the EU and NATO. Croatia is a member of the WTO and is expected to join NATO in 2007. These processes serve as a catalyst for reform and many governmental, legal, social and structural reforms have already been implemented.

EU accession

It is a strategic goal of the Croatian government to prepare Croatia for EU accession by 2009. Croatia signed the Stabilisation and Association Agreement (SAA) in October 2001, whereunder Croatia is obliged to assume a number of core commitments for EU membership. The Interim Agreement has been in force since March 2002 and provides considerable access to the EU market. This year in June Croatia was officially accepted as a candidate for accession in 2009. The Croatian Government is fully committed to alignment of the country's legal and economic framework with that of the EU, by strengthening co-operation with its neighbours and co-operation with the EU on other matters. Negotiations between Croatia and the EU for full membership commenced in November 2005. Croatia is already benefiting from €105 million in EU pre-accession funds for 2005, as recommended by the European Commission, while €140 million has been planned for 2006.

The economy

Croatia has made the transition to a functioning market economy (in the EU's view) and has enjoyed sustained growth since the mid-1990s, averaging more than 4% per annum. Fitch, the international rating agency, currently classifies Croatian government debt as BBB- and the outlook on Croatia's sovereign ratings is positive, although any upgrade will depend on the success of the government in implementing privatisation and fiscal reform in order to reduce the burden of debt as a share of GDP.
Inflation averages 2.5% per annum and economic growth is expected to continue in 2006. For the past 12 years, the Croatian Government currently has an informal policy of tracking the movement of its currency (kuna - HRK) in relation to that of the euro - during this period, oscillations were +/- 7% in relation to the average.
The cost of land, labour and materials in Croatia is, in common with other Central and Eastern European countries, generally low relative to the more developed Western European economies. Unemployment currently stands at around 18%, which has helped to keep labour costs low. This figure has been gradually reducing year on year since 2000 and the Croatian Government expects this trend to continue.
As a general policy aim, the Croatian government has put an emphasis on promoting the growth of small and medium enterprises to help meet its goal of maintaining strong growth rates and fostering sustainable development within the framework of a market-oriented, stable and predictable business environment.

The Croatian Government is actively promoting economic reconstruction through its taxation policies which include tax deductions, incentives and subsidies (such as the use of free trade zones and free enterprise zones). Examples of reconstruction projects include public works projects for municipal infrastructure and the development of industrial zones and technology parks.

Foreign investment

Foreign direct investment (FDI) in Croatia has been buoyant and is among the highest per capita of all transition countries. Since 2000, FDI has to date reached a total amount of more than €9 billion. Maintaining these levels, however, is largely dependent on the successful implementation of privatisation, and further government policies and the achievement of EU accession to bolster the business environment.

Croatia has also benefited from sources other than the EU, in particular the World Bank and the European Bank for Reconstruction and Development (EBRD). Under the Country Assistance Strategy for Croatia, the World Bank envisages a lending programme of up to US$1.5 billion designed to support Croatia's reform process leading to EU accession. This World Bank programme is expected to last for five years, and it has been announced as the last World Bank project in Croatia. The EBRD has made a commitment of €745 million to support privatisation, FDI, financial sector restructuring and infrastructure development in Croatia. The EBRD's programme in Croatia is integrated within the international community's efforts to promote growth and stability in South East Europe. The EBRD has taken the lead in ensuring that the private sector plays a prominent part in economic development and cross-border integration in the region. Croatia has also been a member of the International Monetary Fund since 1992.

Legal reforms

Croatia's legal system is undergoing constant modernisation and change as the country moves towards EU membership. The country has a legal convergence team, and in conjunction with Croatia's parliament, it is in the process of enacting a range of new laws which comply with the EU's legal model. A large number of EU directives have already been implemented. The Croatian authorities, and particularly the Ministry of Justice, are implementing several projects aimed to improve Croatia's legal, judicial and land registry systems. Ongoing projects include:

(i) Municipal Court Improvement
The Municipal Court Improvement Project is designed to establish a model and assist in the reform of Croatia's courts and judiciary. The project will focus initially on the Zagreb Municipal Court. The objectives of the project are: (i) to increase efficiency in the administration and disposition of civil and criminal cases; (ii) to improve the quality and timelines of judicial decision-making by reinforcing the capabilities of judges, in particular, municipal court judges, to better manage the process of adjudication; and (iii) to assist in formulating and implementing reforms in the structure or operations of the court system.
(ii) Land Register and Cadastral Reform
The objective of this project is to build an efficient land administration system with the purpose of contributing to the development of efficient real property markets. This will be achieved by addressing aspects of the supporting infrastructure, especially the real property registration system in the municipal courts, the cadastre system that is operated by the National Geodesy Bureau at regional and branch office levels, academic institutions and private sector support professionals. The main objective of the project is to accelerate registration in both the cadastre and real estate registration systems. Recently a new Cadastre (Land Registry) has been implemented with fully digitised land data available online.

Planning overview

The Croatian physical planning system is complex and represents a potential obstacle to entry on the real estate market for outsiders. The strict and rigid urban planning process is subject to consultation and the opinion of public authorities at all levels. Furthermore, other potential difficulties may arise as a result of government policy, which is committed to conserving Croatia's natural beauty and heritage. Many foreign investors fail in Croatia due to an uninformed investment strategy and poor advice. The Fund, through its combination of international and local directors and advisors, has created a structure to ensure that the Croatian planning system is successfully negotiated. Croatia's ongoing modernisation process has resulted in planning system reform, which is a key component of the Government's reconstruction and development strategy. For example, the Croatian Government plans to prepare a more efficient system that will facilitate construction of all buildings on the basis of one document. These reforms are expected to open further opportunities that the Fund intends to identify, for the public sector is seeking private-sector partners for projects to implement governmental policy.

Real estate investment in Croatia

There is a general shortage of commercial real estate in Croatia to meet demand, while much of the existing stock is deemed sub-standard and inadequate for modern business. The real estate investment sector is relatively immature and the country has only recently been targeted by institutional investors. Institutional as well as entrepreneurial interest in the market has grown steadily, largely driven by Croatia's tourism appeal. The increasing attraction of the market as a whole is growing day-by-day. However, whereas the aforementioned shortage may be a concern for buyers, it creates considerable opportunities for investors willing to invest in real estate development. Such opportunities are expected to increase as a result of the active policy of the Croatian Government to reconstruct outdated municipal and public infrastructure in partnership with the private sector.

Besides commercial real estate, there is also a growing demand for tourism and residential infrastructure in Croatia, which despite global trends is one of the few countries in recent years that has not recorded a decline in tourism revenues. International tourism generated around 22.5% of Croatia's GDP in 2003, while accounting for 42.8% of total goods and services exports and 74% of total exported services. The growth trend in these figures is expected to continue over the coming years. Consequently, the Croatian Government aims to increase tourism earnings and create a profile of the country as one of the best tourist destinations in Europe. Investment in high quality tourist facilities that provide new jobs is therefore a priority for the Croatian Government.

Real estate prices remain considerably lower than in other parts of Europe, due principally to the following factors:

Prices have historically reflected the purchasing power of Croatian citizens. GDP per capita is considerably lower than that of other more developed European economies;
Housing loans were available in Croatia at a relatively high borrowing cost;
Restrictions on the ownership of real estate have deterred foreign investors.

It is, however, anticipated that economic, political and social convergence with EU countries will result in further capital appreciation as economic returns converge.

The ability and willingness of Croatian banks to finance commercial development has increased significantly over recent years. Since Croatia's financial markets are relatively underdeveloped, however, many developers are restrained by their limited access to debt and/or equity instruments to finance new schemes.

Croatia currently offers opportunities for promising returns compared to more developed markets in Western Europe. The Croatian real estate market is evolving, and it is expected to experience continued capital growth, reflecting Croatia's improving economic position and increasing demand from both the domestic market and overseas investors. To recapitulate briefly:

There is a general shortage of commercial and residential real estate in Croatia to meet existing demand and much of the existing stock is considered substandard and inadequate for modern needs;
Croatia's political and economic transformation of the last decade has been dramatic and is expected to result in Croatia joining the EU by the end of the decade - attracting increasing foreign direct investment and leading to an improvement in Croatia's infrastructure and appeal;
Prior to or upon accession to the EU, Croatia is expected to align its laws with the rest of the EU;
Foreign investors are seeking opportunities for higher returns than they can attain on more developed markets;
Tourism has grown strongly in Croatia and according to forecasts made by the World Tourism Organisation, international arrivals will increase from around 700 million in 2003 to around 1.56 billion by 2020.

PART III

NAME AND REGISTERED HEAD OFFICE OF THE FUND

Full name of the Fund : Jadran Kapital d.d. zatvoreni investicijski fond s javnom ponudom za ulaganje u nekretnine
(JADRAN CAPITAL PLC PUBLICLY-OFFERED CLOSED-END REAL ESTATE INVESTMENT FUND)

Abbreviated name of the Fund: Jadran Kapital d.d.

In international dealings the Fund will use the English name: Jadran Capital

Registered office of the Fund : 10000 Zagreb, Savska 141

Headquarters: 10000 Zagreb, Savska cesta 141

DATE OF ESTABLISHMENT AND DURATION

The Fund has been established pursuant to the Decision of the Company's General Meeting on adoption of the Fund's Prospectus and Charter, dated March 31st, 2006.
The Fund has been established as a going concern.

AVAILABILITY OF QUARTERLY, SEMI-ANNUAL AND ANNUAL REPORTS; COPIES OF CHARTER AND PROSPECTUS OR ADDITIONAL INFORMATION ON THE FUND

The above specified documents and information are available at the Company headquarters office, at this address: Zagreb, Savska cesta 141.

MINIMUM FINANCIAL RESOURCES THAT WILL BE RAISED BY ISSUE, SUBSCRIPTION AND PAYMENT OF THE FUND'S SHARES, AND ALTERNATIVE IN CASE THE MINIMUM STIPULATED AMOUNT IS NOT RAISED

The minimum target amount of financial resources raised through the public offer, subscription and payment of the Fund's shares is HRK 80.000.000,00 (eighty million Croatia kuna).

If the amount of financial resources raised by the public offer, subscription and payment of the Fund's shares is lower or does not reach the minimum target amount specified above, the Fund's share capital will be set at the amount of finances raised. The Fund's share capital so raised will be distributed to each of the Fund's shareholders, as the respective equity deposit of each single shareholder, in proportion to the subscribed and paid financial resources and established par value of a single share.

The ultimate number of the Fund's subscribed, paid and issued shares will comply with preceding paragraph.

Entry of Fund's shares is conducted by trade system of the Zagreb Stock Exchange

Founded in 1991. it is the central point of trade for financial instruments and it continues the tradition of Zagreb Exchange for merchandise and values, which operated between 1918-1946.
On the Zagreb stock exchange brokerage houses, members of the Zagreb stock exchange, do business in their name and on their own behalf or on behalf of their clients.
Members are dispersed all over Croatia.
Financial instruments trade (shares and bonds) is conducted over the electronic trade system MOST. Brokerage houses, members of the Zagreb Stock Exchange, are connected with special telecommunication links with the ZSE center on Ksaver, entering their orders to buy or sell directly from their offices and concluding transactions with other brokers.
The ZSE is therefore in the forefront of financial markets using a fully electronic market making system where brokerage houses trade directly with each. All brokers have access to trade system in real time (with no time delay) so that they all have the latest information in order to accurately and quickly price instruments.
Trade is open every day from 10:00-16:00 hours, and results of the day's trade and daily prices of shares are available to all interested parties through daily papers, specialized houses for distribution of financial information, as well as on the web site of ZSE.
In addition, all interested parties may receive live intra-day pricing information from the ZSE's dedicated information channel MOSTich.

The Fund's shares will be paid for in money, and they will be paid in full prior to registration of the Fund's establishment in the court register or prior to entry of increases in share capital in the court register.

Pursuant to law, the minimum monetary sum that must be raised through the issue, subscription and payment of the Fund's shares is HRK 5,000,000.00 (five million Croatian kuna). If, upon the expiry of the period allotted for subscription and payment of the Fund's shares, the minimum stipulated amount is not collected, the Company cannot issue the Fund's shares, and in this case the Company is obliged to reimburse the amounts paid to the shareholders within a period not to exceed seven days after expiry of the deadline specified for subscription and payment of the Fund's shares.

SHARE CAPITAL - SHARES

The Fund's share capital is HRK 79.163.600,00 (seventynine million one hundred sixtythree thousand and six hundred Croatian kuna).

Share capital may be increased and decreased in the manner specified in the Companies Act and the Investment Fund Act.

The Fund's share capital is divided into ordinary registered shares.
The Fund's shares can be transferred without limitation.
The Fund may not issue preferred shares, nor shares bearing different rights.

Each single share of the Fund has a par value of HRK 100.00 (one hundred Croatian kuna).
The shares of subsequent issues may have different par values, if so decided by the Fund's General Meeting.

The Fund's shares are intangible securities.
The Fund's shares are recorded in the form of electronic entries in the securities account of the computer system maintained by the Central Depository Agency.
The Fund will deem a shareholder any person registered as the holder of a securities account opened with Central Depository Agency.

CERTIFIED AUDITOR

The certified auditor authorised to oversee the Fund's operations is Deloitte d.o.o.
The Decision on appointment of the auditor for each subsequent business year is made by the Fund's General Meeting, at the proposal of the Company's Management Board.

SHAREHOLDER RIGHTS

The Fund's shareholders have the following rights:
a) Right to decision making and voting at the Fund's General Meeting,
b) Right to information (semi-annual and annual reports),
c) Right to dividends,
d) Right to payment of a proportional amount of liquidation assets or the bankruptcy estate.

RISKS OF INVESTING IN THE FUND'S SHARES

Possible instability of the property market (prices of properties may over time fall as well as rise). This may occur due to several reasons, such as, for example, general economic decline, political instability, etc.;
Decisions made by the authorities to modify or alter the tax and legal framework for doing business may impact the fund's profitability;
Changing interest rates that may influence the profitability of property investments (changes in interest rates can cause flows of capital from the markets to bank deposits and other financial instruments),
Fluctuations in the domestic currency exchange rate in relation to the euro and other convertible currencies (instability in exchanges rates due to factors such as inflation or deflation may impact the property market as well as capital markets).
Differences in accounting and auditing standards;
Generally higher commissions on foreign transactions;
Tax system differences;
Altered regulation of real estate title acquisition;
Possible restrictions in foreign capital inflow.

The Company cannot influence these risk factors in any manner whatsoever. The Company can reduce the Fund's exposure to these risks, respecting the limitations on investing the Fund's assets, through policies of dispersion and diversification of investments in compliance with law, this Prospectus and Fund's Charter.

CONDITIONS ALLOWING DECISION-MAKING ON THE FUND'S LIQUIDATION AND LIQUIDATION PROCEDURES

Inasmuch as the value of Fund's assets falls below HRK 5,000,000.00 over three consecutive calendar months, the Fund must undergo liquidation or acquisition by some another fund.

The liquidation of the Fund is to be conducted in compliance with the relevant provisions of the Companies Act and Investment Fund Act.
The liquidation of the Fund is to be conducted by the Company or Fund's deposit bank.

INFORMATION ON EXCHANGES WHERE THE FUND'S SHARES WILL BE LISTED

The Fund's shares will be listed on the special public limited companies quotation of the Zagreb Stock Exchange.
Following the initial listing, undertaken in compliance with the previous paragraph, the Fund's Management Board will decide on possible subsequent listings of the Fund's shares on other official stock exchange quotations or on other regulated public securities markets in Croatia and/or abroad.

METHOD AND TIME OF ASSESSMENT OF THE FUND'S ASSET VALUE

The Fund's net asset value is the total value of the Fund's assets, less the Fund's liabilities. The Fund's asset value is calculated once a month by the Company based on assessment of the value of real estate portfolio, and other assets, less the Fund's liabilities.
The methods for assessment and establishment of Fund's asset value must conform with the International Accounting Standards and legislation in force in the Republic of Croatia.

AMOUNT, TYPE AND MAXIMUM LEVEL OF ESTABLISHMENT EXPENDITURES WHICH CAN BE CHARGED TO THE FUND

The maximum costs and fees due upon establishment of the Fund that can be charged to the Fund's assets is 3.5% of subscribed and paid share capital. This amount pertains to all fees and costs that the Company should incur in the course of establishment procedures. After establishment of the Fund and its entry in the court register, the Fund's deposit bank will, at the order of the Company, transfer the specified amount from the Fund's account to the Company's account.

ANNUAL MANAGEMENT AND OPERATIONAL FEES AND COSTS THAT MAY BE CHARGED TO THE FUND, AND THEIR IMPACT ON FUTURE SHAREHOLDER YIELDS

The following fees and costs will be charged against the Fund's assets:

Investment fund management fee, paid to the Company , corresponding to 3% of the Fund's annual net asset value, increased by taxes, if subject to tax liability;
Deposit bank fee, corresponding from 0.15% to 0,20% of the Fund's annual net asset value dependent of the size of the Fund, increased by taxes, if subject to tax liability;
Fees and expenses of the members of the Fund's Supervisory Board;
Expenses, commissions or dues directly related to acquisition or sale of the Fund's assets;
Fees and costs of maintaining the shares ledger and costs of dividend payments;
Auditor and legal fees, and other expenses related to expertise necessary for the Fund's activities, which are not encompassed by Company managerial activities;
Costs of drafting, printing and postage pertaining to publication and delivery of reports, which, in compliance with law and this Prospectus, must be delivered to the Fund's shareholders;
Costs of the General Meeting, except for Extraordinary Shareholder Meetings convened by the Company - in such a case the Company will bear these costs;
All stipulated fees and dues payable to the Supervisory Board pertaining to release of approvals to the Fund;
Costs of listing of Fund's shares on the stock exchange or regulated public markets and costs of quotation maintenance;
Taxes that the Fund, according to the valid Croatian legislation, is obliged to pay for the assets and/or profits generated by business operations;
Costs of compulsory advertisements;
Other costs stipulated by special laws (costs of supervisory authority).

The fee payable to the Company as specified in paragraph 1 shall be computed by the Company, and the deposit bank shall oversee and disburse said fee to the Company on a monthly basis.
The fee to the Company shall be computed monthly, at the close of the settlement month, such that the simple interest method is employed to compute the corresponding interest factor, which is then multiplied by the total value of the Fund's assets for the settlement period.
The total value of the Fund's assets shall be ascertained as the value of the Fund's assets on the last day of the settlement month.
The fee to the Company shall be disbursed by the deposit bank within a period not to exceed 7 days after commencement of the subsequent settlement period.

The fee payable to the Bank shall be computed on a monthly basis, at the close of the settlement month, such that the simple interest method is employed to compute the corresponding interest factor, which is then multiplied by the total value of the Fund's assets for the settlement period.
The computed fee shall be collected by the deposit bank from the Fund's account within a period not to exceed 7 days after commencement of the subsequent settlement period.

All costs specified under no. 3 through 11 will be computed and collected from the Fund in the actual undisputed invoiced amount.
The indicator of the Fund's total fees and expenses, not including the costs specified in items 11 and 13, may not exceed 3.5% of the Fund's average annual net asset value upon termination of the annual statement period. The Company will bear all incurred costs which exceed the highest permitted indicator of the total costs in the certain business year (at the close of the annual statement period) amounting to 3.5% of the Fund's average annual net asset value.
The impact of total fees and costs on the Fund's future returns will be managed in compliance with sound business practices, aiming at improving and upgrading operations and profitability.

COMPUTATION OF DIVIDENDS AND FREQUENCY OF DISBURSEMENT TO SHAREHOLDERS

The Company may propose to the Fund's General Meeting the disbursement of the Fund's net profits to the Fund's shareholders (dividends).

If the Company proposes disbursement of dividends to the Fund's shareholders to the Fund's General Meeting, the Company will place an order with the deposit bank to disburse dividends to the Fund's shareholders after the Fund's financial statements are completed and approved at the Fund's General Shareholders Meeting together with the Decision on distribution of dividends to the Fund's shareholders.

The Fund's net profits will be ascertained in financial statements as the difference between the Fund's income and expenditures.

Net profits will be disbursed for the previous business year; however, the advance on profits can be disbursed after the semi-annual financial statements, in compliance with decision of the Fund's General Shareholders Meeting.

The final settlement and disbursement of the Fund's net profits will be done upon adoption of the annual financial statements.

DATA ON TAX REGULATIONS APPLICABLE TO THE FUND

All tax liabilities relative to the performance of publicly-offered closed-end real estate investment funds, in conformity with the valid tax legislation of the Republic of Croatia, will be charged against the Fund's assets.

DURATION OF THE BUSINESS YEAR

Business year corresponds to the calendar year, commencing on January 1 and closing on December 31.

INFORMATION ON THE FUND'S OPERATIONS

The Company will inform the public of the Fund's operations by publishing:

the Fund's Prospectus,
the Fund's Charter,
compulsory legal financial statements.

BODIES OF THE FUND

The bodies of the Fund are:

Management Board,
Supervisory Board,
General Meeting.

The Company's Management Board has been granted full authority to act as the Fund's management body, and it administers the Fund in compliance with the contract concluded between the Company and the Fund, as represented by its Supervisory Board, in compliance with the provisions of the Investment Fund Act and applicable legislation of the Republic of Croatia.

The Supervisory Board represents the Fund before the Company, acting in compliance with the provisions of the Investment Fund Act and applicable legislation of the Republic of Croatia.

The General Meeting of the Fund consists of Fund's shareholders; it acts in compliance with the provisions of the Investment Fund Act and applicable legislation of the Republic of Croatia.

The competence, convocation, decision-making and other key issues pertaining to the rights, obligations and activity of the Fund's bodies are stipulated by the Fund's Charter which, as the Fund's constitutive instrument, regulates the legal relations of the Company and Fund's shareholders, in compliance with the provisions of the Investment Fund Act and applicable legislation of the Republic of Croatia.

MANAGEMENT COMPANY

NAME, LEGAL FORM, REGISTERED HEAD OFFICE AND HEADQUARTERS ADDRESS, NUMBER OF APPROVAL GRANTED BY THE SUPERVISORY BODY, DATE OF ESTABLISHMENT AND ENTRY OF THE COMPANY IN THE COURT REGISTER

The Fund is managed by JADRAN INVEST d.o.o. za osnivanje i upravljanje investicijskim fondovima Zagreb, Savska 141, (JADRAN INVEST Ltd. Investment Fund Establishment and Management Company, Zagreb, Savska 141), headquarters address: Savska cesta 141.
The Company was established on 13 July 2005, pursuant to its entry in the companies register maintained by the Commercial Court in Zagreb, registration number: 080530081.
Directive released by the Supervisory Authority, Class.: UP/I-450-08/05-02/123 dated 27 October 2005 grants approval for the Company's operations.
The members of the Company's Management Board are Darije Vladimir Josić, Berislav Martić, Antonio Marinović and Roddy Sutherland.

NAMES AND AFFILIATION OF THE MEMBERS OF THE MANAGEMENT AND SUPERVISORY BOARD WITH BRIEF CURRICULA VITAE

MANAGEMENT BOARD MEMBERS

Darije Vladimir Josić
Following his education in the United States, Germany and Spain, Mr Josić began his career as a consultant working in managing investment projects and restructuring of companies for a Croatian company, a member of the ICF Group. He then went on to become one of the youngest senior consultants for Deloitte & Touche. Since 2004, Mr Josić has worked as business development manager for Development Alternatives, Inc. a US company funded by USAID, in charge of the small and medium-size enterprise development team. Mr Josić has also been extensively involved in his family's business, one of the larger construction and development groups in Zagreb.

Berislav Martić
Mr Martić has been extensively involved with investment funds and brokerage houses since the creation of capital markets in Croatia in the early 1990s. In early 2000, he went on to become a financial consultant for TT Invest fund management group. As of 2004, he has been a senior consultant in Micro Group, one of the fastest growing consulting firms in Croatia, focusing on real estate projects and senior client management. Mr Martić brings to the fund his extensive knowledge of Croatian financial markets coupled with consultancy work for some of the fastest-growing real estate groups in Croatia.

Antonio Marinović
Mr Antonio Marinović returned from London to Croatia three years ago with the intention of researching new investment and project possibilities on the Croatian real estate market. Mr Marinović has lived in London most of his life with his family. Upon graduating from the London School of Economics, he began working in the City. He was first employed by an American investment fund, where he was responsible for company and stock research. Afterward he worked for Goldman Sachs, Inc. as a stockbroker. His professional background has equipped him with a wealth of experience in understanding international capital markets and international financial management. Since his return to Croatia, he has founded Portus Mare, a real estate consultancy working with local governments in Croatia as well as international investment groups.

Roddy Sutherland
Mr Roddy Sutherland has thirty years of experience in stock exchanges and investments. As founder and chairman of Institutional Brokerage Sutherlands, he has a deep understanding of financial markets. During his extensive career, he was also a director of Ivory & Sime investment management group. At the same time, he was actively involved in a family-run investment fund, dealing predominantly with real estate. Mr Sutherland has been living in Croatia for over a year now.

MEMBERS OF THE SUPERVISORY BOARD

Michael Unsworth
Michael Unsworth graduated from Enfield College of Technology 1972 with honours.
Started as Junior Oil and Gas analyst with Grieveson, Grant & Co. from 1972 to 1979. From 1979 Head of Oil and Gas Research at Scott, Goff, Layton & Co., Stockbrokers, where he was made a partner and a Member of the London Stock Exchange in 1981. Served as head of UK Research at Smith New Court plc from 1989 to 1993. In 1990 was appointed a main Board Director of Smith New Court plc., a Co-Head of Investment Banking in 1994, and Head of Hong Kong and China Securities in 1995. In 1995 became Head of Asian Research and Member of Executive Committee of Merrill Lynch Asia Pacific. Moved to Thailand as Co-CEO of Merrill Lynch Phatra Securities in 1998. Retired at the end of 2000. Currently, M. Unsworth serves as Member of the Supervisory Board of PLIVA d.d. , the largest pharmaceutical company in South East Europe as well as a director and a shareholder of RM Asia Group, SmartCityPeople Co. Ltd., Land Concept International Limited, and Adria-Azija d.o.o.

Domagoj I. Milošević
Domagoj I. Milošević graduated from the Medical Faculty in Zagreb in 1996, and he continued his education at the IEDC Business School and then in graduate study in Bled, where he earned an MBA (Master of Business Administration ) in 2004. He began his career as an independent entrepreneur, while in 2000 he became the co-owner and chief executive of the fire-extinguisher factory Pastor TVA. Domagoj I. Milošević is today the Chief Executive Office of the Pastor Group, and also its majority owner and the chief executive in the Pastor TVA factory.

Mate Babić
Mr Babić is one of the best-known macroeconomists in Croatia. He completed his studies at the Economics Faculty in Zagreb in 1965, where he earned his masters and doctoral degrees, and he completed a specialisation course at Harvard University. From 1965 to 1975 he worked for the Economics Institute, after which he moved to the University's Foreign Trade Faculty. Since 1980 he has bee employed as a full professor in the Macroeconomics and Economic Development Department of the Economics Faculty in Zagreb. He additionally worked as a United Nations economics expert in Libya and Somalia. He served as Croatia's assistant prime minister in charge of the economy in 1990, and since 1992 he has been a member of the Council of the Croatian Central Bank.

Tomislav Vintar
Tomislav Vintar earned a degree from the Faculty of Electrical Engineering and Computer Science in Zagreb. He began his career in 1998 as the sales and booking director of the Tina-tours Travel Agency. In November 2000 he was employed by Ericsson Nikola Tesla as the Network Design & NPI Manager, and a year later he moved to J.E. Austin Associates, Inc. where he works on implementation of projects launched by the Croatian Competitiveness Initiative. In August 2002, he became chief executive of the branch office of J.E. Austin Associates Inc., and two years later he became a member of the Management Board of the Financial Agency (FINA), a post he holds to this day.

Marin Mrklić
Marin Mrklić earned a degree from the Faculty of Law in Split in 1975, and he has dedicated his entire career to his practice as an attorney. He is an expert in financial, commercial, maritime and civil law. He primarily represents foreign clients, both natural and legal persons, in procedures in Croatia and abroad. He is registered on the attorney list of the United States Embassy in Zagreb .He also works as confidential attorney and correspondent for UK P&I Clug Thomas Miller, North of England P&I Association Ltd, Newcastle upon Tyne, ITF, the Merchant Marine Union of Croatia and the Austrian Chamber of Commerce. He is a consultant for Hypo Alpe-Adria-Bank International, Hypo Alpe Adria Leasing Holding and other members of the Hypo Group with reference to legal monitoring in all countries in which the Group operates: Austria, Italy, Liechtenstein, Germany, Slovenia, Croatia, Serbia and Montenegro. Marin Mrklić is honorary consul of the Republic of Austria for Dalmatia and vice president of the Croatian Bar Association.

COMPANY'S SHARE CAPITAL, COMPANY MEMBERS, LEGAL FORM AND PARTICIPATION OF THE MEMBERS IN THE COMPANY'S SHARE CAPITAL

The Company's share capital is HRK 1,000,000.00 , paid fully in money.
With reference to its legal form, the Company is a limited liability company (d.o.o.).

Company members:
Mario Bebek HRK 480,000.00
Berislav Martić HRK 480,000.00
Ivan Štern HRK 40,000.00

DEPOSIT BANK

The Fund's depository bank is Hrvatska poštanska banka p.l.c. (hereinafter referred to as "HPB") with its registered office at 4 Jurišićeva St., Zagreb, Croatia.
HPB was founded and registered on 9 October 1991 as a company limited by shares under current legislation and is licensed to conduct commercial banking activities in the Republic of Croatia. The main activities of the Bank are offering of various types of deposits and loans to legal entities and individuals in local and foreign currencies, domestic and foreign clearing payment operations, issuing of guarantees, sureties and other types of guarantees, buying and selling of local and foreign currencies and securities and other banking services. HPB's stock capital amounts to HRK 584,779,800.00.
Ever since its establishment, HPB's majority shareholders have been state-owned companies and institutions. Through its funds or companies, the Republic of Croatia holds a 98.57-percent share in HPB.
Through the network of own branches and post offices, HPB has been recognized as a dominant financial service provider for retail customers in the whole territory of the Republic of Croatia, as well as a supporter to the Croatian economy, especially in the SME sector.

This Prospectus has been adopted by the Securities Commission of Croatia under classification no:UP/I-450-08/06-03/02, prot. no.326-102/06-03, dated 27th of April 2006.



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