LITHUANIA THE LAW ON COLLECTIVE INVESTMENT UNDERTAKINGS Important Disclaimer This translation has been generously provided by the Securities Commission of the Republic of Lithuania. This does not constitute an official translation and the translator and the EBRD cannot be held responsible for any inaccuracy or omission in the translation. The text should be used for information purposes only and appropriate legal advice should be sought as and when appropriate.
REPUBLIC OF LITHUANIA LAW ON THE AMENDMENT OF THE LAW ON COLLECTIVE INVESTMENT UNDERTAKINGS 25 October 2007, No. X-1303 (Official Gazette, 2003, No. 74-3424) Article 1. The new version of the Law on Collective Investment Undertakings of the Republic of Lithuania To amend the Law on Collective Investment Undertakings of the Republic of Lithuania to be read as follows: THE LAW ON COLLECTIVE INVESTMENT UNDERTAKINGS OF THE REPUBLIC OF LITHUANIA CHAPTER I GENERAL PROVISIONS Article 1. Purpose and Scope of the Law 1. This Law regulates activities of collective investment undertakings and the State supervision of such activities. The purpose of the Law is to ensure protection of interests of the co-owners of investment funds, and shareholders of investment companies with variable capital, and the closed-end type investment companies. 2. This Law seeks to bring the regulation of collective investment undertakings in line with the legal acts of the European Union specified in the Annex to this Law. 3. The Law shall apply to the services provided by harmonised and special collective investment undertakings, save for those whose units or shares are not offered in the Republic of Lithuania and other Member States, or, based on their instruments of incorporation are offered exclusively in non-member States. 4. The Law shall not apply to services provided by management companies and collective investment undertakings to the State, the Bank of Lithuania, the ECB, Central banks or institutions of the EU Member States engaged in State debt management. 5. Management companies, investment companies with variable capital and closed-end type investment companies are subject to the requirements of the Law on Companies to the extent the present Law does not provide differently. Article 2. Principal Definitions for the Purpose of this Law 1. Open-end type collective investment undertaking shall mean a collective investment undertaking whose investment units or shares are issued and redeemed upon a request of investors. 2. "Subsidiary" shall mean a subsidiary undertaking as defined in the Law on Financial Statements of Entities; 3. Financial instrument shall mean the instruments as defined in the Law on the Markets in Financial Instruments; 4. Financial instruments index shall mean a statistical ratio showing the movement in the value of the financial instruments of which such index is composed. 5. Financial instruments portfolio shall mean the financial instruments portfolio as defined in the Law on the Markets in Financial Instruments;
6. Close links shall be the links as defined in the Law on the Markets in Financial Instruments; 7. "Net assets" shall mean the difference between the value of assets of the investment fund or the investment company and non-current and current liabilities of the investment fund or the investment company; 8. Investment company" shall mean an investment company of variable capital or closed-end type investment company; 9. "Investment company with variable capital" shall mean a company whose shareholders have the right to request at any time that their shares be redeemed and the amount of whose capital varies depending on the issue and redemption of shares. The investment company with variable capital may be of open type only; 10. Investment instruments shall mean financial instruments specified in Article 3(4) of the Law on the Markets in Financial Instruments, also deposits, immovable property, the movable assets and the installations necessary for the operations of the immovable property; 11. Investment fund shall mean a type of activity whereby the assets managed by legal or natural persons under the right of common partial ownership under the trust right in accordance with the terms and conditions defined in the present Law and the regulations of the investment fund. The concept of the investment fund used for the purposes of the present Law includes the open-end and closed-end type investment funds unless a specific Article of the Law provides differently; 12. Investment unit shall mean a transferable security certifying the right of the co-owner of the investment fund in respect of the part of the assets comprising the investment fund; 13. Offering of investment units or shares shall mean the offering of investment units or shares in mass media, advertising or by other methods addressed to more than 100 persons; 14. Derivative financial instruments shall means the financial instruments specified in items 4, 5, 6, 7, 8, 9 and 10 Article 3(4) of the Law on the Markets in Financial Instruments the value whereof depends on the value of one or several financial instruments. 15. Collective investment undertaking shall mean an investment fund or an investment company the sole purpose of the incorporation whereof is, by offering the investment units or shares in the manner specified in Article 13 of the present Law, accumulate personal funds and invest such funds collectively into the assets specified in the present Law by complying with the investment requirements specified in the present Law. 16. Participant of the collective investment undertaking shall mean a co-owner of an investment fund or a shareholder of an investment company. 17. Prospectus of a collective investment undertaking shall mean the document by which the investors and the public are submitted the principal information about the transferable securities of a collective investment undertaking. 18. A sub-fund of a collective investment undertaking shall mean part of an umbrella collective investment undertaking assets managed separately from other assets. 19. Control shall mean the control as defined in the Law on Consolidated Accounts of Entities. 20. Benchmark index shall mean a ratio chosen by the management company or the investment company the management of whose assets has not been delegated to a management 2
company against the value of which the return on investment of the collective investment undertaking is measured. 21. Impeccable repute persons shall mean the persons as defined in the Law on the Markets in Financial Instruments; 22. Parent company shall mean a company as defined in the Law on Consolidated Accounts of Entities. 23. Periodic report shall mean a report addressed to investors and the public containing information on the performance of the management company and collective investment undertakings, their financial status and other major events of the reporting period. 24. Transferable securities shall mean: 1) shares of the company, investment units and depository receipts for shares; 2) bonds and non-equity securities of other forms; 3) other transferable securities that entitles to the acquisition of the transferable securities specified in items 1 and 2 of this paragraph by way of subscription or exchange; 25. Money market instruments shall mean the money market instruments defined in the Law on the Markets in Financial Instruments whose value may be determined at any time; 26. Initial capital shall mean the minimum amount of own capital that the management company or an investment company must accumulate. 27. Professional investor shall mean a professional client defined in the Law on the Markets in Financial Instruments and a participant of a collective investment undertaking whose instruments of incorporation provide for a minimum investment amount of EUR 50,000 or more; 28. Special collective investment undertaking shall mean the collective investment undertaking whose investment units or shares cannot be distributed in other Member States in the manner prescribed in the legal acts listed in the Annex to the present Law and to which the requirements of the European Union laws do not apply. 29. Instruments of incorporation shall mean the rules of an investment fund or Articles of Association of an investment company; 30. Harmonised collective investment undertakings into transferable securities (hereinafter a harmonised collective investment undertaking) shall mean the collective investment undertaking regulated under the European Union law, whose funds, for the purpose of risk distribution, are invested in transferable securities and / or other liquid assets specified in Chapter VI of the present Law, and whose transferable securities (investment units or shares) shall be redeemed at any time upon a request of the holder thereof. 31. Umbrella collective investment undertaking shall mean an open-end type investment fund or an investment company with variable capital whose assets are divided into separate subfunds. 32. Assets management shall mean: 1) passing and execution of investment-related decisions; 2) accounting management, responding to customer inquiries, calculation of net assets, internal control of regulatory compliance, maintenance of the register of unit holders and shareholders, distribution of income, unit or share pricing, contract settlements, keeping of record of the completed operations; 3
3) marketing; 4) other activities related to the activities referred to in items 1, 2 and 3 of this paragraph. The concept of assets management used for the purpose of the present Law also includes the assets management on fiduciary basis. 33. Closed-end type investment company shall mean a public company that issues a fixed number of shares redeemed upon the expiry of the period of activity of the company or any other time fixed in advance in the Articles of Association of the company. 34. Closed-end type investment fund shall mean a collective investment undertaking whose investment units can be redeemed upon the expiry of the period of activity of the company or any other time fixed in advance in the rules of the investment funds. 35. Foreign supervisory authority shall mean shall mean an institution which in a foreign state performs functions similar to those of the Securities Commission in the sphere of licensing and supervision of management companies and collective investment undertakings. 36. Management company" shall mean shall mean any company the regular business of which is management of investment funds and investment companies. 37. Block of shares in a management company shall mean any direct or indirect holding in a management company which represents 1/10 or more of shares held by the management company, or such share of the voting rights or such number of the shares which make it possible to exercise a significant influence over the management company. 38. Member State shall mean a European Union Member State or a State of the European Economic Area (EEA). CHAPTER II SECTION ONE LICENSING AND ACTIVITIES OF MANAGEMENT COMPANIES AND INVESTMENT COMPANIES Article 3. The Right to Engage in the Activities of a Management Company or an Investment Company 1. Only a private or a public company holding a licence for the activities of a management company issued by the Securities Commission shall have the right to engage in the management of unit trusts/common funds or investment companies with variable capital. A company holding such a licence shall be referred to as the management company. Only management companies shall have the right to use in its name and advertisements the words investment fund management company, management company of investment companies or other collocations or derivatives of the words. 2. Only a public company holding a licence for the activities of an investment company with variable capital issued by the Securities Commission may engage in the activities of an investment company with variable capital. Only investment companies with variable capital may use in their name the words "investicinė kintamojo kapitalo bendrovė" or the acronym IKKB. The words "akcinė bendrovė" or the acronym AB are optional in the name of an investment company with variable capital. 3. Only a public company holding a licence for the activities of a closed-end type investment company issued by the Securities Commission may engage in the activities of a closed-end type investment company. Only closed-end type investment companies may use in their name the 4
words uždaro tipo investicinė bendrovė" or the acronym UTIB. The words "akcinė bendrovė" or the acronym AB are optional in the name of a closed-end type investment company. Article 4. Activities of Management Companies 1. A management company shall have the right to engage in the principal activities - management of investment funds and (or) investment companies prescribed by this Law and, provided it engages in the principal activity, to provide the following auxiliary services on the condition that such auxiliary services are provided for in the licence issued to the company: 1) management of other persons' financial instrument portfolios; 2) management of financial instrument portfolios of pension funds provided the management company complies with the requirements laid down in the Law on Supplementary Voluntary Accumulation of Pensions and the Law on Accumulation of Pensions; 3) advising on issues relating to investment in financial instruments; 4) safe-keeping and management of units of investment funds managed by other management companies or shares of investment companies. 2. The management company shall have no right to provide the auxiliary services specified in items 3a and 4 of par. 1 above, unless it is entitled to provide the services indicated in items 1 and 2 of par. 1. 3. An investment company shall have no right to manage the assets of other persons or to engage in the activities not provided for under this Law. 4. A management company managing at least one harmonised collective investment undertaking shall have no right to engage in any activity other that provided in the present Law. 5. Chapter IX of this Law shall not apply to the management companies not managing any harmonised collective investment undertakings. 6. A management company that has a right to engage in the activities specified in items 1-4 of the present paragraph of this Article shall be, mutandis mutandis, subject to the requirements stipulated in Articles 13 and 22 of the Law on the Markets in Financial Instruments and the implementing regulations of the Securities Commission. However, when applying the above requirements of the Law on the Markets in Financial Instruments account shall be taken of the provisions of Article 2 (5) of the Law on the Markets in Financial Instruments. Article 5. Procedure for Granting Licences for the Activities of a Management Company or an Investment Company 1. A public company or a private company wishing to engage in the activities of a management company activities, or a public company wishing to operate as an investment company with variable capital or an closed-end type investment company shall file an appropriate application with the Securities Commission. The application shall be accompanied with the intended activity programme (business plan) containing, inter alia, a description of the areas of activity the applicant intends to engage in, the organisational structure of the company, the information about the legal person, its participants, managers, activities, compliance with the capital requirements, other information specified in the licensing regulations approved by the Securities Commission, the examination whereof would enable the Securities Commission to conclude that the company complies with the requirements of licensed activities. The list of the documents to be furnished for the acquisition of the operating licence and the procedure for the filing thereof shall be established by the Securities Commission. 2. The Securities Commission shall refuse to grant the licence if: 5
1) the data (documents) do not conform with the established requirements, the documents and information presented are incomplete or do not correspond to reality, or the company s programme of activities is not adequately substantiated; 2) the initial capital of the management company or the investment company the management of whose assets has not been delegated to a management company seeking to obtain an operating licence, or the authorised capital of an investment company seeking to obtain an operating licence is below the minimum amount set by the Securities Commission, or other management company capital adequacy requirements are not complied with; 3) the company has failed to furnish the information about the shareholders of the company and the blocks of shares directly or indirectly managed thereby, as well as the size of the block of shares provided for in the licensing regulations; 4) there are grounds to assume that the holders of the qualifying holding of the company shall fail to ensure a reliable and transparent management of the company; 5) at least one employee of the company is an employee of the regulated market operating in the Republic of Lithuania, the Lithuanian Securities Commission or the Central Securities Depository of Lithuania; 6) members of the board of the company, the head of the administration or his deputies are not persons of impeccable repute, they do not possess the qualification or work experience prescribed by the Securities Commission; 7) the company's registered office is outside the Republic of Lithuania; 8) a close link exists between the company and another legal or natural person which may interfere with the Securities Commission carrying out effective supervision; 9) a close link exists between the company and a person from such non-eu Member State whose legal acts regulating the person's activities or the enforcement of such legal acts may potentially interfere with the performance of effective supervision; 10) the Articles of Association of the company stipulates that the shares or the units of the collective investment undertaking intended to the incorporated shall not be marketed in the Republic of Lithuania. 11) the Articles of Association of a public company seeking to obtain the licence of an investment company with variable capital or a closed-end type investment company do not comply with the requirements of the Law; 3. The Securities Commission shall notify the applicant of its consent or refusal to grant the licence within 6 months from the filing of all documents, information and explanations. The time limit for the consideration of the application shall be calculated from the date of filing of the last documents or information. Refusal to grant the licence shall be motivated in writing. 4. The Securities Commission shall apply to a foreign supervisory authority with a request to provide the opinion in the event that: 1) the applicant is a subsidiary of the licensed management company, financial brokerage firm, credit institution or insurance company licensed in another Member State; 2) the applicant is a subsidiary of the parent company controlling the management company, financial brokerage firm, credit institution or insurance company licensed in another Member State; 6
3) the applicant is controlled by the same persons who control the management company, financial brokerage firm, credit institution or insurance company licensed in another Member State. 5. For the purpose of the assessment of the suitability of the qualifying holders of the management company or the investment company and the experience and the repute of the managers of the companies belonging to the same group the Securities Commission shall seek the opinion of the supervisory authority referred to in par. 4 of this Article. 6. The Securities Commission shall notify of the issue or the revocation of the licence the Manager of the Register of Legal Entities and shall post this information in the website of the Securities Commission. 7. The instruments of incorporation of the management company or investment company that are being established shall become invalid if they are not submitted to the Register of Legal Entities within 9 months from the drawing up of the instruments of incorporation. Article 6. Management and Managers of Management Companies and Investment Companies 1. A management company and an investment company the management of whose assets has not been delegated to a management company shall form the Board and the administration. 2. An investment company the management of whose assets has been delegated to a management company shall not form any bodies of management. The management company which has been delegated the management of an investment company shall be responsible for the performance of the actions specified in Article 2.82(3) of the Civil Code of the Republic of Lithuania. 3. The general meeting of shareholders of the investment company may pass resolutions irrespective of the voting rights carried by the shares held by the participating shareholders. 4. The managers of a management company or an investment company shall include: a) the head of the administration; b) the deputy head of the administration; c) members of the Board. 5. The managers of a management company or an investment company the management of whose assets has not been delegated to a management company shall be persons of impeccable repute and have sufficient experience to ensure a reliable and transparent management of the company. 6. The management company or an investment company the management of whose assets has not been delegated to a management company shall in advance notify the Securities Commission of all intended changes of the managers of the company in that connection supplying the Securities Commission with the information sufficient to assess whether the newly elected or anticipated managers of the company comply with the impeccable repute and sufficient experience requirements. The newly elected managers of the management company or an investment company the management of whose assets has not been delegated to a management company may commence their duties only after the Securities Commission has approved their candidacies. 7. The Securities Commission has a right not to approve the candidacies of the newly elected managers where the elected managers are not persons of impeccable repute, do not have sufficient experience, or there are other objective reasons to believe that the anticipated changes in the management of the company will pose a threat to the appropriate and transparent 7
management of the company. The requirements to the candidate managers of the companies and the procedure for the approval of the candidates by the Securities Commission shall be established by the Securities Commission. 8. The Securities Commission shall pass the decision concerning the suitability of the candidate newly elected managers not later than within one month from the receipt of all required documents. Article 7. Requirements Applicable to Activities and Prudential Requirements 1. A management company or an investment company the management of whose assets has not been delegated to a management company shall: 1) act honestly and fairly in the best interests of the participants in the collective investment undertaking and the integrity of the market; 2) act with due skill, care and diligence; 3) have and employ the resources and procedures that are necessary for its activities; 4) seek to obtain from the client information about his financial position, investment experience and objectives he is pursuing by making use of the services provided by the company and also take into account whether or not the client is a professional investor; 5) disclose to the client sufficient information relating to him and necessary for him; 6) try to avoid conflicts of interests and, when they cannot be avoided, ensure that the participants in the collective investment undertaking are treated fairly; 7) ensure that it has sound administrative and accounting procedures and that each transaction may be reconstructed according to the parties to it, its nature and the time and place at which it was effected and that the assets are invested according to the terms and conditions laid down in the instruments of incorporation and the legal provisions in force; 8) carry out internal control, control transactions in financial instruments by its manager of the administration, his deputy, members of the Board and the employees; 9) keep documents of the effected operations for at least 10 years from the date of completion of the operations, unless other legal acts provide for a longer time period of retention of documents; 10) be structured and organised in such a way as to avoid conflict of interests between the managing company or investment company and its clients, between one of its clients and another, between the participants in the collective investment undertaking and its clients or a conflict of interests between the participants in a collective investment undertaking; 11) ensure that the persons making decisions relating to asset management have the qualification and experience prescribed by the Securities Commission and are of impeccable repute. 12) have in place the description of the passing of investment decisions, providing, inter alia, for the structure of the body passing the decisions, and comply with such procedure; 13) ensure that the investment decisions are recorded in writing and registered in the register of investment decisions. 2. A management company entitled to provide services provided for in Article 4(1)(1,2) may invest their client's funds into the investment fund or investment companies managed thereby only upon receipt of the client's prior consent. 8
3. The liabilities to the investors of the management company entitled to provide a service provided for in Article 4 (1)(1) shall be insured according to the procedure laid down in the Law on Insurance of Deposits and Liabilities to Investors Article 8. Right of the Securities Commission to Establish the Procedure for Discharging the Duties of a Management Company or an Investment Company The Securities Commission shall establish: 1) the procedure for safe-keeping of confidential information; 2) the procedure for the organisation and effecting the internal controls of management companies and investment companies the management of whose assets has not been delegated to a management company; 3) the contents and procedure of publication of periodical reports, other reports, prospectuses, communications to the public and Securities Commission; 4) contents and procedure of presentation of reports on the liquidation of the investment company and the division of the investment unit; 5) requirements applied to the amount of net assets and management company's capital adequacy; 6) capital requirements for management companies and investment companies; 7) the procedure for measuring the counterparty risk when checking compliance with diversification requirements; 8) the procedure for granting authorisations and licences specified in this Law. 9) the procedure for the use of derivative financial instruments of collective investment undertakings and the procedure for the assessment of related risks; 10) the procedure for pooling the investment funds; 11) the procedure for distribution of investment units and shares of collective investment undertakings. Article 9. The Right of the Management Company or Investment Company to Delegate Part of its Functions to another Company 1. Seeking more efficient management, the management company or the investment company the management of whose assets has not been delegated to a management company shall have the right to delegate part of its management functions to a company authorised to provide certain services and shall promptly notify the Securities Commission thereof. The notification on the delegation to perform part of the management functions shall indicate the name of the mandated company (the agent) and the list of the functions delegated. 2. Performance of a part of the management functions may be delegated only provided that: 1) this will not prevent the competent authorities from supervising the management company or investment company and also that this will not harm the investors' interests; 2) the Securities Commission has concluded an agreement for the exchange of information with an appropriate supervisory authority of the non Member State in which a licensed management company is delegated a certain part of functions; 3) the managers of the management company or the investment company may at any time monitor the activities of the mandated party; 9
4) the management company or the investment company may at any time, where it is in the interests of the participants in the collective investment undertaking, give further instructions to the mandated party or withdraw the mandate; 5) the mandated party shall have the qualifications established by the Securities Commission and may perform the delegated functions; 6) the prospectus of the investment fund or the investment company shall list the functions which they have been authorised to delegate. 3. The management company or the investment company provided for in par. 1 above shall have no right to delegate its functions to third parties to the extent that it essentially waives the rights. Delegation of the function of the investment decision making and (or) execution to the depository who has been entrusted for safe-keeping the assets of investment funds or investment companies that are managed by the said management company or to other parties whose interests may conflict with those of the management company, the investment company or participants, shall be prohibited. 4. The delegation of part of the functions to other persons in no way releases the management company or the investment company from the liability. Article 10. Acquisition of a Block of Shares in the Management Company 1. A natural or legal person, wishing to acquire, directly or indirectly, or to increase the qualifying holding in the management company so that following that acquisition the proportion of voting rights in the general meeting of shareholders held by the person reaches or exceeds the thresholds of, in the increasing order, 20, 33 or 50 percent, or is sufficient for the company to become that person's subsidiary, must receive prior consent of the Securities Commission. 2. The person referred to in par. 1 above shall notify the Securities Commission of its intended acquisition of the block of shares and submit to the Securities Commission the supporting documents and other information specified by the Securities Commission. The Securities Commission shall within 3 months from the receipt of the application notify the said person of its consent or refusal to grant authorisation for the acquisition of the block of shares. The Securities Commission shall be entitled to require additional documents or the information about the intention to acquire or increase the block of shares of the management company and in this case the three months period shall start running from the submission of all documents required to the Securities Commission. 3. The Securities Commission shall refuse to authorise the acquisition of the block of shares if: 1) the natural person (in case of a legal person head of the administration, his deputy, members of the Board and the and controlling persons) is not a person of impeccable repute; 2) the natural person is an operator of the regulated market operating in the Republic of Lithuania, or an employee of the Securities Commission or the depository which has been entrusted with the safe-keeping of the assets comprising the investment funds managed by the management company or assets of investment companies; 3) the person has not provided information about its activities or financial position; 4) the legal person has failed to provide the information about its participants; 5) the person has failed to produce the documents certifying the legitimate origin of the funds allocated for the payment for the shares; 6) the financial position of the person is not good or stable; 10
7) the granting of authorisation would result in the emergence of a close link which would constitute the grounds for refusing to issue the management company's licence; 8) there are grounds to believe that the owners of the block of shares will not ensure a reliable or transparent management of the company. 4. The refusal to authorise acquisition of the block of shares must be substantiated in writing and shall be subject to appeal to court. If the Securities Commission makes no objections to the acquisition of the block of shares, the Securities Commission shall be entitled to set a reasonable timeframe for the fulfilment of the person s intention to acquire or to increase the block of shares of the management company. Under regular circumstances such timeframe shall not be shorter than one month. 5. The person shall also notify the Securities Commission before disposing of the shares held by it/him so that the proportion of voting rights in the general meeting of the shareholders or the proportion of the capital held by it/him falls bellow the thresholds of, in the decreasing order, 20, 33 and 50 percent, or to the extent that the management company ceases to be its/his subsidiary. 6. Upon finding out about the acquisition or disposal of the block of shares which is above the thresholds set in this Article the company shall forthwith notify the Securities Commission thereof. Annual information about persons who own the blocks of shares and the amounts of such holdings shall be communicated to the Securities Commission according to the procedure established thereby. 7. The shares held by the person who has acquired the block of shares of the management company of has increased the block of shares to the extent it exceeded the thresholds in the manner stipulated in this Article without the consent of the Securities Commission, shall lose the voting right attaching to them at the General Meeting until the consent of the Securities Commission is obtained. 8. Where the person that intends to acquire the block of shares of the management company is a licensed management company, financial brokerage firm, credit institution, insurance company operating in another Member State or a parent company or a controlling persons thereof, and where following the acquisition of the block of shares the management company becomes a subsidiary of the acquirer or becomes controlled thereby, the Securities Commission shall seek the opinion of the supervisory authority of the respective Member State on issues referred to in Article 5 (5) of the present Law. Article 11. The Duty to Obtain the Authorisation of the Securities Commission 1. A prior authorisation of the Securities Commission shall be required in order to: 1) approve, amend or supplement the instruments of incorporation; 2) choose or replace the depository or a management company; 3) transfer the assets constituting the investment fund to another management company; 4) conclude or revise the contract with the depository; 5) approve, amend or supplement a simplified or full prospectus; 6) approve, amend or supplement the summary instruments of incorporation; 7) pool the investment funds managed by a management company. 2. The Securities Commission may refuse authorisation only where this would be contrary to legal acts or prejudice the interests of the participants in the collective investment undertaking. 11
3. If the Securities Commission, upon the receipt of a relevant application, fails to present a reasoned objection to the granting of the authorisation within 15 days, the authorisation shall be deemed granted. Article 12. Audit of the Management Company or Investment Company The requirements set in the Law on Audit and the Law on Financial Institutions and the requirements established in Article 22(6) of the present Law shall be applicable with respect to the audit of the management company, collective investment undertakings managed thereby or the investment company. Article 13. The Right to Transfer the Assets Constituting the Investment Fund or Owned by Investment Company 1. The assets constituting the investment fund or owned by an investment company may not be transferred to the management company which manages the assets, the head of the administration of such company, his deputy, and members of the Board, Supervisory Board and company employees (their spouses included). The management company using the funds of the collective investment undertaking or the investment company shall also be prohibited from acquiring assets of the persons provided for hereinabove. 2. The prohibitions provided for in par. 1 above for the investment company shall also apply to its head of the administration, his deputy, members of the Board, Supervisory Board and employees (their spouses included). 3. The assets constituting the investment fund or owned by an investment company may not be lent, pledged or given as guarantee or surety to secure other persons liabilities. The above shall not constitute a prohibition to acquire the non-paid transferrable, money market instruments, or other financial instruments referred to in pars 5, 7 or 8 of Article 57(1). 4. The assets of an investment fund or an investment company shall not be used to conclude the short-sale transactions in transferrable securities, money market instruments or other investment instruments. 5. An investment company or the management company which manages the assets of an investment fund may not borrow, on the account of the investment fund, except for loans with a duration of 3 months in the amount of up to 10% of its net assets taken for maintaining the liquidity. This does not signify prohibition to borrow foreign currency for the purpose of the acquisition of transferrable securities or money market instruments where for the purpose of securing the repayment of the loan the lender shall be submitted at leas an equivalent amount in another currency. 6. The prohibitions stipulated in this Article shall be applicable to the special collective investment funds and their management companies to the extent defined in Chapter VII of this Law. Article 14. Approval of the Agreement with the Management Company and the Depository 1. The agreement on the management of assets of the investment company and the agreement with the depository shall be subject to approval by the general meeting of shareholders of the investment company. The meeting may make such a decision by an at least 2/3 majority of those present at the meeting. The company s Articles of Association may require a larger majority for making such a decision. 2. The general meeting may delegate the right to make the decision provided for in par. 1 above to the Supervisory Board but for not longer than a 3-year period if the maximum fee payable to 12
the management company and the depository is specified in the company's Articles of Association. Article 15. Measures Involving Sanctions Applicable to Management Companies or Investment Companies The Securities Commission shall have the right to take the following measures against the management companies or the investment companies: 1) issue a warning about shortcomings and violations of their activities and set a deadline for their elimination; 2) impose penalties prescribed by this Law; 3) withdraw the licence; 4) suspend the distribution or redemption/repurchase of units/shares; 5) prohibit the conclusion of transactions for the acquisition of investment instruments using the funds of the collective investment undertaking for a period not longer than 3 months; 6) appoint a temporary representative of the Securities Commission for supervision of the activities; 7) suspend the validity of the licence of the management company to provide one or several services. 2. The Securities Commission shall have a right to impose sanctions prescribed in the Code of Administrative Violations of Law upon the heads of the administration, their deputies, and members of the Board or the employees of a management company or an investment company. 3. The Securities Commission shall have a right to impose upon the depository the sanctions prescribed in items 1 and 2 of par. 1 of this Article. Article 16. The basis for the Imposition of Sanctions 1. Sanctions prescribed by this Law may be applied where any of the following violations has been committed: 1) the management company or the investment company, or the depository has submitted incorrect information to the Securities Commission; 2) the Securities Commission has not been provided with the information or the documents necessary for supervision; 3) the management company or the investment company no longer meets the requirements based whereon the licence has been granted; 4) the laws or other legal acts of the Republic of Lithuania have been violated; 5) the management company or the investment company fails to meet its obligations or there is evidence that it will not be able to do that in the future. 2. The choice of a sanction shall depend on the character of the violation for which it is applied, the impact of the violation and the application of the measure on the company and security of the financial system. The issue of application of a sanction shall be considered following prior notification of the management company or the investment company, or the depository and provided that it has been given a possibility to present explanations. Failure of a representative to attend the hearing or to present explanations shall not prevent adoption of a decision concerning the application of the sanctions. 13
3. A decision to apply measures involving sanctions may be taken provided that no more than 2 years have passed from the date when the violation was committed, while in cases of a continuing violation no more than 2 years have passed from the date of the commitment of the most recent violation. 4. The supervisory authorities of the State in which the management company or the investment company is distributing units or shares shall be notified of the application of sanctions upon the management company or the investment company. Article 17. Temporary Representative for Supervision of Activities 1. In cases of urgency, where there is evidence of violations of legal acts, in order to protect the investors' assets from depreciation or any other loss, the Securities Commission shall have the right to appoint its temporary representative for the supervision of the activities of the management company or the investment company with variable capital in question. An employee of the Securities Commission may be appointed temporary representative. 2. The head of the administration, his deputy, and members of the Board of the management company or the investment company must obtain consent of the temporary representative for the supervision of the activities for each decision relating to the company activities. The actions of the temporary representative may be subject to appeal according to the procedure laid down in the Law on Administrative Proceedings. 3. The temporary representative shall be recalled when: 1) it is determined that the company can function effectively; 2) bankruptcy proceedings have been instituted against the company; 3) the licence of the management company or the investment company with variable capital, or the closed-end type investment company has been withdrawn. Article 18. Withdrawal of the Licence 1. The Securities Commission shall have the right to withdraw the licence of the management company or the investment company where: 1) such a measure is applied to the company in accordance with the procedure established in this Law; 2) the holder of the licence has himself applied in writing for the withdrawal of the licence; 3) the holder of the licence fails, within 12 months from the date of granting of the licence, to commence the activities under licence or suspends such activities for a period over 6 months; 4) the period of activity of the investment company provided for in the Articles of Association has expired and the holder of the licence fails to apply for the revocation of the licence. 2. A management company or an investment company with variable capital may not be reorganised into a collective investment undertaking of limited distribution, to which this Law is not applicable. Article 19. Peculiarities of the Bankruptcy Proceedings of a Management Company or an Investment Company 1. Bankruptcy proceedings of the management company or the investment company may only be conducted as a judicial process. 14
2. The Securities Commission shall have the right to file with the court a petition for the institution of bankruptcy proceedings against the management company or the investment company. 3. Upon the receipt from the Securities Commission a petition for the institution of bankruptcy proceedings the court shall on the same day freeze the bank accounts of the management company and the investment company and prohibit them from disposing of investment instruments. 4. The court shall within 15 days from the receipt of the petition make a ruling to institute bankruptcy proceedings or to refuse to do so. 5. The administrator of the management company or an investment company shall return to the participants of the collective investment undertaking or the shareholders of the investment company the funds owned by them or delegate the management of the collective investment undertakings managed by the management company to a different management company. Article 20. Reorganisation and Restructuring of the Management Company and the Liquidation of the Investment Company 1. The management company cannot be reorganised or restructured into a company not subject to the requirements of the present Law. 2. The sale and redemption of shares of the investment company shall be terminated as from the moment of making of the decision to liquidate the investment company. 2. The assets of the investment company in liquidation shall be sold following the procedure laid down by the Securities Commission and the settlement with shareholders shall be made in cash. 3. The liquidator of the investment company shall furnish to the Securities Commission information about the progress of liquidation following the procedure laid down by the Securities Commission. SECTION TWO INFORMATION TO BE COMMUNICATED TO THE PUBLIC BY THE MANAGEMENT COMPANY OR INVESTMENT COMPANY Article 21. Duty to Draw up Prospectuses and Periodical Reports 1. An investment company with variable capital and a management company (for each investment fund it manages) must publish: 1) a full prospectus; 2) a simplified prospectus; 3) an annual report for each financial year; 4) a half-yearly report covering the first six months of the financial year (hereafter - half yearly report). 2. The requirement specified in item 2 par. 1 of this Article shall not apply to the management company managing a closed-end investment fund or a closed-end investment company taking the advantage of the right provided in this Law not to draw a simplified prospectus. 3. A management company of a hedge collective investment undertaking or a closed-end type investment company of a hedge collective investment undertaking, also the management company of a private capital collective investment undertaking whose participants according to its instruments of incorporation may include the professional investors only, and a private capital 15
closed-end type investment company whose shareholders according to its Articles of Association may include professional investors only shall not be obliged to publish the documents specified in par. 1 of this Article. Article 22. The Contents of Prospectuses and Periodical Reports 1. A full and a simplified prospectus must include the information necessary for investors to be able to make an informed judgement for the investment proposed to them and the associated risks. A full prospectus shall explicitly indicate the risk profile. 2. The structure and the layout of a simplified prospectus shall be easily comprehensible to an average investor. A simplified prospectus of an investment fund managed by a management licensed in another Member State, or of an investment company with variable capital, translated into the Lithuanian language, may be used in the Republic of Lithuania as promotional material not requiring any additional information. 3. The annual report must include the financial statements and other information specified by the Securities Commission which will enable investors to make an informed judgement on the development of the activities of the collective investment undertaking and its results. Where an interim dividend is paid, related information must be included in the half-yearly report. 4. The instruments of incorporation shall form an integral part of the prospectus and shall be annexed thereto. The instruments of incorporation need not be annexed to the prospectus provided that the participants in the collective investment undertaking are informed that upon their request they will be provided the documents personally or they will be notified of the place where in the territory of the Republic of Lithuania they may consult them. 5. Should there be any changes in the information published in a simplified or full prospectus the prospectuses shall be amended within 7 days from the occurrence of the changes. The amendments shall be published in the annexes specifying the subject of change and clearly deleting incorrect information in the old prospectus or a new prospectus shall be provided. 6. The data provided in the annual financial statements must be audited. The auditor's opinion, including any qualifications, and the audit report shall be attached to the annual report. The audit report shall specify whether the value of the net assets has been computed correctly, whether the assets have been invested in compliance with the instruments of incorporation, and shall list all breaches of this Law and other legal acts. The auditor of the management company, the collective investment undertakings managed thereby, or an investment company the management of whose assets has not be delegated to a management company shall file with the Securities Commission the audit report, and upon an individual request by the Securities Commission the auditor shall furnish the explanations concerning the audit of the management company or the collective investment undertakings. 7. The Securities Commission shall establish other requirements for a full prospectus, a simplified prospectus, the contents and the form of annual and half-yearly reports and the procedure of the submission thereof to the Securities Commission. Article 23. The Procedure for the Publication of a Prospectus and Periodical Reports 1. The annual and half-yearly reports shall be published and submitted to the Securities Commission within the following time limits: 1) 4 months from the end of the accounting financial year in the case of the annual report; 2) 2 months from the end of the accounting half-year period in the case of the half-yearly report. 16