REPUBLIC OF LITHUANIA REPUBLIC OF LITHUANIA LAW ON INVESTMENT COMPANIES Chapter 1 General Provisions Article 1. Objectives of the Law 1. This Law regulates the specific aspects of investment company e

Article 3of its part of property composed of securities.

13. The Securities Commission may revoke the permit for activities issued to an investment company if the investment company: 1) is under liquidation; 2) has obtained the permit by presenting erroneous or false information, forged documents as well as by concealing the facts by reason whereof the permit should not have been issued; 3) is no longer fulfilling the terms and conditions of the permit issuance or complying with the laws and other legal acts of the Republic of Lithuania; 4) fails to comply with the capital requirements established in Par.

Article 6

; 5) has not used the issued permit for 12 months or has not engaged in its activities during the above period; 6) does not guarantee the security of the funds entrusted to it or is no longer in the position to fulfil its obligations to the creditors; and 7) maintains the accounting negligently or fraudulently, prepares financial accounts not properly. The permit of an investment company may also be revoked in the event of emergence of any of the conditions specified in item 5 of Par. 9 hereof.

1. An investment company shall have the right to employ an independent auditor to audit its business if the Securities Commission establishes grounds for the revocation of permit for the investment company activities as specified in items 6 and 7 of Par. 13 hereof. The report of the independent auditor must be presented to the Securities Commission within 2 months from the request to perform the audit unless the Commission fixes another date. The issue concerning the revocation of the permit for the investment company activities may be considered without the results of the independent audit if the investment company failed to present said results to the Securities Commission within the established period or refused to perform the independent audit or did not present any information as to the date of the independent audit.
2. In the event of revocation of the permit issued to the investment company the company must be liquidated. The investment company under liquidation must be re-registered and the words "under liquidation" must be added to its name. Information concerning the investment company's liquidation process and liquidation dates must be presented to every shareholder who requests it, to a directly interested third person and the Securities Commission. The property of the investment company under liquidation (securities and other movable property, immovable property) must be sold by competitive bidding (by auction) or on the stock exchange. The money received for it together with other funds of the company under liquidation shall be distributed, upon satisfying all the company's liabilities, to the shareholders in proportion to the number of the company's shares held by them. The investment company under liquidation may conclude only those transactions which are connected with its liquidation.
3. Disputes concerning the issue or revocation of permits for the investment company activities shall be settled by court. Article
4. Capital
5. The own capital of an investment fund must be no less than 1 million litas. The authorised capital of a closed-end fund or investment holding company must be no less than 250,000 litas, whereas their own (net) assets may not be less than the authorised capital. The Securities Commission must be no later than within 5 days notified if: 1) own capital of an investment fund becomes less than 1 million litas; or 2) own (net) assets of a closed-end fund or investment holding company become less than the authorised capital.
6. Contributions in kind may account for no more than 20% of the authorised (own) capital of an investment company.
7. When the authorised (own) capital of an investment company is increased, shareholders shall have no right of priority in subscribing for the shares of the new issue.
8. A closed-end fund or an investment holding company shall have no right to reduce the authorised capital, except reduction by reason of the incurred losses.
9. Loan capital of an investment fund or closed-end fund may not account for more than 10% of its own (net) asset value. If this requirement is not complied with due to the decrease in the value of its own (net) assets, the investment fund or the closed- end fund must rectify the situation no later than within 3 months of the commission of the violation. Article
10. Shares
11. An investment company may have only ordinary shares entitling their holders to equal rights. Every share carries a right to one vote at all shareholders' meetings and is entitled, on equal grounds with other shares, to receive payment of dividend and an appropriate share of the investment company's property during its liquidation.
12. The shares of an investment company may be paid up in cash or in kind. Contributions in kind may not be in the form of work and services, intellectual and other intangible property. The shares of a closed-end fund and an investment holding company must be fully paid up prior to the registration of the authorised capital or the increase thereof. An investment fund shall have no right to sell its shares to be paid up by instalments or postpone the date of payment. Payment for the investment fund shares must be effected no later than within 3 days of the conclusion of the transaction. In the event that a person fails to pay for the investment fund shares within the above period, the share purchase transaction shall be deemed not to have been effected.
13. The shares of a closed-end fund and investment holding company may be listed on the Stock Exchange in accordance with the regulations approved by the Securities Commission and the Exchange. Investment fund shares may not be purchased or sold on the stock exchange.
14. At the shareholder's request the investment fund must redeem from him the shares of the fund paying for them in cash. Payment may also be effected in other property if this is provided for by the investment fund bylaws. Share redemption price shall be calculated in accordance with the investment company's own (net) asset valuation methods and must amount to the part of the investment company's own (net) assets due to the share.
15. The investment fund must publicly announce the selling and redemption prices of its shares each time they are issued or redeemed, but no less frequently than twice a month. The Securities Commission may reduce the frequency of announcements up to one time per month provided that such reduction causes no harm to the investment fund shareholders and other investors.
16. An investment fund may, on the basis of the procedures provided for by its bylaws or other regulations, temporarily (for no longer than 3 months in a business year) suspend the redemption of its shares if: 1) the suspension is performed in order to protect the shareholder's interests from possible insolvency as well as from the fall in the share redemption price due to the unfavourable securities market condition and the related reduction of value of the investment portfolio held by the investment fund; 2) own capital becomes less than the amount established in Par.

Article 6; or 3) this is requested by the Securities Commission.

7. In the event of suspension of share redemption the investment fund must within 5 days notify the Securities Commission of its decisions and make a public announcement thereof through mass media (national newspapers, radio and television) in such a manner and at such time as to provide a real possibility for the investment fund shareholders and potential investors to find out about the event. Article 8. Management 1. The management of an investment fund property must be transferred to the management enterprise which is operating in accordance with Chapter 3 of this Law. Management of a closed-end fund or investment holding company property or part thereof (investment portfolio) may be transferred to the management enterprise. In such instances the investment company board and administration may be not formed. If the management of property is transferred to the management enterprise the supervisory board must be formed in the investment company. 2. The persons with whom subscription contracts have been concluded not later than 10 working days prior to the meeting shall have the right to participate in a general (shareholders') meeting of investment fund. The quorum at the general (shareholders'

1. s)meeting shall be determined according to the number of shares which have been issued and not subscribed for 10 working days prior to the meeting. Article 9. The Assets 1.The assets of the investment company may consist of : 1) monetary funds; 2) securities; 3) other immovable and movable property necessary for the ordinary operations of the investment company and which accounts for not more than 20 percent of the value of the total assets of the company. 2. Investment company may acquire the following securities: 1) securities quoted on the stock exchanges operating in the Republic of Lithuania; 2) securities traded on other recognised, regulated , permanently operating and public stock markets in Lithuania; 3) newly issued securities if the conditions of their issue provides for the issuer's obligation to file an application to have its shares quoted in the Official or Current list or in the list of other recognised, regulated, permanently operating and public stock market in Lithuania and there are guarantees that issued securities will be registered in said lists within one year of their issue; 4) deposit certificates issued by banks; 5) securities issued or guaranteed by the government (local government) ; 6) other securities recognised by the Securities Commission as liquid. 3. Investment company may also acquire other securities that are not indicated in Par. 2 of this Article the total value of which may not account for more that 10 percent of the company's own (net ) assets. If said requirement is not complied with due to the reduction in value of own (net) assets, the investment company must rectify the situation not later than within 3 months from the date the violation was committed. Article 10. Peculiarities of the Activities of Investment Companies 1. Investment fund and closed-end fund shall be prohibited from: 1) extending loans, giving a guarantee or warranty for another person's fulfilment of liabilities, mortgaging of securities or real property held by them; 2) taking loans, with the exception of cases when the loan is taken for the acquisition of movable or immovable property necessary for its operations; 3) acquiring and holding securities due to which the requirements set forth in the diversified investment portfolio would be violated; 4) issuing bonds; 5) establishing affiliates or other independent structural subdivisions. 2. If the investment fund or closed-end fund violates the requirements of the diversified investment portfolio due to the preferential right to acquire newly issued securities provided for in the laws and other legal acts of the Republic of Lithuania or for other objective reasons that are beyond its control, it must sell the portion of securities due to which restrictions specified in this part were violated not later than within 3 months. 3. The investment holding company shall be prohibited from: 1) investing more than 25 percent of its own (net) assets into the securities issued by one issuer; 2) taking loans from the controlled enterprises or obtaining their guarantees; 3) without the decision of the general (shareholder'
2. s)meeting, mortgaging , selling, or in any other way transferring total issuer's shareholding or a part thereof, the total value of which accounts for at least 5 percent of the holding company's own (net) assets if due to such transaction the holding company would lose or might lose : in the general (shareholder'
3. s)meeting of the issuer, qualified (2/3 of votes) or simple majority (1/2 of votes) vote, as well as the right of veto (1/3 of votes), calculating from the total number of votes; the right of initiative to convene general (shareholders') meeting as well as other rights for the implementation of which 1/10 of the authorised capital of the issuer is required; the right to supplement the agenda or nominate candidates to the members of the Supervisory Board or the Board for the implementation of which 1/20 of the authorised capital of the issuer is required; 4) without the prior decision of the general (shareholders') meeting, mortgaging real property, extending loans, giving guarantee or warranty for the fulfilment of obligations by another person if the total amount of such liabilities of the holding company and the total amount of extended loans would account for more than 10 percent of the value of its own (net) assets. 4. The closed-end fund and the holding company shall be prohibited from repurchasing, in any way, its shares or accepting them as a collateral. 5. Provided the securities of the issuer are trade on the stock exchange, the investment company shall be prohibited from: 1) when buying securities of the issuer _ exceeding the maximum price which is fixed on the day the transaction is made on the stock exchange; 2) selling the issuer's securities at a price which is lower than the minimum price of these securities fixed on the day the transaction is made on the stock exchange. 6. The investment company shall be prohibited from acting as intermediary in stock market if the investment company is not the owner of these securities. Article 11. Information that must be Furnished by the Investment Companies to its Shareholders, General Public and Supervision Institutions 1. The investment company must provide: 1) the prospectus; 2) reports of each business year; 3) reports for the first 6 months of a business year. 2. Annual and semi-annual reports must be published with the following regularity: 1) annual - not later than within 4 months of the end of the accounting business year; 2) semi-annual - not later than within 2 months of the end of the accounting six months. 3. The bylaws of the investment companies must constitute an inseparable part of the prospectus and must be provided together with the annexes attached thereto. 4. The investment company must submit its prospectus and amendments thereto, as well as annual and six-month reports to the Securities Commission in compliance with the requirements set forth with regard to its contents, procedure and time limits for its filing. 5. Financial accounts provided in the annual report must be audited by an independent auditor entitled to perform audit in accordance with the procedure established by laws. Audit results must be provided in the annual report. Auditor's report must also contain information on all the violations of this Law and other laws and legal acts regulating financial activities of investment companies. 6. The prospectus, the last published annual and semi-annual reports must be available to persons who subscribe to the shares in the investment company prior to the entering into subscription contract. In addition, annual and semi-annual reports must be available to the general public at certain places specified in the prospectus. 7. The investment company, the management enterprise with whom property management agreement has been concluded, and the depository must keep records of transactions and other operations of the company in accordance with the standards established by the laws of the Republic of Lithuania and other legal acts. All the documents relative to the activities of the investment company must be available for inspection by the Securities Commission. 8. At the request of the Securities Commission , but not more frequently than once a year, the investment company must, within three months, submit to it the report of an independent auditor, stating whether the investment company complies with the requirements set forth in Articles 9 and 10. Such audit of the investment company may be performed more often at the expense of the Securities Commission. 9. The investment holding companies must, together with annual report, each business year make and publish additional report about the activities of the group of enterprises consisting of the investment holding company and the enterprises controlled by it. 10. In describing the financial position of the group of enterprises specified in Par. 9 of this Article , the investment holding company must present in the report a consolidated balance sheet, consolidated profit and loss account, and explanatory notes, prepared according to the standards established by the Ministry of Finance. The data of the consolidated balance sheet may not be used for judging whether the enterprise meets the requirements set forth in item 2 of Par.

Article 3. 11.

The enterprises which under the provisions of Par. 9 of this Article form a group of enterprises, must furnish to investment companies all the information necessary for making consolidated accounts.

1. The data in the consolidated accounts concerning the assets and liabilities, profit and loss of the consolidated group of enterprises, as the separate entity, must be disclosed truthfully and honestly. The report on the management of the group of enterprises must disclose information on the management structure of this group as a separate entity, transformations that have been made or are planned to be made and the essential events that have occurred during the accounting period. Chapter 3 Management Enterprises Article
2. The Concept of Management Enterprise
3. A stock company or a close stock company which possess a licence issued by the Securities Commission to manage the investment portfolio of investment companies may be a management enterprise. The procedure and conditions for the issue of such licences shall be established by the Securities Commission.
4. Disputes concerning the issuing or cancellation of licences shall be settled by the court.
5. The authorised capital of the management enterprise must be not less than Lt100
6. If the authorised capital becomes less than the minimum capital, the management company must inform the Securities Commission of this fact not later than within 5 days.
7. At least two managers of the management enterprise must have broker's qualification certificate or any other certificate recognised by the Securities Commission. The management enterprise must submit to the Securities Commission data about all managers ( their names, surnames, addresses, telephone numbers) , as well as inform it of any changes therein not later than within 10 days.
8. The management enterprise shall have the right to carry out no other transactions with the investment company than enter into property management agreement. Article
9. Property Management Agreement
10. The property management agreement between the investment company and management enterprise must provide for: 1) the object of the agreement; 2) rights and duties of the parties to the agreement; 3) purpose, objects and methods of investment activities; 4) the amount of the commission paid to the management enterprise, the manner and procedure for the payment thereof; 5) structure of expenditures of investment company and procedure for their coverage; 6) liability for non- fulfilment of its obligations; 7) conditions and procedure for the termination of the agreement; 8) duration of the agreement. The property management agreement may contain other provisions provided they do not contradict the laws and other legal acts of the Republic of Lithuania.
11. The property management agreement must be approved by the general (shareholder's) meeting of the investment company. It may be concluded for the period not exceeding 4 years. The property management agreement may be terminated by the decision of the general (shareholders') meeting adopted by simple majority vote, prior to the expiry of the agreement.
12. The commission payable to the management enterprise for the management of the property of the investment company may not be in excess of one of the following amounts: 1) 2 percent of the annual value of the investment company's own (net) assets; 2) 20 percent of the average annual net profit of the investment company. A part of this commission may be paid by the shares of the investment company if it is provided for in the property management agreement. Article
13. Liability for the Compensation of Losses (Damages) The management enterprise shall be liable for the compensation of losses (damages) inflicted through its fault to the investment company or its shareholders under the laws of the Republic of Lithuania. Chapter 4 Depositories Article
14. The Obligation of the Investment Company to Transfer its Property to the Depository for Safe Keeping The property of the investment company, consisting of monetary resources and securities must be transferred to one depository for safe keeping. If the depository selected by the investment company has no right to accept cash deposits, the investment company may transfer its cash deposits to another institution possessing such right. The investment company may not have more than one depository of securities or cash deposits. Article
15. Eligibility for Carrying out Depository Operations
16. A bank as well as brokerage company and a bank subsidiary, having the licence issued by the Securities Commission to engage in the activities of a depository may be a depository. The licences are of two types: 1) the licence for carrying out operations with securities; 2) the licence for carrying out operations with securities and cash.
17. The conditions and procedure for granting licences to brokerage companies and bank subsidiaries to engage in depository activities and cancellation thereof shall be established by the Securities Commission.
18. The authorised capital of the depository may not be less than 5 million litas if it operates as the depository dealing in cash and securities and may not be less than 1 million litas if it operates as securities depository. If the authorised capital of the depository becomes less than the minimum capital or its own assets become less than its authorised capital, it must inform the Securities Commission of this fact not later than within 5 days. Article
19. Activities of the Depository and their Supervision
20. The depository must separate the property entrusted to it by the investment company from its own property and identify it separately. The creditors of the depository shall have no right to settle their claims from the property entrusted to it by the investment company.
21. The Securities Commission shall have the right to establish the rules governing the control of the depository's activities, as well as the requirements for annual and other audit.
22. While fulfilling the instructions of the investment company or management enterprise ( if there is such), the depository must ensure that: 1) the selling price and repurchase price of the shares of the investment fund is determined in accordance with the requirements prescribed by this Law and the bylaws of the depository; 2) the investment company or persons acting on its behalf comply with the requirements prescribed by this Law and the bylaws of the company when selling, issuing, repurchasing or cancelling the shares of the company; 3) income received from the transactions with the property of the investment company is transferred to its account in due time; 4) income of the investment company is used in compliance with the laws of the Republic of Lithuania, other legal acts and its bylaws.
23. The depository shall be liable under the laws of the Republic of Lithuania for the indemnification of losses (damage) caused through its fault to the investment company or its shareholders. The depository may not be relieved from the fulfilment of its obligations on grounds that the whole or part of the property entrusted to it has been transferred to a third party.
24. The depository must enter into agreement with the investment company, which must provide for the procedure for the payment for services rendered by it and the rate of charges. Article
25. Independence of Depositories from Investment Companies
26. No enterprise may operate as an investment company (or management enterprise) and a depository concurrently.
27. The investment company or management enterprise and the depository must perform their functions independently.
28. Persons connected with the investment company may not be shareholders or managers of the depository with whom this investment company has deposited its securities or cash. Chapter 5 Protection of Investors' Interests Article
29. The Duty to Act in the Best Interests of the Shareholders
30. Investment company, management enterprise and depository must carry out its activities in compliance with the effective laws and other legal acts and ensure that their activities should not be prejudicial to the shareholders' property rights and interests.
31. The investment company, management enterprise and depository as well as persons connected with them may not enter into any transactions concerning the investment company or its property, that would be prejudicial to the investment company or the rights and interests of its shareholders. Managers of the investment company, management enterprise and the depository shall not be liable for the damage that was caused to the investment company in order to reduce losses incurred as a result of the depreciation of its investment portfolio due to the reduction in value of securities comprising it.
32. Having established that the manager has made a transaction from which he gained benefit at the expense of its shareholders, as well as if the shareholders of the investment company incur losses ( material damage) caused by unlawful actions of the manager, the shareholders of the investment company shall have the right to take him to court, requesting to transfer the rights and duties resulting from such transaction to the investment company or compensate for the (losses) damage caused by such transaction.
33. If the investment holding company benefit from its unlawful actions at the expense of the enterprise, controlled by it, or its shareholders or cause to it any other damage, the controlled enterprise or its shareholders shall have the right to demand through court to be compensated for losses (damage) caused to it. Article 20 The Rights of the Securities Commission
34. When implementing this Law, the Securities Commission shall have the right to adopt legal acts assigned to its competence.
35. The Securities Commission shall have the right to examine, control and make investigations in order to reveal whether investment companies, management enterprises and depositories comply with this Law and other legal acts and regulations. When discharging these functions , the employees of the Securities Commission may, without asking for a permit, enter the premises of the above-mentioned enterprises, examine, take temporarily the documents ( leaving behind their descriptions) or copy them, as well as question in writing or in word the managers of these enterprises or any other persons subordinate to them.
36. The instructions of the Securities Commission given to investment companies, property management enterprises or their managers concerning the elimination of the violations of laws and other legal acts shall be binding
37. The employees of the Securities Commission must keep commercial secrets of investment companies, gained in the course of his duties confidential. For the use of information not for its proper purpose or for other unlawful actions, these employees shall be liable under the laws of the Republic of Lithuania. Article
38. Liability for the Violation of this Law
39. Investment companies, management enterprises, depositories and their managers shall be liable for the violation of this Law in accordance with the procedure established by the laws of the Republic of Lithuania.
40. The Securities Commission shall have the right : 1) to apply sanctions provided for in the Republic of Lithuania Administrative Code against the managers of investment companies, management enterprises and depositories as well as against the auditors of these enterprises for the violation of this Law and other legal acts; 2) to impose a fine in the amount of up to 3 percent of their annual income on those management enterprises or depositories, which inflict losses (damage) by their unlawful actions to investment companies or their shareholders. The application of these sanctions shall not relieve the persons from the liability to compensate for losses (damage) inflicted through their fault to investment companies, their shareholders or third parties, as well as from the liability under other laws of the Republic of Lithuania.
41. The decisions of the Securities Commission in regard to the imposition of an administrative penalties may be appealed against to court in the manner established by the laws of the Republic of Lithuania. Decisions of the Securities Commission regarding the application of sanctions specified in item 2 of Par.2 of this Article may be appealed against to court within one month. The appeal shall not suspend the fulfilment of the instructions and decisions of the Securities Commission to eliminate violations of laws and other legal acts unless the court decides otherwise.
42. Fines must be paid into the budget not later than within 15 days of the receipt of the resolution to impose a fine on the investment company, management enterprise, depository or their managers. Fines shall be recovered from the income of the management enterprises or depositories without suit. Chapter 6 Final Provisions Article
43. Application of this Law to the Operating Investment Stock Companies
44. Investment stock companies established during the period of the privatisation of state-owned property under the Republic of Lithuania Law on the Initial Privatisation of State Property must by 1 May 1996 alter their bylaws and reregister itself in compliance with the requirements provided for in this Law. If the investment stock company fails to fulfil this requirement, it must be liquidated in the manner established by the Government of the Republic of Lithuania provided for in Par. 15 of Article 5 of this Law. The auditor must present the report on the financial position of this company to the general (shareholders') meeting of the investment stock company in which the reorganisation shall be considered.
45. Investment stock companies may be reorganised into investment companies in accordance with the requirements set forth in Article 10 of the Company Law of the Republic of Lithuania. The provisions of Par. 12 of Article 5 of this Law shall also apply to the reorganisation of investment stock companies. The preparation of the project for the reorganisation of the investment stock company into investment company is not mandatory.
46. The preference shares issued by investment stock companies must be converted into ordinary shares within one month from the enforcement of this Law, and the privileges granted by them shall be abolished. The founders' privileges must also be abolished if the bylaws of the investment stock companies provided therefor. Amendments to the bylaws relative thereto may be registered without convoking general meetings.
47. Investment stock companies must, within six months of the coming into effect of this Law, transfer for safe keeping cash and securities held by them to the depository selected by them. A copy of the agreement entered into with the depository must be submitted to the Securities Commission.
48. If after the reorganisation of the investment stock company into investment company of an appropriate type, its property will have to be transferred to the management enterprise for the purpose of its management, the agreement with the selected management enterprise must be approved in the general (shareholders') meeting prior to the date of the reregistering of this company.
49. The investment stock companies must, within the period between the coming into effect of this Law and their re- registration into investment companies, prepare information specified in Article 11 of this Law. The auditors shall not be required to report on such information.
50. The provisions contained in the first sentence of Par.10 of Article 5 shall come into effect as of 1 January
51. By this term and in such cases when the management of the property of the investment company is not transferred to the management enterprise, at least one member of the Board of the investment company or an employee of the administration must possess qualifications certificate of a broker or any other qualifications certificate recognised by the Securities Commission.
52. If the investment stock company has been reorganised into investment fund, the announcement about the value of the own (net) assets of the investment fund and the redemption price of its shares must be published not later than within 30 days of its re-registration. The investment funds reorganised in this manner must redeem its own shares within the following stages: 1) the redemption of shares may be commenced not earlier than after the third public announcement of the data specified in the first paragraph hereof ; 2) by 1 July 1996 not less than 1/2 of all the applications of shareholders to redeem the shares held by them must be satisfied; 3) from 1 January 1997 the shares of investment funds must be redeemed without any restrictions in the manner established by this Law.
53. If the shares of the investment stock company that is being reorganised into investment fund, were traded on the stock exchange, the trade in such shares must be terminated from the date of the re-registration of this investment stock company .
54. It shall be prohibited to establish new investment stock companies as of the date of the coming into effect of this Law. I promulgate this Law passed by the Seimas of the Republic of Lithuania. Algirdas Brazauskas President of the Republic Vilnius 5 July 1995 No. I-1018