REPUBLIC OF LITHUANIA

REPUBLIC OF LITHUANIA OFFICIAL TRANSLATION REPUBLIC OF LITHUANIA LAW ON COLLECTIVE INVESTMENT UNDERTAKINGS 3 July 2003 No IX-1709 (As last amended on 25 October 2007 – No X-1303) Vilnius CHAPTER I GENERAL PROVISIONS Article 1. Purpose and Scope of the Law 1. This Law shall regulate the activities of collective investment undertakings and the supervision of such activities by the State. The purpose of the Law shall be to ensure protection of interests of co-owners of investment funds, shareholders of investment companies with variable capital, and closed-end type investment companies. 2. This Law shall have the aim of harmonising regulation of collective investment undertakings 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, with the exception of 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 the 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 public debt management. 5. Management companies, investment companies with variable capital and closed-ended investment companies shall be subject to requirements of the Law on Companies to the extent the present Law does not provide otherwise. Article 2. Definitions 1. “Collective investment undertaking of the open-ended type” shall mean a collective investment undertaking whose 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 Markets in Financial Instruments. 4. “Financial instrument index” shall mean a statistical ratio showing the movement in the value of the financial instruments of which such index is composed. 5. “Financial instrument portfolio” shall mean the financial instruments portfolio as defined in the Law on Markets in Financial Instruments. 6. “Close links” shall be the links as defined in the Law on 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 with variable capital or a closed-ended 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 the open-ended type only. 10. “Investment instruments” shall mean the financial instruments specified in paragraph 4 of Article 3 of the Law on Markets in Financial Instruments, also deposits, immovable property as well as the movable property 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 by the right of common partial ownership under the trust right in accordance with the procedure and under the conditions established in this Law and the rules of the investment fund. The concept of the investment fund used for the purposes of this Law shall include investment funds of the open-ended and closed-ended types unless a specific Article of the Law specifies otherwise. 12. “Unit” shall mean a transferable security certifying the title of the co-owner of an investment fund to a part of the assets comprising the investment fund. 13. “Offering of units or shares” shall mean the offering of units or shares in the mass media, advertising or by other methods addressed to more than 100 persons. 14. “Derivative financial instruments” shall means the financial instruments specified in subparagraphs 4, 5, 6, 7, 8, 9 and 10 of paragraph 4 of Article 3 of the Law on 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 shall be, by offering the units or shares in accordance with the procedure laid down in Article 13 of this Law, accumulate personal funds and invest such funds collectively into the assets specified in this Law by complying with the investment requirements set forth by this Law. 16. “Participant in a 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 providing to investors and the public the essential information about the offered transferable securities of a collective investment undertaking. 18. “A sub-fund of a collective investment undertaking” shall mean a part of the assets of an umbrella collective investment undertaking managed separately from other assets thereof. 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 a management company or investment company the management of whose assets has not been delegated to a management company against the value of which the return on investment of a collective investment undertaking is measured. 21. “Persons of sufficiently good repute” shall mean the persons as defined in the Law on Markets in Financial Instruments. 22. “Parent company” shall mean a company as defined in the Law on Consolidated Accounts of Entities. 23. “Periodical 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 a certain period. 24. “Transferable securities” shall mean: 1) shares, units of a company and depository receipts for shares; 2) bonds and non-equity securities of other forms; 3) other transferable securities entitling to the acquisition of the transferable securities indicated in subparagraphs 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 Markets in Financial Instruments whose value may be determined at any time. 26. “Initial capital” shall mean the minimum amount of the equity capital that a management company or an investment company must accumulate. 27. “Professional investor” shall mean a professional client defined in the Law on 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 units or shares cannot be distributed in another Member State in accordance with the procedure laid down in the legal acts indicated in the Annex to this Law and which is not subject to requirements of the European Union law. 29. “Instruments of incorporation” shall mean the rules of an investment fund or the articles of association of an investment company. 30. “Harmonised undertakings for collective investment in 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 spreading, are invested in transferable securities and/or other liquid assets provided for in Chapter VI of this Law, and whose transferable securities (units or shares) must be redeemed at any time upon a request of the holder thereof. 31. “Umbrella collective investment undertaking” shall mean an investment fund of the open-ended type or an investment company with variable capital whose assets are divided into separate sub-funds. 32. “Asset management” shall mean: 1) taking 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 or shareholders, distribution of income, unit or share pricing, issuance and redemption thereof, contract settlements, keeping of record of the completed operations; 3) marketing; 4) other activities related to the activities indicated in subparagraphs 1, 2 and 3 of this paragraph. The concept of asset management as used in this Law shall also include the investment fund management on a fiduciary basis. 33. “Closed-ended investment company” shall mean a public limited liability company that issues a fixed number of the shares redeemed upon the expiry of the period of activity of the company provided for in the articles of association of the public limited liability company or another time specified in advance in its articles of association. 34. “Closed-ended investment fund” shall mean a collective investment undertaking whose units may be redeemed only upon the expiry of the period of activity of a public limited liability company provided for in the rules thereof or another time specified in advance in these rules. 35. “Foreign supervisory authority” shall mean shall mean an institution which in a foreign state performs the 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 any company the regular business of which is management of investment funds and investment companies. 37. “Qualifying holding in a management company” shall mean any direct or indirect holding in a management company which represents 1/10 or more of the shares of a management company or of the voting shares or such a number of the shares which makes 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 A MANAGEMENT COMPANY AND INVESTMENT COMPANY Article 3. Right to Engage in the Activities of a Management Company or Investment Company 1. Only a private or public limited liability 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 common funds and/or investment companies with variable capital. A company holding such a licence shall be referred to as a management company. Only management companies shall have the right to use in their names and advertisements the words “investment fund management company”, “management company of investment companies” or other combinations or derivatives of these words. 2. Only a public limited liability 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 “investment company with variable capital” or the acronym ICVC. In the name of an investment company with variable capital, the words “public limited liability company” or the acronym AB shall be optional. 3. Only a public limited liability company holding a licence for the activities of a closed-ended investment company issued by the Securities Commission may engage in the activities of a closed-ended investment company. Only closed-ended investment companies may use in their name the words “closed-ended investment company” or the acronym CEIC. The words “public limited liability company” or the acronym AB are optional in the name of a closed-ended investment company. Article 4. Activities of Management Companies and Investment Companies 1. A management company shall have the right to engage in the principal activities – management of investment funds and/or investment companies specified by this Law – and to provide the following auxiliary services on the condition that they have been provided for in the licence issued to the company and where it engages in the principal activity: 1) management of other persons' financial instrument portfolios; 2) management of the financial instrument portfolios of pension funds where the management company complies with the requirements set forth 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 the investment funds managed by other management companies or shares of investment companies. 2. A management company may not provide the auxiliary services indicated in subparagraphs 3 and 4 of paragraph 1 of this Article, unless it is entitled to provide the services indicated in subparagraphs 1 and 2 of paragraph 1 of this Article. 3. An investment company may not manage the assets of other persons or engage in the activities not provided for under this Law. 4. A management company managing at least one harmonised collective investment undertaking may not engage in any activity other that provided for by this 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 the right to engage in the activities indicated in subparagraphs 1-4 of paragraph 1 of this Article shall be subject mutandis mutandis to the requirements set forth in Articles 13 and 22 of the Law on Markets in Financial Instruments and the implementing regulations of the Securities Commission. When applying the abovementioned requirements of the Law on Markets in Financial Instruments, account shall be taken of the provisions of paragraph 5 of Article 2 of the Law on Markets in Financial Instruments. Article 5. Procedure for Granting Licences for the Activities of a Management Company or Investment Company 1. A public limited liability company or a private limited liability company wishing to engage in the activities of a management company or a public limited liability company wishing to operate as an investment company with variable capital or a closed-ended investment company shall file an appropriate application with the Securities Commission. The application shall be accompanied by a programme of the activities to be performed (business plan) containing, inter alia, a description of areas of the activities to be performed, the organisational structure of the company, also information about the legal person, participants, heads thereof, activities, compliance with capital requirements, and other information specified in the licensing rules approved by the Securities Commission, upon considering which the Securities Commission could state that the company complies with the requirements of licensed activities. The list of the documents to be furnished for the acquisition of the licence for activities and the procedure for filing thereof shall be established by the Securities Commission. 2. The Securities Commission shall refuse to issue the licence where: 1) data (documents) do not conform to the established requirements, the documents and data presented are incomplete or false, or the company’s programme of activities is not adequately substantiated; 2) the initial capital of a company wishing to obtain the licence for activities of a management company or investment company with variable capital whose management has not been delegated to a management company or the authorised capital of a company seeking to obtain the licence for activities of a closed-ended investment company is below the minimum amount set by the Securities Commission, or management company capital adequacy requirements are not complied with; 3) the company has failed to furnish the information as provided for in the licensing rules about shareholders of the company and the qualifying holdings directly or indirectly managed thereby, as well as the size of these qualifying holdings; 4) there is a ground for believing that holders of the undertaking’s qualifying holding will not ensure a sound and transparent management of the company; 5) at least one employee of the company is an employee of the operator of the regulated market operating in the Republic of Lithuania, the 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 sufficiently good repute, do not possess the qualification or work experience specified 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 prevent the Securities Commission from exercising effective supervision; 9) a close link exists between the company and a person from a non-EU Member State whose legal acts regulating this person's activities or the enforcement of such legal acts may prevent the Securities Commission from exercising effective supervision; 10) the company’s articles of association indicate that the shares or the units of the collective investment undertaking to be established will not be marketed in the Republic of Lithuania; 11) the articles of association of a public limited liability company seeking to obtain the licence of an investment company with variable capital or a closed-ended investment company do not comply with the requirements of laws. 3. The Securities Commission shall notify an applicant of its consent or refusal to issue the licence within 6 months from the filing of all documents, data and clarifications. The time limit for the consideration of an application shall be calculated from the filing of the last documents or data. A refusal to issue the licence shall be motivated in writing. 4. The Securities Commission must refer to a foreign supervisory authority with a request to provide its opinion where: 1) the applicant is a subsidiary of a 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 of a management company, financial brokerage firm, credit institution or insurance company licensed in another Member State; 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 assessing the suitability of owners of the qualifying holding of a management company or investment company and the repute and experience of heads of the companies belonging to the same group, the Securities Commission shall seek the opinion of the supervisory authority referred to in paragraph 4 of this Article. 6. The Securities Commission shall give notice of the issuance or revocation of a licence to the manager of the Legal Entities’ Register and publish it in the website of the Securities Commission. 7. Instruments of incorporation of a management company or investment company being established shall become invalid if they are not submitted to the Legal Entities’ Register within 9 months from the drawing up of the instruments of incorporation. Article 6. Management of Management Companies and Investment Companies and Heads Thereof 1. A management company and investment company the management of whose assets has not been delegated to a management company must have 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 management bodies. The management company which has been delegated the management of the investment company shall be responsible for the performance of the actions indicated in paragraph 3 of Article 2.82 of the Civil Code of the Republic of Lithuania. 3. The general meeting of shareholders of an investment company may pass resolutions irrespective of the voting rights carried by the shares held by the participating shareholders. 4. Heads of a management company or an investment company shall be:

1. a)the head of the administration;
2. b)the deputy head of the administration;
3. c)members of the board. 5. Heads of a management company or an investment company the management of whose assets has not been delegated to the management company must be persons of sufficiently good repute and possess sufficient experience to ensure a sound and transparent management of the company. 6. A management company or an investment company the management of whose assets has not been delegated to the management company must give advance notice to the Securities Commission of all future changes to the heads of the company along with submitting the information specified by the Securities Commission and needed to assess whether the new heads elected or planned to be elected comply with the requirements of sufficiently good repute and sufficient experience. The newly elected managers of a management company or an investment company the management of whose assets has not been delegated to the management company may assume office only upon approval of their candidatures by the Securities Commission. 7. The Securities Commission shall have the right not to approve the candidatures of newly elected heads where the elected heads are not of sufficiently good repute, do not possess sufficient experience, or where there are other objective grounds for believing that the planned changes to the heads of the company will pose a threat to the appropriate and transparent management of the company. Detailed requirements for candidate heads and the procedure for approving these candidates by the Securities Commission shall be established by the Securities Commission. 8. The Securities Commission shall take a decision on the suitability of candidatures of newly elected heads 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 the management company must: 1) act honestly in the interests of participants in collective investment undertaking and integrity of the market; 2) act with due care, skill, and caution; 3) have and employ the arrangements and procedures necessary for its activities; 4) seek to obtain from the client information about his financial position, investment experience and the objectives pursued by him in making use of the services provided by the company, also take into account whether or not the client is a professional investor; 5) disclose to the client sufficient information relating to and necessary for him; 6) try to avoid conflicts of interests and, when they cannot be avoided, ensure fair treatment of participants in a collective investment undertaking; 7) ensure that it has sound management procedures and a sound system for keeping accounting records and accounting system and that each transaction may be reconstructed according to the parties thereto, the content, time and venue thereof and that the assets are invested under the terms and conditions provided for in instruments of incorporation and legal acts; 8) exercise internal control, control the transactions in financial instruments concluded by its head of the administration, deputy thereof, members of the board and employees; 9) keep documents of the effected operations for at least 10 years from the date of effecting of the operations, unless other legal acts provide for a longer time period of keeping of the documents; 10) have such an organisational structure as to avoid a conflict of interest between the managing company or investment company and its clients, conflict of interest between its clients, conflict of interest between participants in a collective investment undertaking and its clients or conflict of interest between participants in a collective investment undertaking; 11) ensure that the persons taking the decisions relating to asset management have the qualification and experience specified by the Securities Commission and are of sufficiently good repute; 12) have in place a description of procedures for taking investment decisions specifying, inter alia, the structure of a body taking the investment decisions, and comply therewith; 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 the services provided for in subparagraph 1 or 2 of paragraph 1 of Article 4 may invest client's funds into the investment funds or investment companies managed by itself only upon subject to a client's prior consent. 3. Liabilities to investors of a management company entitled to provide a service provided for in subparagraph 1 of paragraph 1 of Article 4 shall be insured in accordance with the procedure laid down in the Law on Insurance of Deposits and Liabilities to Investors Article 8. Right of the Securities Commission to Establish a Procedure for Discharging the Duties of a Management Company or an Investment Company The Securities Commission shall establish: 1) a procedure for protecting confidential information; 2) a procedure for organising and effecting the internal control of management companies and the investment companies the management of whose assets has not been delegated to the management companies; 3) the contents of and a procedure for publishing periodical reports, other reports, prospectuses, communications to the public and Securities Commission; 4) contents of and a procedure for publishing reports on the liquidation of an investment company and division of a unit; 5) requirements for the amount of net assets and a management company's capital adequacy; 6) capital requirements for management companies and investment companies; 7) a procedure for measuring counterparty risk when verifying compliance with diversification requirements; 8) a procedure for granting the authorisations and issuing the licences specified in this Law; 9) a procedure for using derivative financial instruments of collective investment undertakings and procedure for assessing related risks; 10) a procedure for merging investment funds; 11) a procedure for distributing units and shares of collective investment undertakings. Article 9. Right of an Management Company or Investment Company to Delegate a Part of its Functions to another Company 1. In aiming at a more efficient management, a management company or an investment company the management of whose assets has not been delegated to the management company shall have the right to delegate a part of its management functions to a company authorised to provide appropriate services and must forthwith notify the Securities Commission thereof. The notification of the delegation of a part of the management functions must indicate the name of the company whereto it has been delegated (the agent) and the list of the functions delegated. 2. Performance of a part of management functions may be delegated only in the case when: 1) this will not prevent supervision of a management company or investment company, also when this will not harm investors' interests; 2) the Securities Commission has concluded an agreement on the exchange of information with an appropriate supervisory authority of a non-Member State in which a part of the functions is delegated to a licensed management company; 3) heads of a management company or investment company may at any time monitor activities of the agent; 4) a management company or an investment company may at any time, when this is in the interests of participants in a collective investment undertaking, give additional instructions to the agent or withdraw the mandate; 5) the agent possesses the qualification specified by the Securities Commission and may perform the indicated functions; 6) the prospectus of an investment fund or investment company indicates the functions which have been allowed to be delegated to another company. 3. A management company or the investment company provided for in paragraph 1 of this Article shall not have the right to delegate its management functions to third parties to the extent that it essentially surrenders all the functions. Delegation of the function of investment decision-making and/or execution to a depository safe-keeping the assets comprising the investment funds of that management company or assets of investment companies or to third parties whose interests may conflict with those of the management company, the investment company or participants therein shall be prohibited. 4. Delegation of a part of functions to third parties shall not release a management company or an investment company from liability. Article 10. Acquisition of the Qualifying Holding of a Management Company 1. A natural or legal person that proposes to acquire or increase, directly or indirectly, the qualifying holding of a management company already held by him, where in consequence of a proposed acquisition of shares the proportion of voting rights at the General meeting of shareholders or of the capital that the person holds would reach or exceed in the increasing order 20%, 33% or 50% or the company would become a subsidiary of that legal person, must obtain a prior consent of the Securities Commission. 2. The person referred to in paragraph 1 of this Article must give prior notice to the Securities Commission of a proposed acquisition of the qualifying holding and submit supporting documents as well as other information specified by the Securities Commission. The Securities Commission shall, not later than within 3 months from the receipt of the application, give notice to the person of its consent or refusal to grant consent for the acquisition of the qualifying holding. The Securities Commission shall have the right require submission of additional documents and information about the proposed acquisition or increase of the qualifying holding of a management company; in such a case, the time limit of 3 months shall be calculated from the submission of all required documents and information to the Securities Commission. 3. The Securities Commission shall not grant consent to acquire the qualifying holding where: 1) a natural person (in the case of a legal person – head of the administration, his deputy, members of the board and the controlling persons) is not of sufficiently good repute; 2) the natural person is an employee of the operator of a regulated market operating in the Republic of Lithuania, the Securities Commission or the depository safe-keeping the assets comprising the investment funds managed by the management company or assets of investment companies; 3) the person has not supplied information about its activities or financial position; 4) the legal person has not supplied information about its participants; 5) the person has not submitted the documents evidencing the legitimate origin of the funds allocated for payment of the shares; 6) the person’s financial position is not sound and stable; 7) the granting of the consent would result in such a close link which would constitute a ground for the refusal to issue the licence of the management company; 8) there is a ground for believing that owners of the qualifying holding will not ensure the sound or transparent management of the company. 4. A refusal to allow the acquisition of the qualifying holding must be reasoned in writing and may be appealed against to court. If the Securities Commission makes no objections to the acquisition of the qualifying holding, it shall have the right to lay down a reasonable time limit for fulfilment of a person’s intention to acquire or increase the qualifying holding of a management company. Under regular circumstances, such a time limit may not be shorter than one month. 5. A person shall also give notice to the Securities Commission before disposing of the shares held by it to the extent that the proportion of voting rights in the general meeting of shareholders or the proportion of the capital held by it reaches or falls below, in the decreasing order, the thresholds of 20%, 33% or 50% or that a management company ceases to be its subsidiary. 6. Where a company becomes aware of the acquisition or disposal of the qualifying holding which is above the thresholds set in this Article, it shall notify the Securities Commission thereof without delay. Annual information about the persons who own qualifying holdings and the amounts of such holdings shall be communicated to the Securities Commission in accordance with the procedure laid down by it. 7. The shares held by a person who has acquired the qualifying holding of a management company or has increased the qualifying holding exceeding the thresholds provided for in this Article without a prior consent of the Securities Commission shall be divested of the voting right at the general meeting of shareholders until the consent of the Securities Commission is obtained. 8. Where a person who proposes to acquire the qualifying holding of a management company is a management company, financial brokerage firm, credit institution, insurance company or the parent company or controlling person of any of these entities licensed in another Member State, and the management company would become the acquirer’s subsidiary or come under its control after acquisition of the qualifying holding, the Securities Commission must seek the opinion of the supervisory authority of the respective Member State on the issues provided for in paragraph 5 of Article 5 of this Law. Article 11. Duty to Obtain an Authorisation of the Securities Commission 1. A prior authorisation of the Securities Commission shall be required in order to: 1) approve, amend or supplement instruments of incorporation; 2) select or replace a depository or management company; 3) transfer the assets comprising an investment fund to another management company; 4) conclude or amend a 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) merge the investment funds managed by a management company. 2. The Securities Commission may refuse an authorisation only where this would contradict legal acts or would prejudice the interests of participants in a collective investment undertaking. 3. Where upon the receipt of an appropriate application, the Securities Commission fails to present a reasoned objection within 15 days, an authorisation shall be deemed to have been granted. Article 12. Audit of a Management Company, the Collective Investment Undertakings Managed by It or an Investment Company Audit of a management company, the collective investment undertakings managed by it or an investment company shall be subject to the requirements set forth in the Law on Audit, the Law on Financial Institutions, and paragraph 6 of Article 22 of this Law. Article 13. Right to Transfer the Assets Comprising an Investment Fund or Owned by an Investment Company 1. The assets comprising an investment fund or owned by an investment company may not be transferred to a management company which manages the assets, the head of the administration of such a company, his deputy, members of the board and supervisory board and employees of the company (including their spouses). A management company on account of a collective investment undertaking managed by it or an investment company shall also be prohibited from acquiring assets of the persons provided for in this paragraph. 2. The prohibitions provided for in paragraph 1 of this Article in respect of an investment company shall also apply to its head of the administration, his deputy, members of the board and supervisory board and employees (including their spouses). 3. The assets comprising an 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 of acquisition of non-paid transferable securities, money market instruments or other instruments specified in subparagraphs 5, 7 or 8 of paragraph 1 of Article 57. 4. The assets of an investment fund or an investment company may not be used to conclude short-sale transactions in transferrable securities, money market instruments or other investment instruments. 5. An investment company or a 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 shall not constitute a prohibition to borrow foreign currency for the purpose of acquisition of transferable securities or money market instruments, provided the lender is submitted at least an equivalent amount in another currency in order to secure repayment of the loan. 6. The prohibitions stipulated in this Article shall apply to special collective investment undertakings and their management companies to the extent as has been defined in Chapter VII of this Law. Article 14. Approval of the Agreement with a Management Company and a Depository 1. An agreement on the management of assets of an investment company and an agreement with a depository shall be subject to approval by the general meeting of shareholders of the investment company. The general meeting of shareholders may take such a decision by the majority of at least 2/3 of votes of those present at the meeting. The company’s articles of association may require a larger majority for the taking of such a decision. 2. The general meeting of shareholders may delegate the right to take a decision provided for in paragraph 1 of this Article to the supervisory board, but for a period not exceeding 3 years, provided the company's articles of association stipulate the maximum fee payable to the management company and the depository. The supervisory board shall have the right to take the decision by the majority of 2/3 of votes of all members of the supervisory board. Article 15. Sanctions Imposed against Management Companies, Investment Companies, Their Heads and Depositories The Securities Commission shall have the right to apply the following sanctions against management companies or investment companies: 1) to issue a warning regarding shortcomings and infringements of activities and set a deadline for their elimination; 2) to impose the penalties specified by this Law; 3) to revoke the licence; 4) to suspend the distribution or redemption or repurchase of units (shares); 5) to prohibit the conclusion of transactions for the acquisition of investment instruments on account of a collective investment undertaking for a period not exceeding 3 months; 6) to appoint a temporary representative of the Securities Commission for supervision of the activities; 7) to suspend the validity of the licence of the management company to provide one or several services. 2. The Securities Commission shall have the right to impose the sanctions provided for in the Code of Administrative Offences against heads of the administration, their deputies, members of the board or the employees of a management company or an investment company. 3. The Securities Commission shall have the right to impose against a depository the sanctions provided for in subparagraphs 1 and 2 of paragraph 1 of this Article. Article 16. Basis for the Imposition of Sanctions 1. The sanctions specified by this Law may be imposed where at lease one of the following infringements has been committed: 1) a management company, an investment company or the depository has supplied 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 on the basis whereof the licence has been issued; 4) laws or other legal acts of the Republic of Lithuania have been violated; 5) the management company or the investment company is incapable of discharging 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 content of an infringement for which it is applied, the impact of the infringement and the sanction on a company and security of the financial system. The issue of imposition of sanctions shall be considered following prior notification of a management company, an investment company or a depository and providing them with an opportunity to present explanations. A failure of a representative to attend the consideration of the issue or to present explanations shall not prevent adoption of a decision concerning the imposition of sanctions. 3. A decision on the imposition of sanctions may be taken where not more than two years have lapsed from the commitment of an infringement, and in the case of a continuing infringement – not more than two years have lapsed from the carrying out of last actions. 4. The supervisory authorities of the states in which a management company or an investment company with variable capital is distributing units or shares shall be notified of the imposition of sanctions against the management company or the investment company. Article 17. Temporary Representative for the Supervision of Activities 1. In urgent cases and possessing data about an infringement of legal acts, the Securities Commission shall have the right to appoint a temporary representative for the supervision of activities of a management company or an investment company for the purpose of protection of investors' assets against depreciation or any other loss. An employee of the Securities Commission may be appointed the temporary representative. 2. The head of the administration, his deputy, and members of the board of a management company or an investment company must obtain a consent of a temporary representative for the supervision of activities with regard to each decision relating to the activities of the company. Actions of the temporary representative may be subject to appeal in accordance with the procedure laid down in the Law on Administrative Proceedings. 3. A temporary representative shall be recalled in the following cases: 1) upon establishing that the company is capable of sound functioning; 2) when bankruptcy proceedings have been instituted against the company; 3) the licence of a management company, an investment company with variable capital or a closed-ended investment company has been revoked. Article 18. Revocation of the Licence 1. The Securities Commission shall have the right to revoke the licence of a management company or an investment company where: 1) such a sanction is imposed in accordance with the procedure laid down in this Law; 2) the holder of the licence has himself applied in writing for the revocation of the licence; 3) the holder of the licence fails, within 12 months from the issuance of the licence, to commence the use of the licence or does not perform activities for a period over 6 months; 4) the period of activities as provided for in the articles of association of an investment company has expired, and the holder of the licence fails to apply in writing for the revocation of the licence. Article 19. Peculiarities of the Bankruptcy Proceedings of a Management Company or an Investment Company 1. Bankruptcy proceedings of a management company or an investment company may be heard solely by court. 2. The Securities Commission shall have the right to file a petition with a court for the institution of bankruptcy proceedings against a management company or an investment company. 3. Upon the receipt from the Securities Commission of a petition for the institution of bankruptcy proceedings, a court must, on the same day, freeze the bank accounts and investment instruments of a management company or an investment company. 4. Not later than within 15 days of the receipt of a petition, a court shall pass a ruling on the institution of or refusal to institute bankruptcy proceedings. 5. The administrator of a management company or an investment company shall repay the funds owned by participants in the collective investment undertakings managed by the management company or shareholders of the investment company or delegate the management of the collective investment undertakings managed by the management company to a different management company. Article 20. Reorganisation and Transformation of a Management Company. Liquidation of an Investment Company 1. A management company may not be reorganised or transformed into a company not subject to requirements of this Law. 2. The sale and redemption of shares of an investment company shall be terminated as from the moment of taking of a decision on the liquidation of the investment company. 3. The assets of an investment company under liquidation must be sold in accordance with the procedure laid down by the Securities Commission, and settlement with shareholders shall be made in cash. 4. The liquidator of an investment company must supply to the Securities Commission information about the progress of liquidation in accordance with the procedure laid down by the Securities Commission. SECTION TWO INFORMATION WHICH MUST BE COMMUNICATED TO THE PUBLIC BY A MANAGEMENT COMPANY OR AN INVESTMENT COMPANY Article 21. Duty to Draw up Prospectuses and Periodical Reports 1. A management company (for each investment fund it manages) and an investment company must publish: 1) a full prospectus; 2) a simplified prospectus; 3) a report for each financial year; 4) a report covering the first six months of each financial year (hereafter referred to as a “half yearly report”). 2. The requirement specified in subparagraph 2 of paragraph 1 of this Article shall not apply to a management company managing a closed-ended investment fund or a closed-ended investment company taking advantage of the right as granted by this Law not to draw up a simplified prospectus. 3. A management company of a hedge collective investment undertaking or a closed-ended 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 solely professional investors, or a private capital closed-ended investment company whose shareholders, according to its articles of association, may include solely professional investors shall not under an obligation to publish the documents listed in paragraph 1 of this Article. Article 22. Contents of Prospectuses and Periodical Reports 1. A full and a simplified prospectus must supply the information sufficient for an investor to be able to make an informed judgement of the investment proposed to him and associated risk. A full prospectus must explicitly and comprehensibly indicate the nature of risk. 2. The structure and layout of a simplified prospectus must be easily comprehensible to an average investor. The simplified prospectus of an investment fund managed by a management licensed in another Member State or of an investment company with variable capital may, translated into the Lithuanian language, be used in the Republic of Lithuania as promotional material not requiring any additional information. 3. An annual report must include the financial statements and other information specified by the Securities Commission which will enable investors to make an informed judgement of activities of an collective investment undertaking and their results. Where interim dividends are paid, they must be indicated in a half-yearly report. 4. Instruments of incorporation shall form annexes of a full prospectus. The instruments of incorporation need not be annexed to the prospectus where participants in a collective investment undertaking are informed that, upon their request, the instruments will be delivered to them in personal or they will be notified of the place in the territory of the Republic of Lithuania where they may access them. 5. In the event of any changes in the information published in a full or simplified prospectus, the prospectuses must be amended not later than within 7 days from the occurrence of the changes. The amendments may be published in annexes indicating specific changes. Incorrect information shall be clearly deleted in the old prospectus, or a new prospectus shall be provided. 6. The data provided in annual financial statements must be audited. The auditor's report, including any qualifications, and the report on audit must be annexed to the annual report. The report on audit must indicate whether the value of net assets has been calculated correctly, whether the assets have been invested in compliance with instruments of incorporation, also list all infringements of this Law and other legal acts. The auditor of a management company, the collective investment undertakings managed by it or an investment company the management of whose assets has not be delegated to the management company must file with the Securities Commission a report on audit, and upon an individual request by the Securities Commission – the explanations concerning the performed audit of the management company or the collective investment undertakings. 7. The Securities Commission shall set forth different requirements for a full prospectus, a simplified prospectus, the contents and form of annual and half-yearly reports and the procedure for submitting them to the Securities Commission. Article 23. Procedure for Publishing Prospectuses and Periodical Reports 1. Annual and half-yearly reports must be published and submitted to the Securities Commission within the following time limits: 1) annual report – within 4 months from the end of the reporting financial year; 2) half-yearly report – within 2 months from the end of the reporting half-year period. 2. A copy of a simplified prospectus, where it is mandatory to draw it up, must be provided to subscribers of units or shares free of charge before the conclusion of a purchase agreement. Copies of a full prospectus, the most recent annual report and subsequent half-yearly report must be supplied to subscribers for units or shares free of charge on their request. 3. Subscribers of units or shares of a closed-ended collective investment undertaking in respect of which a simplified prospectus is not drawn up must be provided with a full prospectus free of charge prior to the conclusion of a contract. 4. A hedge collective investment undertaking, a private capital collective investment undertaking whose participants, in accordance with its instruments of incorporation, may include solely professional investors, or the management companies managing them shall have the right not to provide a simplified prospectus, a full prospectus or instruments of incorporation to subscribers of units or shares of such collective investment undertakings where such a possibility has been provided for in the instruments of incorporation of a collective investment undertaking. In this case, the subscribers of the units or shares of such collective investment undertakings must be submitted a summary of the instruments of incorporation of the contents specified by the Securities Commission. 5. Upon the request of participants in a collective investment undertaking, annual and half-yearly reports shall be supplied to the free of charge. 6. With the exception of the cases provided for in subparagraph 3 of Article 21 of this Law, annual and half-yearly reports must be available to the public at the places indicated in a full and simplified prospectuses. Article 24. Publication of the Price 1. A management company and an investment company must make public in accordance with the procedure laid down in the instruments of incorporation of a collective investment undertaking the price of units or shares every time it sells or redeems them. 2. The management company of a harmonised undertaking for collective investment or an investment company with variable capital must make public the prices of units or shares at least twice per month. With the consent of the Securities Commission, the frequency may be reduced to once per month provided that such derogation does not prejudice the interests of investors. 3. The prices of units or shares of special collective investment undertakings shall be published in compliance with requirements of the articles of this Law regulating the activities of the special collective investment undertaking of a respective type and sort. Article 25. Offering and Promotion 1. A public offer to purchase units or shares must indicate that prospectuses have been drawn up, also the places where they may be obtained or accessed by the public. Only the information contained in the prospectuses and periodical reports may be used for the purpose of promotion. 2. The performance of a collective investment undertaking as presented in the promotion material of the collective investment undertaking must be compared to the benchmark index of that collective investment undertaking. This requirement shall be waived in respect of the collective investment undertakings that are not under an obligation, according to this Law, to use the benchmark index. CHAPTER III DEPOSITORY Article 26. Duty to Transfer Assets to a Depository 1. Assets of a collective investment undertaking must be entrusted to a depository for safe-keeping. Only a bank which has the right to provide investment services in a Member State and having the registered office or a division in the Republic of Lithuania may be the depository. 2. The depository shall be have the right to delegate all or a part of its functions to other depositories, however, this shall not affect its liability. Article 27. Duties of a Depository 1. A depository must act for the benefit of participants in a collective investment undertaking and: 1) ensure that the sale, issue, redemption, and cancellation of units and shares is carried out in compliance with requirements of legal acts and instruments of incorporation of the collective investment undertaking; 2) ensure that the value of the units or shares is calculated in compliance with requirements of legal acts and instruments of incorporation of the collective investment undertaking; 3) carry out the instructions of a management company or an investment company, unless they contradict legal acts and instruments of incorporation of the collective investment undertaking; 4) ensure that consideration for transferred assets is credited to a fund's account or to an investment company within an established time limit; 5) ensure that the income of an investment fund or an investment company is used in compliance with requirements of legal acts and instruments of incorporation of the collective investment undertaking. 2. Prior to each valuation of an object of immovable property, a depository of an immovable property collective investment undertaking must verify whether the valuator (valuators) of immovable property meets the requirements of independence set forth for him and the selection criteria specified in the instruments of incorporation of the collective investment undertaking, also whether immovable property valuation will not infringe the requirements of paragraph 4 of Article 72 of this Law. 3. A depository must give a notice to the Securities Commission and the supervisory board or board of a management company or an investment company of all detected infringements of legal acts or instruments of incorporation of a collective investment undertaking. 4. Remuneration for a depository's services may not exceed the amount set in instruments of incorporation of a collective investment undertaking. 5. A depository shall be held liable for the damage caused to participants in a collective investment undertaking or a management company due to its failure to perform its duties or for improper performance thereof. Article 28. Delegation of Management Functions to a Depository Where the right of a management company to manage a collective investment undertaking expires and management functions are not delegated to another management company, they shall be temporarily taken over by the depository of the collective investment undertaking. The management company must give a notice to the depository of the expiry of the right to manage assets. In such a case, the depository shall have all the rights and duties of the management company, unless laws or instruments of incorporation provide otherwise. The depository must delegate management functions to another management company within 3 months from the taking over of the management functions. The collective investment undertaking that has not been transferred to another management company within 3 months shall be liquidated (divided). Article 29. Separation of a Management Company or an Investment Company from a Depository 1. A depository may not simultaneously engage in the activities of both a management company and an investment company, with the exception of the case established in Article 28 of this Law. 2. The head of the administration, his deputy, a member of the board or employee of a management company or an investment company may not be the head of the administration, his deputy, member of the board or employee of a depository safe-keeping the assets comprising an investment fund managed by that company or assets of the investment company, where his functions are directly linked to activities of the depository. 3. The head of the administration, his deputy, members of the board, members of the supervisory board or employees of the depository safe-keeping the assets comprising an investment fund or assets of an investment company, where their functions are directly linked to activities of the depository, may constitute not more than 1/4 of members of the supervisory board of the management company which manages the investment fund or the investment company. Article 30. Replacement of a Depository 1. A management company or an investment company may replace a depository only subject to approval of the Securities Commission. 2. Where a depository fails to comply with requirements of legal acts, perform its obligations or performs them improperly, the Securities Commission shall have the right, with a view to ensuring rights of participants in a collective investment undertaking, to instruct a management company or an investment company to terminate a contract concluded with the depository and replace the depository. CHAPTER IV SECTION ONE GENERAL PROVISIONS GOVERNING ACTIVITIES OF COLLECTIVE INVESTMENT UNDERTAKINGS Article 31. Forms of Activities, Types and Sorts of Collective Investment Undertakings 1. According to this Law, harmonised and special collective investment undertakings may be established in Lithuania in the form of activities of an investment company or an investment fund, unless this Article provides otherwise. Special collective investment undertakings shall be subdivided into types and sorts. 2. Harmonised collective investment undertakings may be formed only in the form of activities of an investment fund or an investment company with variable capital. Formation of harmonised collective investment undertakings of the closed-ended type shall be prohibited. 3. In accordance with this Law, special collective investment undertakings of the following sorts may be formed: 1) undertakings for collective investment into transferable securities; 2) immovable property collective investment undertakings; 3) private capital collective investment undertakings; 4) collective investment undertakings investing into other collective investment undertakings; 5) hedge collective investment undertakings. 4. Special collective investment undertakings may be of the open-ended (open-ended investment funds and investment companies with variable capital) or closed-ended type (closed-ended investment funds or closed-ended investment companies). Article 32. Investment Fund 1. The assets comprising an investment fund shall be held in common partial ownership by participants in the investment fund. The share of a participant in the assets held by the right of common partial ownership shall be determined on the basis of the number of units entered into his personal unit account. 2. A management company shall manage, use and dispose of the assets constituting a investment fund on a fiduciary basis. 3. It shall be prohibited to levy execution against the assets comprising an investment fund according to liabilities of a management company or participants in a fund. Creditors of a participant in the investment fund shall have the right to levy their claims in respect of the participant only against the units of the investment fund held by the participant. 4. The assets constituting every investment fund shall be entered into the accounts separately and shall be segregated from the assets of the management company. Article 33. Benchmark Index 1. Harmonised collective investment undertakings must use a benchmark index. This requirement shall be waived in respect of special collective investment undertakings. 2. The benchmark index of a collective investment undertaking must enable the public to properly assess the performance of the collective investment undertaking. The benchmark index of the collective investment undertaking must be selected with reference to the investment strategy of a specific collective investment undertaking. 3. The Securities Commission shall have the right to set forth requirements for the benchmark index. 4. When announcing the performance of a collective investment undertaking, a management company or an investment company whose management has not been delegated to the management company must compare it with the benchmark index in accordance with the procedure laid down by the Securities Commission. The benchmark index of the collective investment undertaking must also be indicated in the annual report of its management company or the investment company whose management has not been delegated to the management company. 5. A management company or an investment company whose management has not been delegated to a management company must approve the rules establishing criteria of and procedure for selecting and changing the benchmark index of a collective investment undertaking. SECTION TWO PROCEDURE FOR SELLING AND REDEMPTING THE UNITS OR SHARES OF COLLECTIVE INVESTMENT UNDERTAKINGS Article 34. Sale of Units or Shares 1. An investor shall acquire units or shares by concluding a simple written contract with a management company, an investment company or a distributor of the units or shares. 2. Units or shares may be issued only after payment funds have been credited to the account of a collective investment undertaking. The right of ownership of units or shares shall be acquired after an appropriate entry is made in a personal unit or share account. The entry in the personal unit or share account must be made not later than within one working day from the crediting of the payment funds to the account of the collective investment undertaking. Where units or shares are additionally allocated in the course of profit distribution, the right of ownership shall be acquired after the entry has been made in the personal unit or share account. 3. The units or shares of the collective investment undertakings formed under this Law may, with the exception of hedge collective investment undertakings, be distributed through the use of technical and organisational measures of the operator of a regulated market and/or settlement system in accordance with the procedure laid down by the Securities Commission. Article 35. Price of Units or Shares 1. The price of units or shares shall be specified by dividing the value of net assets by the number of all units or shares in circulation. 2. The price referred to in paragraph 1 of this Article may be increased by an amount corresponding to the deductions in relation to the sale of units or shares of a collective investment undertaking (where this is provided for in instruments of incorporation) only provided that the value of net assets has not been reduced by the amount of these deductions. The redemption price of the units or shares subject to redemption may be reduced by the amount of the deductions in relation to their redemption only provided that the value of net assets has not been reduced and the selling price has not been increased by this deduction amount. Article 36. Valuation of Net Assets Net assets valuation shall be carried out taking into account the market price of a collective investment undertaking's assets and based on the principles of net assets valuation laid down in legal acts of the Securities Commission as well as the rules for net assets valuation set forth in the instruments of incorporation. Article 37. Redemption of Units or Shares 1. A management company or an investment company must, upon the request of a participant in a collective investment undertaking, redeem his units or shares at the price valid on the day of filing the request. 2. Settlement for the redeemed units or shares of a harmonised collective investment undertaking must be effected within 7 days from the request for redemption. 3. The procedure for settling for the redeemed units or shares of special collective investment undertakings shall be laid down by other Articles of this Law governing the activities of special collective undertakings of an appropriate sort and type. 4. An application for the redemption of the units or shares owned by spouses by the right of joint common ownership may be submitted by one of the spouses producing an authorisation issued by another spouse that may be executed in a simple written form. Article 38. Suspension of Redemption of Units or Shares 1. The right to suspend redemption of units or shares shall be vested in a management company, an investment company and the Securities Commission. 2. Redemption may be suspended for a period not exceeding 3 months per year. 3. Redemption of units or shares may be suspended where: 1) this is necessary to safeguard interests of the public and participants against potential insolvency of a collective investment undertaking or fall in the redemption price in the event of an unfavourable situation on a market in investment instruments or fall in the value of the portfolio of investment instruments; 2) the available amount of funds is insufficient to pay for the units or shares subject to redemption, while the sale of the available investment instruments would result in a loss; 3) such a sanction shall be imposed by the Securities Commission in accordance with the procedure laid down by this Law. 4. The following shall be prohibited from the moment the decision is taken to suspend redemption of units or shares: 1) to accept applications for redemption; 2) to effect settlement for the units or shares whose redemption was requested prior to the taking of the decision on the redemption suspension. 5. A notice of suspension of redemption must be forthwith communicated to the persons who are intermediaries in the process of redemption, also to the Securities Commission, and in the case of distrubution of units or shares in foreign states – also to foreign supervisory authorities; a notice thereof must also be announced by the media. Article 39. Resumption of Redemption 1. Where a decision on the suspension of redemption has been made by the Securities Commission, the right to resume it shall be vested solely in the Securities Commission or a court which has annulled this decision. In other cases, this right shall also be vested in a management company or an investment company. 2. A notice of the decision to resume the redemption of units or shares must be communicated in accordance with the procedure applied when communicating the notice of suspension of redemption. Article 40. Peculiarities of Distribution of Shares of Investment Companies with Variable Capital 1. When selling shares of investment companies with variable capital, the provisions of the Law on Companies regulating subscription of and payment for shares of public limited liability companies shall not apply. Distribution of the shares of these companies may be commenced after a company obtains the licence of an investment company with variable capital and the authorisation of the Securities Commission to approve the articles of association of the investment company with variable capital and after a full and a simplified prospectuses are approved. 2. Shares of an investment company with variable capital may be distributed for an indefinite period. The amount of an issue of shares shall not be limited, with the exception of the case where the articles of association stipulate the largest amount that may be issued in shares. 3. An investment company with variable capital shall have no right to sell its shares by instalment or to defer payment for them. 4. Only fully paid-up shares shall be deemed issued and may be entered in a shareholder's personal transferable securities account. SECTION THREE UMBRELLA COLLECTIVE INVESTMENT UNDERTAKINGS Article 41. Instruments of Incorporation of an Umbrella Collective Investment Undertaking 1. The information indicated in subparagraphs 2, 3, 5 and 7 of paragraph 1 of Article 54 and subparagraphs 1 and 2 of paragraph 2 of Article 65 of this Law shall be provided in the articles of association of an umbrella investment company with variable capital in respect of each sub-fund constituting it. The following information shall be indicated in the articles of association respect of each sub-fund: 1) the name of the sub-fund; 2) the period for which the sub-fund has been formed; 3) the currency of the sub-fund; 4) the information that for the purpose of addressing at the general meeting of shareholders of an investment company with variable capital an issue related to the interests of participants in only one sub-fund, the voting right shall be vested only in the participants in that sub-fund. 2. The information indicated in subparagraphs 3, 4, 5, 6, 7, 9, 12, 14 and 15 of Article 46 and subparagraphs 1 and 2 of paragraph 2 of Article 65 of this Law shall be provided in the rules of an umbrella investment fund in respect of each sub-fund constituting it. The rules shall additionally provide the information specified in subparagraphs 1, 2 and 3 of paragraph 1 of this Article in respect of each sub-fund. 3. The instruments of incorporation of an umbrella collective investment undertaking must also indicate: 1) the currency in which financial statements of the collective investment undertaking will be drawn up; 2) the procedure for exchanging units or shares of one sub-fund into the units or shares of another sub-fund of the same collective investment undertaking; 3) the procedure for establishing new sub-funds. Article 42. Requirements Set Forth for Umbrella Collective Investment Undertakings and Their Management Companies 1. The management company of an umbrella collective investment undertaking or an investment company with variable capital must comply with the requirements set forth in this Law and other legal acts and applicable to collective investment undertakings of an appropriate sort and type and their management companies. 2. The provisions of this Law and other legal acts governing the activities of a collective investment undertaking, with the exception of provisions of Section One of Chapter II and Articles 59, 72 and 90 of this Law shall be applied individually to each sub-fund. 3. Assets of the sub-funds constituting an umbrella collective investment undertaking must be entrusted to a single depository for safe-keeping. 4. The assets constituting each sub-fund must be accounted for separately from the assets of other sub-funds constituting the same collective investment undertaking. 5. The assets constituting one sub-fund may not be used for discharging the liabilities to participants in another sub-fund constituting the same collective investment undertaking and to third parties. 6. An umbrella collective investment undertaking must have a common full prospectus. Simplified prospectuses may be drawn up for each sub-fund individually. 7. A management company or an investment company shall manage the list of owners of units or shares of a collective investment undertaking individually according to each sub-fund. Ownership certification documents shall indicate the name(
4. s)of a specific sub-fund(s). 8. A management company or an investment company with variable capital shall be prohibited from making any deductions from assets of a collective investment undertaking in respect of the transactions concluded between its sub-funds. 9. Merger of sub-funds of an umbrella collective investment undertaking shall be subject to the requirements set forth by this Law for the merger of investment funds. Article 43. Peculiarities of an Umbrella Investment Company with Variable Capital 1. One share of an umbrella investment company with variable capital shall, irrespective of the value thereof, entitle a shareholder to one vote at the general meeting of shareholders. 2. When addressing at the general meeting of shareholders of an umbrella investment company with variable capital an issue related to the interests of participants in only one sub-fund of the company, the voting right shall be vested only in the participants in that sub-fund. Article 44. Exchange of Units or Shares of a Sub-Fund A participant in a collective investment undertaking may exchange the units or shares of a sub-fund held by him into the units or shares of another sub-fund of the same collective investment undertaking, unless the instruments of incorporation of the collective investment undertaking provide otherwise. When exchanging units or shares of a sub-fund, it shall be prohibited to make any deductions relating to the distribution or redemption of units or shares of the collective investment undertaking, with the exception of the deductions directly relating to the cost of exchanging of the units or shares. CHAPTER V SECTION ONE INVESTMENT FUND Article 45. Formation of an Investment Fund 1. The rules of an investment fund shall be approved by a decision of a management company. The management company may start collecting the investors' funds intended to constitute the investment fund only after the Securities Commission approves the rules of the fund, a simplified prospectus if required and a full prospectus. 2. A decision of the board regarding the formation of an investment fund must indicate: 1) the name of the investment fund; 2) the name and registered office of a depository; 3) the initial amount allocated for the formation of the investment fund. Article 46. Rules of an Investment Fund The rules of an investment fund shall determine the relations between a management company and participants in the investment fund. The rules must indicate: 1) the name of the investment fund enabling identification of the sort of a special fund, and the information on the basis of which it shall be possible to determine whether the fund is a harmonised or a special collective investment undertaking; 2) the names and registered offices of the management company and a depository; 3) a strategy for investment of the assets constituting the investment fund, investment restrictions and specialisation in the geographical area or economic branch, the information that the fund has a benchmark index and the venues where the procedure for forming the benchmark index may be accessed; 4) rights and duties of participants; 5) rights and duties of the management company in the management of the investment fund, the transactions which the management company may enter into and carry out on the account and for the benefit of the investment fund; 6) the methodology of calculation of the remuneration payable to the management company, the depository and the distributor as well as the amount of the fee and the procedure for paying it; 7) a finite list and methods of calculation of other expenses covered with assets comprising the investment fund; 8) conditions of and procedure for replacing the management company and the depository; 9) conditions of and procedure for selling and redeeming units; 10) grounds and procedure for suspending the redemption of units; 11) the procedure for valuating assets, calculating and publishing the value of a unit; 12) the procedure for establishing the redemption and sale price; 13) the procedure for publishing information about the investment fund; 14) the frequency of distribution of the income of the investment fund, methods of and procedure for disbursing them; 15) grounds and the procedure for dividing the investment fund; 16) the procedure for amending the rules of the investment fund. Article 47. Rights of Participants of an Investment Fund 1. A participant of an investment fund shall have the following rights: 1) to receive a portion of income of the investment fund in accordance with the procedure laid down by this Law and the rules of the investment fund; 3) to receive the remaining portion of the investment fund which is being divided; 4) to receive information about the fund as specified by legal acts; 5) other rights established by this Law and the Rules of the fund. 2. A participant in an investment fund of the open-ended type shall have the right to require the management company at any time to redeem the units of the investment fund held by him. Article 48. Remuneration and Other Expenses Covered by the Funds Comprising an Investment Fund 1. Remuneration to a management company for the management of an investment fund, to a depository for the depository's services and other expenses relating to the investment fund shall be paid using the funds comprising the investment fund. 2. Only the expenses relating to the management of an investment fund and provided for in the rules of the investment fund may be paid using the funds comprising the investment fund. The aggregate amount of these expenses may not exceed the maximum level of the fund's expenses provided for in the rules of the investment fund. All other expenses which are not provided for in the rules of the investment fund or which exceed the established level must be covered by the management company. Article 49. Distribution of Profit of an Investment Fund 1. Participants in an investment fund shall be paid a portion of investment income (payments in cash) only where this is provided for in the rules of the investment fund. The rules of the investment fund must also provide for the periodicity of such payments, the share of investment income (profit) that will be allocated for those payments, and the payment procedure. 2. The profit of an investment fund shall be distributed through the depository of this investment fund. Article 50. Expiry of the Right of a Management Company to Manage an Investment Fund The right of a management company to manage an investment fund shall expire: 1) upon transfer of management to another management company; 2) upon revocation of the management company's licence; 3) upon commencement of the compulsory procedure of liquidation of the management company; 4) upon institution of bankruptcy proceedings against the management company; 5) in other cases specified by legal acts or the rules of the investment fund. Article 51. Division of an Investment Fund 1. An investment fund must be divided in the cases specified by its rules. 2. Upon taking of a decision regarding division, redemption and distribution of units shall be terminated. 3. Where it emerges in the course of division that the assets constituting an investment fund are not sufficient to discharge the obligations assumed on its account, the outstanding liabilities must be discharged by a management company. 4. After creditors claims are met, the funds obtained from the sale of the assets constituting an investment fund must be distributed among participants in the investment fund in proportion to their holdings in the fund. 5. Where a court is hearing the claims regarding the liabilities which must be discharged from the assets of the investment fund, the investment fund may be divided only after the court’s decisions in such cases become effective. Article 52. Merger of Investment Funds 1. A management company may effect merger of the investment funds managed by it (merger by the formation of a new entity or merger by acquisition) only subject to obtaining a prior authorisation of the Securities Commission. 2. It shall be prohibited to merge: 1) a harmonised and a special fund where the merger would result in the operation of the special fund alone; 2) special investment funds of different types; 3) special investment funds of different sorts; 4) umbrella funds; 5) the funds whose rules provide for different amounts of deductions and other expenses covered from the assets constituting an investment fund. 3. The Securities Commission shall refuse to authorise a merger of investment funds where: 1) the merger would be in contradiction to provisions of paragraph 2 of this Article; 2) there is a ground for believing that the merger will infringe the interests of participants in at least one of the funds being merged; 3) the pooling would be effected in violation of the requirements of other legal acts. 4. A management company must, not later than within one month from the receipt of an authorisation by the Securities Commission, give a proper notice to participants in funds of the merger of the funds and of the way thereof as indicated in paragraph 1 of this Article. The proper notification of the participants shall mean publication of the information listed in the first sentence of this paragraph in the daily newspaper(
5. s)indicated in the rules of the fund being merged and giving a written notice to each participant in the investment funds being merged. The notification must indicate: 1) the names of the investment funds being merged and the investment fund to operate following the merger; 2) contact data of the management company; 3) the period upon the expiry of which the issue or redemption of units of the investment fund(
6. s)which will discontinue operation following the merger shall be terminated, and the merger of investment funds will be effected. This period may not be shorter than 2 months from the last proper notification of participants as provided for in the second sentence of paragraph 4 of this Article; 4) consequences of the merger of the investment funds in relation to participants in the funds; 5) the right of participants in the investment fund(
7. s)which will discontinue operation following the merger to require, within the period laid down by the management company on the basis of subparagraph 3 of paragraph 4 of this Article, redemption of the units of the investment funds held by them without charging the redemption fee; 6) the rules of the investment fund which will operate following the merger or the venue where they may be accessed. 5. The units held by participants in the funds being merged at the time of the merger shall be converted free of charge into units of the investment fund which will operate following the merger. 6. Participants in the investment fund(
8. s)the activity whereof will be terminated following a merger of funds who have not exercised their right to require redemption of the units held by them within the period laid down on the basis of subparagraph 3 of paragraph 4 of this Article shall become participants in the investment fund which will operate following the merger. 7. A management company must immediately, but not later than within 5 working days, notify the Securities Commission in writing of the effected merger of investment funds and make an appropriate announcement in a daily newspaper indicated in the rules of the fund which will operate following the merger. 8. The investment portfolio of the investment fund which will operate following the merger shall be subject to the provisions on a temporary derogation from the investment rules as stipulated in this Law. The term for the temporary derogation from the investment rules shall start running from the date of effecting of the merger of the investment funds. The date of effecting of the merger of the investment funds shall be the date of making the latest entries in personal unit accounts upon conversion of units of the investment fund(
9. s)which will discontinue operation following the merger into the units of the investment fund which will operate following the merger. 9. The Securities Commission shall have the right to lay down a detailed procedure for merging investment funds and notifying participants in the investment funds being merged. Article 53. Modification of the Investment Strategy of a Collective Investment Undertaking 1. The investment strategy of a harmonised collective investment undertaking may not be modified to the extent that the collective investment undertaking turns into a special collective investment undertaking. The investment strategy of a harmonised collective investment undertaking and a special collective investment undertaking may not be modified to the extent that they turns into a collective investment undertaking not subject to this Law. 2. In the event of a material modification of the strategy of a collective investment undertaking or where modification of the strategy results in the change of the type or sort of the collective investment undertaking, participants must be given a prior notice thereof in accordance with the procedure laid down in the instruments of incorporation or prospectuses of the undertaking. 3. In the cases provided for in paragraph 2 of this Article, a management company must create a possibility for participants of a collective investment undertaking to require, within a sufficient time limit which may not be shorter than 2 months from the proper notification of the participants of the intended modification of the investment strategy of the collective investment undertaking, redemption of the units or shares of the fund held by them without any additional deductions. The participants must be informed of this right by a notification referred to in paragraph 2 of this Article. SECTION TWO INVESTMENT COMPANY WITH VARIABLE CAPITAL Article 54. Articles of Association of an Investment Company with Variable Capital 1. In addition to the requirements set forth for a company's articles of association by the Law on Companies, the articles of association of an investment company with variable capital must indicate: 1) the name of the company enabling identification of the sort of a special investment company with variable capital, and the information on the basis of which it shall be possible to determine whether this company is a harmonised or a special collective investment undertaking; 2) the procedure for selling, redeeming and settling for shares; 3) an investment strategy, the information that the company has a benchmark index and the venues where the procedure for forming the benchmark index may be accessed; 4) grounds and procedure for suspending share redemption; 5) the procedure for distributing income (including dividends) among shareholders (periodicity of payments, the share of profit allocated for the dividends); 6) the rules for the valuation of net assets and share pricing; 7) the structure of expenditure and the procedure for covering thereof, the amount of remuneration to a depository, also the company's highest possible amount of the expenses covered from assets of the company; 8) conditions of and procedure for replacing the management company and the depository. 2. The amount of the authorised capital and the number of shares need not be indicated in the articles of association. They may indicate the maximum amount for which shares may be issued. The par value of shares shall be indicated only where they have a par value. 3. The procedure for electing and removing from office the head of the administration and management bodies of a company shall be indicated only where the management of the company’s assets is not delegated to a management company. 4. The articles of association of an investment company with variable capital and amendments of and supplements to them shall be registered in the Legal Entities’ Register only after they are approved by the Securities Commission. Article 55. Redeemable Shares of an Investment Company with Variable Capital 1. All shares of an investment company with variable capital may be only ordinary registered shares. 2. An investment company with variable capital shall be prohibited from issuing preference shares, bonds or non-redeemable shares. 3. An investment company with variable capital shall be prohibited from holding its own shares. Article 56. Agreement on the Management of Assets 1. An agreement on the management of assets concluded between a management company and an investment company with variable capital must provide for: 1) objectives and forms of investment activities; 2) methodology of calculation of remuneration for the management company and the procedure for paying it; 3) functions of the board which the management company undertakes to perform; 4) powers of the management company in its relations with the depository and other institutions; 5) the information which the management company will furnish to the investment company with variable capital; 6) the composition and market value of the investment portfolio whose management is delegated; 7) liability for a failure to perform obligations; 8) conditions of and procedure for terminating the agreement. 2. A copy of an agreement on the management of assets shall be filed with the Securities Commission and the depository. CHAPTER VI INVESTMENT RULES OF HARMONISED COLLECTIVE INVESTMENT UNDERTAKINGS Article 57. Objects of Investment 1. The assets of a harmonised collective investment undertaking may be comprised only of: 1) the transferable securities and money market instruments admitted to trading on a market that is considered regulated and operating in the Republic of Lithuania or another Member State according to paragraph 30 of Article 3 of the Law on Markets in Financial Instruments, and/or 2) the transferable securities and money market instruments admitted to trading in another Member State on a market operating according to the established rules, recognised, supervised and accessible to the public, provided this market is indicated in the instruments of incorporation, and/or 3) the transferable securities and money market instruments admitted to trading in another state (with the exception of the Member States) on a market operating according to the established rules, recognised, supervised and accessible to the public, and/or 4) newly issued transferable securities where the conditions of issue provide for a commitment to admit these securities to trading on a regulated market and where the securities will be admitted to trading not later than within one year from the date of issue (where such a market is situated in the state indicated in subparagraph 3 of this paragraph, it must be indicated in the instruments of incorporation), and/or 5) units and shares of the collective investment undertakings indicated in paragraph 1 of Article 61 of this Law; 6) fixed-term deposits with maturity not exceeding 12 months which may be withdrawn on demand from a credit institution whose registered office is in a Member State or another state in which prudential supervision is not less stringent than in the European Union, and/or 7) the derivative financial instruments referred to in paragraph 1 of Article 62 of this Law, and/or 8) the money market instruments indicated in paragraph 2 of this Article. 2. Investment in the money market instruments which are not admitted to trading on a regulated market may be allowed only provided the issue or issuing body of such instruments is itself regulated for the purpose of protecting investors and their savings, and these instruments: 1) are issued or guaranteed by the government, regional or local authority or central bank of a Member State, the European Central Bank, the European Union or the European Investment Bank, the government of a non-Member State or one of the members making up a federal state or an international organisation to which at least one Member States belongs, or 2) are issued by an undertaking whose securities are admitted to trading on the regulated markets referred to in subparagraphs 1-3 of paragraph 1 of this Article, or 3) are issued or guaranteed by an undertaking subject to prudential supervision in accordance with the requirements set forth by the European Union law or the requirements which are not less stringent than in the European Union, or 4) are issued by a company meeting the criteria approved by the Securities Commission, whose capital and reserves amount to at least EUR 10 million and which draws up consolidated accounts and performs the function of financing of the group of companies, where the transferable securities of at least one company belonging to the group are admitted to trading on a regulated market, or which is used to issue the securities financed by bank loans, and the investment into such money market instruments are protected at least to the extent referred to in subparagraphs 1-3 of paragraph 2 of this Article. 3. An investment company with variable capital may acquire movable and immovable property only to the extent such property is essential for its direct business. 4. No more than 10% of net assets may be invested in transferable securities and money market instruments not referred to in paragraph 1 of this Article. 5. Assets of a collective investment undertaking may not be invested in precious metals or the securities entitling to them, but may be invested in money. 6. The Securities Commission shall be entitled to specify the requirements set forth for the investment objects of harmonised collective investment undertakings. Article 58. Investment Portfolio Diversification 1. No more than 5% of the net assets comprising the assets of a harmonised collective investment undertaking may be invested in transferable securities or money market instruments of a single issuing body, with the exception of the cases specified in paragraphs 2, 5 and 6 of this Article. 2. It shall be allowed to invest in the transferable securities or money market instruments of a single issuing body more than 5%, but not more than 10% of net assets, provided the total amount of such investments does not exceed 40% of the value of the net assets (this restriction shall not apply to deposits and derivative financial instruments traded on a non-regulated market, provided their issuing body is subject to supervision by the supervisory authority). 3. The investments made in deposits with a single credit institution may not exceed 20% of net assets comprising the assets of a collective investment undertaking. 4. The aggregate amount of investments in transferable securities or money market instruments of a single issuing body, deposits and liabilities arising from derivative contracts undertaken with the same person may not exceed 20 % of the value of net assets of a collective investment undertaking. 5. Investments in the transferable securities or money market instruments of a single issuing body issued or guaranteed by a Member State or local authority thereof, other state or international organisation of which at least one Member State is a member may not exceed the aggregate amount of 35% of the value of net assets of a collective investment undertaking. The Securities Commission may allow investment of a larger share of net assets in the transferable securities or money market instruments referred to in this paragraph where investors’ interests are adequately protected, investments are made in transferable securities or money market instruments of at least 6 issues, and investment in transferable securities or money market instruments of a single issue does not exceed 30% of net assets. 6. Investments in the bonds issued by a credit institution which has its registered office in a Member State and is subject to special public supervision under law by that state for the purposes of protection of interests of bond-holders, while the amount derived from the issue of these bonds is invested in the assets which, during the whole period of validity of these bonds, are sufficient to cover claims of the bond-holders and which, in the event of insolvency of the issuing body, would be used on a priority basis to meet claims of the bond-holders for reimbursement of the principal and payment of the accrued interest, may not exceed 25% of net assets. When more than 5%, but not more than 25% of the net assets are invested in the bonds issued by a single issuing body, the aggregate amount of these investments may not exceed 80% of the net assets. 7. The transferable securities and money market instruments provided for in paragraphs 5 and 6 of this Article shall not be taken into account when calculating the amount of investment subject to the limit of 40 % according to paragraph 2 of this Article. The limits specified in paragraphs 1, 2, 3, 4, 5 and 6 of this Article may not be combined, thus the aggregate amount of investment in the transferable securities and money market instruments of a single issuing body, deposits and the liabilities arising from derivative contracts with this person may not exceed 35% of the net assets comprising the assets of a collective investment undertaking. 8. Investment in the transferable securities and money market instruments issued by the companies belonging to a group subject to the requirement of drawing up of consolidated accounts may not exceed 20% of net assets. Article 59. Prohibition from Acquiring Significant Influence over an Issuing Body 1. The shares held by a management company or an investment company with variable capital in an issuing body together with the shares in that issuing body held by the harmonised collective investment undertakings managed by the management companies may not carry over 1/10 of all voting rights at the general meeting of shareholders of the issuing body. 2. A collective investment undertaking may acquire no more than: 1) 10% of all non-voting shares of an issuing body; 2) 10% of all bonds and non-equity securities of other forms of an issuing body; 3) 25% of units or shares of another collective investment undertaking; 4) 10% of the money market instruments of a single issuing body. 3. The prohibition specified in subparagraphs 2, 3 and 4 of paragraph 2 of this Article may be disregarded at the time of acquisition where the aggregate value of those transferable securities or money market instruments cannot be calculated. 4. The limits stipulated in subparagraphs 2 and 4 of paragraph 2 of this Article shall not apply to the transferable securities or money market instruments issued and guaranteed by a state or local authorities. Article 60. Peculiarities of an Index Investment Fund or an Index Investment Company with Variable Capital 1. An index fund or an index investment company with variable capital shall be a fund or a company whose instruments of incorporation provide for a sole aim, namely, to replicate the composition of the index of shares, bonds or non-equity securities of other forms recognised by the Securities Commission by directly or indirectly investing in the investment instruments forming the index. The Securities Commission shall have the right to recognise the indices which meet all of the following conditions: 1) the composition of the securities portfolio replicating the index is sufficiently diversified; 2) the index represents an adequate benchmark of the market to which it refers; 3) the index and its calculation procedure are published in an appropriate manner and the index composer is independent of the undertaking replicating the index. 2. Investment in shares, bonds or non-equity securities of other forms of a single issuing body may not exceed 20% of net assets of an index fund or an investment company with variable capital may be. With the consent of the Securities Commission, if this is necessary due to exceptional conditions on a regulated market where a single issuing body is dominant, investment in its shares, bonds or non-equity securities of other forms may account for up to 35% of net assets. In this case, a simplified prospectus of a collective investment undertaking must contain the information justifying such exceptional conditions. Article 61. Investment in Other Collective Investment Undertakings 1. Investment in units and shares of collective investment undertakings shall be allowed only provided they fulfil the following conditions: 1) the undertakings are licensed in the Republic of Lithuania or a state where they are subject to supervision not less stringent than that established in the European Union, and the Securities Commission co-operates with an appropriate foreign supervisory authority; 2) the level of protection for rights of participants in the undertakings, including regulation of segregation, borrowing, lending and gratuitous transfer of assets, is not less stringent than that laid down under this Law; 3) the undertakings publish half-yearly and annual reports about their activities to enable assessment of their assets and liabilities, profit and activities over the reporting period; 4) not more than 10% of their net assets may be invested in units or shares of other collective investment undertakings. 2. No more than 10% of net assets of a collective investment undertaking may be invested in each of the undertakings referred to in paragraph 1 of this Article. The aggregate amount invested special collective investment undertakings and the collective investment undertakings that are not regulated under this Law may not exceed 30% of the net assets. 3. A close link shall be deemed to exist between collective investment undertakings if they are managed by the same management company or such management companies in which more than a half of members of management bodies are the same persons or which are controlled by the same person or one of which holds more than 10% of votes at the general meeting of shareholders of the other management company. Units or shares of the collective investment undertakings which are linked by close links may be acquired only for the value of net assets. Article 62. Investment in Derivative Financial Instruments 1. It shall be allowed to invest solely in the derivative financial instruments (including exclusively cash-settled instruments) which meet the following conditions: 1) are admitted to trading on the markets referred to in subparagraphs 1, 2 and 3 of paragraph 1 of Article 57 of this Law or are traded outside the abovementioned markets; 2) are linked to the investment instruments referred to in paragraph 1 of Article 57 of this Law, financial indices, interest rates, currencies or currency exchange rates in which a collective investment undertaking has the right to invest as indicated in the instruments of incorporation; 3) the counterparty to the transactions concluded outside the markets referred to in subparagraphs 1, 2 and 3 of paragraph 1 of Article 57 of this Law conforms to the criteria laid down by the Securities Commission and is subject to supervision by the supervisory authority; 4) the instruments traded outside the markets referred to in subparagraphs 1, 2 and 3 of paragraph 1 of Article 57 of this Law are subject to verification and reliable valuation on a daily basis and can be sold or otherwise disposed of for a consideration at any time at their fair value. 2. A management company or an investment company with variable capital must: 1) manage risk in a manner which enables it to monitor and measure at any time the risk of the positions and their contribution to the overall risk profile of the investment instrument portfolio; 2) accurately and independently assess the risk of non-standardised derivative financial instruments; 3) communicate to the Securities Commission, in accordance with the procedure laid down by it, the types of derivative financial instruments, the underlying risks, the quantitative limits and the methods chosen to assess the risks associated with transactions in derivative financial instruments and assumed by each collective investment undertaking. 3. The Securities Commission shall lay down a procedure following which a management company or an investment company with variable capital shall be entitled to use the investment and other instruments related to transferable securities or money market instruments with a view to ensuring an efficient management of investment instruments. Under no circumstances shall the use of such techniques or investment instruments mean authorisation to diverge from the investment objectives as laid down in the instruments of incorporation. 4. A collective investment undertaking shall ensure that its global exposure relating to derivative financial instruments does not exceed the value of its net assets. The exposure must be calculated taking into account the current value of a derivative financial instrument, the counterparty risk, future market movements and the time available to liquidate the positions and the circumstance that the derivative financial instrument is incorporated into a transferable security or money market instrument. Investment in derivative financial instruments may not exceed 35% of the value of net assets of a collective investment undertaking, provided that the limits laid down in Article 58 of this Law are not exceeded. When calculating compliance with the limits laid down in Article 58 of this Law, investment in index-linked financial derivative instruments shall be computed separately. 5. The commitment risk in the transactions in derivative financial instruments concluded outside the markets referred to in subparagraphs 1, 2 and 3 of paragraph 1 of Article 57 of this Law may not exceed 5% of the value of net assets of a collective investment undertaking, and where the counterparty is a credit institution referred to in paragraph 6 of Article 58 the commitment risk may not exceed 10% of the value of the net assets. Article 63. Informing about the Investment Policy 1. The prospectuses and any other promotional literature of a collective investment undertaking must include a prominent statement of the investment policy where: 1) a considerable portion of the net assets has been invested in any category of assets other than transferable securities or money market instruments or where the investment policy is index-based; 2) the value of net assets is likely to have a high volatility due to the portfolio composition or the investment policy. 2. Upon the request of an investor, a management company or an investment company with variable capital must also provide supplementary information relating to the quantitative limits that apply in the risk management of a collective investment undertaking, the methods chosen to this end and to the most recent evolution of the risk related to the main instruments. Article 64. Temporary Derogation from Investment Rules 1. A collective investment undertaking or its management company may derogate from the investment limits laid down in this Chapter when it exercises the pre-emptive rights attaching to the transferable securities or money market instruments held by it. In such cases and also when provisions of investment rules are violated for the reasons beyond the control of a management company or an investment company with variable capital, the derogation must be eliminated without delay, but in any case not later than within 6 months. 2. The investment portfolio of a newly established collective investment undertaking may derogate from the requirements laid down in Articles 58, 60 and 61 of this Law for 6 months after the approval by the Securities Commission of the incorporation documents and prospectuses. 3. A management company or an investment company with variable capital the management of whose assets has not been delegated to the management company and which has infringed the requirements established in the present Chapter must immediately notify the Securities Commission of the infringement in writing by specifying the reasons for the infringement, the measures intended to rectify the situation and the anticipated time limit for elimination of the infringement. CHAPTER VII SECTION ONE SPECIAL COLLECTIVE INVESTMENT UNDERTAKINGS Article 65. Provisions Applicable to Special Collective Investment Undertakings and Their Instruments of Incorporation 1. Special collective investment undertakings and their management companies shall be subject to provisions of this Law, unless this Chapter specifies otherwise. 2. In addition to the information provided for in Article 46 of this Law, the rules of special collective investment undertakings must indicate: 1) the risks relating to investment into a special investment fund, a description of such risks indicating that investment in the special investment fund is related to a risk rating greater than medium and, in the case of immovable property and a private capital investment fund, a long-term risk; 2) the name of the collective investment undertaking into whose units or shares it is intended to invest through the exercise of the right specified in paragraph 7 of Article 85 of this Law, the investment policy and the amounts of the entire costs related to investment into this undertaking; 3) criteria for selection of a candidate(
10. s)to act as an independent immovable property valuator(
11. s)of an immovable property collective investment undertaking (such as professional experience or specialisation of an independent immovable property valuator, etc.), and the principles for replacement of the candidate(
12. s)to act as an independent property valuator(s); 3. In addition to the information specified in paragraph 1 of Article 54 of this Law, the articles of association of special investment companies must provide the information stipulated in paragraph 2 of this Article. Article 66. General Investment Rules for Special Collective Investment Undertakings 1. Upon the expiry of a period of six months from the approval of the instruments of incorporation and prospectuses of a newly established special collective investment undertaking by the Securities Commission, investment of a management company in the collective investment undertaking managed thereby may not exceed 30% of the value of net assets of the collective investment undertaking. 2. A management company, on account of an immovable property collective investment undertaking managed thereby, or an immovable property investment company the management of whose assets has not been delegated to the management company may acquire the investment objects indicated in subparagraphs 1, 2, 3 and 5 of paragraph 1 of Article 74 of this Law owned by the depository of the collective investment undertaking or the company holding over 5% of the voting shares of the management company or the investment company. 3. A management company, on account of a private capital collective investment undertaking managed thereby, or a private capital investment company the management of whose assets has not been delegated to the management company may acquire the investment objects indicated in subparagraphs 1 and 2 of Article 79 of this Law owned by the depository of the collective investment undertaking or the company holding over 5% of the voting shares of the management company or the investment company. 4. Having exercised the right provided for in paragraphs 2 and 3 of this Article, a management company or an investment company the management of whose assets has not been delegated to the management company must, not later than within five working days from the conclusion of the acquisition transaction, give a notice to the Securities Commission thereof. In addition to the notification, the Securities Commission must be provided with: 1) a resolution of the board of the management company or the investment company the management of whose assets has not been delegated to the management company specifying the acquisition price of an appropriate investment object; 2) motives of the acquisition; 3) in the case of acquisition of the investment objects listed in subparagraphs 1, 2, 3 and 5 of paragraph 1 of Article 74 of this Law – findings of immovable property valuators. 5. When concluding a transaction concerning the short-sale of the investment instruments using the assets comprising a collective investment undertaking, the management company of a special collective investment undertaking or an investment company the management of whose assets has not been delegated to the management company must ensure that the investment instruments that represent the object of such a transaction are acquired before the conclusion of the transaction. Article 67. Acquisition and Redemption of Units or Shares of Special Collective Investment Undertakings 1. Units or shares of special collective investment undertakings shall be acquired in accordance with the procedure laid down in Article 34 and 35 of this Law and the instruments of incorporation. 2. Units or shares of special collective investment undertakings shall be redeemed and the settlement in respect thereof with investors shall be effected in accordance with the procedure and within the time limits laid down in the instruments of incorporation and prospectuses. The settlement for the redeemed units or shares of a special collective investment undertaking must be effected not later than within 30 calendar days from the request to redeem them. Where the instruments of incorporation of the special collective investment undertaking provide for a different date of the execution of applications to redeem the units or shares, the time limit of 30 calendar days shall commence from the date specified in the instruments of incorporation. The applications of the investors to redeem the units or shares of special collective investment undertakings of the open-ended type must be executed at least once in three months. 3. The management company of an immovable property, private capital or a hedge collective investment undertaking, or an investment company of immovable property, private capital or hedge collective investment the management of whose assets has not been delegated to the management company shall have the right to postpone the term of settlement for the units or shares being redeemed as laid down in paragraph 2 of this Article where the total value of the units or shares being redeemed exceeds the value established in the instruments of incorporation or prospectuses of the undertaking, which may not be less than 10% of the value of net assets of the undertaking, or, in exceptional cases, where there are no sufficient funds to settle for the units or shares being redeemed and the sale of the investment objects held thereby would be loss-making. The settlement time limit can be postponed only provided such right of the management company or the investment company is stipulated in the instruments of incorporation or prospectuses of the undertaking. 4. The time limit laid down in paragraph 3 of this Article may not be longer than six months. Article 68. Publication of the Price of Units or Shares of Special Collective Investment Undertakings 1. The management company of special collective investment undertakings or an investment company the management of whose assets has not been delegated to the management company must, in accordance with the procedure laid down in the instruments of incorporation, publish the price of units or shares each time the units or shares are sold or redeemed. 2. The values of the units or shares of immovable property or private capital collective investment undertakings of the open-ended type must be published at least once in three months and those of a collective investment undertaking of the open-ended type investing in other collective investment undertakings – at least twice a month. Article 69. Contents of the Prospectus of Special Collective Investment Undertakings 1. In addition to the information specified in this Law, the full and simplified prospectuses of special collective investment undertakings and the summary instruments of incorporation of a hedge collective investment undertaking must include a clear specification of the risks related to investment in such collective investment undertakings and an indication that investment in a special collective investment undertaking is related to a risk rating greater than medium, and in the case of investment in immovable property or private capital collective investment undertakings – a long-term risk. Article 70. Temporary Suspension of Distribution of Units or Shares of Special Collective Investment Undertakings 1. The right to temporarily suspend the distribution of units or shares of a special collective investment undertaking shall be vested with a management company or an investment company the management of whose assets has not been delegated to the management company. 2. The distribution of units or shares may be temporarily suspended only provided the right is provided for in advance in the instruments of incorporation of a special collective investment undertaking when the net assets of the special collective investment undertaking reach the maximum threshold specified in its instruments of incorporation. 3. A management company or an investment company the management of whose assets has not been delegated to the management company must notify the Securities C