REPUBLIC OF LITHUANIA
LAW
ON
INVESTMENT COMPANIES
Chapter 1
General Provisions
Article 1. Objectives of the Law
1. This Law regulates the specific aspects of investment
company establishment, reorganisation and liquidation, management
and operation, state supervision of investment company
activities, the rights and duties of shareholders and measures
for the protection of rights. This Law shall also determine the
procedure for reorganising into investment companies the
investment stock companies established prior to the date of
coming into the effect of this Law and operating for the purpose
of state property privatisation under the Law of the Republic of
Lithuania on the Initial Privatisation of State Property.
2. Provisions of the Company Law of the Republic of
Lithuania shall apply to investment companies unless this Law
provides otherwise.
Article 2. Definitions
As used in the Law:
depository means a bank, subsidiary of a bank or a brokerage
company which stores the monetary funds and securities of an
investment company and services operations in securities and in
cash in accordance with the procedure established by Chapter 4 of
this Law;
controlled enterprise means an enterprise in which the
investment company holds shares representing more than 30% of the
total number of votes;
investment company means a company the type of activities or
property composition whereof meets the criteria set by Article 3
of this Law. Investment companies may operate as investment
funds, closed-end funds or investment holding companies;
investment stock company means a company established for the
purpose of state property privatisation under the Law of the
Republic of Lithuania on Initial Privatisation of State Property
in compliance with the procedure established by the Government of
the Republic of Lithuania;
issuer means a natural or legal person who issues securities
on its own behalf;
investment portfolio means a collection of investment
certificates held by an investment company;
diversified investment portfolio means investment portfolio
which meets all the following requirements:
1) not more than 5% of the investment company's own (net)
assets have been invested in the securities issued by one issuer,
except in securities issued or guaranteed by the government
(local government) in which up to 35% of own (net) assets may be
invested;
2) no more than 10% of one issuer's shares have been
purchased; and
3) no more than 10% of one issuer's debt securities except
those issued by the government or local government have been
purchased;
investor means a person who has purchased or is purchasing
securities in his name and with his capital;
authorised capital means the company's capital registered in
accordance with the procedure established by law which amounts to
the product of the number of issued shares and their nominal
value;
own capital means the investment fund shareholders' equity
which is not registered and the amount whereof changes due to
share redemption or cancellation as well as issue of new shares;
own (net) assets means the investment company's property
value minus short-term and long-term liabilities;
persons connected with the investment company:
1) persons holding more than 5% of the investment company's
shares;
2) enterprises or other organisations more than 10% of
shares (or other fractional parts of the capital) whereof are
held by the investment company; and
3) managers of the investment company and enterprises or
organisations connected with it;
managers means members of the Supervisory Board and the
Board of the enterprise, manager of the administration and his
deputies, chief financier (accountant) and other persons
authorised to conclude transactions in its name;
management enterprise means enterprise to which the
management of the property and current operation of an investment
company is transferred under the property management agreement.
Article 3. The Concept of Investment Company
1. Investment company is a stock company (excluding the
exceptions provided for by Par. 3 hereof) which accumulates the
funds of natural and legal persons by way of public offering of
its own shares and has at least one of the following attributes:
1) investment and reinvestment in securities and/or trading
in securities constitutes the principal activity generating more
than 60% of income;
2) securities constitute more than 50% of the company's
property value.
2. Every enterprise which corresponds to the criteria
specified in items 1 and 2 of Par. 1 hereof must be reorganised
into an investment company in accordance with the procedure
established by this Law, with the exception of cases provided for
in Par. 3 hereof.
3. The following shall not be considered as an investment
company and this Law shall not apply to:
1) banks, insurance companies, brokerage companies, as well
as other financial institutions performing operations in
securities whose activities are regulated by other laws and legal
acts;
2) stock companies having no more than 100 shareholders
(owners) who have not offered for sale their securities;
3) stock companies which temporarily exceed the limit
provided for by item 2 of Par. 1 hereof, provided that the
companies sell the securities exceeding the limit no later than
within 3 months;
4) enterprises with the authorised capital less than 250,000
litas.
Article 4. Classification of Investment Companies
1. Investment companies may belong to one of the following
types:
1) investment funds;
2) closed-end funds; or
3) investment holding companies.
2. An investment company shall be considered an investment
fund provided that it holds a diversified investment portfolio
whereas the shares that have been issued or are being issued are
redeemable shares whose holders have a right to sell them back to
the company and receive therefor a proportionate share of the
company's own (net) assets.
3. An investment company shall be considered a closed-end
fund if its investment portfolio is diversified and if it has not
issued redeemable shares.
4. An investment company shall be considered an investment
holding company if the investment securities portfolio held by it
is not diversified and it has not issued redeemable shares.
5. The investment holding company may be established only by
reorganising, in accordance with the provisions of Par. 2 of
Article 3, an investment stock company as well as an enterprise
of another type (except an investment fund or a closed-end fund).
Chapter 2
General Requirements of Investment Companies
Article 5. Establishment, Reorganisation and
Liquidation of Investment Companies
1. The investment company may engage in its activities only
upon being issued a permit by the Securities Commission. The
Securities Commission must examine the matter concerning the
issue of permit within 30 days from the filing of application for
the issue of permit for the investment company activities. If the
permit is not issued the founders of the investment company or
other representatives must be given a justified reply.
2. The name of the investment company must contain the
following words or their acronyms in Lithuanian: "investicinis
fondas" or "IF" ("investment fund" or "IF"), "uýdarasis
investicinis fondas" or "UIF" ( "closed-end fund" or "CEF),
"kontroliuojanßioji investicinó bendrovó" or "KIB" ("investment
holding company" or "IHC"). The words "akcinó bendrovó" or the
acronym "AB" ("stock company" or "SC") is not mandatory in the
name of the investment company. The name of the investment
company must correspond to the requirements set in the
regulations of enterprise, institution and organisation names
approved by the Government of the Republic of Lithuania.
3. The permit for the activities of the investment company
may be issued to a newly established investment fund or closed-
end fund or to a going concern which is being reorganised into an
investment company.
4. The shares of the first issue of a newly established
investment company may be purchased only by its founders. These
shares must be fully paid up prior to the investment company
registration in the enterprise register.
5. For the issuance of permit the investment company (when
the company is being established - the founders) shall file with
the Securities Commission an application which must state:
1) the name and registered office of the investment company;
2) the amount of the registered (in case of company
establishment - accumulated) authorised (own) capital;
3) information concerning material suitability and
qualifications required for engaging in the investment company
activities (full names, addresses, phone numbers of persons
possessing qualifications certificates); and
4) information concerning the chosen management enterprise
and depository.
6. The founding agreement, bylaws, certificate concerning
the payment up of investment company's shares as well as
agreement concluded with the management enterprise and the
depository, if the conclusion of such agreements is required
under this Law, must be appended to the application for the
permit issuance.
7. The investment company bylaws must contain the following
information:
1) the name;
2) the registered office of the company;
3) purposes, objects and ways of investment activities;
4) the amount of authorised capital of the closed-end fund
or investment holding company, initial own capital of the
investment fund;
5) the number and par value of the closed-end fund or
investment holding company shares, the largest number of shares
the investment fund plans to issue;
6) rights carried by shares;
7) management bodies forming procedure;
8) the competence of the general meeting, the procedure for
calling the general meeting and the voting procedure;
9) the competence of the supervisory board and the board, if
it is formed;
10) income distribution policy;
11) regulations of own (net) asset evaluation and
establishment of investment fund share redemption price;
12) cost structure and the principles of cost covering;
13) procedure for making announcements to the shareholders,
procedure for presenting annual and semi-annual reports and
announcing same to the shareholders; and
14) liquidation procedure.
The bylaws may also contain other provisions which are in
compliance with the laws and other legal acts of the Republic of
Lithuania.
8. The investment company bylaws may be amended or
supplemented and the depository or the management enterprise may
be changed only subject to the approval of the Securities
Commission. The approval shall be deemed to have been given if
within 15 days of the receipt of appropriate application the
Securities Commission does not make a valid objection as regards
the reason precluding the amendment of the bylaws or the changing
of the depository or the management enterprise. Disputes
concerning the approval of the amendment and supplementing of the
bylaws, changing of the management enterprise or the depository
shall be settled by court.
9. The Securities Commission may refuse to issue the permit
for the investment company activities if:
1) not all documents specified in Paras. 5 and 6 hereof have
been presented;
2) the documents presented for the issue of a permit do not
meet the requirements of this Law;
3) documents presented in order to receive a permit contain
erroneous or fraudulent information;
4) not all investment company shares are fully paid up or if
the founders of a newly founded investment company have purchased
only part of shares of the first issue; or
5) investment company managers or founders are not reputable
persons (there are proofs of dishonesty or frequent financial
discipline violations, penalties have been imposed on them for
the violations connected with the abuse of official position or
administrative penalties have been imposed for the violations of
legal acts regulating the securities market, or they have been
punished for fraudulent bankruptcy or tried for deliberate
crimes).
10. If the management of the investment portfolio of a newly
founded closed-end fund or investment holding company has not
been transferred to the management enterprise, at least two
investment company managers or other administration officers must
possess a broker's qualifications certificate or any other
certificate recognised by the Securities Commission. The
Securities Commission must be within 10 days informed of the
changes of persons possessing qualifications certificates.
11. Investment companies shall be registered in accordance
with the procedure established by the Law of the Republic of
Lithuania on the Register of Enterprises provided that they have
the permit of the Securities Commission for investment company
activities.
12. A closed-end fund may be reorganised only into an
investment fund. It shall be prohibited to reorganise an
investment fund into a closed-end fund or an investment holding
company. The consent of the Securities Commission must be
obtained for the reorganisation of an investment company. When an
investment company is being reorganised by way of division each
investment company shareholder must receive the same part of
shares of the newly established investment company which he had
in the company under reorganisation. Grounds for the
reorganisation or liquidation of an investment company may not be
the decrease below the limit established in item 2 of Par. 1 of
Article 3 of its part of property composed of securities.
13. The Securities Commission may revoke the permit for
activities issued to an investment company if the investment
company:
1) is under liquidation;
2) has obtained the permit by presenting erroneous or false
information, forged documents as well as by concealing the facts
by reason whereof the permit should not have been issued;
3) is no longer fulfilling the terms and conditions of the
permit issuance or complying with the laws and other legal acts
of the Republic of Lithuania;
4) fails to comply with the capital requirements established
in Par. 1 of Article 6;
5) has not used the issued permit for 12 months or has not
engaged in its activities during the above period;
6) does not guarantee the security of the funds entrusted to
it or is no longer in the position to fulfil its obligations to
the creditors; and
7) maintains the accounting negligently or fraudulently,
prepares financial accounts not properly.
The permit of an investment company may also be revoked in
the event of emergence of any of the conditions specified in item
5 of Par. 9 hereof.
14. An investment company shall have the right to employ an
independent auditor to audit its business if the Securities
Commission establishes grounds for the revocation of permit for
the investment company activities as specified in items 6 and 7
of Par. 13 hereof. The report of the independent auditor must be
presented to the Securities Commission within 2 months from the
request to perform the audit unless the Commission fixes another
date. The issue concerning the revocation of the permit for the
investment company activities may be considered without the
results of the independent audit if the investment company failed
to present said results to the Securities Commission within the
established period or refused to perform the independent audit or
did not present any information as to the date of the independent
audit.
15. In the event of revocation of the permit issued to the
investment company the company must be liquidated. The investment
company under liquidation must be re-registered and the words
"under liquidation" must be added to its name. Information
concerning the investment company's liquidation process and
liquidation dates must be presented to every shareholder who
requests it, to a directly interested third person and the
Securities Commission. The property of the investment company
under liquidation (securities and other movable property,
immovable property) must be sold by competitive bidding (by
auction) or on the stock exchange. The money received for it
together with other funds of the company under liquidation shall
be distributed, upon satisfying all the company's liabilities, to
the shareholders in proportion to the number of the company's
shares held by them. The investment company under liquidation may
conclude only those transactions which are connected with its
liquidation.
16. Disputes concerning the issue or revocation of permits
for the investment company activities shall be settled by court.
Article 6. Capital
1. The own capital of an investment fund must be no less
than 1 million litas. The authorised capital of a closed-end fund
or investment holding company must be no less than 250,000 litas,
whereas their own (net) assets may not be less than the
authorised capital. The Securities Commission must be no later
than within 5 days notified if:
1) own capital of an investment fund becomes less than 1
million litas; or
2) own (net) assets of a closed-end fund or investment
holding company become less than the authorised capital.
2. Contributions in kind may account for no more than 20% of
the authorised (own) capital of an investment company.
3. When the authorised (own) capital of an investment
company is increased, shareholders shall have no right of
priority in subscribing for the shares of the new issue.
4. A closed-end fund or an investment holding company shall
have no right to reduce the authorised capital, except reduction
by reason of the incurred losses.
5. Loan capital of an investment fund or closed-end fund may
not account for more than 10% of its own (net) asset value. If
this requirement is not complied with due to the decrease in the
value of its own (net) assets, the investment fund or the closed-
end fund must rectify the situation no later than within 3 months
of the commission of the violation.
Article 7. Shares
1. An investment company may have only ordinary shares
entitling their holders to equal rights. Every share carries a
right to one vote at all shareholders' meetings and is entitled,
on equal grounds with other shares, to receive payment of
dividend and an appropriate share of the investment company's
property during its liquidation.
2. The shares of an investment company may be paid up in
cash or in kind. Contributions in kind may not be in the form of
work and services, intellectual and other intangible property.
The shares of a closed-end fund and an investment holding company
must be fully paid up prior to the registration of the authorised
capital or the increase thereof. An investment fund shall have no
right to sell its shares to be paid up by instalments or postpone
the date of payment. Payment for the investment fund shares must
be effected no later than within 3 days of the conclusion of the
transaction. In the event that a person fails to pay for the
investment fund shares within the above period, the share
purchase transaction shall be deemed not to have been effected.
3. The shares of a closed-end fund and investment holding
company may be listed on the Stock Exchange in accordance with
the regulations approved by the Securities Commission and the
Exchange. Investment fund shares may not be purchased or sold on
the stock exchange.
4. At the shareholder's request the investment fund must
redeem from him the shares of the fund paying for them in cash.
Payment may also be effected in other property if this is
provided for by the investment fund bylaws. Share redemption
price shall be calculated in accordance with the investment
company's own (net) asset valuation methods and must amount to
the part of the investment company's own (net) assets due to the
share.
5. The investment fund must publicly announce the selling
and redemption prices of its shares each time they are issued or
redeemed, but no less frequently than twice a month. The
Securities Commission may reduce the frequency of announcements
up to one time per month provided that such reduction causes no
harm to the investment fund shareholders and other investors.
6. An investment fund may, on the basis of the procedures
provided for by its bylaws or other regulations, temporarily (for
no longer than 3 months in a business year) suspend the
redemption of its shares if:
1) the suspension is performed in order to protect the
shareholder's interests from possible insolvency as well as from
the fall in the share redemption price due to the unfavourable
securities market condition and the related reduction of value of
the investment portfolio held by the investment fund;
2) own capital becomes less than the amount established in
Par. 1 of Article 6; or
3) this is requested by the Securities Commission.
7. In the event of suspension of share redemption the
investment fund must within 5 days notify the Securities
Commission of its decisions and make a public announcement
thereof through mass media (national newspapers, radio and
television) in such a manner and at such time as to provide a
real possibility for the investment fund shareholders and
potential investors to find out about the event.
Article 8. Management
1. The management of an investment fund property must be
transferred to the management enterprise which is operating in
accordance with Chapter 3 of this Law. Management of a closed-end
fund or investment holding company property or part thereof
(investment portfolio) may be transferred to the management
enterprise. In such instances the investment company board and
administration may be not formed. If the management of property
is transferred to the management enterprise the supervisory board
must be formed in the investment company.
2. The persons with whom subscription contracts have been
concluded not later than 10 working days prior to the meeting
shall have the right to participate in a general (shareholders')
meeting of investment fund. The quorum at the general
(shareholders's) meeting shall be determined according to the
number of shares which have been issued and not subscribed for 10
working days prior to the meeting.
Article 9. The Assets
1.The assets of the investment company may consist of :
1) monetary funds;
2) securities;
3) other immovable and movable property necessary for the
ordinary operations of the investment company and which accounts
for not more than 20 percent of the value of the total assets of
the company.
2. Investment company may acquire the following securities:
1) securities quoted on the stock exchanges operating in the
Republic of Lithuania;
2) securities traded on other recognised, regulated ,
permanently operating and public stock markets in Lithuania;
3) newly issued securities if the conditions of their issue
provides for the issuer's obligation to file an application to
have its shares quoted in the Official or Current list or in the
list of other recognised, regulated, permanently operating and
public stock market in Lithuania and there are guarantees that
issued securities will be registered in said lists within one
year of their issue;
4) deposit certificates issued by banks;
5) securities issued or guaranteed by the government (local
government) ;
6) other securities recognised by the Securities Commission
as liquid.
3. Investment company may also acquire other securities that
are not indicated in Par. 2 of this Article the total value of
which may not account for more that 10 percent of the company's
own (net ) assets. If said requirement is not complied with due
to the reduction in value of own (net) assets, the investment
company must rectify the situation not later than within 3 months
from the date the violation was committed.
Article 10. Peculiarities of the Activities of
Investment Companies
1. Investment fund and closed-end fund shall be prohibited
from:
1) extending loans, giving a guarantee or warranty for
another person's fulfilment of liabilities, mortgaging of
securities or real property held by them;
2) taking loans, with the exception of cases when the loan
is taken for the acquisition of movable or immovable property
necessary for its operations;
3) acquiring and holding securities due to which the
requirements set forth in the diversified investment portfolio
would be violated;
4) issuing bonds;
5) establishing affiliates or other independent structural
subdivisions.
2. If the investment fund or closed-end fund violates the
requirements of the diversified investment portfolio due to the
preferential right to acquire newly issued securities provided
for in the laws and other legal acts of the Republic of Lithuania
or for other objective reasons that are beyond its control, it
must sell the portion of securities due to which restrictions
specified in this part were violated not later than within 3
months.
3. The investment holding company shall be prohibited from:
1) investing more than 25 percent of its own (net) assets
into the securities issued by one issuer;
2) taking loans from the controlled enterprises or obtaining
their guarantees;
3) without the decision of the general (shareholder's)
meeting, mortgaging , selling, or in any other way transferring
total issuer's shareholding or a part thereof, the total value of
which accounts for at least 5 percent of the holding company's
own (net) assets if due to such transaction the holding company
would lose or might lose :
in the general (shareholder's) meeting of the issuer,
qualified (2/3 of votes) or simple majority (1/2 of votes) vote,
as well as the right of veto (1/3 of votes), calculating from the
total number of votes;
the right of initiative to convene general (shareholders')
meeting as well as other rights for the implementation of which
1/10 of the authorised capital of the issuer is required;
the right to supplement the agenda or nominate candidates to
the members of the Supervisory Board or the Board for the
implementation of which 1/20 of the authorised capital of the
issuer is required;
4) without the prior decision of the general (shareholders')
meeting, mortgaging real property, extending loans, giving
guarantee or warranty for the fulfilment of obligations by
another person if the total amount of such liabilities of the
holding company and the total amount of extended loans would
account for more than 10 percent of the value of its own (net)
assets.
4. The closed-end fund and the holding company shall be
prohibited from repurchasing, in any way, its shares or accepting
them as a collateral.
5. Provided the securities of the issuer are trade on the
stock exchange, the investment company shall be prohibited from:
1) when buying securities of the issuer _ exceeding the
maximum price which is fixed on the day the transaction is made
on the stock exchange;
2) selling the issuer's securities at a price which is lower
than the minimum price of these securities fixed on the day the
transaction is made on the stock exchange.
6. The investment company shall be prohibited from acting as
intermediary in stock market if the investment company is not the
owner of these securities.
Article 11. Information that must be Furnished by the
Investment Companies to its Shareholders,
General Public and Supervision Institutions
1. The investment company must provide:
1) the prospectus;
2) reports of each business year;
3) reports for the first 6 months of a business year.
2. Annual and semi-annual reports must be published with the
following regularity:
1) annual - not later than within 4 months of the end of the
accounting business year;
2) semi-annual - not later than within 2 months of the end
of the accounting six months.
3. The bylaws of the investment companies must constitute an
inseparable part of the prospectus and must be provided together
with the annexes attached thereto.
4. The investment company must submit its prospectus and
amendments thereto, as well as annual and six-month reports to
the Securities Commission in compliance with the requirements set
forth with regard to its contents, procedure and time limits for
its filing.
5. Financial accounts provided in the annual report must be
audited by an independent auditor entitled to perform audit in
accordance with the procedure established by laws. Audit results
must be provided in the annual report. Auditor's report must also
contain information on all the violations of this Law and other
laws and legal acts regulating financial activities of investment
companies.
6. The prospectus, the last published annual and semi-annual
reports must be available to persons who subscribe to the shares
in the investment company prior to the entering into subscription
contract. In addition, annual and semi-annual reports must be
available to the general public at certain places specified in
the prospectus.
7. The investment company, the management enterprise with
whom property management agreement has been concluded, and the
depository must keep records of transactions and other operations
of the company in accordance with the standards established by
the laws of the Republic of Lithuania and other legal acts. All
the documents relative to the activities of the investment
company must be available for inspection by the Securities
Commission.
8. At the request of the Securities Commission , but not
more frequently than once a year, the investment company must,
within three months, submit to it the report of an independent
auditor, stating whether the investment company complies with the
requirements set forth in Articles 9 and 10. Such audit of the
investment company may be performed more often at the expense of
the Securities Commission.
9. The investment holding companies must, together with
annual report, each business year make and publish additional
report about the activities of the group of enterprises
consisting of the investment holding company and the enterprises
controlled by it.
10. In describing the financial position of the group of
enterprises specified in Par. 9 of this Article , the investment
holding company must present in the report a consolidated balance
sheet, consolidated profit and loss account, and explanatory
notes, prepared according to the standards established by the
Ministry of Finance. The data of the consolidated balance sheet
may not be used for judging whether the enterprise meets the
requirements set forth in item 2 of Par. 1 of Article 3 .
11. The enterprises which under the provisions of Par. 9 of
this Article form a group of enterprises, must furnish to
investment companies all the information necessary for making
consolidated accounts.
12. The data in the consolidated accounts concerning the
assets and liabilities, profit and loss of the consolidated group
of enterprises, as the separate entity, must be disclosed
truthfully and honestly. The report on the management of the
group of enterprises must disclose information on the management
structure of this group as a separate entity, transformations
that have been made or are planned to be made and the essential
events that have occurred during the accounting period.
Chapter 3
Management Enterprises
Article 12. The Concept of Management Enterprise
1. A stock company or a close stock company which possess a
licence issued by the Securities Commission to manage the
investment portfolio of investment companies may be a management
enterprise. The procedure and conditions for the issue of such
licences shall be established by the Securities Commission.
2. Disputes concerning the issuing or cancellation of
licences shall be settled by the court.
3. The authorised capital of the management enterprise must
be not less than Lt100 000. If the authorised capital becomes
less than the minimum capital, the management company must inform
the Securities Commission of this fact not later than within 5
days.
4. At least two managers of the management enterprise must
have broker's qualification certificate or any other certificate
recognised by the Securities Commission. The management
enterprise must submit to the Securities Commission data about
all managers ( their names, surnames, addresses, telephone
numbers) , as well as inform it of any changes therein not later
than within 10 days.
5. The management enterprise shall have the right to carry
out no other transactions with the investment company than enter
into property management agreement.
Article 13. Property Management Agreement
1. The property management agreement between the investment
company and management enterprise must provide for:
1) the object of the agreement;
2) rights and duties of the parties to the agreement;
3) purpose, objects and methods of investment activities;
4) the amount of the commission paid to the management
enterprise, the manner and procedure for the payment thereof;
5) structure of expenditures of investment company and
procedure for their coverage;
6) liability for non- fulfilment of its obligations;
7) conditions and procedure for the termination of the
agreement;
8) duration of the agreement.
The property management agreement may contain other
provisions provided they do not contradict the laws and other
legal acts of the Republic of Lithuania.
2. The property management agreement must be approved by the
general (shareholder's) meeting of the investment company. It may
be concluded for the period not exceeding 4 years. The property
management agreement may be terminated by the decision of the
general (shareholders') meeting adopted by simple majority vote,
prior to the expiry of the agreement.
3. The commission payable to the management enterprise for
the management of the property of the investment company may not
be in excess of one of the following amounts:
1) 2 percent of the annual value of the investment company's
own (net) assets;
2) 20 percent of the average annual net profit of the
investment company.
A part of this commission may be paid by the shares of the
investment company if it is provided for in the property
management agreement.
Article 14. Liability for the Compensation of Losses
(Damages)
The management enterprise shall be liable for the
compensation of losses (damages) inflicted through its fault to
the investment company or its shareholders under the laws of the
Republic of Lithuania.
Chapter 4
Depositories
Article 15. The Obligation of the Investment Company to
Transfer its Property to the Depository for
Safe Keeping
The property of the investment company, consisting of
monetary resources and securities must be transferred to one
depository for safe keeping. If the depository selected by the
investment company has no right to accept cash deposits, the
investment company may transfer its cash deposits to another
institution possessing such right. The investment company may not
have more than one depository of securities or cash deposits.
Article 16. Eligibility for Carrying out Depository
Operations
1. A bank as well as brokerage company and a bank
subsidiary, having the licence issued by the Securities
Commission to engage in the activities of a depository may be a
depository. The licences are of two types:
1) the licence for carrying out operations with securities;
2) the licence for carrying out operations with securities
and cash.
2. The conditions and procedure for granting licences to
brokerage companies and bank subsidiaries to engage in depository
activities and cancellation thereof shall be established by the
Securities Commission.
3. The authorised capital of the depository may not be less
than 5 million litas if it operates as the depository dealing in
cash and securities and may not be less than 1 million litas if
it operates as securities depository. If the authorised capital
of the depository becomes less than the minimum capital or its
own assets become less than its authorised capital, it must
inform the Securities Commission of this fact not later than
within 5 days.
Article 17. Activities of the Depository and their
Supervision
1. The depository must separate the property entrusted to it
by the investment company from its own property and identify it
separately. The creditors of the depository shall have no right
to settle their claims from the property entrusted to it by the
investment company.
2. The Securities Commission shall have the right to
establish the rules governing the control of the depository's
activities, as well as the requirements for annual and other
audit.
3. While fulfilling the instructions of the investment
company or management enterprise ( if there is such), the
depository must ensure that:
1) the selling price and repurchase price of the shares of
the investment fund is determined in accordance with the
requirements prescribed by this Law and the bylaws of the
depository;
2) the investment company or persons acting on its behalf
comply with the requirements prescribed by this Law and the
bylaws of the company when selling, issuing, repurchasing or
cancelling the shares of the company;
3) income received from the transactions with the property
of the investment company is transferred to its account in due
time;
4) income of the investment company is used in compliance
with the laws of the Republic of Lithuania, other legal acts and
its bylaws.
4. The depository shall be liable under the laws of the
Republic of Lithuania for the indemnification of losses (damage)
caused through its fault to the investment company or its
shareholders. The depository may not be relieved from the
fulfilment of its obligations on grounds that the whole or part
of the property entrusted to it has been transferred to a third
party.
5. The depository must enter into agreement with the
investment company, which must provide for the procedure for the
payment for services rendered by it and the rate of charges.
Article 18. Independence of Depositories from
Investment Companies
1. No enterprise may operate as an investment company (or
management enterprise) and a depository concurrently.
2. The investment company or management enterprise and the
depository must perform their functions independently.
3. Persons connected with the investment company may not be
shareholders or managers of the depository with whom this
investment company has deposited its securities or cash.
Chapter 5
Protection of Investors' Interests
Article 19. The Duty to Act in the Best Interests of
the Shareholders
1. Investment company, management enterprise and depository
must carry out its activities in compliance with the effective
laws and other legal acts and ensure that their activities should
not be prejudicial to the shareholders' property rights and
interests.
2. The investment company, management enterprise and
depository as well as persons connected with them may not enter
into any transactions concerning the investment company or its
property, that would be prejudicial to the investment company or
the rights and interests of its shareholders. Managers of the
investment company, management enterprise and the depository
shall not be liable for the damage that was caused to the
investment company in order to reduce losses incurred as a result
of the depreciation of its investment portfolio due to the
reduction in value of securities comprising it.
3. Having established that the manager has made a
transaction from which he gained benefit at the expense of its
shareholders, as well as if the shareholders of the investment
company incur losses ( material damage) caused by unlawful
actions of the manager, the shareholders of the investment
company shall have the right to take him to court, requesting to
transfer the rights and duties resulting from such transaction to
the investment company or compensate for the (losses) damage
caused by such transaction.
4. If the investment holding company benefit from its
unlawful actions at the expense of the enterprise, controlled by
it, or its shareholders or cause to it any other damage, the
controlled enterprise or its shareholders shall have the right to
demand through court to be compensated for losses (damage) caused
to it.
Article 20 The Rights of the Securities Commission
1. When implementing this Law, the Securities Commission
shall have the right to adopt legal acts assigned to its
competence.
2. The Securities Commission shall have the right to
examine, control and make investigations in order to reveal
whether investment companies, management enterprises and
depositories comply with this Law and other legal acts and
regulations. When discharging these functions , the employees of
the Securities Commission may, without asking for a permit, enter
the premises of the above-mentioned enterprises, examine, take
temporarily the documents ( leaving behind their descriptions) or
copy them, as well as question in writing or in word the managers
of these enterprises or any other persons subordinate to them.
3. The instructions of the Securities Commission given to
investment companies, property management enterprises or their
managers concerning the elimination of the violations of laws and
other legal acts shall be binding
4. The employees of the Securities Commission must keep
commercial secrets of investment companies, gained in the course
of his duties confidential. For the use of information not for
its proper purpose or for other unlawful actions, these employees
shall be liable under the laws of the Republic of Lithuania.
Article 21. Liability for the Violation of this Law
1. Investment companies, management enterprises,
depositories and their managers shall be liable for the violation
of this Law in accordance with the procedure established by the
laws of the Republic of Lithuania.
2. The Securities Commission shall have the right :
1) to apply sanctions provided for in the Republic of
Lithuania Administrative Code against the managers of investment
companies, management enterprises and depositories as well as
against the auditors of these enterprises for the violation of
this Law and other legal acts;
2) to impose a fine in the amount of up to 3 percent of
their annual income on those management enterprises or
depositories, which inflict losses (damage) by their unlawful
actions to investment companies or their shareholders.
The application of these sanctions shall not relieve the
persons from the liability to compensate for losses (damage)
inflicted through their fault to investment companies, their
shareholders or third parties, as well as from the liability
under other laws of the Republic of Lithuania.
3. The decisions of the Securities Commission in regard to
the imposition of an administrative penalties may be appealed
against to court in the manner established by the laws of the
Republic of Lithuania. Decisions of the Securities Commission
regarding the application of sanctions specified in item 2 of
Par.2 of this Article may be appealed against to court within one
month. The appeal shall not suspend the fulfilment of the
instructions and decisions of the Securities Commission to
eliminate violations of laws and other legal acts unless the
court decides otherwise.
4. Fines must be paid into the budget not later than within
15 days of the receipt of the resolution to impose a fine on the
investment company, management enterprise, depository or their
managers. Fines shall be recovered from the income of the
management enterprises or depositories without suit.
Chapter 6
Final Provisions
Article 22. Application of this Law to the Operating
Investment Stock Companies
1. Investment stock companies established during the period
of the privatisation of state-owned property under the Republic
of Lithuania Law on the Initial Privatisation of State Property
must by 1 May 1996 alter their bylaws and reregister itself in
compliance with the requirements provided for in this Law. If the
investment stock company fails to fulfil this requirement, it
must be liquidated in the manner established by the Government of
the Republic of Lithuania provided for in Par. 15 of Article 5 of
this Law. The auditor must present the report on the financial
position of this company to the general (shareholders') meeting
of the investment stock company in which the reorganisation shall
be considered.
2. Investment stock companies may be reorganised into
investment companies in accordance with the requirements set
forth in Article 10 of the Company Law of the Republic of
Lithuania. The provisions of Par. 12 of Article 5 of this Law
shall also apply to the reorganisation of investment stock
companies. The preparation of the project for the reorganisation
of the investment stock company into investment company is not
mandatory.
3. The preference shares issued by investment stock
companies must be converted into ordinary shares within one month
from the enforcement of this Law, and the privileges granted by
them shall be abolished. The founders' privileges must also be
abolished if the bylaws of the investment stock companies
provided therefor. Amendments to the bylaws relative thereto may
be registered without convoking general meetings.
4. Investment stock companies must, within six months of the
coming into effect of this Law, transfer for safe keeping cash
and securities held by them to the depository selected by them. A
copy of the agreement entered into with the depository must be
submitted to the Securities Commission.
5. If after the reorganisation of the investment stock
company into investment company of an appropriate type, its
property will have to be transferred to the management enterprise
for the purpose of its management, the agreement with the
selected management enterprise must be approved in the general
(shareholders') meeting prior to the date of the reregistering of
this company.
6. The investment stock companies must, within the period
between the coming into effect of this Law and their re-
registration into investment companies, prepare information
specified in Article 11 of this Law. The auditors shall not be
required to report on such information.
7. The provisions contained in the first sentence of Par.10
of Article 5 shall come into effect as of 1 January 1997. By this
term and in such cases when the management of the property of the
investment company is not transferred to the management
enterprise, at least one member of the Board of the investment
company or an employee of the administration must possess
qualifications certificate of a broker or any other
qualifications certificate recognised by the Securities
Commission.
8. If the investment stock company has been reorganised into
investment fund, the announcement about the value of the own
(net) assets of the investment fund and the redemption price of
its shares must be published not later than within 30 days of its
re-registration.
The investment funds reorganised in this manner must redeem
its own shares within the following stages:
1) the redemption of shares may be commenced not earlier
than after the third public announcement of the data specified in
the first paragraph hereof ;
2) by 1 July 1996 not less than 1/2 of all the applications
of shareholders to redeem the shares held by them must be
satisfied;
3) from 1 January 1997 the shares of investment funds must
be redeemed without any restrictions in the manner established by
this Law.
9. If the shares of the investment stock company that is
being reorganised into investment fund, were traded on the stock
exchange, the trade in such shares must be terminated from the
date of the re-registration of this investment stock company .
10. It shall be prohibited to establish new investment stock
companies as of the date of the coming into effect of this Law.
I promulgate this Law passed by the Seimas of the Republic
of Lithuania.
Algirdas Brazauskas
President of the Republic
Vilnius
5 July 1995
No. I-1018