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    • Non-official translation REPUBLIC OF LITHUANIA LAW ON SUPPLEMENTARY VOLUNTARY PENSION ACCUMULATION 3 June 1999, No. VIII-1212 Vilnius (consolidated version of the Law No. 1692 of 4 July 2003 (since 30 July 2003) (Official Gazette, No. 75-3473, 106-0) CHAPTER ONE GENERAL PROVISIONS Article 1. Purpose and Scope of the Law 1. This Law shall regulate conditions and order of organizing accumulation of supplementary voluntary pension in pension funds managed by management companies. The purpose of this Law is to set necessary the standards of supervision and rules of pension fund management in order to guarantee protection of interests of pension funds’ participants. 2. This Law shall apply to all management companies acting in the Republic of Lithuania, managing supplementary voluntary accumulation pension funds under the licence issued by the Securities Commission. To companies managing pension funds accumulating part of the state social insurance contribution this Law shall apply in the manner provided for in laws regulating those relations. 3. This Law shall not apply to relations arising on the basis of insurance activities related to provision of pensions to the population, with the exception of relations referred to in Article 38. 4. Management companies shall be subject to the Law on Companies, to the extent this Law does not provide otherwise. Article 2. Definitions Used in the Law 1. Block of shares shall mean 1/10 or more shares or voting shares of a pension fund management company or an amount of shares or voting shares enabling to exert a substantial influence over the management of the pension fund management company. The size of a block of shares shall be estimated taking into account the votes held by a person in accordance with Article 16 of the Law on Securities Market. 2. Account unit shall mean a relative measure of value of the pension assets belonging to a participant of a pension fund. 3. Depository shall mean a bank authorised to provide investment services in the Republic of Lithuania and another State of the European Economic Area and having a registered office or a branch in the Republic of Lithuania. 4. Subsidiary shall mean a subsidiary as defined in the Law on Securities Market. 5. Member State of the European Union shall mean a State which is a member of the European Union or the European Economic Area. 1
    • 6. Close link shall mean a close link as defined in the Law on Securities Market. 7. Net assets shall mean a difference between the value of the pension assets and the short-term and long-term financial liabilities of the respective pension fund (except obligations to pension fund participants). 8. Investment portfolio shall mean a set of investment instruments. 9. Investment instruments shall mean securities indicated in paragraph 26 of this Article and investment instruments specified in paragraph 2 of Article 3 of the Law on Securities Market. 10. Derivative investment instrument shall mean an investment instrument the value of which depends on the value of one or more investment instruments. 11. Control shall mean control as defined in the Law on Securities Market. 12. Sufficiently good repute shall mean sufficiently good repute as defined in the Law on Securities Market. 13. Supplementary voluntary pension accumulation activity (hereinafter – pension accumulation activity) shall mean financial activity constituting the collection of funds under pension accumulation agreements, investing or re-investing the said funds into a diversified investment portfolio, payment of pension benefits to the persons on terms and conditions set forth in this Law and the pension fund rules, and other related activity. 14. Pension annuity (hereinafter – annuity) shall mean a periodic pension benefit paid to a pension fund participant for life, with the full risk of its payment borne by the payer of the annuity, i.e. an insurance company effecting life insurance. 15. Pension fund shall mean assets held by natural persons by the right of joint partial ownership, who on voluntary basis accumulate pensions and pay pension contributions into a pension fund, the management of which is transferred to a pension fund management company and which is invested in accord with the pension fund rules. 16. Participant of a pension fund (hereinafter – participant) shall mean a person with whom a pension accumulation agreement has been concluded and in whose name a personal pension account has been opened. 17. Pension fund rules shall mean a document stipulating conditions, terms of payment of pension contributions and benefits, as well as the strategy of pension assets investment along with other rights and obligations of participants and pension fund management company. 18. Pension fund management company (hereinafter – management company) shall mean a company licensed by the Securities Commission to engage in the pension accumulation activity. 19. Pension contributor shall mean a participant of a pension fund, his employer or any third person who pays pension contributions or their portion. 20. Pension account shall mean a personal account of a pension fund participant under a pension accumulation agreement, in which pension fund assets account units due to the participant are entered in his name. 21. Pension assets shall mean the sum of assets received in exchange for the pension contributions (including the temporarily non-invested portion of the said funds) and income (expenses) from investments received from these assets (funds). 2
    • 22. Periodical report shall mean a document addressed to participants and the general public and providing information on the main events of the accounting period covered. 23. Money market instruments shall mean liquid debt investment instruments which are normally traded on money markets and the precise value of which may be calculated at any time. 24. Initial capital shall mean a minimum amount of own capital to be accumulated by a pension fund management company. 25. Foreign supervisory authority shall mean an institution performing in a foreign state functions related to licensing and supervision of management companies equivalent to the functions of the Securities Commission. 26. Securities: 1) shares of public limited liability companies and depository receipts in respect of shares; 2) debt securities; 3) other transferable securities giving the right to acquire securities referred to in items 1 and 2 of this paragraph by subscription or exchange. CHAPTER TWO LICENSING AND ACTIVITY OF MANAGEMENT COMPANIES Article 3. Right to Engage in Pension Accumulation Activities 1. The right to engage in pension accumulation activities shall be enjoyed by private limited liability companies or public limited liability companies (hereinafter – companies) holding a licence issued by the Securities Commission in the accordance to the procedures set in this Law. Only a company holding the said licence shall have the right to include in its name and advertising material the words “pensijų fondų valdymo įmonė” (pension fund management company) or similar combinations of these words. 2. The right engage pension accumulation activities following the procedures set out in this Law shall also be granted to management companies authorised to manage investment funds and investment variable companies and satisfying the requirements stipulated in this Law. 3. A management company may launch pension accumulation activities only after the Securities Commission approves, in the manner determined by it, the rules of the respective pension fund. 4. The licence of a management company referred to in the paragraph 1 of this Article shall grant the right to engage in pension accumulation activities, management of investment funds, investment variable capital companies, investment portfolios of other persons, also to provide following additional services, where they are covered in the licence: 1) advising on issues of investment into investment instruments; 2) safekeeping and administration of investment units of investment funds or shares of investment variable capital companies. 5. The management companies specified under paragraphs 1 and 2 of this Article shall have the right to manage pension funds engaged in accumulation of part of the state social insurance contribution, which are stipulated in the Law of Pension Accumulation, if these management companies meet the requirements set in the Law on Pension Accumulation. 3
    • 6. Management companies specified in paragraph 1 of this Article may not engage in activities other than specified under this Article. Article 4. Licence Issuing Procedure 1. A company wishing to engage in the pension accumulation activity shall file an application with the Securities Commission. The application shall be submitted together with data on the company, activities and their prospective development, shareholders, members of the management, initial capital, authorised capital, and other data and documents, a detailed list of which is provided in the licensing rules of the Securities Commission. 2. The Securities Commission may refuse to issue a licence where: 1) the application does not meet the prescribed requirements, the documents are incomplete or untrue, and the company’s data or basis of the programme of operations is insufficiently grounded; 2) the company’s initial capital or authorised capital is lower than the minimum amount specified in Article 7 of this Law or does not meet the capital adequacy requirements for a management company; 3) the holders of a block of the company’s shares fail either to meet the requirements set out in this Law or to provide information on their participants, activity and financial condition of the participants; 4) at least one of the company’s employees is an employee of a stock exchange, the Securities Commission or the Central Securities Depository of Lithuania; 5) members of the company’s board, the head or deputy heads of the administration are of insufficiently good repute, their qualifications or work experience do not meet the requirements established by the Securities Commission; 6) members of the board of the company’s depository, the head or deputy heads of the depository’s administration are of insufficiently good repute, their qualifications or work experience do not meet the requirements established by the Securities Commission; 7) the company’s registered office is situated outside the territory of the Republic of Lithuania; 8) a close link exists between the company and another person, which might prevent the Securities Commission from exercising supervision in an effective manner; 9) the company is connected by a close link with persons from a non- member State of the European Union the laws of which governing the activity of these persons, or difficulties involved in their enforcement prevent effective exercise of the supervisory functions. 3. The Securities Commission must inform the applicant about its consent or refusal to issue a licence within 3 months from the filing of all the relevant documents, data and explanations. The term of application consideration shall be calculated from the day when the last data or documents were filed. Reasons for the refusal to issue a licence must be grounded in writing and may be appealed in courts. 4. The Securities Commission must communicate the fact of issuance or revocation of a licence to the registrar of the Register of Legal Persons and make an 4
    • announcement thereof in the supplement “Informaciniai pranešimai” of “Valstybės žinios” (Official Gazette). Article 5. Management bodies of Management Companies 1. Management companies shall be subject to the requirement to set up a board, in addition to the management bodies mandatory for public limited liability companies and private limited liability companies stipulated in the Law on Companies. Article 6. Requirements for the Activity A management company must: 1) act honestly and fairly in the best interests of participants and the integrity of the market; 2) act with due skill, care and diligence; 3) have and employ the necessary resources and procedures; 4) in dealings with clients, disclose to them adequately relevant material information; 5) try to avoid conflicts of interests and, where they can not be avoided, ensure that participants are treated fairly; 6) have reliable administrative procedures and accounting books and records systems enabling to find out the parties, the contents, time and venue of each and any transaction and to determine whether investment of assets is effected in compliance with the prescribed terms and conditions; 7) implement internal control and monitor, following the internal control procedure stipulated by the Securities Commission, personal transactions in respect of securities concluded by its heads and employees; 8) retain documents of executed transactions for periods no shorter than 10 years since the day of the transaction execution, unless other legal acts provide for longer periods; 9) be structured in such a way as to avoid conflicts of interests between the management company and participants, between one participant and another; 10) ensure that the qualification and experience of persons adopting decisions concerning assets management meet the requirements set by the Securities Commission. Article 7. Capital Requirements for Management Companies 1. Neither the initial nor authorised capital of a management company may be less than EUR 150,000. When the value of investment portfolios managed by a management company exceeds EUR 250,000,000, the management company shall have to increase its own capital by an amount not less than 0.02% of the amount by which the value of the managed investment portfolios exceeds EUR 250,000,000. Such proportion of managed and own capital must be maintained throughout the growth of the value of the managed investment portfolios, until the point when the own capital amounts to EUR 10,000,000. 2. The authorised capital of the management company shall be comprised of the capital set forth in the bylaws of the fund, fully paid up and registered according to the procedure established by law. Only fully paid up authorised capital shall be registered. 5
    • 3. Property contributions may not make up more than 20 per cent of the authorised capital of the management company. Only real estate necessary for the performance of the direct operations of the management company may constitute a property contribution. 4. At least EUR 125,000 of own capital must be invested in a diversified investment portfolio subject to the requirements specified in Articles 46, 47, and 49 of this Law. The management company shall handle the remaining part of the capital at its discretion pursuant to law and other legal acts. 5. The management company shall be subject to the capital adequacy requirements established by the Securities Commission. Article 8. The Guarantee Reserve 1. Where a management company assumes an obligation to guarantee to pension fund participants a certain rate of profitability, a guarantee reserve must be formed. The procedures of formation, investing and use of this reserve shall be subject to approval of the Securities Commission. The latter shall have the right to instruct a company to amend and (or) supplement the procedure of formation, investing and use of guarantees. 2. The guarantee reserve shall be invested into a diversified investment portfolio subject to the requirements set in Articles 46, 47, and 49 of this Law. Article 9. The Rights of the Securities Commission The Securities Commission shall have the right to prescribe the following: 1) procedure for keeping of confidential information in secrecy; 2) internal control execution procedures; 3) procedure of submitting and contents of periodical and other reports, news releases, and notifications to the Securities Commission and the public and methods of publishing other information; 4) capital adequacy requirements for management companies; 5) procedure and principles of calculating the initial capital and net assets; 6) procedure of calculating counterpart risk when inspecting the compliance with the diversification requirements; 7) procedures of transferring the management of pension funds, the termination of pension funds and sale of assets of terminated pension funds. 8) requirements for opening, maintaining and closing of pension accounts as well for accounting of account units; 9) additional requirements for converting pension contributions and funds being transferred to other pension funds into account units (and vice- versa); 10) procedure of approval of pension fund rules; 11) procedure of granting authorisation and licences referred to in this Law. Article 10. The Right of a Management Company to Delegate a Number of its Functions to Another Management Company 1. With a view to step up management efficiency, a management company shall have the right delegate a number of its functions relating to pension fund management to a company authorised to provide respective services, only upon obtaining a prior permit from the Securities Commission. 6
    • 2. Delegation of a number of functions shall be permitted where: 1) this will not impede supervision over the management company and will not violate the interests of participants; 2) the Securities Commission has concluded an agreement on information exchange with the supervisory authority of a respective non-member State of the European Union, in which the management company, to which a number of functions have been delegated, is licensed; 3) the managers of the management company are able to monitor at any time the activity of the mandated company; 4) the management company may give additional instructions to the mandated company or to revoke the authorisation whenever it is necessary for the protection of interests of the participants; 5) a mandated company is adequately qualified to perform delegated functions; 6) the rules of the pension fund indicate what functions may be delegated to another company. 3. A management company shall not be permitted to delegate to other persons its functions to the extent that no functions are left with the management company. Management companies shall be prohibited from delegating the functions of decision making and implementation (investment management) to the depository keeping in custody the assets of pension funds managed by that management company or to other persons whose interests may be contradictory to the interests of the management company or participants. 4. Delegation of a number of functions to other persons shall not exempt liability of the management company. Article 11. Acquisition of a Block of Shares of a Management Company 1. Any person willing to acquire a block of shares in a management company or to increase the holding he already has so as to raise the proportion of the votes or the authorised capital he holds to the threshold of 1/5, 1/3 or 1/2 or so as to make the company his subsidiary (in cases when the acquirer is a legal person) must obtain a prior permission of the Securities Commission. Votes held by a person shall be calculated in accordance with the procedure prescribed in Article 16 of the Law on Securities Market. 2. A person referred to in paragraph 1 of this Article must file with the Securities Commission an application of a form set by the latter and the latter must, within 3 months from the day of the receipt of the application, inform the applicant of its decision either to grant a permit for the acquisition of a share holding or refuse to grant such a permit. 3. The Securities Commission may refuse to allow the acquisition of a share holding where: 1) the natural person (where it is a legal person – its heads or controlling persons) is of an insufficiently good repute; 2) the natural person fails to prove the legality of the assets or funds for which shares are being purchased; 3) the natural person is an employee of a stock exchange, the Securities Commission or the depository keeping in custody the assets of pension funds managed by the management company in question; 7
    • 4) the legal person has failed to provide information on its participants, activities or financial position; 5) the issuance of the licence would result in a close link, which would constitute grounds for the refusal to issue the licence. 4. The refusal to approve of the acquisition of a share holding must be grounded in writing and may be appealed to courts. Where the Securities Commission does not object to the acquisition of a share holding, it must set a deadline for the realisation of the intension. 5. A person must also notify the Securities Commission before reducing his share holding so that the proportion of the voting rights or of the capital held by him would fall below the thresholds of 1/10, 1/5, 1/3, or 1/2 or so that the management company would cease to be his subsidiary (in cases of legal persons). 6. On becoming aware of an acquisition or transfer of a block of shares, due to which the threshold referred to in this Article has been exceeded, a management company shall promptly notify the Securities Commission thereof. Information on persons holding blocks of shares and the volumes of these holdings shall be submitted to the Securities Commission on annual basis following the procedure specified by it. 7. If a person acquires shares without obtaining permission of the Securities Commission where such permission is obligatory, the voting rights attaching to the shares held by that person shall be suspended at general meetings of shareholders until the said permission is obtained. Article 12. Permissions Issued by the Securities Commission 1. The Securities Commission shall issue prior permissions for the following: 1) change of a depository; 2) transfer of the management of pension assets to another management company; 3) conclusion and amending of an agreement with the depository; 4) reorganization or restructuring of a management company; 5) liquidation of management company by a decision of the general meeting of shareholders; 6) acquisition or increase of a block of shares in a management company; 7) termination of a pension fund; 8) delegation of a number of administration functions to other company. 2. The Securities Commission may refuse to grant permission only where this would contradict the provisions of legal acts or violate the interests of participants. Article 13. Audit of a Management Company Audit of management companies shall be subject to the requirements set out in the Law on Audit and the Law on Financial Institutions. Article 14. Prohibition to Transfer Pension Assets 1. Pension assets may not be transferred to the management company managing it, the head, the members of the board, the supervisory board or the employees (and their spouses) of such a company. Also it shall be prohibited to acquire assets from the persons referred to in this paragraph using the funds of a pension fund. 8
    • 2. Pension assets may not be lent, pledged or used as a guarantee or surety for obligations of other persons. This shall not constitute a prohibition to acquire not fully paid up securities, money market instruments or other objects of investments referred to in Article 46 of this Law. 3. It shall be prohibited to conclude transactions using the funds of a pension fund to sell securities, money market instruments or other investment instruments that the company does not hold. 4. A management company operating for the account of a pension fund may not take loans, except loans constituting up to 10 percent of the value of the net assets due within up to three months, which are necessary for maintenance of liquidity. This shall not constitute a prohibition to borrow foreign currency for purchasing securities or money market instruments, provided that the repayment of the loan is guaranteed by transferring to loan grantor a sum in the other currency, which is at least equal to the borrowed amount (back-to-back loan). Article 15. Offering and advertising of services (amended by Law No. IX-2270 of 10 June 2004) 1. The management company, other authorised and otherwise associated persons shall be prohibited from disseminating information which may be false, incomplete and may be misleading. 2. The management company, other authorised or otherwise associated persons are entitled to make statements using forecast figures exclusively in the manner stipulated by the Securities Commission. 3. While providing information to a current or a potential participant on possible pension benefits the management company, its representatives and other associated persons shall have a right to use the pension simulator, provided such simulator meets the following requirements: 1) the provided information is clear and not misleading; 2) assumptions shall be provided underlying the performed calculations; 3) explanations shall be provided facilitating the understanding of the calculation results; 4) description of applicable calculation methods shall be provided; 5) a warning shall be included next to the calculation results to the effect that the management company does not provide any guarantee in respect of such results. 4. The management company assuming certain guarantees of the yields in respect of the participants shall have a right to make statements using the forecast figures, publish information on the anticipated investment income and other related forecast within the limits of the obligations assumed. 5. The pension accumulation activity advertising may contain only the information published in the regulations of the pension fund and the periodic reports of the pension fund. For the purposes of the advertising the management company may draw up and publish the shortened version of the pension fund which may contain only the information originally published in the pension fund regulations approved by the Securities Commission. 6. The contents and the form of the management company, its persons authorised thereby or otherwise associated to the management company shall be approved in advance by the Securities Commission. The Securities Commission shall be obligated to prohibit the management companies to engage in the publication of 9
    • false, misleading and incomplete advertising statements and obligate them to disprove, specify or supplement the advertising already published. 7. The management company shall be liable for the appropriate selection and training of persons providing information about the pension accumulation activity and/or pension accumulation agreements, and shall ensure that the persons are of appropriate qualification. The Securities Commission shall have a right to define the qualification requirements for persons authorised to provide information on the pension accumulation activity and/or concluding the pension accumulation agreements on behalf of the management company. 8. Only persons of impeccable repute and competent in the legislation governing the pension accumulation activity may provide information about the pension accumulation activity and/or conclude pension accumulation agreements on behalf of the management company. 9. The persons engaged in the development and / or disseminating the research data intended for public distribution and the public on the accumulation or pensions in pension funds or any other information containing recommendations or guidance as to selection of a pension fund, shall, in the manner established by the Securities Commission ensure that such information is not misleading, is provided in an accurate and correct manner, also disclose its interests and indicate the conflicts of interests related to pension funds and their managers to which such information is related. Article 16. Measures Applicable to Management Companies The Securities Commission shall have the right to apply the following measures to management companies: 1) warn about shortcomings of their activities and violations and set a term for their elimination; 2) impose administrative sanctions upon the heads or employees or impose fines set forth in this Law; 3) suspend the licence; 4) revoke the licence; 5) restrict the right to invest money; 6) obligate the management company to transfer the management of the pension fund to another management company; 7) appoint an interim representative of the Securities Commission for supervision of the activity. Article 17. Grounds for Application of Measures 1. Measures stipulated in this Law may be applied where at least one of the following grounds is present: 1) a management company has furnished incorrect information to the Securities Commission; 2) the Securities Commission has not been provided with requested information or documents necessary for supervision; 3) conditions under which the licence has been issued are no longer satisfied; 4) the law or other legislation of the Republic of Lithuania has been violated; 5) a management company fails to meet its obligations to participants or there is evidence that it will not be able to do that in the future. 10
    • 2. The choice of a measure shall depend on the type of a violation, the impact of the violation and the application of the measure on the company, participants’ interests and safety of the financial system. The issue of application of a measure shall be considered upon a prior notification of the management company thereof and provided that it has been given a possibility to present explanations. Failure of a representative to arrive to the meeting, which considers the issue, or to present explanations, shall not obstruct adoption of a decision concerning application of the measure. 3. A decision to apply a measure may be taken provided no more than 2 years have elapsed since the day the violation was committed, while in cases of continuous violations the 2 year term shall be calculated starting with the day when the last acts were committed. Article 18. Interim Representative for Supervision of Activities 1. In urgent cases, with a view to protecting pension assets from depreciation or any other loss, the Securities Commission shall have the right to delegate its interim representative for the supervision of the activities of the management company in question. 2. The heads of the management company shall be obliged to obtain approval of the interim representative for decisions concerning to the company’s activity indicated in the decision of the Securities Commission to appoint an interim representative. 3. The tenure of the interim representative shall be terminated where: 1) the company is deemed to be able to function in a trustworthy manner; 2) bankruptcy proceedings have been instituted against the company; 3) the licence of the management company has been revoked. Article 19. Revocation of a Licence The Securities Commission shall have the right to revoke the licence of a management company where: 1) such a measure is imposed on the company in accordance with the procedure stipulated in this Law; 2) the holder of the licence has applied in writing for revocation of the licence; 3) the holder of the licence fails to commence the activities of pension accumulation within 12 months or suspends such activities for more than 6 months. Article 20. Special Features of Reorganisation, Restructuring of a Management Company 1. Prior to adoption of a decision to reorganize, restructure a management company, a permit must be obtained from the Securities Commission. 2. The conditions of the reorganisation of a management company must specify, in addition to other information stipulated in the Civil Code and the Law on Companies, the number of pension funds and their participants, provide data about the pension funds which are being transferred or taken over for management and their assets, own assets of the management company, the depository, terms and conditions of transferring and taking over of the management company’s obligations, property and non-property rights of the participants of the pension funds after the 11
    • reorganisation, and the time limit for assuming those rights and obligations. The conditions of the reorganisation must be approved by the general meeting of shareholders of the management company undergoing reorganisation and the Securities Commission. 3. The management company must announce the reorganisation or restructuring following the procedures established by the Securities Commission. 4. Management companies, which will operate after the reorganisation or restructuring, must obtain anew a licence from the Securities Commission. Where a management company, which will operate after the reorganisation or restructuring, fails to obtain a licence, the resolution of the general shareholders’ meeting about the reorganisation shall be deemed invalid. 5. Information about the course and the terms of reorganisation or restructuring must be provided upon request to every shareholder of the management company, participant of the pension fund, the Securities Commission. 6. Upon receiving permission from the Securities Commission and in the manner determined by the Securities Commission, a management company undergoing reorganisation may transfer management of pension funds to another management company without the consent of the participants of the pension funds, provided that the receiving management company assumes all the obligations to the participants of the pension funds stipulated in the pension funds’ rules and pension accumulation agreements. Article 21. Special Features of Bankruptcy Procedure of a Management Company 1. Bankruptcy of a management company shall be settled only through judicial proceedings. 2. The Securities Commission shall have the right to apply to the court for the initiation of a bankruptcy against a management company. 3. No later than within 15 days after filing of an application, the court shall adopt a decision whether to initiate a bankruptcy or not. In cases the court or a judge adopt a decision to initiate a bankruptcy a prompt notification thereof must be submitted to the Securities Commission. 4. The administrator of the management company shall organise, following the procedure prescribed by the Securities Commission, the transfer of the pension funds management to another management company. The administrator shall have a right to transfer the pension fund management to another management company without the consent of participants provided that the receiving management company assumes all obligations to the participants. 5. The claims of participants on the management company stemming from the pension fund management relations must be satisfied from the management company’s own assets prior to satisfying the claims of the management company’s other creditors, but only after paying to the secured creditor in the manner prescribed by law. Article 22. Special Features of Liquidation Procedure of a Management Company 1. A management company may be liquidated by a decision of the general shareholders’ meeting only provided that it has transferred management of all the pension funds to another management company in the manner prescribed by the 12
    • Securities Commission or where, subject to an authorisation of the Securities Commission and in the manner prescribed by it, it has suspended all pension funds due to the intention to liquidate the management company. The management company may transfer pension fund management to another management company without consent of the participants provided that the receiving management company assumes all obligations to the participants. 2. Within three days after the general shareholders’ meeting adopted a decision to liquidate a management company the decision must be communicated in writing to the Securities Commission and the registrar of the Register of Legal Persons, together with information about the appointed liquidator. 3. A management company must announce its liquidation in the manner prescribed by the Securities Commission. Information about the course and terms of the liquidation must be provided, upon request, to every shareholder of the management company, participant of the pension fund managed by it, and the Securities Commission. 4. The liquidator of a management company undergoing liquidation shall be responsible for distribution of pension assets of pension fund the management of which has not been transferred to other management companies. 5. A liquidated management company may be deregistered from the Register of Legal Persons only upon finalisation of the distribution of the pension assets of pension funds managed by it. CHAPTER THREE PENSION FUND AND ITS PARTICIPANTS Article 23. Formation of a Pension Fund and Pension Fund Rules 1. The pension accumulation activity in pension funds managed by a management company shall be governed by pension funds rules. 2. Pension fund rules shall be approved by decision of the Board of the management company. The management company may start accumulating contributions of participants into a pension fund only after the fund rules are approved by the Securities Commission following a prescribed procedure. 3. Pension fund rules shall specify the following: 1) the name of the pension fund (which must make it clear that the fund is a supplementary voluntarily pension accumulation fund); 2) the terms and conditions for and the procedure of joining, withdrawal from a pension fund or any other termination, suspension, and renewal of participation in a pension fund; 3) the rights and obligations of pension fund participants; 4) the rights and obligations of the management company; 5) the ways of payment of pension benefits and possibilities to choose them, procedure of payment of pension benefits, age eligible for supplementary pension; 6) rules and announcement procedure of calculation of the pension fund’s net assets and calculation of the account unit value; 7) the procedure of converting pension contributions and other financial resources, belonging to a pension fund participant, that is being transferred to another pension fund or pension accumulation company, into account units, as well as the 13
    • rules of conversion of account units into money and payment of money to persons entitled to receive it; 8) the investment strategy of a pension fund; 9) the procedure of opening, maintaining and closing of pension accounts and the procedure of accounting account units in those accounts; 10) methodology of calculating remuneration to the management company and the depository; amounts to be paid and the payment procedure thereof; a complete list of other costs to be covered from the pension assets and the calculation methodology thereof; 11) the forms and procedure of submitting to pension fund participants, in cases specified under this Law, reports on the performance of the pension fund management activity carried out by the management company and on pension accounts as well as other notifications of the pension fund to the pension fund participants; 12) the conditions and the procedure of concluding, changing and terminating pension accumulation agreements; 13) the procedure of transfer to another pension fund managed by the same or another management company and the time period established in Article 35 (5) of this Law during which the management company must transfer the funds belonging to the participant; 14) the names, office address, rights and obligations of the depository; 15) conditions and procedure of changing the depository; 16) procedure of amending the pension fund rules; 17) the conditions and procedure of termination of a pension fund and the procedure of distribution of the assets of the terminated pension fund; 18) other conditions and information established by the Securities Commission. 4. Pension fund rules may include other provisions as well, which must be in conformity with this Law and requirements established by the Securities Commission. 5. The management company must ensure that all persons have access to the pension fund rules and their amendments approved by the Securities Commission. 6. A management company must inform in writing every participant of a pension fund managed by it about amendments to the respective pension fund rules at least 20 days before the amendments are effected. Amendments to pension fund rules shall become effective in 30 days after their approval by the Securities Commission. Article 24. Investment Strategy of a Pension Fund 1. The investment strategy of a pension fund must lay down the pension assets’ investment procedure and investment choices, risk assessment methods, principles, applied procedures and ways of risk management, strategic grouping of the pension assets by periods of validity and nature of obligations under pension accumulation agreements. 2. At least once in every three years a management company must review the investment strategy and amend it where necessary. Article 25. Pension Fund Participant A person shall become a participant of a pension fund after the pension accumulation agreement comes into effect. 14
    • Article 26. Rights of a Pension Fund Participant 1. A pension fund participant shall have the right to: 1) terminate the pension accumulation agreement; 2) receive information related to the management company’s activity, as stipulated in law; 3) receive information about the status of his pension account, investment strategy of the funds and investment incomes received under this strategy, as well an conclusions of audit of the financial activity of the management company and other information set out in this Law; 4) receive pension benefits provided for in this Law; 5) postpone payment of pension benefits following the procedure stipulated in this Law; 6) bequeath his share of the pension assets; 7) enjoy other rights provided for by law, the pension fund rules and the pension accumulation agreement. 2. The rights set out in paragraph 1 of this Article shall be enjoyed by the participant also in cases when he does not pay contributions or contributions are not paid on his behalf. Article 27. Pension Accumulation Agreement 1. A pension accumulation agreement shall be an agreement between a management company and a participant concerning the accumulation of pension contributions in the pension fund managed by the management company and selected by the participant. Prior to concluding a pension accumulation agreement, the participant shall be familiarized with the rules of the pension fund participants of which they are going to become upon coming into effect of the pension accumulation agreement. The pension fund rules shall constitute part of the pension accumulation agreement. 2. A pension accumulation agreement must be concluded in writing. 3. A pension accumulation agreement must provide for the right of a participant to terminate the pension accumulation agreement unilaterally. 4. A management company shall have no right to terminate a pension accumulation agreement without the consent of the participant, except in cases provided for in this Law. 5. The management company shall administer lists of pension funds’ participants and beneficiaries. Data contained on those lists shall be deemed secret. The lists shall be kept for each pension fund separately. The rules of lists administration and contents shall be laid down by the management company and must be approved by its Board. 6. The pension accumulation agreement shall come into effect from the moment of its conclusion and payment of the first contribution, if the agreement does not provide for a later date of enactment. 7. Upon conclusion of a pension accumulation agreement, the management company shall open a personal pension account for each participant of the pension fund. 15
    • Article 28. Contents of a Pension Accumulation Agreement 1. A pension accumulation agreement shall specify the following: 1) agreement number, conclusion date and venue; 2) parties (the name, code, office address of the management company, the number of the licence issued by the Securities Commission, name and family name of the representative; the name, family name, ID number of the participant, date of birth and address of residence (where the participant is a legal person – the name, code, office address of the enterprise, and the name and family name of the representative); 3) subject of the agreement; 4) name of the pension fund, the registration number of the rules approved by the Securities Commission, and date of approval; 5) rights and duties of the parties, including the duty to notify each other about any change of the pension accumulation agreement’s requisites (place of residence or office, name, family name, bank cash account number, etc); 6) size, ways, procedure and terms of pension contribution payment; 7) terms of pension benefit payment; 8) liability of the management company for failure to fulfil its obligations; 9) conditions and procedure of amending the pension agreement; 10) procedure and conditions of a pension agreement termination, including the right of a participant to terminate the pension accumulation agreement at any time; 11) procedure of settling disputes of the parties; 12) period of validity of the agreement and grounds of validity expiration; 13) indication that the pension fund rules, under which the pension accumulation agreement is concluded, constitutes an inseparable part of this agreement; 14) requisites of the parties. 2. Pension accumulation agreements may contain provisions other than those indicated in paragraph 1 of this Article, if they do not contradict the Civil Code, this Law, other laws and legal acts of the Republic of Lithuania, requirements established by the Securities Commission, the bylaws of the management company, and the pension fund rules, under which the pension accumulation agreement which is being (has been) concluded. 3. The parties of a pension accumulation agreement may not include into the agreement provisions that would worsen the condition of the pension fund participant in comparison with the ones provided for in this Law and other laws of the Republic of Lithuania. Article 29. Pension Contributions 1. Pension contributions shall be paid only in cash. 2. Employers may pay contributions or a portion of them for the benefit of their employees. 3. Termination of the payment of contributions or other payment violations may not be a cause for the termination of the pension accumulation agreement or for the restriction of the property right of the participants to the pension assets. In such cases the participant shall enjoy all the rights stipulated in paragraph 1 of Article 26 of this Law. 16
    • 4. Where pension contributions are paid not by a pension fund participant, such contributions shall become the property of the participant from the moment of recording in the pension account the contributions converted into account units. 5. It shall be prohibited to pay pension contributions and receive pension benefits at the same time, in the name of the same pension fund participant. Article 30. Pension Accounts 1. A management company must open for every participant a personal pension account. The information about the pension accounts shall be secret. 2. Pension accounts shall be opened, managed and closed, and account units shall be recorded in the accounts in the manner stipulated in the pension fund rules. The Securities Commission shall stipulate principles governing opening, maintaining and closing of accounts and accounting of account units. Article 31. Pension Assets 1. Pension assets shall belong to the participants by the right of joint partial ownership. A participant’s share of the joint ownership shall be determined using the amount of account units recorded in his personal pension account. 2. A management company shall manage, use, and handle the pension assets on the basis of trust law. 3. The pension assets of each pension fund shall be entered in the records separately from them own assets of the management company and the pension assets of another pension fund managed by the same management company. 4. Execution may not be levied against the assets of a pension fund in satisfaction of claims by the management company and participants of pension fund. 5. Upon death of a participant, the pension assets belonging to him shall be inherited following the statutory provisions. In cases when assets of the pension fund belonging to a participant who died are inherited by another pension fund participant, account units due to the share of assets recorded in the pension account shall not be converted into money, unless the pension fund participant claims in writing otherwise. 6. Only contracts specified in this Law may be concluded regarding pension assets. 7. The value of net assets of each pension fund must be calculated in order to determine the value of account units of the pension fund. 8. Net assets of a pension fund must be calculated and the value of account units of a pension fund must be set every working day in the manner laid down in the pension fund rules. An average value of the account units shall be calculated on a monthly basis for the previous month. The Securities Commission shall have the right to lay down the procedure and principles of calculation of a pension fund’s net assets. Article 32. Expiration of Participation in a Pension Fund 1. Participation in a pension fund shall expire when: 1) the management company implements its obligations to the pension fund participant; 2) a participant withdraws from the pension fund; 3) a participant moves to another pension fund; 4) a participant dies; 17
    • 5) the pension fund is discontinued. 2. The withdrawal of a participant from a pension fund shall be understood as the termination of the pension accumulation agreement on the initiative of the participant without moving to another pension fund. 3. Pension fund rules may set a prohibition to withdraw from the pension fund prior to reaching the pension age, also they may set a term of a minimum mandatory participation in the pension fund, prior to the expiration of which the person would not be entitled to withdraw from the pension fund. 4. A pension fund participant withdrawing from a pension fund must be paid the amount obtained after converting the account units recorded in his pension account into cash funds. Where the pension fund rules provide, the management company may charge a fee for the participant’s withdrawal from the pension fund amounting to up to 10% of the sum being withdrawn. 5. The management company, its shareholders, and the pension contributor shall be prohibited from restricting, directly or indirectly, the right of a participant of the pension fund to withdraw from the fund, with the exception of the case specified in the paragraph 4 of this Article. Article 33. Participant’s Moving to Another Pension Fund 1. Participants shall have the right, in the manner established in this Law, to move to another pension fund managed either by the same or another management company. 2. Moving of a participant from one pension fund to another must be executed in accordance with the terms and conditions provided for in the rules of the pension fund from which a transfer is being made and the rules of the pension fund to which a participant is moving. Where the pension fund rules provide, the management company may charge a fee for the participant’s moving to another pension fund amounting to up to 10% of the sum being transferred. The fee may be deducted from the funds belonging to the participant which are being transferred to another pension fund or may be charged in other ways specified in the pension fund rules. At least once during a business year, a participant shall have the right to move to another pension fund managed by the same management company free of charge (no deductions being made), and where he moves to a pension fund managed by another management company, he shall cover only the expenses of the management company, from a pension fund managed by which the transfer is being made, related to the transfer of a person to another pension fund. 3. Where a management company intends to transfer management of pension assets to another management company, a participant of the pension fund the management of the assets of which is intended for transfer shall be transferred free of charge (no deductions being made) within three months after adoption of the above decision to another pension fund chosen individually. 4. The management company, a participant of a pension fund managed by which expresses a wish to move to another pension fund, the shareholders of the management company or a contributor shall be prohibited from restricting, directly or indirectly, this right of a participant. 5. The management company a participant of a pension fund managed by which moves to a pension fund managed by another management company shall transfer into the receiving management company the sum obtained by converting the 18
    • account units recorded in the pension account of a participant into funds upon deduction of the fee provided for in the pension fund rules for the transfer into another pension fund. The sum left after deduction of the fees provided for in the rules of the pension fund to which the participant is transferring shall be converted into account units of that pension fund. Money must be converted into account units no later than on the working day following the day when they were received by the receiving management company. The funds shall be converted at the value of the account units of the pension fund to which the participant is transferring on the day of receipt by the receiving fund. The management company a participant of a pension fund managed by which moves into a pension fund managed by another management company, shall transfer the funds belonging to the participant to the receiving management company only after the participants submits the pension accumulation agreement concluded with the receiving management company to the management company managing the pension fund from which the participant is moving. 6. If a participant moves to another pension fund managed by the same management company, the funds belonging to the participant shall be transferred, in the manner specified in paragraph 2 of this Article, to the pension fund to which the participant transfers. A new pension accumulation agreement shall be concluded for a participant moving to another pension fund managed by the same management company. Article 34. Termination of a Pension Fund 1. A pension fund may be terminated by a decision of the board of the management company or a court decision. 2. A pension fund may be terminated by a decision of the management company’s board on the grounds of at least one of the following reasons: 1) the management company has discharged all the obligations to all the participants of a pension fund managed by it; 2) all the participants of a pension fund managed by the management company move to another pension fund; 3) the management company is in liquidation or reorganisation. 3. The management company may terminate a pension fund without the consent of the participants only in the case specified in paragraph 4 of this Article, also if it has transferred management of the assets of the pension fund and its obligations stemming from pension accumulation agreements to another management company in accordance with the procedures established by the Securities Commission. 4. If the management company terminates a pension fund with permission of the Securities Commission and in the manner prescribed by the latter due to a resolution of the general meeting of shareholders to put the management company into liquidation or reorganisation, consent of participants for the termination of the pension fund shall not be obligatory. 5. Where the court makes the ruling on the bankruptcy of the management company and therefore rules to liquidate it, pension funds management of pension assets of which and obligations assumed under the pension accumulation agreements have not been transferred to another management company prior to adoption of the liquidation ruling shall be declared terminated by the court ruling. 6. Where a participant of a pension fund expresses a wish to transfer to a pension fund of another management company within 3 months from the date of the 19
    • adoption of the ruling to terminate the pension fund, the transfer of the participant to another pension fund must be effected free of charge (no deductions being made). 7. The management company must notify participants of the pension fund, its contributors, and the Securities Commission about the decision to terminate the pension fund no later than within 5 working days from the date when the decision was adopted. 8. If a pension fund is terminated and its assets’ management and obligations assumed under the pension accumulation agreements is not transferred to another management company, the assets of the pension fund which has been terminated shall be distributed among the participants of the pension fund in proportion to the amount of account units recorded in the pension accounts, taking into account its condition, on the day when a decision to terminate the pension fund was adopted or on the day when the court passed a ruling to put the bankrupt pension fund into liquidation. All the assets of the pension fund which has been terminated must be realised and settlement with the participants of the pension fund must be effected using the proceed from the realisation of those assets. The pension assets of the pension fund which has been terminated must be sold through the stock exchange or by auction in accordance with the rules set forth by the Securities Commission. Article 35. Account units and their Conversion 1. Account unit shall be an expression of a share of the pension assets belonging to a pension fund participant. 2. Pension contributions as well as funds which are transferred to another pension fund to which a participant transfers must be converted into account units and account units shall be entered in pension accounts. Funds shall be converted into account units no later than on the working day following the day when the management company received the funds. The money must be converted into account units at the value of account units of the relevant pension fund on the day when the management company received the money. 3. Every pension fund must have its account units. 4. Account units (their parts) shall have no nominal value. The value of an account unit (its part) shall be expressed in the currency of the Republic of Lithuania – Litas. The value of each account unit shall be determined by dividing the value of net assets of the pension fund by the aggregate number of account units of the pension fund. The total value of all the account units of the pension fund shall always be equal to the value of net assets of the pension fund. The value of account units (their parts) must be indicated showing 4 figures after the fraction comma and rounded off according to the mathematical rounding off rules. 5. Where in cases specified in this Law and other laws of the Republic of Lithuania, funds accumulated by the participant or a part of those funds must be paid out or transferred, the management company, upon receipt of an document (or upon occurrence of a specified legal event), shall no later than on the following working day convert the account units recorded in the pension account of the pension fund’s participant into money at the value of the account units of the day and, not later than within 7 working days, disburse or transfer the funds. 6. Account units may be divided into sub-units, and the value of the amounts in the pension account of a participant as well as the value of net assets of the pension fund may be expressed in term of sub-units of the account units. 20
    • 7. The procedure of conversion of pension contributions and other funds belonging to a pension fund participant, which are transferred to another pension fund, into account units as well as the rules of conversion of account units into money and payment of money to their owners shall be set forth in the pension fund rules. When converting funds into account units, the amount of account units may be expressed in whole numbers or in fractions under the pension fund rules. The Securities Commission shall have the right to establish additional requirements for conversion of pension contributions and funds belonging to a pension fund participant which are being transferred to another pension fund to account units and conversion of account units into money. Article 36. Pension Benefits 1. The right to pension benefits shall be acquired by a participant of a pension fund upon reaching the retirement age stipulated in the pension fund rules, which may not be shorter by more than 5 years than the retirement age, which is set for receiving a state social insurance retirement pension. 2. A participant in a pension fund, recognised as a person with incapacity for work or partial incapacity for work by the Disability and Capacity for Work Establishment Office under the Ministry of Social Security and Labour (before 1 July 2005 – recognised of I or II group disability), shall become entitled to pension benefits as of the day of the establishment of the capacity for work level (recognition of disability. 3. A participant of a pension fund shall have the right to postpone the payment of pension benefits. For this purpose, the pension fund participant must file with the management company a written application requesting postponement in writing no later than 3 months before reaching the retirement age as set forth in the pension accumulation agreement. A participant of the pension fund shall have the right to revoke in writing at any time the postponement of the payment of pension benefits. In this case payment of pension benefits must start no later than 2 months after the day of filing the application in writing to revoke payment of benefits. 4. Payment of pension benefits must start no later than within 3 months from the day of submitting to the management company documents evidencing the right of a participant of the pension fund to pension benefits. 5. No other payments may be made from the pension account except those set forth in this Law. Article 37. Ways and Procedure of Payment of Pension Benefits 1. A pension fund participant may choose any of the following ways of payment of pension benefits: 1) as a lump sum; 2) by periodically converting in portions the account units recorded in the pension account into funds, provided that such form of payment of pension benefits is stipulated in the pension fund rules; 3) by purchasing an annuity from a life insurance enterprise. 2. The method of payment of pension benefits shall be selected by a pension fund participant. The management company must inform the participant of the necessity to choose the pension benefits in a timely manner. 21
    • Article 38. Annuities 1. An annuity shall be purchased from a life insurance enterprise of the pension fund participant’s choice for the sums calculated in his pension account. 2. A pension annuity shall be acquired when the pension fund participant sings an insurance agreement with the payer of the pension annuity. Only a life insurance enterprise may be the payer of a pension annuity. Article 39. Deductions from Pension Assets 1. Remuneration to the management company for the management of the pension fund, to the depository for its services, and other expenses related to the pension fund management shall be covered from the pension assets. 2. Only expenses related to the management of the pension fund and expenses set forth in the pension fund rules may be covered from the pension assets. The amount of these expenses may not exceed the limit of the expenses specified in the pension fund rules. All the expenses, which are not specified in the fund rules or which exceed the specified amount must be covered from the funds of the management company. Article 40. Confidential Information and Maintaining of its Confidentiality 1. Information on a participant’s contributions, benefits, amount of account units in his account and other information related to the participant and disclosure of which may inflict harm on the participant shall be deemed confidential. Employees of the management company or the depository and other persons entitled to have access to this information may disclose it only in cases specified in this Law. 2. Confidential information may be disclosed only to a pension fund participant, a person authorised by him, and public institutions which need this information for the performance of their functions and the laws regulating their activities provide for their right to have access to this information. CHAPTER FOUR DEPOSITORY Article 41. Duty to Transfer Pension Assets to a Depository 1. The safe-keeping of pension assets must be entrusted to a single depository. 2. A depository shall have the right to delegate its functions or part or them to other depositories, which will not lessen its liability though. Article 42. Duties of a Depository 1. A depository must act in the interests of the participants of pension funds and: 1) carry out instructions of the management company, where these do not conflict with the law and the pension fund rules; 2) ensure that proceeds for the transferred pension assets are remitted to the pension fund within the set time limits; 3) ensure that proceeds of the pension fund is used in accordance with the law and the pension fund rules. 22
    • 4) ensure that the conversion of the funds into accounting units and the conversion of accounting units into funds are performed in accordance with the requirements of legal acts and the rules of the pension fund in question. 5) ensure that the value of the accounting units is calculated in accordance with the requirements of legal acts and the rules of the pension fund in question. 2. A depository must inform the Securities Commission and the supervisory council or board (where the supervisory council is not formed) of the management company about any violations of the law and the pension fund rules which it has noticed. 3. Remuneration for the services rendered by a depository may not exceed an amount stipulated in the pension fund rules. 4. A depository shall be liable for any loss suffered by pension fund participants as a result of the depository’s failure to perform its obligations or improper performance of them. Article 43. Transfer of the Management of Pension Assets to a Depository Where the authorisation of the management company to manage pension fund expires and has not been transferred to another management company, the management of the pension assets shall be temporarily taken over by the fund’s depository. In such cases the depository shall have all the rights and duties of the management company, unless the law or the pension fund rules provide otherwise. The depository must transfer the management of the pension assets to another management company within three months after taking the management over. Where within three months the management of pension assets has not been transferred to another management company, the pension fund must be terminated and pension assets must be distributed to its participants following the procedures set out in paragraph 8 of Article 34 of this Law and by the Securities Commission. Article 44. Segregation of a Management Company from a Depository 1. No depository shall act as a management company simultaneously, with an exception of case stipulated in Article 43 of this Law. 2. The head of the administration of a management company, a member of its board or an employee may not hold a position of the head, members of the board, or the supervisory council of the depository which provides safe-keeping to the assets of the pension fund administered by that company. 3. The head, members of the board, the supervisory council, also the employees performing functions directly related to the operations of the depository may hold no more than ¼ of the positions in the supervisory council of the management company managing that pension fund. Article 45. Changing of a Depository 1. A management company may change a depository only provided that the Securities Commission has approved of such a change. 2. In the event a depository fails to comply with the statutory requirements, perform its obligations or performs them improperly, the Securities Commission, with a view to protecting the rights of the participants of the pension fund, may instruct the management company to choose another depository. CHAPTER FIVE 23
    • INVESTMENT RULES Article 46. Objects of Investment 1. The pension assets may consist solely of: 1) securities or money market instruments dealt in on markets deemed under the Law on Securities Market to be regulated and operating in the Republic of Lithuania or a Member State of the European Union; 2) securities or money market instruments which are admitted to official trading listing on a stock exchange of a country other than the Member States of the European Union or which are dealt in on a regulated market situated in that country, operating in accordance with the prescribed rules, recognised and open to the public, provided that this market or exchange is indicated in the pension fund rules; 3) new securities being issued, provided that the terms of issue set out the obligation to list these securities on the official trading list on a stock exchange or on the trading list of a regulated market and that these securities are admitted to the listing no later than within one year after their issuance (where this exchange or market is situated in a country referred to in item 2 of this paragraph, it must be indicated in the pension fund rules); 4) deposits with credit institutions with an up to 12 month maturity which may be withdrawn on demand provided that those credit institutions have their registered office in the Republic of Lithuania, a Member State of the European Union or another country subject to prudential rules which are at least as stringent as those effective in the European Union; 5) money market instruments referred to in paragraph 2 of this Article. 2. Investments into money market instruments which are not traded on a regulated market may be made only provided that the issue or the issuer of such instruments is regulated with a view to protecting investors and their savings and that these instruments are: 1) issued or guaranteed by a central, local authority or the central bank of a Member State of the European Union, the European Central Bank, the European Union Bank or the European Investment Bank, a non-member State or, in the case of a Federal State, by one of the members making up the federation or international bodies to which at least one Member State of the European Union belongs; 2) issued by an undertaking securities of which are dealt in on regulated markets referred to in items 1 and 2 of paragraph 1 of this Article; 3) issued or guaranteed by an establishment subject to prudential supervision in accordance with the criteria defined by the European Union law or criteria which are at least as stringent as those laid down by the European Union law; 4) issued by a company which satisfies the criteria set by the Securities Commission and whose capital and reserves amount to at least EUR 10 million, a company which draws up consolidated accounts and performs the function of financing of a group of companies where at least one company is listed on a stock exchange, or which is dedicated to the financing of securitisation vehicles which benefit from a banking liquidity line and investments into such instruments are provided at least the level of protection referred to in subparagraphs 1 to 3 of this paragraph. 24
    • 3. A pension assets may not be invested into real estate, precious metals or certificates representing them. 4. Pension assets may be invested into derivative investment instruments solely for the purpose of risk management. A management company shall have the right to use derivative investment instruments only where pension fund rules specify what derivative investment instruments the management company intends to use and for what purposes. Each derivative investment instrument must be based on a concrete investment transaction (investment position). Such a transaction and a derivative investment instrument used for the management of the risk thereof must be indicated in periodical reports of the management company. 5. The Securities Commission shall establish a procedure in accordance to which a management company seeking to ensure an efficient management of the investment instrument portfolio shall be entitled to use the methods and investment instruments related to securities or money market instruments. The use of the methods or the investment instruments does not imply an authorisation to deviate from the investment objectives specified in the rules of the pension fund. Article 47. Diversification of an Investment Portfolio 1. No more than 5 percent of net pension assets may be invested into the securities or money market instruments issued by the same issuer, except cases provided for in paragraphs 2, 5, and 6 of this Article. 2. More than 5 percent but no more than 10 percent of net assets may be invested into the securities or money market instruments issued by the same issuer, provided that the sum of such investments does not exceed 40 percent of the net assets (this limit shall not apply to deposits). 3. Investments into deposits with one credit institution may not amount to more than 20 percent of net pension assets. 4. The total amount of investments into securities, money market instruments issued by the same body or deposits may not exceed 20 percent of net pension assets. 5. Investments into one issuer’s securities or money market instruments issued or guaranteed by the state, the Republic of Lithuania, local authorities of a Member State of the European Union or an international body to which at least one Member State of the European Union belongs may not exceed 35 percent of the net pension assets. The Securities Commission may permit to invest a higher percentage of the net assets into securities or money market instruments referred to in this paragraph, provided that investors’ interests remain duly protected, investments are made into securities or money market instruments from at least 6 different issues, and investments into securities from any one issue do not account for more than 30 percent of the total net assets. 6. Investments into bonds issued by a credit institution which has its registered office in a Member State of the European Union and is subject by law to special public supervision designed to protect the interests of bond-holders and provided that a sum generated by issuance of those bonds is invested in assets which, during the whole period of validity of the bonds, is capable of covering claims attaching to the bonds and which, in the event of a failure of the issuer, would be used on a priority basis for the reimbursement of the principal and payment of the accrued interest may not exceed 25 percent of the net assets. When more than 5 percent but 25
    • not more than 25 percent is invested in such bonds issued by one issuer, the total sum of those investments may not exceed 80 percent of the net assets. 7. The securities and money market instruments referred to in paragraphs 5 and 6 of this Article shall not be included summing up the investments which are subject to the maximum limit of 40 percent referred to in paragraph 2 of this Article. The limits provided for in paragraphs 1 to 6 of this Article may not be summed up, thus the total sum of investments into securities, money market instruments issued by the same body, deposits may not exceed 35 percent of net pension assets. 8. Investments into securities and money market instruments issued by companies belonging to a group subject to the requirement to draw up consolidated accounts may not exceed 20 percent of the net assets. Article 48. Prohibition to Acquire Significant Influence over an Issuer 1. Shares of any one issuer held by a management company together with the shares of that issuer held by the pension funds managed by that company may not carry more than 1/10 of the total voting rights at the issuer‘s general meeting of shareholders. 2. No more than the following amounts may be acquired for the account of a pension fund: 1) 10 percent of the total non-voting shares of a single issuer; 2) 10 percent of the total debt securities of a single issuer; 3) 10 percent of the money market instruments issued by a single issuer; 4) 25 percent of investment units or shares of another collective investment undertaking. 3. The limits laid down in items 2, 3 and 4 of paragraph 2 of this Article may be disregarded at the acquisition moment if at that moment the gross amount of the securities or money market instruments is not known. 4. The limits laid down in items 2 and 3 of paragraph 2 of this Article shall not apply to securities or money market instruments issued or guaranteed by the state or local authorities. Article 49. Investment into Collective Investment Undertakings 1. It shall be allowed to invest into investment units and shares of collective investment undertakings which meet the following criteria: 1) undertakings are licensed in a Member State of the European Union or the OECD or in a State in which the supervision is not less stringent than provided in Council Directive 85/611/EEC of 20 December 1985 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) (as last amended by Directives 2001/107/EC and 2001/108/EC of 21 January 2002 of the European Parliament and of the Council), and the Securities Commission cooperates with the respective foreign supervisory authority; In the event the State in which the collective investment undertaking is licensed is not a Member State of the European Union or the OECD, the cooperation between the Securities Commission and the supervisory authority of such State shall be required on the basis of bilateral agreements; 2) the protection of the rights of the participants, including regulation of property segregation, borrowing, lending, and uncovered transfer of property, is not less stringent than provided in the requirements of Council Directive 85/611/EEC of 26
    • 20 December 1985 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) (as last amended by Directives 2001/107/EC and 2001/108/EC of 21 January 2002 of the European Parliament and of the Council); 3) undertakings submit their semi-annual and annual reports on their activity enabling the assessment of the assets and liabilities, profit and performance during the accounting period; 4) not more than 10 percent of their assets may be invested into investment units and shares of other collective investment undertakings; 5) the investment strategy of undertakings complies with the investment portfolio diversification requirements stipulated in Articles 46 to 48 of this Law. 2. No more than 20 percent of the net assets of a pension fund may be invested in each of the undertakings specified in paragraph 1 above. 3. The total amount of the investment into the assets of collective investment undertakings operating not in accordance with the regulations provided for in Council Directive 85/611/EEC of 20 December 1985 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) (as last amended by Directives 2001/107/EC and 2001/108/EC of 21 January 2002 of the European Parliament and of the Council) shall be not more than 30 percent of the net assets of the pension fund. 3. Collective investment undertakings which are managed by the same management company or management companies in which more than a half of the members of the management bodies are the same persons, or which are controlled by the same person or if one of those companies holds over 10 percent of votes at the general meeting of shareholders of the other management company shall be deemed related. Where at least one of the undertakings as referred to above is a pension fund management company, the assets of the pension fund may be invested into investment units or shares of related collective investment undertakings may be acquired only at the value of net assets. Article 50. Temporary Derogation form Investment Rules 1. A pension fund may derogate from the investment limits laid down in this Chapter when it exercises pre-emptive rights attaching to the securities or money market instruments held by it. In such cases as well as when the provisions of the investment rules are violated due to reasons beyond the control of a management company, the derogation must be eliminated without delay, at least within 6 months. 2. (amended by Law No. IX-2270 of 10 June 2004) The investment portfolio of a newly established pension fund may derogate from the requirements laid down in Articles 47 to 49 of this Law for six months after the approval of the pension fund rules. CHAPTER SIX DISCLOSURE OF INFORMATION Article 51. Information Disclosed to Pension Fund Participants 1. Pursuant to the procedure set forth in the pension fund rules, at least once in a calendar year, a management company must inform in writing or in any other manner (if requested by the participant) every participant of the amount of pension contributions made (indicating the payer or payers), the value of the pension assets accounted in his pension account (the number of accounting units recorded in the 27
    • pension account and their value), the annual return of pension fund investment, amount of deducted taxes. 2. A management company must ensure that at any time, when a request is made, participants have access to periodical reports, pension fund rules (the management company shall have to provide, upon the participant’s request, copies of reports for a fee not exceeding their production costs) and that participants receive truthful and complete information on the amount of the assets accumulated in personal pension accounts and on payment of contributions, have access to the conclusions of audit of company’s financial operation, choice of investment possibilities, the current investment portfolio, investment-related risk and costs, as well as other information specified in paragraph 1 of this Article. 3. When participants turn pension age or become entitled to receive benefits in accordance with other statutory provisions, a management company must provide those participants with comprehensive information on the benefit choice possibilities. Article 52. Announcement of Accounting Unit Value Following the procedure established by the Securities Commission, a management company must announce the value of each pension fund’s accounting unit in a daily manner. Article 53. Information Submitted to the Securities Commission 1. The management company must draw up and file with the Securities Commission, in the manner prescribed by it, the following periodical reports about its activities and financial status: 1) reports of each business year - within 4 months from the end of the accounting financial year; 2) half-yearly reports of the first six months of each business year – within two months from the end of the accounting half-year. 2. Pursuant to the requirement of the Securities Commission, a management company must draw up financial reports for the specified period and submit them to the Securities Commission in the manner prescribed by it. 3. Accounting data contained in the annual reports must be audited. Auditor’s conclusion, including reservations, must be annexed to annual reports. Auditor’s conclusions must point out whether the value of net assets is calculated, whether investments are made in accordance with the pension fund rules, and indicate all detected violations of this Law and other legal acts. Pursuant to the requirement of the Securities Commission, a management company and (or) auditor must submit to it the full auditor’s report along with explanations concerning financial statements of the pension fund. 4. (amended by Law No. IX-2270 of 10 June 2004) A management company shall, within the time limits estabslished by the Securities Commission, file with the Securities Commission information about the structure of the property of each pension fund, the number of participants, contributions paid in, return on investment and the financial statements of each pension fund. 5. The Securities Commission shall establish other requirements for the contents of periodic reports and the procedure of their filing with the Securities Commission, and shall have the right to include in the rules other mandatory periodical reports and documents and specify the procedure for the submission of other information. 28
    • Article 54. Information Disclosed to the Public A management company shall publicise its annual report of the established contents in the daily indicated in its bylaws within 4 months from the end of the accounting financial year. CHAPTER SEVEN PUBLIC CONTROL OF THE ACTIVITIES OF PENSION FUND MANAGEMENT COMPANIES AND DEPOSITARIES Article 55. Accounting and Financial Statements 1. Procedures of financial accounting and financial statements of management companies’ own assets and pension assets shall be established by the Government or an institution authorised by it. 2. The depository with which the management company has concluded the assets safekeeping agreement must furnish to the management company all the documents necessary for drawing up of financial statements. Article 56. The Securities Commission 1. The activities of management companies and depositories shall be supervised by the Securities Commission. 2. The Securities Commission shall perform the supervisory functions in accordance with this Law and the Law on Securities Market of the Republic of Lithuania and shall assume the rights and duties provided for in this Law and other laws. 3. The Securities Commission’s acts or failure to act may be appealed to the court in accordance with the procedure laid down in the Law on Administrative Procedure. Article 57. Functions of the Securities Commission Relating to Supervision of Activities of Management Companies and Depositaries 1. The Securities Commission shall perform the following functions: 1) prepare, approve, amend or repeal the legal acts provided for in this Law; 2) provide official explanations and recommendations on the issues relating to the activities of management companies; 3) issue or revoke licences for management companies; 4) approve pension fund rules and amendments thereto; 5) monitor, analyses and in other way supervise the activities of management companies and depositaries; 6) give instructions, the fulfilment of which is obligatory, to management companies and depositaries concerning elimination of violations of legal acts, impose other measures provided for in this Law and other laws; 7) exercise the right to receive data, in accordance with the procedure set forth in the law, on persons who by this Law are subject to the requirement of sufficiently good repute; 8) cooperate with foreign supervisory institutions and exchange with them information necessary for the implementation of supervisory functions; 9) perform other functions set out in this Law and other laws. 29
    • 2. In representation of the interests of the pension fund participants the Securities Commission shall have the right to apply to courts with a view to protecting public interest. Article 58. The Right of the Securities Commission to Carry out Inspections 1. The Securities Commission shall have the right to organise and carry out inspections of compliance of management companies and depositaries with this Law and the subordinate legislation enacted on the basis thereof. 2. During an inspection, the employees of the Securities Commission shall have the right: 1) to receive explanations in a written or oral form from persons involved in violations under investigation and require them to arrive to the office premises of the employer carrying out the inspection in order to provide explanations; 2) upon producing their employment card and grounded decision of the Securities Commission or a person authorised by it, carry out an inspection (audit), freely enter the premises of management companies, depositaries, and other legal persons related to the presumes violations, inspect the documents, record books, and other sources of information needed for the inspection and to receive conclusions produced by the examination institutions on the basis of the collected evidence; 3) to require copies of the accounting documents, agreements, orders, and other documents which are considered by the Securities Commission as important for the investigation; 4) to temporarily take away documents of the management companies and depositaries undergoing inspection that may be used as evidence of violations, and leave a grounded decision for removing the documents, and a list of documents that have been taken away; 5) upon producing a grounded decision of the Securities Commission, to obtain from banking establishments data, certificates and copies of documents of financial operations related to the matter under investigation. 3. With a view of exercising the rights stipulated in paragraph 2 of this Article the Securities Commission shall have the right to ask police officers for assistance. Article 59. Pecuniary Penalties for Violations of the Law In observance of the procedure set out in Article 62 of the Law on Securities Market, the Securities Commission, shall have the right to impose pecuniary penalties on: 1) legal persons acting as a management company without the licence specified under this Law - in the amount of up to LTL 200,000; 2) management companies which conclude pension accumulation agreements without having approved pension fund rules - in the amount of up to LTL 100,000; 3) management companies which violate the manner of investment of pension fund assets laid down in this Law which jeopardise property interests of the participants - up to LTL 300,000; 4) legal persons which have violated the procedure for offering of services or the publication of advertising – in the amount of up to LTL 100,000. 4) management companies which have failed to or have improperly fulfilled the duties stipulated in Article 6 of this Law – up to LTL 100,000. 30
    • I promulgate this Law passed by the Seimas of the Republic of Lithuania. PRESIDENT OF THE REPUBLIC VALDAS ADAMKUS 31