Rules and Regulations Governing Investment Companies under Republic Act No. 2629

October 31, 1989 RULES AND REGULATIONS GOVERNING INVESTMENT COMPANIES UNDER REPUBLIC ACT NO. 2629 Pursuant to the provisions of Republic Act No. 2629, otherwise known as the Investment Company Act, the following Rules and Regulations governing investment companies as defined under the said Act are hereby promulgated for the information and guidance of all concerned: prcd ARTICLE I Definition of Terms 1.1 When used herein, unless the context otherwise requires: a) "Commission" means the Securities and Exchange Commission. b) "Act" means the Investment Company Act., Republic Act No. 2629. c) "Revised Securities Act" means the Revised Securities Act, Batas Pambansa Blg. 178. d) "Investment Company" shall refer to any issuer which is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting and trading in securities, as defined in Section 4 of the Act. e) "Open-end Company" shall refer to an investment company which is offering for sale, or has outstanding, any redeemable security, of which it is the issuer. f) "Close-end Company" shall refer to an investment company other than an open-end company. g) "Rules" shall refer to these Rules and Regulations Governing Investment Companies under the Act. h) "Investment house" shall have the same meaning as the term is defined in Presidential Decree No. 129. i) "Prospectus" means a prospectus meeting the requirements of these Rules and Section 8(10) of the Revised Securities Act. j) "Commercial Bank" shall refer to a commercial banking corporation as defined in the General Banking Act, Rep. Act 337, as amended. k) "Custodian" is a duly authorized local commercial bank of good repute. 1.2 Unless otherwise specifically provided, the terms used in these Rules shall have the same meaning as defined in the Act. ARTICLE II Registration Requirements 2.1 Investment companies, unless otherwise permitted by Order of the Commission, shall be organized in the form of a stock corporation, and shall comply with the requirements of the Corporation Code of the Philippines, as well as the following additional requirements: a) minimum subscribed and paid-in capital of at least P50 million. b) all members of the Board of Directors must be Filipino citizens as provided for in Section 15 of the Act; c) all the shares of its capital stock shall be common and voting shares. d) the Articles of Incorporation of open-end companies shall provide for the waiver of pre-emptive rights of shareholders. 2.2 Any securities proposed to be issued and distributed or sold by the investment company shall likewise be registered in accordance with the Revised Securities Act and its implementing Rules and Regulations. 2.3 An investment company, aside from complying with the requirements of Section 2.1 and 2.2, shall further comply with the registration requirements and procedures provided in Article III of these Rules. ARTICLE III Registration Procedure Under the Act 3.1 Not earlier than the filing of its incorporation papers and registration statements under the Revised Securities Act, a person proposing to engage in the business of an investment company shall file a registration statement under the Act, in the form prescribed by the Commission, together with the following informative requirements: a) Curriculum vitae of each of the incorporators and directors. b) Brief statement of the proposed operation of the applicant company including the proposed investment objective/s and initial investment plans. c) Proposed management contract/s, distributorship, underwriting and escrow or custodial agreement/s, and such other contracts appertaining to the investment, management or sale of securities. d) Statement of total fees to be charged. e) Prospectus and other corporate forms to be used by the applicant company. f) Disclosure of involvement by management or by members of the Board of Directors in companies which the investment company will be dealing with certified under oath by the President and the Chairman of the Board or their equivalent in rank. g) Such other information as may be required by the Commission. 3.2 The original or any amended Prospectus of an investment company shall contain or include the following minimum information/requirements: a) A statement set forth on the outside front page cover thereof in bold letters as follows: "These securities have not been approved or disapproved by the Securities and Exchange Commission nor has it passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense." b) A description of the investment fund, its classification in accordance with categories indicated in Section 5.1, its investment objectives and initial investment plans. c) Investment restrictions, including ceilings per company or industry, liquidity standards, portfolio mix. d) Terms of issue and pricing of securities issued or to be issued by the investment company, sales load, minimum size requirements, income distribution policy and procedures in the purchase and sale of such securities. e) In the case of redeemable securities, the method and basis of computation of net asset value; manner and method of redemption, authorized redemption centers, minimum holding period and redemption charges, if any. f) Board of Directors and Management line-up, including past and present affiliations, and extent of participation or ownership in the equity and or debt securities issued by the investment company. g) Names, addresses, principal officers, affiliations, compensation and principal responsibilities of the underwriters, selling agents, investment advisers/managers, custodian and independent auditor. h) Audited Financial Statements as of a date not earlier than 90 days from the date of the filing of the registration statement. i) Schedule of investments (portfolio) indicating issuer, cost and market value. j) Such other information as may be required by the Commission. 3.3 Upon receipt by the Commission of the Registration Statement and its appendices, and if the same are in order, a notice concerning the application shall be published once a week for two (2) consecutive weeks in two (2) newspapers of general circulation in the Philippines, at the expense of the applicant. Any person who is opposed to the application may file his written opposition thereto within the same period and appear before the Commission at the scheduled hearing/s on the matter. Should there be any opposition, the Commission shall proceed to hear the same giving the parties opportunity to present their respective evidences, oral or documentary, in accordance with the Rules of Procedure of the Commission. Thereafter, the Commission shall issue an Order accordingly. The Order to be issued by the Commission approving the registration of the applicant company as an investment company shall contain such terms and conditions as may be required by the provisions of the Act. Such Order shall become effective after publication thereof in two (2) newspapers of general circulation once a week for two (2) consecutive weeks, at the expense of the applicant. ARTICLE IV Sale of Securities 4.1 Upon compliance with the registration requirements provided in Articles II and III, and issuance and effectivity of the Order of registration as provided in Section 3.2, an investment company may commence to sell the shares/securities issued by it, subject to such conditions as specified in the Order of the Commission. 4.2 Unless the Commission shall, by Order, otherwise prescribe, the minimum size of investment by any single investor in shares/securities issued by an investment company shall be the amount of P5,000.00. Furthermore, no shares or securities issued by an investment company shall be sold in installment. 4.3 All proceeds from the sale of shares/securities, including the original subscription/payments at the time of incorporation constituting the original paid-in capital of the investment company shall be held by a custodian bank referred to in Section 9.1. 4.4 Notwithstanding the provisions of Section 4.1 the original proponents of the investment company who have subscribed and paid for the original capital of the investment company, shall not be allowed to sell, transfer, convey, encumber or otherwise dispose of their shares/ securities within twenty four (24) months from registration of said investment company. 4.5 All information to be released or distributed to the stockholders of the investment company and to the public including reports, circulars, leaflets and advertising materials shall first be submitted to the commission for approval before distribution or publication. 4.6 In case of open-end investment funds, the investment company shall establish a network of redemption centers acceptable to the Commission. ARTICLE V Investment of Fund 5.1 The investment objective/s of the investment company shall be clearly defined, and shall be classified in the following categories, or in such categories as the Commission shall, from time to time by Order, prescribe: a) aggressive (high risk),growth oriented (moderate risk) or conservative (low risk). b) dealing in short term, medium term or long term debt securities; defined as follows: short term: one year or less, medium term: longer than one (1) year but not exceeding three (3 ) years, long term: longer than three (3) years. c) area of focus of investments, e.g. securities of companies engaged in real estate development, medium sized gold mine operations, export of primary products, etc. d) mode of investment, e.g. common shares only, convertible preferred shares, loans with warrants to common, etc. 5.2 The proposed investment objective/s and initial investment plans must be clearly stated in the prospectus. An investment company may not change its fund objective without prior approval the Commission. 5.3 The maximum investment of an investment company in any single enterprise shall not exceed an amount equivalent to ten percent (10%) of the investment company's net asset value except obligations of the Philippine government or its instrumentalities. Provided, that in no case shall the total investment of the fund exceed ten percent (10%) of the outstanding securities of any one investee company. llcd 5.4 For liquidity purposes, unless otherwise prescribed by the Commission, in case of open-end companies at least twenty percent (20%) of its fund shall be invested in liquid / semi-liquid assets such as: a) Treasury notes or bills, Central Bank Certificates of Indebtedness which are short-term, and other government securities or bonds and such other evidences of indebtedness or obligations, the servicing and repayment of which are fully guaranteed by the Republic of the Philippines. b) Savings or time deposits with government owned banks or commercial banks, provided that in no case shall any such savings or time deposits accountable accepted or allowed under a "bearer",numbered" account or other similar arrangement. 5.5 Until the Commission shall, by Order, provide otherwise, no investment company may invest in any of the following: a) margin purchases of securities (investment in partly paid shares are excluded); b) commodity futures contracts; c) precious metals; d) unlimited liability investments; e) short selling of currencies; f) short selling of an investment; g) other investments as the Commission shall, from time to time, prescribe. 5.6 As provided in Section 15 of the Act, the total operational expenses of an investment company shall not exceed ten percent (10%) of its total investment fund or total networth as shown in its previous year's audited financial statements. 5.7 No investment company shall incur any further debt or borrowing unless at the time of its incurrence or immediately thereafter there is an asset coverage of at least three hundred per centum (300%) for all borrowings of the investment company. Provided that in the event that such asset coverage shall at any time fall below three hundred percent (300%),the company shall within three (3) days thereafter, reduce the amount of its borrowing to an extent that the asset coverage of such borrowings shall be at least three hundred percent (300%). 5.8 No investment company shall participate in an underwriting or selling group in connection with the public distribution of securities, except for its own capital stock. 5.9 No investment company shall purchase from or sell to any of its officers or directors or the officers or directors of its investment adviser/s, manager or distributor/s or firm/s of which any of them are members, any securities other than the capital stock of the investment company. ARTICLE VI Redemption of Securities in Open-end Companies 6.1 Investors in redeemable securities issued by an open-end investment company shall have the right to have their securities redeemed in accordance with the terms of the issue thereof and the procedures indicated in the prospectus. prcd 6.2 The redemption price of securities surrendered for redemption within the daily cut-off time shall be the next day's computed net asset value after the request for redemption is received while those surrendered after the daily cut-off time shall be deemed to have been received the following day. Until the Commission shall prescribe otherwise the daily cut-off time shall be 12:00 o'clock noon. 6.3 Investment companies are required to compute and post net asset value on a daily basis. It is likewise required that the same be published daily in at least two (2) newspapers of general circulation in the Philippines and posted daily in a conspicuous place at the principal office of the open-end company as well as in all its branches or correspondent offices which are designated as redemption centers. 6.4 The net asset value computation shall be made in accordance with the valuation method indicated in the prospectus and shall be applied consistently. Any change in the net asset value calculation or valuation method shall be subject to approval by the Commission. Except as the Commission shall, from time to time prescribe, the net asset value shall be calculated by adding (i) the aggregate value of the portfolio securities and other assets (ii) the cash on hand, (iii) any dividends on stock trading ex-dividend, (iv) any accrued interest on portfolio securities, and subtracting (v) taxes and other charges against the fund not previously deducted, (vi) accrued expenses and fees, and (vii) cash held for distribution to securities holders on a prior date. 6.5 Payments for securities redeemed shall be effected within seven (7) banking days from receipt of the request for redemption. 6.6 The Commission may, whenever necessary or appropriate in the public interest or for the protection of investors, suspend the redemption of securities of open-end companies. ARTICLE VII Directors and Officers 7.1 No person shall be elected as a director of an investment company unless he is a Filipino citizen, and no person shall act as director or officer who is possessed of any of the disqualifications provided in the Act. 7.2 Any and all remuneration to be paid by an investment company to a director or officer shall be subject to prior approval by the Commission as provided in Section 15 of the Act. 7.3 An advisory board may be created by an investment company. ARTICLE VIII Investment Manager/Adviser 8.1 Any person designated, or who intends to act, as investment manager or adviser for an investment company, shall, before acting as such, file an application with the Commission, containing such data and such documents as the Commission shall require, in addition to the following: a) minimum unimpaired net worth of at least P10 million exclusive of revaluation surplus; b) curriculum vitae of directors; c) financial statements for the last three (3) years, to the extent applicable; LibLex 8.2 The Commission shall grant the registration of an investment manager or adviser with respect to an investment company, if it finds that the requirements of this Article VIII have been met, but shall disapprove an applicant who, or any principal officer or any director of which: a) has willfully made or caused to be made in any application for registration or report required to be filed with the Commission, any material false or misleading statement, or willfully omitted any material fact which is required to be stated therein; b) has been convicted of a crime involving moral turpitude which involved the purchase or sale of any securities, or which arises out of the conduct of the business of a broker, dealer, investment adviser, investment house, bank, trustee or other fiduciary capacity; c) has willfully violated, or has wilfully aided, abetted, counseled, commanded, induced or procured the violation by any person of any provision of the Act, the Revised Securities Act or the Rules promulgated by the Commission to implement the same. ARTICLE IX Custodian and External Auditors 9.1 No person shall act as custodian to hold the funds and securities of an investment company except a duly authorized commercial bank of good repute duly authorized by the Central Bank. The custodian may likewise act as transfer agent or dividend disbursing agent, but shall not perform any management or investment advisory function in the sale of the shares and securities of the same investment company. 9.2 The custodianship agreement shall be submitted to, and approved by, the Commission. 9.3 The designated external auditors of an investment company shall register with the Commission as such, and shall undertake to comply with such requirements and reports as the Commission shall, by Order, prescribe. LibLex ARTICLE X Reportorial Requirements 10.1 An investment company shall submit to the Commission ten (10) days after its annual stockholders' meeting a list containing the names, citizenship and addresses of its officers and members of the Board of Directors elected for the ensuing year signed and sworn to by its President or Secretary. 10.2 An investment company shall submit reports on dividend declarations within ten (10) days from declaration thereof. 10.3 Within thirty (30) days from effectivity of the Order approving the registration of the investment company, and within the first 5 days of every month thereafter, the investment company shall submit to the Commission a report under oath executed on its behalf by its Treasurer or any other officer, showing the total amount received from the sale of its shares/securities and the percentage of such shares/securities owned by Filipino investors and non-Filipino investors it being understood, that if no shares/securities had been sold during the period, a letter of advice to that effect shall be submitted to the Commission. 10.4 Within fifteen (15) days from end of each quarter the investment company shall submit to the Commission audited financial statements covering the immediately preceding quarter. 10.5 Within fifteen (15) days from the end of each quarter schedule of investments (portfolio) indicating issuer, cost and market value. 10.6 Within fifteen (15) days from end of each fiscal year, the investment company shall submit to the Commission a list of any and all transactions with any of its officers, directors, or stockholders owning more than ten percent of its securities. Such list shall show the summary of transactions of such persons with the fund and any and all commissions, fees, payments, remunerations or other compensation derived therefrom. ARTICLE XI Issuance of Additional Rules or Circulars 11.1 For more effective implementation and enforcement of the Act and these Rules, the Commission shall, from time to time, issue additional pertinent rules or circulars. ARTICLE XII Fees 12.1 The fees prescribed under the Act, the Revised Securities Act and other applicable fees prescribed by the Commission shall be imposed in the registration of the investment company and its securities. ARTICLE XIII Administrative Sanctions 13.1 If the Commission finds that there is a violation of any provision of the Act or these Rules or that any issuer, in a registration statement or its supporting papers, as well as in the periodic reports required to be filed with the Commission has made any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading or refuses to permit any lawful examination into its corporate affairs, the Commission shall, in its discretion impose sanctions as provided under the applicable provisions of the Act, Republic Act 1143, the Corporation P.D. 902-A and other applicable laws. cda ARTICLE XIV Transitory Provision Investment Companies already existing prior to the effectivity hereof shall have a period of twelve (12) months therefrom within which to comply with applicable requirements herein provided, unless the Commission shall, by order, extend such time on meritorious grounds. ARTICLE XV Effectivity These Rules shall be effective thirty (30) days after publication once a week for two (2) consecutive weeks in two (2) newspapers of general circulation in the Philippines. (SGD.) ROSARIO N. LOPEZ Chairman (SGD.) GONZALO T. SANTOS, JR. (SGD.) RODOLFO L. SAMARISTA Associate Commissioner Associate Commissioner (SGD.) ARMANDO Z. GONZALES (SGD.) MERLE O. MANUEL Associate Commissioner Associate Commissioner