Submission of Comments on the 2016 Implementing Rules and Regulations of the Investment Company Act

October 19, 2016 SEC NOTICE SUBJECT : Submission of Comments on the 2016 Implementing Rules and Regulations of the Investment Company Act Please find attached proposed draft 2016 Implementing Rules and Regulations of the Investment Company Act (2016 ICA Rules). All interested parties are invited to submit their comments and inputs on the proposed 2016 ICA Rules to [emailprotected] or fax at Tel. No. 818-5990 not later than 03 November 2016. Issued on October 19, 2016. 2016 Implementing Rules and Regulations of the Investment Company Act Pursuant to Republic Act No. 2629, otherwise known as the Investment Company Act ("ICA") and Republic Act No. 8799 otherwise known as the Securities Regulation Code ("SRC"), the Commission is granted the authority to prescribe the regulation of open-end investment companies, or otherwise known as mutual fund companies, and to require them to register with the Securities and Exchange Commission ("Commission") and to comply with certain standards including, among others, the regular public disclosure of financial condition, investment policies and objectives, and their fund portfolios as well as their pricing and fees; The Commission is also authorized to regulate fund managers and other parties involved in the operation of mutual fund companies; The ICA authorizes the Commission to issue from time to time rules and regulations and orders as are necessary or appropriate to exercise its powers under the ICA that would include the definition of accounting, technical and trade terms and prescribing the form or forms in which information required in registration statements, applications, and reports to the Commission which shall include the rules governing Unitized Mutual Funds or other types of mutual fund; There is a need to align the rules with global standards and practices in order to develop the Philippine capital market that will help prepare the mutual fund companies qualify and compete in international cross-border transactions; In line with these developments, the ICA Rule 35-1 is hereby amended and the following rules and regulations are hereby adopted that shall govern mutual fund companies as well as the transactions, persons and all other activities and practices involved therein. RULE 1 Definition of Terms When used herein, unless the context otherwise requires: 1. Act shall refer to the Investment Company Act, Republic Act No. 2629. 2. Assets Under Management (AUM) shall refer to the total market value of all the financial assets of a mutual fund company managed by a fund manager. 3. BSP shall refer to the Bangko Sentral ng Pilipinas. 4. Certified Investment Solicitor (CISol) shall refer to a natural person of legal age duly licensed by the Commission and appointed by the Fund Distributor or the FM/MFD to solicit, sell or offer to sell the shares or units of a mutual fund company to the public. 5. Co-Managed Fund shall refer to fund structure that is similar to a feeder fund structure but allows the local fund manager to know and control the management of the funds in the CIS. 6. Closed-end Company shall refer to a mutual fund company which offers for sale a fixed number of non-redeemable securities which are offered in an initial public offering and thereafter be traded in an organized market as determined by the Commission and Exchange. CAIHTE 7. Collective Investment Scheme (CIS) shall refers to an arrangement whereby funds are solicited from the investing public for the purpose of investing, reinvesting and trading in securities or other assets allowed under this Rule. 8. Commission shall refer to the Securities and Exchange Commission. 9. Credit Ratings shall refer to those issued by CRA or such other credit rating agency that the Commission may provide. 10. Custodian shall refer to an independent third entity duly authorized by the Bangko Sentral ng Pilipinas or the Commission to engage in the business of custodial and safekeeping of investment assets. 11. Deposits shall refer to deposits placed with deposit-taking institutions that are either banks or entities licensed to accept deposits and subject to prudential rules or other relevant laws. 12. FATCA shall refer to Foreign Account Tax Compliance Act which is a United States federal law enacted in 2010 by the United States Congress. 13. FM/MFD shall refer to the Fund Manager who also functions as a distributor of the shares or units of the MFC and may no longer be required to secure a separate license for the distribution of the shares or units of the MFC. 14. Feeder Fund shall refer to a fund structure where at least eighty-five percent (85%) of the total assets of the MFC is invested in a single collective investment scheme. 15. Fund-of-Funds shall refer to a fund structure where more than 50% of the total assets of the MFC are invested in collective investment schemes. 16. Independent Director shall refer to a person who, apart from his fees and shareholdings, is independent of management and free from any business or other relationship which could, or could reasonably be perceived to, materially interfere with his exercise of independent judgment in carrying out his responsibilities as a director in any covered company. An independent director shall possess the degree of independence and all the qualifications and none of the disqualifications for independent directors as defined in the SRC and its implementing rules and regulations or such other rules or guidelines issued by the Commission. 17. Investment Assets or Eligible Assets shall refer to those assets in which the funds of the MFC may be invested in. 18. Investment Company Adviser License shall refer to the license issued by the Commission to the Fund Manager and/or the Fund Advisor. 19. Investment Grade shall refer to a rating within the top 4 long-term credit ratings, or at least BAA or BBB, or the top 3 short-term credit ratings, or at least A, provided on an international scale. 20. Investors of the Fund shall refer to the shareholders or unitholders of the MFC who executed a subscription agreement with the MFC or the Fund Manager to subscribe shares or units of the MFC. 21. Index shall refer to a single number that is calculated based on known methodology and is used to gauge the price and/or volume movements of a list of selected securities traded in an Exchange. 22. IOSCO shall refer to the International Organization of Securities Commission. 23. Mutual Fund Advisor or Fund Advisor shall refer to a fund advisor with an Investment Company Adviser license who regularly advises or recommends investment decisions with regard to the securities or other portfolio of the Fund pursuant to an advisory contract with the Fund Manager or the MFC. 24. Mutual Fund Company ("MFC") shall refer to a registered open-ended investment company that holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting and trading in securities. It is a company that pools the funds of individuals and institutional investors to form a massive asset base which is then entrusted to a full time professional fund manager who develops and maintains a diversified portfolio of security investments. 25. Mutual Fund Distributor ("MFD") shall refer to a juridical person duly licensed by the Commission to distribute shares or units of the MFC as either principal distributor or sub-distributor. 26. Mutual Fund Manager or Fund Manager ("FM") shall refer to a registered mutual fund manager with an Investment Company Adviser license that is engaged in the business of managing the daily operations of an MFC in the investment, and administration and accounting of fund assets and the monitoring of the activities of third party service providers such as custodian, transfer agent, fund accountant and distributors. 27. Net Asset Value (NAV) shall refer to the aggregate value of each fund, either shares or units, as determined by the market value of its underlying securities holdings, including any cash in the portfolio less liabilities, computed at the close of the trading of securities for the day. 28. Net Asset Value per Share or NAVps shall refer to the computed NAV on a per share basis at the close of the period. It is calculated by dividing the MFC's total net assets from the shares outstanding including the shares subscribed pursuant to an increase of the authorized capital stock. 29. Net Asset Value per Unit or NAVpu shall refer to the computed NAV on a per unit basis at the close of the period. It is calculated by dividing an MFC's total net assets by the number of its outstanding units. DETACa 30. Open-Ended Mutual Fund Company shall refer to an MFC which offers for sale or has outstanding any redeemable securities of which it is the issuer. 31. Organized Market shall refer to an exchange, government securities market or an over-the-counter market that is regulated by the relevant competent regulatory authority and where financial instruments are regularly traded. It shall be of good repute and open to the public or a substantial number of market participants. 32. Redemption shall refer to the liquidation of the redeemable securities by returning to the issuer the said securities in exchange for their current net asset value per share or unit. The right of an investor to sell back the redeemable securities to an open-end investment company. 33. Rules or the 2016 ICA Rules shall refer to the 2016 Implementing Rules and Regulations of the Investment Company Act. 34. Sales load shall refer to the charge or commission on the cost of acquiring the shares or units of an MFC. 35. Solicitation shall refer to the act of providing information about a security or investment product being offered for sale with the view of making another person a client or closing or bringing in a sale or purchase of security or investment product. 36. SRC shall refer to the Securities Regulation Code, Republic Act No. 8799. 37. Target Fund shall refer to either a local or foreign CIS wherein a feeder fund or fund-of-funds invests in. 38. Tradable securities shall refer to a financial instrument that has quoted two-way prices that are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm's length basis. 39. Transferable securities shall refer to shares and other securities equivalent to shares, and bonds and other forms of securitized debt excluding money market instruments or any security title to which can be transferred only with the consent of a third party. 40. Transfer Agent shall refer to a juridical person duly licensed by the Commission as a transfer agent and appointed by the MFC, or the Fund Manager, to maintain an accurate registry for recording the initial and subsequent transfer of securities. 41. Unitized Mutual Fund (UMF) shall refer to an MFC that issues units of participation each of which represents an undivided interest in the pool of investment assets of the MFC. 42. WFE shall refer to World Federations of Exchange. Unless otherwise specifically provided, the terms used in this Rules shall have the same meaning as defined in the Act. RULE 2 Interpretation of the Rules Any doubt in the interpretation of these Rules shall be resolved by the Commission in a manner which would establish a socially conscious free market that regulates itself, encourage the widest participation of ownership in enterprises, enhance the democratization of wealth, promote the development of the capital market, protect investors and ensure full and timely disclosure of material information. RULE 3 Incorporation and Registration of a Mutual Fund Company (MFC) 3.1. No person shall act as an MFC unless the latter is registered as such in accordance with the Corporation Code of the Philippines, the Act, the SRC and their implementing rules and regulations. 3.2. An MFC that already registered its common shares for offer or sale may also be allowed to register units of participation. However, the computation of the NAVs for the shares shall be computed separately from the assets generated from the issuance of the units. 3.3. Classification of Mutual Fund Company. The MFC may be classified by investment policy as either: aDSIHc a. Equity Fund shall refer to an MFC with the objective to invest predominantly in or hold equity instruments. b. Bond Fund or Fixed Income Fund shall refer to an MFC which invests in fixed income instruments such as bonds, treasury bills, certificates of deposit, promissory notes, bills of exchange, debentures, etc. It should not invest in shares or share warrants but may invest in redeemable preferred shares. c. Balanced Fund shall refer to an MFC that invests in both equity and fixed income instruments. The respective investments in equity and fixed income shall not be less than thirty five percent (35%) but not more than sixty five percent (65%) of the NAV of the MFC. d. Feeder Fund shall refer to an MFC where eighty five percent (85%) of its net asset value is invested in another CIS which shall not be a feeder fund. e. Fund-of-Funds shall refer to an MFC that invests the pooled funds of the MFC in another CIS established by another fund manager/s, asset management company/ies or fund operator/s. An MFC that invests more than 50% of its total assets in other CIS shall be deemed a Fund-of-Funds. f. Index Fund shall refer to an MFC with an objective of providing investors with a return that replicates or is linked to securities indices as disclosed in its prospectus. g. Money market funds shall refer to an MFC that invests in high quality fixed income instruments, repayment of which is callable, or maturity is less than one (1) year. h. Multi-asset/Asset Allocation Fund shall refer to an MFC that invests on both equity and fixed income instruments but with wider range of allocation. The above enumerations are not exclusive and there may be other classifications of funds based on its investment policy that may be approved by the Commission. 3.4. Minimum Requirements. An MFC applying for incorporation with this Commission shall comply with the following requirements: i. File for the registration of its Articles of Incorporation ("AOI") and By-Laws; ii. File SEC ICA Form 7-A and pay the filing fee of P10,000.00 plus LRF; iii. The name of the corporation shall contain the word "Fund"; iv. The primary purpose clause of the AOI shall provide that the corporation shall engage in the business of investing, reinvesting or trading in securities or other investment assets allowed under the Act and this Rule; v. All members of the Board of Directors shall be Filipino citizens; vi. It shall have a minimum subscribed and paid up capital of Fifty Million Pesos (Php50,000,000.00). The Commission may grant a request for a lower paid-in capital requirement if the MFC is one of or part of a group of investment companies to be created or already in existence to be managed or under management by the same fund manager with a track record of at least five years as fund manager shall not be lower than One Million Pesos (Php1,000,000.00); vii. All shares of its capital stock shall be common and voting shares and, in general, redeemable in accordance with the terms and conditions prescribed and disclosed in the Registration Statement. For MFCs that will issue units, the unitholders shall have no voting rights but are entitled to be notified and secure approval of any material change to the Registration Statement and the subscription agreement; viii. The original proponents of a newly formed MFC, which is not related to an existing fund or a fund manager with a track record of at least five (5) years, shall not be allowed to sell, transfer, convey, encumber or otherwise dispose of their securities within twelve (12) months from the registration of the MFC; ix. The pre-emptive right of stockholders to all issues or disposition of shares in proportion to their respective shareholdings shall be denied in the Articles of Incorporation of an MFC that is an open-end investment company; and x. An investment company shall not be required to comply with the minimum subscribed and paid-up capital relative to the increase in its authorized capital stock. ETHIDa 3.4. The requirements provided for under Rules 3.1 and 3.3 shall not apply to licensed or registered collective investment schemes of another economy/ies with whom the Philippines has a mutual or multilateral agreement on cross-border transaction of funds. RULE 4 Registration of Securities No person shall sell or offer for sale or distribute the share or units of an MFC unless such have been registered in accordance with the requirements of the ICA, SRC and their IRR, and the registration statement has been declared effective by the Commission. 4.1. Registration Statement a. The MFC issuing shares and/or units shall file a Registration Statement ("RS") using SEC Form 12-1-MFC. b. The form shall be notarized and signed by the president, treasurer, corporate secretary, or any officer occupying a position equivalent to any of the foregoing or performing similar functions, and a majority of the board of directors of the MFC and the Fund Manager. c. The form shall provide information on expenses relative to the issuance, offering, distribution, taxes, registration fees and such other relevant expenses. If the amount of any of the items is not known, it shall be identified and an estimate shall be given. d. For issuance of units, the Fund Manager shall shoulder the expenses involved in the registration and offering of the units. e. Submit together with the Registration Statement an Exhibit Table which will provide the items required to be submitted under Rule 4.3. f. The Commission may reject the Registration Statement or suspend or revoke the effectivity of the RS if the MFC or fund manager i. submits or has been found to have submitted false or misleading information to the Commission; ii. made misrepresentions or has been found to have misrepresented information in the RS; iii. defrauds or has been found to have defrauded investors; or iv. contravenes or has been found to have contravened any law, rules and regulations, obligations or provisions in the RS, prospectus or the subscription agreement. 4.2. Prospectus and Product Highlight Sheet The MFC, through its Fund Distributor, upon request by a prospective investor, shall provide the relevant Product Highlight Sheet and Prospectus which shall contain the data required under SRC Rule 12 and this Rules. In addition, the following information shall be provided in the prospectus: a. Information with respect to the MFC including classification whether it is an open-ended or closed-end; b. The name of the MFC shares and/or units to be offered. For this item, it is preferable that the MFC indicate in its name whether it is an Equity Fund, Bond or Fixed Income Fund, Balanced Fund, Money Market Fund, Index Fund, Feeder Fund, Fund-of-funds, Multi-asset/Asset Allocation funds etc.; c. If units are to be offered, it shall contain the term "Unitized Mutual Fund" or "UMF"; d. The description of the terms, features, rights, and privileges of the MFC shares or units to be registered; e. The investment objective, policy and strategy of the MFC; f. Investment of the fund or the use of proceeds including the investment powers of the fund manager with respect to the funds of the MFC; g. Category of the fund whether aggressive, growth-oriented, or conservative, character and kind of investments which may be purchased by the Fund Manager on behalf of the MFC and dealings in debt securities, whether it is short term, medium term or long term; h. Profile of the prospective investors and investment suitability; i. Risk factors and other information of the investments; j. The manner in which the shares or units are to be offered to the public/plan of distribution including sub-distributions; k. Determination of the offering price; l. Pricing method/methodology of asset valuation; m. Specific dividend policy; a. n The procedure for issuance and redemption/payoff structure, redemption centers and the costs involved; n. Discussion on business experience (for the last 5-year) of the directors and executive officers including their ownerships in the MFC, family relationship, executive and directors' compensation and employment contracts; cSEDTC o. Security ownership and beneficial ownership of any person holding at least five per centum (5%) of the outstanding shares of the MFC; p. Disclosures on related party transactions and description of involvement, if any, by the MFC, Fund Manager, their officers, or directors in companies which an MFC will be dealing with; q. Name and background of the parties which should include roles, duties and responsibilities of the Fund Manager, Fund Advisor, Fund Distributor, Custodian, Fund Accountant, and Transfer Agent; r. Summary of fees, commissions and other charges to be deducted from the fund and paid by the shareholders/unit holders as approved by the Commission; s. Liabilities of the MFC and the fund manager to the shareholders/unit holders; t. Legal proceedings involving the MFC and the fund manager, and their officers and directors; u. Annual meeting of shareholders; v. Risk monitoring and management procedure, including a risk management framework for the assets managed by the fund manager based on the size, complexity and risk of the AUM; w. Procedure for handling customer's complaints; x. Procedure for monitoring fund distribution; y. Policies on conflict management and procedures in monitoring and resolving conflicts of interest; z. Procedures to ensure compliance with relevant Laws and Regulations; aa. Delegation of fund management or custody of assets, if any; bb. Borrowing of money; cc. Corporate governance; dd. Anti-money laundering, FATCA and counter-terrorism; ee. Latest financial statements consistent with the requirements under SRC Rule 68, amended and certified by a SEC-accredited external auditing firm categorized under Group A; ff. Management discussion and analysis and results of operations which should include performance benchmark, information on independent accountant and external audit fees and other related matters and services; With respect to performance benchmark, the MFC shall disclose where the information on the benchmark can be obtained. If a customized benchmark or combination of multiple benchmarks is used, there shall be a description on how the benchmark is derived. gg. The rights of the shareholders/unit holders in case of dissolution of the investment company and the dissolution plan; gg. n Prominently display the following statement in bold face 12 point type, in the preliminary prospectus: "A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BEEN DECLARED EFFECTIVE. NO OFFER TO BUY THE SECURITIES CAN BE ACCEPTED AND NO PART OF THE PURCHASE PRICE CAN BE ACCEPTED OR RECEIVED UNTIL THE REGISTRATION STATEMENT HAS BECOME EFFECTIVE, AND ANY SUCH OFFER MAY BE WITHDRAWN OR REVOKED, WITHOUT OBLIGATION OR COMMITMENT OF ANY KIND, AT ANY TIME PRIOR TO NOTICE OF ITS ACCEPTANCE GIVEN AFTER THE EFFECTIVE DATE. AN INDICATION OF INTEREST IN RESPONSE HERETO INVOLVES NO OBLIGATION OR COMMITMENT OF ANY KIND. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY." SDAaTC hh. Provide a statement that the liability of the shareholders or loss to the unitholders are limited to their investments to the MFC; ii. Any other reports, schedules or information which the Commission may deem necessary or appropriate for the protection of investors. 4.3. Exhibits filed with the Registration Statement The following exhibits shall be filed together with the Registration Statement: i. Proof of Publication of Notice re: Filing of RS (with Affidavit and copy of Publication); ii. Articles of Incorporation (AOI) and By-Laws for newly organized corporations or latest amended AOI and/or By-laws for existing investment companies; iii. Subscription Form (with attached Client Suitability Assessment Form); iv. Redemption Form; v. Opinion re: Tax Matter; vi. Material Contracts (Management, Advisory, Distribution, Transfer Agency, Custodial Agreement, etc.); vii. Curriculum Vitae of directors and officers of the Fund and Fund Manager; viii. Certification under Oath of the President and Chairman of the Board, or their equivalent in rank, on the involvement of the members of the Board of Directors in companies which the MFC will be dealing with; ix. Authorization re: Issuer's Bank Accounts; x. Board Resolution of the MFC approving the securities offering and authorizing the filing of the RS; xi. Duly notarized Board Resolution manually signed by a majority of the BOD of the MFC and Fund Manager approving the disclosures contained in the RS and assuming responsibility for the information contained therein; xii. MFC's Anti-Money Laundering Manual with Secretary Certification as to adoption. xiii. MFC's Manual on Corporate Governance with Secretary Certification as to adoption. The Commission may require such other exhibits it may deem necessary. 4.4. Shelf Registration Shares of the MFC which are intended to be issued in tranches at more than one instance after the registration statement has been rendered effective by the Commission may be registered for an offering to be made on a continuous or delayed basis in the future provided that the registrant shall comply with the following requirements: a. At least thirty (30) days prior to the offering or sale of the securities of the subsequent tranches, it shall inform the Commission in writing, through a prescribed format, the material changes, if any, in the RS previously rendered effective by the Commission; and, b. Submit the following documents: i. Latest audited financial statements and/or interim financial statements; ii. Board Resolutions approving the additional offering; iii. Curriculum Vitae of directors and officers of the Fund and the Fund Manager which were not submitted in the original RS; iv. Copy of new contracts/agreements, if any. c. Filing Fees i. Upon filing of an RS, a filing fee of 1/10 of 1% of the issued value (based on the NAVP [Net Asset Value Per Share] if it is a mutual fund) of the first tranche of securities shall be paid. acEHCD ii. The filing fees of the subsequent tranches shall be payable within forty five (45) days prior to commencement of the offer/sale of the particular tranche of the securities. iii. The registrant shall execute an undertaking to: 1. pay the remaining registration fees no later than thirty (30) business days prior to the expiry of the three (3)-year period reckoned from the date of effectivity of the RS; and 2. And shall not offer the unpaid portion of the securities to the public until payment of the required fees. 4.5. Fees a. For every registration of shares, the following fees shall be applied: Maximum Aggregate Price of securities to be offered Amount of filing fee Not more than Php500,000 0.10% of the maximum aggregate price of the securities to be offered More than Php500 Million but not more than Php750 Million Php500,000.00 plus 0.075% of the excess over Php500 Million More than Php750 Million but not more than Php1 Billion Php687,500.00 plus 0.05% of the excess over Php750 Million More than Php1 Billion Php812,500.00 plus 0.025% of the excess over Php1 Billion or such fees as may be prescribed by the Commission. b. Fees for issuance of units The registration fee for units shall be Ten Thousand (P10,000.00), or such fees as may be prescribed by the Commission regardless of the number of units to be registered, provided that the information on the number of securities subject of registration are disclosed in the prospectus. Each year thereafter, an annual fee of 1bps based on the average net asset value of the unitized funds will be charged to the fund and is payable within thirty (30) days from the recently ended calendar year, or not later than 31 January of every year after the registration of the units. EcTCAD 4.6. Delivery of Prospectuses to Investors a. The Fund Distributor, through its CISol, are obliged, upon request, to deliver a copy of a duly rendered effective prospectus to interested parties with the latest audited financial statements of the fund. b. Distribution of an electronic copy of prospectus may be allowed provided that hard copies of the prospectus shall be given upon the request by an interested parties. c. Distribution of a condensed copy of the prospectus to prospective investors may be allowed. The summary of fees to be paid by the MFC and the investors should be presented in tabular format. RULE 5 Parties Involved The MFC and the participants in the offering, selling and distribution of the shares or units of the MFC shall have the common duties and responsibilities: a. Carry on and manage its business and the assets of the mutual fund company in a proper, diligent and efficient manner; b. Observe honesty, due care and diligence, utmost good faith and high standards of integrity; c. Exercise care and diligence, and act in the best interest of the Fund's investors; d. Establish systems, procedures and processes to be observed by its officers and employees to ensure compliance with the Act, SRC and this Rules to protect the interests of the investors; e. Take responsibility for all actions and omissions of any third party to whom it delegates any of its duties and responsibilities, except for any resulting damage or liability arising from force majeure or other similar occurrence beyond the control of such third party; f. Ensure that any person appointed or employed by it is of good repute, having relevant expertise and experience to act in the capacity so appointed or employed; g. Refrain from using its position to gain, directly or indirectly, an advantage for itself or for any other person or to cause detriment to the interests of the investors; h. Avoid and eliminate conflicts of interest in the performance of their functions, which may be identified by the Commission as prejudicial to the interests of the investing public; i. Disclose all conflicts of interests in the performance of their functions; and HSAcaE j. Comply with orders, rules and regulations as may be prescribed by the Commission. The participants mentioned herein shall refer to the Fund Manager, Fund Advisor, Fund Distributor, Transfer Agent, Fund Accountant, and Custodian. 5.1. Fund Manager 5.1.1. Qualifications of a Fund Manager a. An MFC shall appoint a Fund Manager with an Investment Company Adviser license. For a FM to be licensed as an Investment Company Adviser, it shall meet the following requirements: i. Paid-up capital of at least Fifty Million Pesos (P50,000,000.00) and a minimum unimpaired net worth of at least Fifty Million Pesos (Php50,000,000.00) exclusive of revaluation surplus, unrealized gain in value of non-current investments, deferred income tax and other capital adjustments as may be required by the SEC. Provided further that the fund manager shall be required to have an additional unimpaired capital requirement of 0.02% of the AUM in excess of Fifty Billion Pesos (P50,000,000,000.00) or its equivalent, which additional capital infusion shall be made within 30 days after the end of the fiscal year the AUM's increased. ii. Audited Financial Statements for the last three (3) years reflecting its ongoing business operations for the last three (3) years. A Fund Manager that cannot comply with Rule 5.1.a.ii. shall have a board made up of directors all of whom shall have a track record of at least five (5) years in managing funds in any reputable investment banking institution or asset management company dealing with securities or stock brokerage business, and shall all be Certified Investment Solicitors. iii. The applicant fund manager, its directors or key officers have not: 1) Willfully made or caused to be made in any application for registration or reports required to be filed with the Commission, any material or misleading statement or information, or willfully omitted any material fact which is required to be stated therein or made a misrepresentation therein; 2) Been found to have defrauded investors; 3) Been convicted of a crime involving moral turpitude which involved the purchase or sale of any securities, or which arose out of the conduct of the business of a broker, dealer, investment adviser, investment house, bank, trustee or other fiduciary capacity; 4) Willfully violated, or willfully aided, abetted, counseled, commanded, induced, or procured the violation by any person of any provision of the Act, the SRC, this Rule and such other orders of the Commission. If the fund manager was found to have committed the foregoing violations, its license, if already granted, shall be revoked. The directors shall be removed in accordance with the Corporation Code while the key officers shall be replaced immediately. Failure to remove the said individuals shall give rise to the presumption that the fund manager committed the violations. b. The Fund Manager shall have an organizational structure and operational system that is ready to carry out all required functions such as: i. an organizational structure with clear lines of responsibility; ii. sufficient technical and human resources; iii. an efficient fund management operation system; iv. adequate internal control system; v. a risk monitoring and management process, including a risk management framework for the assets that they manage, based on the size, complexity and risk of the assets under management; HESIcT vi. adequate processes for handling costumers' complaints and monitoring of fund distribution; vii. procedures to monitor conflicts of interest and policies on conflict management; and viii. procedures to ensure compliance with relevant Laws and Regulations. An updated Manual for the foregoing structure and systems shall be submitted to the Commission upon application and/or shall be presented during audit. c. The Fund Manager, as well as its directors, chief executive officer, key executive officers or managers, and substantial shareholders shall be fit and proper. The criteria to assess fit and proper requirements are as follows: i. honesty, fairness and integrity; ii. diligence, competency and capability; and iii. financial soundness. The criteria shall also be guided by the provisions of the SRC Rules on Ethical Standards Rule and the principles and requirements of the International Organization of Securities Commission (IOSCO) standards. d. All the members of the board of directors shall have a minimum of five (5) years experience, as follows: i. Executive Directors shall have at least five (5) years experience in financial or capital markets; ii. Non-Executive Directors shall have at least five (5) years experience in financial or capital markets or in any other related field. e. For the election of independent directors, this shall comply with Section 38 of the SRC and its IRR. f. The Chief Executive Officer (CEO), or its equivalent, shall have a minimum of ten (10) years experience in financial or capital markets; g. Key executive officers, who are the heads of the departments which are responsible for the core functions of the fund manager's organization, shall have: i. at least a Bachelor's degree, or its equivalent, and a minimum of three (3) years (in the past 5 years) experience in financial/capital markets; or ii. a minimum of five (5) years (in the past 7 years) experience in financial/capital markets. h. Shall appoint a Compliance Officer whose qualifications and functions is enumerated under this Rules. i. Fund managers, or key officers, who are responsible for making investment decisions shall have: caITAC i. At least a Bachelor's degree, or its equivalent, a Certified Investment Solicitor, and with at least three (3) years (in the past 5 years) experience in fund management; or ii. Professional qualifications or passed applicable exams, a Certified Investment Solicitor, and with at least five (5) years (in the past 7 years) experience in fund management. j. The Commission may prescribe additional requirements or qualifications for a Fund Manager that it may deem necessary. 5.1.2. Responsibilities of a Fund Manager. The duties and responsibilities of a Fund Manager are: a. Manage the investment assets of the MFC and perform its functions in accordance with the disclosures in the Prospectus, its agreements with the investors of the MFC, the Act, the SRC and its implementing rules and regulations and this Rule; b. Keep or cause to be kept such books and records as will sufficiently explain the transactions, and dispositions of the assets of the MFC including the shares/units cost allocation; c. Maintain records and arrange for participants to receive accounts, reports and statements; d. Provide copies of financial and other records of Fund investments to the investors, MFC, and auditor; e. Ensure that the MFC and its shares or units are accurately valued or priced; f. Ensure that all payments out of the MFC and its investment assets are made in accordance with the disclosures in the prospectus, the Act, the SRC and its implementing rules and regulations and this Rules, and its agreement with the investors of the Fund; g. Ensure that all assets of the MFC are deposited with an independent custodian; h. Comply with the instructions of the MFC or the Commission to remedy a breach of the disclosures in the prospectus, its contract with the MFC, the Act, the SRC and its implementing rules and regulations and this Rule; i. Furnish the MFC with all the contracts and agreements relating to the operation and management which the MFC is not a party thereto; j. Conduct all transactions for the MFC at arm's length; k. Implement Written Supervision and Control Procedures, including procedures for establishing and segregating transactions. Such procedures shall take into consideration the requirements of the Anti-Money Laundering Act of 2001, as amended, and the Revised Code of Corporate Governance or any amendments thereon; l. Establish, maintain and implement written policies and procedures to ensure that complaints from investors are handled in a timely and appropriate manner and how such are satisfactorily resolved. The Fund Manager shall also maintain a Complaint Log to record complaints received, the action taken, progress or status of the Complaint, if any, which shall be made available to the Commission upon request or during the conduct of the examination; m. Monitor the activities of the fund distributor, including the sub-distributor, in the sale of the Fund shares or units; n. Facilitate the redemption of the shares or units, and pay out the redemption proceeds within seven (7) banking days from receipt of notice of redemption; ICHDca o. Maintain proper accounting records and other records to: i. Enable a complete and accurate review of the MFC and the investment assets; and ii. Ensure that the funds and the investment assets are managed and administered in accordance with the prospectus, its contract with the MFC, the Act, the SRC and its implementing rules and regulations and this Rules. In case a Fund Accountant is hired, the Fund Manager shall ensure proper written notification of any payment of monies into or out of the MFC. Such notification shall be done not later than the close of business day. p. Ensure that there is a system of internal accounting controls that is sufficient to provide reasonable assurances that the financial statements are prepared in conformity with the generally accepted accounting principles that are adopted by the Accounting Standards Council and the rules promulgated by the Commission with regard to the preparation of financial statements. q. Propose amendments to the prospectus and secure approval for those amendments which require a majority vote of the shareholders; r. Ensure that it shall operate and administer the MFC in accordance with the agreements that it disclosed and entered into with the MFC and its investors, whether shareholders or unitholders, and in compliance with the provisions and requirements of ICA, SRC, and Corporation Code and their implementing rules and regulations, including these rules, circulars, orders, and terms and conditions prescribed by the Commission. s. Report to the Commission, as soon as practicable, or within five (5) days, any material development or breach of the provisions or covenants with the MFC, the Act, the SRC and its implementing rules and regulations and this Rules that: i. Relates to the establishment, management, operation or dissolution of the MFC or to the registration and sale of securities; ii. Has or is likely to have a material adverse effect on the interests of the shareholders/unit holders; iii. Relates to the amendment in the contract between the MFC and the fund manager, including the termination of the contract between the MFC and the fund manager, and the withdrawal or non-renewal of the fund manager's license to operate as such and the dissolution of the fund manager's corporate existence. t. Inform existing shareholders and/or unitholders of any significant changes to be made to the Registration Statement or subscription agreement, no later than one month before the change is to take effect; where the change cannot be determined in advance, the investors shall be informed as soon as practicable; u. Secure approval of the shareholders on the extensions or new agreements to be entered between the parties involved. The unitholders shall be notified of the new or extended agreements not later than one month before the agreements shall take effect. v. File such information and documents to keep reasonably current the information in the Registration Statement, Prospectus and documents on file; TCAScE w. Perform its duties and responsibilities with due skill, care and prudence in executing its duties as a Fund Manager; x. Act honestly and fairly in managing the fund to the best and exclusive interest of the MFC, its shareholders and unitholders. The Fund Manager shall ensure at all times that any representations or other communications made and information provided to the client is accurate and not misleading; y. Ensure the segregation of the assets and other properties of each fund it manages and from those of its own account, physically and in the relevant records, by clearly and properly identifying and labeling the said assets and properties; z. Have sufficient resources, including competent manpower complement, and proper systems, procedures and processes to effectively and efficiently perform its business activities and its duties and responsibilities, and to ably supervise and ensure compliance with the regulatory requirements and other obligations; aa. File the reports for Fund Managers as prescribed by the Commission including the reports required to be filed on behalf of the registered MFC it is managing. bb. Comply with all the regulatory requirements and any other obligations set forth in all the agreements and arrangements that it entered into as Fund Manager; cc. Pay for its own account the administrative penalties imposed upon the Fund to which it is managing especially in connection with the reporting requirements of the MFC to the Commission; dd. Pay for its own account the compensation for any valuation error or incorrect pricing of the NAV when it is at fault; ee. Minimize, manage, and disclose transactions where the interests of the fund manager may conflict with the interest of the investors of the MFC. It shall uphold the best interest of the shareholders/unitholders and shall avoid conflict of interest situations; if unavoidable, a disclosure shall be promptly made to the Commission. A disclosure shall be made by the Fund Manager within five (5) days if it invests the assets of the MFC in securities, property, assets in which such fund manager or any of its directors, officers or affiliates have a 10% equity ownership by filing a Current Report (SEC Form 17-C); ff. Such transactions would include, among others, transactions with the affiliates of the fund manager, proprietary trading and staff dealing; gg. Such other duties and responsibilities that the Commission may prescribe. The abovementioned duties and responsibilities shall also be imposed on the directors, officers and staff of the Fund Manager. The liabilities may also attach to them if they were found to have wilfully violated the provisions of this Rule. 5.1.3. Prohibited Acts of the Fund Manager the Fund manager shall not: a. Purchase securities and investment assets for its own account which may conflict with its obligation as a fund manager; b. Manage an MFC that is issuing units if the track record of the fund manager is less than five (5) years; c. Engage in a business other than the business of managing, administering, marketing and distributing funds and securities, and other related activities; d. Pay or cause to be paid out of the fund any fees, commissions and other similar expenses that have not been disclosed in the registration statement and prospectus; e. Retain any rebate from, or otherwise share in any commission with, any broker or dealer in consideration of transactions or investments of the funds. Any rebates or shared commissions shall be for the account of the fund concerned; f. Make payments out of the assets of the MFC for the purpose of marketing the securities of the MFC; and g. Misuse information acquired as Fund Manager to gain an advantage for itself or for another or other persons; h. Perform activities that shall cause harm to the MFC and its shareholders/unit holders; i. Engage the MFC in non-permissible activities such as securities lending, repurchase transactions and direct lending of monies; j. Engage in any other prohibited acts that the Commission by rule or order shall prescribe. cTDaEH 5.1.4. Fund Management Agreement. The formal written agreement between the Fund Manager and MFC shall specify among others, the following: a. its duties and responsibilities as a Fund Manager; b. extent of services to be rendered by the Fund Manager; c. fees, remuneration and other expenses of the Fund Manager; d. any restrictions or prohibitions regarding the performance by the FM of its functions; e. liabilities of the Fund Manager; f. the term of the engagement and the manner of termination thereof, which shall be in accordance with such requirements or limitations as this law and its implementing rules and regulations may prescribe; and g. reporting obligations of the Fund Manager; h. such other terms or conditions as the Commission may prescribe. 5.1.5. Suitability Rule In recommending to a prospective investor the purchase or sale of shares or units of an MFC, a MFD or FM/MFD shall: a. have reasonable grounds for believing that the recommendation is suitable for such customer upon the basis of the facts disclosed by such investor as to his financial situation and needs; b. not effect transaction unless he has disclosed and explained to his prospective investor the various fees, if any, involved in effecting such transaction and the prospective investor has agreed to said fees and the investors should signify in writing their assent to the various fees being charged in relation to the purchase of shares or units of the MFC. 5.1.6. Seat in the Board. The Fund Manager, as well as its directors, chief executive officer, key executive officers or managers, are not allowed to hold more than Fifty percent (50%) of the board of the MFC. 5.1.7. Outsourcing/Delegation of Functions of the Fund Manager. A Fund Manager may delegate any of its functions by entering into an agreement with other parties necessary in the operation of an MFC. However, such delegation or outsourcing is subject to the following: a. The Fund Manager shall only delegate its function/s to an entity that is licensed in the Philippines to manage funds or domiciled and licensed as a fund manager in a jurisdiction that is a signatory to IOSCO MMOU Appendix "A"; b. The Fund Manager shall remain responsible for any delegated functions and shall ensure that the delegate employs a high standard of care when performing the delegated functions, as if the Fund Manager is the one performing the delegated function; c. The Fund Manager shall have in place suitable processes to monitor and control the activities of the delegate and evaluate the performance of the delegate; and d. The Fund Manager shall ensure that it or its delegate is able to provide the Commission, ready access to information related to the delegated functions. However, the MFC shall still perform oversight responsibility over such appointment and shall undertake the necessary measures if, upon proper finding, the appointment of a delegate, is not in the interest of the MFC shareholders/unitholders. 5.1.8. Pre-termination or End of Contract. In case of pre-termination or end of contract between MFC and the Fund Manager, the latter shall: a. Disclose to the Commission within five (5) days of its decision to pre-terminate the contract or expiration of the contract, or upon receipt of notice of MFC's decision to pre-terminate the contract, and the date of the pre-termination of the contract or expiration of contract by filing a Current Report (SEC Form 17-C). b. Disclose in a Current Report the pre-termination date or date of expiration of contract at least thirty (30) days before such date. c. Inform the existing shareholders and/or unitholders, and all the parties involved in the operation of the fund by sending them notices to their latest known address of the pre-termination of the contract at least thirty (30) days before the termination of the contract is to take effect and as to when the transfer to the successor-Fund Manager shall take effect. cSaATC d. Upon the request of the MFC, assist the MFC in hiring a new Fund Manager and continue managing the funds which shall not exceed more than thirty (30) days from the time the contract between them was terminated, or such period that the parties have stipulated in their agreement that would promote the protection of the investors. e. In connection with the immediately preceding provision, the Fund Manager shall assist an actively managed MFC in hiring a new Fund Manager for a period of at least sixty (60) days from the time the contract between them was terminated. 5.1.9. Withdrawal of license as Fund Manager. The Fund Manager shall undertake the following procedures: a. Submit its letter request or file SEC Form ICA-IA indicating its Request for withdrawal of Business and/or Cancellation of Registration as an Investment Company Adviser (ICA)/Fund Manager; b. Within five (5) days from the submission of its letter request, it shall file an affidavit or sworn statement to comply with the following conditions: i. The company will cease to solicit new business as an ICA/Fund Manager and should the company remain inoperative for five (5) years, its Certificate of Incorporation will be revoked; ii. The company will preserve, for a period of not less than five (5) years from the date the Commission has approved its operation to cease, all records required to be maintained pursuant to the Books and Records Rule. In addition, the company shall inform the Commission of the names, residence addresses and contact numbers of at least two (2) person/s responsible for the safekeeping of all the records. c. Submit an undertaking/affidavit of assumption of liabilities of subject company's officer, director or majority stockholder stating in effect that should third parties having claims against the corporation that will appear in the future (in the next five [5] years), said officer, director or majority stockholder may be held responsible for said claims; and d. Submit a Certificate of Good Standing from the Commission. e. Amend the AOI to delete in its purpose the business of managing mutual funds or investment companies. 5.1.10. Failure to hire a new fund manager. In case the MFC fails to engage the services of a new fund manager, the MFC shall be allowed to manage the fund operation, except to distribute its own funds, which should not be more than sixty (60) days from the last day it no longer has a Fund Manager. After the expiration of the 60-day period and the MFC failed to hire a new fund manager or secure an extension of the 60-day period, the Commission shall initiate suspension proceedings on the MFC's Registration Statement and Certificate and Permit to Offer for Sale its Securities. Unless it is being suspended for such other violation of the law or rules, the suspension order shall be lifted once the MFC is able to hire a new fund manager and has filed a petition to lift the order of suspension. cHDAIS The period of suspension shall not be more than one year, or such other period that may be provided by the Commission. After the expiration of the said period, the Commission shall revoke the MFC's Registration Statement and Certificate and Permit to Offer for Sale its Securities and shall issue an Order directing the MFC to wind up and liquidate its assets. In case the MFC failed to comply with the said directive, the Commission shall appoint a liquidator to facilitate the liquidation of the assets within six (6) months from the appointment. The unclaimed assets of the funds shall be placed by the liquidator in an escrow account for ten (10) years after which the funds shall be escheated in favor of the government in accordance with the procedure prescribed by the existing laws and rules. 5.2. Mutual Fund Distributor (MFD) 5.2.1. Qualifications of a Mutual Fund Distributor. An MFC shall appoint a Mutual Fund Distributor licensed by the Commission that meets the following requirements: a. It is organized as stock corporation; b. It has a paid-up capital of at least Ten Million Pesos (P10,000,000.00) and minimum unimpaired net worth of at least P10 million exclusive of revaluation surplus, unrealized gain in value of non-current investments, deferred income tax and other capital adjustments as may be required by SEC; c. It shall have or undertakes to have at least one (1) registered CISol; and d. It has complied with such other requirements as may be prescribed by the Commission. 5.2.2. The Fund Manager that intends to distribute the shares or units of the funds it is managing may no longer be required to secure a separate license as a MFD. Such fund participant shall be referred to as FM/MFD. However, if the FM/MFD intends to distribute the securities of another fund managed by a different fund manager or CIS Operator, it shall be required to secure a license as a Mutual Fund Distributor. 5.2.3. Responsibilities of a Mutual Fund Distributor. The MFD shall be principally responsible for: a. Marketing, distributing and selling shares or units of the MFC; b. Appointing CISols licensed by the Commission; c. Complying with the Suitability Rule; d. Maintaining a record of its transactions relating to offering of the shares/units; e. Performing such other duties and responsibilities that may be prescribed by the Commission. 5.2.4. Marketing and Distribution Agreement. The MFD and the MFC shall enter into a formal marketing and distribution agreement which shall contain, among others, the following provisions: a. the duties and responsibilities of a MFD; b. extent of services to be rendered by the MFD; c. fees, remuneration and other expenses of the MFD; d. any restrictions or prohibitions regarding the performance by the MFD of its functions; e. undertaking to employ or appoint only CISols licensed by the Commission; f. reporting requirements of the MFD. 5.2.5. Outsourcing/Delegation of Functions of the Mutual Fund Distributor. The MFD can hire its own sales force and/or use the services of mutual fund dealers to distribute the shares or units of the MFC provided that: a. the delegate/s are duly licensed by the Commission to engage in the activity; b. the name of the delegate or the sub-distributor and its function is disclosed in its registration statement and prospectus; c. If not disclosed in the registration statement and prospectus, submit a report to the Commission within five (5) days from the time it engages the services of the delegate or a sub-distributor together with a copy of the sub-distributor agreement and a complete list of sub-distributors it authorized to distribute the funds and the period of their engagement. ISHCcT 5.2.6. In case the MFD terminates the services of a sub-distributor, the MFD shall submit a report to the Commission within five (5) days from the time it decided to terminate the contract. 5.2.7. Sub-distributors, including banks, engaged by the MFD or the Fund Manager to distribute funds shall also comply with the requirements provided under Rule 5.2. 5.3. Custodian 5.3.1. Qualifications of a Custodian. An MFC, or its appointed Fund Manager, shall appoint an independent third party Custodian which shall: a. be a registered universal or commercial bank with trust license, or a non-bank entity with a trust license, or a registered securities depository to take custody and control of the MFC assets and properties. b. have adequate resources, including competent staff, and appropriate systems, procedures and processes to ensure that the MFC assets and properties are held in the following manner: 1. safekeeping of the assets of the MFC which shall be clearly identified and properly labeled as assets or properties of the MFC; 2. MFC assets and properties are properly earmarked, and segregated physically and/or on the records of the Custodian; 3. Unless otherwise authorized in writing by the Commission upon proper application, the assets and properties are registered in the name of, or for the account of, the MFC. c. Have adopted adequate and effective internal control procedures, including the independence between and among its different office units, and satisfactory risk management procedures; d. Have provisions for periodic or other inspections by employees and agents of the Commission and/or the Monetary Board of the Bangko Sentral ng Pilipinas. 5.3.2. To be considered independent, the Custodian shall not: a. hold directly or indirectly ten percent (10%) or more of the total number of issued shares in the MFC and fund manager or vice versa; b. have a common shareholder in the MFC, or the fund manager who holds directly or indirectly ten percent (10%) or more of the total number of issued share capital of the MFC and fund manager, respectively; c. have a director, officer or employee who is connected to the MFC and fund manager, either as a director, officer or employee. 5.3.3. Responsibilities of a Custodian. The custodian shall be responsible for: a. Holding all proceeds from the sale of securities, including the original subscription or payments at the time of incorporation constituting the original paid-up capital of the investment company. b. Releasing the assets upon the proper instruction of the Fund Manager or the MFC in cases the latter has no Fund Manager. c. Discussing with the MFC or its Fund Manager, before appointment, that it is handling more than one MFC, the Custodian should, by: CAacTH i. identifying, if any, areas that may give rise to conflict of interest issues; and ii. providing measures to avoid, if not eliminate, such conflict of interest. d. Informing the Commission that it has engaged or severed the services of a sub-distributor by filing a Current Report. e. Filing reports, periodic or otherwise, that relates to its operation as a custodian to the MFC, that may be prescribed by the Commission. f. Performing such other duties and responsibilities that may be prescribed by the Commission. 5.3.4. Prohibited Acts of a Custodian. The custodian is prohibited from: a. Performing any management or investment advisory function in the sale of the shares or units of the MFC wherein it is the custodian; b. Using for its own account the assets which is under its custody; c. Engage in any other prohibited acts that the Commission by rule or order shall prescribe. 5.3.5. Custodial Agreement. The formal written agreement between the MFC, or its Fund Manager, and the Custodian shall specify, among others, the following: a. its duties and responsibilities as a custodian; b. extent of services to be rendered by the custodian; c. fees, remuneration and other expenses of the custodian; d. any restrictions or prohibitions regarding the performance by the custodians of its functions; and e. reporting requirements of the custodian. 5.3.6. Outsourcing/Delegation of Functions of the Custodian. The Custodian may delegate its custody function to a sub-custodian who is licensed by the BSP or SEC to act as such. In case the MFC invests in global securities, the following are required: a. The sub-custodian shall be independent, licensed and regulated by a competent regulatory authority; b. The delegating custodian remains responsible for the actions or omissions of the sub-custodian pertaining to the function delegated; c. The delegating custodian shall have adequate procedures to monitor the sub-custodian; d. The custodian informs the Commission within five (5) days from the execution of the sub-custodian agreement of such delegation and submit a copy of the same. 5.3.7. The custodian may likewise act as a transfer agent or dividend disbursing agent of an MFC. 5.3.8. In case the Custodian is a non-bank entity, it shall likewise take hold of the cash assets of an MFC that shall be placed in a commercial or universal bank for the account of the MFC. 5.4. Transfer Agent 5.4.1. Qualifications of a Transfer Agent. An MFC shall appoint a transfer agent registered pursuant to SRC Rule 36.4 or such other applicable rules or regulations. 5.4.2. Responsibilities of a Transfer Agent. The Transfer Agent shall be responsible for: a. Maintaining an accurate registry for recording the initial, additional subscription and subsequent transfer of securities. b. Countersigning, when applicable, certificates of securities upon their issuance; IAETDc c. Monitoring the issuance or redemption of shares or units to prevent unauthorized issuances; d. Recording the ownership of shares or units by bookkeeping entry; e. Recording shareholders or untiholder's dividend entitlements; and 5.4.3. Prohibited Acts of the Transfer Agent. The Transfer Agent is prohibited from: a. Charging fees based on the AUM. The transfer agent that has been charging fees based on the percentage of the AUM of the MFC shall amend its contract within three (3) months from the effectivity of this Rules to reflect the transfer fees that is in accordance with the Rules. b. Acting as the auditor of the MFC for whom it is the Transfer Agent. 5.4.4. Transfer Agency Agreement. The MFC and the Transfer Agent shall enter into a formal Transfer Agency agreement which shall contain, among others, the following provisions: a. its duties and responsibilities as a Transfer Agent; b. extent of services to be rendered by the Transfer Agent; c. fees (based on actual transactions performed), remuneration and other expenses of the Transfer Agent; d. any restrictions or prohibitions regarding the performance by the Transfer Agent of its functions; and e. reporting requirements of the Transfer Agent. 5.4.5. The transfer agent may likewise act as the dividend disbursing agent of the MFC. 5.5. Mutual Fund Advisor 5.5.1. Qualifications of a Mutual Fund Advisor. The same qualifications required for the Fund Manager shall be applied to the Mutual Fund Advisor. 5.5.2. Responsibilities of a Mutual Fund Advisor. If the Fund Manager engages the services of a Mutual Fund Advisor, the following, among others, are its responsibilities. a. Advise or recommend investment decisions with regard to the securities or other portfolio of the Fund pursuant to an advisory contract with the Fund Manager or the MFC; b. Provide informative and consultative services which may include investment research, advice, assistance and recommendations that will guide the fund manager in formulating the investment strategies and guidelines for the MFC which is necessary to provide the Fund with a continuous inflow of information and advice concerning the Fund's investments; c. Preparation and submission of such information and data relating to economic conditions, industries, business, corporations, or securities; and d. Periodic review and analysis of the financial market as well as current developments in industries having a direct or indirect bearing on the Fund's investments; e. In providing advice to the fund, it shall act honestly and fairly to the best and exclusive interest of the MFC, its shareholders and unit holders and for the integrity of the market. It shall ensure at all times that any representations or other communications made and information provided to the client is accurate and not misleading. 5.5.3. Limitations of a Fund Advisor. The directors, chief executive officer, key executive officers or managers of the Fund advisor company, are not allowed to hold more than fifty percent (50%) of the board of an MFC. 5.6. Compliance Officer 5.6.1. Qualifications of a Compliance Officer. The compliance function shall be performed by a Compliance Officer who shall have the following qualifications: a. a natural person and a resident of the Philippines; b. legal age; c. undertook or passed the certification examination for Compliance Officer administered by the Commission; d. passed the applicable examination within the last three (3) years immediately preceding his/her engagement as a Compliance Officer; e. duly licensed by the Commission to perform compliance function; f. has a valid license for the year and paid the required annual fee; g. possesses sufficient training and experience in securities regulation matters and an understanding of the mutual fund activities of the firm enabling them to effectively execute their duties; h. has no disciplinary history for the past ten (10) years; i. has not been censured, reprimanded or fined by a professional or regulatory body for negligence, incompetence, mismanagement, or dereliction of duty; j. has not been dismissed or requested to resign from any position or office; and DcHSEa k. has complied with such other requirements as may be prescribed by the Commission. 5.6.2. Responsibilities of a Compliance Officer. The following are the responsibilities of a Compliance Officer: a. required to report directly to the Board of Directors and the company President; b. required to have a system designed to achieve compliance with the SRC, ICA and their implementing rules and regulations, SEC Memorandum Circulars, Corporate Governance Rules and such other applicable laws, such as, but not limited to, the Anti-Money Laundering Act, Data Privacy Act; c. comply with the orders or resolution of the Commission, or its Department/s; d. oversee the compliance with the requirements of the Commission relative to the closure of the business of an MFC and Fund Manager; e. ensure that all CISol are registered and that the Commission is notified when any CISol is no longer connected with the Fund Manager; f. exercise due diligence in the conduct of his/her compliance function. 5.7. Certified Investment Solicitor (CISol) 5.7.1. Qualifications of a Certified Investment Solicitor. A CISol, prior to offering or selling of MFC shares or units, shall comply with the following requirements and standards for eligibility: a. a natural person and a resident of the Philippines; b. legal age; c. passed the certification examination for CISol administered by the Commission; d. passed the applicable examination within the last three (3) years immediately preceding his/her engagement as a CISol. e. duly licensed by the Commission to solicit, sell or offer the securities of an investment company; f. has a valid license for the year and has paid the required annual fee; g. has no disciplinary history for the past ten (10) years; h. has not been censured, reprimanded or fined by a professional or regulatory body for negligence, incompetence, mismanagement, or dereliction of duty; i. has not been dismissed or requested to resign from any position or office; and j. has complied with such other requirements as may be prescribed by the Commission. 5.7.2. Responsibilities of a Certified Investment Solicitor. The following are the responsibilities of the CISol: a. Explain fully the terms of the mutual fund shares which are offered to prospective clients as described in the registration statement, prospectus, the latest Annual Report and Quarterly Report; b. Provide the prospective client copies of the registration statement, prospectus, the latest Annual Report and Quarterly Report before any sale of the shares or units of an MFC takes place and shall make adequate disclosure of material information in dealings with his/her clients; c. Undertakes not to make untrue statements, interpretations, or misrepresentations, or to omit or avoid disclosing material facts concerning the MFC shares or units which prospective clients are entitled to know and shall ensure at all times that any representations or other communications made and information provided to the client is accurate and not misleading; d. Comply with the Suitability Rule; e. Perform the pre-acceptance account review process which should include the processes and provided under the Anti-Money Laundering Law Requirements; and SCaITA f. Satisfy the "Know-Your-Client" (KYC) rule prior to establishing a relationship between MFC and the investor and determine the real identity of the prospective investor by requiring the submission of identification documents; g. should seek from his/her clients, information about their financial situation, investment experience and investment objectives regarding the services to be provided; and h. shall act with due skill, care and diligence, in the best interest of his/her clients and for the integrity of the market. 5.7.3. Effect of the Withdrawal or Revocation of the MFD License on the CISol . In case the license of the MFD is revoked or withdrawn, the license of the CISol will be automatically suspended. The suspension of the CIS shall be lifted once it is registered as a CISol with a licensed MFD. 5.8. Independent Accountants and Auditors 5.8.1. Qualifications of an Independent Accountants and Auditors. The Independent Accountants and Auditors appointed to audit the financial statements of an MFC, its appointed Fund Manager and Fund Distributor shall be duly accredited by the Commission in accordance with SRC Rule 68, as amended. 5.8.2. Responsibilities of an Independent Accountants and Auditors. The following, in addition to those prescribed under existing laws and regulations, shall be the duties and responsibilities of the independent accountant or auditor: a. Audit and certify the financial statements of the MFC, Fund Manager and Fund Distributor; b. Validate the net asset value of the MFC and check the accuracy of the operator's valuation of the MFC's assets; c. Report to the Board of Directors of the MFC any irregularity or undesirable practice in the operation of the MFC which has come to its knowledge. Any material finding shall be reported by the independent accountant or auditor to the Commission; d. Report to the Commission any non-compliance by the MFC, fund manager and distributor with its contractual and regulatory requirements; aTHCSE e. Report to the Commission whether the internal control and audit structures in the operation of the MFC, appointed Fund Manager and Fund Distributor are at an acceptable level; and f. Conform with the Code of Professional Ethics for CPAs and ensure compliance with the effective Standards such as Philippine Standards in Auditing (PSAs), Philippine Financial Reporting Standards (PFRS), SRC Rule 68, as amended, and other supplemental standards or rules issued by regulatory authorities/government agencies. The said Standards and/or Rules address independence and objectivity, scope of work, limitations and prohibited acts, confidentiality and communication, among others. RULE 6 Investment of Funds 6.1. Investment Assets. The Fund Manager, based on the MFC's investment objective, policy and focus, may only invest in the following eligible investment assets: a. Transferrable securities; b. Money market instruments; c. Deposits; d. Financial derivatives; e. Tradable securities; f. Units or participation in other CIS; and g. Securities issued by or guaranteed by the Philippine government or the Bangko Sentral ng Pilipinas. 6.2. Transferrable securities. Investment in transferrable securities shall observe with the following requirements: a. The investment is adequately liquid and marketable in order to meet the redemption requests; b. There is appropriate information available on the investment, or where relevant, on the portfolio such that: i. in case of transferable securities dealt in an organized market, the information is accurate, regularly disclosed, available to the public, and sufficient to analyze the investment; and ii. in case of transferable securities not dealt in an organized market, the information is accurate, regularly disclosed, accessible by the fund managers, and sufficient to analyze the investment. c. The investment is subject to reliable and verifiable valuation where securities: i. dealt in an organized market, are subject to daily valuation that is reliable and based on either market prices or valuations that are made independently from the issuer; ii. not dealt in an organized market, are subject to periodic valuations that are based on information obtained from the issuer or competent investment research. d. the investment is negotiable; e. the investment is issued and offered in any jurisdiction that is an ordinary or associate member of the IOSCO, and, if the investment is a listed security, the investment is traded in an exchange that is a member of the WFE; f. equity securities traded in an organized exchange in another country possess all the following qualities: i. The issuer has a track record of profitable operation for the preceding three (3) consecutive years, or of consistent dividend declarations for the same periods; ii. The equities have the following Return on Equity (ROE): Grade Max. Exposure (% of allocated Fund for Equity) Description A 100% Stocks with ROEs at least 25% better than the last 3-year average ROE of the PSEi B 75% Stocks with ROEs at par with, or up to 25% better than the last 3-year average ROE of the PSEi C 50% Stocks with ROEs up to 25% below the last 3-year average ROE of the PSEi D 25% Stocks with ROEs more than 25% below the last 3-year average ROE of the PSEi iii. The issuer fully complies with its obligation of continuing disclosure and the other requirements of the securities laws and regulations in force in its jurisdiction and which laws and regulations are not substantially different from those enforced in the Philippines. cAaDHT 6.3. Money Market Instruments. Investment in money market instruments shall comply with the following requirements: a. The investment is dealt in the money market; b. The investment: i. has a maturity at issuance of up to and including 397 days; ii. has a residual maturity of up to and including 397 days; or iii. undergoes regular yield adjustments that are in line with money market conditions at least once every 397 days. c. Can be sold at limited cost in an adequately short time frame based on ordinary market conditions; and d. The value can be verified based on either market data or valuation models. 6.4. Deposits. Investment in deposits shall be placed in a deposit-taking institution which is repayable on demand, or can be withdrawn at anytime. 6.5. Financial Derivatives. a. be investments dealt in i. an exchange; or ii. over-the-counter (OTC financial derivative) provided that: a) the counterparty is a financial institution subject to prudential supervision and approved by the relevant authority. b) it is subject to reliable and daily valuations that are based on: 1. up-to-date market values, which do not rely only on market quotations by the counterparty; or 2. pricing models based on an adequate and generally accepted practice methodology and where the values are subject to verifications on the daily basis and the pricing models are subject to verifications at an appropriate frequency by either: a. an independent party; or b. a unit within the fund manager that is independent from the one in-charge of the managing the assets; and c) it can be sold, liquidated or closed by an offsetting transaction at any time at its fair value. b. The underlying shall consist of: i. eligible assets; ii. financial indices comprising eligible assets; iii. foreign exchange rates/currencies; or iv. interest rates. 6.6. Tradable securities. Investments in tradable securities shall be those issued by the government of a foreign country, any political subdivision of a foreign country or any supranational entity with two-way quotation prices which are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and those prices represent actual an regularly occurring market transactions on an arm's length basis. 6.7. Units or participation in Collective Investment Schemes. Investments in other CIS shall be allowed provided that the target fund is registered with the Commission or approved by the BSP, or registered/authorized/approved, as the case may be, by a regulatory authority that is an ordinary or associate member of the IOSCO. 6.8. Investment Limitations. In investing the assets of an MFC, the Fund Manager shall comply with the following limitations: HCaDIS a. As a general rule, the maximum investment of an MFC in any single enterprise shall not exceed an amount equivalent to fifteen per cent (15%) of its net assets, nor shall the total investment of the fund exceed ten percent (10%) of the outstanding securities of the investee company. b. Deposits shall not exceed twenty percent (20%) of its net assets in a single bank/non-bank with quasi bank license excluding monies for liquidation of a revoked MFC. c. The investments in the following shall not exceed five percent (5%) of the net assets of the MFC: i. Deposits placed with a non-investment grade or unrated deposit taking institution; ii. Debt securities or money market instruments not dealt in an organized market or issued by an unrated or non-investment grade issuing body; and iii. Over-the-Counter financial derivatives with non-investment grade or unrated counterparty; iv. unlisted shares issued by related party. The aggregate investments shall not exceed ten percent (10%). d. Index funds shall not be subject to investment limitations under this provision, provided, it complies with the following requirements: i. comprises eligible assets; ii. be diversified such that the maximum weight per constituent does not exceed 30% of the index; iii. be developed by an independent and reputable agency, and based on a recognized and accepted methodology; iv. represents an adequate benchmark for the market and is widely accepted in international financial markets; v. index value is published daily through media, which disseminates information in a timely manner and is accessible either publicly or on a subscription basis; and vi. information on the index is published and readily accessible. e. Investment in foreign government debt securities or money markets where the issuer or the guarantor is a government, sovereign or central bank with an international long-term issuer rating of investment grade may be increased to a maximum of thirty five percent (35%) of the net assets of the MFC; f. a maximum of five percent (5%) of the net assets of the MFC may be invested in government debt securities issued or guaranteed by a government, sovereign or central bank with an international long-term issuer rating that is non-investment grade; g. in investing in financial derivative instruments for the MFC, the Fund Manager shall see to it that it employs a risk-management process which captures the risks associated with the use of financial derivatives and satisfies all the following requirements: i. the total exposure to financial derivatives or embedded financial derivatives, including counterparty transactions, shall not exceed ten percent (10%) of the net assets of the MFC, or five percent (5%) of the net assets if the derivatives are not investment grade; ii. the MFC shall invest five percent (5%) of its net assets to liquid assets in order that it shall meet all its payment and delivery obligations; iii. the Fund Manager shall not act as the counterparty to an OTC derivative invested into by the MFC. h. The MFC shall be prohibited from investing in the units it is issuing. i. No MFC shall purchase from or sell to any of its officers or directors or the officers or directors of its investment advisor/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. j. The MFC shall not engage in short selling; k. Unless the Commission shall provide otherwise, the MFC shall not invest in any of the following: i. margin purchase of securities (investment in partly paid shares are excluded); ii. commodity futures contracts; iii. precious metals; and iv. unlimited liability investments. 6.9. Additional Rules on Money Market Funds. Constant net asset value money market funds (C-NAV MMFs) are not permitted. The Fund Manager that manages an MFC that markets itself as a money market fund or an equivalent fund that primarily invests in high quality debts securities, deposits and money market instruments shall comply with the following: AHCETa a. A Weighted Average Maturity (the average length of time to maturity of all of the underlying securities in the fund) of not more than ninety (90) days; and Weighted Average Life (average of the remaining life of each security held in the fund) of not more than one hundred twenty (120) days; b. Shall have a cash reserve, or assets with high liquidity, low market risk and can be cashed within T+1 day, of at least ten percent (10%) of its net assets; c. Invests in any of the following: i. high quality debts securities; ii. deposits; and iii. money market instruments. d. Shall not engage in securities lending, repurchase transactions, and direct lending of monies. 6.10. Liquidity Requirements. For liquidity purposes, unless otherwise prescribed by the Commission, at least ten percent (10%) of the assets of an open-end MFC shall be invested in liquid/semi-liquid assets. a. Such liquid/semi-liquid assets shall refer to, but not limited to the following: i. Treasury notes or bills, Certificates of Indebtedness issued by the Bangko Sentral ng Pilipinas which are short term, and other government securities or bonds and such other evidence of indebtedness or obligations, the servicing and repayment of which are fully guaranteed by the Republic of the Philippines; ii. Tradable Long-Term Negotiable Certificate of Time Deposits (LTNCTD); iii. Government debt securities or money markets where the issuer or the guarantor is a foreign government, sovereign or central bank with an international long-term issuer rating of investment grade; iv. Savings or time deposits with government-owned banks or commercial banks, provided that in no case shall any such savings or time deposit accounts be accepted or allowed under a "bearer," "numbered" account or other similar arrangement; v. MFCs or other collective schemes wholly invested in liquid/semi-liquid assets. b. The MFC may implement a decreased investment of less than at least ten percent (10%) but not less than five percent (5%) of its assets in liquid/semi-liquid assets, provided, however, that it shall submit a notarized liquidity contingency plan, signed by the President of the Fund and its Fund Manager, to be approved by the Commission. c. Index funds may be exempted to comply with the liquidity requirement provided that it submits a notarized liquidity contingency plan signed by the President of the Fund and its Fund Manager which shall be approved by the Commission. The plan shall include a statement that: "In making any redemption to meet a client obligation, the fund manager will exercise the requisite prudence and diligence necessary under the circumstances and taking into account all relevant factors that will ensure market stability." ScHADI 6.11. Other Limitations 6.11.1. Operational expenses. The total operating expenses of an MFC shall not exceed ten percent (10%) of its average investment fund or net worth as shown in its previous Audited Financial statements covering the immediately preceding fiscal year. The formula shall be as follows: Total Operating Expenses Expense Ratio (%) = x 100 Average Net Asset Value 6.11.2. Borrowing limit. The MFC may borrow, on a temporary basis, for the purpose of meeting redemptions and bridging requirements provided that: a. The borrowing period should not exceed one month; and b. The aggregate borrowings shall not exceed ten percent (10%) of the net assets of the MFC. MFC 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 percent (300%) for all borrowings of the investment company. Provided, however, 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 borrowings to an extent that the asset coverage of such borrowings shall be at least three hundred percent (300%). 6.11.3. No MFC shall participate in an underwriting or selling group in connection with the public distribution of securities, except its own capital stock. 6.12. Breach of Investment Restrictions. a. The Fund Manager shall inform the Commission within three (3) business days after it becomes aware of any breach of the investment restrictions and shall rectify such breach as soon as practicable, but shall not be more than five (5) business days from the date of discovery. Failure of the Fund Manager to report the breach within the period shall raise the presumption that the fund manager intentionally breached the investment restrictions and therefore shall be liable for administrative penalty/ies. b. If any of the investment limits was breached by reason other than investment decision, the Fund Manager shall report this matter to the Commission within five (5) business days, and rectify the breach no later than three (3) months from the date of the breach. 6.13. The purchase and sale of foreign securities shall be made only through a distributor or underwriter duly authorized or licensed by the relevant government of the issuer of such securities. RULE 7 Feeder Fund, Fund-of-Funds and Co-Managed Funds 7.1. An MFC may be allowed to operate as a feeder fund, fund-of-funds, or co-managed funds provided that the registration statement, prospectus and other documents disseminated shall clearly state that the MFC is a feeder fund, fund-of-funds, or co-managed funds. 7.2. The prospectus or materials to be disseminated by the feeder fund, fund-of-funds, or co-managed funds in connection with its offer of securities shall provide an explanation or illustration of a feeder fund or a fund-of-funds. 7.3. The feeder fund, fund-of-funds or co-managed funds shall provide in its prospectus and/or its current reports the material information or significant reports affecting or submitted by the target funds, respectively. 7.4. A feeder fund and co-managed funds shall be an MFC that is required to invest at least eighty five percent (85%) of its assets in a single collective investment scheme, and thus: a. the single entity limit of fifteen percent (15%) shall not be applicable to feeder funds or co-managed funds; b. the target fund shall not be a feeder fund or co-managed fund; c. the target fund shall provide ample protection to the investors of the feeder fund or co-managed funds. If the target fund is a foreign fund, the securities regulator approving the said fund shall have been assessed by the World Bank or the IMF to have broadly implemented the IOSCO Principles relevant to collective investment schemes; d. the target fund publishes Quarterly/Semi-Annual and Annual Reports; e. the target fund provides the co-managed fund information or reports on the investments it has made in a more frequent manner; aICcHA f. the investment objectives of the target fund is aligned with that of the feeder fund or co-managed funds. 7.5. An MFC that invest more than fifty percent (50%) of all its assets in other collective investment scheme shall be deemed a fund-of-funds and shall be subject to the following: a. the target fund shall not be a feeder fund; b. the target fund shall provide ample protection to the investors of the feeder fund. If the target fund is a foreign fund, it shall have assessed by the World Bank or the IMF to have broadly implemented the IOSCO Principles relevant to collective investment schemes; c. the target fund publishes Quarterly/Semi-Annual and Annual Reports; d. investment limit of fifteen percent (15%) for every collective investment scheme or entity; e. the investment objectives of the target fund is aligned with that of fund-of-funds. 7.6. The target fund is supervised by a regulatory authority, as follows: i. A local target fund shall either be registered with the Commission or approved by the Bangko Sentral ng Pilipinas; ii. A target fund constituted in another economy shall be registered/authorized/approved, as the case may be, in its home jurisdiction by a regulatory authority that is an ordinary or associate member of the IOSCO. 7.7. Investments in target funds shall be held for safekeeping by an institution registered/authorized/approved by a relevant regulatory authority to act as third party custodian. 7.8. The fund manager can invest the funds of the feeder fund, fund-of-funds or co-managed funds to a target fund that is administered by the fund manager or its related party/company provided that: a. there shall be no cross-holding between the feeder fund or fund-of-funds and the target funds where cross-holding refers to the holding of securities in another by two (2) or more funds; b. all initial charges on the target fund are waived; and c. the management fee shall be charged only once, either at the level of the feeder fund, fund-of-funds, co-managed funds or at the level of the target fund, whichever is lesser. RULE 8 Net Asset Value 8.1. The Fund Manager shall ensure that the NAV of the MFC issuing shares or units, or both but computed separately, is calculated on a consistent basis. 8.2. Daily Computation and Publication of the NAVps/NAVpu. The Fund Manager shall compute and post the net asset value per share/unit of the MFC on a daily basis and shall: a. publish such daily prices in at least two (2) national newspapers of general circulation which may be done through the industry organization/s; b. upload in its website or industry association, through digital portals such as its website or social media accounts; and c. post them daily in a conspicuous place at the principal office of the MFC as well as in all its branches or correspondent offices which are designated redemption centers. 8.3. Price Determination of the Assets of the MFC. The value of the assets of the MFC should be determined based on the following: a. If quoted on the organized market, based on official closing price or last known transacted price; b. If unquoted or quoted investments where the transacted prices are not representative or not available to the market, based on fair value; Provided further that in determining the fair value of the investments, the Fund Manager shall, with due care and good faith: i. have reference to the price that the MFC would reasonably expect to receive upon the sale of the investment at the time the fair value is determined; ii. document the basis and approach for determining the fair value. 8.4. Net Asset Value Calculation. Unless the Commission shall prescribe otherwise, the net asset value shall be calculated by adding : a) The aggregate market value of the portfolio securities and other assets; b) The cash on hand; c) Any dividends on stock trading ex-dividend; and d) Any accrued interest on portfolio securities. And subtracting : e) Taxes and other charges against the fund not previously deducted; f) Liabilities; g) Accrued expenses and fees; and h) Cash held for distribution to investors of the fund on a prior date. 8.5. Issue and Redemption Price of Shares/Units. a. The shares or units in the MFC should be issued or redeemed at a price arrived at by dividing the fund's NAV by the number of shares or units outstanding. EHaASD b. The price of securities subscribed or redeemed within the cut-off time of the day the subscription or request for redemption is received, respectively, shall be based on the net asset value per share/unit computed as of the closing day. Subscription or request for redemption received beyond the cut-off time is deemed received the following banking day and to be priced at net asset value per share/unit computed on the next banking day. c. Generally the daily cut-off time shall be at 12:00 noon. A different cut-off time may be set as long as it is provided in the prospectus, of the trading day. d. The net asset value per share/unit 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 per share/unit calculation or valuation method shall be subject to approval by the Commission. 8.6. Valuation Error or Incorrect Price. In case of valuation error or when incorrect pricing occurs, the Fund Manager shall: a. Report to the Commission within five (5) business days from the valuation error or incorrect pricing is found on the: i. valuation error; ii. the reason/s for the error; iii. revised valuation or calculation to correct the valuation error; iv. measure/s that the Fund Manager will adopt to prevent a recurrence of such errors. b. If the Fund Manager caused the valuation error, it shall compensate the affected participants and notify them of the compensation made and the scheme for any losses incurred as a result of the valuation error within five (5) business days; c. Not use the assets of the MFC to compensate or pay the shareholders or the unitholders for the valuation error; and d. File a compensation report to the Commission within five (5) business days from the end of each month until all the affected participants are compensated. RULE 9 Subscription or Sale of Securities 9.1. Minimum Investment in an MFC. Unless the Commission shall prescribe otherwise, the initial minimum investment by any single investor in any shares or units issued by MFC shall be provided in the prospectus. 9.2. Payment for the shares or units of the MFC. The shares or units sold by the MFC shall be on a cash basis. Installment sales are prohibited. RULE 10 Redemption of Securities 10.1. Right to Redemption of Shares and Units of the MFC. Investors in redeemable shares and units issued by an MFC shall have the right to have their securities redeemed in accordance with the terms of the issue thereof. 10.2. Period to Receive Payments. Payments for the redeemed shares and units shall be made within seven (7) banking days from receipt of the request for redemption. IDTSEH 10.3. Suspension of Redemption of Shares or Units. The Commission motu proprio or, upon the request of a Fund Manager, may suspend the redemption of securities of MFC if: a. the exchange, where eighty percent (80%) of the securities in the MFC's portfolio, is suspended; b. eighty percent (80%) of the securities in the MFC's portfolio, could not be traded or liquidated; c. whenever necessary or appropriate in the public interest or for the protection of investors. 10.4. Period for the Suspension of Redemption of Shares or Units. The Commission shall provide the period of suspension of redemption which shall not be more than twenty-one (21) business days, unless an extension is approved by the Commission En Banc. RULE 11 Books and Records 11.1. Maintenance of Books and Records. The MFC and all parties involved in the mutual fund business whether as a fund manager, fund distributor, fund advisor, fund accountant, transfer agent, or custodian are required to keep and maintain the books and record related to accounting and their business transactions. 11.2. Books and Records Required to be Maintained. The books and records to be maintained by the Fund Manager and MFC are: i. Subscription form/investment application form and redemption form; ii. Investment questionnaire; iii. Subscription and redemption registry/journal; iv. General and subsidiary ledgers, and journals; v. Cash disbursement book; vi. Cash receipts books; vii. Summary of investment portfolio valuation reports; viii. Bank statements and validated deposit slips; ix. Material contracts; x. Daily computation of NAV; xi. Board resolutions and Minutes of Stockholders' Meetings; xii. Stock and transfer books, if applicable; and xiii. Such other books and records required by the Commission. 11.3. Separate booking and recording for shares and units. Fund Manager that manages an MFC which issues both shares and units of participation shall ensure proper booking or recording of transactions to separate the assets, liabilities, income and expenses corresponding to each type of issuance. 11.4. Inspection of Books and Records. The books and records shall be made available at all times to the Commission upon request for review and examination. 11.5. Retention Requirement for Books and Records. The parties shall maintain, keep and preserve the books and records for a period of not less than five (5) years, the first two (2) years in an easily accessible place. In case of termination of contract between the Compliance Officer or CISol and the MFC or Fund Manager, the fund manager shall maintain and preserve in an easily accessible place all records until at least three (3) years after the Compliance Officer or CISol has terminated his/her employment and relationship with the company. RULE 12 Reportorial Requirements 12.1. Reportorial Requirements for the Mutual Fund Company. The Fund Manager, on behalf of the MFC, shall comply with the following requirements: a. Within thirty (30) days from effectivity of the Order declaring effective the registration of the MFC, and within the first ten (10) days of every month thereafter, the Fund Manager shall submit to the Commission a Monthly Issuance and Redemption Report of shares or units under oath executed on its behalf by its Treasurer or any other officer holding an equivalent position, showing the following information: SICDAa i. The total amount received from sale of shares and/or units; ii. The total amount of redemptions; iii. The number of shares or units outstanding at the beginning of the month; iv. The number of shares or units sold during the month; v. The number of shares or units redeemed during the month; vi. The number of shares or units outstanding at the end of the month; vii. The percentage of the outstanding shares owned by Filipinos as of the end of the month; viii. The percentage owned by retail and institutional investors as of the end of the month; and ix. Average net asset value as of the end of the month. b. Submission of Annual, Quarterly, and Current Reports required under the SRC Rule 17; c. Filing of Information Statement as required under SRC Rule 20; d. Other reports and records as may be required by the Commission from time to time. TAacHE 12.2. Additional information in the Annual and Quarterly Reports of a Mutual fund Company. The Annual and Quarterly Reports of the MFC shall provide a supplemental information on the following: a. a schedule showing the following information in two comparative periods: (i) percentage of investment in a single enterprise to net asset value; (ii) total investment of the fund to the outstanding securities of an investee company; (iii) total investments in liquid or semi-liquid assets to total assets; (iv) percentage of total operating expenses to the average daily average net asset value ; (v) the average daily net asset value; (vi) total asset to total borrowings. b. number of institutional and retail investors and the percentage of their investments, and the geographic concentration of investments; c. level of its compliance with FATCA regulations; d. MFC return information in the last five (5) recently completed fiscal years; e. the market price of fund shares in addition to the NAVps or NAVpu to determine its return and include a table with premium/discount information for the five (5) recently completed fiscal years; f. if issuing shares and units, there shall be separate presentation for each of the financial conditions, results of operations, and cash flow statements. 12.3. Additional information in the Audited Financial Statements. In case an MFC filed SEC Form 17-EX (Notice of Suspension of Filing of Reports), it is required to append in its AFS the requirements provided for in Rule 12.2. 12.4. Reportorial Requirements of the Fund Manager. The Fund Manager shall be required to file: a. Annual Report in a SEC Form ICA-AR within one hundred five (105) calendar days after the end of the fiscal year; b. Quarterly Report in a SEC Form ICA-QR within forty five (45) calendar days after the end of the first three quarters of each fiscal year; and c. Current Report in a SEC Form ICA-CR within five (5) calendar days after the occurrence of the event reported. 12.5. Notice of Inability to File AR and QR. In case all or any required portion of SEC Form 17-A/SEC Form ICA-AR or SEC Form 17-Q/SEC Form ICA-QR could not be filed on time, a notification may be filed by the Fund Manager through SEC form 17-L not later than the due date of the subject report pursuant to SRC Rule 17.1.1.6. 12.6. Compliance with the Philippine Financial Reporting Standards ("PFRS"). An MFC and all parties involved shall use as their financial reporting framework the PFRS as adopted by the Commission. RULE 13 Suspension or Revocation 13.1. Suspension and Revocation of Registration of Securities and the License of the Fund Manager HDICSa 13.1.1. Grounds for Suspension or Revocation of Registration of Securities and License of the Fund Manager a. Failure of the MFC or Fund Manager to file its periodic reports for two (2) consecutive reporting periods; b. Failure of the MFC or Fund Manager to comply with the directive of the Commission despite receipt of notice; c. Commission of a fourth (4th) violation of ICA, SRC and rules and regulations governing the MFC; d. Failure of the MFC and the Fund Manager to pay the prescribed annual Fees; e. Other grounds provided under Rule 15 of the 2015 SRC IRR and other grounds that the Commission may deemed appropriate. 13.1.2. Procedures for the Suspension or Revocation of Registration of Securities and License of the Fund Manager. If the Commission, after due notice and hearing, revokes or suspend the effectivity of a registration statement or the license of the fund manager. a. The Commission shall publish a notice of the Order of Revocation or Suspension in a national newspaper of general circulation in the Philippines and/or post at the Commission's website, along with a statement that: i. the offering in its current form has been cancelled; or ii. the license of the fund manager has been suspended or revoked. b. Upon receipt of a notice under paragraph 14.1.2 (a), the MFC and all persons acting on its behalf in the management or distribution of the subject securities shall immediately terminate the offering; c. In case the license of the fund manager was suspended, the MFC shall immediately appoint a new fund manager, or if it failed to appoint a new fund manager, it shall be allowed to manage funds which should not be more than sixty (60) days. d. In case the license of the fund manager is revoked, the MFC shall immediately appoint a new fund manager, or if it fails to appoint a new fund manager, it shall be allowed to manage funds which should not be more than sixty (60) days. After the expiration of the 60-day period and the MFC still fails to hire a new fund manager or secure an extension of the 60-day period, the Commission shall initiate suspension proceedings on the MFC's Registration Statement and Certificate and Permit to Offer for Sale its Securities. The period of suspension shall not be more than one year, or such other period that may be provided by the Commission. After the expiration of the said period and the MFC continuously fails to hire a new manager, the Commission shall direct the MFC to wind up and liquidate its assets. In case the MFC fails to comply with the said directive, the Commission shall appoint a liquidator to facilitate the liquidation of the assets within 6 months from the appointment. 13.1.3. Lifting of the Suspension or Revocation of Registration of Securities and License of the Fund Manager. a. Upon the expiration of the period of suspension of the Registration Statement and Certificate and Permit to Offer for Sale its Securities, unless it is being suspended for such other violation of the law or rules or has not complied with the directives of the Commission, the suspension order shall be lifted provided that the fund manager: i. has paid all its monetary penalties; ii. has filed a petition to lift the order of suspension demonstrating why its license to act as a fund manager shall be reinstated; iii. paid a fee of Five Thousand Pesos (P5,000.00) (first suspension); Ten Thousand Pesos (P10,000.00) (second suspension) plus LRF; iv. complies with the directive of the Commission which may include, among others, payment of fines; v. receives an order lifting the suspension issued by the Commission. b. To lift the order of suspension or revocation of license for fund managers, the fund manager shall comply with Rule 13.1.3.a (i-v) items. However, the fee under item (iii) thereof shall be Twenty Five Thousand Pesos (P25,000.00) and Fifty Thousand Pesos (P50,000.00) plus LRF. c. After the lifting of the Suspension or Revocation Order, the next penalty to be imposed for the violation of the same provision shall be penalty for the first offense. 13.1.4. Consequence of failure to lift Order of Revocation. A Fund Manager with revoked license and fails to cause the lifting of the Order of Revocation within two (2) years, shall be required to amend its AOI changing its name and primary purpose by deleting its function as an asset manager or a fund manager. IDaEHC 13.1.5. Blacklisting of the Fund Manager. The imposition of 3rd suspension or revocation of License shall forever bar a Fund Manager from acting as such and shall be required to amend its AOI changing its name and primary purpose by deleting its function as an asset manager or a fund manager. Failure to comply therewith shall constrain the Commission to revoke the Fund Manager's primary license. 13.1.6. Voluntary Revocation of Registration of Securities a. An Application for Voluntary Revocation of Registration of Securities shall include the following documents: i. Verified Petition for Revocation of Registration; ii. Board Resolution approving the revocation stating therein the reason for the revocation, certified under oath by the corporate secretary and attested to by the President or anyone performing a similar function, and duly approved by a majority of the stockholders; iii. Proof that the holders were notified within thirty (30) days after the Board has decided to voluntarily casue the revocation of the registration of securities of the MFC; iv. List of stockholders/unit holders indicating their respective shareholdings/unit holdings as of the latest date; v. A mechanism that will inform all its shareholders and unitholders in the redemption of the investments which should include the establishment of redemption centers; vi. All relevant books and papers of the MFC, as may be determined by the Commission; vii. Proposed Notice of Filing of Petition for Voluntary Revocation of Registration of Securities, reciting the facts supporting the said petition which shall be subject to the approval of the Commission; and viii. Copy of the official receipt representing payment of the Ten Thousand (P10,000.00) plus Legal Research Fee (LRF) or such other filing fees that may be prescribed by the Commission. The Commission may impose such other requirements or conditions as it may deem necessary specifically for the protection of the investors. b. Procedure for Voluntary Revocation. i. Upon the presentation of the documents required for voluntary revocation of registration of securities, the Notice of Filing of Petition for Voluntary Revocation shall be immediately published by the petitioner, once in a national newspaper of general circulation. ii. If, after fifteen (15) business days from the said publication, the Commission finds that the petition together with all other papers and documents attached to it is on its face complete and that no party stands to suffer any damage from the revocation, it shall prepare an order revoking the registration. iii. The Order of Revocation together with the manner how the shares or units shall be redeemed shall be published once in a national newspaper of general circulation at the expense of the company, and/or uploaded at the websites of the company and industry associations. 13.1.7. Exemption from the Reporting Obligation under the SRC. The Order of Revocation shall exempt the Issuer from its reporting obligations under Section 17.2 of the Securities Regulation Code unless it continues to qualify as a public company. 13.1.8. Residual Obligation of the MFC with a Revoked Registration Statement. The MFC, or the Fund Manager, shall inform the Commission of the status of the redemption of securities every 30th of January until all the shares/units have been fully redeemed. 13.2. Suspension and Revocation of the License of the Mutual Fund Distributor, Compliance Officer and Certified Investment Solicitor. 13.2.1. Grounds for Suspension or Revocation of Registration of Securities and License of the Mutual Fund Distributor, Compliance Officer and Certified Investment Solicitor. After due notice and hearing, the Commission may suspend the license of a mutual fund distributor, compliance officer, and certified investment solicitor (referred to as "erring Parties" for this portion) for: DTCSHA a. Failure to pay the required annual fees; b. Failure to comply with the directive of the Commission despite receipt of notice; or c. Failure to comply with the regulatory requirements under the Rules despite receipt of notice. 13.2.2. Publication of the Order of Suspension or Revocation. The Commission shall publish the Order of Suspension or Revocation of the license/s of the erring Parties once in a national newspaper of general circulation in the Philippines and/or post at the Commission's website. 13.2.3. Procedures for the Lifting of the Suspension or Revocation of License. Unless it is being suspended for such other violation of the law or rules, the Order of Suspension or Revocation shall be lifted provided that the following have been satisfied: a. the erring Party complies with the directive of the Commission; b. payment of Petition fee of Five Hundred Pesos (P500.00) plus LRF for the Compliance Officer and the CISol; and Ten Thousand Pesos for the Mutual Fund Distributor; c. files a Petition to Lift the Order of Suspension or Revocation; d. Commission issues an Order lifting the Suspension or Revocation Order. 13.2.4. Blacklisting the Mutual Fund Distributor, Compliance Officer, CISol. Failure of the erring Parties to comply with the directive of the Commission, despite notice and hearing and an opportunity to correct the violation, shall constrain the Commission to bar the erring Party from acting as such for one (1) year, or such longer period as the Commission may prescribe. After the expiration of one (1) year, it may comply with Rule 13.2.3. for the lifting of the suspension. RULE 14 Amendments to the Registration Statement and Prospectus 14.1. Grounds for Amending the Registration Statement and the Prospectus. The Registration Statement and the Prospectus, shall be amended if any of the following is present: a. Any change in the investment objective, investment policy or strategy of the MFC; b. An increase or decrease in the volume of authorized capital stock being offered; c. Any change in the rights of the shareholders or unitholders that will not be beneficial to their interest; d. The information becomes incomplete or inaccurate in any material respect. 14.2. Changes in Investment Objective, Policy, and Strategy. Any change in the investment objective, policy and strategy shall require prior approval of its shareholders representing a majority of its outstanding capital stock. The unitholders shall be notified of such change at least thirty (30) days before the change will be implemented. 14.3. Requirements for the Amendment of the Registration Statement and the Prospectus. If the grounds for the amendment of a registration statement or prospectus on file with the Commission is present or if the MFC wants to change any material information therein after a Current Report or SEC Form 17-C has been filed, the MFC shall: a. File an amendment to the registration statement with the Commission explaining in detail all proposed changes which shall be reviewed by the Commission in accordance with Section 14 of the SRC; b. Signed by the persons specified in Section 12.4 of the SRC or by any executive officer duly authorized by the board of directors. The final registration statement and prospectus shall, however, be signed by all the required signatories under Section 12.4 of the Code; c. File with the Commission one (1) complete, unmarked copy of every amendment, including exhibits and other papers and documents filed as part of the amendment and one (1) additional copy, marked to indicate clearly and precisely, by underlining or in some other appropriate manner, the changes effected in the registration statement by the amendment. Three (3) copies of the amended registration statement and prospectus shall be signed by the required signatories and filed with the Commission. Only one (1) of the three (3) copies is required to have a copy of the Audited Financial Statements and Interim Financial Statements, if applicable, and stamped received with "OGA Copy." d. If the registration statement has been declared effective by the Commission, publish a notice of the proposed amendment/s, including the reasons for the amendments, in two (2) national newspapers of general circulation in the Philippines and in the MFC or Fund Manager's website stating that the offering in its current form has been amended; CScTED e. Have the amended registration notarized and signed by the president, treasurer, corporate secretary, or any officer occupying a position equivalent to any of the foregoing or performing similar functions of the MFC, and a majority of the board of directors of the MFC and the Fund Manager; f. A copy of every amendment relating to a certified financial statement shall include the consent of the certifying external accountant on the use of his certificate in the amended financial statement in the registration statement or prospectus and to being named as having certified such financial statement; d. In case of an increase in the volume of the shares, the amended registration statement or prospectus shall be accompanied by a filing fee based on the amount as the Commission may determine; e. If the Amended Registration Statement has been rendered effective, publish in two (2) national newspapers of general circulation in the Philippines and in the MFC or Fund Manager's website the Order of the Commission. 14.4. Consequences of Material Omission or Misstatement. If the Commission learns that the prospectus is on its face incomplete or inaccurate in any material respect, or there is a material omission in it, it may require its MFC to revise its amended registration statement, or suspend or revoke its registration under Rule 14 hereof. 14.5. Requirement for changes in non-material information. If non-material information stated in the prospectus changes, the Issuer shall file a report on SEC Form 17-C on the said changes prior to making any amendments in the registration statement. The proposed amendments shall be considered part of the original disclosure unless the Commission, within twenty (20) business days from receipt of such report, requires the Issuer to explain such changes. RULE 15 Administrative Sanctions If the Commission finds that there is a violation of any provision of the Act, or this Rule or any applicable rules under the SRC, or that any person, in a registration statement or its supporting papers and the prospectus, 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 additional sanctions provided by law aside from those established by existing regulations. RULE 16 Applicability of Certain Regulations 16.1. The provisions of ICA, SRC and their implementing rules and regulations, and other relevant regulations insofar as they are applicable and not inconsistent herewith, shall apply suppletorily hereto. 16.2. Regulations on Cross Border Transactions. Offer or selling by licensed or registered collective investment schemes in another economy/ies shall be subject to the regulations provided for in a mutual or multilateral cross-border of funds agreement which the Philippines is a signatory thereof. RULE 17 Transitory Provision All further requirements herein shall be complied with upon the effectivity of this Rules. The compliance with the Rules may be deferred by the Commission provided that it shall not exceed to more than six (6) months from the approval of this Rules. The shares being offered at the time of the effectivity of the Rules pursuant to an effective registration statement and permit may still be offered but shall be revised in accordance with the requirements provided herein. RULE 18 Repealing Clause All rules and regulations, circulars, orders, memoranda, or any part thereof and the rules and regulations previously promulgated by the Commission and/or by persons required to be registered under the ICA or SRC, or any part thereof, in conflict with or contrary to these Rules or any portion hereof, are hereby repealed or modified accordingly. RULE 19 Separability Clause If any portion or provision of this Rule is declared unconstitutional or invalid, the other portions or provisions hereof, which are not affected thereby shall continue in full force and effect. cDCEIA RULE 20 Effectivity The Rules shall take effect on _____________. For the Commission: Footnotes n Note from the Publisher: Copied verbatim from the official copy. n Note from the publisher: Copied verbatim from the official copy. Duplication of Item gg.