Section 1. Short
title. — This Act may be cited as the "Investment Company Act."
Sec. 2. Declaration of policy. — It is hereby
declared that the policy and purposes of this Act in accordance with
which the provisions of this Act shall be interpreted, are to mitigate
and, so far as is feasible, to eliminate the following conditions which
adversely affect the national public interest and the interest of
investors:
(a) When investors purchase, pay for, exchange,
receive dividends upon, vote, refrain from voting, sell, or surrender
securities issued by investment companies without adequate, accurate,
and explicit information fairly presented, concerning the character of
such securities and the circumstances, policies, and financial
responsibility of such companies and their management;
(b) When investment companies are organized,
operated, managed, or their portfolio securities are selected, in the
interest of directors, officers, investment advisers, depositors, or
other affiliated persons thereof, in the interest of underwriters,
brokers, or dealers, in the interest of special classes of their
security holders, or in the interest of other investment companies or
persons engaged in other lines of business, rather than in the interest
of all classes of such companies' security holders;
(c) When investment companies issue securities
containing inequitable or discriminatory provisions, or fail to protect
the preferences and privileges of the holders of their outstanding
securities;
(d) When the control of investment companies is
unduly concentrated through pyramiding or inequitable methods of
control, or is inequitably distributed, or when investment companies
are managed by irresponsible persons;
(e) When investment companies, in keeping their
accounts, in maintaining reserves, and in computing their earnings and
the asset value of their outstanding securities, employ unsound or
misleading methods, or are not subjected to adequate independent
scrutiny;
(f) When investment companies are reorganized, become
inactive, or change the character of their business, or when the
control or management thereof is transferred, without the consent of
their security holders;
(g) When investment companies by excessive borrowing
and the issuance of excessive amounts of senior securities increase
unduly the speculative character of their junior securities; or
(h) When investment companies operate without
adequate assets or reserves.
Sec. 3. Definitions. — When used in this Act,
unless the context otherwise requires — (a) "Advisory board" means a
board, whether elected or appointed, which is distinct from the board
of directors or board of trustees, or an investment company, and which
is composed solely of persons who do not serve such company in any
other capacity, whether or not the functions of such board are such as
to render its members "directors" within the definition of that term,
which board has advisory functions as to investments but has no power
to determine that any security or other investment shall be purchased
or sold by such company.
(b) "Affiliated company" means a company which is an
affiliated person.
(c) "Affiliated person" of another person means (1)
any person directly or indirectly owning, controlling or holding with
power to vote, ten per centum or more of the outstanding voting
securities of such other person; (2) any person ten per centum or more
of whose outstanding voting securities are directly or indirectly
owned, controlled, or held with power to vote, by such other person;
(3) any person directly or indirectly controlling, controlled by, or
under common control with, such other person; (4) any officer,
director, partner, copartner, or employee of such other person; and (5)
if such other person is an investment company, any investment adviser
thereof or any member of an advisory board thereof.
(d) "Bank" means (1) a banking institution organized
under the laws of the Philippines, (2) any other banking institution or
trust company, doing business under the laws of the Philippines, a
substantial portion of the business of which consists of receiving
deposits or exercising fiduciary powers similar to those permitted to
national banks.
(e) "Broker" means any person engaged in the business
of effecting transactions in securities for the account of others, but
does not include a bank or any person solely by reason of the fact that
such person is an underwriter for one or more investment companies.
(f) "Commission" means the Securities and Exchange
Commission.
(g) "Company" means a corporation, a registered
partnership, or an association lawfully transacting business in the
Philippines.
(h) "Control" means the power to exercise a
controlling influence over the management or policies of a company,
unless such power is solely the result of an official position with
such company.
Any person who owns beneficially, either directly or through one or
more controlled companies, more than thirty per centum of the voting
securities of a company shall be presumed to control such company. Any
person who does not so more than thirty per centum of the voting
securities of any company shall be presumed not to control such
company. A natural person shall be presumed not to be a controlled
person within the meaning of this Act. Any such presumption may be
rebutted by evidence, but except as hereinafter provided, shall
continue until a determination to the contrary is made by the
Commission by order either on its own motion or on application by an
interested person. If an application filed hereunder is not granted or
denied by the Commission within sixty days after filing thereof, the
determination sought by the application shall be deemed to have been
temporarily granted pending final determination of the Commission
thereon. The Commission, upon its own motion or upon application, may
by order revoke or modify any order issued under this paragraph
whenever it shall find that the determination embraced in such original
order is no longer consistent with the facts.
(i) "Convicted" includes a verdict judgment, or plea
of guilty, if such verdict, judgment or plea has not been reversed, set
aside, or withdrawn, whether or not sentence has been imposed.
(j) "Dealers" means any person regularly engaged in
the business of buying and selling securities for his own account,
through a broker or otherwise, but does not include a bank, insurance
company, or investment company, or any person insofar as he is engaged
in investing, reinvesting, or trading in securities, or in owning or
holding securities, for his own account, either individually or in some
fiduciary capacity, but not as a part of a regular business.
(k) "Director" means any director of a corporation or
any person performing similar functions with respect to any
organization.
(l) "Exchange" means any organization, association,
or group of persons which constitutes, maintains, or provides a market
place or facilities for bringing together purchasers and sellers of
securities or for otherwise performing with respect to securities the
functions commonly performed by a stock exchange as that term is
generally understood, and includes the market place and the market
facilities maintained by such exchange.
(m) "Government security" means any security issued
or guaranteed as to principal or interest by the Republic of the
Philippines, or by a person controlled or supervised by and acting as
an instrumentality of the Government of the Republic of the Philippines
pursuant to authority granted by the Congress of the Philippines; or
any certificate of deposit for any of the foregoing.
(n) "Insurance company" means a company which is
organized as an insurance company, whose primary and predominant
business activity is the writing of insurance or the reinsuring of
risks underwritten by insurance companies, and which is subject to
supervision by the Insurance Commissioner; or any receiver or similar
official or any liquidating agent for such a company, in his capacity
as such.
(o) "Investment adviser" of an investment company
means (1) any person (other than a bona fide officer, director,
trustee, member of an advisory board, or employee of such company as
such) who pursuant to contract with such company regularly furnishes
advice to such company with respect to the desirability of investing
in, purchasing or selling securities or other property, or is empowered
to determine what securities or other property shall be purchased or
sold by such company, and (2) any other person who pursuant to contract
with a person described in clause (1) of this paragraph regularly
performs substantially all of the duties undertaken by such person
described in said clause (1); but does not include (A) a person whose
advice is furnished solely through uniform publications distributed to
subscribers thereto, (B) a person who furnishes only statistical and
other factual information, advice regarding economic factors and
trends, or advice as to occasional transactions in specific securities,
but without generally furnishing advice or making recommendations
regarding the purchase or sale of securities, (C) a company furnishing
such services at cost to one or more investment companies, insurance
companies, or other financial institutions, (D) any person the
character and amount of whose compensation for such services must be
approved by a court or (E) such other persons as the Commission may by
rules and regulations or order determine not to be within the intent of
this definition.
( p) "Investment banker" means any person engaged in
the business of underwriting securities issued by other persons, but
does not include an investment company, any person who acts as an
underwriter in isolated transactions, but not as a part of a regular
business, or any person solely by reason of the fact that such person
is an underwriter for one or more investment companies.
(q) "Issuer" means every person who issues or
proposes to issue any security, or has outstanding any security which
it has issued.
(r) "Lend" includes a purchase coupled with an
agreement by the vendor to repurchase; "borrow" includes a sale coupled
with a similar agreement.
(s) "Majority-owned subsidiary" of a person means a
company fifty per centum or more of the outstanding voting securities
of which are owned by such person, or by a company which, within the
meaning of this paragraph, is a majority-owned subsidiary of such
person.
(t) "Periodic payment plan certificate" means (1) any
certificate, investment contract, or other security providing for a
series of periodic payments by the holders, and representing an
undivided interest in certain specified securities or in a unit or fund
of securities purchased wholly or partly with the proceeds of such
payments, and (2) any security the issuer of which is also issuing
securities of the character described in clause (1) and the holder of
which has substantially the same rights and privileges as those which
holders of securities of the character described in said clause (1)
have upon completing the periodic payments for which such securities
provide.
(u) "Person" means a natural person or a company.
(v) "Principal underwriter" of or for any investment
company other than a closed-end company, or of any security issued by
such a company, means any underwriter who as principal purchases from
such company, or pursuant to contract has the right (whether absolute
or conditional) from time to time purchase from such company, any such
security for distribution, or who as agent for such company sells or
has the right to sell any such security to a dealer or to the public or
both, but does not include a dealer who purchases from such company
through a principal underwriter acting as agent for such company.
"Principal underwriter " of or for a closed-end company or any issuer
which is not an investment company, or of any security issued by such a
company or issuer, means any underwriter who, in connection with a
primary distribution of securities, (1) is in privity of contract with
the issuer or an affiliated person of the issuer; (2) acting alone or
in concert with one or more other persons, initiates or directs the
formation of an underwriting syndicate; or (3) is allowed a rate of
gross commission, spread, or other profit greater than the rate allowed
another underwriter participating in the distribution.
(w) "Promoter" of a company or a proposed company
means a person who, acting alone or in concert with other persons, is
initiating or directing, or has within one year initiated or directed,
the organization of such company.
(x) "Redeemable security" means any security, other
than short-term paper, under the terms of which the holder, upon its
presentation to the issuer or to a person designated by the issuer, is
entitled to receive approximately his proportionate share of the
issuer's current net assets, or the cash equivalent thereof.
( y) "Reorganization" means (1) a reorganization
under the supervision of a court of competent jurisdiction; (2) a
merger or consolidation; (3) a sale of seventy-five per centum or more
in value of the assets of a company; (4) a restatement of the capital
of a company, or an exchange of securities issued by a company for any
of its own outstanding securities; (5) a voluntary dissolution or
liquidation of a company; (6) a recapitalization or other procedure or
transaction which has for its purpose the alteration, modification, or
elimination of any of the rights, preferences, or privileges of any
class of securities issued by a company, as provided in its charter or
other instrument creating or defining such rights, preferences, and
privileges; (7) an exchange of securities issued by another company or
companies, preliminary to and for the purpose of effecting or
consummating any of the foregoing; or (8) any exchange of securities by
a company which is not an investment company for securities issued by a
registered investment company.
(z) "Sale", "sell", "offer to sell", or "offer for
sale" includes every contract of sale or disposition of, attempt or
offer to dispose of, or solicitation of an offer to buy, a security or
interest in security, for value. Any security given or delivered with,
or as a bonus on account of, any purchase of securities or any other
thing, shall be conclusively presumed to constitute a part of the
subject of such purchase and to have been sold for value.
(aa) "Sales load" means the difference between the
price of a security to the public and that portion of the proceeds from
its sale which is received and invested or held for investment by the
issuer, less any portion of such difference deducted for trustee's or
custodian's fees, insurance premiums, issue taxes, or administrative
expenses or fees which are not properly chargeable to sales or
promotional activities. In the case of a periodic payment plan
certificate, "sales load" includes the sales load on any investment
company securities in which the payments made on such certificate are
invested, as well as the sales load on the certificate itself.
(bb) "Security" means any note, stock, treasury
stock, bond, debenture, evidence of indebtedness, certificate of
interest or participation in any profit-sharing agreement,
collateral-trust certificate, preorganization certificate or
subscription transferable share, investment contract, voting-trust
certificate, certificate of deposit for a security, fractional
undivided interest in oil, gas, or other mineral rights, or, in
general, any interest or instrument commonly known as a "security" or
any certificate of interest or participation in, temporary or interim
certificate for, receipt for, guarantee of, or warrant or right to
subscribe to or purchase, any of the foregoing.
(cc) "Short-term paper" means any note, draft, bill
of exchange, or banker's acceptance payable on demand or having a
maturity at the time of issuance of not exceeding nine months,
exclusive of days of grace, or any renewal thereof payable on demand or
having a maturity likewise limited; and such other classes of
securities, of a commercial rather than an investment character, as the
Commission may designate by rules and regulations.
(dd) "Underwriter" means any person who has purchased
from an issuer with a view to, or sells for an issuer in connection
with, the distribution of any security or participates or has a direct
or indirect participation in any such undertaking, or participates or
has a participation in the direct or indirect underwriting of any such
undertaking; but such term shall not include a person whose interest is
limited to a commission from an underwriter or dealer not in excess of
the usual and customary distributor's or seller's commission, As used
in this paragraph the term "issuer" shall include, in addition to an
issuer, any person directly or indirectly controlling or controlled by
the issuer, or any person under direct or indirect common control with
the issuer. When the distribution of the securities in respect of which
any person is an underwriter is completed such person shall cease to be
an underwriter in respect of such securities or the issuer thereof.
(ee) "Value", with respect to assets of registered
investment companies, means —
(1) As used in section four, (A) with respect to
securities owned at the end of the last preceding fiscal quarter for
which market quotations are readily available, the market value at the
end of such quarter; (B) with respect to other securities and assets
owned at the end of the last preceding fiscal quarter, fair value at
the end of such quarter, as determined in good faith by the board of
directors; and (C) with respect to securities and other assets acquired
after the end of the last preceding fiscal quarter, the cost thereof;
and
(2) As used elsewhere in this Act, (A) with respect
to securities for which market quotations are readily available, the
market value of such securities; and (B) with respect to other
securities and assets, fair value as determined in good faith by the
board of directors; in each case as of such time or times as determined
pursuant to this Act, and the rules and regulations issued by the
Commission thereunder. Notwithstanding the fact that market quotations
for securities issued by controlled companies are available, the board
of directors may in good faith determine the value of such securities:
Provided, That the value so determine is not in excess of the higher of
market value or asset value of such securities in the case of
majority-owned subsidiaries, and is not in excess of market value in
the case of other controlled companies.
The foregoing definition shall not derogate from the authority of the
Commission with respect to the reports, information, and documents to
be filed with the Commission by any registered company, or with respect
to the accounting policies and principles to be followed by any such
company, as provided in sections seven, twenty-seven and twenty-eight.
(ff) "Voting security" means any security presently
entitling the owner or holder thereof to vote for the election of
directors of a company.
(gg) "Wholly-owned subsidiary" of a person means a
company ninety-five per centum or more of the outstanding voting
securities of which are owned by such person, or by a company which,
within the meaning of this paragraph is a wholly-owned subsidiary of
such person.
(hh) "Securities Act" means Commonwealth Act Numbered
Eighty-three as heretofore or hereafter amended.
No provision in this Act shall apply to, or be deemed to include, the
Philippines or any political subdivision thereof, or any agency,
authority, or instrumentality of any one or more of the foregoing, or
any corporation which is wholly owned directly or indirectly by any one
or more of the foregoing, or any officer, agent, or employee of any of
the foregoing acting as such in the course of his official duty, unless
such provision makes specific reference thereto.
Sec. 4. Definition of investment company. — (a)
when used in this Act "investment company" means any issuer which is or
holds itself out as being engaged primarily, or proposes to engage
primarily, in the business of investing, reinvesting, or trading in
securities;
(b) Notwithstanding subsection (a), none of the
following persons is an investment company within the meaning of this
Act;
(1) Any issuer primarily engaged, directly or through
a wholly-owned subsidiary or subsidiaries, in a business or businesses
other than that of investing, reinvesting, or trading in securities.
(2) Any issuer which the Commission, upon application
by such issuer, finds and by order declares to be primarily engaged in
a business or businesses other than that of investing, reinvesting, or
trading in securities either directly or (A) through majority-owned
subsidiaries or (B) through controlled companies conducting similar
types of business. The filing of an application under this paragraph by
an issuer other than a registered investment company shall exempt the
applicant for a period of sixty days from all provisions of this Act
applicable to investment companies as such. For cause shown, the
Commission by order may extend such period of exemption for an
additional period or periods. Whenever the Commission, upon its own
motion or upon application, finds that the circumstances which gave
rise to the issuance of an order granting an application under this
paragraph no longer exist, the Commission shall by order revoke such
order.
(3) Any issuer all the outstanding securities of
which (other than short-term paper and directors' qualifying shares)
are directly or indirectly owned by a company excepted from the
definition of investment company.
(c) Notwithstanding subsection (a), and (b), none of
the following persons is an investment company within the meaning of
this Act:
(1) Any issuer whose outstanding securities (other
than short-term paper) are beneficially owned by not more than
twenty-five persons and which is not making and does not presently
propose to make a public offering of its securities. For the purpose of
this paragraph, beneficial ownership by a company shall be deemed to be
beneficial ownership by one person; except that, if such company owns
ten per centum or more of the outstanding voting securities of the
issuer, the beneficial ownership shall be deemed to be that of the
holders of such company's outstanding securities (other than short-term
paper).
(2) Any person primarily engaged in the business of
underwriting and distributing securities issued by other persons,
selling securities to customers, and acting as broker, or any one or
more of such activities, whose gross income normally is derived
principally from such business and related activities.
(3) Any bank or insurance company; any savings and
loan association, building and loan association, cooperative bank,
homestead association, or similar institution, or any receiver,
conservator, liquidator, liquidating agent, or similar official or
person thereof or therefor; any common trust fund or similar fund
maintained by a bank exclusively for the collective investment and
reinvestment of moneys contributed thereto by the bank in its capacity
as a trustee, executor, administrator, or guardian.
(4) Any person substantially all of whose business is
confined to industrial banking or similar business.
(5) Any person who is primarily engaged in one or
more of the following business: (A) Purchasing or otherwise acquiring
notes, drafts, acceptances, open accounts receivable, and other
obligations representing part or all of the sales price of merchandise,
insurance, and services; (B) making loans to manufacturers,
wholesalers, and retailers of, and to prospective purchasers of,
specified merchandise, insurance, and service; and (C) purchasing or
otherwise acquiring mortgages and other liens on and interests in real
estate.
(6) Any company primarily engaged, directly or
through majority-owned subsidiaries, in one or more of the businesses
described in paragraphs (3), (4) and (5), or in one or more of such
businesses (from which not less than forty per centum of such company's
gross income during its last fiscal year was derived) together with an
additional business or businesses other than investing, reinvesting,
owning, holding or trading in securities.
(7) Any company ninety per centum or more of the
value of whose investment securities are represented by securities of a
single issuer included within a class of persons enumerated in
paragraphs (4), (5), or (6).
(8) Any person substantially all of whose business
consist of owning or holding oil, gas, or other mineral royalties or
leases, or fractional interests therein, or certificates of interest or
participation in or investment contracts relative to such royalties,
leases, or fractional interests.
(9) Any company organized and operated exclusively
for religious, educational, benevolent, fraternal, charitable, or
reformatory purposes, no part of the net earnings of which inures to
the benefit of any private shareholders or individual.
(10) Any employees' stock bonus, pension, or profit-
sharing trust.
(11) Any voting trust the assets of which consist
exclusively of securities of a single issuer which is not an investment
company.
(12) Any security holders' protective committee or
similar issuer having outstanding and issuing no securities other than
certificates of deposit and short-term paper.
Sec. 5. Classification of investment companies. —
(a) For the purposes of this Act, investment companies are divided into
open-end and closed-end companies, defined as follows:
(1) "Open-end company" means an investment company
which is offering for sale or has outstanding any redeemable security
of which it is the issuer.
(2) "Closed-end company" means any investment company
other than an open-end company.
Sec. 6. Transactions by investment companies. —
(a) No investment company organized or otherwise created under the laws
of the Philippines and having a board of directors, unless registered
under section seven, shall directly or indirectly —
(1) offer for sale, sell, or deliver after sale,
within the Philippines, any security or any interest in a security,
whether the issuer of such security is such investment company or
another person;
(2) purchase, redeem, retire, or otherwise acquire or
attempt to acquire, within the Philippines, any security, or any
interest in a security, whether the issuer of such security is such
investment company or another person;
(3) control any investment company which does any of
the acts enumerated in paragraphs (1) and (2).
The provisions of this subsection shall not apply to transactions of an
investment company which are merely incidental to its dissolution.
(b) No depositor or trustee of or underwriter for any
investment company, organized or otherwise created under the laws of
the Philippines and not having a board of directors, unless such
company is registered under section eight or exempt under section six,
shall directly or indirectly —
(1) offer for sale, sell, or deliver after sale,
within the Philippines, any security or any interest in a security of
which such company is the issuer;
(2) purchase, redeem, or otherwise acquire or attempt
to acquire, within the Philippines, any security, or interest in a
security of which such company is the issuer; or
(3) sell or purchase for the account of such company,
within the Philippines, any security or interest in a security, by
whomsoever issued.
The provisions of this subsection shall not apply to transactions which
are merely incidental to the dissolution of an investment company.
Sec. 7. Registration of investment companies. —
(a) Any investment company organized or otherwise created under the
laws of the Philippines may register for the purposes of this Act by
filing with the Commission a registration statement, in such form as
the Commission shall by rules and regulations prescribe as necessary or
appropriate in the public interest or for the protection of investors.
An investment company shall be deemed to be registered upon approval by
the Commission of such registration statement and the publication
thereof in the Official Gazette for two consecutive weeks and in two
dailies of general circulation for two consecutive days.
(b) Every investment company shall file with the
Commission an original and such copies of a registration statement, in
such form and containing such of the following information and
documents as the Commission shall, by rules and regulations, prescribe
as necessary or appropriate in the public interest or for the
protection of investors:
(1) a recital of the policy of the registrant in
respect of each of the following types of activities, such recital
consisting in each case of a statement whether the registrant reserves
freedom of action to engage in activities of such type, and if such
freedom of action is reserved, a statement briefly indicating, insofar
as is practicable, the extent to which the registrant intends to engage
therein: (A) the classification, as defined in section five, within
which the registrant proposes to operate; (B) borrowing money; (C) the
issuance of senior securities; (D) engaging in the business of
underwriting securities issued by other persons; (E) concentrating
investments in a particular industry or group of industries; (F) the
purchase and sale of real estate and commodities, or either of them;
(G) making loans to other persons; and (H) portfolio turn-over
(including a statement showing the aggregate peso amount of purchases
and sales of portfolio securities, other than Government securities, in
each of the full fiscal years preceding the filing of such registration
statement);
(2) a recital of the policy of the registrant in
respect of matters, not enumerated in paragraph (1), which the
registrant deems matters of fundamental policy and elects to treat as
such;
(3) the name and address of each affiliated person of
the registrant; the name and principal address of every company, other
than the registrant, of which each such person is an officer, director
or partner; a brief statement of the business experience for the
preceding five years of each officer and director of the registrant;
and
(4) the information and documents which would be
required to be filed in order to register under the Securities Act all
securities (other than short-term paper) which the registrant has
outstanding or proposes to issue.
(c) The Commission shall make provision, by
permissive rules and regulations or order, for the filing of the
following, or so much of the following as the Commission may designate,
in lieu of the information and documents required pursuant to
subsection (b):
(1) copies of the most recent registration statement
filed by the registrant under the Securities Act and currently
effective under such Act;
(2) a report containing reasonably current
information regarding the matters included in copies filed pursuant to
paragraph (1), and such further information regarding matters not
included in such copies as the Commission is authorized to require
under subsection (b).
(d) Every investment company as defined in this Act,
existing on the date of effectivity hereof shall register pursuant to
the provisions of this section within six months from the approval of
this Act.
(e) The Commission, in the exercise of its sound
judgment and discretion, shall have power to limit the registration of
investment companies to such number as the investment opportunities
then obtaining would permit, and to allow the registration of new
investment companies only when the conditions warrant it. This
provision, however, shall not apply to investment companies already
existing on the date of effectivity of this Act.
(f) If it appears to the Commission that a registered
investment company has failed to file the registration statement
required by this section or a report required pursuant to section
twenty-seven (a), or (b), or has filed such registration statement or
report but omitted therefrom material facts required to be stated
therein, or has filed such a registration statement or report in
violation of section thirty-one (b), the Commission shall notify such
company by registered mail of the failure to file such registration
statement or report, or of the respects in which such registration
statement or report appears to be materially incomplete or misleading,
as the case may be, and shall fix a date (in no event earlier than
thirty days after the mailing of such notice) prior to which such
company may file such registration statement or report or correct the
same. If such registration statement or report is not filed or
corrected within the time so fixed by the Commission or any extension
thereof, the Commission, after appropriate notice and opportunity for
hearing, and upon such conditions and with such exemptions as it deems
appropriate for the protection of investors, may by order suspend the
registration of such company until such statement or report is filed or
corrected, or may by order revoke such registration, if the evidence
establishes —
(1) that such company has failed to file a
registration statement required by this section or a report required
pursuant to section twenty-seven (a) or (b), or has filed such a
registration statement or report but omitted therefrom material facts
required to be stated therein, or has filed such a registration
statement or report in violation of section thirty-one (b); and
(2) that such suspension or revocation is in the
public interest.
(g) Whenever the Commission, on its own motion or
upon application, finds that a registered investment company has ceased
to be an investment company, it shall so declare by order and upon the
taking effect of such order the registration of such company shall
cease to be in effect. If necessary for the protection of investors, an
order under this subsection may be made upon appropriate conditions.
The Commission's denial of any application under this subsection shall
be by order.
Sec. 8. Ineligibility of certain affiliated
persons and underwriters. — (a) It shall be unlawful for any of the
following persons to serve or act in the capacity of officer, or
director, member of an advisory board, investment adviser, or depositor
of any registered investment company, or principal underwriter for any
registered open-end company;
(1) any person who within ten years has been
convicted of any felony or misdemeanor involving the purchase or sale
of any security or arising out of such person's conduct as an
underwriter, broker, dealer, or investment adviser, or as an affiliated
person, salesman, or employee or any investment company, bank, or
insurance company;
(2) any person who, by reason of any misconduct, is
permanently or temporarily enjoined by order, judgment, or decree of
any court of competent jurisdiction from acting as an underwriter,
broker, dealer, or investment adviser, or as an affiliated person,
salesman, or employee of any investment company, bank, or insurance
company, or from engaging in or continuing any conduct or practice in
connection with any such activity or in connection with the purchase or
sale of any security; or
(3) a company any affiliated person of which is
ineligible, by reason of paragraph (1) or (2), to serve or act in the
foregoing capacities.
(b) Any person who is ineligible, by reason of
subsection (a), to serve or act in the capacities enumerated in such
subsection, may file with the Commission an application for an
exemption from the provisions of such subsection. The Commission shall
by order grant such application, either unconditionally or on an
appropriate temporary or other conditional basis, if it is established
that the prohibitions of such subsection, as applied to such person,
are unduly or disproportionately severe or that the conduct of such
person has been such as not to make it against the public interest or
protection of investors to grant such application.
Sec. 9. Affiliations of directors, officers and
employees. — (a) After one year from the effective date of this Act, no
registered investment company shall have a board of directors more than
fifty per centum of the members of which are persons who are investment
advisers of, or officers or employees of, such registered company.
(b) After one year from the effective date of this
Act, no registered investment company shall —
(1) employ as regular broker any director, officer,
or employee of such registered company, or any person of which any such
director, officer, or employee is an affiliated person;
(2) use a principal underwriter of securities issued
by it any director, officer, or employee of such registered company or
may person of which any such director, officer, employee is an
affiliated person; or
(3) have as director, officer, or employee any
investment banker, or any affiliated person of an investment banker.
For the purposes of this paragraph, a person shall not be deemed an
affiliated person of an investment banker solely by reason of the fact
that he is an affiliated person of a company (A) all the outstanding
securities of which (other than short-term paper, securities
representing bank loans and directors' qualifying shares) are, or after
such acquisition will be, owned by one or more registered investment
companies; and (B) which is primarily engaged in the business of
underwriting and distributing securities issued by other persons,
selling securities to customers, or any one or more of such or related
activities, and the gross income of such person normally is derived
principally from such business or related activities.
(c) After the effective date of this Act no
registered investment company shall have a majority of its board of
directors consisting of persons who are officers or directors of any
one bank: Provided, That, if prior to the effective date of this Act,
any registered investment company shall have had a majority of its
directors consisting or persons who are directors, officers, or
employees of any one bank, such registered company may continue to have
the same percentage of its board of directors consisting of persons who
are directors, officers, or employees of such bank.
(d) If by reason of the death, disqualification, or
bona fide resignation of any director or directors, the requirements of
the foregoing provisions of this section in respect of directors shall
not be met by a registered investment company, the operation of such
provision shall be suspended as to such registered company for a period
of thirty days if the vacancy or vacancies may be filled by action of
the board of directors, and for a period of sixty days if a vote of
stockholders is required to fill the vacancy or vacancies, or for such
longer period as the Commission may prescribe, by rules and regulations
upon its own motion or by order upon application, as not inconsistent
with the protection of investors.
(e) No registered investment company shall knowingly
purchase or otherwise acquire, during the existence of any underwriting
or selling syndicate, any security (except a security of which such
company is the issuer) a principal underwriter of which is an officer,
director, member of an advisory board, investment adviser, or employee
of such registered company, or is a person (other than a company of the
character described in paragraphs (A) and (B) of subsection (b) (3) of
which any such officer, director, member of an advisory board,
investment adviser, or employee is an affiliated person, unless in
acquiring such security such registered company is itself acting as a
principal underwriter for the issuer. The Commission, by rules and
regulations upon its own motion or by order upon application, may
conditionally or unconditionally exempt any transaction or classes of
transactions from any of the provisions of this subsection, if and to
the extent that such exemption is consistent with the protection of
investors.
(f) In the case of a registered investment company
which has an advisory board, such board, as a distinct entity, shall be
subject to the same restrictions as to its membership as are imposed
upon a board of directors by this section.
(g) In the case of a registered investment company
which does not have a board of directors, the provisions of this
section shall apply as follows:
(1) the provisions of subsection (a), as modified by
subsection (d), shall apply to the board of directors of the depositor
of such company;
(2) the provisions of subsection (b) and (c), as
modified by subsection (d), shall apply to the board of directors of
the depositor and of every investment adviser of such company; and
(3) the provisions of subsection (e) shall apply to
purchases and other acquisitions for the account of such company of
securities a principal underwriter of which is the depositor or an
investment adviser of such company, or an affiliated person of such
depositor or investment adviser.
Section 10. Offers to exchange securities. — (a) It
shall be unlawful for any registered open-end company or any principal
underwriter for such a company to make or cause to be made an offer to
the holder of a security of such company or of any other open-end
investment company to exchange his security for a security in the same
or another such company on any basis other than the relative net asset
values of the respective securities to be exchanged, unless the terms
of the offer have first been submitted to and approved by the
commission or are in accordance with such rules and regulations as the
Commission may have prescribed in respect of such offers which are in
effect at the time such offer is made. For the purposes of this
section, (1) an offer by a principal underwriter means an offer
communicated to holders of securities of a class or series but does not
include an offer made by such principal underwriter to an individual
investor in the course of a retail business conducted by such principal
underwriter, and (2) the net asset value means the net asset value
which is in effect for the purpose of determining the price at which
the securities, or class or series of securities involved are offered
for sale to the public either (A) at the time of the receipt by the
offeror of the acceptance of the offer or (B) at such later time as is
specified in the offer.
(b) The provisions of this section shall not apply to
any offer made pursuant to (1) any plan of reorganization, which is
submitted to and requires the approval of the holders of at least a
majority of the outstanding shares of the class or series to which the
security owned by the offeree belongs; or (2) the right of conversion,
at the option of the holder, from one class or series into another
class or series of securities issued by the same company upon such
terms as are specified in the charter, certificate of incorporation,
articles of association, by-laws, or trust indenture subject to which
the securities to be converted were issued or are to be issued.
Section 11. Functions and activities of investment
companies. — (a) It shall be unlawful for any registered investment
company, in contravention of such rules and regulations or orders as
the Commission may prescribe as necessary or appropriate in the public
interest or for the protection of investors —
(1) to purchase any security on margin, except such
short-term credits as are necessary for the clearance of transactions;
(2) to participate on a joint or a joint and several
basis in any trading account in securities, except in connection with
an underwriting in which such registered company is a participant; or
(3) to effect a short sale of any security, except in
connection with an underwriting in which such registered company is a
participant.
(b) It shall be unlawful for any registered open-end
company (other than a company complying with the provisions of section
ten) to act as a distributor of securities of which it is the issuer,
except through an underwriter, in contravention of such rules and
regulations as the Commission may prescribe as necessary or appropriate
in the public interest or for the protection of investors.
(c) It shall be unlawful for any investment company
to —
(1) Generate funds for promoting the private business
or industry of any employee, official, director, organizer,
incorporator or stockholder thereof;
(2) Allow any of its employee, official, director,
organizer, incorporator or stockholder to buy real estate, personal
property or any other kind of property and sell the same to the company
at a price higher than the procurement cost or sell any property of the
company, or a portion thereof, at a price below the market value
thereof to any of the aforementioned persons.
Section 12. Changes in investment policy. — (a) No
registered investment company shall, unless authorized by the vote of a
majority of its outstanding voting securities —
(1) borrow money, issue senior securities, underwrite
securities issued by other persons, purchase or sell real estate or
commodities or make loans to other persons, except in each case in
accordance with the recitals of policy contained in its registration
statement in respect thereto;
(2) deviate from its policy in respect of
concentration of investments in any particular industry or group of
industries as recited in its registration statement, or deviate from
any fundamental policy recited in its registration statement pursuant
to section seven (b) (2); or
(3) change the nature of its business so as to cease
to be an investment company.
(b) Where the change will involve an amendment of the
organization papers of the investment company, the pertinent provisions
of law on the vote necessary and other requisites to effectuate the
same, shall likewise be complied with.
Section 13. Size of investment companies. — No
registered investment company organized after the effective date of
this Act, and principal underwriter for such a company, shall make a
public offering of securities of which such company is the issuer,
unless —
(1) such company has a paid-up capital of at least
five hundred thousand pesos, as certified to by an independent
certified public accountant; or
(2) such company has previously made a public
offering of its securities, and at the time of such offering had a
paid-up capital of at least five hundred thousand pesos, as certified
to by an independent certified public accountant: Provided, however,
That no investment company shall redeem, directly or indirectly, any
security of which such company is the issuer unless the remaining
unimpaired capital shall be at least two hundred fifty thousand pesos
or fifty per cent of its outstanding liabilities to the creditors of
said company, whichever is higher.
Section 14. Contracts of advisers and underwriters. —
(a) After the effective date of this Act it shall be unlawful for any
person to serve or act as investment adviser of a registered investment
company, except pursuant to a written contract, which contract, whether
with such registered company or with an investment adviser of such
registered company, unless in effect prior to the effective date of
this Act, has been approved by the vote of a majority of the
outstanding voting securities of such registered company and —
(1) precisely describes all compensation to be paid
thereunder;
(2) shall continue in effect for a period more than
two years from the date of its execution, only so long as such
continuance is specifically approved at least annually by the board of
directors or by vote of a majority of the outstanding voting securities
of such company;
(3) provides, in substance, that it may be terminated
at any time, without the payment of any penalty, by the board of
directors of such registered company or by vote of two-thirds of the
outstanding voting securities of such company on not more than sixty
days' written notice to the investment adviser; and
(4) provides, in substance, for its automatic
termination in the event of its assignment by the investment adviser.
(b) After one year from the effective date of this
Act, it shall be unlawful for any principal underwriter for a
registered open-end company to offer for sale, sell, or deliver after
sale any security of which such company is the issuer, except pursuant
to a written contract with such company, which contract, unless in
effect prior to the effective date of this Act —
(1) shall continue in effect for a period more than
two years from the date of its execution, only so long as such
continuance is specifically approved at least annually by the board of
directors or by vote of two-thirds of the outstanding voting securities
of such company; and
(2) provides, in substance, for its automatic
termination in the event of its assignment by such underwriter.
(c) In addition to the requirements of subsections
(a) and (b) it shall be unlawful for any registered investment company
having a board of directors to enter into, renew, or perform any
contract or agreement, written or oral, except a written agreement
which was in effect prior to the effective date of this Act, whereby a
person undertakes regularly to serve or act as investment adviser of or
principal underwriter for such company, unless the terms of such
contract or agreement and any renewal thereof have been approved (1) by
a majority of the directors who are not parties to such contract or
agreement or affiliated persons of any such party, or (2) by the vote
of a majority of the outstanding voting securities of such company.
(d) It shall be unlawful for any person, after the
effective date of this Act —
(1) to serve or act as investment adviser of a
registered investment company, pursuant to a written contract which was
in effect prior to the effective date of this Act; or
(2) as principal underwriter for a registered opened
investment company to offer for sale, sell, or deliver after sale any
security of which such company is the issuer, pursuant to a written
contract which was in effect prior to the effective date of this Act,
unless such contract is renewed in such form that it complies with the
requirements of subsection (a) or (b), as the case may be, and approved
in the manner required by this section.
(e) Nothing contained in this section shall be deemed
to require or contemplate any action by an advisory board of any
registered company or by any of the members of such a board.
Section 15. Board of directors; election; term
vacancies; and salaries. — No person shall serve as a director of a
registered investment company unless he is a Filipino citizen and
elected to that office by the holders of the outstanding voting
securities of such company, at an annual or a special meeting duly
called for the purpose; except that vacancies occurring between such
meeting may be filed in any otherwise legal manner if immediately after
filing any such vacancy at least two-thirds of the directors then
holding office shall have been elected to such office by the holders'
of the outstanding voting securities of the company at such an annual
or special meeting. In the event that at any time less than a majority
of the directors of such company holding office at that time were so
elected by the holders of the outstanding voting securities, the board
of directors or proper officer of such company shall forthwith cause to
be held as promptly as possible and in any event within sixty days a
meeting of such holders for the purpose of electing directors to fill
any existing vacancies in the board of directors unless the Commission
shall by order extend such period. The foregoing provisions shall not
apply to members of an advisory board.
No member of the Board of Directors or any executive official shall
receive any salary or emolument from the investment company at a rate
higher than that fixed by the Commission after taking into
consideration; the experience and qualifications of the official
concerned; the amount and nature of securities issued by the company;
the size and standing of the company in the business community; the
volume of business done by the company; the number of years the company
has been in business; and other pertinent conditions and circumstances:
Provided, however, That in no case shall the operational expenses of
such company exceed ten per cent of the total investment fund received
from the investors; And provided, finally, That non-compliance with the
provisions of this Act shall cause the cancellation of its registration
and the liquidation of its assets for redistribution to investors.
Section 16. Transactions of certain affiliated
persons and underwriters — (a) It shall be unlawful for any affiliated
person or promoter of or principal underwriter for a registered
investment company (other than a company of the character described in
section nine (b) (3) (A) and (B) or any affiliated person of such a
person, promoter, or principal underwriter, acting as principal —
(1) knowingly to sell any security or other property
to such registered company or to any company controlled by such
registered company, unless such sale involves solely (A) securities of
which the buyer is the issuer, or (B) securities of which the seller is
the issuer and which are part of a general offering to the holders of a
class of its securities;
(2) knowingly to purchase from such registered
company, or from any company controlled by such registered company, any
security or other property (except securities of which the seller is
the issuer); or
(3) to borrow money or other property from such
registered company or from any company controlled by such registered
company (unless the borrower is controlled by the lender) except as
permitted in section twenty (b).
(b) Notwithstanding subsection (a), any person may
file with the Commission an application for an order exempting a
proposed transaction of the applicant from one or more provisions of
said subsection. The Commission shall grant such application and issue
such order of exemption if evidence establishes that —
(1) the terms of the proposed transaction, including
the consideration to be paid or received, are reasonable and fair and
do not involve overreaching on the part of any person
concerned;
(2) the proposed transaction is consistent with the
policy of each registered investment company concerned, as recited in
its registration statement and reports filed under this Act; and
(3) the proposed transaction is consistent with the
general purposes of this Act.
(c) Notwithstanding subsection (a), a person may, in
the ordinary course of business, sell to or purchase from any company
merchandise or may enter into a lessor-lessee relationship with any
person and furnish the services incident thereto.
(d) It shall be unlawful for any affiliated person of
or principal underwriter for a registered investment company (other
than a company of the character described in section nine (b) (3) (A)
and (B), or any affiliated person of such a person or principal
underwriter, acting as principal to effect any transaction in which
such registered company, or a company controlled by such registered
company, is a joint or a joint and several participant with such
person, principal underwriter, or affiliated person, in contravention
of such rules and regulations as the Commission may prescribe for the
purpose of limiting or preventing participating by such registered or
controlled company on a basis different from or less advantageous than
that of such other participant. Nothing contained in this subsection
shall be deemed to preclude any affiliated person from acting as
manager of any underwriting syndicate or other group in which such
registered or controlled company is a participant and receiving
compensation therefor.
(e) It shall be unlawful for any affiliated person of
a registered investment company, or any affiliated person of such
person —
(1) acting as agent, to accept from any source any
compensation (other than a regular salary or wages from such registered
company) for the purchase or sale of any property to or for such
registered company or any controlled company thereof, except in the
course of such person's business as an underwriter or broker; or
(2) acting as broker, in connection with the sale of
securities to or by such registered company or any controlled company
thereof, to receive from any source a commission, fee, or other
remuneration for effecting such transaction which exceeds (A) the usual
and customary broker's commission if the sale is effected on a
securities exchange, or (B) two per centum of the sales price if the
sale is effected in connection with a secondary distribution of such
securities, or (C) one per centum of the purchase or sale price of such
securities if the sale is otherwise effected unless the Commission
shall, by rules and regulations or order in the public interest and
consistent with the protection of investors, permit a larger
commission.
(f) Every registered investment company shall place
and maintain its securities and similar investments in the custody of
(1) a duly organized local commercial bank of good repute; or (2) a
company which is a member of a securities exchange as defined in the
Securities Act, subject to such rules and regulations as the Commission
may from time to time prescribe for the protection of investors; or (3)
such registered company, but only in accordance with such rules and
regulations or orders as the Commission may from time to time prescribe
for the protection of investors. Rules, regulations, and orders of the
Commission under this subsection, among other things, shall make
appropriate provision with respect to such matters as the earmarking,
segregation, and hypothecation of such securities and investments, and
shall provide for or require periodic or other inspections by any or
all of the following: independent public accountants, employees and
agents of the Commission, and such other persons as the Commission may
designate. No such member who trades in securities for his own account
may act as custodian except in accordance with rules and regulations
prescribed by the Commission for the protection of investors.
(g) The Commission is authorized to require by rules
and regulations or orders for the protection of investors that any
officer and employee of a registered investment company who may singly,
jointly with others, have access to securities of funds of any
registered company, either directly or through authority to draw upon
such funds or to direct generally the disposition of such securities,
be bonded by a reputable fidelity insurance company against larceny and
embezzlement in such reasonable minimum amounts as the Commission may
prescribe.
(h) After the effective date of this Act neither the
charter, certificate of incorporation, articles of association, nor the
by-laws of any registered investment company, nor any other instrument
pursuant to which such a company is organized or administered, shall
contain any provision which protects or purports to protect any
director or officer of such company against any liability to the
company or to its security holders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of his
office.
In the event that any such instrument does not at the effective date of
this Act comply with the requirements of this subsection and is not
amended to comply therewith, such company may nevertheless continue to
be a registered investment company and shall not be deemed to violate
this subsection if each such director or officer shall immediately file
with the Commission a waiver in writing of any protective provision of
the instrument to the extent that it does not comply with this
subsection, and each such person subsequently elected or appointed
shall before assuming office file a similar waiver.
(i) After one year from the effective date of this
Act no contract or agreement under which any person undertakes to act
as investment adviser of, or principal underwriter for, a registered
investment company shall contain any provision which protects or
purports to protect such person against any liability to such company
or its security holders to which he would otherwise be subject by
reason of willful misfeasance, bad faith, or gross negligence, in the
performance of his duties, or by reason of his reckless disregard of
his obligations and duties under such contract or agreement.
In the event that any such contract or agreement does not at the
effective date of this Act comply with the requirements of this
subsection and is not amended to comply therewith prior to the
expiration of said one year, this subsection shall not be deemed to
have been violated if prior to said expiration date each such
investment adviser as principal underwriter shall have filed with the
Commission a waiver in writing of any protective provisions of the
contract or agreement to the extent that it does not comply with this
subsection.
Section 17. Capital structure of investment
companies. — (a) It shall be unlawful for any registered closed-end
company to issue any class of senior security, or to sell any such
security of which it is the issuer, unless —
(1) if such class of senior security represents an
indebtedness —
(A) immediately after such issuance or sale, it will
have an asset coverage of at least three hundred per centum;
(B) provision is made to prohibit the declaration of
any dividend (except a dividend payable in stock of the issuer), or the
declaration of any other distribution, upon any class of the capital
stock of such investment company, or the purchase of any such capital
stock, unless, in every such case, such class of senior securities has
at the time of the declaration of any such dividend or distribution or
at the time of any such purchase an asset coverage of at least three
hundred per centum after deducting the amount of such dividend,
distribution, or purchase price, as the case may be, except that
dividends may be declared upon any preferred stock if such senior
security representing indebtedness has an asset coverage of at least
two hundred per centum at the time of declaration thereof after
deducting the amount of such dividend; and
(C) provision is made either —
(i) that, if on the last business day of each twelve
consecutive calendar months such class of senior securities shall have
an asset coverage of less than one hundred per centum, the holders of
such securities voting as a class shall be entitled to elect at least a
majority of the members of the board of directors of such registered
company, such voting right to continue until such class of senior
security shall have an asset coverage of one hundred and ten per centum
or more on the last business day of each of three consecutive calendar
months or
(ii) that, if on the last business day of each
twenty-four consecutive calendar months such class of senior securities
shall have an asset coverage of less than one hundred per centum an
event of default shall be deemed to have occurred;
(2) if such class of senior security is a stock —
(A) immediately after the issuance or sale it will
have an asset coverage of at least two hundred per centum;
(B) provision is made to prohibit the declaration of
any dividend (except a dividend payable in common stock of the issuer),
or the declaration of any other distribution, upon the common stock of
such investment company, or the purchase of any such common stock,
unless in every such case such class of senior security has at the time
of the declaration of any such dividend or distribution or at the time
of any such purchase an asset coverage of at least two hundred per
centum after deducting the amount of such dividend, distribution or
purchase price, as the case may be;
(C) provision is made to entitle the holders of such
senior securities, voting as a class, to elect at last two directors at
all times, and, subject to the prior rights, if any of the holders of
any other class of senior securities outstanding, to elect a majority
of the directors if at any time dividends on such class of securities
shall be unpaid in an amount equal to two full years' dividends on such
securities, and to continue to be so represented until all dividends in
arrears shall have been paid or otherwise provided for;
(D) provision is made requiring approval by the vote
of a majority of such securities, voting as a class, of any plan of
reorganization adversely affecting such securities or of any action
requiring a vote of security holders as in section twelve (a) provides;
and
(E) such class of stock shall have complete priority
over any other class as to distribution of assets and payment of
dividends, which dividends shall be cumulative.
(b) The assets coverage in respect of a senior
security provided for in subsection (a) may be determined on the basis
of values calculated as of a time within forty-eight hours (not
including Sundays or holidays) next preceding the time of such
determination. The time of issue or sale shall, in the case of an
offering of such securities to existing stockholders of the issuer, be
deemed to be the first date on which such offering is made, and in all
other cases shall be deemed to be the time as of which a firm
commitment to issue or sell and to take or purchase such securities
shall be made.
(c) Notwithstanding the provisions of subsection (a)
it shall be unlawful for any registered closed-end investment company
to issue or sell any senior security representing indebtedness if
immediately thereafter such company will have outstanding more than one
class of senior security representing indebtedness, or to issue or sell
any senior security which is a stock if immediately thereafter such
company will have outstanding more than one class of senior security
which is a stock, except that (1) any such class of indebtedness or
stock may be issued in one or more series: Provided, That no such
series shall have a preference or priority over any other series upon
the distribution of the assets of such registered closed-end company
or-in respect of the payment of interest or dividends, and (2)
promissory notes or other evidence of indebtedness issued in
consideration of any loan, extension, or renewal thereof, made by a
bank or other person and privately arranged, and not intended to be
publicly distributed, shall not be deemed to be a separate class or
senior securities representing indebtedness within the meaning of this
subsection.
(d) It shall be unlawful for any registered
investment company to issue any warrant or right to subscribe to or
purchase a security of which such company is the issuer, except in the
form of warrants or rights to subscribe expiring not later than one
hundred and twenty days after their issuance and issued exclusively and
ratably to be a class or classes of such company's security holders;
except that any warrant may be issued in exchange for outstanding
warrants in connection with a plan of reorganization.
(e) The provisions of this section shall not apply to
any senior security issued or sold by any registered closed-end company
—
(1) pursuant to any firm contract to purchase or sell
entered into prior to the effective date of this Act;
(2) for the purpose of refunding through payment,
purchase, redemption, retirement, or exchange, any senior security of
such registered investment company except that no senior security
representing indebtedness shall be so issued or sold for the purpose of
refunding any senior security which is a stock; or
(3) pursuant to any plan of reorganization (other
than for refunding as referred to in subsection (e) (2), provided —
(A) that such senior securities are issued or sold
for the purpose of substituting or exchanging such senior securities
for outstanding senior securities, and if such senior securities
represent indebtedness they are issued or sold for the purpose of
substituting or exchanging such senior securities for outstanding
senior securities representing indebtedness, of any registered
investment company which is a party to such plan of reorganization; or
(B) that the total amount of such senior securities
so issued or sold pursuant to such plan does not exceed that total
amount of senior securities of all the companies which are parties to
such plan, and the total amount of senior securities representing
indebtedness so issued or sold pursuant to such plan does not exceed
the total amount of senior securities representing indebtedness of all
such companies, or, alternatively the total amount of such senior
securities so issued or sold pursuant to such plan does not have the
effect of increasing the ratio of senior securities representing
indebtedness to the securities representing stock or the ratio of
senior securities representing stock to securities junior thereto when
compared with such ratios as they existed before such reorganization.
(f) (1) It shall be unlawful for any registered
opened company to issue any class of senior security or to sell any
senior security of which it is the issuer, except that any such
registered company shall be permitted to borrow from any bank:
Provided, That immediately after any such borrowing there is an asset
coverage of at least three hundred per centum for all borrowing of such
registered company: And provided, further, That in the event that such
asset coverage shall at any time fall below three hundred per centum
such registered company shall, within three days thereafter (not
including Sundays and holidays) or such longer period as the Commission
may prescribe by rules and regulations, reduce the amount of its
borrowings to an extent that the asset coverage of such borrowings
shall be at least three hundred per centum. Notwithstanding the
provisions of this section, however, a registered open-end company may
guarantee the senior securities of a controlled person: Provided, That
such guarantee is limited to a percentage of the value of the senior
securities equivalent to the percentage of the company's interest in
the controlled person: And provided, further, That such senior
securities have an asset coverage by the said controlled person of at
least two hundred per centum.
(2) "Senior security" shall not, in the case a
registered open-end company, include a class or classes or a number of
series or preferred or special stock each of which is preferred over
all other classes or series in respect of assets specifically allocated
to that class or series; Provided, (A) That such company has
outstanding no class or series of stock which is not so preferred over
all other classes or series; or (B) that the only other outstanding
class of the issuer's stock consist of a common stock upon which no
dividend (other than a liquidating dividend) is permitted to be paid
and which in the aggregate represents not more than one-half of one per
centum of the issuer's outstanding voting securities.
(g) Unless otherwise provided: "Senior security"
means any bond, debenture, note, or similar obligation or instrument
constituting a security and evidencing indebtedness, and any stock of a
class having priority over any other class as to distribution of assets
or payment of dividends; and "senior security representing
indebtedness" means any senior security other than stock.
The term "senior security", when used in subparagraphs (B) and (C) of
paragraph (1) of subsection (a), shall not include any promissory note
or other evidence of indebtedness issued in consideration of any loan,
extension or renewal thereof, made by a bank or other person and
privately arranged, and not intended to be publicly distributed; nor
shall such term, when used in this section, include any such promissory
note or other evidence of indebtedness in any case where such a loan is
for temporary purposes only and in an amount not exceeding five per
centum of the value of the total assets of the issuer at the time when
the loan is made. A loan shall be presumed to be for temporary purposes
if it is repaid within sixty days and is not extended or renewed;
otherwise it shall be presumed not to be for temporary purposes. Any
such presumption may be rebutted by evidence.
(h) "Asset coverage" of a class of senior security
representing an indebtedness of an issuer means the ratio which the
value of the total assets of such issuer, less all liabilities and
indebtedness not represented by senior securities, bears to the
aggregate amount of senior securities representing indebtedness of such
issuer. "Asset coverage" of a class of senior security of an issuer
which is a stock means the ratio which the value of the total assets of
such issuer, less all liabilities and indebtedness not represented by
senior securities, bears to the aggregate amount of senior securities
representing indebtedness of such issuer plus the aggregate of the
involuntary liquidation preference of such class of senior security
which is a stock. The involuntary liquidation preference of a
class of senior security which is a stock shall be deemed to mean the
amount to which such class of senior security would be entitled on
involuntary liquidation of the issuer in preference to a security
junior to it.
(i) Except as provided in subsection (a) of this
section, or as otherwise required by law, every share of stock
hereafter issued by a registered investment company shall be a voting
stock and have equal voting rights with every other outstanding voting
stock: Provided, That this subsection shall not apply to shares issued
pursuant to the terms of any warrant or subscription right outstanding
prior to the effective date of this Act, or any firm contract entered
into before the effective date of this Act to purchase such securities
from such company nor to shares issued in accordance with any rules,
regulations, or orders which the Commission may make permitting such
issue.
Section 18. Dividends. — It shall be unlawful for any
registered investment company to pay any dividend, or to make any
distribution in the nature of a dividend payment, wholly or partly from
any source other than —
(1) such company's accumulated undistributed net
income, determined in accordance with good accounting practice and
including profits or losses realized upon the sale of securities or
other properties; or
(2) such company's earned surplus so determined for
current or preceding fiscal year; unless such payment is accompanied by
a written statement which adequately discloses the source or sources of
such payment. The Commission may prescribe the form of such statement
by rules and regulations or by order in the public interest and for the
protection of investors.
It shall likewise be unlawful to advertise such dividends in terms of
centavos or pesos per share without also stating the percentage they
bear to the par value per share.
Section 19. Proxies; voting trusts. — (a) It shall be
unlawful for any person except the duly constituted custodian to
solicit or to permit the use of his name to solicit any proxy or
consent or authorization in respect of any security of which a
registered investment company is the issuer in contravention of such
rules and regulations as the Commission may prescribe as necessary or
appropriate in the public interest or for the protection of investors:
Provided, however, That no proxies shall be used as a device to control
the management of any investment company.
(b) It shall be unlawful for any registered
investment company or affiliated person thereof, any issuer of
voting-trust certificate relating to any security of a registered
investment company, or any underwriter of such a certificate to offer
for sale, sell, or deliver after sale, in connection with a public
offering, any such voting-trust certificate. The prohibitions of this
subsection shall not apply to a class of voting-trust certificates, if
any certificate of such class was made the subject of a public offering
by the issuer or by or through an underwriter prior to the effective
date of this Act.
Sec. 20. Loans by investment companies. — It
shall be unlawful for any registered investment company to lend money
or property to any person, directly or indirectly, if —
(a) the investment policies of such registered
company, as recited in its registration statement and reports filed
under this Act, do not permit such a loan; or
(b) such person controls or is under common control
with such registered company; except that the provision of this
paragraph shall not apply to the extension or renewal of any such loan
made prior to the effective date of this Act or to any loan from a
registered company to a company which owns all of the outstanding
securities of such registered company, except directors' qualifying
shares.
Sec. 21. Investment Company prohibited to
guarantee obligations. — It shall be unlawful for any investment
company to guarantee any obligation of whatever kind or nature.
Sec. 22. Distribution, redemption, and repurchase
of securities. — (a) No registered investment company shall sell any
redeemable security issued by it to any person except either to or
through a principal underwriter for distribution or at a current public
offering price described in the prospectus, and, if such class of
security is being currently offered to the public by or through an
underwriter, no principal underwriter of such security and no dealer
shall sell any such security to any person except a dealer, a principal
underwriter or the issuer, except at a current public offering price
described in the prospectus: Provided, however, That nothing in this
subsection shall prevent a sale made (i) pursuant to an offer of
exchange permitted by section 10 including any offer made pursuant to
clause (1) or (2) of section ten (b); (ii) pursuant to an offer made
solely to all registered holders of the securities, or of a particular
class or series of securities issued by the company proportionate to
their holdings or proportionate to any cash distribution made to them
by the company (subject to appropriate qualifications designed solely
to avoid issuance of fractional securities); or (iii) in accordance
with rules and regulations of the Commission made pursuant to section
eleven (b); Provided, further, That no investment Company shall sell
any security issued by it to any person who is not a Filipino citizen
or any company or entity sixty per cent of the capital of which is not
owned by Filipino citizens, when the effect of such sale would be a
violation or circumvention of Section one, Article XIII of the
Constitution on the limitation of the disposition, exploitation,
development or utilization of the natural resources of the Philippines
nor shall said company sell any such security to any person when the
effect of such sale would be a violation or circumvention of Section thirteen, subparagraph five of the Corporation Law regarding the
limitation of ownership by individuals or corporations to fifteen per
cent of the capital of corporations engaged in mining or agriculture.
(b) The provisions of the Corporation Law (Act
Numbered Fourteen hundred and fifty-nine, as amended) notwithstanding,
no registered investment company shall suspend the right of redemption
or postpone the date of payment or satisfaction upon redemption of any
redeemable security in accordance with its terms as appears in its
prospectus, for more than seven days after the tender of such security
to the company or its agent designated for that purpose for redemption
except —
(1) for any period (A) during which the Manila Stock
Exchange is closed other than customary weekend and holiday closings or
(B) during which trading on the Manila Stock Exchange is restricted;
(2) for any period during which an emergency exists
as a result of which (A) disposal by the company of securities owned by
it is not reasonably practicable or (B) it is not reasonably
practicable for such company fairly to determine the value of its net
assets; or
(3) for such other periods as the Commission may by
order permit for the protection of security holders of the company.
The Commission shall by rules and regulations determine the conditions
under which (i) trading shall be deemed to be restricted and (ii) an
emergency shall be deemed to exist within the meaning of this
subsection. Any company which, prior to the effective date of this Act,
was required by provision of its charter, certificate of incorporation,
article of association, or trust indenture, or of a by-law or
regulation duly adopted thereunder, to postpone the date of payment or
satisfaction upon redemption of redeemable securities issued by it,
shall be exempt from the requirements of this subsection; but such
exemption shall terminate upon the expiration of one year from the
effective date of this Act, or upon the repeal or amendment of such
provision, or upon the sale by such company after the effective date of
this Act of any security (other than short-term paper) of which it is
the issuer, whichever first occurs.
(c) No registered open-end company shall restrict the
transferability or negotiability of any security of which it is the
issuer except in conformity with the statements with respect thereto
contained in its registration statement nor in contravention of such
rules and regulations as the Commission may prescribe in the interests
of the holders of all of the outstanding securities of such investment
company.
(d) No registered open-end company shall issue any of
its securities (1) for services; or (2) for property other than cash or
securities (including securities of which such registered company is
the issuer), except as a dividend or distribution to its security
holders or in connection with a reorganization.
(e) The pertinent provisions of section seventeen of
the Corporation Law (Act Numbered Fourteen hundred and fifty-nine, as
amended) or any other provision of the said law in conflict with this
section, shall not apply to a registered open-end company.
Sec. 23. Distribution and repurchase of
securities; closed-end companies. — (a) No registered closed-end
company shall issue any of its securities (1) for services; or (2) for
property other than cash or securities (including securities of which
such registered company is the issuer), except as a dividend or
distribution to its security holders or in connection with a
reorganization.
(b) No registered closed-end company shall sell any
common stock of which it is the issuer at a price below the current net
asset value of such stock exclusive of any distributing commission or
discount (which net asset value shall be determined as of a time within
forty-eight hours, excluding Sundays and holidays, next preceding the
time of such determination), except (1) in connection with an offering
to the holders of one or more classes of its capital stock; (2) with
the consent of a majority of its common stockholders; (3) upon
conversion of a convertible security in accordance with its terms; (4)
upon the exercise of any warrant outstanding prior to the effective
date of this Act or issued in accordance with the provisions of section
eighteen (d); (5) under such other circumstances as the Commission may
permit by rules and regulations or orders for the protection of
investors.
(c) No registered closed-end company shall purchase
any securities of any class of which it is the issuer except —
(1) on a securities exchange or such other open
market as the Commission may designate by rules and regulations or
orders; Provided, That if such securities are stock, such registered
company shall, within the preceding six months, have informed
stockholders of its intention to purchase stock of such class by letter
or report addressed to stockholders of such class; or
(2) pursuant to tenders, after reasonable opportunity
to submit tenders given to all holders of securities of the class to be
purchased; or
(3) under such other circumstances as the Commission
may permit by rules and regulations or orders for the protection of
investors in order to insure that such purchases are made in a manner
or on a basis which does not unfairly discriminate against any holders
of the class of classes of securities to be purchased.
Sec. 24. Registration of securities under the
Securities Act. — (a) In registering under the Securities Act any
security of which it is the issuer, a registered investment company, in
lieu of furnishing a registration statement containing the information
and documents specified in section seven of the said Act, may file a
registration statement containing the information and documents:
(1) such copies of the registration statement filed
by such company under this Act and of such reports filed by such
company pursuant to section twenty-seven or such copies of portions of
such registration statement and reports as the Commission shall
designate by rules and regulations; and
(2) such additional information and documents
(including a prospectus) as the Commission shall prescribe by rules and
regulations as necessary or appropriate in the public interest or for
the protection of investors.
(b) Where the registered statement which an
investment company filed under this Act includes a description of its
securities and the requirements for the registration and/or licensing
thereof under the Securities Act have already been complied with, no
separate registration of such securities under the latter Act shall be
necessary.
(c) It shall be unlawful for any registered open-end
company or for any underwriter for such a company, in connection with a
public offering of any security of which such company is the issuer, to
transmit any advertisement, pamphlet, circular, form letter, or other
sales literature addressed to or intended for distribution to
prospective investors unless three copies of the full text thereof have
been filed with the Commission or are filed with the Commission within
ten days thereafter.
(d) The Commission is authorized to require, by rules
and regulations or order, that the information contained in any
prospectus relating to any periodic payment plan certificate registered
under the Securities Act on or after the effective date of this Act be
presented in such form and order of items, and such prospectus contain
such summaries of any portion of such information, as are necessary or
appropriate in the public interest or for the protection of investors.
(e) The exemption provided by section five of the
Securities Act shall not apply to any security of which an investment
company is the issuer, except that periodic payment plan certificates
issued by a registered investment company or its agent, sub-agent, or
underwriter or by a dealer pursuant to a contract with said company, or
its agent, sub-agent, or underwriter, the proceeds of the payments
under which are invested wholly in securities of which the registered
investment company is the issuer, need not be registered under the
Securities Act: Provided, That (1) the said securities purchased with
the proceeds of the payments under the periodic payment plan
certificates shall be issued in the name of the holder of the said
certificates and (2) the said securities of the issuer investment
company are registered under the Securities Act: And provided, That an
exemption from such registration is secured from the Commission.
Sec. 25. Reorganization plans, reports by
Commission. — (a) Any person who solicits or permits the use of his
name to solicit any proxy, consent, authorization, power of attorney,
ratification, deposit, or dissent in respect of any plan of
reorganization of any registered investment company shall file with, or
mail to, the Commission for, its information, within twenty-four hours
after the commencement of any such solicitation, a copy of such plan
and any deposit agreement relating thereto and of any proxy, consent,
authorization, power of attorney, ratification, instrument of deposit,
or instrument of dissent in respect thereto, if or to the extent that
such documents shall not already have been filed with the Commission.
(b) No plan for the reorganization of a registered
investment company shall be carried out without the prior approval of
the Commission.
Sec. 26. Periodic payment plan. — (a) It shall be
unlawful for any registered investment company issuing periodic payment
plan certificates, or for any underwriter for such company, to sell any
such certificates, if —
(1) the sales load on such certificates exceeds eight
per centum of the total payments to be made thereon;
(2) more than one-half of any of the first twelve
monthly payments thereon, or their equivalent, is deducted for sales
load;
(3) the amount of sales load deducted from any one of
such first payments exceeds proportionately the amount deducted from
any other such payment, or the amount deducted from any subsequent
payment exceeds proportionately the amount deducted from any other
subsequent payment;
(4) the first payment on such certificate is less
than ten pesos or any subsequent payment is less than ten pesos.
Sec. 27. Reports and financial statements of
investment companies and affiliated persons. — (a) Every registered
investment company shall file with the Commission —
(1) such information and documents including
financial statements as the Commission may require, on a semiannual or
quarterly basis, to keep reasonably current the information and
documents contained in the registration statement of such company filed
under this Act; and
(2) copies of every periodic or interim report or
similar communication containing financial statements and transmitted
to any class of such company's security holders, such copies to be
filed not later than ten days after transmission.
Any information or documents contained in a report or other
communication to security holders filed pursuant to paragraph (2) may
be incorporated by reference in any report subsequently or concurrently
filed pursuant to paragraph (1).
(b) The Commission shall issue rules and regulations
permitting the filing with the Commission or copies of periodic
reports, or of extracts therefrom, filed by any registered investment
company pursuant to subsection (a).
(c) Every registered investment company shall
transmit to its stockholders, at least semiannually, reports containing
such of the following information and financial statements or their
equivalent, as of a reasonably current date, as the Commission may
prescribe by rules, and regulations for the protection of investors,
which reports shall not be misleading in any material respect in the
light of the reports required to be filed pursuant to subsection (a):
(1) a balance sheet accompanied by a statement of the
aggregate value of investments on the date of such balance sheet;
(2) a list showing the amounts and values of
securities owned on the date of such balance sheet;
(3) a statement of income, for the period covered by
the report, which shall be itemized at least with respect to each
category of income and expense representing more than five per centum
of total income or expense;
(4) a statement of surplus, which shall be itemized
at least with respect to each charge or credit to the surplus account
which represents more than five per centum of the total charges or
credit during the report covered by the report;
(5) a statement of the aggregate remuneration paid by
the company during the period covered by the report (A) to all
directors and to all members of any advisory board for regular
compensation; (B) to each director and to each member of an advisory
board for special compensation; (C) to all officers; and (D) to each
person of whom any officer or director of the company is an affiliated
person; and
(6) a statement of the aggregate peso amounts of
purchases and sales of investment securities, other than Government
securities, made during the period covered by the report; Provided,
That if in the judgment of the Commission any item required under this
subsection is inapplicable or inappropriate to any specified type or
types of investment company, the Commission may by rules and
regulations permit in lieu thereof the inclusion of such item of a
comparable character as it may deem applicable or appropriate to such
type or types of investment company.
(d) Financial statements contained in annual reports
required pursuant to subsections (a) and (c), if required by the rules
and regulations of the Commission, shall be accompanied by a
certificate of independent public accountants. The certificate of such
independent public accountants shall be based upon an audit not less in
scope or procedures followed than that which independent public
accountants would ordinarily make for the purpose of presenting
comprehensive and dependable financial statements, and shall contain
such information as the Commission may prescribe, by rules and
regulations in the public interest or for the protection of investors,
as to the nature and scope of the audit and the findings and opinion of
the accountants. Each such report shall state that such independent
public accountants have verified securities owned, either by actual
examination, or by receipt of a certificate from the custodian, as the
Commission may prescribe by rules and regulations.
(e) Every person who is directly or indirectly the
beneficial owner of more than ten per centum of any class of
outstanding securities (other than short-term paper) of which a
registered closed-end company is the issuer or who is an officer,
director, member of an advisory board, investment advisor, or
affiliated person of an investment adviser of such a company shall in
respect of his transactions in any securities of such company (other
than short term paper) be subject to the same duties and liabilities as
those imposed by section twenty-six (a) of the Securities Act upon
certain beneficial owners, directors, and officers in respect of their
transactions in certain equity securities.
Sec. 28. Accounts and records. — (a) Every
registered investment company, and every underwriter, broker, dealer,
or investment adviser which is a majority-owned subsidiary of such a
company, shall maintain and preserve for such period or periods as the
Commission may prescribe by rules and regulations, such accounts,
books, and other documents as constituting the record forming the basis
for financial statements required to be filed pursuant to section
twenty-seven of this Act, and of the auditor's certificates relating
thereto. Every investment adviser not a majority-owned subsidiary of,
and every depositor of any registered investment company, and every
principal underwriter for any registered investment company other than
a closed-end company, shall maintain and preserve for such period or
periods as the Commission shall prescribe by rules and regulations,
such accounts, books, and other documents as are necessary or
appropriate to record such person's transactions with such registered
company.
(b) All accounts, books, and other records, required
to be maintained and preserved by any person pursuant to subsection
(a), shall be subject at any time and from time to time to such
reasonable periodic, special and other examinations by the Commission,
or any member or representative thereof, as the Commission may
prescribe. Any such person shall furnish to the Commission, within such
reasonable time as the Commission may prescribe, copies of or extracts
from such records which may be prepared without undue effort, expense,
or delay, as the Commission may by order require.
(c) The Commission may, in the public interest or for
the protection of investors, issue rules and regulations providing for
a reasonable degree of uniformity in the accounting policies and
principles to be followed by registered investment companies in
maintaining their accounting records and in preparing financial
statements required pursuant to this Act.
(d) The Commission, upon application made by any
registered investment company, may be order exempt a specific
transaction or transactions from the provisions of any rule or
regulation made pursuant to subsection (c), if the Commission finds
that such rule or regulation should not reasonably be applied to such
transaction.
Sec. 29. Accountants and auditors. — (a) After one
year from the effective date of this Act, it shall be unlawful for any
registered investment company to file with the Commission any financial
statement signed or certified by an independent certified public
accountant, unless —
(1) such accountant shall have been selected at a
meeting held within thirty days before or after the beginning of the
fiscal year or before the annual meeting of stockholders in that year
by a majority of those members of the board of directors who are not
investment advisers of, or affiliated persons of an investment adviser
of, or officer or employees of such, registered company;
(2) such selection shall have been submitted for
ratification or rejection at the next succeeding annual meeting of
stockholders if such meeting be held, except that any vacancy occurring
between annual meetings, due to the death or resignation of the
accountant, may be filled by the board of directors;
(3) the employment of such accountant shall have been
conditioned upon the right of the company by vote of a majority of the
outstanding voting securities at any meeting called for the purpose to
terminate such employment forthwith without any penalty; and
(4) such certificate or report of such accountant
shall be addressed both to the board of directors of such registered
company and to the security holders thereof:
Provided, That if the selection of an accountant has been rejected
pursuant to paragraph (2) or his employment terminated pursuant to
paragraph (3) the vacancy so occurring may be filed by a vote of a
majority of the outstanding voting securities either at the meeting at
which the rejection or termination occurred or if not so filled then at
a subsequent meeting which shall be called for the purpose.
(b) No registered investment company shall file with
the Commission any financial statement in the preparation of which the
controller or other principal accounting officer or employee of such
company participated, unless such controller, officer or employee was
selected, either by vote of the holders of such company's voting
securities at the last annual meeting of such security holders, or by
the board of directors of such company.
(c) The Commission is authorized, by rules and
regulations or order in the public interest or for the protection of
investors, to require accountants and auditors to keep reports, work
sheets, and other documents and papers relating to registered
investment companies for such period or periods as the Commission may
prescribe, and the make the same available for inspection by the
Commission or any member or representative thereof.
Sec. 30. Report of settlement of civil actions. —
(a) Every registered investment company which is a party and every
affiliated person of such company who is a party defendant to any
action or claim by a registered investment company or a security holder
thereof in a derivative capacity against an officer, director,
investment adviser, trustee, or depositor of such company for an
alleged breach of official duty, which such action or claim is
commerced or asserted after the effective date of this Act, shall
transmit; unless already transmitted to the Commission, the documents
specified in subsection (b) if —
(1) such action has been compromised or settled and
such settlement or compromise has had the approval of a court having
jurisdiction to approve such settlement or compromise; or
(2) a final judgment has been entered on the merits
in such action.
(b) Within thirty days after such settlement or
compromise or final judgment, copies of all pleadings and any written
record made in such action, together with a statement of the terms of
settlement or compromise, if such terms be not included in the record,
shall be transmitted to the Commission; and any information contained
in any such documents may be used by the Commission in connection with
any report or study which may be made by the Commission of lawsuits
whether of investment companies or companies generally: Provided, That
the names of persons involved shall not be disclosed.
Sec. 31. Destruction and falsification of reports
and records. — (a) It shall be unlawful for any person, except as
permitted by rule, regulation, or order of the Commission, wilfully to
destroy, mutilate, or alter any account, book, or other document the
preservation of which has been required pursuant to section
twenty-eight (a) or twenty-nine (c).
(b) It shall unlawful for any person to make any
untrue statement of a material fact in any registration statement,
application, report, account, record, or other document filed or
transmitted pursuant to this Act or the keeping of which is required
pursuant to section twenty-eight (a). It shall be unlawful for any
person so filing, transmitting, or keeping any such document to omit to
state therein any fact necessary in order to prevent the statements
made therein, in the light of the circumstances under which they were
made, from being materially misleading. For the purposes of this
subsection, any part of any such document which is signed or certified
by an accountant or auditor in his capacity as such shall be deemed to
be made, filed, transmitted, or kept by such accountant or auditor, as
well as by the person filing, transmitting or keeping the complete
document.
Sec. 32. Unlawful representations and names. — (a)
It shall be unlawful for any person, in issuing or selling any security
of which a registered investment company is the issuer, to represent or
imply in any manner whatsoever that such security or company has been
guaranteed, sponsored, recommended, or approved by the Republic of the
Philippines or any agency or officer thereof.
(b) It shall be unlawful for any person registered
under any section of this Act to represent or imply in any manner
whatsoever that such person has been sponsored recommended, or
approved, or that his abilities or qualifications have in any respect
been passed upon by the Republic of the Philippines or any agency or
officer thereof.
(c) No provision of subsection (a) or (b) shall be
construed to prohibit a statement that a person or security is
registered under this Act or the Securities Act if such statement is
true in fact and if the effect of such registration is not
misrepresented.
(d) It shall be unlawful for any registered
investment company hereafter to adopt as a part of the name or title of
such company, or of any security of which it is the issuer, any word or
words which the Commission finds and by order declares to be deceptive
or misleading. The Commission is authorized to deny the registration of
an investment company using such name or title.
Sec. 33. Injunctions against gross misconduct and
abuse of trust. — The Commission is authorized to require a registered
investment company to remove or suspend a person serving or acting in
one or more of the following capacities who has been found guilty,
after proper investigation and hearing by said Commission, of gross
misconduct or gross abuse of trust in respect of any such investment
company for which such person so serves or acts:
(1) as officer, director, member of an advisory
board, investment adviser, or depositor; or
(2) as principal underwriter, if such registered
company is an open-end company.
The suspension shall be for such period of time as the Commission in
its discretion, shall deem appropriate.
Sec. 34. Theft and estafa. — Whoever steals,
unlawfully abstracts, unlawfully and wilfully converts to his own use
or to the use of another, or embezzles any of the moneys, funds
securities, credits, property, or assets of any registered investment
company shall be deemed guilty of a crime, and upon conviction thereof
shall be subject to the penalties provided in section forty of the
Securities Act.
Sec. 35. Rules, regulations, and orders; general
powers of Commission. — (a) The Commission shall have authority from
time to time to make, issue, amend, and rescind such rules and
regulations and such orders as are necessary or appropriate to the
exercise of the powers conferred upon the Commission elsewhere in this
Act, including rules and regulations defining accounting, technical,
and trade terms used in this Act, and prescribing the form or forms in
which information required in registration statements, applicants, and
reports to the Commission shall be set forth. For the purposes of its
rules or regulations the Commission may classify, persons, securities,
and other matters within its jurisdiction and prescribe different
requirements for different classes of persons, securities, or
matters.
(b) The Commission, by such rules and regulations or
order as it deems necessary or appropriate in the public interest or
for the protection of investors, may suspend the operation of the
stocks of companies registered in the stock exchange the quotations for
which are greatly in excess of the book value of the shares of stocks
and may authorize the filing of any information or documents required
to be filed with the Commission under this Act by incorporating by
reference any information or documents heretofore or concurrently filed
with the Commission under this Act.
(c) No provision of this Act imposing any liability
shall apply to any act done or omitted in good faith in conformity with
any rule, regulation, or order of the Commission, notwithstanding that
such rule, regulation, or order may, after such act or omission, be
amended or rescinded or be determined by judicial or other authority to
be invalid for any reason.
Sec. 36. Rules and regulations; procedure for
issuance. — The rules and regulations of the Commission under this Act,
and amendments thereof, shall be effective upon publication in the
manner which the Commission shall prescribe, or upon such later date as
may be provided in such rules and regulations.
Sec. 37. Orders; procedure for issuance. — (a)
Orders of the Commission under this Act shall be issued only after
appropriate notice and opportunity for hearing. Notice to the parties
on a proceeding before the Commission shall be given by personal
service upon each party or by registered mail or confirmed telegraphic
notice to the party's last known business address. Notice to interested
persons, if any, other than parties may be given in the same manner.
(b) The Commission may provide, by appropriate rules
or regulations, that an application verified under oath may be
admissible in evidence in a proceeding before the Commission and that
the record in such a proceeding may consist, in whole or in part, of
such application.
(c) In any proceeding before the Commission, the
Commission, in accordance with such rules and regulations as it may
prescribe, shall admit as a party any interested Government agency, and
may admit as a party any representative of interest security holders,
or any other person whose participation in the proceeding may be in the
public interest or for the protection of investors.
Sec. 38. Hearings by Commission. — Hearing may be
public and may be held before the Commission or any officer or officers
of the Commission designated by it, and appropriate records thereof
shall be kept.
Sec. 39. Enforcement of this Act. — (a) The
Commission may make such, investigations as it deems necessary to
determine whether any person has violation or is about to violate any
provision of this Act or of any rule, regulation, or order thereunder,
or to determine whether any action or any court or any proceeding
before the Commission shall be instituted under this Act against a
particular person or persons, or with respect to a particular
transaction or transactions. The Commission shall permit any person to
file with it a statement in writing, under oath or otherwise as the
Commission shall determine, as to all the facts and circumstances
concerning the matter to be investigated.
(b) For the purpose of any investigation or any other
proceeding under this Act, the Commission, or any officer thereof
designated by it, empowered to administer oaths and affirmations,
subpoena witnesses, compel their attendance, take evidence, and require
the production of any books, papers, correspondence, memoranda,
contracts, agreements, or other records which are relevant or material
to the inquiry.
(c) In case of contumacy by, or refusal to obey a
subpoena issued to, any person, the Commission may avail itself of its
powers under republic Act Numbered Eleven hundred forty-three or, if
the same is ineffective, may invoke thed of any Court of First Instance
within the jurisdiction of which such investigation or proceeding is
carried on, or where such person resides or carries on business, in
requiring the attendance and testimony of witnesses and the production
of books, papers, correspondence, memoranda, contracts, agreements, and
other records. And such court may issue an order requiring such person
to appear before the Commission or officer designated by the
Commission, there to produce records if so ordered, to give testimony
touching the matter under investigation or in question; any failure to
obey such order of the court may be punished by such court as a
contempt thereof. Any person who without just cause shall fail or
refuse to attend and testify or to answer any lawful inquiry or to
produce books, papers, correspondence, memoranda, contracts,
agreements, or other records, if in his or its power so to do, in
obedience to the subpoena of the Commission, shall upon convictions, be
subject to a fine of not more than two thousand pesos or to
imprisonment for a term of not more than one year, or both.
(d) No person shall be excused from attending and
testifying or from producing books, papers, correspondence, memoranda,
contracts, agreements, or other records and documents before the
Commission, or in obedience to the subpoena of the Commission or any
officer designated by it, or in any cause or proceeding instituted by
the Commission, on the ground that the testimony or evidence,
documentary or otherwise, required of him may tend to incriminate him
or subject him to a penalty or forfeiture; but no individual shall be
prosecuted or subject to any penalty or forfeiture for or on account of
any transaction, matter, or thing concerning which he is compelled to
testify or produce evidence, documentary or otherwise, after having
claimed his privilege against self-incrimination, except that such
individual so testifying shall not be exempt from prosecution and
punishment for perjury committed in so testifying.
(e) Whenever it shall appear to the Commission
that any person has engaged or is about to engage in any act or
practice constituting a violation of any provision of this Act or of
any rule, regulation, or order thereunder it may, after proper
investigation and hearing, order such person to desist from committing
such act or practice and enforce the same in accordance with its powers
under Republic Act Numbered Eleven hundred forty-three. The Commission,
in its discretion, may also bring an action in the Court of First
Instance of Manila to enjoin such acts or practices and to enforce
compliance with this Act or any rule, regulation, or order thereunder.
Upon a showing that such person has engaged or is about to engage in
any such act or practice, a permanent or temporary injunction or decree
or restraining order shall be granted without bond: Provided, however,
That no such certificate of authority shall be issued by the Securities
and Exchange Commissioner unless the applicant for agent, sub-agent or
investment solicitor shall have passed a written examination given for
the purpose by the Securities and Exchange Commission or the said
applicant possesses a college degree. In any proceeding under this
subsection to enforce compliance with section seven, the court as a
court of equity may, to the extent it deems necessary or appropriate,
take exclusive jurisdiction and possession of the investment company or
companies involved and the books, records, and assets thereof, wherever
located; and the court shall have jurisdiction to appoint a trustee,
who with the approval of the court shall have power to dispose of any
or all of such assets, subject to such terms and conditions as the
court may prescribe. The Commission may transmit such evidence as
may be available concerning any violation of the provisions of this Act
or of any rule, regulation, or order thereunder to the Secretary of
Justice, who, in his discretion, may institute the appropriate criminal
proceedings under this Act.
Sec. 40. Agents and Investment Solicitors. — No
investment company doing business within the Philippines or agent
thereof shall pay any commission or other compensation to any person
for services in obtaining investments in an investment company unless
such person, after passing mental and moral test, holds a certificate
of authority issued by the Securities and Exchange Commissioner to act
as an agent or investment solicitor of such company as hereafter
provided. No person shall act as an agent, sub-agent, or investment
solicitor in the solicitation or procurement of investment or
application for investment in an investment company or receive for
services for obtaining such investments any commission or other
compensation from any investment company doing business in the
Philippines or from the agent or underwriter thereof, without first
getting a certificate of authority so to act from the Securities and
Exchange Commissioner, which must be renewed annually in the first day
of January and not later than the fifteenth day of March. Such
certificate shall be issued by the Securities and Exchange Commissioner
only upon the written applicant of the person desiring such authority,
such application being approved and countersigned by the investment
company or its agent or underwriter, and shall be upon a form approved
by the Securities and Exchange Commissioner. The Securities and
Exchange Commissioner shall have the right to refuse to issue or renew
and to revoke any such certificate in his discretion. No such
certificate shall be valid, however, in any event after the fifteenth
day of March of the year following the issuance of said certificate. A
renewal certificate may be issued upon application of the company, its
agent or underwriter represented by such agent or investment solicitor.
Any person who for compensation solicits or obtains investments on
behalf of any investment company or its agent or underwriter or
transmits for a person other than himself an investment or application
for investment in an investment company or offers or assumes to act as
an agent or investment solicitor of an investment company, shall be an
investment agent or investment solicitor within the intent of this
section and shall thereby become liable to all the duties,
requirements, liabilities, and penalties to which such a person is
subject.
Any person or company violating the provisions of this section shall
upon conviction, be subject to a fine of five hundred pesos. Upon the
conviction of any person acting as agent, sub-agent, investment
solicitor, or broker for the commission of any offense connected with
the business of an investment company, the Securities and Exchange
Commissioner shall immediately revoke the certificate of authority
issued to him and no such certificates shall thereafter be issued to
such convicted person.
The Securities and Exchange Commissioner shall issue such rules and
regulations as he may deem necessary for the enforcement and
implementation of the provisions of this section.
Sec. 41. Court review of orders. — Any person or
party aggrieved by an order issued by the Commission under this Act may
obtain a review of such order in accordance with the provisions of
section thirty-five of the Securities Act, as amended.
Sec. 42. Disclosure of information filed with
Commission; copies. — (a) The information contained in any registration
statement, application, report, or other document filed with the
Commission pursuant to any provision of this Act or of any rule or
regulation thereunder as distinguished from any information or document
transmitted to the Commission) shall be made available to the public,
unless and except insofar as the Commission, by rules and regulations
upon its own motion, or by order upon application, finds that public
disclosure is neither necessary nor appropriate in the public interest
or for the protection of investors. It shall be unlawful for any
officer or employee of the Commission to use for personal benefit, or
to disclose to any person other than an official or employee of the
Philippine Government, for official use, or for any such official or
employee to use for personal benefit, any information contained in any
document so filed or transmitted, if such information is not available
to the public.
(b) Photostatic or other copies of information
contained in documents filed with the Commission under this Act and
made available to the public shall be furnished any person at such
reasonable charge and under such reasonable limitation as the
Commission shall prescribe.
Sec. 43. Reports by Commission. — The Commission
shall submit from time to time, a report to the Congress covering the
work of the Commission under this Act, with such information, data, and
recommendations for further legislation in connection therewith as it
may find advisable.
Sec. 44. Fees; additional personnel;
Commissioner's Compensation. — (a) The Commission is authorized to
charge and collect the following fees:
(1) For registering an investment company — One
hundred pesos. If the securities of the company are likewise
registered, the schedule of fees prescribed in the Securities Act shall
instead be applied.
(2) For every examination of the financial condition
of an investment company — One hundred pesos. The Commission is
authorized to conduct such examination as often as may be necessary in
the public interest or for the protection of investors.
(3) For each exemption — Thirty pesos.
(4) For every determination granting a right or
privilege — thirty pesos.
(5) For each certificate of authority issued to an
agent or investment solicitor — Ten pesos.
(6) For each instrument, document, or paper not
required to be filed but which an interested party desires to be
attached to the records of an investment company — Five pesos.
Every right, privilege, exemption or registration under this Act shall
be sought from the Commission in the form of a petition for which the
corresponding fee herein authorized to be collected shall be paid
before any action is taken thereon. The grant or denial of the petition
shall be in the form an order issued by the Commission. No denial,
withdrawal or abandonment of the petition shall be a ground for the
refund of the fee paid therefor.
(b) For the effective implementation and enforcement
of this Act, the following additional positions in the Securities and
Exchange Commission are hereby authorized to be created by the
Commission:
One Legal Officer at six thousand five hundred fifty-two pesos per
annum.
Three Legal Officers at five thousand three hundred seventy-six pesos
each per annum.
Five Examiners at five thousand three hundred seventy-six pesos each
per annum.
One Stenographer at three thousand one hundred eight pesos per annum;
and
Two Clerks at two thousand four hundred fifty-four pesos each per
annum.
Any person entering the government service who may be appointed to any
of said positions shall start at the initial rate of the salary
corresponding to his position, as provided under the pertinent laws,
rules and regulations.
The Commission shall take charge of the enforcement and implementation
of the provisions of this Act. The Securities and Exchange Commissioner
shall receive the compensation and enjoy all the privileges of Judges
of the Court of First Instance.
Sec. 45. Appropriation: assessment. — To carry out
the purposes of this Act, the Commission is hereby authorized to spend
its income under this Act. Should the Commission's total income under
this Act in any year be less than its total expenditures as certified
by the Securities and Exchange Commissioner, the different shall be
pro-rated among all investment companies in business, and the
Commission is authorized to assess and collect from each of them its
corresponding share which shall not exceed one-half of one per centum
of its net asset value.
Sec. 46. Validity of contracts. — (a) Any
condition, stipulation, or provision binding any person to waive
compliance with any provision of this Act or with any rule, regulation
or order thereunder shall be void.
(b) Every contract made in violation of any provision
of this Act or of any rule, regulation, or order thereunder, and every
contract heretofore or hereafter made, the performance of which
involves the violation of, or the continuance of any relationship or
practice in violation of, any provision of this Act or any rule,
regulation, or order thereunder, shall be void (1) as regards the
rights of any person who, in violation of any such provision, rule,
regulation, or order, shall have made or engaged in the performance of
any such contract, and (2) as regards the rights of any person who, not
being a party to such contract, shall have acquired any right
thereunder with actual knowledge of the facts by reason of which the
making or performance of such contract was in violation of any such
provision, rule, regulation, or order.
Sec. 47. Procuring violation of Act; obstructing
compliance. — (a) It shall be unlawful for any person, directly or
indirectly, to cause to be done any act or thing through or by means of
any other person which it would be unlawful for such person to do under
the provisions of this Act or any rule, regulation, or order thereunder.
(b) It shall be unlawful for any person without just
cause to hinder, delay, or obstruct the making, filing, or keeping of
any information, document, report, record, or account required to be
made, filed, or kept under any provision of this Act or any rule,
regulation, or order thereunder.
Sec. 48. Penalties. — Unless otherwise
specifically provided elsewhere in this Act, any person who violates
any provision of this Act or of any rule, regulation, or order
thereunder, or any person who in any registration statement,
application, report, account, record, or other document filed or
transmitted pursuant to this Act or the keeping of which is required
pursuant to section twenty-eight (a) of this Act makes any untrue
statement of fact or omits to state any fact necessary in order to
prevent the statements made therein from being materially misleading in
the light of the circumstances under which they were made, shall upon
conviction be fined not more than fifty thousand pesos or imprisoned
for not more than five years or both.
Sec. 49. Effect on existing law and repealing
clause. — The rights and remedies provided by this Act shall be in
addition to any and all other rights and remedies that may now exist,
but no person permitted to maintain a suit for damages under the
provisions of this Act shall recover, through satisfaction of judgment
in one or more actions, a total amount in excess of his actual damages
on account of the act complained of.
Paragraph (r) of section one hundred ninety-four of Commonwealth Act
Numbered Four hundred sixty-six, as amended by section three of
Republic Act Numbered Forty-two, is further amended to read as follows:
"Stockbroker" includes all
persons whose business it is, for themselves as such brokers or for
other brokers, to negotiate purchases or sales of stock, bonds,
exchange, bullion, coined money, bank notes, promissory notes, or other
securities; but does not include underwriters for one or more
investment companies as defined in the Investment Company Act; "dealer
in securities" includes all persons who for their own account are
engaged in the sale of stock, bonds, exchange, bullion, coined money,
bank notes, promissory notes or other securities."
All laws, Acts, parts of Acts, Rules of Court, executive orders, and
administrative regulations which are inconsistent with this Act are
hereby repealed.
Sec. 50. Separability of provisions. — If any
provision of this Act shall be held invalid, the remainder of the Act
shall not be affected thereby.
Sec. 51. Effective date. — This Act shall take
effect upon its approval.
Approved: June 18, 1960
|