INVESTMENT COMPANY ACT OF 2001

 

CHAPTER I

Title and Definitions

 

Sec. 1. Short Title. –

This Act shall be known as the "Investment Company Act of 2001".

 

Sec. 2. Declaration of Policy. –

The policy of the State is to foster a fair, orderly and efficient capital market in order to protect investors and provide the private and public sectors access to funds that are vital to the development of the national economy.  The State seeks to: (1) promote the public interest by providing a favorable framework for investment companies to facilitate the flow of investment capital from sources within the country and abroad; (2) encourage the participation in the mutual fund industry of the best qualified investment advisers regardless of origin; (3) broaden participation in securities ownership by Filipinos so that more are able to share in economic growth; (4) provide equal protection to investors in all similar pooled investment vehicles; and (5) provide the same competitive environment for all similar pooled investment vehicles, their investment advisers and promoters.

The purpose of this Act is to establish a comprehensive scheme of regulation to enable investment companies to play a key role in capital formation.  This Act promotes the application of fiduciary principles in the investment management and administration of investment companies, promotes high standards in their distribution, and seeks to prevent abuses and protect the interests of the investing public.

 

Sec 3. Definitions and Interpretation. –

(a)    When used in this Act:

1.      “Administrative manager” is a person who, under a contract with a registered investment company, is responsible for the provision of administrative services to the company.

2.       "Affiliated person” of another person is:

(A)  A person directly or indirectly owning, controlling or holding with power to vote securities carrying more than 10 percent of the votes of the other person;

(B)  A person which has securities carrying 10 percent or more of its votes directly or indirectly owned, controlled or held with power to vote by the other person;

(C)  A person directly or indirectly controlling, controlled by, or under common control with the other person;

(D)   An officer, director, partner or employee of the other person; and

(E)   If the other person is an investment company, an investment adviser of the other person.

3.      “Bank” is an entity organized under the laws of the Philippines or doing business in the Philippines that is engaged in the lending of funds obtained in the form of deposits and duly authorized to operate as such by the Monetary Board of the Bangko Sentral ng Pilipinas.

4.       "Commission" is the Securities and Exchange Commission.

5.       "Company" is a corporation, registered partnership, trust or association.

6.       "Control" is the power to exercise a controlling influence over the management or policies of a company.  Any person who owns beneficially, either directly or through one or more controlled companies, securities carrying more than 25 percent of the votes of a company is presumed to control that company.  This presumption may be rebutted by order of the Commission either on its own motion or on application by an interested person based on evidence satisfactory to the Commission.

7.      "Convicted" includes a verdict, judgment or plea of guilty, if it has not been reversed, set aside or withdrawn.

8.      "Disinterested person" of a company is a person who is not:

(A)  An affiliated person of the company (other than solely by being a director or a stockholder who does not control it);

(B)  An affiliated person of an investment adviser, principal distributor, principal underwriter or custodian of the company;

(C)  A person who has acted as a legal counsel or accountant to the company during the past two years;

(D)  A person who has had a material business or professional relationship with the company during the past two years;

(E)  A person who has acted as a legal counsel to the company’s investment adviser during the past two years;

(F)  A spouse, sibling, parent or child of any of them.; or

(G)  A person who is receiving a salary, allowance or other form of compensation or remuneration from an investment adviser, principal distributor, legal counsel or custodian of an investment company.

9.      "Investment adviser" is a person who, under an advisory contract, (A) regularly furnishes advice or recommends investment decisions concerning a securities portfolio; or (B) manages another person’s securities portfolio, including the arrangement of purchases, sales or exchanges of securities through a dealer or broker.

10.    "Investment advisory contract" is a contract between a registered investment company and an investment adviser, under which the investment adviser manages the investment of the investment company’s securities portfolio.

11.    “Investment house” is a person engaged in the underwriting of securities of other issuers and registered for that purpose under the Investment Houses Law.

12.     “Investment solicitor” is an individual who for compensation:

(A)  Solicits or obtains investments on behalf of a registered investment company or its agents or principal distributors;

(B)  Transmits for a person other than himself an investment or application for investment in a registered investment company; or

(C)  Offers or assumes to act as an agent or investment solicitor of an investment company.

13.     “Mutual fund dealer” is a company other than a principal distributor which for compensation:

(A)  Solicits or obtains investments on behalf of a registered investment company or its agents or principal distributors;

(B)  Transmits for a person other than himself an investment or application for investment in a registered investment company; or

(C)  Offers or assumes to act as an agent or investment solicitor of an investment company.

14.     "Net asset value" is the value of all assets less all liabilities of an investment company as determined in accordance with this Act and the rules and regulations under it, supplemented by generally accepted accounting principles and practices established by the Accounting Standards Council of the Philippines uniformly applied.

15.     "Principal distributor” is a person who, under a contract with a mutual fund, has the right to sell securities issued by the company to a dealer or to the public or both, but does not include a dealer who purchases securities issued by the company through a principal distributor acting as the company’s agent.

16.     "Principal underwriter” is an underwriter who, in connection with a primary distribution of securities, (A) is in privity of contract with the issuer or an affiliated person of the issuer; (B) acting alone or in concert with one or more persons, initiates or directs the formation of an underwriting syndicate; or (C) is allowed a rate of gross commission, spread or other profit greater than the rate allowed another underwriter participating in the distribution.

17.    "Promoter” of a company or a proposed company is a person who is initiating or directing, or has within the preceding year initiated or directed, the organization of the company, acting alone or in concert with one or more persons.

18.     “Quasi-bank” is a company engaged in the borrowing of funds through the issuance, endorsement or assignment with recourse or acceptance of deposit substitutes for purpose of re-lending or purchasing of receivables and other obligations.

19.     "Redeemable security" is a security, other than short-term debt, the terms of which entitle the holder to receive approximately his proportionate share of the issuer's current net assets, or the cash equivalent, upon surrender of the security.

20.    "Reorganization" is (A) a reorganization under the supervision of a court of competent jurisdiction; (B) a merger or consolidation; (C) a sale of 75 percent or more in value of the assets of a company; (D) a restatement of the capital of a company, or an exchange of securities issued by a company for any of its own outstanding securities; (E) a voluntary dissolution or liquidation of a company; (F) a recapitalization or other procedure or transaction which alters, modifies or eliminates any rights, preferences or privileges of any class of securities of a company, as provided in its charter or other instrument creating or defining those rights, preferences or privileges; (G) an exchange of securities issued by another company or companies for the purpose of effecting or consummating any of the foregoing; or (H) an exchange of securities by a company which is not an investment company for securities issued by a registered investment company.

21.    "Sales load" includes:

(A) The fees and expenses for sales and promotional activities that are charged in connection with the sale of a security issued by an investment company and deducted from the subscription price paid by an investor;

(B) Promotional or sales fees paid by an investment company in connection with a specific sale of its securities to an investor; and

(C) The fee deducted from the redemption proceeds paid to an investor on account of sales or promotional activities.

Any tax paid or payable on the issuance, purchase, sale or redemption of the securities of an investment company, such as the value added tax, is not included in the sales load.

22.     “SRC” means The Securities Regulation Code, Republic Act No. 8799.

23.     “Trust company” is a person duly authorized by the Monetary Board of the Bangko Sentral ng Pilipinas to engage in trust business.

24.     “Underwriter” is a person who has purchased from an issuer with a view to, or offers 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.  However, “underwriter” does not include a person whose interest is limited to a commission from an underwriter or dealer not exceeding the usual and customary distributors’ or sellers’ commission.

25.     "Value" is (A) with respect to securities for which market quotations are readily available, the market value of the securities; and (B) with respect to other securities and assets, fair value as determined in good faith by the board of directors of the company.  The market value of a security is its closing price and, if there is no closing price, the previous closing price.  In the case of an option or other right, the market value is the daily mark-to-market price, if available.

26.    "Wholly-owned subsidiary" of a person is a company that has outstanding securities carrying 95 percent or more of its votes being owned by the person or the person’s wholly-owned subsidiaries.

(b)  No provision of this Act shall apply to, or be deemed to include, the Philippines or any of its political subdivisions, or any agency, authority or instrumentality of any of them, or any corporation which is wholly-owned directly or indirectly by any of them, or any officer, agent or employee of any of them acting as such in the course of his official duty, unless the provision states otherwise.

(c)  Terms defined in the SRC and not otherwise defined in this Act have the meanings given to them in the SRC.  Any other term not otherwise defined in this Act has its usual and commonly understood trade, business, commercial or investment meaning.

(d)  Any reference in this Act or any rule, regulation or order under it to the filing of material requires that the material be deposited with the Commission.

 

Sec. 4. Definition of Investment Company. –

(a)    When used in this Act, "investment company" is an issuer which:

1.      Holds itself out as being engaged primarily in the business of investing, reinvesting or trading in securities; or

2.      Engages or proposes to engage primarily in the business of investing, reinvesting, or trading in securities.

An issuer shall be deemed to engage or propose to engage primarily in the business of investing in securities if it owns or proposes to acquire securities (other than government securities, securities of majority-owned subsidiaries that are not investment companies, and securities issued by an employees' stock, bonus, pension, or profit sharing plan or fund) having a value at the end of the last fiscal quarter exceeding 40 percent of the issuer's unconsolidated total assets (exclusive of government securities and cash items).

            (b)    None of the following persons is an investment company, unless the Commission prescribes otherwise by rule:

1.       An issuer whose outstanding securities (other than short-term debt) are beneficially owned by not more than 50 persons, and which is not making or intending to make a public offering of its securities.  In determining the number of beneficial owners, a company is counted as one person, but if a company owns beneficially securities carrying 25 percent or more of the votes of the issuer, each holder of the company's outstanding securities (other than short-term debt) is counted.

2.       A bank, quasi-bank or trust company, or a common trust fund administered by a bank, quasi-bank or trust company for the collective investment of funds contributed by the bank, quasi-bank or trust entity in its capacity as a trustee, executor, administrator or guardian.

3.       An insurance company engaged in the conduct of its ordinary business, except that a variable annuity issued by an insurance company is an investment company for purposes of this Act.

4.       An employees' stock bonus, pension, or profit sharing plan or fund.

5.       A broker, dealer or investment house, registered as such with the Commission, primarily engaged in the business of underwriting securities, purchasing and selling securities for its own account, or effecting transactions in securities for the account of others.

6.       A company that primarily engages in the business of factoring or mortgage lending, unless it engages in the business of issuing redeemable securities.

7.       A company organized and operated exclusively for religious, educational, benevolent, fraternal, charitable or reformatory purposes, unless any net earnings of the company go to the benefit of any of its shareholders.

8.       An issuer primarily engaged in investing in securities issued by its majority-owned subsidiaries, unless any of them is an investment company.

9.       A wholly-owned subsidiary of any person excepted by this subsection from the definition of investment company.

10.     An issuer or class of issuers which the Commission, by rule or order, determines not to be an investment company, or excepts from the definition of investment company as not necessary in the public interest or for the protection of investors.

 

Sec. 5. Classification of Investment Companies. –

Investment companies are classified as follows:

1.       A "mutual fund" is an investment company that issues and offers for sale or has outstanding redeemable securities.

A "closed-end fund" is an investment company that is not a mutual fund.

 

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