Citation details and effectivity
- SEC ICA Rule 35-1 is published under NAR, Vol. 10 No. 1 (January–March 1999).
- The Rules include transitory-type timing for reports: registration reporting begins after effectiveness of the registration order and continues monthly thereafter (within 30 days and then within the first 10 days of every month).
Definitions and key terms
- “Act” means the Investment Company Act, Republic Act No. 2629.
- “Investment Company” means any issuer that is or holds itself out as being engaged primarily, or proposes to engage primarily, in investing, reinvesting, and trading in securities, as defined in Section 4 of the Act.
- “Close-end Company” refers to an investment company other than an open-end company.
- “Open-End Company” refers to an investment company that is offering for sale, or has outstanding, any redeemable security, of which it is the issuer.
- “Commission” means the Securities and Exchange Commission.
- “Custodian” is a duly authorized local commercial bank of good repute.
- “Prospectus” means a prospectus meeting the requirements of these Rules and Section 8(a)(10) of the Revised Securities Act.
- “Revised Securities Act” means Batas Pambansa Blg. 178.
- Unless otherwise specifically provided, terms used in these Rules have the same meaning as defined in the Act.
- “Investment House” has the same meaning as in Presidential Decree No. 129.
- “Commercial Bank” refers to a commercial banking corporation as defined in the General Banking Act, Republic Act 337, as amended.
- “Rule” refers to these investment company rules.
Organization, ownership, and minimum capital
- Investment companies must be organized in the form of a stock corporation and must comply with the Corporation Code of the Philippines plus additional requirements under these Rules.
- Investment companies must meet a minimum subscribed and paid-up capital of at least PHP 50 million.
- The Commission may grant a lower paid-up capital requirement upon request when the investment company is part of a group of investment companies under management by the same investment company manager.
- All members of the Board of Directors must be Filipino citizens.
- All shares of the investment company’s capital stock must be common and voting shares.
- The articles of incorporation of open-end companies must provide for the waiver of pre-emptive rights of shareholders.
- Securities that an investment company proposes to issue, distribute, or sell must be registered under the Revised Securities Act and the rules adopted pursuant thereto.
Sale of securities and limits on promoters
- Unless the Commission otherwise prescribes, the minimum size of investment by any single investor in shares/securities issued by an investment company is PHP 5,000.00.
- Securities sold by an investment company must be sold on a cash basis.
- Installment sales are prohibited.
- All proceeds from the sale of shares/securities, including original subscriptions/payments constituting the original paid-in capital, must be held by a custodian bank as required under the Rules.
- Original proponents who subscribed and paid for the original capital must not sell, transfer, convey, encumber, or otherwise dispose of their shares/securities within 12 months from the registration of the investment company.
Investment objective and portfolio restrictions
- The investment objective(s) and initial investment plans of an investment company must be clearly stated in the prospectus and must be classified into categories including:
- aggressive (high risk), growth-oriented (moderate risk), or conservative (low risk);
- dealing in short term (one-year or less), medium term (longer than one year but not exceeding three years) or long term (longer than three years) debt securities;
- area of focus (e.g., securities of companies engaged in real estate development, medium-sized gold mine operations, export of primary products);
- mode of investment (e.g., common shares only, convertible preferred shares, loans with warrants to common).
- An investment company may not change its investment objective without prior approval of a majority of its shareholders.
- The investment company’s maximum investment in any single enterprise must not exceed 10% of the investment company’s net asset value, except obligations of the Philippine Government and its instrumentalities.
- The investment company’s total investment must not exceed 10% of the outstanding securities of any one investee company.
- For liquidity purposes, unless otherwise prescribed by the Commission, at least 10% of an open-end company fund must be invested in liquid/semi-liquid assets such as:
- Treasury notes or bills, Certificates of Indebtedness issued by the Bangko Sentral ng Pilipinas that are short term, and other government securities or bonds, and other evidences of indebtedness/obligations whose servicing and repayment are fully guaranteed by the Republic of the Philippines;
- savings or time deposits with government owned banks or commercial banks, with the rule that no savings/time deposit accounts may be accepted or allowed under a “bearer,” “numbered” account, or similar arrangement.
- Until the Commission provides otherwise, an investment company must not:
- sell securities short;
- invest in margin purchased of securities (investment in partly paid shares is excluded);
- invest in commodity futures contracts;
- invest in precious metals;
- make unlimited liability investments.
- Total operational expenses must not exceed 10% of the investment company’s total investment fund or total net worth as shown in its previous year’s audited financial statements (as provided in Section 15 of the Act).
- An investment company must not incur any further debt or borrowing unless there is, at the time of incurrence or immediately thereafter, asset coverage of at least 300% for all borrowings.
- If asset coverage falls below 300% at any time, the company must reduce the amount of borrowings within 3 days so that asset coverage of such borrowings is at least 300%.
- An investment company may not participate in an underwriting or selling group for a public distribution of securities except for its own capital stock.
- An investment company may not purchase from or sell to its officers or directors, or to officers/directors of its investment adviser/manager/distributor, or firms of which any of them are members, any securities other than the capital stock of the investment company.
Open-end redemption rights and mechanics
- Investors in redeemable securities issued by an open-end investment company have the right to have their securities redeemed according to the terms of the issue and the procedures in the prospectus.
- Redemption price rules:
- For redemption requests surrendered before the daily cut-off time, the redemption price is the next computed net asset value per share.
- For redemption requests received after the daily cut-off time, the request is deemed received on the following day.
- The daily cut-off time is 12:00 o’clock noon.
- Net asset value computation and publication/posting requirements:
- Investment companies must compute and post net asset value per share on a daily basis.
- Investment companies must publish daily prices in at least two (2) newspapers of general circulation in the Philippines.
- Investment companies must post daily prices in a conspicuous place at the principal office and in all branches or correspondent offices designated as redemption centers.
- Net asset value per share computation must follow the valuation method indicated in the prospectus and must be applied consistently.
- Any change in net asset value per share calculation or valuation method requires approval of the Commission.
- If the Commission has not prescribed otherwise, net asset value is calculated by adding:
- (A) aggregate value of portfolio securities and other assets,
- (B) cash on hand,
- (C) dividends on stock trading ex-dividend,
- (D) accrued interest on portfolio securities,
- then subtracting:
- (E) taxes and other charges against the fund not previously deducted,
- (F) accrued expenses and fees,
- (G) cash held for distribution to securities holders on a prior date.
- Redemption payments must be effected within 7 banking days from receipt of the redemption request.
- The Commission may suspend redemption of open-end company securities whenever necessary or appropriate in the public interest or for investor protection.
Governance and disqualification rules
- No person may be elected as a director of an investment company unless the person is a Filipino citizen.
- No person may act as director or officer if the person is possessed of disqualifications provided in the Act.
- An advisory board may be created by an investment company.
Investment company manager registration
- Persons designated or intending to act as investment manager or adviser for an investment company must file an application with the Commission before acting.
- The application must include data and documents required by the Commission, plus:
- minimum unimpaired net worth of at least PHP 10 million exclusive of revaluation surplus;
- curriculum vitae of directors;
- audited financial statements for the last 3 years, to the extent applicable.
- The Commission must grant registration if it finds the requirements are met.
- The Commission must disapprove an applicant, or registration must be denied where any principal officer or director has any of the following:
- willfully made or caused to be made in applications or required reports any material false or misleading statement, or willfully omitted any material fact required to be stated;
- was convicted of a crime involving moral turpitude that involved the purchase or sale of securities, or that arose out of the conduct of business of a broker, dealer, investment adviser, investment house, bank, trustee, or other fiduciary capacity;
- willfully violated, or willfully aided/abetted/counseled/commanded/induced/procured a violation of the Act, the Revised Securities Act, or rules adopted thereunder.
Custodian bank requirements
- No person may act as custodian of an investment company’s funds and securities except a commercial bank of good repute duly authorized by the Bangko Sentral ng Pilipinas to perform trust functions.
- The custodian may also act as transfer agent or dividend disbursing agent.
- The custodian must not perform any management or investment advisory function in the sale of the shares of the same investment company.
Reporting duties and timing
- Registered investment companies are subject to the reporting provisions of RSA Rule 11(a)-1.
- The investment company must submit a report under oath executed on its behalf by its Treasurer (or any other officer) showing required monthly data.
- Reporting schedule:
- Within 30 days from the effectivity of the order declaring effective the registration of the investment company; and
- Within the first 10 days of every month thereafter.
- Monthly report contents must include:
- (A) total amount received from sale of shares;
- (B) total amount of redemptions;
- (C) number of shares outstanding at the beginning of the month;
- (D) number of shares sold during the month;
- (E) number of shares redeemed during the month;
- (F) number of shares outstanding at the end of the month;
- (G) the percentage of outstanding shares owned by Filipinos.
Fees and administrative sanctions
- Fees prescribed under the Investment Company Act, the Revised Securities Act, and other applicable Commission-prescribed fees must be imposed in the registration of the investment company and its securities.
- The Commission must impose sanctions as provided by law if it finds:
- a violation of the Act or these Rules, or of applicable rules under the Revised Securities Act; or
- an issuer’s registration statement/supporting papers or periodic reports contain any untrue statement of a material fact, or omit any material fact required to be stated, or omit facts necessary to make statements not misleading; or
- refusal to permit any lawful examination into corporate affairs.
- Sanctions are imposed in the Commission’s discretion, but only as provided by law.
Cross-references and implementation anchors
- The Rules tie investment company expenses to Section 15 of the Act.
- The Rules define prospectus to meet requirements including Section 8(a)(10) of the Revised Securities Act.
- The Rules apply reportorial coverage through RSA Rule 11(a)-1.
- Investment manager adviser registration requirements are enforced through Commission application and disapproval standards grounded in violations and convictions tied to the securities/fiduciary business.