FINANCE 1

INVESTMENT
COMPANIES
Group 3
 What is Investment
Companies?
are financial institutions that raise funds in
the capital market by selling their own issues
of securities mainly common stocks to
individual investors. These funds will be used
to invest in the securities of other enterprises.
 A capital market is a
place where long term
instruments of finance A capital market prefers common stocks
are bought and sold. It because of the possibility of greater gains.
Such higher earnings attract people of
becomes the principal moderate incomes to invest their money
source of funds and the in investment companies. The objective
of an investment company is to provide
principal outlet of individual investors with safe and
funds. profitable use of their earnings and to
relieve them of the burden of direct
responsibility of managing their own
savings.
An investment company differs The suppliers are individuals, insurance companies
from that of an investment and other financial institutions while the users are the
house. The latter's principal government, public utilities and industrial
function is underwriting. This companies.
means an investment house
serves as an agent and its An investment house provides long term or fixed
compensation is in the form of capital funds for business and government
a commission. It brings
enterprises. This is done by mobilizing the savings of
together the suppliers and users
people through the sale of stocks, bonds, notes and
of long term capital funds.
other instruments in behalf of issuing corporations
and governments. However, because of the small
market for long term funds, investment houses have
entered the money market business. A money market
is a place where demand for and supply of short term
funds meet.
 Governing Law
Republic Act No. 2629
Investment Company Act

Section 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:
 Governing Law
Republic Act No. 2629
Investment Company Act

(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
 Governing Law
Republic Act No. 2629
Investment Company Act
(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;
Governing Law
Republic Act No. 2629
Investment Company Act
(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;

 Governing Law
Republic Act No. 2629
Investment Company Act
(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;
 Governing Law
Republic Act No. 2629
Investment Company Act
(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.

 Governing Law
Republic Act No. 2629
Investment Company Act
Section 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.

 Governing Law
Republic Act No. 2629
Investment Company Act
(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.

 Governing Law
Republic Act No. 2629
Investment Company Act
(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.
 Governing Law
Republic Act No. 2629
Investment Company Act
(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.

 Governing Law
Republic Act No. 2629
Investment Company Act
(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.
Governing Law
Republic Act No. 2629
Investment Company Act

(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.

Governing Law
Republic Act No. 2629
Investment Company Act

(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.
Governing Law
Republic Act No. 2629
Investment Company Act
(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
 Governing Law
Republic Act No. 2629
Investment Company Act
and (2) any other person who pursuant to contract with a person described in
clause 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,
Governing Law
Republic Act No. 2629
Investment Company Act

(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.
Governing Law
Republic Act No. 2629
Investment Company Act

(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.
(r) "Lend" includes a purchase coupled with an agreement by the vendor to
repurchase; "borrow" includes a sale coupled with a similar agreement.

Governing Law
Republic Act No. 2629
Investment Company Act

(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.
 Governing Law
Republic Act No. 2629
Investment Company Act
(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.
Governing Law
Republic Act No. 2629
Investment Company Act
(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.
Governing Law
Republic Act No. 2629
Investment Company Act
(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.
 Governing Law
Republic Act No. 2629
Investment Company Act
"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;
Governing Law
Republic Act No. 2629
Investment Company Act

(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.
Governing Law
Republic Act No. 2629
Investment Company Act
(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.
 Governing Law
Republic Act No. 2629
Investment Company Act
"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.
 Governing Law
Republic Act No. 2629
Investment Company Act
"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.
 Governing Law
Republic Act No. 2629
Investment Company Act
"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.
 Governing Law
Republic Act No. 2629
Investment Company Act
"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.
 Governing Law
Republic Act No. 2629
Investment Company Act
"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.
 Investment Company
Republic Act No. 2629
Investment Company Act

The term "Investment Company" must be construed and understood as

defined in Section 4 of Republic Act No.2629, otherwise known as the
Investment Company Act. Said Section of the Act provides, among other
things, the following:
 Investment Company
Republic Act No. 2629
Investment Company Act

1. When used in this Act "investment company" means any issuer which is
engaged primarily in the business of investing, reinvesting, or trading in
securities.

2. Notwithstanding subsection (1), none of the following persons is an

investment company within the meaningof this Act:
 Investment Company
Republic Act No. 2629
Investment Company Act

(a) 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.
 Investment Company
Republic Act No. 2629
Investment Company Act
(b) An 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 insecurities either directly or (1)
through majority-owned subsidiaries or (2) through controlled companies con-
ducting 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 period of exemption for an
additional period or periods.
Investment Company
Republic Act No. 2629
Investment Company Act

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.
Investment Company
Republic Act No. 2629
Investment Company Act

(c) Any issuer whose outstanding securities (other than short-term

paper and directors' qualifying shares) are directly or indirectly
owned by a company exempted from the definition of investment
company.
Investment Company

Republic Act No. 2629

Investment Company Act

3. Notwithstanding sections (1), and (2), none of the following

persons is an investment company within the meaning of this
Act:

Investment Company
Republic Act No. 2629
Investment Company Act
(a) 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).
Investment Company
Republic Act No. 2629
Investment Company Act

(b) 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.
Investment Company
Republic Act No. 2629
Investment Company Act
(c) Any bank or insurance company; and 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 therefore; 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.
Investment Company
Republic Act No. 2629
Investment Company Act

(d) Any person substantially all of whose businesses confined

to industrial banking of similar business.
Investment Company
Republic Act No. 2629
Investment Company Act
(e) Any person who is primarily engaged in one or more of the
following business: (1) purchasing or other-wise acquiring notes,
drafts, acceptances, open accounts receivable, and other
obligations representing part or all of the sales price of
merchandise, insurance, and services; (2) making loans to
manufacturers, wholesalers, and retailers of, and to prospective
purchasers of, specified merchandise, insurance, and service; and
(3)purchasing or otherwise acquiring mortgages and other lines on
and interest in real estate.
Investment Company
Republic Act No. 2629
Investment Company Act
(f) Any company primarily engaged, directly or through such
businesses (from which not less than forty per centum of majority-
owned subsidiaries, in one or more of the business such
company's gross income during its last fiscal year was derived)
together with an additional business or business other than
investing, reinvesting, owning, holding or trading in securities.
Investment Company
Republic Act No. 2629
Investment Company Act
(g) Any company ninety per centum or mere of the value of whose
investment securities are represented by securities of a single
issuer are represented by securities of a single issuer included
within a class of persons enumerated in paragraphs (d), (e), or (f).
Investment Company
Republic Act No. 2629
Investment Company Act

(h) Any person substantially all of whose business consist of owning

or holding oil, gas, or other mineral royalties or lease, or fractional
interests therein, or certificates of interest or participation in or
investment contracts relative to such royalties, leases, or fractional
interests.
Investment Company
Republic Act No. 2629
Investment Company Act

(i) 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.
Investment Company
Republic Act No. 2629
Investment Company Act

(j) Any employees' stock bonus, pension, or profit-

sharing trust.
Investment Company
Republic Act No. 2629
Investment Company Act

(k) Any voting trust the assets of which consist exclusively of

securities of a single issuer which is notan investment
company.
Investment Company
Republic Act No. 2629
Investment Company Act

(l) Any security holders' protective committee or similar

issuer having outstanding and issuing of securities other than
certificates of deposit and short-term paper.
TYPES/CLASSES
/KINDS OF
INVESTMENT
COMPANIES
 Investment Companies may be classified into
two categories, namely:

"Open-end company"
means an investment "Closed-end company"
company which is offering means any investment
for sale or has outstanding
any redeemable security of
company other than an
which it is the issuer. open-end company.

An investment company which is offering for sale or has outstanding any redeemable security of which it is
the issuer is referred to as open-end company. While, on the other, an investment company which is other
than an open-end company is considered as closed-end company.
 REQUIREMENTS OF
REGISTRATION & LICENSING
Any investment company that may be organized under the laws of the
Philippines, will have to contend with the provisions and procedures laid down
in Section 7 of RA No. 2629, otherwise known as Investment Company Act. They
are as follows:
 1. Any investment company organized under the laws of the Philippines many
register for the purposes of this Act by filing with the SEC 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.
 2. 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 SEC shall, by rules and regulations,
prescribe as necessary or appropriate in the public interest or for the protection
of investors:

(a) 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:
 (1) the classification, as defined in section five, within which the registrant
proposes to operate; (2) borrowing money; (3) the issuance of senior securities;
(4) engaging in the business of underwriting securities issued by other persons;
(5) concentrating investments in a particular industry or group of indus-tries; (6)
the purchase and sale of real estate and commodities, or either of them; (7)
making loans to other persons; and (8) portfolio turnover (including a statement
showing the aggregate peso amount of purchases and of portfolio securities,
other than government securities, in each of the full fiscal years preceding the
filing of such registration statement);

 (b) A recital of the policy of the registrant in respect of matters, not enumerated
in paragraph (a), which the registrant deems matters of fundamental policy and
elects to treat as such;
(c) 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
(d) The information and documents which would be required to be filed in order
to register under the Securities Act (now the Revised Securities Act) all securities
(other than short-term paper) which the registrant has outstanding or proposes
to issue.
 3. The Commission shall make provisions, 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 (2):

(a) Copies of the most recent registration statement filed by the registrant under
the Securities Act (now the Revised Securities Act) and currently effective under
such Act;

(b) A report containing reasonably current information regarding the matter

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 (2).
 4. 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.

5. 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.

 6. 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 reports, or of the respects in which
such registration or report appears to be materially incomplete misleading, as the case may be,
and shall fix a date (in ho event earlier than thirty days after the mailing of such notice) prior to
which 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, upon such conditions and with such exemptions as
" 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

(a) That such a 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

(b) That such suspension or revocation is in the public interest.

 7. 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.

 The Business
of Investment
Companies

An investment company duly

organized and registered
pursuant to the provisions of
existing laws may be
permitted to engage directly
or indirectly in the following
transactions (Section 6,
Republic Act No. 2629):
The Business of Investment Companies
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.
The Business of Investment Companies
3. Control any investment company which does
any of the acts enumerated in paragraphs (1) and
(2).

An investment company duly organized and

registered but without a board of directors, may
be permitted to engage in the following
transactions through its depositor or trustee or
underwriter, as the case may be. To wit:
 The Business of Investment Companies
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 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.

It must be noted, however, that the restrictions or requirements imposed

by law on the above transactions are not to be applied if the same are
incidental to the dissolution of an investment company.
 Prohibited Activities of Investment Companies
The activities considered unlawful for an investment company to engage
into are as follows (Section II, Ibid.):

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 and several basis in any trading account in

securities, except in connection with an underwriting in which such
registered company is a participant.

3. To effect a short sale of any security, except in connection with an

underwriting in which such registered company is a participant.
 Prohibited Activities of Investment Companies
With respect to a registered open-end company (other than a company complying with
the provisions of section ten of Republic Act No. 2629), it is considered unlawful to act
as a distributor of securities of which it is the issuer except through an underwriter.

Furthermore, it is 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 employees, officials, directors, organizers, incorporators or

stockholders 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.
 Preconditions for a Public Offering of Securities
An investment company duly organized and registered may be authorized to make a
public offering of securities of which such company is the issuer, under the following
conditions:

1. Such company has a paid-up capital of at least

P500,000, as certified to by an independent certified public
accountant.

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 àt least P500,000 as certified to by an
independent certified public accountant.
 Preconditions for a Public Offering of Securities

In addition to the above, an investment company with an unimpaired

remaining capital of at least P250,000 or 50% of its outstanding liabilities
to the creditors of said company, whichever is higher, may be authorized
to redeem, directly or indirectly, any security of which such company is
the issuer (Section 13, Ibid.)
 Board of Directors of an Investment Company

A director of a registered investment company must be a Filipino citizen.

He must be elected to the office by the holders of the outstanding voting
securities of such company, at an annual or a special meeting duly called
for that purpose. He may be entitled to receive a salary or emolument
from such company at a rate not higher than fixed by the Securities and
Exchange Commission.

In fixing the rate to be the basis of the salary or emolument of the

members of the board of directors, the Securities and Exchange
Commission will consider the following factors. They are as follows:
 Board of Directors of an Investment Company

1. The experience and qualifications of the official

concerned.
2. The amount and nature of securities issued by the
company.
3. The size and standing of the company in the business
community.
4. The volume of business done by the company.
5. The number of years the company has been in business.
6. Other pertinent conditions and circumstances.
THE END! THANK YOU FOR
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