tiers
Republic of the Philippines
House OF REPRESENTATIVES
Quezon City, Metro Manila

Fifteenth Congress

First Regular Session

871
House BiLLNo,__ 1874

Introduced by Honorable Ramon “Red” H. Durano VI

EXPLANATORY NOTE

The worldwide trend in the regulation of collective investment
schemes (‘CIS’) is to have a single law to regulate all types of CIS.
Countries such as the United Kingdom, Japan, Australia, Korea and
Singapore have adopted this approach. In the Philippines, however,
various laws govern investment companies (mutual funds), unit
investment trust funds (‘UITFs"), and separate account funds the units
of which are sold as part of variable unit linked insurance, products, the
most common form of CIS. As such, there are differences in
regulatory requirements (regulatory arbitrage) and taxation among the
different forms of CIS, even though the investment products they offer
to the public are essentially the same. It is believed that this regulatory
arbitrage gives rise to an uneven playing field which will prove
unfavorable to the growth of the industry. More importantly, such
regulatory arbitrage will result in uneven levels of protection to the
investing public.


This bill proposes to establish a comprehensive regulatory and
tax framework for all forms of CIS that seeks to eliminate existing
differences in regulatory treatment. This bill also seeks to balance the
interests of the investors, by incorporating mechanisms that would
safeguard the public interest, at the same time recognizing the
interests of the other parties involved in the CIS industry, by giving
them flexibility to expand their CIS businesses.

With the passage of this bill, it is anticipated that even middle to
low income individuals will explore more investment opportunities in
CIS, thereby gaining access to the capital markets. The economy, in
turn, is expected to benefit greatly from an expanded capital base.

In view of the foregoing, approval of this bill is earnestly sought.

“RED” DURANO VI


House OF REPRESENTATIVES
Quezon City, Metro Manila

Fifteenth Congress
First Regular Session

1871
HOUSE BILL NO.

Introduced by Honorable Ramon “Red” H. Durano VI

COLLECTIVE INVESTMENT SCHEMES LAW

Be it enacted by the Senate and the House of Representatives of the
Philippines in Congress assembled:

TITLE | - GENERAL PROVISIONS
SECTION 1. Short Title - This Law shall be known as the "Collective
Investment Schemes Law”.

SECTION 2. Declaration of Policy - The policy of the state is to:

(a) Promote investor protection by applying high governance standards
in the establishment, management and operation of collective
investment schemes and the registration and sale of CIS securities
in order to prevent abuse and protect the interests of the investing
public, including but not limited to, the setting of standards for the
eligibility of persons who establish, manage or operate collective
investment schemes and register and sell CIS securities; the
prevention, disclosure and elimination of all conflicts of interest
which may prejudice the investing public; and the provision of
independent third party supervision over the operations of collective
investment schemes;


(b) Promote the growth of pooled investments and the development of
the capital market by providing a favorable framework for collective
investment schemes to facilitate the flow of investment capital from
sources within the country and abroad;

(©) Encourage the participation in the collective investment scheme
industry of the best qualified fund managers and investment
advisers regardless of origin;

(d) Broaden participation by Filipinos in ownership of securities and
other assets allowed in this law so that more are able to share in
economic growth; and ,

(e) Provide equal protection to investors in all similar collective
investment schemes, impose the same requirements and provide
the same competitive environment for such schemes and the ,
participants therein.

SECTION 3. Purpose — The purpose of this Law is to establish a

comprehensive regulatory and tax framework to enable collective investment
schemes and all the participants therein to play a key role in the development

of the capital market in a manner consistent with the policy declared in

Section 2 hereof.

SECTION 4. Coverage ~ This Law sliall apply to the establishment,

management and operation of all collective investment schemes and the
registration and sale of CIS securities in the Philippines.

SECTION 5. Definitions — When used in this Law, unless the context

otherwise requires:

(a) "Affiliate" of another person means:

1. any person directly or indirectly owning, controlling or holding
with power to vote, ten per centum (10%) or more of the
outstanding voting securities of such other person;

2. any person ten per centum (10%) 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, or employee of such other
person; and P

5. if such other person is a corporate CIS, any investment
adviser, fund manager, CIS distributor, CIS solicitor and
custodian thereof.

(b) “Appropriate regulatory agency” refers to:

1. the Bangko Sentral ng Pilipinas, in the case of banks, trust
entities and other financial institutions supervised by the
Bangko Sentral ng Pilipinas;

2. the Insurance Commission, in the case of insurance companies
and other persons regulated by the Insurance Commission ;
and

3. the Securities and Exchange Commission, in the case of
investment companies or other persons not under the
regulation of the Bangko Sentral ng Pilipinas or the Insurance
Commission.

(c) “Bank” means an entity engaged in the lending of funds obtained
from the public through the receipt of deposits of any kind and duly
authorized to operate as a bank by the Monetary Board of the Bangko
Sentral ng Pilipinas.

(d) "Broker" means any juridical person duly licensed by the
appropriate regulatory agency and accredited by the appropriate self
regulatory organization to engage in the business of buying and selling
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 a CIS or a
distributor of CIS securities.

(e) “CIS distributor” means any stock corporation or broker licensed
by the appropriate regulatory agency to engage in the selling of CIS
securities

() “CIS investor” means any person who purchases or otherwise
invests in CIS securities.


(g) “CIS plan” means the plan for the registration and sale of CIS
securities filed with the Commission in accordance with sections 24,
26, 29 and 30 hereof, which shall be in lieu of the registration
statement required to be filed pursuant to the Securities Regulation
Code for the sale and offer for sale of securities to the public. ;

(h) “CIS securities” means units of participation or similar interests in
a contractual CIS or shares of stock or similar interests in a corporate
CIS.

(i) “CIS solicitor” means a natural person who is duly licensed as
‘such by the appropriate regulatory agency to sell CIS securities.

() “Collective investment scheme” or “CIS” shall have the meaning
given in Section 6 hereof.

(k) “Commission” means the Securities and Exchange Commission.

() “Common stock” of a corporation means a class of shares with
general voting rights.

(m) "Company" means a corporation, partnership, trust, or an
association duly registered with the Commission and lawfully
transacting business in the Philippines.

(n) “Contractual CIS” means a CIS:

1. organized pursuant to a contract, such as a trust indenture, or
as an investment component of an insurance contract;

2. engaged, or holds itself out as being engaged, or proposes to
engage, in the business of investing, reinvesting, and/or trading
in securities or other investment assets allowed under this Law;
and

3. that issues units of participation each of which represents an
undivided interest in a pool of investment assets.

(0) “Control” is presumed to exist when the parent owns, directly or
indirectly through subsidiaries, more than one half of the voting power
of an entity unless, in exceptional circumstances, it can be clearly
demonstrated that such ownership does not constitute control. Control
also exists even when the parent owns half or less of the voting power »
of an entity when there is:

1. power over more than one half of the voting rights by virtue of an


agreement with other investors;

2. power to govern the financial and operating policies of an entity
under a statute or an agreement;

3. power to appoint or remove the majority of the members of the
board of directors or equivalent governing body and control of
the entity is by that board or body:

4. power to cast the majority of votes at meetings of the board of
directors or equivalent governing body and control of the entity
is by that board or body; or

5. any other arrangement similar to any of the above.

(p) “Convicted” includes being the subject of a verdict, judgment, or
plea of guilty in the first instance, if such verdict, judgment or plea has
not been reversed, set aside, or withdrawn, whether or not sentence
has been served.

(q) “Corporate CIS” means a CIS:

1. organized as a stock corporation;

2. engaged, or holds itself out as being engaged, or proposes to
engage, in the business of investing, reinvesting, and/or trading
in securities or other investment assets allowed under this law;
and

3. that issues common stock each of which represents an
undivided interest in a pool of investment assets.

()) "Corporation Code" means the Corporation Code of the
Philippines, Batas Pambansa Big. 68, enacted on May 1, 1980, as
may be amended from time to time, or any law subsequently enacted
in replacement or substitution thereof.

(8) “Custodian” means an entity duly authorized by the Monetary
Board of the Bangko Sentral ng Pilipinas to engage in the business of
safekeeping investment assets, which is appointed and acts as the
custodian of the investment assets of a CIS Pursuant to this Law and
the relevant regulations of the Monetary Board of the Bangko Sentral
1g Pilipinas and/or the Commission

() “Dealer” means any person duly licensed by the appropriate
regulatory agency and accredited by the appropriate self regulatory


organization to buy and sell securities for his own account, in the
ordinary course of business whether through a broker or otherwise.
The term excludes banks, insurance companies, or CIS, 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
regular business.

(uy) "Director" means a director of a corporation or any person
performing similar functions with respect to any organization.i

(v) “Exchange” means an organized marketplace or facility duly
licensed by the Commission that brings together buyers and sellers
and executes trades of securities and/or commodities.

(w) “Fund manager” means a juridical person engaged in the
business of managing the investment assets of a CIS and/or engaged
in the business of providing administrative and ancillary services for
such CIS as licensed by the appropriate regulatory agency in
accordance with Section 7, and having the duties and responsibilities
‘enumerated in Section 8 hereof.

(*) “General Banking Law” means Republic Act No. 8791, as may be
amended from time to time, or any law subsequently enacted in
replacement or substitution thereof.

(y) “Implementing Rules and Regulations” means the uniform rules
and regulations jointly formulated and issued by the appropriate
regulatory agencies to implement the provisions of this Law, in
accordance with Section 61 hereof.

(2) “Independent auditor” means the independent external certified
Public accountant referred to in Section 18 hereof.

(aa) “Independent director” refers to a person other than an officer or
employee of the corporation, its affiliates, or any other individual
having any relationship with the corporation which would materially
interfere with the exercise of independent judgment in carrying out the
responsibilities of a director. An independent director shall possess the
degree of independence and all the qualifications and none of the
disqualifications for independent directors as defined in the Securities


Regulation Code and its implementing rules and regulations.

(bb) “Independent oversight body” refers to the body or entity referred
to in Section 49 (b) (2) hereof.

(cc) “Insurance Code of the Philippines” means Presidential Decree
No. 1460 otherwise known as ‘The Insurance Code of 1978’, as
amended, or any law subsequently enacted in replacement or
‘substitution thereof.

(dd) “Insurance company” means a company engaged in the
insurance or reinsurance business and duly issued by the Insurance
Commission with a certificate of authority to transact such business,
as specifically defined under the Insurance Code of the Philippines."

(ee) "Investment adviser” means any person who regularly advises or
recommends investment decisions with regard to the securities or
other portfolio of a CIS pursuant to an advisory contract with such CIS
through the fund manager, trustee or insurance company.

(ff) “Investment assets” means the securities and other assets in
which the funds of a CIS may be invested in accordance with section
38 hereof. .

(gg) “Investment company” means the stock corporation organized as
a corporate CIS, which is engaged, or holds itself out as being
engaged, or proposes to engage, in the business of investing,
reinvesting, and/or trading in securities allowed under this Law.

(hh) “Investment house” means any eitterprise which engages in the
underwriting of securities of other companies, as defined in Section 2
Of the Investment Houses Law, Presidential Decree No. 129, as may
be amended from time to time, and is registered pursuant to said law.

(ii) "Net asset value” means the value of all assets less all liabilities of
a CIS as determined in accordance with generally accepted
accounting principles and the provisions of this Law and its
implementing rules and regulations.

i) “Organized Market” refers (o an exchange or an over-the- counter
market governed by transparent and binding market conventions on
price transparency, trade reporting, market surveillance and fair and


orderly conduct/operations of the market.

(kk) "Person" means a natural or juridical person as defined in the Civil
Code of the Philippines.

() “Redemption” refers to the liquidation of a CIS security by
retuming it to the issuer in exchange for its net asset value.

(mm) “Registrar” means the fund manager or trustee or such other
person or persons as may from time to time be appointed by the
trustee, or the fund manager with the prior approval of the trustee, to
perform all or any of the duties and functions of the registrar under
Section 23 hereof.

(nn) "Sale", "sell" “offer to sell” or “offer for sale" means every
contract of sale or disposition of, attempt or offer to dispose of, or
solicitation of an offer to buy a security or property or interest therein,
for value. Any such security, property or interest therein, 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.

(00) “Security” means any instrument or product defined as such by the
Securities Regulation Code and its implementing rules and
regulations.

(pp) “Securities Regulation Code” or “SRC” means Republic Act No.
8799, enacted on July 17, 2002, as imay be amended from time to
time. ii

(qq) “Separate account fund” — means the segregated portfolio of
investments established, maintained and invested in by an insurance

company for its variable life insurance contracts and accounted for
separately and apart from its other investments and accounts,
pursuant to the Insurance Code of the Philippines, under which the
income, gains and losses (whether or not realized) from, and
expenses incurred on the acquisition, disposal and management of
assets allocated to such account, are credited to or charged against
such account without regard to the other income, gains, losses and
other expenses of the insurance company. The Separate Account

10


Fund shall be deemed a contractual CIS, and the units of participation
therein shall be deemed as CIS securities, subject to this Law. The
assets held in any such separate account shall be applied exclusively
for the benefit of the owners or beneficiaries of the variable life

insurance contracts.
((t) “Shareholder” means a stockholder of a corporate CIS.

(ss)

“Trust institution” — means any bank, investment house or a stock

corporation duly authorized by the Monetary Board of the Bangko
Sentral ng Pilipinas to engage in trust, investment management and

fiduciary business.

(tf) “Trustee” means a trust institution appointed and acting as the
trustee of a contractual CIS pursuant to this law.

(uu) “Unit Holder” — means a CIS investor in a contractual CIS.

(wy) “Value” means the market value or fair value of securities as may be

determined in accordance with such rules and regulations as the

appropriate regulatory agency may prescribe.

TITLE ll - COLLECTIVE INVESTMENT SCHEMES

Chapter 1 — Nature and Structure of Collective Investment Schemes

SECTION 6. Collective Investment Schemes —

(a)

A Collective Investment Scheme is any arrangement whereby
funds are solicited from the investing public for the purpose of
investing, re-investing and/or trading in securities or other assets
allowed under this law. All CIS shall be covered by and
regulated pursuant to this law and its implementing rules and
regulations. A CIS may have a corporate structure, such as an
investment company, or a contractual structure, such as a unit
investment trust fund or similar scheme held by a trust institution
or a separate account fund established pursuant to a variable
unit linked life insurance policy issued by an insurance
company. All CIS shall be governed by and shall comply with


(b)

the requirements of this law and the pertinent provisions of the

SRC. P

None of the following arrangements shall be deemed a

collective investment scheme subject to regulation under this

law:

1. Any arrangement whereby securities are issued to not more
than nineteen (19) beneficial owners within any twelve-month
period, and there is no current offering or intention to make a
public offering of such securities. For purposes of this
paragraph, beneficial ownership by a company shall be
deemed to be beneficial ownership by one person; except
that, if such company owns twenty-five per centum (25%) 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;

2. Any insurance company in the conduct of its ordinary
business; provided, however, that a separate account fund
established by an insurance company shall be deemed a
contractual CIS as defined under this law;

3. Any employees’ stock, bonus, pension, retirement, provident

»

of profit sharing plan or fund, engaged in the conduct of their
ordinary business;

4. Any fund which is employed by the trust entity solely as an
aid to the administration of existing trust or fiduciary accounts
covered by agreements separate from those in connection
with the CIS; provided that interests in such fund are not
advertised or offered for sale to the general public;

5. Any arrangement whereby an investment house, dealer, or
broker, registered as such with the Commission, primarily
engaged in the business of underwriting securities issued by
other persons, purchases and sells securities for its own
account, or effects transactions in securities for the account

* of others;
6. Any arrangement whereby a company primarily engages in


" the business of factoring or mortgage banking, by purchasing
or otherwise acquiring accounts receivable and similar '
obligations or making loans in respect of goods or services of
a business, or by purchasing or otherwise acquiring
mortgages and other liens on or interests in real estate;
provided that such arrangement does not include the
business of issuing redeemable securities;

7. Any arrangement organized and operated by an entity
exclusively for religious, educational, benevolent, fraternal,
charitable, or reformatory purposes, where no part of the net
earings from such arrangement inures to the benefit of any
shareholder or member of such entity;
‘Any arrangement whereby an issuer is primarily engaged in
investing in securities issued by a majority-owned subsidiary
or subsidiaries of such issuer, where each such subsidiary is
not a CIS; and
9. Any other arrangement that, pursuant to rule or order issued
by the Commission, is determined not to be a CIS, or is
excluded from the definition thereof as not necessary in the
public interest and for the protection of investors.
(c) ACIS may either be open-end or closed-end, defined as follows:
1, "Open-end CIS" means a CIS where securities are offered
and are redeemable by the CIS ; and
2. "Closed-end CIS" means a CIS where a fixed number of

7

securities are offered in an initial public offering and
thereafter may be traded in an organized market as
determined by the Commission, but may not be redeemed by

. the CIS. A closed-end CIS shall not be allowed to increase
its number of securities

Chapter 2 — Parties Involved In Collective Investment Schemes

SECTION 7. Fund manager- No company shall act as a fund
manager for a CIS unless duly licensed by the appropriate regulatory agency,


and no company shall be licensed as a fund manager for purposes of this law,
unless:
(a) Itis organized as a stock corporation;
(b) It has a minimum paid-up capital of not less than One Hundred
Million Pesos (P100,000,00
(©) 0.00); Provided, However, that the appropriate regulatory agency
may prescribe a higher minimum paid-up capital taking into
consideration, among other factors:

1. the risk-based principles on capital adequacy based on

internationally accepted standards; and

2. the number and/or total net asset values of all CIS managed;
(d) At least one-third (1/3) of the entire membership of the Board of

Directors of the fund manager shall be independent directors; and
(e) It has complied with such other requirements as may be prescribed
by the appropriate regulatory agency.

In licensing a fund manager, the appropriate regulatory agency
shall ensure that the requirements under this Law and its implementing
rules and regulations are complied with.

SECTION 8. Duties and Responsibilities of the Fund Manager - The

fund manager shall have the following duties and responsibilities:

(a) Manage the investment assets of the CIS and perform its functions
in accordance with the CIS plan, the provisions of this Law and its
implementing rules and regulations for the exclusive interest of the
CIs investors;

(b) Provide copies of financial and other records of CIS investments to
the CIS investors, trustee, CIS and auditor;

(c) Ensure that the fund and the CIS securities are accurately valued or
priced;

(d) Ensure that all payments out of CIS funds and investment assets
are made in accordance with the CIS plan, this Law and its
implementing rules and regulations;

(e) Comply with the instructions of the corporate CIS or the trustee to
remedy a breach of the provisions or covenants of the CIS plan, its


contract with the corporate CIS or trustee, the provisions of this Law
or its implementing rules and regulations;

(f) Furnish the corporate CIS or the trustee with all contracts and
agreements relating to the operation and management of the CIS;

(g) Report to the corporate CIS or the trustee and the CIS investors
results of the CIS operations;

(h) Call for and attend annual or special meetings of the unit holders of
a contractual CIS, or attend meetings of stockholders of a corporate
cis;

(i) Monitor the activities of the CIS distributors in the sale of the CIS
securities;

( Facilitate the redemption of CIS securities;

(&) Maintain proper accounting records and other records to
4. enable a complete and accurate review of the CIS funds and

investment assets; and

2. ensure that the CIS funds and investment assets are managed
and administered in accordance with the CIS plan, its contract

with the corporate CIS or trustee. this L

3. law and its implementing rules and regulations;

() Propose amendments to the CIS plan and secure approval for
those amendments which require investor approval in accordance
with the provisions of this law;

(m)Report to the appropriate regulatory agency, as soon as
practicable, any material development or breach of the provisions or
covenants of the CIS plan, the provisions of this law or its
implementing rules and regulations, that:

41. relates to the establishment, management, operation or
dissolution of the CIS or to the registration and sale of CIS
securities, and

2. has had or is likely to have a material adverse effect on the
interests of the CIS investors;

(n) File such information and documents to keep reasonably current

the information and documents contained in the CIS Plan; and


(0)Such other duties and responsibilities that the appropriate regulatory
agency may prescribe.

SECTION 9. Prohibited Acts of the Fund Manager. - The fund

manager shall not

(a) Purchase securities and investment assets for its own account
which may conflict with its obligations as fund manager;

(b) Invest CIS funds in any securities, property and assets in which
such fund manager or any of its directors, officers, employees and
affiliates have a substantial financial interest, subject to such
exceptions and/or guidelines as may be prescribed by the
appropriate regulatory agency; :

(c) Engage in a business other than the business of managing,
administering, marketing and distributing CIS funds and securities,
provided that this prohibition shall not apply if the fund manager is
the trust department of a bank or a non-bank financial institution;

(4) Pay or cause to be paid out of the CIS funds any fees, commissions
and other similar expenses that have not been, or exceed what
have been, provided for in the CIS plan, this law and its
implementing rules and regulations or any other applicable laws
and regulations;

(e) Retain any rebate from, or otherwise share in any commission with,
any broker or dealer in consideration of transactions or investments
of the CIS funds. Accordingly, any rebates or shared commissions
shall be for the account of the CIS fund concerned; and

(f) Engage in such other acts as may be prohibited by rule or order of
the appropriate regulatory agency.

SECTION 10. Fund Management Agreement - (a) The agreement
between the fund manager and the trustee or the corporate CIS shall contain,
among others, provisions pertaining to:

1. Extent of services to be rendered:

2. Any restrictions or prohibitions regarding the performance of the
functions of the fund manager;

16


3. All compensation to be paid thereunder which shall be clearly
described in a transparent manner, and which shall be in
accordance with such requirements and limitations as the
implementing rules and regulations may prescribe;

4. The term of the engagement and the manner of termination
thereof, which shall be in accordance with such requirements or
limitations as this law and its implementing rules and regulations
may prescribe;

5. Reporting requirements to the trustee, corporate CIS, CIS
investors and the appropriate regulatory agencies; and

6. Such other terms or conditions as the implementing rules and
regulations may prescribe.

(b)_ In all cases where the trustee or insurance company functions as
a fund manager, the foregoing provisions which should otherwise be
contained in the fund management agreement with the fund manager shall be
contained in the CIS plan.

SECTION 11. The Trustee — Only a trust institution shall act as a
trustee of a CIS. In authorizing a trust institution to engage in CIS activities,
the Monetary Board of the Bangko Sentral ng Pilipinas shall ensure that all
relevant requirements under this law or its implementing rules and regulations
shall be complied with. The following, in addition to those prescribed under
existing laws and regulations, shall be the duties and responsibilities of a
trustee of a CIS:

(a) Monitor the activities of the CIS distributors in the sale and/or
redemption of the CIS units and ensure that the provisions of any
marketing document relating to the sale or offer for sale of the CIS
securities do not contain any matter which is inconsistent with the
Provisions of the CIS plan, this law and its implementing rules and
regulations;

(b) Ensure that the management and investments of the CIS funds by
the fund manager are in accordance with the CIS plan;

(c) Ensure that the fund manager remedies any breach of the CIS plan
or the terms of its appointment as fund manager, or any


contravention of the provisions of this law or its implementing rules
and regulations;

(d) Appoint an independent third-party custodian;

(e) Ensure that CIS funds and investment assets are clearly identified
and held separately from its own properties and other properties
held in trust;

(Ensure that all payments out of CIS funds and investment assets
are made in accordance with the CIS plan, this law and its
implementing rules and regulations;

(g) Monitor the existence of conflict of interest situations and address
the same for the best interests of the CIS investors;

(h) Report to the appropriate regulatory agency, as soon as
practicable, any material development or breach of the provisions or
covenants of the CIS plan, the provisions of this Law or its
implementing rules and regulations that:

1. relates to the establishment, operation or dissolution of the
CIS or to the registration and sale of CIS securities, and

2. has had or is likely to have a material adverse effect on the
interests of the CIS investors;

() File such information and documents to keep reasonably current
the information and documents contained in the CIS Plan;

@) Call for annual or special meetings of the CIS investors in the event
the fund manager fails or refuses to do so;

(k) Propose amendments to the CIS plan and secure approval for
those amendments which require investor approval in accordance
with the provisions of this law, and

() Such other duties and responsibilities that the appropriate
regulatory agency may prescribe.

SECTION 12. Corporate CIS — (a) No company shall act as a, corporate CIS
unless duly licensed by the Commission, and no company shall be licensed
as a corporate CIS for purposes of this law, unless it shall:


Be organized in the form of a stock corporation;
Issue shares of stock consisting solely of common stock;

Provide in its articles of incorporation that shareholders shall not °
be entitled to pre-emptive rights;

Have, at the time of registration, an initial subscribed and paid-
up capital of at least fifty million pesos (P50,000,000.00)
provided, however, that the Commission may prescribe a higher
paid-up capital. The Commission may prescribe a lower
minimum paid-up capital for any subsequent corporate CIS that
is established and managed by the same fund manager;

Maintain unimpaired its initial paid-up capital for a period of
twelve (12) months following its registration with the
Commission as a corporate CIS, or such other period as the
Commission may prescribe; and

Maintain at all times, if an open-end CIS, a reserve in liquid or
semi-liquid assets, equal to at least ten per centum (10%) of its
total assets, or such other percentage and in such form as the
Commission may prescribe.

(b) Notwithstanding any provision of the Corporation Code to the

contrary, no corporate CIS shall be required to comply with the
minimum subscribed and paid-up capital relative to an increase in
its authorized capital stock.

(c) The incorporators of a corporate CIS shall, at incorporation, fully

pay in cash their respective subscriptions.

(d) The Commission may prescribe such other .or additional

Fequirements under subsection (a) of this section respecting the
form, share structure, and level of restrictions on capitalization and
reserves, as necessary or appropriate in the public interest or for
the protection of investors

(e) At least one third of the entire membership of the board of directors

of a corporate CIS shall be independent directors.


SECTION 13. Custodian — Only entities duly licensed by the Monetary
Board of the Bangko Sentral ng Pilipinas may act as custodian of assets of a
CIS. Unless otherwise authorized by the appropriate regulatory authority
taking into account the interest of the investing public, all CIS must appoint an
independent third party custodian which shall have custody of the investment
assets of the CIS. The following, in addition to those prescribed under
existing laws and regulations, shall be the duties and responsibilities of a
custodian:
(a) Hold the investment assets of a CIS in accordance with its
agreement with the trustee or the corporate CIS; and
{b) Such other duties and responsibilities that the Monetary Board of
the Bangko Sentral ng Pilipinas may prescribe, which shall include:
1. Earmarking, segregation and hypothecation of the investment
assets of the CIS; and
2. Provisions for periodic or other inspections by employees and
agents of the Monetary Board of the Bangko Sentral ng
Pilipinas.

SECTION 14. Appointment of Custodian - The agreement between
the custodian and the corporate CIS or the trustee of a contractual CIS shall
contain, among others, provisions pertaining to:

1. Extent of services to be rendered by the custodian;

2. Fees, remuneration and other expenses of the custodian;

3. Any restrictions or prohibitions regarding the performance by the

custodian of its functions; and
4, Reporting requirements of the custodian.

SECTION 15. CIS Distributor — (a) No entity shall be licensed by the
Commission as a distributor of CIS securities, unless:
1. Itis organized as a stock corporation;
2. It has a minimum paid-up capital of at least ten million pesos
(P10,000,000.00), or such higher capitalization to be prescribed
by the appropriate regulatory agency taking into consideration (i)
the risk-based principles on capital adequacy based on

20


internationally accepted standards, and (ii) the number and/or
total net asset value of all CIS distributed; and

3. It has complied with such other requirements as may be

prescribed by the appropriate regulatory agency.

(b) For purposes of this law, the following juridical persons may be
licensed as a CIS distributor by the commission, provided that the
requirements under this section and the implementing rules and regulations
are complied with:

1, Any fund manager,

2. Any investment house;

3. Any bank, financial institution or trust institution under the

supervision of the Bangko Sentral ng Pilipinas;

4. Any insurance broker under the supervision of the Insurance

Commission;

5. Stockbrokers duly accredited by the Commission; and

6. Other persons as may be hereinafter allowed by the Commission.

(c) A corporate CIS is not permitted to act as a distributor of securities
of which it is the issuer, unless it complies with such rules and orders as the
appropriate regulatory agency may prescribe as necessary or appropriate in
the public interest or for the protection of investors.

(d) Whenever a fund manager and/or its affiliate shall act as a CIS
distributor of the CIS of which it is the fund manager, and whenever a trustee
and/or its affiliate shall act as a CIS distributor of the CIS of which it is the
trustee, the prior written consent of the appropriate regulatory agency shall
be secured.

(e) The CIS distributor shall be principally responsible for marketing,
distributing and selling CIS securities. It shall perform such other duties and
tesponsibilities as the implementing rules and regulations may prescribe.

SECTION 16. Marketing and Distribution Agreement — (a) The
agreement between the CIS distributor and the corporate CIS or the trustee of
a contractual CIS shall contain, among others, provisions pertaining to’

1. Extent of services to be rendered by the CIS distributor,

2. Fees, remuneration and other expenses of the CIS distributor;

a


3. Any restrictions or prohibitions regarding the performance of the
functions by the CIS distributor,

4. Undertaking to employ or appoint only CIS solicitors duly
licensed by the appropriate regulatory agency ; and

5. Reporting requirements.

(b) In all cases where the trustee or insurance company functions as a
CIS distributor, the foregoing provisions which should otherwise be contained
in the marketing and distribution agreement with the CIS shall be contained in
the CIS plan

SECTION 17. C/S Solicitor — No person shall be allowed to solicit, sell
or offer to sell CIS securities unless duly licensed by the Commission after
compliance with such requirements and standards for eligibility as may
prescribed in this law and its implementing rules and regulations.

SECTION 18. Accountants and Auditors- (a) The financial
‘statements of every corporate CIS, fund manager and contractual CIS shall
be audited and certified by an independent auditor duly accredited by the
appropriate regulatory agency.

(b) The following, in addition to those prescribed under existing laws
and regulations, shall be the duties and responsibilities of the independent
auditor:

1. Report to the Board of Directors or the trustee of the CIS any
irregularity or undesirable practice in the operation of the CIS
which has come to its knowledge. Any material finding shall be
reported by the independent auditor to the appropriate
regulatory agency ;

2. Report to the appropriate regulatory agency non-compliance by
the fund manager and trustee with its contractual and regulatory
requirements; and

3. Report to the appropriate regulatory agency whether the internal
control and audit structures in the operation of the CIS are at an
acceptable level.

n


SECTION 19. Common Duties and Responsibilities of Parties - \n
addition to their specific duties and responsibilities, each of the corporate CIS,
fund manager, trustee, CIS distributor, CIS solicitor, and the CIS custodian

shall have the following common duties and responsibilities:

(a)

(b)

(o)
(a)

(e)

(g)

(h)

i)

0)

Carry on and manage its business and the CIS in a proper,
diligent and efficient manner;

Observe honesty, due care and diligence, utmost good faith and
high standards of integrity;

Act in the best interests of the CIS investors;

Establish systems, procedures and processes to be observed by
its officers and employees to ensure compliance with this law
and its implementing rules and regulations and to protect the
interests of the CIS investors;

Take responsibility for all actions and omissions of any third
party to whom it delegates any of its duties and responsibilities,
except for any resulting damage or liability arising from force
majeure or other similar occurrence beyond the control of such
third party;

Ensure that any person appointed or employed by it is of good
repute, having relevant expertise and experience to act in the
capacity so appointed or employed:

Refrain from using its position to gain, directly or indirectly, an
advantage for itself or for any other person or to cause detriment
to the interests of CIS investors;

Avoid and eliminate conflicts of interest in the performance of
their functions, which may be identified by the appropriate
regulatory agency as prejudicial to the interests of the investing
public;

Disclose all conflicts of interest in the performance of their
functions; and

Comply with orders, rules and regulations as may be prescribed
by the appropriate regulatory agency.

Any contractual provision which protects or purports to protect the fund
manager, corporate CIS, trustee, CIS distributor, CIS solicitor, or CIS


custodian against any liability for willful misfeasance, malfeasance, fraud,
bad faith, or gross negligence in the performance of their duties shall be
void.

SECTION 20. Revocation, Refusal or Suspension of License of the
Fund Manager, Corporate CIS, Trustee, Insurance Company, Custodian,
CIS Distributor and CIS Solicitor. — The licensing or authorization of a fund
manager, corporate CIS, trustee, insurance company, custodian, CIS
distributor or CIS solicitor to engage in CIS business under this law may be ”
refused, or any license granted thereunder may be revoked, suspended, or
limitations placed thereon by the appropriate regulatory agency if, after due
notice and hearing, the appropriate regulatory agency which granted the
license determines that the applicant or licensee:

{a) Has willfully violated any provision of this law, any rule, regulation or
order made hereunder, or any other law administered by the
appropriate regulatory agency, or has failed to supervise, with a view
to preventing such violation, another person who commits such
violation;

(b) Has willfully made or caused to be made a materially false or
misleading statement in any application for license or report filed
with the appropriate regulatory agency, or has willfully omitted to
state any material fact that is required to be stated therein or
necessary to make the statement therein not misleading;

(0) Has failed to satisfy the qualifications or requirements for licensing
prescribed under this law and its implementing rules and regulations;

(d) Any of its directors or officers has been convicted by a competent
body of an offense involving fraud, embezzlement, counterfeiting,
theft, estafa, misappropriation, forgery, bribery, false oath, perjury, or
of a violation of securities, commodities, banking, real estate or
insurance laws;

(e) Is enjoined or restrained by a competent body from engaging in
securities, commodities, banking, real estate, insurance or similar

activities;

24


( Is subject to an order of a competent body refusing, revoking or
suspending any license or other permit under this law, the
implementing rules and regulations, any other law or regulation
administered by the appropriate regulatory agency or any other
governmental authority; *

(@ Has been found by a competent body to have violated any
provisions of securities, commodities, banking, real estate or
insurance laws, or has aided, abetted, counseled, commanded,
induced or procured such violation; or

(h) Has been judicially declared insolvent.

For purposes of this subsection, the term "competent body"
shall include a foreign court of competent jurisdiction and a foreign
financial regulator.

SECTION 21. Fit and Proper Rule. To maintain the quality of
management of the CIS and afford better protection to CIS investors, the
appropriate regulatory agency shall prescribe or pass upon and review the
qualifications and disqualifications of individuals elected or appointed as
directors or officers of fund managers, trustees, insurance companies,
corporate CIS or CIS distributors and disqualify those found unfit. The
appropriate regulatory agency may disqualify, suspend or remove any director
or officer who commits or omits an act which render him unfit for the position.

In determining whether an individual is fit and proper to hold the position
of a director or officer of the fund manager, trustee, insurance company,
corporate CIS or CIS distributor, regard shall be given to his integrity,
experience, education, training, and competence: Provided, however, that the
following persons, and those determined by the appropriate regulatory agency
to be unfit, shall in no case be allowed to serve or act in the capacity of officer,
director, consultant, of any fund manager, trustee, insurance company,
corporate CIS or CIS distributor:

(a) any person convicted of any crime involving any security or financial

product;

(b) any person convicted of an offense involving fraud or


(c)

()

(e)

0)

embezzlement, theft, estafa or other fraudulent acts or transactions;
any person who, by reason of any misconduct, is enjoined by order,
judgment, or decree by any court, quasi-judicial body or
administrative agency of competent jurisdiction from acting as a
director, officer, employee, consultant, or agent occupying any
fiduciary position;

any person found by the appropriate regulatory agency to have
violated, or aided, abetted, counseled, commanded, induced, or
procured the violation of this law, the General Banking Law, the
Insurance Code, the Securities Regulation Code, or any related
laws and any rules, regulations or orders thereunder;

any person judicially declared to be insolvent, or incapacitated to
contract; and

any person found guilty by a foreign court, regulatory authority or
government agency of the acts or violations similar to any of the
acts or misconduct enumerated in the foregoing paragraphs.

Chapter 3 - Provisions applicable to Contractual CIS

SECTION 22. Establishment of a Contractual CIS.

(a)

(b)

(©)

Any fund manager may establish, administer and manage one
or more contractual CIS. Such fund manager shall enter into a
fund management contract with a trustee or insurance company
that is not an affiliate of the fund manager; Provided, that no
director and/or officer of the fund manager shall at the same
time serve as director and/or officer of the trustee or insurance
company.

In a contractual CIS, the trust agreement shall be between
the trustee and the CIS investors, and the insurance contract
shall be between the insurance company and policy holders
The trust agreement or the insurance contract, as the case may
be, shall define the rights and obligations of the parties

Notwithstanding any provision of law to the contrary, the
assets of each contractual CIS shall be deemed separate and

26


independent of the assets of the fund manager, trustee and/or
insurance company, and shall not be available to the creditors of
such fund manager, trustee and/or insurance company in the
event of attachment, garnishment, execution, bankruptcy,
insolvency or rehabilitation or any form of action or claim against
the fund manager, trustee and/or insurance company,

(d) In case the functions of the fund manager, on the one hand,
and the trustee or insurance company, on the other hand, are
performed by the same or affiliated entities, there must be an
independent oversight body which shall be created pursuant to,
and shall perform the oversight duties and responsibilities
enumerated in Section 49 (b)(2) hereof.

SECTION 23. Register of CIS Investors — An up-to-date register of all

CIS investors shall be kept and maintained by or under the contro! of a
registrar, which may be kept and maintained either in written form or by other
means which are capable of being reproduced in written form, including, but
Not limited to, computer records, microfilm, microfiche or electronic recording,
as the fund manager shall from time to time determine. There shall be entered
into the register such relevant information as may be prescribed by the fund
manager or the trustee. Information about CIS investors shall be considered
confidential in nature and may not be inquired or looked into except upon
order of a court of competent jurisdiction or in the course of examination by
the appropriate regulatory agency.

SECTION 24. The Contractual CIS Plan. n addition to the matters
specified in section 30, a Contractual CIS shall contain the following matters:
{a) In cases where the trustee or its affiliate, or insurance company or
its affiliate, performs the functions of the fund manager, a
description of the independent oversight body, as prescribed under
‘Section 22 (e) of this law.
(b) Initial unit value and the basis thereof,
(c) Basis upon which the CIS may be terminated. The CIS plan shall
State the rights of participants in case of termination of the CIS; and


(d) Such other matters as the Commission may prescribe.
Chapter 4 — Provisions Applicable to Corporate CIS

SECTION 25 . Engagement of Fund Manager. Corporate CIS shall
engage a duly registered fund manager to perform the functions prescribed in
Section 8 hereof, Provided, Further, that a majority of the directors of the
corporate CIS are not directors, officers or employees of the fund manager;
and Provided, Finally that no Chairman, Chief Executive officer, President,
Chief Operating Officer or equivalent positions may be interlocking but officers
with lower rank may be common with prior approval of the appropriate
regulatory authority.

SECTION 26 . The Corporate CIS Plan — (a) In addition to the
matters specified in section 30, a corporate CIS plan shall contain the
following matters:

(1) Par value of the shares of stock of the corporate CIS;

(2) The dissolution of the corporate CIS and the rights of shareholders
in case of dissolution of the corporate CIS;

(3) Borrowing of money in accordance with the rules and regulations
‘as may be prescribed by the Commission;

(4) Extension of loans to other persons in accordance with the rules

and regulations as may be provided by the Commission; and

(5) Such other matters as the Commission may prescribe.

(b) The corporate CIS shall file such information and documents to
keep reasonably current the information and documents contained in
the CIS Plan.

SECTION Dividends. (a) Dividends shall be declared and paid in
accordance with the requirements of the Corporation Code and applicable
laws and regulations; Provided, that the Commission may prescribe other
Tequirements or restrictions in the declaration and payment of dividends by

28


the corporate CIS as necessary or appropriate in the public interest and for
the protection of the investors.

(b) Dividend payments shall be accompanied by a written statement
which adequately discloses the source or sources of such payment. The
Commission may prescribe the form of such statement as necessary or
appropriate in the public interest and for the protection of the investors.

TITLE Ill - TAX PROVISIONS.
SECTION 28. Tax Treatment of the CIS. All CIS shall be subject only to the

following national internal revenue taxes:

A. Imposition of Documentary Stamp Tax for CIS. - Any original issuance of a
document evidencing interest or participation in a CIS Security as defined
under Section (5) hereunder shall be subject to documentary stamp tax
prescribed under Section 188, Title VII of the National Internal Revenue Code
of 1997.

B. Tax on Income or Gross Receipts of CIS. - The income or gross receipts
from investments or reinvestments of funds received or accrued by any of CIS
shall be subject to all applicable taxes imposed under Title II of the National
Internal Revenue Code of 1997.

C. Tax on gains upon creation, Redemption, Sale, Barter, Exchange or other
disposition of CIS Securities. - Any gains realized by the investor upon
redemption of CIS securities, or from the sale, barter, exchange or other
disposition of listed CIS Securities through a local stock exchange, shall be
governed by Section 32(B)(7)(h) of the National Internal Revenue Code of
1997.

The same tax treatment shall apply to gains realized from the transfer of
securities and commodity products in exchange for original issuance of CIS
securities.

d. DST on the Creation, Redemption, Sale, Barter or Exchange of CIS
Securities. The sale, barter, or exchange or other disposition of CIS securities

29


listed and traded through a local stock exchange shall be governed by
Republic Act No. 9648. If not listed and trade, it shall be subject to
Documentary Stamp Tax as provided under Section 188, Title VII, of the
National Internal Revenue Code of 1997.

The same tax treatment shall apply to the shares of stock transferred or
exchanged for the creation or redemption of CIS securities.

TITLE IV - REGISTRATION OF CIS SECURITIES AND OPERATIONS OF
. cis

Chapter 1 - Registration and Suspension of Offer and Sale of CIS
Securities

SECTION 29. Filing of CIS Plans. — (a) No CIS. securities shall be
sold or offered for sale within the Philippines unless such securities have been
registered through the filing of a CIS plan which has been rendered effective
by the appropriate regulatory agency. The CIS Plan shall be filed together
with a sworn statement, in such form and containing such information and
documents as prescribed by this Law, the implementing rules and regulations
or the appropriate regulatory agency. The CIS plan shall include any
prospectus as required or permitted by the appropriate regulatory agency to
be delivered to CIS investors. It shall be unlawful for any person to sell or
offer for sale CIS securities unless the corresponding CIS plan has been duly
filed with and rendered effective by the appropriate regulatory agency

(b) The CIS plan shall be signed by the executive officer, principal
Operating officer, principal financial officer, comptroller, principal accounting
officer, corporate secretary or persons performing similar functions of the

corporate CIS, or the fund manager, trustee or insurance company in the case
of a contractual CIS, accompanied by a duly verified resolution of the board of
directors. The written consent of the expert named as having certified any part
of the CIS plan or any document used in connection therewith shall also be
filed.

0


(c) Upon effectivity of the CIS plan, the corporate CIS, fund manager,
trustee or insurance company shall state in every sales material that all
registration requirements of the securities have been met and that all
information are true and correct as represented by the corporate CIS, fund
manager, trustee or insurance company or the person making the statement.
Any untrue statement of fact or omission to state a material fact required to be
‘Stated therein or necessary to make the statement therein not misleading
‘shall constitute fraud.

(d) The appropriate regulatory agency may refuse the registration of a
CIS security ft

1. Itcontains a false or misleading statement;

2. It omits to state a material fact required to be stated therein or
necessary to make the statement therein not misleading;

3. It does not comply with the requirements of this Law and
applicable laws and regulations; or

4, Itis in the public interest to refuse the registration of such CIS
securities.

(e)If any change occurs in the facts set forth in the CIS plan, the corporate
CIS, fund manager, trustee or insurance company shall file an amendment
thereto setting forth the change.

SECTION 30. Contents of the CIS Plan. The CIS Plan shall
contain the following matters:

(2) Title of the CIS plan. This shall correspond to the product or brand
name by which the CIS is proposed to be known and made
available to its investors;

(b) Name of the fund manager,

(©) A statement of the CIS’ investment objectives and policies including
limitations, if any, and risk factors in investing in the CIS;

(d) Investment powers of the fund manager with respect to the CIS,
including the character and kind of investments which may be
purchased by the CIS;


(e) Profile of the proposed investors;

(f) Its classification, whether an open-end or closed-end fund;

(g) Total value of the CIS securities to be issued in case of closed-end
cls;

(h) Terms and conditions governing the issuance and redemption of
CIS securities;

(i) Provision for the external audit of the CIS;

@) Liabilities of the corporate CIS and the fund manager to the unit
holders or shareholders;

() Amount of fees, commissions and other charges and expenses to
be deducted from the fund, in the case of a contractual CIS, or to be
paid by the shareholders, in the case of corporate CIS;

() Annual meetings of unit/policy holders or shareholders;

(m)Public disclosures and reports;

(n) plan of distribution of CIS assets in case of dissolution; and

(0) Such other matters as the appropriate regulatory agency prescribe.

A copy of the CIS plan shall be made available during regular office hours to
any interested person at the principal office of the fund manager and
corporate CIS in case of a corporate CIS, and the fund manager or trustee in
case of contractual CIS. The Plan shall also be posted in the website,
Publication and/or other mode of information dissemination of the Commission
and the CIS

SECTION 31. Revocation of Registration or Suspension of Offer
and Sale of Securities ~ The appropriate regulatory agency may revoke the
registration of the CIS securities in accordance with Section 13.1 of the SRC
or order the suspension of the offer and sale of the CIS securities in
accordance with Section 13.4 of the SRC and their implementing rules and
regulations

Chapter 2 — Dealings in CIS Securities

SECTION 32. Rights and Privileges of CIS Investors. Each share of
Stock of a corporate CIS and each unit of participation of a contractual CIS


shall be equal in all respects to every other share or unit belonging to the
same class of shares or units.

SECTION 33. Proxies; Voting Trust. The Commission may prescribe
tules and regulations for the solicitation of proxies and the issuance and
transfer of voting trust certificates in accordance with the requirements of the
Corporation Code and applicable laws and regulations; Provided, That the
Commission may prescribe other requirements or restrictions as may be
necessary or appropriate in the public interest and for the protection of the
investors; Provided, Further, That no proxies shall be used as a device to
control management of any CIS.

SECTION 34. . Payment for CIS Securities. No CIS shall issue any of
its securities for services or for property other than cleared funds.

SECTION 35.. Distribution, Redemption and pricing of CIS
Securities. (a) Unless otherwise allowed in this law, CIS securities shall be
sold only through a licensed CIS distributor and by licensed CIS solicitors
Notwithstanding the pertinent provision of section 65 of the Corporation Code,
CIS securities may be issued at the net asset value computed in accordance
with section 43,

(b) CIS investors have the right to surrender their. securities for
redemption in accordance with the CIS plan. Redemption shall not be
suspended except pursuant to the CIS plan as approved by the appropriate
regulatory agericy in the public interest or for the protection of investors. The
redemption price of CIS securities shall be at the applicable price described
in the CIS Plan.

SECTION 36.. Transferability of Securities. No CIS shall restrict the
transferability or negotiability of its CIS securities except as provided in the
CIS plan or by any rule or regulation prescribed by the appropriate regulatory
agency,


Chapter 3 - Operations of CIS

SECTION 37. Custody of investment Assets. Every CIS shall place
and maintain its investment assets in the custody of a custodian in
accordance with Sections 13 and 14 hereof.

SECTION 38. Investment Limitations. (a) The CIS funds may be
invested only in the following liquid or semi-liquid assets tradeable through an
organized market, subject to limitations as may be provided by this Law, the
implementing rules and regulations or the appropriate regulatory agency:

1, Bank deposits;

2. Securities issued by or guaranteed by the Philippine
government, or the Bangko Sentral ng Pilipinas;

3. Tradable securities issued by the government of a foreign
country, any political subdivision of a foreign country or any
supranational entity; 7

4. Exchange-listed securities;

5. Marketable instruments that are traded in an organized
exchange or market;

6. Loans traded in an organized market;

7. Exchange traded funds;

8. Derivatives as may be authorized by the appropriate regulatory
agency ;

9. Real estate investment trusts or companies;

10.Other CIS; and

11. Such other investments or instruments as the appropriate:

regulatory agency may allow.

Provided, however, that no CIS shall, directly or indirectly:
1. acquire more than ten per centum (10%) of another CIS
or any one company; or
2. acquire securities of any issuer having an aggregate
value in excess of twenty per centum (20%) of the net
asset value of the acquiring CIS, or the weight of the

u


security in a recognized benchmark or index, whichever
is higher.

(b) The appropriate regulatory agencies may jointly issue such
implementing rules and regulations. in accordance with Section 60 hereof, as
may be necessary or appropriate in the public interest or for the protection of
investors, that provide for different percentages or further restrictions with
respect to investments in other CIS or the concentration of investments by a
cls.

SECTION 39. Prohibited Acts of CIS. It shall be unlawful for any CIS

i. Purchase any security on margin, except such short-term credits
as are necessary for the clearance of transactions;

il. Participate on a joint or a joint and several basis in any trading
aécount in securities; or

ili, Generate funds for promoting the private business or *

industry of any employee, officer, director, promoter or
stockholder thereof, or

iv. Allow any of its employees, officers, directors, organizers,
incorporators or stockholders to sell real estate, personal
property or any other kind of property to the CIS at a price
higher than the procurement cost or the market value thereof, or
sell to any of the aforementioned persons any property of the
CIS, or a portion thereof, at a price below the market value
thereof.

(b) The appropriate regulatory agency may, by rules and regulations
prohibit CIS from engaging in such other acts as it may deem necessary or
appropriate in the public interest or for the protection of investors, taking into
account the policy and purpose of this law.

SECTION 40. Meetings of CIS Investors. (a) Meetings of CIS
investors shall be held at least annually. The following matters shall be
presented to the CIS investors:


1. Proposals to change investment policies in the CIS plan which
shall require the approval of the CIS investors;

2. Report to the CIS investors of the engagement or replacement of
the fund manager, trustee, CIS distributor, custodian and
independent auditors;

3. Report of the fund manager of the financial condition of the fund
and results of its operations; and
4, Any other matter pertaining to the management and operation of
the CIS,
(b) CIS investors may attend meetings in person or by proxy. A quorum at
meetings shall consist of unit holders or stockholders owning or
representing at least ten percentum (10%) of the total number of units in
the fund or the outstanding capital stock, respectively, or such other
percentage as the appropriate regulatory agency may prescribe taking into
account the size of the CIS and the number of its CIS investors. At least a
majority vote of those present or represented shall be required to
constitute a valid act of the CIS investors.

(©) The appropriate regulatory agency shall prescribe by rule or
regulation the requirements for the conduct of meetings.

SECTION 41. Requirements for selling materials and
advertisements. Sales and marketing documents and advertisements shall
be subject to such requirements as the implementing rules and regulations or
the appropriate regulatory agency may prescribe. All sales and marketing
documents, and advertisements shall:

(a) Not contain any untrue statement of fact or omit to state any fact
that is necessary in order to prevent the statements made, in the
light of the circumstances in which they were made, from being
misleading;

(b) The CIS performance information in advertisements should be
calculated and presented from the viewpoint of the average investor
to whom the CIS is targeted:

%


(c) All CIS should calculate and present their performance information
in advertisements in a substantially similar manner so that CIS
investors may (i) make meaningful comparisons among various
CIS, and (ji) not be misled by differences in the method of
calculation and presentation; and

(4) Comply with such other terms and conditions prescribed by the
appropriate regulatory agency which are necessary or appropriate
in the public interest or for the protection of CIS investors.

SECTION 42. . Reports and Financial Statements of CIS. (a) Every
CIS shall file with the appropriate regulatory agency, if any:

4. Such information and documents including financial statements as
the implementing rules and regulations and the appropriate
regulatory agency may require, to keep reasonably current the
information and documents contained in the CIS plan filed under
this law; and

2. Copies of every periodic or interim report or similar communication
transmitted to the CIS investors.

(b) Every CIS shall transmit to its CIS investors, at least annually, reports
containing such of the following information and financial statements or their
equivalent, as of the latest fiscal year, 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
fespect to each charge or credit to the surplus account which

v7


represents more than five per centum of the tolal charges or
credits during the period covered by the report;

5. a statement of the aggregate fees or remuneration paid by the .
CIS during the period covered by the report to (i) the fund
manager, trustee, CIS distributor and independent auditor; and
(i) each director and all officers as regular or special
compensation; and

6. a statement of the aggregate amounts of purchases and sales of
investment assets made during the period covered by the
report.

Provided, That the implementing rules and regulations may permit, in
lieu of any item required under this subsection which may be inapplicable or
inappropriate to any specified type or types of CIS, the inclusion of such item
of a comparable character as it may deem applicable or appropriate to such
type or types of CIS.

Provided, Further, That the reports and financial statements
mentioned above, or such other material information as the appropriate
regulatory agency may determine, shall also be posted in the website,
publication and /or other mode of information dissemination of the appropriate
regulatory agency and the CIS.

The appropriate regulatory agency shall prescribe the forms for the
reports and financial statements, or such other material information as the
appropriate regulatory agency may determine, so that CIS investors may
make meaningful comparisons among various CIS, and will not be misled by
differences in the method of calculation and presentation.

SECTION 43. . Net Asset Value. (a) A CIS shall compute and post its
net asset value per share/unit at such frequency as may be prescribed by the
implementing rules and regulations or the appropriate regulatory agency.

(b) The computation of the net asset value per share or unit shall be
made in accordance with the valuation method prescribed by the
implementing rules and regulations or the appropriate regulatory agency and
shall be applied consistently.


SECTION 44. Accounts and Records. (a) Every CIS, and every fund
manager and trustee shall maintain and preserve for such period or periods
as may be prescribed by the implementing 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 this Law.

(b) All accounts, books and other records required to be maintained
and preserved by any person pursuant to subsection (a) shall be subject to
examination by the appropriate regulatory agency.

SECTION 45. Management and Trust Fees; Expenses
Chargeable to Fund/CIS Investors. The management or trust fees shall
cover the CIS’ fair and equitable share of the routine administrative expenses
of the fund manager, trustee and/or insurance company such as directors’
fees, salaries and wages, supplies, credit investigation, collateral appraisal,
security, messengerial and janitorial services, information technology
expenses, annual report preparation, supervision fees, regulatory reporting
expenses, and internal audit fees. Marketing, advertising, and other publicity
or promotional related expenses shall be for the account of the fund manager,
trustee, and insurance company and shall be considered covered by the
management or trust fee.

However, the fund manager, trustee, and insurance company may
charge special or reimbursable expenses from the cis in case such expenses
are (1) necessary to preserve or enhance the value of the CIS, (2) payable to
an independent or non-related third party covered by a separate contract, and
(3) disclosed to CIS investors. The fund manager, trustee, and insurance
company shall secure prior approval of the appropriate regulatory agency for
outsourcing services provided under existing regulations of the concerned
regulatory agency. No other fees shall be charged to the fund/CIS_ investors,
except in case of a corporate CIS, the directors fees shall be chargeable to
the fund.


SECTION 46. Changes in Investment Policy - Proposals to change
the investment policies shall be subject to approval by the CIS investors
pursuant to Section 40 hereof and by the appropriate regulatory agency. The
fund manager, trustee or insurance company shall disseminate to all CIS
investors all material information pertaining to proposals to amend the
investment policies and objectives. The appropriate regulatory agency shall
prescribe by rule or regulation the requirements for changes in investment
policies.

SECTION 47. Dissolution - (a) The corporate CIS, trustee or
insurance company shall cause the dissolution of the CIS whenever any of
the following grounds is present:

1, Dissolution is required by the CIS plan, when the specified
conditions or time for dissolution have been met or reached;

2. Dissolution is agreed upon in a resolution of the CIS investors
owning at least two-thirds (2/3) of the outstanding CIS securities
ina CIS at a meeting duly called for the purpose; Provided, that
the implementing rules and regulations may prescribe a different
percentage interest taking into account the nature and size of
the CIS and the number of CIS investors; Provided, Finally, that
thiere has been prior publication of the notice of time, place and
object of the meeting for two (2) consecutive weeks in a
newspaper of general circulation in the Philippines;

3. Dissolution is required by a final and executory order of the
court;

4. Dissolution is ordered by the appropriate regulatory agency for
non-compliance with the conditions for the lifting of a suspension
oF revocation order previously issued; provided that the
appropriate regulatory agency shall not issue an order of
dissolution within six months from the issuance of the
suspension or revocation order; and

5. Dissolution is deemed necessary in view of the dissolution or the
revocation of the license of the fund manager, trustee or
insurance company;

40


Provided, that the CIS may not be dissolved whenever:

(i) The appropriate regulatory agency orders the transfer of the
CIS to a willing and qualified fund manager, trustee or
insurance company;

(ii) The dissolution or the loss of license of the trustee,
insurance company or fund manager is due to a merger and
the surviving company in such merger is also an authorized
trustee, insurance company or fund manager, as the case
may be; OR

(iiyThe new company that is established as a result of the
consolidation of trust institutions, insurance companies or
fund managers promptly obtains a license to act as trustee,
insurance company or fund manager, as the case may be

(b) Upon dissolution, the fund manager, trustee or insurance company
shall distribute the investment assets of the CIS to the CIS investors as
prescribed by the CIS plan and in accordance with the implementing rules and
regulations

SECTION 48. Merger or Consolidation — No merger or consolidation of CIS
will be authorized by the appropriate regulatory agency unless the following
conditions are met:

(a) The merger or consolidation plan has been prepared in accordance
with the requirements as may be prescribed by the appropriate
regulatory agency; and

(b) The merger plan has been approved by the CIS investors owning at
least two-thirds of the outstanding CIS securities in each of the CIS
to be merged or consolidated in a meeting duly called for the
purpose;

The implementing rules and regulations. shall prescribe the procedures

and requirements for merger or consolidation in the public interest and for the
protection of investors.

a


TITLE V. — SPECIAL RULES GOVERNING ESTABLISHMENT OF
CONTRACTUAL CIS BY TRUST INSTITUTIONS AND INSURANCE
COMPANIES

SECTION 49. Establishment of Contractual CIS by Trust
Institutions and Insurance Companies- (a) Any trust institution or insurance
company may establish a contractual CIS, subject to the following provisions:

The trust institution or insurance company may engage the services of
a fund manager; Provided, that no director and/or officer of the trust institution
or insurance company shall at the same time serve as director and/or officer
of the fund manager; Provided, further, that the trust institution or insurance
company shall.not engage a fund manager which is an affiliate of the trust
institution or insurance company, unless it complies with the requirements of
paragraph (b) (2) of this Section.

(b) The engagement of a fund manager shall not be required in cases
where:

1. In addition to the functions of a trustee prescribed under this

law, the trust institution or insurance company shall comply with
and observe the duties, responsibilities and prohibitions of a
fund manager under Sections 8 and 9 hereof,

2. The CIS plan provides for the creation of an Independent
Oversight Body. The independent oversight body shall be
composed of at least three (3) members who shall be appointed
in accordance with such rules as the implementing rules and
regulations shall prescribe, all of whom shall have the degree of
independence and possess all the qualifications and none of the
disqualifications of an independent director, or may be a juridical
entity organized and existing pursuant to the implementing rules
and regulations.

The independent oversight body shall have the following duties and
responsibilities:

2


i Monitor the activities of the CIS distributors in the sale
and/or redemption of the CIS units and ensure that the
provisions of any marketing document relating to the sale
or offer for sale of the CIS units do not contain any matter
which is inconsistent with the provisions of the CIS plan,
this law and its implementing rules and regulations;

ii Ensure that the management and investments of the CIS
funds are in accordance with the CIS plan;

i Ensure that the trust institution or insurance company '
remedies any breach of the CIS plan or any contravention
of the provisions of this law or its implementing rules and
regulations;

iv Ensure that CIS funds, assets and properties are clearly
identified and held separately from the trust institution's or
insurance company's own properties and other properties
held in trust;

SECTION 50. Administrative Sanctions. [A] If, after due notice and
hearing, the appropriate regulatory agency finds that: (1) there is a violation of
this law and its implementing rules and regulations, or the rules or orders of
the appropriate regulatory agency; (2) any fund manager, trustee, insurance
company, corporate CIS, CIS distributor or CIS solicitor has failed reasonably
to supervise, with a view to preventing violations, another person subject to
supervision who commits any such violation; (3) any person has, in a CIS
plan or in other reports, applications, accounts, records or documents
required by this law and its implementing rules and regulations to be filed with
the appropriate regulatory agency, made any untrue statement of a material
fact, or omitted to state any material fact required to be stated therein or
necessary to make the statements therein not misleading; or (4) any person
has refused to permit any lawful examination into its affairs, including the
refusal to produce books, records or documents upon demand by the CIS
investor or the appropriate regulatory agency, it shall, in its discretion, and
subject only to the limitations hereinafter prescribed, impose any or all of the

43


following sanctions as may be appropriate in light of the facts and
circumstances:

(a) A fine of no less than Ten thousand pesos (P10,000.00) nor
more than One million pesos (P1,000,000.00)

(b) Disqualification from being an officer, member of the board of
directors, or person performing similar functions, of the fund
manager, trustee, insurance company, corporate CIS or CIS
distributor;

(©) Suspension of the license of such person;

(d) Revocation of the license of such person; and

(e) Other penalties within the power of the appropriate regulatory
agency to impose.

(B) The imposition of the foregoing administrative sanctions shall be
without prejudice to the filing of criminal charges and civil cases against
the entities and_ individuals responsible for the violation.

(C) The appropriate regulatory agency shall have the power to issue writs

of execution to enforce the provisions of this section and to enforce
payment of the fines, penalties, fees and other dues collectible under this,
law.

(d) If the offender is a corporation or other juridical entity, the
administrative sanctions may in the discretion of the appropriate regulatory
agency be imposed upon such corporation or other juridical entity and
upon the officer or officers of the Corporation, or entity responsible for the
Violation,; Provided, That in case the imposition of administrative fines, the
appropriate regulatory agency may, in its discretion, impose such fines
solely upon the officer or director responsible for the violation; Provided,
further, That if such officer is an alien, he shall in addition to the penalties
prescribed, be deported without further proceedings after service of
sentence

{e] The director/s and other officer/s of a corporation held administratively
liable under this section shall in no case recover the administrative liability
from the CIS or corporation of which he/they is a director/s or officer/s.


SECTION 56. Criminal penalties. [A] The following acts are criminal

in nature and shall be penalized as follows:

(a) Refusal to comply with the orders of the appropriate regulatory
agency, for the production of books, records or documents, or to
undergo an examination shall be penalized by imprisonment of one
(1) month to six (6) months OR [and] fine in the amount of One
Hundred Thousand pesos (P100,000.00) to Two Million
(P2,000,000.00) Pesos, or both imprisonment and fine, at the
discretion of the court;

(b) Selling or offering for sale a CIS security by unregistered sellers,
distributors or solicitors shall be penalized by imprisonment of six
(6) years and one day to twelve(12) years or fine equivalent to triple
the contract price of each of the CIS securities sold, or both
imprisonment and fine, at the discretion of the court;

(c) Selling or offering for sale CIS securities by the issuer of a CIS plan
that has not been registered pursuant to this law shall be penalized
by imprisonment of six(6) years and on day to twelve (12) years or
fine equivalent to triple the contract price of each of the CIS
securities sold or offered for sale, or both imprisonment and fine, at
the discretion of the court;

(d) Any negligent act or omission that is prejudicial or injurious to the
CIS investors shall be penalized by imprisonment of one (1) year
and one (1) day to six (6) years and fine in the amount of fifty
thousand pesos (P50,000.00) to five million pesos (P5,000,000.00)
, OF both imprisonment and fine, at the discretion of the court.

(e) Any fraudulent act or omission that is prejudicial or injurious to the
CIS investors shall be penalized by imprisonment of six (6) years
and one (1) day to twelve (12) years and fine in the amount of five
hundred thousand pesos (P500,000.00) to ten million pesos
(P10,000,000.00), or both imprisonment and fine, at the discretion
of the court;; and

(f) Violation of the provisions of this law, the implementing rules and
regulations or orders of the appropriate regulatory agency shall be

45


penalized by imprisonment of six (6) years and one (1) day to
twelve (12) years and a fine in the amount of One Hundred
Thousand Pesos (P100,000.00) to Five Million Pesos
(P5,000,000.00), Provided, That repeated violations shall constitute
prima facie evidence against the offender.

{B] _ If the offender is a corporation or other juridical entity, the criminal
penalties may in the discretion of the court be imposed upon such corporation
or other juridical entity and upon the officer or officers of the corporation or
entity responsible for the violation; Provided, That in case of the imposition of
the fines, the court may, in its discretion, impose such fines solely upon the
officer or director responsible for the violation; Provided, Further that if such
officer is an alien, he shall in addition to the penalties prescribed, be deported
without further proceedings after service of sentence.

{C]The director/s and other officer/s of a corporation held administratively
liable under this section shall in no case recover the administrative liability
from the CIS or corporation of which he/they is a director/s or officer/s.

SECTION 57. Small Claims Clause. (a) The appropriate regulatory
agency shall have the power to adjudicate any and all claims involving CIS
amounting to not more than One Million Pesos (P1,000,000.00) or such
higher amount’as may be determined by the appropriate regulatory agency,
for each CIS investor. The proceedings before the appropriate regulatory
agency shall be summary in nature, and the decision of the appropriate
regulatory agency shall be final and immediately executory, unless restrained
by the Court of Appeals or the Supreme Court

(b) Claims filed with the appropriate regulatory agency shall not be subject to
the payment of filing fees

(c) The authority to adjudicate granted to the appropriate regulatory agency
under this section shall be concurrent with that of the civil courts, but the filing
of a complaint with the appropriate regulatory agency shall preclude the civil
courts from taking cognizance of a suit involving the same ‘subject matter.


(d) The appropriate regulatory agency, having due regard to the facts and
circumstances of each claim, may refer the claim to compulsory arbitration,
under such rules and regulations as the appropriate regulatory agency may
prescribe.

SECTION 58. Duty of the Regulators — In view of the nature of the
CIS as one impressed with public interest, the officers and employees of the
appropriate regulatory agencies are strictly enjoined to monitor and enforce
compliance with the provisions of this law and its implementing rules and
regulations. Failure to do so shall be dealt with under existing laws and
regulations in the gravest degree.

TITLE IX — MISCELLANEOUS PROVISIONS

SECTION 59. Transitory Provisions. - Any CIS which at the
time of the effectivity of this law has been established, authorized, licensed or
registered by the appropriate regulatory agency and has continued to exist,
shall be deemed to have been authorized, licensed and registered under the
provisions of this law and its implementing rules and regulations and shall be
subject to and governed by the provisions hereof; Provided, however, that
where any such CIS is affected by the new requirements of this law and its
implementing rules and regulations, said CIS shall, unless otherwise herein
provided, be given a period of not more two (2) years from the effectivity of
the implementing rules and regulations within which to comply with such new
requirements.

SECTION 60. implementing Rules and Regulations. — Consistent
with the declaration of policy contained in section 2 and the other relevant
Provisions of this law, the appropriate regulatory agencies, with the
commission as lead agency, shall coordinate and jointly establish uniform
ules and regulations implementing this law, including but not limited to the
following matters:

1) Qualification and disqualification standards for the fund managers,

CIS distributors and CIS solicitors;

a7


2) Qualification and disqualification standards for directors and officers

of fund managers, trustees, insurance companies, corporate CIS or

CIS distributor;

3) Revocation, refusal or suspension of licenses of the fund manager,

corporate CIS, trustee, insurance company, custodian, CIS distributor

and CIS solicitor;

4) Filing , amendment and suspension of CIS Plans;

5)Registration, distribution, sale and marketing of CIS securities;

6) Disclosure requirements relating to the CIS;

7) Regulation, supervision and monitoring of the operations,

management and/or activities of all fund managers, CIS distributors,

CIS solicitors and other parties involved in CIS;

8) Ascertainment of client suitability for CIS securities;

9) Limitations or restrictions on the investment of CIS funds and on the

other activities in which a CIS may engage;

10) Limitations or restrictions on the investment of CIS funds and on

the other activities in which a CIS may engage;

11) Requirements for selling materials and advertisements;

12) Record-keeping, reporting and audit requirements for CIS, fund

manager and trustees;

13) Valuation standards and methods to be observed by CIS;

14)Requirements for changing investment policies

15) Requirements for merger or consolidation of CIS;

16) Establishment of the CIS investor protection fund;

17) Minimum requirements for inculcating financial literacy in investors;

18) Recognition of accreditation or license extended by the appropriate

regulatory authority pursuant to this law; and

19) Other pertinent matters to be determined by the regulatory

authorities.

The implementing rules and regulations may be repealed, amended or
supplemented at any time in the same manner as the original implementing
tules and regulations are adopted and issued pursuant to this Section.

aR


The implementing rules and regulations and its amendments or
supplements shall be published once a week for two (2) consecutive weeks in

two newspapers of general circulation.

SECTION 61. Cooperation and Coordination. - The appropriate
regulatory agencies, with the Commission as the lead agency, shall adopt all
other appropriate measures as may be necessary or desirable for the
effective implementation and enforcement of this law, taking into full account
declaration of policy contained in section 2.

The coordination shall cover such concerns as, but not limited to:

(a) Ensuring that avoidable market failures are prevented;

(b) Instilling measures that nurture systemic stability;

(c) Providing equal access to relevant market information to
stakeholders; and

(d) Overseeing the conduct of CIS issuers to institutionalize consumer
protection and address anti-competitive behavior.

SECTION 62. Effect on Existing Laws and Contracts. - The rights
and remedies provided by this law shall be in addition to any and all other
rights and remedies that exist under existing laws.

Nothing in this law shall impair the obligation of existing contracts nor
affect or be construed to affect existing criminal, civil or administrative cases.

SECTION 63. Separability clause. — Any portion or provision of this
Law that may be declared unconstitutional or invalid shall not have the effect
of nullifying other portions or provisions hereof as long as such remaining
portion or provision can still subsist and be given effect in their entirety.

SECTION 65. Suppletory Effect — This law shall apply suppletorily to
any law that may be hereinafter enacted on collective investment schemes

governing specialized products or investments.

SECTION 66. Repealing Clause. — All acts, laws, executive orders

49


and/or rules and regulations or any part thereof which are inconsistent with
the provisions of this law are hereby repealed or modified accordingly.

SECTION 66.Effectivity Clause. - This law shall take effect upon its

approval.

Approved,

50