Republic Act No. 2629

REPUBLIC ACT No. 2629 Investment Company Act Be it enacted by the Senate and House of Representatives of the Philippine Congress Assembled: Section 1. Short title. -This Act may be cited as the "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: (a) When investors purchase, pay for, exchange, receive dividends upon, vote, refrain from voting, sell, or surrender securities issued by investment companies without adequate, accurate, and explicit information fairly presented, concerning the character of such securities and the circumstances, policies, and financial responsibility of such companies and their management; (b) When investment companies are organized, operated, managed, or their portfolio securities are selected, in the interest of directors, officers, investment advisers, depositors, or other affiliated persons thereof, in the interest of underwriters, brokers, or dealers, in the interest of special classes of their security holders, or in the interest of other investment companies or persons engaged in other lines of business, rather than in the interest of all classes of such companies security holders; (c) When investment companies issue securities containing inequitable or discriminatory provisions, or fail to protect the preferences and privileges of the holders of their outstanding securities; (d) When the control of investment companies is unduly concentrated through pyramiding or inequitable methods of control, or is inequitably distributed, or when investment companies are managed by irresponsible persons; (e) When investment companies, in keeping their accounts, in maintaining reserves, and in computing their earnings and the asset value of

their outstanding securities, employ unsound or misleading methods, or are not subjected to adequate independent scrutiny; (f) When investment companies are reorganized, become inactive, or change the character of their business, or when the control or management thereof is transferred, without the consent of their security holders; (g) When investment companies by excessive borrowing and the issuance of excessive amounts of senior securities increase unduly the speculative character of their junior securities; or (h) When investment companies operate without adequate assets or reserves. 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. (b) "Affiliated company" means a company which is an affiliated person. (c) "Affiliated person" of another person means (1) any person directly or indirectly owning, controlling or holding with power to vote, ten per centum or more of the outstanding voting securities of such other person; (2) any person ten per centum or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power to vote, by such other person; (3) any person directly or indirectly controlling, controlled by, or under common control with, such other person; (4) any officer, director, partner, copartner, or employee of such other person; and (5) if such other person is an investment company, any investment adviser thereof or any member of an advisory

board thereof. (d) "Bank" means (1) a banking institution organized under the laws of the Philippines, (2) any other banking institution or trust company, doing business under the laws of the Philippines, a substantial portion of the business of which consists of receiving deposits or exercising fiduciary powers similar to those permitted to national banks. (e) "Broker" means any person engaged in the business of effecting transactions in securities for the account of others, but does not include a bank or any person solely by reason of the fact that such person is an underwriter for one or more investment companies. (f) "Commission" means the Securities and Exchange Commission. (g) "Company" means a corporation, a registered partnership, or an association lawfully transacting business in the Philippines. (h) "Control" means the power to exercise a controlling influence over the management or policies of a company, unless such power is solely the result of an official position with such company. Any person who owns beneficially, either directly or through one or more controlled companies, more than thirty per centum of the voting securities of a company shall be presumed to control such company. Any person who does not so more than thirty per centum of the voting securities of any company shall be presumed not to control such company. A natural person shall be presumed not to be a controlled person within the meaning of this Act. Any such presumption may be rebutted by evidence, but except as hereinafter provided, shall continue until a determination to the contrary is made by the Commission by order either on its own motion or on application by an interested person. If an application filed hereunder is not granted or denied by the Commission within sixty days after filing thereof, the determination sought by the application shall be deemed to have been temporarily granted pending final determination of the Commission thereon. The Commission, upon its own motion or

upon application, may by order revoke or modify any order issued under this paragraph whenever it shall find that the determination embraced in such original order is no longer consistent with the facts. (i) "Convicted" includes a verdict judgment, or plea of guilty, if such verdict, judgment or plea has not been reversed, set aside, or withdrawn, whether or not sentence has been imposed. (j) "Dealers" means any person regularly engaged in the business of buying and selling securities for his own account, through a broker or otherwise, but does not include a bank, insurance company, or investment company, or any person insofar as he is engaged in investing, reinvesting, or trading in securities, or in owning or holding securities, for his own account, either individually or in some fiduciary capacity, but not as a part of a regular business. (k) "Director" means any director of a corporation or any person performing similar functions with respect to any organization. (l) "Exchange" means any organization, association, or group of persons which constitutes, maintains, or provides a market place or facilities for bringing together purchasers and sellers of securities or for otherwise performing with respect to securities the functions commonly performed by a stock exchange as that term is generally understood, and includes the market place and the market facilities maintained by such exchange. (m) "Government security" means any security issued or guaranteed as to principal or interest by the Republic of the Philippines, or by a person controlled or supervised by and acting as an instrumentality of the Government of the Republic of the Philippines pursuant to authority granted by the Congress of the Philippines; or any certificate of deposit for any of the foregoing. (n) "Insurance company" means a company which is organized as an insurance company, whose primary and predominant business activity is the writing of insurance or the reinsuring of risks underwritten by i

nsurance companies, and which is subject to supervision by the Insurance Commissioner; or any receiver or similar official or any liquidating agent for such a company, in his capacity as such. (o) "Investment adviser" of an investment company means (1) any person (other than a bona fide officer, director, trustee, member of an advisory board, or employee of such company as such) who pursuant to contract with such company regularly furnishes advice to such company with respect to the desirability of investing in, purchasing or selling securities or other property, or is empowered to determine what securities or other property shall be purchased or sold by such company, and (2) any other person who pursuant to contract with a person described in clause (1) of this paragraph regularly performs substantially all of the duties undertaken by such person described in said clause (1); but does not include (A) a person whose advice is furnished solely through uniform publications distributed to subscribers thereto, (B) a person who furnishes only statistical and other factual information, advice regarding economic factors and trends, or advice as to occasional transactions in specific securities, but without generally furnishing advice or making recommendations regarding the purchase or sale of securities, (C) a company furnishing such services at cost to one or more investment companies, insurance companies, or other financial institutions, (D) any person the character and amount of whose compensation for such services must be approved by a court or (E) such other persons as the Commission may by rules and regulations or order determine not to be within the intent of this definition. (p) "Investment banker" means any person engaged in the business of underwriting securities issued by other persons, but does not include an investment company, any person who acts as an underwriter in isolated transactions, but not as a part of a regular business, or any person solely by reaso

n of the fact that such person is an underwriter for one or more investment companies. (q) "Issuer" means every person who issues or proposes to issue any security, or has outstanding any security which it has issued. (r) "Lend" includes a purchase coupled with an agreement by the vendor to repurchase; "borrow" includes a sale coupled with a similar agreement. (s) "Majority-owned subsidiary" of a person means a company fifty per centum or more of the outstanding voting securities of which are owned by such person, or by a company which, within the meaning of this paragraph, is a majority-owned subsidiary of such person. (t) "Periodic payment plan certificate" means (1) any certificate, investment contract, or other security providing for a series of periodic payments by the holders, and representing an undivided interest in certain specified securities or in a unit or fund of securities purchased wholly or partly with the proceeds of such payments, and (2) any security the issuer of which is also issuing securities of the character described in clause (1) and the holder of which has substantially the same rights and privileges as those which holders of securities of the character described in said clause (1) have upon completing the periodic payments for which such securities provide. (u) "Person" means a natural person or a company. (v) "Principal underwriter" of or for any investment company other than a closed-end company, or of any security issued by such a company, means any underwriter who as principal purchases from such company, or pursuant to contract has the right (whether absolute or conditional) from time to time purchase from such company, any such security for distribution, or who as agent for such company sells or has the right to sell any such security to a dealer or to the public or both, but does not include a dealer who purchases from such company through a principal underwriter acting as agent for such company. "Principal underwriter " of or for

a closed-end company or any issuer which is not an investment company, or of any security issued by such a company or issuer, means any underwriter who, in connection with a primary distribution of securities, (1) is in privity of contract with the issuer or an affiliated person of the issuer; (2) acting alone or in concert with one or more other persons, initiates or directs the formation of an underwriting syndicate; or (3) is allowed a rate of gross commission, spread, or other profit greater than the rate allowed another underwriter participating in the distribution. (w) "Promoter" of a company or a proposed company means a person who, acting alone or in concert with other persons, is initiating or directing, or has within one year initiated or directed, the organization of such company. (x) "Redeemable security" means any security, other than short-term paper, under the terms of which the holder, upon its presentation to the issuer or to a person designated by the issuer, is entitled to receive approximately his proportionate share of the issuers current net assets, or the cash equivalent thereof. (y) "Reorganization" means (1) a reorganization under the supervision of a court of competent jurisdiction; (2) a merger or consolidation; (3) a sale of seventy-five per centum or more in value of the assets of a company; (4) a restatement of the capital of a company, or an exchange of securities issued by a company for any of its own outstanding securities; (5) a voluntary dissolution or liquidation of a company; (6) a recapitalization or other procedure or transaction which has for its purpose the alteration, modification, or elimination of any of the rights, preferences, or privileges of any class of securities issued by a company, as provided in its charter or other instrument creating or defining such rights, preferences, and privileges; (7) an exchange of securities issued by another company or companies, preliminary to and for the purpose of effecting or consu

mmating any of the foregoing; or (8) any exchange of securities by a company which is not an investment company for securities issued by a registered investment company. (z) "Sale", "sell", "offer to sell", or "offer for sale" includes every contract of sale or disposition of, attempt or offer to dispose of, or solicitation of an offer to buy, a security or interest in security, for value. Any security given or delivered with, or as a bonus on account of, any purchase of securities or any other thing, shall be conclusively presumed to constitute a part of the subject of such purchase and to have been sold for value. (aa) "Sales load" means the difference between the price of a security to the public and that portion of the proceeds from its sale which is received and invested or held for investment by the issuer, less any portion of such difference deducted for trustees or custodians fees, insurance premiums, issue taxes, or administrative expenses or fees which are not properly chargeable to sales or promotional activities. In the case of a periodic payment plan certificate, "sales load" includes the sales load on any investment company securities in which the payments made on such certificate are invested, as well as the sales load on the certificate itself. (bb) "Security" means any note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, or, in general, any interest or instrument commonly known as a "security" or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing. (cc) "Short-term paper" means any n

ote, draft, bill of exchange, or bankers acceptance payable on demand or having a maturity at the time of issuance of not exceeding nine months, exclusive of days of grace, or any renewal thereof payable on demand or having a maturity likewise limited; and such other classes of securities, of a commercial rather than an investment character, as the Commission may designate by rules and regulations. (dd) "Underwriter" means any person who has purchased from an issuer with a view to, or sells for an issuer in connection with, the distribution of any security or participates or has a direct or indirect participation in any such undertaking, or participates or has a participation in the direct or indirect underwriting of any such undertaking; but such term shall not include a person whose interest is limited to a commission from an underwriter or dealer not in excess of the usual and customary distributors or sellers commission, As used in this paragraph the term "issuer" shall include, in addition to an issuer, any person directly or indirectly controlling or controlled by the issuer, or any person under direct or indirect common control with the issuer. When the distribution of the securities in respect of which any person is an underwriter is completed such person shall cease to be an underwriter in respect of such securities or the issuer thereof. (ee) "Value", with respect to assets of registered investment companies, means (1) As used in section four, (A) with respect to securities owned at the end of the last preceding fiscal quarter for which market quotations are readily available, the market value at the end of such quarter; (B) with respect to other securities and assets owned at the end of the last preceding fiscal quarter, fair value at the end of such quarter, as determined in good faith by the board of directors; and (C) with respect to securities and other assets acquired after the end of the last preceding fiscal quarter, the cost thereof; and

As used elsewhere in this Act, (A) with respect to securities for which market quotations are readily available, the market value of such securities; and (B) with respect to other securities and assets, fair value as determined in good faith by the board of directors; in each case as of such time or times as determined pursuant to this Act, and the rules and regulations issued by the Commission thereunder. Notwithstanding the fact that market quotations for securities issued by controlled companies are available, the board of directors may in good faith determine the value of such securities: Provided, That the value so determine is not in excess of the higher of market value or asset value of such securities in the case of majority-owned subsidiaries, and is not in excess of market value in the case of other controlled companies. The foregoing definition shall not derogate from the authority of the Commission with respect to the reports, information, and documents to be filed with the Commission by any registered company, or with respect to the accounting policies and principles to be followed by any such company, as provided in sections seven, twenty-seven and twenty-eight. (ff) "Voting security" means any security presently entitling the owner or holder thereof to vote for the election of directors of a company. (gg) "Wholly-owned subsidiary" of a person means a company ninety-five per centum or more of the outstanding voting securities of which are owned by such person, or by a company which, within the meaning of this paragraph is a wholly-owned subsidiary of such person. (hh) "Securities Act" means Commonwealth Act Numbered Eighty-three as heretofore or hereafter amended. No provision in this Act shall apply to, or be deemed to include, the Philippines or any political subdivision thereof, or any agency, authority, or instrumentality of any one or more of the foregoing, or any corporation which is wholly owned directly or indirectly by any one or more of the f

oregoing, or any officer, agent, or employee of any of the foregoing acting as such in the course of his official duty, unless such provision makes specific reference thereto. Section 4. Definition of investment company. (a) when used in this Act "investment company" means any issuer which is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting, or trading in securities; (b) Notwithstanding subsection (a), none of the following persons is an investment company within the meaning of this Act; (1) Any issuer primarily engaged, directly or through a wholly-owned subsidiary or subsidiaries, in a business or businesses other than that of investing, reinvesting, or trading in securities. (2) Any issuer which the Commission, upon application by such issuer, finds and by order declares to be primarily engaged in a business or businesses other than that of investing, reinvesting, or trading in securities either directly or (A) through majority-owned subsidiaries or (B) through controlled companies conducting similar types of business. The filing of an application under this paragraph by an issuer other than a registered investment company shall exempt the applicant for a period of sixty days from all provisions of this Act applicable to investment companies as such. For cause shown, the Commission by order may extend such period of exemption for an additional period or periods. Whenever the Commission, upon its own motion or upon application, finds that the circumstances which gave rise to the issuance of an order granting an application under this paragraph no longer exist, the Commission shall by order revoke such order. (3) Any issuer all the outstanding securities of which (other than short-term paper and directors qualifying shares) are directly or indirectly owned by a company excepted from the definition of investment company. (c) Notwithstanding subsection (a), and (b), none of the following per

sons is an investment company within the meaning of this Act: (1) Any issuer whose outstanding securities (other than short-term paper) are beneficially owned by not more than twenty-five persons and which is not making and does not presently propose to make a public offering of its securities. For the purpose of this paragraph, beneficial ownership by a company shall be deemed to be beneficial ownership by one person; except that, if such company owns ten per centum or more of the outstanding voting securities of the issuer, the beneficial ownership shall be deemed to be that of the holders of such companys outstanding securities (other than short-term paper). (2) Any person primarily engaged in the business of underwriting and distributing securities issued by other persons, selling securities to customers, and acting as broker, or any one or more of such activities, whose gross income normally is derived principally from such business and related activities. (3) Any bank or insurance company; any savings and loan association, building and loan association, cooperative bank, homestead association, or similar institution, or any receiver, conservator, liquidator, liquidating agent, or similar official or person thereof or therefor; any common trust fund or similar fund maintained by a bank exclusively for the collective investment and reinvestment of moneys contributed thereto by the bank in its capacity as a trustee, executor, administrator, or guardian. (4) Any person substantially all of whose business is confined to industrial banking or similar business. (5) Any person who is primarily engaged in one or more of the following business: (A) Purchasing or otherwise acquiring notes, drafts, acceptances, open accounts receivable, and other obligations representing part or all of the sales price of merchandise, insurance, and services; (B) making loans to manufacturers, wholesalers, and retailers of, and to prospective purchasers of, specified merchandise, insuranc

e, and service; and (C) purchasing or otherwise acquiring mortgages and other liens on and interests in real estate. (6) Any company primarily engaged, directly or through majority-owned subsidiaries, in one or more of the businesses described in paragraphs (3), (4) and (5), or in one or more of such businesses (from which not less than forty per centum of such companys gross income during its last fiscal year was derived) together with an additional business or businesses other than investing, reinvesting, owning, holding or trading in securities. (7) Any company ninety per centum or more of the value of whose investment securities are represented by securities of a single issuer included within a class of persons enumerated in paragraphs (4), (5), or (6). (8) Any person substantially all of whose business consist of owning or holding oil, gas, or other mineral royalties or leases, or fractional interests therein, or certificates of interest or participation in or investment contracts relative to such royalties, leases, or fractional interests. (9) Any company organized and operated exclusively for religious, educational, benevolent, fraternal, charitable, or reformatory purposes, no part of the net earnings of which inures to the benefit of any private shareholders or individual. (10) Any employees stock bonus, pension, or profit- sharing trust. (11) Any voting trust the assets of which consist exclusively of securities of a single issuer which is not an investment company. (12) Any security holders protective committee or similar issuer having outstanding and issuing no securities other than certificates of deposit and short-term paper. Section 5. Classification of investment companies. (a) For the purposes of this Act, investment companies are divided into open-end and closed-end companies, defined as follows: (1) "Open-end company" means an investment company which is offering for sale or has outstanding any redeemable security of which it is the issuer.

2) "Closed-end company" means any investment company other than an open-end company. Section 6. Transactions by investment companies. (a) No investment company organized or otherwise created under the laws of the Philippines and having a board of directors, unless registered under section seven, shall directly or indirectly (1) offer for sale, sell, or deliver after sale, within the Philippines, any security or any interest in a security, whether the issuer of such security is such investment company or another person; (2) purchase, redeem, retire, or otherwise acquire or attempt to acquire, within the Philippines, any security, or any interest in a security, whether the issuer of such security is such investment company or another person; (3) control any investment company which does any of the acts enumerated in paragraphs (1) and (2). The provisions of this subsection shall not apply to transactions of an investment company which are merely incidental to its dissolution. (b) No depositor or trustee of or underwriter for any investment company, organized or otherwise created under the laws of the Philippines and not having a board of directors, unless such company is registered under section eight or exempt under section six, shall directly or indirectly (1) offer for sale, sell, or deliver after sale, within the Philippines, any security or any interest in a security of which such company is the issuer; (2) purchase, redeem, or otherwise acquire or attempt to acquire, within the Philippines, any security, or interest in a security of which such company is the issuer; or (3) sell or purchase for the account of such company, within the Philippines, any security or interest in a security, by whomsoever issued. The provisions of this subsection shall not apply to transactions which are merely incidental to the dissolution of an investment company. Section 7. Registration of investment companies. (a) Any investment company organized or otherwise created under th

e laws of the Philippines may register for the purposes of this Act by filing with the Commission a registration statement, in such form as the Commission shall by rules and regulations prescribe as necessary or appropriate in the public interest or for the protection of investors. An investment company shall be deemed to be registered upon approval by the Commission of such registration statement and the publication thereof in the Official Gazette for two consecutive weeks and in two dailies of general circulation for two consecutive days. (b) Every investment company shall file with the Commission an original and such copies of a registration statement, in such form and containing such of the following information and documents as the Commission shall, by rules and regulations, prescribe as necessary or appropriate in the public interest or for the protection of investors: (1) a recital of the policy of the registrant in respect of each of the following types of activities, such recital consisting in each case of a statement whether the registrant reserves freedom of action to engage in activities of such type, and if such freedom of action is reserved, a statement briefly indicating, insofar as is practicable, the extent to which the registrant intends to engage therein: (A) the classification, as defined in section five, within which the registrant proposes to operate; (B) borrowing money; (C) the issuance of senior securities; (D) engaging in the business of underwriting securities issued by other persons; (E) concentrating investments in a particular industry or group of industries; (F) the purchase and sale of real estate and commodities, or either of them; (G) making loans to other persons; and (H) portfolio turn-over (including a statement showing the aggregate peso amount of purchases and sales of portfolio securities, other than Government securities, in each of the full fiscal years preceding the filing of such registration statement); (2) a recital of t

he policy of the registrant in respect of matters, not enumerated in paragraph (1), which the registrant deems matters of fundamental policy and elects to treat as such; (3) the name and address of each affiliated person of the registrant; the name and principal address of every company, other than the registrant, of which each such person is an officer, director or partner; a brief statement of the business experience for the preceding five years of each officer and director of the registrant; and (4) the information and documents which would be required to be filed in order to register under the Securities Act all securities (other than short-term paper) which the registrant has outstanding or proposes to issue. (c) The Commission shall make provision, by permissive rules and regulations or order, for the filing of the following, or so much of the following as the Commission may designate, in lieu of the information and documents required pursuant to subsection (b): (1) copies of the most recent registration statement filed by the registrant under the Securities Act and currently effective under such Act; (2) a report containing reasonably current information regarding the matters included in copies filed pursuant to paragraph (1), and such further information regarding matters not included in such copies as the Commission is authorized to require under subsection (b). (d) Every investment company as defined in this Act, existing on the date of effectivity hereof shall register pursuant to the provisions of this section within six months from the approval of this Act. (e) The Commission, in the exercise of its sound judgment and discretion, shall have power to limit the registration of investment companies to such number as the investment opportunities then obtaining would permit, and to allow the registration of new investment companies only when the conditions warrant it. This provision, however, shall not apply to investment companies already existing on the da

te of effectivity of this Act. If it appears to the Commission that a registered investment company has failed to file the registration statement required by this section or a report required pursuant to section twenty-seven (a), or (b), or has filed such registration statement or report but omitted therefrom material facts required to be stated therein, or has filed such a registration statement or report in violation of section thirty-one (b), the Commission shall notify such company by registered mail of the failure to file such registration statement or report, or of the respects in which such registration statement or report appears to be materially incomplete or misleading, as the case may be, and shall fix a date (in no event earlier than thirty days after the mailing of such notice) prior to which such company may file such registration statement or report or correct the same. If such registration statement or report is not filed or corrected within the time so fixed by the Commission or any extension thereof, the Commission, after appropriate notice and opportunity for hearing, and upon such conditions and with such exemptions as it deems appropriate for the protection of investors, may by order suspend the registration of such company until such statement or report is filed or corrected, or may by order revoke such registration, if the evidence establishes (1) that such company has failed to file a registration statement required by this section or a report required pursuant to section twenty-seven (a) or (b), or has filed such a registration statement or report but omitted therefrom material facts required to be stated therein, or has filed such a registration statement or report in violation of section thirty-one (b); and (2) that such suspension or revocation is in the public interest. (g) Whenever the Commission, on its own motion or upon application, finds that a registered investment company has ceased to be an investment company, it shall so d

eclare 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 Commissions denial of any application under this subsection shall be by order. Section 8. Ineligibility of certain affiliated persons and underwriters. (a) It shall be unlawful for any of the following persons to serve or act in the capacity of officer, or director, member of an advisory board, investment adviser, or depositor of any registered investment company, or principal underwriter for any registered open-end company; (1) any person who within ten years has been convicted of any felony or misdemeanor involving the purchase or sale of any security or arising out of such persons conduct as an underwriter, broker, dealer, or investment adviser, or as an affiliated person, salesman, or employee or any investment company, bank, or insurance company; (2) any person who, by reason of any misconduct, is permanently or temporarily enjoined by order, judgment, or decree of any court of competent jurisdiction from acting as an underwriter, broker, dealer, or investment adviser, or as an affiliated person, salesman, or employee of any investment company, bank, or insurance company, or from engaging in or continuing any conduct or practice in connection with any such activity or in connection with the purchase or sale of any security; or (3) a company any affiliated person of which is ineligible, by reason of paragraph (1) or (2), to serve or act in the foregoing capacities. (b) Any person who is ineligible, by reason of subsection (a), to serve or act in the capacities enumerated in such subsection, may file with the Commission an application for an exemption from the provisions of such subsection. The Commission shall by order grant such application, either unconditionally or on an appropriate temporary or other conditional basis

, if it is established that the prohibitions of such subsection, as applied to such person, are unduly or disproportionately severe or that the conduct of such person has been such as not to make it against the public interest or protection of investors to grant such application. Section 9. Affiliations of directors, officers and employees. (a) After one year from the effective date of this Act, no registered investment company shall have a board of directors more than fifty per centum of the members of which are persons who are investment advisers of, or officers or employees of, such registered company. (b) After one year from the effective date of this Act, no registered investment company shall (1) employ as regular broker any director, officer, or employee of such registered company, or any person of which any such director, officer, or employee is an affiliated person; (2) use a principal underwriter of securities issued by it any director, officer, or employee of such registered company or may person of which any such director, officer, employee is an affiliated person; or (3) have as director, officer, or employee any investment banker, or any affiliated person of an investment banker. For the purposes of this paragraph, a person shall not be deemed an affiliated person of an investment banker solely by reason of the fact that he is an affiliated person of a company (A) all the outstanding securities of which (other than short-term paper, securities representing bank loans and directors qualifying shares) are, or after such acquisition will be, owned by one or more registered investment companies; and (B) which is primarily engaged in the business of underwriting and distributing securities issued by other persons, selling securities to customers, or any one or more of such or related activities, and the gross income of such person normally is derived principally from such business or related activities. (c) After the effective date of this Act no regist

ered investment company shall have a majority of its board of directors consisting of persons who are officers or directors of any one bank: Provided, That, if prior to the effective date of this Act, any registered investment company shall have had a majority of its directors consisting or persons who are directors, officers, or employees of any one bank, such registered company may continue to have the same percentage of its board of directors consisting of persons who are directors, officers, or employees of such bank. (d) If by reason of the death, disqualification, or bona fide resignation of any director or directors, the requirements of the foregoing provisions of this section in respect of directors shall not be met by a registered investment company, the operation of such provision shall be suspended as to such registered company for a period of thirty days if the vacancy or vacancies may be filled by action of the board of directors, and for a period of sixty days if a vote of stockholders is required to fill the vacancy or vacancies, or for such longer period as the Commission may prescribe, by rules and regulations upon its own motion or by order upon application, as not inconsistent with the protection of investors. (e) No registered investment company shall knowingly purchase or otherwise acquire, during the existence of any underwriting or selling syndicate, any security (except a security of which such company is the issuer) a principal underwriter of which is an officer, director, member of an advisory board, investment adviser, or employee of such registered company, or is a person (other than a company of the character described in paragraphs (A) and (B) of subsection (b) (3) of which any such officer, director, member of an advisory board, investment adviser, or employee is an affiliated person, unless in acquiring such security such registered company is itself acting as a principal underwriter for the issuer. The Commission, by rules and regula

tions upon its own motion or by order upon application, may conditionally or unconditionally exempt any transaction or classes of transactions from any of the provisions of this subsection, if and to the extent that such exemption is consistent with the protection of investors. (f) In the case of a registered investment company which has an advisory board, such board, as a distinct entity, shall be subject to the same restrictions as to its membership as are imposed upon a board of directors by this section. (g) In the case of a registered investment company which does not have a board of directors, the provisions of this section shall apply as follows: (1) the provisions of subsection (a), as modified by subsection (d), shall apply to the board of directors of the depositor of such company; (2) the provisions of subsection (b) and (c), as modified by subsection (d), shall apply to the board of directors of the depositor and of every investment adviser of such company; and (3) the provisions of subsection (e) shall apply to purchases and other acquisitions for the account of such company of securities a principal underwriter of which is the depositor or an investment adviser of such company, or an affiliated person of such depositor or investment adviser. Section 10. Offers to exchange securities. (a) It shall be unlawful for any registered open-end company or any principal underwriter for such a company to make or cause to be made an offer to the holder of a security of such company or of any other open-end investment company to exchange his security for a security in the same or another such company on any basis other than the relative net asset values of the respective securities to be exchanged, unless the terms of the offer have first been submitted to and approved by the commission or are in accordance with such rules and regulations as the Commission may have prescribed in respect of such offers which are in effect at the time such offer is made. For the pu

rposes of this section, (1) an offer by a principal underwriter means an offer communicated to holders of securities of a class or series but does not include an offer made by such principal underwriter to an individual investor in the course of a retail business conducted by such principal underwriter, and (2) the net asset value means the net asset value which is in effect for the purpose of determining the price at which the securities, or class or series of securities involved are offered for sale to the public either (A) at the time of the receipt by the offeror of the acceptance of the offer or (B) at such later time as is specified in the offer. (b) The provisions of this section shall not apply to any offer made pursuant to (1) any plan of reorganization, which is submitted to and requires the approval of the holders of at least a majority of the outstanding shares of the class or series to which the security owned by the offeree belongs; or (2) the right of conversion, at the option of the holder, from one class or series into another class or series of securities issued by the same company upon such terms as are specified in the charter, certificate of incorporation, articles of association, by-laws, or trust indenture subject to which the securities to be converted were issued or are to be issued. Section 11. Functions and activities of investment companies. It shall be unlawful for any registered investment company, in contravention of such rules and regulations or orders as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors (1) to purchase any security on margin, except such short-term credits as are necessary for the clearance of transactions; (2) to participate on a joint or a joint and several basis in any trading account in securities, except in connection with an underwriting in which such registered company is a participant; or (3) to effect a short sale of any security, excep

t in connection with an underwriting in which such registered company is a participant. (b) It shall be unlawful for any registered open-end company (other than a company complying with the provisions of section ten) to act as a distributor of securities of which it is the issuer, except through an underwriter, in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors. (c) It shall be unlawful for any investment company to (1) Generate funds for promoting the private business or industry of any employee, official, director, organizer, incorporator or stockholder thereof; (2) Allow any of its employee, official, director, organizer, incorporator or stockholder to buy real estate, personal property or any other kind of property and sell the same to the company at a price higher than the procurement cost or sell any property of the company, or a portion thereof, at a price below the market value thereof to any of the aforementioned persons. Section 12. Changes in investment policy. No registered investment company shall, unless authorized by the vote of a majority of its outstanding voting securities (1) borrow money, issue senior securities, underwrite securities issued by other persons, purchase or sell real estate or commodities or make loans to other persons, except in each case in accordance with the recitals of policy contained in its registration statement in respect thereto; (2) deviate from its policy in respect of concentration of investments in any particular industry or group of industries as recited in its registration statement, or deviate from any fundamental policy recited in its registration statement pursuant to section seven (b) (2); or (3) change the nature of its business so as to cease to be an investment company. (b) Where the change will involve an amendment of the organization papers of the investment company, the pertinent provis

ions of law on the vote necessary and other requisites to effectuate the same, shall likewise be complied with. Section 13. Size of investment companies. -No registered investment company organized after the effective date of this Act, and principal underwriter for such a company, shall make a public offering of securities of which such company is the issuer, unless (1) such company has a paid-up capital of at least five hundred thousand pesos, as certified to by an independent certified public accountant; or (2) such company has previously made a public offering of its securities, and at the time of such offering had a paid-up capital of at least five hundred thousand pesos, as certified to by an independent certified public accountant: Provided, However, That no investment company shall redeem, directly or indirectly, any security of which such company is the issuer unless the remaining unimpaired capital shall be at least two hundred fifty thousand pesos or fifty per cent of its outstanding liabilities to the creditors of said company, whichever is higher. Section 14. Contracts of advisers and underwriters. After the effective date of this Act it shall be unlawful for any person to serve or act as investment adviser of a registered investment company, except pursuant to a written contract, which contract, whether with such registered company or with an investment adviser of such registered company, unless in effect prior to the effective date of this Act, has been approved by the vote of a majority of the outstanding voting securities of such registered company and (1) precisely describes all compensation to be paid thereunder; (2) shall continue in effect for a period more than two years from the date of its execution, only so long as such continuance is specifically approved at least annually by the board of directors or by vote of a majority of the outstanding voting securities of such company; (3) provides, in substance, that it may be terminated at

any time, without the payment of any penalty, by the board of directors of such registered company or by vote of two-thirds of the outstanding voting securities of such company on not more than sixty days written notice to the investment adviser; and (4) provides, in substance, for its automatic termination in the event of its assignment by the investment adviser. After one year from the effective date of this Act, it shall be unlawful for any principal underwriter for a registered open-end company to offer for sale, sell, or deliver after sale any security of which such company is the issuer, except pursuant to a written contract with such company, which contract, unless in effect prior to the effective date of this Act (1) shall continue in effect for a period more than two years from the date of its execution, only so long as such continuance is specifically approved at least annually by the board of directors or by vote of two-thirds of the outstanding voting securities of such company; and (2) provides, in substance, for its automatic termination in the event of its assignment by such underwriter. (c) In addition to the requirements of subsections (a) and (b) it shall be unlawful for any registered investment company having a board of directors to enter into, renew, or perform any contract or agreement, written or oral, except a written agreement which was in effect prior to the effective date of this Act, whereby a person undertakes regularly to serve or act as investment adviser of or principal underwriter for such company, unless the terms of such contract or agreement and any renewal thereof have been approved (1) by a majority of the directors who are not parties to such contract or agreement or affiliated persons of any such party, or (2) by the vote of a majority of the outstanding voting securities of such company. It shall be unlawful for any person, after the effective date of this Act (1) to serve or act as investment adviser of a regist