SEC Phase 2-7A Certified Investment Solicitor (CIS) Exam — Philippines

Under current regulations of the Philippine Securities and Exchange Commission (SEC), what is the minimum paid-up capital required to incorporate a new investment company (mutual fund)?

• APHP 10 million
• BPHP 20 million
• CPHP 50 million
• DPHP 100 million

According to Section 15 of the Investment Company Act (RA 2629), what is the minimum percentage of the board of directors of an investment company that must NOT be interested persons (i.e., must be independent)?

• AAt least 20%
• BAt least 40%
• CAt least 50%
• DAt least 60%

Which of the following activities is strictly prohibited for an open-end investment company (mutual fund) in the Philippines under the Investment Company Act?

• AInvesting in government bonds
• BEngaging in short selling transactions
• CRedeeming shares on a daily basis
• DReinvesting customer dividends

Are registered investment companies in the Philippines permitted to purchase securities on margin?

• AYes, without limit
• BYes, but only up to 10% of their net assets
• CYes, provided it is approved by the SEC
• DNo, it is strictly prohibited

Under the Investment Company Act (RA 2629), what is the maximum amount that a mutual fund may borrow, and under what conditions?

• AUp to 10% of net assets, for temporary or emergency purposes only
• BUp to 25% of net assets, for leveraging stock returns
• CUp to 50% of net assets, with shareholder approval
• DBorrowing is completely prohibited under all circumstances

How often must a registered investment company file financial reports with the Securities and Exchange Commission (SEC) and distribute them to its shareholders?

• AMonthly
• BQuarterly
• CSemi-annually and annually
• DEvery two years

Under RA 2629, a contract between an investment company and its investment adviser (fund manager) must be approved by which of the following?

• AA vote of the majority of the outstanding voting securities
• BThe SEC Commissioner alone
• CThe Board of Directors only
• DThe custodian bank

If a mutual fund wishes to change its fundamental investment policies (such as changing from a conservative income fund to an aggressive growth fund), who must approve this change?

• AThe fund manager alone
• BA majority of the outstanding voting securities (shareholders)
• CThe custodian bank
• DThe Philippine Stock Exchange

Which of the following corporate forms must an investment company take to be registered under the Investment Company Act of the Philippines?

• ASole Proprietorship
• BPartnership
• CStock Corporation
• DNon-Stock Corporation

What is the primary regulatory purpose of the Investment Company Act (RA 2629)?

• ATo guarantee that mutual fund investors never lose money
• BTo regulate the activities of investment companies and protect the investing public
• CTo set the prices of stocks traded on the Philippine Stock Exchange
• DTo act as the sole distributor of mutual funds in the Philippines

Which type of security is an open-end mutual fund company permitted to issue to the public under the Investment Company Act?

• ACommon stock (redeemable shares)
• BPreferred stock
• CCorporate bonds
• DCommercial papers

Under Section 17 of the Investment Company Act, registered open-end investment companies are prohibited from issuing 'senior securities'. What does 'senior securities' refer to?

• ASecurities sold exclusively to senior citizens
• BDebt securities or preferred stocks that have priority over common shares in dividends or…
• CShares held by the founders or directors of the fund
• DSecurities that have been registered for more than 10 years

Under SEC guidelines, a mutual fund may invest in the shares of another mutual fund, subject to what restriction?

• ANo restrictions; mutual funds can invest 100% of assets in other funds
• BIt is completely prohibited under all circumstances
• CThe investment must not exceed 10% of the investing fund's total assets
• DThe investment requires a special amendment to the Philippine Constitution

Before an investment company can offer its shares to the public in the Philippines, it must register them under the Securities Regulation Code (SRC). Which agency evaluates and approves this registration?

• AThe Securities and Exchange Commission (SEC)
• BThe Bangko Sentral ng Pilipinas (BSP)
• CThe Philippine Stock Exchange (PSE)
• DThe Department of Finance (DOF)

Under RA 2629, the term 'redeemable shares' means that the shareholder is entitled to receive what upon tendering their shares to the company?

• AA guaranteed profit fixed by the SEC
• BA return of the exact initial investment amount without any fees
• CTheir approximate proportionate share of the company's current net assets (NAVPS)
• DCorporate bonds of equivalent value

To prevent fraud and misappropriation, the assets and cash of a mutual fund must be held by an independent third party known as the:

• AInvestment Adviser
• BCustodian Bank
• CTransfer Agent
• DBoard of Directors

How often must a mutual fund compute and publish its Net Asset Value per Share (NAVPS)?

• AEvery hour during trading
• BDaily, at the close of every business day
• CWeekly, on Friday afternoons
• DMonthly, on the last business day

Under RA 2629, what is the maximum initial period for which an investment advisory contract may be entered into, and how must it be renewed?

• AMaximum of 1 year; renewed only by the SEC Commissioner
• BMaximum of 2 years; renewed annually by the board of directors or majority shareholder vo…
• CMaximum of 5 years; renewed automatically without vote
• DIndefinite period, with no renewal required

Under the Investment Company Act, who is considered an 'interested person' of an investment company?

• AAny shareholder owning less than 1% of outstanding stock
• BAny person affiliated with the investment adviser, or who is an immediate family member o…
• CAny client who purchases mutual fund shares
• DAny bank that provides standard depository accounts

Are mutual funds in the Philippines allowed to purchase securities from their own investment adviser or their affiliated brokers?

• AYes, without any restrictions
• BYes, but only if they pay a premium commission
• CNo, such transactions are generally prohibited to prevent conflicts of interest, unless s…
• DYes, but only during stock market crashes

What is the required asset coverage if an investment company borrows money from a bank?

• AAt least 100% asset coverage
• BAt least 150% asset coverage
• CAt least 200% asset coverage
• DAt least 300% asset coverage

If a mutual fund's net assets fall below the minimum required capitalization of PHP 50 million, what action may the SEC take?

• AForce the fund to buy high-risk stocks to recover assets
• BOrder the suspension of the registration of its shares, or initiate liquidation proceedin…
• CAutomatically double the management fees to raise cash
• DExempt the fund from all reporting requirements

Under RA 2629, what happens to a mutual fund's underwriting or investment advisory contract if it is assigned (transferred) to another party?

• AThe contract continues without any change
• BThe contract is automatically terminated
• CThe contract is subject to a 10% transfer tax
• DThe contract is upgraded to a lifetime agreement

The public offering price of a mutual fund share is composed of the Net Asset Value per Share (NAVPS) plus which of the following?

• AThe solicitor's personal bonus
• BAny applicable sales load or purchase commission
• CA flat PHP 500 registration tax
• DThe custodian bank's annual fee

Which SEC registration form is specifically used to apply for the registration of an investment company in the Philippines?

• AForm 17-A
• BForm ICA-2629
• CForm 10-K
• DForm 23-A

Which of the following formulas is used to calculate a mutual fund's Net Asset Value per Share (NAVPS)?

• A(Total Assets + Total Liabilities) / Outstanding Shares
• B(Total Assets - Total Liabilities) / Outstanding Shares
• CTotal Assets / Outstanding Shares
• DTotal Liabilities / Outstanding Shares

A mutual fund has total assets valued at PHP 150 million and total liabilities of PHP 30 million. If there are 10 million shares outstanding, what is the fund's Net Asset Value per Share (NAVPS)?

• APHP 12.00
• BPHP 15.00
• CPHP 18.00
• DPHP 120.00

Which of the following describes an 'open-end' investment company (mutual fund)?

• AIt issues a fixed number of shares that trade on the stock exchange like regular stocks.
• BIt continually issues new shares and stands ready to redeem shares from investors on any…
• CIt is only open to institutional investors and closed to the general public.
• DIt does not charge any management fees or operating expenses.

How does a 'closed-end' investment company differ from an 'open-end' mutual fund?

• AClosed-end funds are illegal in the Philippines, while open-end funds are legal.
• BClosed-end funds do not invest in stocks, while open-end funds only invest in stocks.
• CClosed-end funds issue a fixed number of shares that trade on an exchange, and shares are…
• DClosed-end funds are managed by the SEC, while open-end funds are managed by private bank…

What is the primary objective and typical holdings of a Money Market Fund?

• ACapital appreciation by investing in high-growth technology stocks
• BPreservation of capital and liquidity by investing in short-term debt instruments (T-bill…
• CHigh income by investing in long-term corporate bonds and real estate projects
• DSpeculative returns by trading commodity futures and foreign exchange

An investor who is looking for regular, stable income and has a moderate risk tolerance would most likely invest in which type of mutual fund?

• AEquity Fund
• BBond Fund
• CAggressive Growth Fund
• DSector Fund

Which of the following mutual fund types typically has the highest potential for long-term growth but also the highest short-term price volatility?

• AMoney Market Fund
• BBond Fund
• CEquity Fund
• DBalanced Fund

What is the primary feature of a Balanced Fund?

• AIt splits its portfolio between stocks and fixed-income securities to balance growth and…
• BIt keeps exactly 50% cash and 50% gold reserves at all times.
• CIt charges zero sales loads and zero management fees.
• DIt guarantees that the NAVPS will never fall below PHP 1.00.

What is a 'front-end sales load' in mutual fund investing?

• AA fee deducted from the investor's payout at the time of redemption
• BAn annual charge deducted from the fund's net assets for marketing expenses
• CA sales commission deducted from the investor's initial deposit at the time of purchase
• DA fee paid to the SEC for licensing the fund solicitor

What is a 'back-end sales load' (Contingent Deferred Sales Charge or CDSC)?

• AA fee paid only by the fund manager to the distributor
• BA sales charge imposed when an investor redeems shares, which typically decreases the lon…
• CA charge applied to the fund's assets at the end of the fiscal year
• DA penalty fee for making late account deposits

If a mutual fund is described as a 'no-load fund', it means which of the following?

• AThe fund does not invest in high-risk securities
• BThe fund has zero operating expenses and zero management fees
• CThe fund does not charge front-end or back-end sales loads to buy or redeem shares
• DThe fund is not registered with the SEC

Under Section 22 of the Investment Company Act, within how many days must a mutual fund pay the redemption proceeds to a shareholder after a valid request is submitted?

• AWithin 24 hours
• BWithin 3 business days
• CWithin 7 calendar days
• DWithin 30 calendar days

Under which of the following circumstances is a mutual fund legally permitted to suspend the right of redemption?

• AWhen the fund's NAVPS falls below the initial offering price
• BDuring any period when trading on the Philippine Stock Exchange is suspended, or during e…
• CWhen the fund manager decides that market conditions are unfavorable for stock sales
• DWhenever the fund receives redemption requests exceeding 5% of its assets in a single day

Which pricing method is used by mutual funds, where transactions are executed at the NAVPS computed AFTER the purchase or redemption order is received?

• AHistorical pricing
• BForward pricing
• CMarket-maker pricing
• DNegotiated pricing

If a mutual fund has a daily transaction cut-off time of 12:00 PM, and a client submits a purchase order at 2:00 PM on a Tuesday, which day's NAVPS will apply to the transaction?

• ATuesday's closing NAVPS
• BWednesday's closing NAVPS
• CThe NAVPS of the preceding Monday
• DThe average NAVPS of the current week

Which document is the primary legal offering document that must be provided to a client prior to or at the time of their mutual fund purchase?

• AThe fund manager's resume
• BThe mutual fund Prospectus
• CA copy of RA 2629
• DA blank deposit slip

Under SEC guidelines, how often must a mutual fund update its prospectus to ensure that the information remains current and not misleading?

• AEvery 5 years
• BEvery 2 years
• CAt least once a year (annually)
• DNo updates are required unless the fund name changes

Which of the following is typically the largest component of a mutual fund's annual operating expenses?

• ACustodian fee
• BInvestment management (advisory) fee
• CSEC registration renewal fee
• DAudit and legal fee

What does a mutual fund's 'Expense Ratio' represent?

• AThe percentage of initial investment lost to front-end loads
• BThe ratio of the fund's total liabilities to its total assets
• CThe percentage of fund assets used to cover operating expenses annually
• DThe commission rate paid directly to the solicitor

How does a higher expense ratio affect the net returns of a mutual fund investor?

• AIt increases the investor's return by attracting better managers.
• BIt has no effect because expenses are paid by the SEC.
• CIt directly reduces the net return to the investor.
• DIt guarantees a higher dividend payout.

Which entity is responsible for maintaining the official register of mutual fund shareholders, processing purchases and redemptions, and distributing dividends?

• ACustodian Bank
• BTransfer Agent
• CAssociated Person
• DPhilippine Stock Exchange

When a mutual fund distributes capital gains or dividends, what does 'dividend reinvestment' allow the shareholder to do?

• AWithdraw cash without paying taxes
• BAutomatically use the distribution to buy more shares of the fund at NAVPS, without a sal…
• CSwap their shares for government bonds
• DTransfer the distribution to a credit card account