Question & AnswerQ&A (SEC MEMORANDUM CIRCULAR NO. 1, S. 2000)
The allowed investments are: 1) Fixed income instruments, 2) Mutual Funds, 3) Equities, and 4) Real Estate.
Fixed income instruments are classified into short-term (maturity of 365 days or less) and long-term instruments.
Government securities shall comprise not less than 10% of the trust fund equity.
Commercial papers must have a short-term credit rating of '1' and a long-term credit rating of 'Aaa' based on the Philippine Rating Corporation or its equivalent.
Direct loans may be granted to financially stable corporations with a good payment record, secured by a real estate mortgage covering up to 60% of the appraised property value. The maximum allocation is 5% of total trust fund equity, and loans to each borrower must not exceed 10% of the allocated amount. The loan term is limited to two years.
Mutual funds must be registered with the SEC and invest only in fixed income instruments and blue-chip stocks, adhering to prescribed limits by law and regulations.
Investments must be limited to stocks listed on the big board of the Philippine Stock Exchange, issued by financially stable companies with a good growth and dividend track record for three years. The total allocated amount shall not exceed 25% of the trust fund equity, and any single stock investment must not exceed 10% of the allocated amount.
Real estate must be located in strategic areas with titles free from liens and encumbrances, transferred to the trustee in trust for planholders unless sold by the pre-need company. Real estate is recorded at acquisition cost and appraised every five years. Only 50% of appraisal increments are recorded, but full declines in value are recognized. Real estate investments must not exceed 25% of total trust fund equity.
The trustee shall exercise due diligence, have exclusive control over fund management, maintain liquidity to cover benefits due (not less than 20% of net asset value), and refrain from investing in or extending loans to the pre-need company, its directors, officers, stockholders, related interests, or affiliated persons or entities.
The SEC may demand conversion of investments to cash or near-cash assets at its discretion to protect planholders' interests.
All inconsistent circulars, rules, and regulations or parts thereof are repealed or modified accordingly.
This Circular took effect immediately upon adoption on June 21, 2000.