Rule 17. Investment of the Trust Fund

17.1.  To ensure the liquidity of the Trust Fund to guarantee the delivery of the Benefits provided for under the plan contract and likewise obtain sufficient capital growth to meet the growing actuarial reserve liabilities, all investments of the Trust Fund/s of a Pre-Need Company shall be limited to the following and subject to limitations to wit: 

1.)    Fixed Income Instruments. These may be classified into short term and long term instruments.  The instrument is short term if the maturity period is 365 days or less.  This category includes: 

a.)     Government securities which shall not be less than 10% of the trust fund equity. 

b.)     Savings/time deposits and common trust fund with a commercial bank with satisfactory examination rating as of the last examination by the Bangko Sentral ng Pilipinas 

c.)     Commercial papers duly registered with the Commission with a credit rating of “1” for short term and “Aaa” for long term based on the rating scale of an accredited Philippine Rating Agency or its equivalent at the time of investment.

The maximum exposure to long-term commercial papers shall not exceed fifteen per cent (15%) of the total Trust Fund equity while the exposure to each commercial paper issuer shall not exceed ten per cent (10%) of the allocated amount.

d.)     Direct loans to corporations which are financially stable, profitable for the last three (3) years and have a good track record of paying their previous loans from the Trust Fund of Pre-Need Companies.

These loans shall be fully secured by a real estate mortgage up to the extent of sixty per cent (60%) of the appraised value of the property at the time the loan was granted.

The property shall be covered by a Transfer Certificate of Title registered in the name of the mortgagor and free from liens and encumbrances.

The maximum amount to be allocated for direct loans shall not exceed five per cent (5%) of the total Trust Fund equity while the amount to be granted to each corporate borrower shall not exceed ten per cent (10%) of the amount allocated.

The maximum term of the loan should be two (2) years only.

2.     Mutual Funds duly registered with the Commission, where such funds are invested only in fixed income instruments and blue chip securities subject to the limitations prescribed by law, rules and regulations. 

3.     Equities. Investments in equities shall be limited to stocks listed on the Main board of a local Stock Exchange.

These investments shall include stocks issued by companies that are financially stable, actively traded, possess good track record of growth and have declared dividends for the past three years.

The amount to be allocated for this purpose shall not exceed twenty five per cent (25%) of the total trust fund equity while the investment in any particular issue shall not exceed ten per cent (10%) of the allocated amount. The investment shall be recorded at the aggregate of the lower of cost or market.

Existing investments which are not in accordance herewith shall be disposed of by December 31, 2001.

4.    Real Estate. These shall include real estate properties located in strategic areas of cities and first class municipalities.  The Transfer Certificate of Title (TCT) shall be in the name of the seller, free from liens and encumbrances and shall be transferred in the name of the trustee in trust for the Planholders unless the seller/transferor is the Pre-Need company wherein an annotation to the TCT relative to the sale/transfer may be allowed.

It shall be recorded at acquisition cost. 

However, the real estate shall be appraised every three (3) years by a licensed real estate appraiser, accredited by the Philippine Association of Real Estate Appraisers, to reflect the increase or decrease in the value of the property.  In case the appraisal would result in an increase in the value, only sixty per cent (60%) of the appraisal increase is allowed to be recorded in the books of the trust fund but in case of decline in value, the entire decline shall be recorded.  Appraisal increment should not be used to cover up the required monthly contribution to the trust fund.

The total recorded value of the real estate investment shall not exceed twenty five per cent (25%) of the total trust fund equity of the pre-need company.  In the event that the existing real estate investment exceeds the aforesaid limit, the same shall be leveled off to the prescribed limit by June 30, 2002. 

17.2.  Investments of the Trust Fund which are not in accordance with the preceding paragraphs shall not be allowed unless the prior written approval of the Commission had been secured.

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