Rules and Regulations on Trust, Other Fiduciary Business and Investment Management Activities of Financial Institutions

October 16, 1990 CBP MEMORANDUM TO : All Banks and Other Financial Intermediaries Performing Trust, Other Fiduciary Business and Investment Management Activities SUBJECT : Rules and Regulations on Trust, Other Fiduciary Business and Investment Management Activities of Financial Institutions The Monetary Board, in its Resolution No. 1065 dated October 8, 1990 approved the issuance of the attached set of regulations that will govern the trust, other fiduciary business and investment management activities of banks, non-bank financial institutions and tru`st corporations. The regulations shall be effective immediately and shall supersede Part IV of Books I, II, III and IV of the Manual of Regulations for Banks and Other Financial Intermediaries. The first digits of the Section/Subsection numbers shown as blanks shall be filled by either "1", "2", "3" and "4" corresponding to Books I, II, III or IV, respectively, of the Manual. With respect to Book IV, the regulations shall apply to trust corporations and other non-bank financial institutions engaged in trust, other fiduciary business, and investment management activities. In the same resolution, the Monetary Board also approved the revision of the Manual of Accounts and the following pertinent report forms to conform with the new regulations: 1. Report on Trust and Other Fiduciary Business and Investment Management Activities CBP 7-16-35TR for banks with authority to engage in trust business CBP-26-23TR for investment houses with authority to engage in trust business 2. Report on Investment Management Activities CBP 7-16-351M for banks with authority to engage in investment management activities CBP 7-26-231M for investment houses engaged in investment management activities 3. Consolidated Statement of Condition SES I/VI Form 2A.1/2A.2 for KBs, EKBs and SGBs CBP 7-16-05 Page 9 for SBs CBP 7-16-05.B Page 3 for PDBs CBP 7-26-02 Page 4 for IHs 4. Published Statement of Condition SES 1 Form 2B (CBP.7-16-03) Page 3 for KBs, EKBs and SGBs CBP 7-16-03 SB/PDB Page 2 for SBs and PDBs CBP Unnumbered for NBQBs (Consolidated Balance Sheet) The new forms (attached) will be used beginning with the reports as at December 31, 1990. FOR THE MONETARY BOARD: (SGD.) JOSE L. CUISIA, JR. Governor PART IV TRUST, OTHER FIDUCIARY BUSINESS AND INVESTMENT MANAGEMENT ACTIVITIES SEC. 401. Statement of Principles . The cardinal principle common to all trust and other fiduciary relationships is fidelity. Policies predicated upon this principle are directed towards confidentiality, scrupulous care, safety and prudent management of property including reasonable probability of income with proper accounting and appropriate reporting thereon. Practices are designed to promote efficiency in administration and operation; to adhere and conform with the terms of the instrument or contract; and to maintain absolute separation of property free from any intrusion of conflict of interest. An institution incorporated or authorized to engage in trust and fiduciary business is under no obligation, either legal or moral, to accept any such business being offered nor has it the right to accept if the same is contrary to law, rules, regulations, public order and public policy. It shall advertise its services in a dignified manner and enter such business only when demand for such service is evident, when specially equipped to render such service and upon full appreciation of the responsibilities involved. It shall be ready and willing to give full disclosure of the services being offered and shall conduct its dealings with transparency. Harmonious relationship shall likewise be pursued with other professions to achieve the common goal of mutual service to the public and protection of its interest. SEC. 402. Scope of Regulations . These regulations shall govern the grant of authority to and the management, administration and conduct of "trust", "other fiduciary business" and "investment management activities" (as these terms are defined in Section 403) of trust corporations and financial institutions allowed by law to perform such operations. acIHDA The regulations are divided into three (3) sub-parts where: A. Trust and Other Fiduciary Business shall apply to institutions authorized to engage in trust and other fiduciary business including investment management activities; B. Investment Management Activities shall apply to institutions without trust authority but engaged in investment management activities; and C. General Provisions shall apply to both of the foregoing institutions. SEC. 403. Definitions . For purposes of regulating the operations of trust and other fiduciary business and investment management activities, unless the context clearly connotes otherwise, the following shall have the meaning indicated: a. Trust business shall refer to any activity resulting from a trustor-trustee relationship (trusteeship) involving the appointment of a trustee by a trustor for the administration, holding, management of funds and/or properties of the trustor by the trustee for the use, benefit or advantage of: the trustor or of others called beneficiaries. b. Other fiduciary business shall refer to any activity of trust licensed institutions resulting from a contract or agreement whereby the institution binds itself to render service or to act in a representative capacity such as in an agency, guardianship, administratorship of wills, properties and estates, executorship, receivership, and other similar services which do not create or result in a trusteeship. It shall exclude collecting or paying agency arrangements and similar fiduciary services which are inherent in the use of the facilities of the other operating departments of such institution. Investment management activities, which are considered as among other fiduciary business, shall be separately defined in the succeeding item to highlight its being a major source of fiduciary business. c. Investment management activity shall refer to any activity resulting from a contract or agreement primarily for financial return whereby the bank or an investment house (the investment manager) binds itself to handle or manage investible funds or any investment portfolio in a representative capacity as financial, or managing agent, adviser, consultant or administrator of financial or investment management, advisory, consultancy or any similar arrangement which does not create or result in a trusteeship. d. Trust is a relationship or an arrangement whereby a person called a trustee is appointed by a person called a trustor to administer, hold and manage funds and/or property of the trustor for the benefit of a beneficiary. e. Trust Agreement is an instrument in writing covering the terms and conditions of the trust. f. Trustee is any person who holds legal title to the funds and/or property of a trust. g. Trustor is any person who creates a trust. h. Beneficiary is any person for whose benefit a trust is created. i. Fiduciary shall refer to any person or entity engaged in any of the other fiduciary business as herein defined where no trustor-trustee relation exists. j. Agency shall refer to a contract whereby a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter. k. Principal shall refer to the person who grants authority to another person called an agent, under a contract to enter into transactions in his behalf. l. Agent shall refer to a person who acts in representation or on behalf of another person with the latter's authority. m. Trust department shall refer to an entity's department office, unit, group, division or any aggrupation which carries out the trust and other fiduciary business of such entity. n. Trust officer shall refer to the designated head or officer-in-charge of the trust department. o. Trust account shall refer to an account where transactions arising from a trusteeship are kept and recorded. p. Common trust fund shall refer to a fund maintained by a trust corporation, bank or investment house authorized to perform trust functions under a written and formally established plan, exclusively for the collective investment and reinvestment of certain moneys representing participations in the plan received by it in its capacity as the trustee. q. Fiduciary account shall refer to an account where transactions arising from any of the other fiduciary businesses are kept and recorded. r. Investment manager shall refer to any person or entity engaged in investment management activities as herein defined. s. Investment management department shall refer to an entity's department, unit, group, division or any aggrupation which carries out the investment management activities of such entity which does not have an authority to engage in trust and other fiduciary business. t. Investment management officer shall refer to the designated head or officer-in-charge of the investment management department of an institution which does not have the authority to engage in trust and other fiduciary business. u. Investment management account shall refer to an account where transactions arising from investment management activities are kept and recorded. A. TRUST AND OTHER FIDUCIARY BUSINESS SEC. 404. Authority to Perform Trust and Other Fiduciary Business . Banks may be authorized by the Monetary Board to engage in trust and other fiduciary business under Chapter VII of the General Banking Act (R.A. No. 337), as amended. Entities other than banks whose articles of incorporation or any amendments thereto, include the purpose or power to engage in trust and other fiduciary business, shall secure the prior favorable recommendation of the Monetary Board of the Central Bank pursuant to Section 17 of the Corporation Code. If after due findings, an entity is found to engage in unauthorized trust and other fiduciary business and/or investment management activities, whether as its primary, secondary or incidental business, the Monetary Board may impose administrative sanctions against such entity or its principal officers and/or majority stockholders or proceed against them in accordance with law. The Monetary Board may take such action as it may deem proper such as, but may not be limited to, requiring the transfer or turnover of any trust and other fiduciary, and/or investment management account to duly incorporated and licensed entities of the choice of the trustor, beneficiary or client, as the case may be. No entity shall advertise or represent itself as being engaged in trust and other fiduciary business or in investment management activities or represent itself as trustee or investment manager or use words of similar import; and/or use in connection with its business title the words "trust", "trust corporation", "trust company", "trust plan", or words of similar import, without having obtained the required authority to do so. SUBSEC. 404.1 Pre-requisites for Engaging in Trust and Other Fiduciary Business . A trust corporation, bank or investment house, before it may engage in trust and other fiduciary business, shall comply with the following requirements: 1. The applicant has a paid-in-capital of at least P100 million. A bank or an investment house previously authorized to perform and is actually engaged in trust and other fiduciary business whose paid-in capital is less than P100 million shall build up its paid-in capital in equal amounts annually over a three-year period from October 16, 1990 by way of fresh capital infusion or by stock dividends until the minimum amount shall have been met. In case an institution fails to comply with this requirement, the Monetary Board may require the institution to desist from accepting new trust and other fiduciary accounts and from renewing expiring trust and other fiduciary contracts; SEHTAC 2. The applicant has been duly licensed or incorporated as a financial institution or as a trust corporation by the appropriate government agency or by special law or charter; 3. The articles of incorporation or governing charter of the institution shall include among its powers or purposes, acting as trustee or administering any trust or holding property in trust or on deposit for the use, or behoof of others; 4. The by-laws of the institution shall include among others, provisions on the following: a. The organization plan or structure of the department, office or unit which shall conduct the trust and other fiduciary business of the institution; b. The creation of a trust committee, the appointment of a trust officer and subordinate officers of the trust department; and c. A clear definition of the duties and responsibilities as well as the line and staff functional relationships of the various units, officers and staff within the organization. Institutions already authorized to engage in trust and other fiduciary activities are given six (6) months from October 16, 1990 within which to effect the above required amendments to their by-laws in accordance with applicable laws; and 5. In the case of a bank or investment house, the applicant shall also meet the following additional requirements: a. It has continuously complied with its capital-to-risk assets ratio, reserve requirements against deposit liabilities/substitutes, liquidity floor, and ceilings on DOSRI loans for at least twelve (12) months before the filing of its application until the authority to engage in trust and other fiduciary business shall have been issued; b. Its operations during the year immediately preceding the filing of the application have been profitable; c. It has shown substantial compliance with other pertinent laws, rules and regulations, policies and instructions of the Central Bank; has not been cited for serious/major violations or exceptions affecting its solvency, liquidity and profitability. SUBSEC. 404.2 Pre-operating Requirements . Any institution authorized to engage in trust and other fiduciary business shall, before engaging in actual operations, submit to the Central Bank the following: 1. Government securities acceptable to the Central Bank amounting to P500,000.00 as minimum basic security deposit for the faithful performance of trust and other fiduciary duties required under Subsection 405.1; 2. Organization chart of the trust department which shall carry out the trust and other fiduciary business of the institution; and 3. Names and positions of individuals designated as chairman and members of the trust committee, trust officer and other subordinate officers of the trust department with their respective bio-data and statement of duties and responsibilities. SEC. 405 Security for the Faithful Performance of Trust and Other Fiduciary Business and Liquidity Requirement . SUBSEC 405.1 Basic Security Deposit . Any institution authorized and engaged in trust and other fiduciary business shall deposit with the Central Bank a minimum amount of P500,000.00 of eligible government securities as security for the faithful performance of its trust and other fiduciary duties: Provided , That an institution which has not met the P500,000.00 shall be given thirty (30) banking days from October 16, 1990 to comply. In case an institution fails to comply with the basic security deposit, the Monetary Board may require the institution to desist from accepting new trust and other fiduciary accounts and from renewing expiring trust and other fiduciary contracts. Whenever the total volume of trust, investment management and other fiduciary assets exceeds P50 million, the amount of government securities deposited with the Central Bank shall be increased or decreased to an amount equivalent to at least one percent (1%) of the book value of such assets: Provided , That at no time shall such deposit with the Central Bank be less than P500,000.00. SUBSEC. 405.2 Liquidity Requirement for Common Trust Funds . In addition to the basic security deposit, an institution shall be required to maintain for liquidity purposes investments in government securities to be deposited with the Central Bank, amounting to at least ten percent (10%) of the book value of each common trust fund and such other managed funds which partake of the collective investment nature of common trust funds. SUBSEC. 405.3 Eligible Securities . Government securities which shall be deposited in compliance with the above basic security deposit and liquidity requirement shall consist of evidences of indebtedness of the Republic of the Philippines and of the Central Bank and any other evidences of indebtedness or obligations the servicing and repayment of which are fully guaranteed by the Republic of the Philippines; and such other kinds of securities which may be declared eligible by the Monetary Board: Provided , That such securities shall be free, unencumbered, and not utilized for any purpose: Provided, further , That such securities shall have remaining maturities of not more than three (3) years from the date of deposit with the Central Bank: Provided , finally , That securities utilized for purposes of compliance with the ten percent (10%) liquidity requirement for common trust funds and similarly managed funds shall be purchased at prevailing market rates to ensure that income yields are not prejudiced by the requirement. SUBSEC. 405.4 Valuation of Securities and Basis of Computation of the Requirements . For purposes of determining compliance with the basic security deposit and liquidity requirement under this Section, the amount of securities so deposited shall be based on their book value, that is, cost as increased or decreased by the corresponding discount or premium amortization. The base amount for the basic security deposit shall be the average of the month-end balances of total trust, investment management and other fiduciary assets of the immediately preceding calendar quarter. The base amount for the liquidity requirement for common trust funds specified in Subsection 405.2 shall be computed in the same manner. SUBSEC. 405.5 Compliance Period . The trustee or fiduciary shall have thirty (30) banking days after the end of every calendar quarter within which to deposit with the Central Bank securities required under this Section. SEC. 406. Organization and Management . SUBSEC. 406.1 Organization . An institution authorized to engage in trust and other fiduciary business pursuant to Subsection 404.1 shall include in its by-laws, provisions on the organization plan or structure of the department, office or unit which shall conduct such business. The by-laws shall also include provisions on the creation of a trust committee; the appointment of a trust officer and other subordinate officers; and a clear definition of their duties and responsibilities as well as their line and staff functional relationships within the organization which shall be in accordance with the following guidelines: 1. Trust and other fiduciary business of an institution shall be carried out through a trust department which shall be organizationally, operationally, administratively and functionally separate and distinct from the other departments and/or businesses of the institution. An institution, which is also engaged in investment management activities, shall conduct the same only through its trust department and the responsibilities of the board of directors, trust committee and trust officer shall be construed to include the proper administration and management of investment management activities. No institution shall undertake any of the trust and other fiduciary business and whenever applicable, investment management activities outside the direct control, authority and management of the trust department or through any department or office which is involved in the other businesses of the institution, such as the Treasury, Funds Management or any similar department, otherwise, any such business shall be considered part of the institution's real liabilities. 2. The trust department, trust officer and other subordinate officers of the trust department shall only be directly responsible to the institution's trust committee which shall in turn be only directly responsible to the institution's board of directors. No director, officer or employee taking part in the management of trust and other fiduciary accounts shall perform duties in other departments or the audit committee of the financial institution and vice versa. 3. The organization structure and definition of duties and responsibilities of the trust committee, officers and employees of the trust department shall reflect adherence to the minimum internal control standards prescribed by the Central Bank. 4. Provisions shall be made by the institution to have legal assistance readily available in the review of proposed and/or existing trust and fiduciary agreements and documents and in the handling of legal and tax matters, related thereto. SUBSEC. 406.2 Composition of Trust Committee . The Trust Committee shall be composed of five (5) members: (a) three [3] directors who are appointed by the board of directors on a regular rotation basis and who are not operating officers of the institution; (b) the president; and (c) the trust officer. No member of the audit committee, if the institution has any, shall be concurrently designated as a member of the trust committee. The board of directors shall duly note in the minutes the committee members and designate the chairman who shall be one of the three (3) directors referred to in item "a" above. SUBSEC. 406.3 Qualifications of Committee Members, Officers and Staff. The institution's trust department shall be staffed by persons of competence, integrity and honesty. Directors, committee members and officers charged with the administration of trust and other fiduciary activities shall, in addition to meeting the qualification standards prescribed for directors and officers of financial institutions, possess the necessary technical expertise in such business: Provided , That trust officers who shall be appointed after October 16, 1990 shall have at least two (2) years of actual experience or training in trust operations. SUBSEC. 406.4 Responsibilities of Administration . a. Board of Directors . The Board of Directors is responsible for the proper administration and management of trust and other fiduciary business. Funds and properties held in trust or in any fiduciary capacity shall be administered with the skill, care, prudence and diligence necessary under the circumstances then prevailing that a prudent man, acting in like capacity and familiar with such matters, would exercise in the conduct of an enterprise of like character and with similar aims. The responsibilities of the board of directors shall include but need not be limited to the following: 1. It shall determine and formulate general policies and guidelines on the: (a) acceptance, termination, or closure of trust and other fiduciary accounts; (b) proper administration and management of each trust and other fiduciary accounts; and (c) investment, reinvestment and disposition of funds or property held in its capacity as trustee or fiduciary; 2. It shall direct and review the actions of the trust committee and all officers and employees designated to manage the trust and other fiduciary accounts, especially in the absence of specific agreements on investments, or in the case of discretionary accounts; AICHaS 3. It shall approve or confirm the acceptance, termination or closure of all trust and other fiduciary accounts and shall record such in its minutes; 4. Upon the acceptance of an account, it shall immediately review all non-cash assets received for management. Likewise, it shall make a review of the trust and/or fiduciary assets at least once every twelve (12) months to determine the advisability of retaining or disposing of such assets; 5. It shall be responsible for taking appropriate action on the examination reports of supervisory agencies, internal and/or external auditors on the institution's trust and other fiduciary business; and recording such actions thereon in the minutes; 6. It shall designate the members of the trust committee, the trust officer and subordinate officers of the trust department and shall be responsible for requiring reports from said committee and officers and recording its actions thereon in the minutes; and 7. It shall establish an appropriate staffing pattern and adopt operating budgets that shall enable the trust department to effectively carry out its functions. It shall likewise be responsible for providing the officers and staff of the institution with appropriate training programs in the administration and operation of all phases of trust and other fiduciary business. The board of directors may, by action duly entered in the minutes, delegate its authority for the acceptance, termination, closure or management of trust and other fiduciary accounts to the trust committee or to the trust officer subject to certain guidelines approved by the board. b. Trust Committee . The trust committee duly constituted and authorized by the board of directors shall act within the sphere of authority which may be provided in the by-laws and/or as may be delegated by the board, such as but not limited to the following: 1. The acceptance and closing of trust and other fiduciary accounts; 2. The initial review of assets placed under the trustee's or fiduciary's custody; 3. The investment, reinvestment and disposition of funds or property; 4. The review and approval of transactions between trust and/or fiduciary accounts; and 5. The review of trust and other fiduciary accounts at least once every twelve (12) months to determine the advisability of retaining or disposing of the trust or fiduciary assets, and/or whether the account is being managed in accordance with the instrument creating the trust or other fiduciary relationship. For this purpose, the trust committee shall meet whenever necessary and keep minutes of its actions and make periodic reports thereon to the board. c. Trust Officer . The trust officer designated by the board of directors as head of the trust department shall act and represent the institution in all trust and other fiduciary matters within the sphere of authority as may be provided in the by-laws or as may be delegated by the board. His responsibilities shall include, but need not be limited to the following: 1. The administration of trust and other fiduciary accounts; 2. The implementation of policies and instructions of the board of directors and the trust committee; 3. The submission of reports on matters which require the attention of the trust committee and the board of directors; 4. The maintenance of adequate books, records and files for each trust or other fiduciary account; and 5. The maintenance of necessary controls and measures to protect assets under his custody and held in trust or other fiduciary capacity. SEC. 407. Non-Trust, Non-Fiduciary and/or Non-Investment Management Activities . The following shall not constitute a trust, fiduciary and/or investment management relationship: a. When there is a preponderance of purpose or of intent that the arrangement creates or establishes a relationship other than a trust, fiduciary, and/or investment management, as determined by the Governor or Monetary Board upon the findings and recommendations of the appropriate supervising and examining department of the Central Bank; b. When the agreement or contract is itself used as a certificate of indebtedness in exchange for money placement from clients and/or as the medium for confirming placements and investment thereof; c. When the agreement or contract of an account is accepted under the signature(s) of those other than the trust officer or subordinate officer of the trust department or those authorized by the board of directors to represent the trust officer; d. Where there is a fixed rate or guaranty of interest, income or return in favor of the client or beneficiary: Provided , however, That arrangements where funds are disposed of in fixed income generating investments or in debt instruments shall not be covered by this regulation when the agreement or indenture categorically states in noticeable letters that: 1. The fixed rate of interest or return thereon is neither assured nor guaranteed by the trustee or fiduciary, but is for the account and risk of the client; or 2. The arrangement based on "income expectation" or like terms, shall be clarified by including a clause that said "income expectation" or like terms is not a guaranty of return or income, nor does it entitle the client to a fixed interest or return on the monies or funds involved; and e. Where the risk or responsibility is exclusively with the trustee, fiduciary or investment manager in case of loss in the investment of trust, fiduciary or investment management funds; when such loss is not due to the failure of the trustee or fiduciary to exercise the skill, care, prudence and diligence required by law. Trust, other fiduciary and investment management activities involving any of the foregoing which are accepted, renewed or extended after October 16, 1990 shall be reported as deposit substitutes and shall be subject to the reserve requirement for deposit substitutes from the time of inception, without prejudice to the imposition of the applicable sanctions provided for in Sections 34, 34-A, and 34-B of R.A. No. 265, as amended, or Sections 12 and 16 of Presidential Decree No. 129, as amended. ScaHDT SEC. 408. Unsound Practices . In line with the statement of principles governing trust and other fiduciary business under Section 401, the trustee, fiduciary or investment manager shall desist from the following unsound practices: 1. Entering in an arrangement whereby the client is at the same time the borrower of his own fund placement, or whereby the trustor or principal is a borrower of other trust, fiduciary or investment management funds belonging to the same family or business group of such trustor or principal; 2. Granting loans or accommodations to any trust committee member, officer and employee of the trust department except where such loans are obtained by said persons as members of an employee benefit fund of the trustee's own institution; 3. Borrowing from or selling trust, other fiduciary and/or investment management assets to trust corporation, bank or investment house proper to cover portfolio losses and/or to guarantee the return of principal or income; 4. Granting new loans to any borrower who has a past due and/or classified loan account with the bank proper, investment house proper, or the trust department; and 5. Requiring clients to sign documents in blank. SEC. 409. Trust and Other Fiduciary Business . The conduct of trust and other fiduciary business shall be subject to the following regulations. SUBSEC. 409.1 Minimum Documentary Requirements . Each trust or fiduciary account shall be covered by a written document establishing such account, as follows: 1. In the case of accounts created by an order of the court or other competent authority, the written order of said court or authority. 2. In the case of accounts created by corporations, business firms, organizations or institutions, the voluntary written agreement or indenture entered into by and between or among the parties, accompanied by the copy of the board resolution or other evidence authorizing the establishment of and designating the signatories to the trust or other fiduciary, account. 3. In the case of accounts created by individuals, the voluntary written agreement or indenture entered into by and between or among the parties. The voluntary written agreement or indenture shall include the following minimum provisions: 1. Title or nature of contractual agreement in noticeable print; 2. Legal capacities, in noticeable print, of parties sought to be covered; 3. Purposes and objectives; 4. Funds and/or properties subject of the arrangement; 5. Distribution of the funds and/or properties; 6. Duties and powers of trustee or fiduciary; 7. Liabilities of the trustee or fiduciary; 8. Reports to the client; 9. Termination of contractual arrangement and in appropriate cases, provision for successor-trustee or fiduciary; 10. The amount or rate of the compensation of trustee or fiduciary; 11. A statement in noticeable print to the effect that trust and other fiduciary business are not covered by the PDIC and that losses, if any, shall be for the account of the client; and 12. Disclosure requirements for transactions requiring prior authority and/or specific written investment directive from the client, court of competent jurisdiction or other competent authority. SUBSEC. 409.2 Lending and Investment Disposition . Assets received in trust or in other fiduciary capacity shall be administered in accordance with the terms of the instrument creating the trust or other fiduciary relationship. When a trustee or fiduciary is granted discretionary powers in the investment disposition of trust or other fiduciary funds and unless otherwise specifically enumerated in the agreement or indenture and directed in writing by the client, court of competent jurisdiction or other competent authority, loans and investments of the fund shall be limited to: a. Evidences of indebtedness of the Republic of the Philippines and of the Central Bank, and any other evidences of indebtedness or obligations the servicing and repayment of which are fully guaranteed by the Republic of the Philippines or loans against such government securities; b. Loans fully guaranteed by the government as to the payment of principal and interest; c. Loans fully secured by a hold out on, assignment or pledge of deposits maintained either with the bank proper or other banks, or of deposit substitutes of the bank or investment house proper, or mortgage and chattel mortgage bonds issued by the trustee or fiduciary; and d. Loans fully secured by real estate and chattels in accordance with Section 78 of R.A. No. 337, as amended, and subject to the requirements of Sections 75, 76 and 77 of R.A. No. 337, as amended. The specific directives required under this Subsection shall consist of the following information: 1. The transaction to be entered into; 2. The borrower's name; 3. Amount involved; and 4. Collateral security(ies), if any. SUBSEC. 409.3 Transactions Requiring Prior Authority . A trustee or fiduciary shall not undertake any of the following transactions for the account of a client, unless prior to its execution, such transaction has been fully disclosed and specifically authorized in writing by the client, beneficiary, other party in interest, court of competent jurisdiction, or other competent authority: a. Lend, sell, transfer or assign money or property to any of the departments, directors, officers, stockholders, or employees of the trustee or fiduciary, or relatives within the first degree of consanguinity or affinity, or the related interests of such directors; officers and stockholders; or to any corporation where the trustee or fiduciary owns at least fifty percent (50%) of the subscribed capital or voting stock in its own right and not as trustee nor in a representative capacity; b. Purchase or acquire property or debt instruments from any of the departments, directors, officers, stockholders, or employees of the trustee or fiduciary, or relatives within the first degree of consanguinity or affinity, or the related interests of such directors, officers and stockholders; or from any corporation where the trustee or fiduciary owns at least fifty percent (50%) of the subscribed capital or voting stock in its own right and not as trustee nor in a representative capacity; c. Invest in equities of or in securities underwritten by the trustee or fiduciary or a corporation in which the trustee or fiduciary owns at least fifty percent (50%) of the subscribed capital or voting stock in its own right and not as trustee, nor in a representative capacity; and d. Sell, transfer, assign or lend money or property from one trust or fiduciary account to another trust or fiduciary account or where the investment is in any of those enumerated in items "a" to "d" of Subsection 409.2. Directors, officers, stockholders, or their relatives or related interests covered by this Subsection shall be those considered as such under existing regulations on loans to directors, officers, stockholders and their related interests of banks and investment houses; and subject to the procedural and reportorial requirements in said regulations. The disclosure required under this Subsection shall consist of the following minimum information: 1. The transactions to be entered into; 2. Identities of the parties involved in the transactions and their relationships (shall not apply to item "d" of this Subsection); 3. Amount involved; and 4. Collateral security(ies), if any, which shall be made known to clients in a separate instrument or in the very instrument creating the trust or fiduciary relationship. SUBSEC. 409.4 Loans Granted to Foreign Firms . Loans granted to foreign firms which are funded by moneys held by banks and investment houses as trustee or fiduciary, shall be subject to the rules and regulations under which foreign firms may avail themselves of peso borrowing as stated in Sections 1346, 2346 and 4341Q. These loans shall, thus, be posted in the Schedule of Peso Borrowings of said firms as required under the terms and conditions of their respective borrowing authority issued by the Inter-Agency Committee on Domestic Borrowings of Foreign Firms. SUBSEC. 409.5 Ceilings on Loans . Loans funded by trust accounts shall be subject to the single borrower's loan limit and DOSRI ceilings imposed on banks and investment houses under Sections 1301, 1330, 1331/2301, 2330, 2331/3301, 3330, 3331/4301Q, 4330Q, 4331Q. For purposes of determining compliance with said ceilings, the total amount of said loans granted by the trust department and the bank or investment house proper to the same person, firm or corporation shall be reckoned with. SUBSEC. 409.6 Funds Awaiting Investment or Distribution . Funds held by the trustee or fiduciary awaiting investment or distribution shall not be held uninvested or undistributed any longer than is reasonable for the proper management of the account. SUBSEC. 409.7 Other Applicable Regulations on Loans and Investments . The loans and investments of trust and other fiduciary accounts shall be subject to existing laws, rules and regulations for banks and investment houses that shall include but need not be limited to the following: a. Requirements of Sections 76 and 77 of R.A. No. 337, as amended; b. Provisions of Section 4 (e) of the "New Rules on Registration of Short Term Commercial Papers" and Section 7 (f) of the "New Rules on the Long Term Commercial Papers" issued by the Securities and Exchange Commission, referred to by Subsections 1289.6, 2289.6 and 4289Q of the Manual, requiring that unregistered evidences of indebtedness shall be held on to maturity and shall not be negotiated, assigned or transferred; c. Criteria for past due accounts; and d. Qualitative appraisal of loans, investments and other assets that may require provision for probable losses which shall be booked in accordance with the Manual of Accounts for Trust and Other Fiduciary Business an Investment Management Activities. SUBSEC. 409.8 Operating and Accounting Methodology . Trust and other fiduciary accounts shall be operated and accounted for in accordance with the following: 1. The trustee or fiduciary shall administer, hold or manage the fund or property in accordance with the instrument creating the trust or other fiduciary relationship; and 2. Funds or property of each client shall be accounted separately and distinctly from those of other clients herein referred to as "individual-account accounting". SEC. 410. Common Trust Funds . The administration of common trust funds shall be subject to the provisions of Section 409.1 up to 409.7 and to the following regulations. SUBSEC. 410.1 Establishment of Common Trust Funds . Any trust company, bank or investment house authorized to engage in trust business may establish, administer and maintain one or more common trust funds. SUBSEC. 410.2 Minimum Documentary Requirements for Common Trust Funds . In addition to the trust agreement or indenture required under Subsection 409.1, each common trust fund shall be established, administered and maintained in accordance with a written declaration of trust referred to as the "plan", which shall be approved by the board of directors of the trustee and copy submitted to the appropriate supervision and examination department of the Central Bank within thirty (30) banking days prior to its implementation. aCcADT The plan shall make provisions on the following matters: a. Title of the plan; b. Manner in which the plan is to be operated; c. Investment powers of the trustee with respect to the plan, including the character and kind of investments which may be purchased; d. Allocation, apportionment, distribution dates of income, profit and losses; e. Terms and conditions governing the admission or withdrawal as well as expansion or contraction of participations in the plan including the minimum initial placement and account balance to be maintained by the trustor; f. Auditing and settlement of accounts of the trustee with respect to the plan; g. Basis, method of valuing, and accounting of common trust fund assets; h. Basis upon which the plan may be terminated; i. Liability clause of the trustee; j. Fees and commissions; and k. Such other matters as may be necessary or proper to define clearly the rights of participants under the plan. The legal capacity of the institution administering a common trust fund shall be indicated in the plan and other related agreements or contracts as trustee of the fund and not in any other capacity such as "fund manager" "financial manager" or like terms. The provisions of the plan shall control all participations in the fund and the rights and benefits of all parties in interest. The plan may be amended by resolution of the board of directors of the trustee: Provided , however, That participants in the fund shall be immediately notified of such amendments and shall be allowed to withdraw their participations if they are not in conformity with the amendments made: Provided, further , That amendments to the plan shall be submitted to the appropriate supervising and examining department of the Central Bank within ten (10) banking days from approval of the amendments by the board of directors. A copy of the plan shall be available at the principal office of the trustee during regular office hours for inspection by any person having an interest in a trust whose funds are invested in the plan or by his authorized representative. Upon request, a copy of the plan shall be furnished such person. SUBSEC. 410.3 Management of Common Trust Funds . The trustee shall have the exclusive management and control of each common trust fund administered by it, and the sole right at any time to sell, convert, reinvest, exchange, transfer, or otherwise change or dispose of the assets comprising the fund. The trustee shall designate clearly in its records the trust accounts owning participation in the common trust fund and the extent of the interests of such accounts. The trustee shall not negotiate nor assign the trustor's beneficial interest in the common trust fund without prior written consent of the trustor or beneficiary. No trust account holding a participation in a common trust fund shall have or be deemed to have any ownership or interest in any particular asset or investment in the common trust fund but shall have only its proportionate beneficial interest in the fund as a whole. SUBSEC. 410.4 Trustee as Participant in Common Trust Funds . A trustee administering a common trust fund shall not have any interest in such fund other than in its capacity as trustee of the common trust fund nor grant any loan on the security of a participation in such fund: Provided , however, That a trustee which simultaneously administers funds for its employees may invest such funds in the common trust fund. SUBSEC. 410.5 Exposure Limit of Common Trust Fund to a Single Person or Entity . No investment for a common trust fund shall be made in stocks, bonds or other obligations of any one person, firm or corporation, if as a result of such investment the total amount invested in stocks, bonds or other obligations issued or guaranteed by such person, firm or corporation shall aggregate to an amount in excess of fifteen percent (15%) of the market value of the common trust fund: Provided , That this limitation shall not apply to investments in government securities or other evidences of indebtedness of the Republic of the Philippines and by the Central Bank, and any other evidences of indebtedness or obligations the servicing and repayment of which are fully guaranteed by the Republic of the Philippines. IHCESD SUBSEC. 410.6 Operating and Accounting Methodology . By its inherent nature, a common trust fund shall be operated and accounted for in accordance with the following: 1. The trustee shall have exclusive management and control of each common trust fund administered by it, and the sole right at any time to sell, convert, reinvest, exchange, transfer or otherwise change or dispose of the assets comprising the fund; 2. The total assets and accountabilities of each fund shall be accounted for as a single account referred to as "pooled-fund accounting"; 3. Contributions to each fund by clients shall always be through participations in the fund; 4. All such participations shall be pooled and invested as one account (referred to as collective investment); and 5. The interest of each participant shall be determined by a formal method of participation valuation established in the written plan of the common trust fund. SUBSEC. 410.7 Security for the Faithful Performance of Trust Business and Liquidity Requirement . Common trust funds shall be included in the total volume of trust and other fiduciary assets for purposes of computing the required security for the faithful performance of trust and other fiduciary business under Subsection 405.1. In addition, common trust funds and such other managed funds which partake of the collective investment nature of common trust funds shall be required to maintain and to deposit with the Central Bank for liquidity purposes, investments in government securities amounting to at least ten percent (10%) of the value of each fund in accordance with Subsection 405.2. SEC. 411. Investment Management Activities . The conduct of investment management activities shall be subject to the following regulations. SUBSEC. 411.1 Minimum Documentary Requirements . An investment management account shall be covered by a written document establishing such account, as follows: 1. In the case of accounts created by corporations, business firms, organizations or institutions, the voluntary written agreement or indenture entered into by and between or among the parties, accompanied by the copy of the board resolution or other evidence authorizing the establishment of and designating the signatories to the investment management account. 2. In the case of accounts created by individuals, the voluntary written agreement or indenture entered into by and between or among the parties. The voluntary written agreement or contract shall include the following minimum provisions: 1. Pre-numbered contractual agreement form; 2. Title or nature of contractual agreement in noticeable print; 3. Legal capacities, in noticeable print, of parties sought to be covered; 4. Purposes and objectives; 5. The initial amount of funds and/or value of securities subject of the arrangement delivered to the investment manager; 6. Statement in underlined noticeable print that: The agreement is an agency and not a trust agreement. As such, the client shall at all times retain legal title to funds and properties subject of the arrangement; The arrangement does not guaranty a yield, return or income by the investment manager. As such, past performance of the account is not a guaranty of future performance and the income of investments can fall as well as rise depending on prevailing market conditions; and The investment management agreement is not covered by the Philippine Deposit Insurance Corporation (PDIC) and that losses, if any, shall be for the account of the client; 7. Duties and powers of the investment manager; 8. Liabilities of the investment manager; 9. Reports to the client; 10. The amount or rate of the compensation of the investment manager; 11. Terms and conditions governing withdrawals from the account; 12. Termination of contractual arrangement; 13. Disclosure requirements for transactions requiring prior authority and/or specific written investment directives from the client; and 14. Acknowledgment by the notary public. A sample investment management agreement which conforms to the foregoing requirements is shown as Appendix ___ of this Manual. SUBSEC. 411.2 Minimum Size of Each Investment Management Account . No investment management account shall be accepted or maintained for an amount less than P1 million. An investment management account reduced to less than P1 million due to investment losses shall be exempted from this requirement. SUBSEC. 411.3 Commingling of Funds . Two or more individual investment management accounts shall not be commingled except for the purpose of investing in government securities or in duly registered commercial papers: Provided , That the participation of each of the aforementioned accounts in the commingled account shall not be less than P1 million: Provided further , That such commingling has been fully disclosed and specifically agreed in writing by the clients. SUBSEC. 411.4 Lending and Investment Disposition . Assets received in investment management capacity shall be administered in accordance with the terms of the instrument creating the investment management relationship. When an investment manager is granted discretionary powers in the investment disposition of investment management funds and unless otherwise specifically enumerated in the agreement or indenture and directed in writing by the client, loans and investments of the fund shall be limited to: a. Evidences of indebtedness of the Republic of the Philippines and of the Central Bank, and any other evidences of indebtedness or obligations the servicing and repayment of which are fully guaranteed by the Republic of the Philippines or loans against such government securities; b. Loans fully guaranteed by the government as to the payment of principal and interest; c. Loans fully secured by a hold out on, assignment or pledge of deposits maintained either with the bank proper or other banks, or of deposit substitutes of the bank or investment house proper, or mortgage and chattel mortgage bonds issued by the investment manager; and d. Loans fully secured by real estate and chattels in accordance with Section 78 of R.A. No. 337, as amended, and subject to the requirements of Sections 75, 76 and 77 of R.A. No. 337, as amended. The specific directives required under this Subsection shall consist of the following information: 1. The transaction to be entered into; 2. The borrower's name; 3. Amount involved; and 4. Collateral security(ies), if any. SUBSEC. 411.5 Transactions Requiring Prior Authority . An investment manager shall not undertake any of the following transactions for the account of a client, unless prior to its execution, such transaction has been fully disclosed and specifically authorized in writing by the client: a. Lend, sell, transfer or assign money or property to any of the departments, directors, officers, stockholders, or employees of the investment manager, or relatives within the first degree of consanguinity or affinity, or the related interests of such directors, officers and stockholders; or to any corporation where the investment manager owns at least fifty percent (50%) of the subscribed capital or voting stock in its own right and not as trustee nor in a representative capacity; b. Purchase or acquire property or debt instruments from any of the departments, directors, officers, stockholders, or employees of the investment manager, or relatives within the first degree of consanguinity or affinity, or the related interests of such directors, officers and stockholders; or from any corporation where the investment manager owns at least fifty percent (50%) of the subscribed capital or voting stock in its own right and not as trustee nor in a representative capacity; c. Invest in equities of or in securities underwritten by the investment manager or a corporation in which the investment manager owns at least fifty percent (50%) of the subscribed capital or voting stock in its own right and not as trustee, nor in a representative capacity; and d. Sell, transfer, assign or lend money or property from one trust, fiduciary or investment management account to another trust, fiduciary or investment management account, or where the investment is in any of those enumerated in items "a" to "d" of Subsection 411.4. Directors, officers, stockholders, or their relatives or related interests covered by this Subsection shall be those considered as such under existing regulations on loans to directors, officers, stockholders and their related interests of banks and investment houses; and subject to the procedural and reportorial requirements in said regulations. The disclosure required under this Subsection shall consist of the following minimum information 1. The transactions to be entered into; 2. Identities of the parties involved in the transactions and their relationships (shall not apply to item "d" of this Subsection); 3. Amount involved; and 4. Collateral security(ies), if any, which shall be made known to clients in a separate instrument or in the very instrument creating the investment management relationship. SUBSEC. 411.6 Title to Securities and Other Properties . Securities such as promissory notes, shares of stocks, bonds and other properties of the portfolio shall be issued or registered in the name of the principal or of the investment manager: Provided , That in case of the latter, the instrument shall indicate that the investment manager is acting in a representative capacity and that the principal's name is disclosed thereat. SUBSEC. 411.7. Ceilings on Loans . Loans funded by investment management accounts shall be subject to the DOSRI ceilings imposed on banks and investment houses under Sections 1330 and 1331/2330 and 2331/3330 and 3331/4330Q and 4331Q. For purposes of determining compliance with said ceilings, the total amount of said loans granted by the trust department and the bank or investment house proper to the same person, firm or corporation shall reckoned with. SUBSEC. 411.8 Operating and Accounting Methodology . Investment management accounts shall be operated and accounted for in accordance with the following: 1. The investment manager shall administer, hold or manage the fund or property in accordance with the instrument creating the investment management relationship; and 2. Funds or property of each client shall be accounted separately and distinctly from those of other clients herein referred to as "individual-account accounting". SEC. 412 FCDU/EFCDU Trust Accounts . Only a bank with authority to operate a foreign currency deposit unit (FCDU) or an expanded foreign currency deposit unit (EFCDU) under R.A. No. 6426, as amended, may accept foreign currency denominated trust accounts. SUBSEC. 412.1 Banks with Trust Authority . A bank authorized to engage in trust business under Section 57 of R.A. No. 337, as amended, which is also authorized to operate a FCDU or EFCDU under R.A. No. 6426, as amended, shall include FCDU/EFCDU trust accounts among those managed or administered by its trust department under the responsibility of the board of directors, trust committee and the trust officer. HCEcAa SUBSEC. 412.2 Banks without Trust Authority . A bank not authorized to engage in trust under Section 57 of R.A. No. 337, as amended, which accepts FCDU/EFCDU trust accounts under R.A. No. 6426, as amended, shall manage such trust accounts in its FCDU or EFCDU as an exception to item "1" of Subsection 406.1. Pursuant to the provisions of Subsection 406.4, the board of directors shall be responsible for the proper administration and management of FCDU/EFCDU trust accounts: Provided, That the board of directors may, by action duly entered in the minutes, constitute a FCDU or EFCDU trust committee to which the administration and management of such accounts may be delegated. The FCDU or EFCDU trust committee shall be composed of three (3) directors, who shall be appointed on a regular rotation basis, one of whom shall be designated as chairman. The three (3) directors shall meet the qualification requirements under Subsection 406.3 and shall not be operating officers or members of the audit committee of the bank. SUBSEC. 412.3 Additional Deposit for the Faithful Performance of Trust Duties . A bank authorized to engage in trust business that accepts FCDU/EFCDU trust accounts shall deposit with the Central Bank additional eligible government securities under Subsection 405.3 as security for the faithful performance of trust duties equivalent to at least one percent (1%) of the value of the FCDU/EFCDU trust assets based on the average of the month-end balances of such assets during the immediately preceding quarter as converted in the local currency at the prevailing foreign exchange rate. Such securities shall be deposited within thirty (30) banking days after the end of every calendar quarter. SUBSEC. 412.4 Liquidity Requirement for FCDU/EFCDU Common Trust Funds . Each FCDU/EFCDU common trust fund shall set up ten percent (10%) of such fund as liquidity requirement. The base amount for computing the requirement shall be the same as that required on peso-denominated common trust funds under Subsection 410.7, except that such liquidity requirement shall be in any or a combination of the following: (a) readily marketable foreign currency securities with maturities of not more than three (3) years; and (b) foreign currency deposits with foreign banks: Provided , That the liquidity requirement of EFCDUs may, in addition to the foregoing, also be in the a form of foreign currency deposits with other EFCDUs or resident OBUs. SUBSEC. 412.5 Applicability of Rules and Regulations . Unless otherwise revised by the provisions of this Section and its Subsections, the rules and regulations governing the administration of trust accounts including common trust funds shall be observed whether the FCDU/EFCDU trust accounts are administered by the bank's trust department or by its FCDU/EFCDU. Also applicable are rules and regulations on the operations of FCDUs/EFCDUs that include, among others, regulations on acceptable foreign currencies, eligible and ineligible foreign currency sources; foreign currency cover requirements; and allowable loans and investments. SEC. 413. Required Surplus . A bank or institution authorized to engage in trust and other fiduciary business shall, before the declaration of dividends, carry to surplus at least ten percent (10%) of its net profits realized out of its trust, investment management and other fiduciary business since the last preceding dividend declaration until the surplus shall amount to twenty percent (20%) of its authorized capital stock and no part of such surplus shall at any time be paid out in dividends, but losses accruing in the course of its business may be charged against surplus. B. INVESTMENT MANAGEMENT ACTIVITIES SECTION 414. Authority to Perform Investment Management . Banks may be authorized by the Monetary Board to act as managing agent, adviser, consultant or administrator of investment management/advisory/consultancy account under Section 72(d) of R.A. No. 337, as amended. However, such authority shall not be construed to include the authority to engage in trust and other fiduciary business under Chapter VII of R.A. No. 337, as amended. Entities other than banks whose articles of incorporation or any amendments thereto, include the purpose or power to act as managing agent, adviser, consultant or administrator of investment management/advisory/consultancy account shall secure the prior favorable recommendation of the Monetary Board of the Central Bank before the filing of said articles of incorporation or amendments thereto, with the Securities and Exchange Commission. Entities authorized to engage in investment management activities, which are subsequently authorized to engage in trust and other fiduciary business, shall then be subject to the provisions of Part IV "A" and "C" of these regulations. If after due findings, an entity is found to engage in unauthorized investment management activities, whether as its primary, secondary or incidental business, the Monetary Board may impose administrative sanctions against such entity or its principal officers and/or majority stockholders or proceed against them in accordance with law. The Monetary Board may take such action as it may deem proper such as, but may not be limited to, requiring the transfer or turnover of any investment management account to duly incorporated and licensed entities of the choice of the client. An entity not authorized to engage in investment management activities shall not advertise or represent itself as being engaged in investment management activities or represent itself as investment manager or use words of similar import. SUBSEC. 414.1 Pre-requisites for Engaging in Investment Management Activities . A bank or investment house before it may engage in investment management activities shall comply with the following requirements: 1. The bank or investment house has been duly licensed or incorporated as a financial institution by the appropriate government agency or by special law or charter. 2. The articles of incorporation or governing charter of the institution shall include among its powers or purposes the authority to engage in investment management activities. 3. The by-laws of the institution shall include, among others, provisions on the following: a. The organization plan or structure of the department, office or unit which shall conduct the investment management activities of the institution; b. The creation of an investment management committee, the appointment of an investment management officer and subordinate officers of the investment management department; and c. A clear definition of the duties and responsibilities as well as the line and staff functional relationships of the various units, officers, and staff within the organization. Institutions already authorized to engage in investment management activities are given six (6) months from October 16, 1990 within which to effect the above required amendments to their by-laws in accordance with applicable laws. 4. The applicant shall also meet the following additional requirements: a. It has continuously complied with its capital-to-risk assets ratio, reserve requirements against deposit liabilities/substitutes, liquidity floor, and ceilings on DOSRI loans for at least twelve (12) months before the filing of its application until the authority shall have been issued; b. Its operations during the year immediately preceding the filing of the application have been profitable; and c. It has shown substantial compliance with other pertinent laws, rules and regulations, policies and instructions of the Central Bank; has not been cited for serious/major violations or exceptions affecting its solvency, liquidity and profitability. SUBSEC. 414.2 Pre-operating Requirements . Any institution authorized to engage in investment management activities shall, before engaging in actual operations, submit to the Central Bank the following: 1. Government securities acceptable to the Central Bank amounting to P500,000.00 as minimum basic security deposit for the faithful performance of investment management duties required under Subsection 415.1; 2. Organization chart of the investment management department which shall carry out the investment management activities of the institution; and 3. Names and positions of individuals designated as chairman and members of the investment management committee, investment management officer and other subordinate officers of the investment management department. SEC. 415. Security for the Faithful Performance of Investment Management Activities . SUBSEC. 415.1 Basic Security Deposit . Any institution authorized and engaged in investment management activities shall deposit with the Central Bank a minimum amount of P500,000.00 of eligible government securities as security for the faithful performance of its investment management activities: Provided , That an institution that has not met the P500,000.00 shall be given thirty (30) banking days from October 16, 1990 to comply. In case of failure of an institution to comply with the basic security deposit, the Monetary Board may require the institution to desist from accepting new investment management accounts and from renewing expiring investment management contracts. aIcHSC Whenever the total volume of the investment management assets exceeds P50 million, the amount of government securities deposited with the Central Bank shall be increased or decreased to an amount equivalent to at least one percent (1%) of the book value of such assets: Provided , That at no time shall such deposit with the Central Bank be less than P500,000.00. SUBSEC. 415.2 Eligible Securities . Government securities which shall be deposited in compliance with the above basic security deposit shall consist of evidences of indebtedness of the Republic of the Philippines and of the Central Bank, and any other evidences of indebtedness or obligations the servicing and repayment of which are fully guaranteed by the Republic of the Philippines; and such other kinds of securities which may be declared eligible by the Monetary Board: Provided , That such securities shall be free, unencumbered, and not utilized for any purpose: Provided , further, That such securities shall have remaining maturities of not more than three (3) years from the date of deposit with the Central Bank. SUBSEC. 415.3 Valuation of Securities and Basis of Computation of the Requirements . For purposes of determining compliance with the basic security deposit under this Section, the amount of securities so deposited shall be based on their book value, that is, cost as increased or decreased by the corresponding discount or premium amortization. The base amount for the basic security deposit shall be the average of the month-end balances of the total assets of investment management funds of the immediately preceding quarter. SUBSEC. 415.4 Compliance Period . The investment manager shall have thirty (30) banking days after the end of every calendar quarter within which to deposit with the Central Bank securities required under this Section. SEC. 416. Organization and Management . The provisions under Section 406 up to Subsection 406.4 shall govern the organization and management of institutions without trust license which are engaged in investment management activities only. The following terms shall, however, be used: a. Investment management activities in lieu of trust and other fiduciary business; b. Investment management accounts in lieu of trust and other fiduciary accounts; c. Investment management committee in lieu of trust committee; d. Investment management officer in lieu of trust officer; and e: Investment management department in lieu of trust department. SEC. 417. Non-Investment Management Activities . The following shall not constitute an investment management relationship: a. When there is a preponderance of purpose or of intent that the arrangement creates or establishes a relationship other than the conduct of investment management activities as defined herein, as determined by the Governor or by the Monetary Board upon the findings and recommendations of the appropriate supervising and examining department of the Central Bank; b. When the agreement or contract is itself used as a certificate of indebtedness in exchange for money placements from clients and/or as the medium for confirming placements and investment thereof; c. When the agreement or contract of the account is accepted under the signature(s) of those other than the investment management officer or subordinate officer of the investment management department or those authorized by the board of directors to represent the investment management officer; d. Where there is a fixed rate or guaranty of interest, income or return in favor of the client: Provided, however , That arrangements where funds are disposed of in fixed income generating investments or in debt instruments shall not be covered by these regulations when the agreement, or indenture categorically states that: 1. The fixed rate of interest or return thereon is neither assured nor guaranteed by the investment manager, but is for the account and risk of the client, or 2. The arrangement based on "income expectation" or like terms, shall be clarified by including a clause that said "income expectation" or like terms is not a guaranty of return or income, nor does it entitle the client to a fixed interest or return on the monies or funds involved; and e. Where the risk or responsibility is exclusively with the investment manager in case of loss in the investment of funds, when such loss is not due to the failure of the investment manager to exercise the skill, care, prudence and diligence required by law. Investment management activities involving any of the foregoing which are accepted, received or extended after October 16, 1990 shall be reported as deposit substitutes and shall be subject to the reserve requirement for deposit substitutes from the time of inception, without prejudice to the imposition of the applicable sanctions provided for in Sections 34, 34-A and 34-B of R.A. No. 265, as amended or Sections 12 and 16 of Presidential Decree No. 129, as amended. SEC. 418. Unsound Practices . The provisions of Section 408 shall govern the unsound practices for investment management accounts. SEC. 419. Conduct of Investment Management Activities . The following regulations shall govern the conduct of investment management activities. SUBSEC. 419.1 Minimum Documentary Requirements . An investment management account shall be covered by a written document establishing such account and said document shall be as follows: 1. In the case of accounts created by corporations, business firms, organizations or institutions, the voluntary written agreement or indenture entered into by and between or among the parties, accompanied by the copy of the board resolution or other evidence authorizing the establishment of and designating the signatories to the investment management account. 2. In the case of accounts created by individuals, the voluntary written agreement or indenture entered into by and between or among the parties. The voluntary written agreement or contract shall include the following minimum provisions: 1. Pre-numbered contractual agreement form; 2. Title or nature of contractual agreement in noticeable print; 3. Legal capacities, in noticeable print, of parties sought to be covered; 4. Purposes and objectives; 5. The initial amount of funds and/or value of securities subject of the arrangement delivered to the investment manager; 6. Statement in underlined noticeable print that: The agreement is an agency and not a trust agreement. As such, the client shall at all times retain legal title to funds and properties subject of the arrangement; The arrangement does not guaranty a yield, return or income by the investment manager. As such, past performance of the account is not a guaranty of future performance and the income of investments can fall as well as rise depending on prevailing market conditions; and The investment management agreement is not covered by the Philippine Deposit Insurance Corporation (PDIC) and that losses, if any, shall. be for the account of the client; 7. Duties and powers of the investment manager; 8. Liabilities of the investment manager; 9. Reports to the client; 10. The amount or rate of the compensation of the investment manager; 11. Terms and conditions governing withdrawals from the account; 12. Termination of contractual arrangement; 13. Disclosure requirements for transactions requiring prior authority and/or specific written investment directives from the client; and 14. Acknowledgment by the notary public. A sample investment management agreement which conforms to the foregoing requirements is shown as Appendix ____ of this Manual. SUBSEC. 419.2 Minimum Size of Each Investment Management Account . No investment management account shall be accepted or maintained for an amount less than P1 million. An investment management account reduced to less than P1 million due to investment losses shall be exempted from this requirement. SUBSEC. 419.3 Commingling of Funds . Two or more individual investment management accounts shall not be commingled except for the purpose of investing in government security or in duly registered commercial papers. Provided , That the participation of each investment management account in the commingled account shall not be less than P1 million: Provided further , That such commingling has been fully disclosed and specifically agreed in writing by the clients. SUBSEC. 419.4 Lending and Investment Disposition . Assets received in investment management capacity shall be administered in accordance with the terms of the instrument creating the investment management relationship. When an investment manager is granted discretionary powers in the investment disposition of funds and unless otherwise specifically directed in writing by the client, loans and investments of the fund shall be limited to: a. Evidence of indebtedness of the Republic of the Philippines and of the Central Bank and any other evidences of indebtedness or obligations the servicing the repayment of which are fully guaranteed by the Republic of the Philippines or loans against such government securities; b. Loans fully guaranteed by the government as to the payment of principal and interest; c. Loans fully secured by a hold-out on, assignment or pledge of deposits maintained either by the bank proper or other banks, or of deposit substitutes of the bank or investment house proper, or mortgage or chattel mortgage bonds issued by the investment manager; and d. Loans fully secured by real estate and chattels in accordance with Section 78 of R.A. No. 337, as amended, and subject to the requirements of Sections 75, 76, 77 of R.A. No. 337, as amended. The specific directives required under this Subsection shall consist of the following minimum information: 1. The transaction to be entered into; 2. The borrower's name; 3. Amount involved; and 4. Collateral security(ies), if any. SUBSEC. 419.5 Transaction Requiring Prior Authority . An investment manager shall not undertake any of the following transactions for the account of a client unless prior to its execution, such transaction has been fully disclosed and specifically authorized in writing by the client: a. Lend, sell, transfer or assign money or property to any of the departments, directors, officers, stockholders or employees of the investment manager or relatives within the third degree of consanguinity or affinity, or the related interests of such directors, officers and stockholders; or to any corporation where the investment manager owns at least fifty percent (50%) of the subscribed capital or voting stock in its own right and not in a representative capacity; b. Purchase or acquire property or debt instruments from any of the departments, directors, officers, stockholders or employees of the investment manager or relatives within the third degree of consanguinity or affinity, or the related interests of such directors, officers and stockholders; or from any corporation where the investment manager owns at least fifty percent (50%) of the subscribed capital or voting stock in its own right and not in a representative capacity; c. Invest in equities of or in securities underwritten by the investments manager or corporation in which the investment manager owns at least fifty percent (50%) of the subscribed capital or voting stock in its own right and not in a representative capacity; and d. Sell, transfer, assign or lend money or property from one investment management account to another investment management account. Directors, officers, stockholders, or their related interests covered by this Subsection shall be those considered as such under existing regulations on loans to directors, officers, stockholders and their related interest of banks and investment houses and subject to the procedural and reportorial requirements in said regulations. The disclosure under this Subsection shall consist of the following minimum information: 1. The transaction to be entered into; 2. Identities of the parties involved in the transactions and their relationships (shall not apply to item "d" of this Subsection); 3. Amount involved; and 4. Collateral security(ies), if any. which shall be made known to clients in a separate instrument or in the very instrument creating the investment management relationship SUBSEC. 419.6 Title to Securities and Other Properties . Securities such as promissory notes, share of stocks, bonds and other properties of the portfolio shall be issued or registered in the name of the principal or of the investment manager: Provided , That in case of the latter, the instrument shall indicate that the investment manager is acting in a representative capacity and that the principal's name is disclosed thereat. SUBSEC. 419.7 Ceilings on Loans . Loans funded by investment management accounts shall be subject to the DOSRI ceilings imposed on banks and investment uses under Sections 1330 and 1331/2330 and 2331/3330 and 3331/4330Q and 4331Q. For purposes of determining compliance with said ceilings, the total amount of said loans granted by the investment management department and the bank or investment house proper to the same person, firm or corporation shall be reckoned with. SUBSEC. 419.8 Operating and Accounting Methodology . Investment management accounts shall be operated and accounted for in accordance with the following: 1. The investment manager shall administer, hold or manage the fund or property in accordance with the instrument creating the investment management relationship; and 2. Funds or property of each client shall be accounted separately and distinctly from those of other clients herein referred to as "individual account accounting". SEC. 420. Required Surplus . A bank or institution authorized to engage in investment management activities shall, before the declaration of dividends, carry to surplus at least ten percent (10%) of its net profits realized out of its investment management activities since the last preceding dividend declaration until the surplus shall amount to twenty (20%) of its authorized capital stock and no part of such surplus shall at any time be paid out in dividends, but losses accruing in the course of its business may be charged against surplus. C. GENERAL PROVISIONS SEC. 421. Books and Records . The institution's trust department or investment management department shall keep books and records on trust, other fiduciary and investment management accounts separate and distinct from the books and records of its other businesses and shall follow the Manual of Accounts for Trust and Other Fiduciary Business and Investment Management Activities prescribed by the Central Bank. Each trust, other fiduciary or investment management account shall have a record separate from all other accounts except only in the case of common trust funds where the trustee can maintain common records utilizing "pooled-fund accounting" method for each fund: Provided , That the trustee shall clearly indicate in the records the trustors owning participation in the common trust fund and the extent of the interests of such trustors. Books and records shall contain full information relative to each trust, fiduciary or investment management account and shall be supported by duplicate signed copies of related documents. Said records and duplicate signed copies of related documents shall be compiled and kept as to allow inspection by Central Bank examiners and the submission of information or reports as may be required by competent authorities. SEC. 422. Custody of Assets . All monies, properties or securities received by an institution in its capacity as trustee, fiduciary, or investment manager shall be kept physically separate and distinct from the assets of its other businesses and shall be under the joint custody of at least two persons, one of whom shall be an officer of the trust or investment management department, designated for that purpose by the board of directors. The investment of each trust, other fiduciary or investment management account shall be kept physically separated from those of other trust, other fiduciary or investment management accounts, and adequately identified as the assets or property of the relevant account. SEC. 423. Fees and Commissions . An institution acting as trustee, fiduciary or investment manager shall be entitled to reasonable fees and commissions which shall be determined on the basis of the cost of service rendered and the responsibilities assumed: Provided . That where the trustee, fiduciary or investment manager is acting as such under appointment by a court, the compensation shall be that allowed or approved by the court: Provided, further , That in the case of common trust funds, the fee which a trustee may charge each participant shall be limited to a participant's pro rata share of the income of the fund. In no case shall such fees and commissions be based on the excess of the income of the trust, other fiduciary or investment management funds over a certain amount or percentage. No trustee, fiduciary or investment manager shall solicit or receive rebates on commissions, fees and other payments for the services rendered to the trust, other fiduciary or investment management account or beneficiaries of the trust, other fiduciary or investment management account by stockbrokers, real estate brokers, insurance agents and similar persons or entities unless the rebates, fees and other payments shall accrue to the benefit of the trust, other fiduciary or investment management account or the beneficiaries thereof. Officers and employees of the true department or investment management department of institutions, while serving as such, shall be prohibited from retaining any compensation for acting as co-trustee or fiduciary in the administration of a trust, other fiduciary or investment management account. SEC. 424. Taxes . The terms and conditions of trust, other fiduciary or investment management agreements including common trust plans shall contain provisions regarding the applicability of regulations governing taxation on the income of trust, other fiduciary or investment management accounts. For this purpose, the trustee, fiduciary or investment manager shall maintain adequate records and shall include information such as the amount of the final income tax withheld at source and the amount withheld by the trustee, fiduciary or investment manager in the periodic reports submitted to trustors, beneficiaries, principals and other parties in interest. SECTION 425. Reports Required . SUBSEC. 425.1 To Trustor, Beneficiary, Principal . Every institution acting as trustee, fiduciary or investment manager shall render reports on the trust, other fiduciary or investment management accounts to the trustor, beneficiary, principal or other party in interest or the court concerned or any party duly designated by the court order, as the case may be under the following guidelines: a. The reports shall be in such forms as to apprise the party(ies) concerned of the significant developments in the administration of the account and shall consist of the following: 1. A balance sheet; 2. An income statement; 3. A schedule or earning assets of the account; and 4. An investment activity report. b. Items 3 and 4 above shall include at least the following information: 1. Name of issuer or borrower; 2. Type of instrument; 3. Collateral, if any; 4. Amount invested; 5. Earning rate or yield; 6. Amount of earnings; 7. Transaction date; and 8. Maturity date. c. The reports shall be prepared in such frequency as required under the agreement but shall not in any case be longer than once every quarter; and d. The reports shall be made available to clients not later than twenty (20) calendar days from the end of the reference date/period in item "c" above. SUBSEC. 425.2 To the Central Bank . An institution acting as trustee, fiduciary or investment manager shall submit periodic reports prescribed by the appropriate supervising and examining department of the Central Bank on the institution's trust and other fiduciary business and investment management activities. SEC. 426. Audits . SUBSEC. 426.1 Internal Audit . The institution's internal auditor shall include among his functions, the conduct of periodic audits of the trust department or investment management department at least once every twelve (12) months. The board of directors, in a resolution entered in its minutes may also require the internal auditor to adopt a suitable continuous audit system to supplement and/or to replace the periodic audit. In any case, the audit shall ascertain whether the institution's trust and other fiduciary business and investment management activities have been administered in accordance with laws, Central Bank rules and regulations, and sound trust or fiduciary principles. SUBSEC. 426.2 External Audit . The trust and other fiduciary business and investment management activities of an institution shall be included in the annual financial audit by independent external auditors required under existing Central Bank rules and regulations. The audit of the assets and accountabilities of the trust department/ investment management department of a bank/non-bank financial intermediary authorized to engage in trust and other fiduciary business/investment management activities, which shall cover at the minimum a review of the trust/investment management operations, practices and policies, including audit and internal control system, shall be subject to auditing procedures in accordance with generally accepted auditing standards to the extent necessary to express an opinion on the financial statements. The audit of the trust/investment management department of a bank/non-bank financial intermediary authorize to engage in trust and other fiduciary business/investment management activities shall be covered by a separate supplemental audit report to be submitted to the institution's board of directors and to the Central Bank within the prescribed period containing, among others, the statements of condition of trust funds and managed funds and the related statements of earnings of both funds presented separately. SUBSEC. 426.3 Board Action . A report of the foregoing audits, together with the actions thereon, shall be noted in the minutes of the board of directors of the institution. SEC. 427. Authority Resulting from Merger or Consolidation . In merger of financial institutions, the authority to engage in trust and other fiduciary business and in investment management activities shall continue to be in effect if the surviving institution has such authority and the same has not been withdrawn by the Central Bank; in case the surviving institution does not have previous authority but desires to engage in trust and other fiduciary business and in investment management activities, it shall secure the prior approval of the Monetary Board to engage in such business as part of its application for merger to enable it to incorporate such among its powers or purpose clause in its articles of incorporation, articles of merger, by-laws and such other pertinent documents. In the consolidation of financial institutions where the resulting entity is an entirely new one, it shall secure from the Monetary Board an authority to engage in trust and other fiduciary business or in investment management activities before it may engage in such business. SEC. 428. Receivership . Whenever a receiver is appointed by the Monetary Board for a Bank or any financial institution which is authorized to engage in trust and other fiduciary business or in investment management activities, the receiver shall, pursuant to the instructions of the Monetary Board, proceed to close the trust, other fiduciary and investment management accounts promptly and/or transfer all other accounts to substitute trustees, fiduciaries or investment managers acceptable to the trustors, beneficiaries, principals or other parties in interest: Provided , That where the trustee, fiduciary or investment manager is acting as such under appointment by a court, the receiver shall proceed pursuant to the instructions of said court. SEC. 429. Surrender of Trust or Investment Management License . Any bank or institution which has been authorized to engage in trust and other fiduciary business or in investment management activities and which intends to surrender said authority shall file with the Central Bank a certified copy of the resolution of its board of directors manifesting such intention. The appropriate supervising and examining department of the Central Bank shall then conduct an examination of the institution's trust, other fiduciary business and investment management activities. If the institution is found to have satisfactorily discharged its duties and responsibilities as trustee, fiduciary or investment manager; and has provided for the orderly closure or transfer of its trust, fiduciary or investment management accounts; the Monetary Board on the basis of the recommendation of the examining department, shall order the withdrawal of the institution's authority to engage in trust and other fiduciary business or investment management activities. SEC. 430. Sanctions . Any violation of these provisions shall be subject to the sanctions provided in Sections 34, 34-A and 34-B of Republic Act No. 265, as amended, and/or Sections 12 and 16 of Presidential Decree No. 129, as amended, as the case may be, without prejudice to the imposition of other sanctions as the Monetary Board may consider warranted under the circumstances that may include the suspension or revocation of an institution's authority to engage in trust and other fiduciary business or in investment management activities, and such other sanctions as may be provided by law. SEC. 431. Effectivity . Unless otherwise provided in the foregoing, these regulations shall be effective immediately. IMA # (PRENUMBERED) INVESTMENT MANAGEMENT AGREEMENT (Appendix to Section _______) KNOW ALL MEN BY THESE PRESENTS: This AGREEMENT, made and executed this ____ day of ___________ at __________, ___________________, Philippines by and between: (hereinafter referred to as the "PRINCIPAL") - and - ____________, a ____________ corporation authorized to perform trust functions, organized and existing under and by virtue of the laws of the Philippines, with principal office and place of business at ________________, _____________. Philippines (hereinafter referred to as the "INVESTMENT MANAGER") WITNESSETH: THAT WHEREAS, the Principal desires to avail of the services of the Investment Manager relative to the management and investment of Principal's investible funds; WHEREAS, the Investment Manager is willing to render the services required by the Principal relative to the management and investment of Principal's investible funds, subject to the terms and conditions hereinafter stipulated; NOW, THEREFORE, for and in consideration of the foregoing and of the mutual conditions stipulated hereunder, the parties hereto hereby agree and bind themselves to the following terms and conditions: INVESTMENT PORTFOLIO 1. Delivery of the Fund . Upon execution of this Agreement, the Principal shall deliver to the Investment Manager the amount of PHILIPPINE PESOS: _____________________ (P__________). 2. Composition . The cash which the Principal has delivered to the Investment Manager as well as such securities in which said sums are invested, the proceeds, interest, dividends and income or profits realized from the management, investment and reinvestment thereof, shall constitute the managed funds and shall hereafter be designated and referred to as the "Portfolio". For purposes of this Agreement, the term "securities" shall be deemed to include commercial papers, shares of stock, and other financial instruments. 3. Additional Delivery of Funds . At any time hereafter and from time to time at the discretion of the Principal, the latter may deliver additional funds to the Investment Manager which shall form part of the Portfolio and shall be subject to the same terms and conditions of this Agreement. No formalities other than a letter from the Principal and physical delivery to the Investment Manager of cash will be required for any addition to the Portfolio. 4. Nature of Agreement . THIS AGREEMENT IS AN AGENCY AND NOT A TRUST AGREEMENT. AS SUCH, THE CLIENT SHALL AT ALL TIMES RETAIN LEGAL TITLE TO FUNDS AND PROPERTIES SUBJECT OF THIS AGREEMENT. THIS AGREEMENT IS FOR FINANCIAL RETURN AND FOR THE APPRECIATION OF ASSETS OF THE ACCOUNT. THIS AGREEMENT DOES NOT GUARANTEE A YIELD, RETURN OR INCOME BY THE INVESTMENT MANAGER. AS SUCH, PAST PERFORMANCE OF THE ACCOUNT IS NOT A GUARANTY OF FUTURE PERFORMANCE AND THE INCOME OF INVESTMENTS CAN FALL AS WELL AS RISE DEPENDING ON PREVAILING MARKET CONDITIONS. IT IS UNDERSTOOD THAT THIS INVESTMENT MANAGEMENT AGREEMENT IS NOT COVERED BY THE PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC) AND THAT LOSSES, IF ANY, SHALL BE FOR THE ACCOUNT OF THE PRINCIPAL. POWERS 5. Powers of the Investment Manager . The Investment Manager is hereby conferred the following powers: a. To invest or reinvest the Portfolio in (1) Evidences of indebtedness of the Republic of the Philippines and of the Central Bank, and any other evidence of indebtedness or obligations the servicing and repayment of which are fully guaranteed by the Republic of the Philippines or loans against such government securities, (2) Loans fully guaranteed by the government as to the payment of principal and interest, (3) Loans fully secured by hold out on, assignment or pledge of deposits or of deposit substitutes, or mortgage and chattel mortgage bonds, (4) Loans fully secured by real estate and chattels in accordance with Section 78 of R.A. No. 337, as amended, and subject to the requirements of Sections 75, 76 and 77 of R.A. No. 337, as amended, and (5) Such other investments or loans as may be directed or authorized by the Principal in a separate written instrument which shall form part of this Agreement: Provided , That said written instrument shall contain the following minimum information: (a) The transaction to be entered into, (b) The amount involved, and (c) The name of the issuer, in case of securities and/or the name of the borrower and nature of security, in case of loans; TaIHEA b. To endorse, sign or execute any and all securities, documents or contracts necessary for or connected with the exercise of the powers hereby conferred or the performances of the acts hereby authorized; c. To cause any property of the Portfolio to be issued, held, or registered in the name of the Principal or of the Investment Manager, provided that in case of the latter the instrument shall indicate that the Investment Manager is acting in a representative capacity and that the Principal's name is disclosed thereat; d. To open and maintain a savings and/or checking account as may be considered necessary from time to time in the performance of the agency and the authority herein conferred upon the Investment Manager; e. To collect and receive matured securities, dividends, profits, interest and all other sums accruing to or due to the Portfolio; f. To pay such taxes as may be due in respect of or on account of the Portfolio or in respect of any profit, income or gains derived from the sale or disposition of securities or other properties constituting part of the Portfolio; g. To pay out of the Portfolio all costs, charges and expenses incurred in connection with the investments for the administration and management of the Portfolio including the compensation of the Investment Manager for its services relative to the Portfolio; and h. To perform such other acts or make, execute and deliver all instruments necessary or proper for the exercise of any of the powers conferred herein, or to accomplish any of the purposes hereof. LIABILITY OF INVESTMENT MANAGER 6. Exemption from Liability . In the absence of fraud, bad faith, or gross or willful negligence on the part of the Investment Manager or any person acting in its behalf, the Investment Manager shall not be liable for any loss or damage to the Portfolio arising out of or in connection with any act done or performed or caused to be done or performed by the Investment Manager pursuant to the terms and conditions herein agreed, to carry out the powers, duties and purposes for which this Agreement is executed. 7. Advice of Counsel . The Investment Manager may seek the advice of lawyers. Any action taken or suffered in good faith by the Investment Manager as a consequence of the opinion of the said lawyers shall be conclusive and binding upon the Principal, and the Investment Manager shall be fully protected from any liability suffered or caused to be suffered by the Principal by virtue hereof. ACCOUNTING AND REPORTING 8. The Investment Manager shall keep and maintain books of accounts and other accounting records as required by law. The Principal or the authorized representative of the Principal shall have access to and may inspect such books of accounts and all other records related to the Portfolio, including the securities held in custody by the Investment Manager for the Portfolio. 9. Reporting Requirements . The investment manager shall prepare and submit to the Principal the following reports within ___________________ (a) Balance Sheet; (b) Income Statement; (c) Schedule of Earning Assets; (d) Investment Activity Report; (e) ( and such other reports as may be required by the Principal ). INVESTMENT MANAGER'S FEE 10. Investment Fee . The Investment Manager, in addition to the reimbursement of its expenses and disbursements in the administration and management of the Portfolio including counsel fees, shall be entitled to receive as compensation for its services a management fee of ____ ( Specify amount or rate ). WITHDRAWALS FROM THE PORTFOLIO 11. Withdrawal of Income/Principal . Subject to availability of funds and non-diminution of the Portfolio below P1 million, the Principal may withdraw the income/principal of the Portfolio or portion thereof upon written instruction or order given to the Bank. The investment Manager shall not be required to see as to the application of the income/principal so withdrawn from the Portfolio. Any income of the Portfolio not withdrawn shall be accumulated and added to the principal of the Portfolio for further investment and reinvestment. 12. Non-alienation or Encumbrance of the Portfolio or Income . During the Effectivity of this Agreement, the Principal shall not assign or encumber the Portfolio or its income or any portion thereof in any manner whatsoever to any person without the written consent of the Investment Manager. EFFECTIVITY AND TERMINATION 13. Term . This Agreement shall take effect from the date of signing hereof and shall be in full force and effect until terminated by either party by giving written notice thereof to the other at least _____ (___) days prior to the termination date. 14. Powers upon Liquidation . The powers, duties and discretion conferred upon the Investment Manager by virtue of this Agreement shall continue for the purpose of liquidation and return of the Portfolio, after the notice of termination of this Agreement has been served in writing, until final delivery of the Portfolio to the Principal. 15. Accounting of Transaction . Within ______ (__) days after the termination of this Agreement, the Investment Manager shall submit to the Principal an accounting of all transactions effected by it since the last report up to the date of effected by it since the last report up to the date of termination. Upon the expiration of the _____ (___) days from the date of submission, the Investment Manager shall forever be the date of submission, the Investment Manager shall forever be released and discharged from all liability and accountability to anyone with respect to the Portfolio or to the propriety of its acts and transactions shown in such accounting except with respect to those objected to in writing by the Principal, within _____ (__) day period. 16. Remittance of Net Assets of the Portfolio . Upon termination of the Agreement, the investment Manager shall turn over all the assets of the Portfolio which may or may not be in cash to the Principal less the payment of the fees provided in this agreement in carrying out its functions or in the exercise of its powers and authorities. This Agreement or any specific amendment hereto constitute the entire agreement between the parties, and the Investment Manager shall not be bound by any representation, agreement, stipulations, or promise, written or otherwise, not contained in this agreement, stipulations, or promise, written or otherwise, not contained in this Agreement or incorporated herein by reference, except pertinent laws, circulars or regulations approved by the Government or its agencies. No amendment, novation, modification or supplement of this Contract shall be valid or binding unless in writing and signed by the parties hereto. DTAHSI In WITNESS WHEREOF, the parties have hereunto set their hands on the date and at the place first above set forth. _____________ ______________ (Principal) (Investment Manager) By: SIGNED IN THE PRESENCE OF _____________ ______________ ACKNOWLEDGMENT REPUBLIC OF THE PHILIPPINES ) ___________, ________________ ) s.s. BEFORE ME, a Notary Public in and for ___________, ____________, on this _____________ day of _____________________, personally appeared: NAME RES. CERT. NO. DATE & PLACE ISSUED NOTARY PUBLIC Doc. No. ______ Page No. _______ Book No. _______ Series of ______ MANUAL OF ACCOUNTS FOR TRUST AND OTHER FIDUCIARY BUSINESS AND FOR INVESTMENT MANAGEMENT ACTIVITIES CHART OF ACCOUNTS ASSETS INVESTMENTS Investments in Government Securities Accumulated Bond Discount/Premium Amortization Investments in Other Securities and Debt Instruments Accumulated Bond Discount /Premium Amortization Allowance for Probable Losses- Investments in Other Securities and Debt Instruments Loans and Discounts Agricultural Loans and Discounts Commercial Loans and Discounts Industrial Loans and Discounts Real Estate Loans and Discounts Consumption Loans and Discounts Other Loans and Discounts Restructured Loans Past Due Loans Items in Litigation Allowance for Probable Losses-Loans and Discounts Real and Other Properties Acquired in Settlement of Loans. Allowance for Probable Losses-Real and Other Properties Acquired in Settlement of Loans Investments in Shares of Stock Short-Term Equity Investments Stock Listed in the Big Board Stock Listed in the Small Board Stock Not Listed in the Stock Exchanges Long Term Equity Investments Allowance for Probable Losses-Investment in Shares of Stock CTF Revaluation Account- Investment in Shares of Stock Investment in Real Estate Allowance for Probable Losses-Investment in Real Estate CTF Revaluation Account-Investment in Real Estate Investment in Common Trust Funds Own Trust Department Other Institution's Trust Department REAL PROPERTIES ADMINISTERED MISCELLANEOUS RECEIVABLES Interest Receivable Dividends Receivable Rentals Receivable Contributions Receivable Sales Contracts Receivable Other Miscellaneous Receivables Allowance for Probable Losses-Miscellaneous Receivables DEPOSITS IN BANKS Time Certificates of Deposits-Own Bank Time Certificates of Deposits-Other Banks Savings Deposits-Own Bank Savings Deposits-Other Banks Demand Deposits-Own Bank Demand Deposits-Other Banks CASH CHECKS AND OTHER CASH ITEMS MISCELLANEOUS ASSETS Assets Under Custodianship/Safekeeping Other Miscellaneous Assets FCDU/EFCDU TRUST ASSETS Investments in Government Securities Investments in Other Securities and Debt Instruments Investments in Common Trust Funds Loans and Discounts Peso Loans Under FCDU/EFCDU Restructured Loans Past Due Loans Items in Litigation Real and Other Properties Acquired on Settlement of Loans Deposits in Banks Foreign Currency Notes and Coins on Hand Miscellaneous FCDU/EFCDU Assets Accumulated Bond Discount/Premium Amortization Allowance for Probable Losses FCDU/EFCDU Trust Assets FOREIGN CURRENCY ASSETS-NON-FCDU/EFCDU ACCOUNTABILITIES TRUSTEESHIP AND OTHER FIDUCIARY ACCOUNTABILITIES - Principal - Income Administratorship Bond Issues/Other Obligations Under Deeds of Trust Custodianship and Safekeeping Depository/Reorganization Employee Benefit Plans under Trust Pension Fund/Provident Fund Profit Sharing Plan Stock Bonus Plan Insurance Trust Plan Escrow Personal Trust Testamentary Living Trust Executorship Guardianship Life Insurance Trust Pre-Need Plans Institutional Individual Other Trust/ Fiduciary Activities COMMON TRUST FUNDS Principal Income INVESTMENT MANAGEMENT ACCOUNTS Principal Income Personal Investment Management Accounts Corporate Investment Management Accounts Employee Benefit Plans under Agency Pension Fund/Provident Fund Profit Sharing Plan Stock Bonus Plan Health Insurance Plan Other Corporate Investment Management Accounts FCDU/EFCDU TRUST ACCOUNTABILITIES Principal Income FCDU/EFCDU Common Trust Funds Individual FCDU/EFCDU Trust Accounts UNEARNED INCOME OTHER ACCOUNTABILITIES DEFERRED ITEMS CTF REVALUATION CONTRA ACCOUNT Investments in Shares of Stocks Investments in Real Estate ASSETS INVESTMENTS Investments in Government Securities Nature 1. The account represents investments in government securities purchased outright from the issuer or other parties. This consists of evidences of indebtedness of the Republic of the Philippines and of the Central Bank and any other evidences of indebtedness or obligations the servicing and repayment of which are fully guaranteed by the Republic of the Philippines. 2. The following related accounts shall be maintained for this account: Accumulated Bond Discount/Premium amortization This account represents the earned portion of the discount and/or the amortized or expanded portion of the premium on investments in government securities and shall be debited or credited, as the case may be, to this account every month or in the case of investments made by common trust funds, every time a valuation or pricing is made in accordance with the provisions of the approved plan for such funds. The corresponding contra account is debited or credited to the income accountability of the trustee, fiduciary or investment manager to the trustor or principal. Valuation 3. Investments in Government Securities shall be recorded at: Cost if delivered at inception and during the life of the trust, other fiduciary or investment management account by the trustor or principal, or if purchased by the trustee, fiduciary, or investment management out of trust, other fiduciary, or investment management funds, where discretionary authority to buy or sell is given to the trustee, fiduciary or investment manager; or at Fair Market Value if received by way of an irrevocable trust or under executorship or administrative proceedings since this is the value used in the computation of donor's or estate tax. Financial Statement Presentation 4. The total amount of Investment in Government Securities shall be shown as increased or decreased by the corresponding Accumulated Bond Discount or Premium Amortization, as the case may be. Investments in Other Securities and Debt Instruments Nature 1. This account represents investments in various types of securities, commercial papers and debt instruments issued by private parties and those issued by political subdivisions and instrumentalities of the government including corporations owned or controlled by the government, the servicing and repayment of which are not guaranteed by the Republic of the Philippines. It also includes investments in money market or deposit substitute instruments issued by financial intermediaries with government or private securities or commercial papers as underlying security. 2. The following related accounts shall be maintained for this account: Accumulated Bond Discount/Premium Amortization This account represents the earned portion of the discount and/or the amortized or expended portion of the premium on the investments and shall be debited or credited, as the case may be, to this account every month or in the case of investments made by common trust funds, every time a valuation or pricing is made in accordance with the provisions of the approved plan for such funds. The corresponding contra accounts is debited or credited to the income accountability of the trustee, fiduciary or investment manager to the trustor or principal: Allowance for Probable Losses Investments in Other Securities and Debt Instruments This represents the amount set up to provide for losses which may arise from non-collection of investments in other securities and debt instruments as may be determined by the trustee, fiduciary or investment manager and/or as may be prescribed under Central Bank rules and regulations on similar investments of the bank/investment house proper. The amount set up shall be charged against the income accountability of the trustee, fiduciary or investment manager to the trustor or principal. Valuation 3. Investment in Other Securities and Debt Instruments shall be recorded at: Cost if delivered at inception and during the life of the trust, other fiduciary or investment management account by the trustor or principal, or if purchased by the trustee, fiduciary, or investment manager out of trust, other fiduciary or investment management funds, where discretionary authority to buy or sell is given to the trustee, fiduciary or investment manager; or at Fair Market Value if received by way of an irrevocable or under executorship or administrative proceedings since this is the value used in the computation of donor's or estate tax. Financial Statement Presentation 4. The total amount of Investments in Other Securities and Debt Instruments shall be shown as increased or decreased by the corresponding Accumulated Bond Discount or Premium Amortization, as the case may be and net of the corresponding Allowance for Probable Losses. In the financial statements and reports to trustors and/or principals, the prevailing fair market value of the investments shall be shown parenthetically. Loans and Discounts Nature 1. This account represents amounts collectible from borrowers arising from claims for money lent that may include but need not be limited to money market loans, demand loans, time loans, bills discounted, real estate mortgage loans and bills purchased. 2. The following sub-control accounts shall be maintained for Loans and Discounts: Agricultural Loans and Discounts representing loans and discounts to finance agricultural production and related activities, purchase of farm machinery, equipment and implements including work/breeding animals, including, but not limited to, the establishment and operation of poultry, piggery, livestock and fishery projects. SCIcTD Commercial Loans and Discounts representing loans and discounts to finance the purchase of goods or merchandise for resale. Industrial Loans and Discounts representing loans and discounts to finance the production, processing, transformation, handling and/or transportation of industrial products and/or conservation, enlargement or improvement of productive properties, or the acquisition of machinery or other fixed installations. Real Estate Loans and Discounts representing loans and discounts to finance and/or refinance the construction, acquisition, expansion, or improvement of rural and urban properties. Consumption Loans and Discounts representing loans and discounts to finance personal and household needs, such as purchase of cars, household appliances, furniture and fixtures and/or to pay taxes, hospital and educational bills. Other Loans and Discounts representing loans and discounts for purposes other than agricultural, commercial, industrial, real estate or consumption. Restructured Loans representing loans and discounts which are defined as restructured under existing Central Bank rules and regulations. Past Due Loans representing loans and discounts which are defined as past due under existing Central Bank rules and regulations. Loans classified as such shall remain in this account until arrangements are formalized for their renewal or extension. Items in Litigation representing loans and discounts for which collection/foreclosure cases have been filed in court or sheriff's office, as the case may be. The loan or discount shall remain in this account during the pendency of the proceedings or until full payment, foreclosure of the collateral, restructuring of the obligation, or such other disposition is made as would cause such proceedings to cease. Unless otherwise provided for in the trust/fiduciary agreement, all expenses incurred incident to the litigation shall be charged to the corresponding income accountability of the trustee. The balance of such expenses, if any, shall be charged to the principal accountability. The corresponding memorandum entries shall be made on the individual subsidiary ledgers for these items and also for interest earned but not yet collected. 3. The following related account also be maintained: Allowance for Probable Losses Loans and Discounts This account represents the amount set up to provide for losses which may arise from non-collection of loans and discounts as may be determined by the trustee, fiduciary or investment manager, and/or as may be provided under Central Bank rules and regulations on similar loans of the bank or investment house proper. The amount set up shall be charged against the income accountability of the trustee, fiduciary or investment manager to the trustor or principal. Valuation 4. Loans and Discounts shall be recorded at face amount net of principal collections. Financial Statement Presentation 5. Loans and Discounts shall be shown net of the corresponding Allowance for Probable Losses. Real and Other Properties Acquired in Settlement of Loans Nature 1. This account represents real and other properties acquired in settlement of loans by the trustee, fiduciary or investment manager for the account of the trustor principal. 2. The following related account shall also be maintained: Allowance for Probable Losses Real and Other Properties Acquired in Settlement of Loans This account represents the amount set up to provide for losses on such properties as may be determined by the trustee, fiduciary or investment manager and/or, as may be provided under Central Bank rules and regulations on similar properties of the bank/investment house proper. The amount set up shall be charged against the income accountability or trustee, fiduciary or investment manager to the trustor or principal. cEHSIC Valuation 3. Real and Other Properties Acquired in Settlement of Loans shall be recorded at the balance of the loan and other advances. All booked but uncollected interest receivable shall be reversed against the income accountability of the trustee, fiduciary or investment manager to the trustor or principal. 4. Unless otherwise provided in the governing instruments, collections such as rental income and other types of receipts or fruits of the acquired properties shall be credited to income while expenses such as taxes, repairs, maintenance, insurance premiums shall be charged to the income account. Financial Statement Presentation 5. Real and Other Properties Acquired in Settlement of Loans shall be shown at book value as stated above, net of the corresponding Allowance for Probable Losses. Investments in Shares of Stocks Nature 1. This account represents investments in preferred and/or common shares of stock of corporations whether purchased from this stock exchanges or direct from the issuer. 2. The following sub-control accounts shall be maintained for this account: Short-Term Equity Investments representing investments in shares of stock intended to be sold, traded or disposed of for profit. These are further classified as follows: Stock Listed in the Big Board representing shares of stock listed and traded in the big board of the stock exchanges. Stock Listed in the Small Board representing shares of stock listed and traded in the small board of the stock exchanges, which are usually speculative in nature. Stock Not Listed in the Stock Exchanges representing shares of stock not listed in the exchanges, which are traded over the counter or purchased directly from the issuer. Long Term Equity Investments representing investments in shares of stock of companies for purposes of control, affiliation or other continuing business advantage. 3. The following related account shall be maintained: Allowance for Probable Losses Investments in Shares of Stock This account represents the amount set up to provide for possible losses that may arise on the investments as may be determined by the trustee, fiduciary or investment manager and/or as may be provided under Central Bank rules and regulations on similar investments of the bank/investment house proper. The amount set up shall be charged against the income accountability of the trustee, fiduciary or investment manager to the trustor or principal. This account shall not be applicable to investments funded by common trust funds subject to periodic revaluation which shall utilize the succeeding account. CTF Revaluation Account Investments in Shares of Stock This represents the difference between the original cost and the value of investments made by common trust funds in shares of stock based on the method of valuation stated in the approved plan for such funds. Its reciprocal entries in the same amount shall be recorded as Deferred Items CTF Revaluation Contra Account. Upon the actual sale or disposition of an investment, reversing entries pertaining to said investment shall be made with the actual gain or loss in the investment taken up as an increase or decrease in the income accountability of the trustee of the common trust fund to the participants. Valuation 4. Investments in Shares of Stock shall be recorded at: Cost if delivered at inception and during the life of the trust, other fiduciary or investment management account by the trustor or principal, or if purchased by the trustee, fiduciary or investment manager out of trust, fiduciary or investment management funds where discretionary authority to buy or sell is given to the trustee, fiduciary or investment manager; Fair Market Value if received by way of an irrevocable trust or under executorship or administrative proceedings since this is the value used in the computation of donor's or estate tax; Nominal Value of P1.00 per stock certificate for stock dividends. 5. Equity investments representing more than fifty percent (50%) of the voting stock of a single investment company shall be revalued using the equity method of accounting where the share in the earnings or losses is added to or subtracted from the asset account and the income accountability of the trustee, fiduciary or investment manager. The recording system shall, however, see to it that the original cost of the investments are maintained to allow disclosure of such information in the required reports. Financial Statement Presentation 6. Investments in Shares of Stocks shall be shown as a separate item at cost less corresponding Allowance for Probable Losses. In the financial statements and reports to trustors or principals, Investments in Shares of Stocks shown at cost or nominal value shall also show their corresponding prevailing fair market value parenthetically. Investments in Shares of Stock shown at book value under the equity method of accounting shall also show their corresponding cost parenthetically. 7. In the case of common trust funds, Investment in Shares of Stock shall be shown at cost, plus or minus the corresponding CTF Revaluation Account indicating the basis of valuation provided in the CTF plan. Investments in Real Estate Nature 1. This account represents land, building and improvements thereon, including condominium projects held for investment purposes. 2. The following related account shall be maintained: Allowance for Probable Losses Investments in Real Estate This account represents the amount set up for losses that may arise from the investments as may be determined by the trustee, fiduciary or investment manager and/or as may be provided under existing Central Bank rules and regulations on similar investments of the bank/investment house proper. The amount set up shall be charged against the income accountability of the trustee, fiduciary or investment manager to the trustor or principal. This account shall not be applicable to investments funded by common trust funds subject to periodic revaluation which shall utilize the succeeding account. CTF Revaluation Account Investments in Real Estate This represents the difference between the original cost and the value of investments made by common trust funds in real estate based on the method of valuation stated in the approved plan for such funds. Its reciprocal entries in the same amount shall be recorded as Deferred Items CTF Revaluation Contra Account. Upon the actual sale or disposition of a real estate investment, reversing entries pertaining to said investment shall be made with the actual gain or loss in the investment taken up as an increase or decrease in the income accountability of the trustee of the common trust fund to the participants. Valuation 3. Investment at Real Estate shall be recorded at : Cost if delivered at inception and/or during the life of the trust, other fiduciary or investment management account, or if purchased or constructed by the trustee, fiduciary or investment manager out of trust, fiduciary or investment management funds. Fair Market Value if received by way of an irrevocable trust or under executorship or administrative proceedings as this is the value used in the computation of donor's or estate tax. Financial Statement Presentation 4. Investments in Real Estate shall be shown net of the corresponding Allowance for Probable Losses. In financial statements and reports to trustors or principals, the real estate investments shown at cost shall also show their prevailing fair market value parenthetically. 5. In the case of common trust funds, Investments in Real Estate shall be shown at cost, plus or minus their corresponding CTF Revaluation Account indicating the basis of valuation provided in the CTF plan. Investments in Common Trust Funds Nature 1. The account represents the amount of investment or participation in common trust funds as may be allowed under existing rules and regulations (Subsections 1410.4, 2410.4, 3410.4 and 4410.4). 2. The trustee, fiduciary or investment manager shall maintain records showing the prevailing book value of each investment in common trust funds based on the valuation reports submitted by the trustee of the CTF in accordance with the approved plan. 3. The following sub-control accounts shall be maintained for the account: Own Trust Department representing investments of funds administered by the trustee for its employees in the trustee's common trust funds. Other Institution's Trust Department representing investments in common trust funds administered by the trust department of other banks or investment houses or by trust corporations. Valuation 4. Investments in Common Trust Funds shall be recorded at cost. Income or loss on the account shall be recorded upon withdrawal that will increase/decrease the income accountability of the trustee, fiduciary or investment manager to the trustor or principal. TCcDaE Financial Statement Presentation 5. The amount of Investments in Common Trust Funds shall be shown as a separate item at cost. In financial statements and reports to trustors and/or principals, the prevailing book value of the investments in common trust fund as shown in the latest valuation report shall be disclosed parenthetically. REAL PROPERTIES ADMINISTERED Nature 1. Real Property Administered, as distinguished from Investments in Real Estate, represents land, building and all types of improvements thereon held by a trustee or fiduciary for the account of a trustor or principal for the purpose of administering such properties such as to collect rent, proceeds from the sale of fruits of administered properties, pay taxes, repairs and maintenance. 2. Appropriate records shall be kept for each real property regarding basic information such as its prevailing fair market value, assessed value and real estate tax payments. Valuation 3. Real Properties Administered shall be booked a P1.00 per title or document of ownership. 4. Unless otherwise provided in the governing trust or fiduciary agreement, collections such as rental income and other types of receipts or fruits of the administered property shall be credited to income while administration expenses such as taxes, repairs, maintenance, insurance premiums shall be charged to the income account. Financial Statement Presentation 5. Real Properties Administered are shown as a separate item in the Statement of Condition of the Trust Department and in the individual financial statements and reports to trustors or principals. The prevailing market value of the property administered shall be disclosed parenthetically. MISCELLANEOUS RECEIVABLES Nature Interest Receivables 1. Interest Receivables represents interest on loans, advances, bonds and other interest-bearing securities or instruments earned, as allowed under existing rules and regulations, but not yet collected or received. The account is reduced when interest is collected or whenever a corresponding loan account becomes past due under Central Bank rules, in which case, the amount credited is charged to the income accountability of the trustee, fiduciary or investment manager to the trustor or principal. Dividends Receivables 2. Dividends Receivables represents cash dividends on investments in stocks that has been earned but not yet collected or received. Rentals Receivables 3. This represents rentals on properties under lease already earned but not yet collected or received. Contributions Receivables 4. This account represents contributions from pension, retirement and other similar plans already due but not yet collected or received. Sales Contracts Receivable 5. This account represents the balance of the selling price of an asset or property owned and/or acquired, which is sold on installment basis under a duly executed agreement to sell, title to which is transferred to the buyer upon full payment of the installments due. Any loss on the sale shall be charged immediately to the income accountability of the trustee, fiduciary or investment manager to the client. The balance of such loss, if any, shall be charged to the principal accountability. Other Miscellaneous Receivables 6. This accounts represents claims or receivables which cannot be appropriately classified under any of the foregoing Miscellaneous Receivable accounts. These claims or receivables may be evidenced by promissory notes or other written instruments. Allowance for Probable Losses Miscellaneous Receivables 7. This account represents the amount set up to provide for non-collection of any account lodged as Miscellaneous Receivables as may be determined by the trustee, fiduciary or investment manager and/or as may be provided under Central Bank rules and regulations on similar accounts of the bank/investment house proper. The amount set shall be charged against the income accountability of the trustee, fiduciary or investment manager to the trustor or principal. Valuation 8. The foregoing accounts shall be recorded at face amount. Financial Statement Presentation 9. Each of the foregoing accounts shall be shown separately under the Miscellaneous Receivables classification together with the corresponding Allowance for Probable Losses to show the net amount. DEPOSITS IN BANKS Nature 1. Deposits in Banks represents the balance of trust, other fiduciary or investment management funds maintained in own or other banks in the form of time, savings and/or demand deposits. The account excludes the balance of such funds maintained with closed banks and banks under receivership or liquidation. 2. The following sub-control accounts shall be maintained for this account: Time Certificates of Deposits Own Bank representing balances of trust, other fiduciary and investment management funds maintained in own bank in the form of time deposits. Time Certificates of Deposits Other Banks representing balances of trust, other fiduciary and investment management funds maintained in other banks in the form of time deposits. Savings Deposits Own Bank representing balances of trust, other fiduciary and investment management funds maintained in own banks in the form of savings deposits. Savings Deposits Other Banks representing balances of trust, other fiduciary and investment management funds maintained in other banks in the form of savings deposits. Demand Deposits Own Bank representing balances of trust, other fiduciary and investment management funds maintained in own banks in the form of demand deposits. Demand Deposits Other Banks representing balances of trust, other fiduciary and investment management funds maintained in other banks in the form of demand deposits. Valuation 3. Deposits in Banks shall be recorded at face amount. Financial Statement Presentation 4. Deposits in Banks shall be shown as a separate item in the statements and reports of the trust or investment management department to trustors or principals. CASH Nature 1. This account represents the total amount of trust, other fiduciary and investment management funds in the form of Philippine currency notes and coins held in the custody of an accountable officer or employee of the trust or investment management department of a bank or investment house. Valuation 2. Cash is recorded at face amount. Financial Statement Presentation 3. Cash is shown as a separate item towards the end of statements and reports to trustors or principals since it usually forms part of the excess funds of trust, other fiduciary and investment management accounts. CHECKS AND OTHER CASH ITEMS Nature 1. This account represents the aggregate value of checks and other cash items received during the day, for deposit the following business day to deposit accounts maintained with own bank or other banks that may consist of checks drawn on other banks, Philippine Postal Money Orders and Philippine Treasury Warrants. Valuation 2. Checks and Other Cash Items shall be recorded at face amount. Financial Statement Presentation 3. This account shall be shown as a separate item at face amount. MISCELLANEOUS ASSETS Nature 1. This account represents assets which cannot be appropriately classified under any of the foregoing asset accounts. 2. Subsidiary ledgers shall be maintained for each type of asset that may include the following: Assets Under Custodianship/Safekeeping representing stock certificates and bonds held under advisory capacity without any authority to buy or sell; or held for activities involving stock transfer, registration and other related or similar transactions. The trustee, fiduciary or investment manager shall maintain a complete list of the particulars of these items. Other Miscellaneous Assets representing other assets which may not be classified under the foregoing account. Valuation 3. Miscellaneous Assets shall be recorded as follows: Cost if purchased by the trustee, fiduciary or investment manager out of trust, fiduciary or investment management funds; Appraised Value if delivered at inception of the trust, fiduciary or investment management account, discovered or delivered during the life of the trust, fiduciary or investment management account and/or acquired by donation. Nominal Value of P1.00 per item or certificate if held for safekeeping or custodianship. Nominal Value of P1.00 per client or trustor or principal for activities involving stock transfer, registration and other related or similar transactions. Financial Statement Presentation 4. Miscellaneous Assets shall be presented last of all assets held in local currency. Items shown at cost or nominal value shall indicate their prevailing fair market value parenthetically. cHITCS FCDU/EFCDU TRUST ASSETS Nature 1. This account represents all foreign currency assets allowed to be held in trust by a bank arising from its acceptance of trust accounts in eligible foreign currencies under its authority to operate a Foreign Currency Deposit Unit (FCDU) or an Expanded Foreign Currency Deposit Unit (EFCDU). 2. The following sub-control accounts for each type of eligible foreign currency shall be maintained for this account the nature of which shall be the same as those described in the foregoing for similar peso-denominated trust asset accounts. Investments in Government Securities Investments in Other Securities and Debt Instruments Investments in Common Trust Funds Loans and Discounts Peso Loans under FCDU/EFCDU Restructured Loans Past Due Loans Items in Litigation Real and Other Properties Acquired in Settlement of Loans Deposits in Banks Foreign Currency Notes and Coins on Hand Miscellaneous FCDU/EFCDU Assets Accumulated Bond Discount/Premium Amortization Allowance for Probable Losses FCDU/EFCDU Trust Assets Valuation 3. Each of the sub-control accounts shall be recorded in the same manner as their respective counterpart for peso-denominated regular trust accounts but recorded in the original foreign currency amount at transaction date. The total of the sub-control accounts shall correspond to the amount recorded in the main account. Financial Statement Presentation 4. These accounts shall be presented in the Statement of Condition of the trust department at the original foreign currency amount and at their prevailing U.S. dollar and peso equivalent as at reporting date. In the individual statements to trustors, they shall be shown at their original foreign currency amount and at the prevailing US dollar equivalent as at reporting date. FOREIGN CURRENCY ASSETS NON-FCDU/EFCDU Nature 1. This account represents all foreign currency assets other than those under CB Circular No. 343/547 which are held in trust. Subsidiary ledgers shall be maintained for each type of asset. Valuation 2. Foreign Currency Assets Non-FCDU/EFCDU shall be recorded at their original foreign currency values at transaction dates. Financial Statement Presentation 3. Foreign Currency Assets Non-FCDU/EFCDU shall be presented at the original foreign currency values and at the prevailing US dollar and local currency equivalent as at reporting date. ACCOUNTABILITIES PRINCIPAL Nature 1. This account represents the property which has been set aside by the owner or the person legally empowered so that it is held in trust, fiduciary or investment management capacity eventually to be delivered to a person entitled to such principal and the accumulated income derived therefrom. 2. Main accounts to be maintained are: TRUSTEESHIP AND OTHER FIDUCIARY ACCOUNTABILITIES representing the accountabilities of an institution to a client arising from a trust or fiduciary relationship, for which the following sub-control accounts shall be maintained. Excluded are common trust funds, investment management accounts and FCDU/EFCDU trust accounts which are separately classified though arising also from a trust or fiduciary relationship. Administratorship This represents the accountability of the trustee or fiduciary to trustors or principal under property administration agreements or under orders of courts of competent jurisdiction to manage and distribute the estate of a decedent without a will or a testator who has no executor. The trustee or fiduciary may be empowered to perform some specific functions, such as enter into contracts of lease, collect rentals due to the property, and to pay taxes that may be levied thereon. Bond Issues/Other Obligations Under Deeds of Trust This represents the accountability of the trustee under mortgage trust agreements whereby the trustee holds properties which are the subject of mortgage or collateral for bond issues or other obligations. Custodianship and Safekeeping This represents the accountability of the trustee or fiduciary with the trustor or principal under custodianship and safekeeping agreements or on orders of courts of competent jurisdiction whereby the trustee or fiduciary keeps in its possession tangible properties or titles to such properties, choses in action, and other titles or documents of ownership. Depository and Reorganization This represents the accountability of the trustee or fiduciary under agreements whereby the trustee or fiduciary is the depository of a company's assets and properties prior to its reorganization. Usually, the trustee is also in charge of reorganization of a company which may be in process of merger, consolidation or spin-off. Employee Benefit Plans Under Trust This represents corporate trust arrangements wherein the beneficiaries are employees of corporations. These may be classified as follows: Pension fund/Provident Fund This represents the accountability of the trustee under agreements whereby the trustee holds funds accumulated from a corporation or its employees, or both, to be used for monthly or other periodical payments to retired or incapacitated employees of such corporations. Profit Sharing Plan This represents the accountability of the trustee under a profit sharing plan whereby the employees of a corporation shall receive a share in the net profits of the business, in addition to their salaries and wages. This does not include stock bonus. Stock Bonus Plan This represents the accountability of the trustee under a stock bonus plan whereby the employees of a corporation shall receive benefits in the form of the corporation's own shares of stock as a reward for meritorious service as a means of sharing profits of the said corporation. Insurance Trust Plan This represents the accountability of the trustee under a insurance trust plan whereby the employees of a corporation or their dependents shall receive benefits in case of disability or death of said employees. Escrow This represents the accountability of an entity (escrow agent) with a principal under escrow agreements or under orders of courts of competent jurisdiction whereby the entity (escrow agent) holds money, securities or property deposited by the principal, the eventual delivery of which to a third party is contingent upon the happening of a certain event or upon the action taken by the second party. Personal Trust This represents the accountability of the trustee to trustor under an estate planning scheme mainly for the administration and disposition of the trustor's property during his lifetime and at his death, usually set forth in his will. The following subsidiary ledgers shall be maintained: Testamentary Trust This is a trust created by a Will . It does not become operative until after the death of the trustor. Under a testamentary trust, a person may transfer legal title to the property to a trustee to hold and manage for the benefit of a third person(s). Living Trust This is a trust created by Agreement . Under a living trust, the trustor creates a separate trust estate out of his general estate, to be managed by the trustee, for the benefit of the trustor and/or third person(s). Executorship This represents the accountability for court trust assets held by a trustee designated in a will as executor to carry out the testator's last will in settling his estate. Guardianship This represents the accountability of the trustee or fiduciary appointed by a court for holding properties or the estate of an incompetent or irresponsible person. Life Insurance Trust This represents the accountability of the trustee to a trustor under life insurance trust agreements whereby the trustor makes his life insurance policies payable to the trustee who shall handle and distribute the proceeds thereof in accordance with such agreements. aAcDSC Pre-Need Plans Institutional This account represents the accountability of a trustee to corporate-trustors which operate pre-need plans and are required by government regulatory agencies to maintain trust accounts for such activities. Individual This account represents the accountability of a trustee to a trustor (natural person) who puts up his own fund for the future needs of beneficiaries as for education, hospitalization, funeral and other expenses. Other Trust/Fiduciary Activities -This account represents the accountability of the trustee/fiduciary for whatever agreements the nature of which may not be classified under any of the foregoing. COMMON TRUST FUNDS This represents the accountability of the trustee under established commingled or common trust plans or any other similar arrangement which partake of the collective investment or the pooled fund nature of common trust funds where the trustee has discretionary authority to invest the commingled funds of participating trustors in assets enumerated in the covering agreement. INVESTMENT MANAGEMENT ACCOUNTS This represents the accountability of the investment manager under terms provided in agreements whereby the client who is the principal grants the institution which is the investment manager authority to invest funds in certain assets. The following sub-control accounts shall be maintained for this account: Personal Investment Management Accounts where the principal is a natural person; Corporate Investment Management Accounts where the principal is a juridical person. This account shall be further classified as follows: Employee Benefit Plans under Agency representing any employee benefit plan of an employer-entity administered by its own board of trustees for which the financial institution is designated as investment manager. These benefit plans may be in the form pension or provident funds, profit sharing, stock bonus or health insurance the nature of which, except for the trust relationship, are the same as earlier described under Employee Benefit Trust. Other Corporate Investment Management Accounts representing investment management accounts which may not be classified in the foregoing account. FCDU/EFCDU TRUST ACCOUNTABILITIES This represents the accountability of a bank as trustee of foreign currencies received in trust under the bank's authority to operate a foreign currency deposit unit or an expanded foreign currency deposit unit for which the following sub-control accounts shall be maintained: FCDU/EFCDU Common Trust Funds representing the accountability of the trustee under established common trust plans for FCDU/EFCDU deposits received as trust accounts or under any similar arrangement which partake of the collective investment or pooled fund nature of common trust funds. Individual FCDU/EFCDU Trust Accounts representing the accountability of the trustee under individual trust agreements for FCDU/EFCDU deposits received as trust accounts. Valuation 3. Principal shall be recorded at the corresponding asset value of the property delivered by the client to the trustee or fiduciary. 4. Income derived from the principal may be closed annually to the principal accountability of the trustee or fiduciary only upon the express written authority from the client or his authorized representative. 5. Expenses and provisions against assets that exceed the outstanding balance of the income accountability shall be deducted from the principal. 6. FCDU/EFCDU Trust Accountabilities shall be recorded at their original foreign currency amount. Financial Statement Presentation 7. Principal shall be the first item among the accountabilities of the trustee or fiduciary. 8. FCDU/EFCDU Trust Accountabilities shall be presented in the Statement of Condition of the trust department at the original foreign currency amount and at the prevailing US dollar and peso equivalent. In statements and reports to trustors, this account is shown at the original foreign currency amount and at the prevailing U.S. dollar equivalent. INCOME Nature 1. This account represents the net yield in money or property from the use of the principal. 2. Except in the case of " Custodianship and Safekeeping ", each of the foregoing Principal accounts shall have a corresponding Income account. 3. The account shall be increased by any of the following: a. Rental of real or personal property; b. Interest on money lent or deposited; c. Cash dividends on shares of stock other than those where the equity method of accounting is issued; d. Share in the income of an investee company under the equity method of accounting; e. Profits from sale of assets; f. Earned discounts from purchased bonds or securities; g. Sale of the fruits of administered properties. 4. The account shall be decreased by any of the following: a. Expenses incurred in connection with the administration, management, or preservation of property; b. Share in the loss of an investee company under the equity method of accounting; c. Losses from sale of assets; d. Premium amortization from purchased bonds or securities; e. Provision for probable losses or direct write-off of worthless loans, investments and other asset held in trust; f. Taxes Paid. Valuation 5. Income is stated at the amount at which they are collected/paid or to be collected/paid. 6. Income on FCDU/EFCDU Trust Accounts is recorded at the original foreign currency amount. Financial Statement Presentation 7. Income shall be presented immediately after principal. In financial statements and reports to trustors or principals, items added to and deducted from the account shall be adequately explained. 8. Income on FCDU/EFCDU Trust Accounts shall be presented in the Statement of Condition of the trust department at the original foreign currency amount and at the prevailing U.S. dollar and peso equivalent. In Statements and reports to trustor, it is presented at the original foreign currency amount and at the prevailing U.S. dollar equivalent. UNEARNED INCOME Nature 1. This account represents the unearned portion of interest or discount on loans, bonds and other debt instruments collected in advance, which shall be amortized monthly to the income accountability of the trustee/fiduciary for the earned portion. In the case of common trust funds, the amortization to the income accountability shall be in accordance with the established plan of the fund. 2. This account represents also unrealized profits from the sale of assets under Sales Contracts Receivable. Upon receipt of payment, the proportionate amount of profits shall be credited to the income accountability of the trustee, fiduciary or investment manager to the client. Financial Statement Presentation 3. The account shall be shown as a separate item among the accountabilities of the trustee or fiduciary. OTHER ACCOUNTABILITIES Nature 1. This account represents the accountability of the trustee, fiduciary or investment manager for items or transactions, which cannot be appropriately classified under any of the foregoing accountability accounts. Appropriate sub-control accounts shall be maintained. Financial Statement Presentation 2. This account shall be shown as a separate item. DEFERRED ITEMS CTF REVALUATION CONTRA ACCOUNT Nature 1. This is the reciprocal account of the CTF Revaluation Account which represents the difference between the original cost and the value of investments made by common trust funds in shares of stock and in real estate based on valuation methods provided in the approved plan for such funds. It is reversed upon the actual sale or disposition of any of such investments. 2. The following sub-control accounts shall be maintained for this account: Investments in Shares of Stock for CTF investments in equity shares. Investment in Real Estate for CTF investments in real properties. Valuation 3. Amounts booked under this account shall be based on the valuation method stated in the approved plan for the common trust fund. Financial Statement Presentation 4. This item is presented in financial statements and reports to common trust fund participants after the Common Trust Fund Principal and Income accounts. Institution with trust and/or investment management accounts shall include the following information in its contingent accounts: Assets held under trust and/or investment management agreements P ________ Invested in: Government securities P __________ Other securities, debt instruments and shares of stock _________ Loans and discounts _________ Other assets _________ Accountabilities: Trust and other fiduciary _________ Common trust funds _________ Investment/fund management _________ Unearned income and other accountabilities _________ CBP 7-16-05.B (Revised 1990) 16. BILLS PAYABLE a. Central Bank of the Philippines b. Development Bank of the Philippines c. Land Bank of the Philippines d. Other Banks e. Non-Banks f. Private firms and individuals g. Deposits substitutes h. Others Total 17. ACCRUED TAXES AND OTHER EXPENSES 18. TREASURER'S/MANAGER'S CHECKS 19. UNEARNED INCOME AND OTHER DEFERRED CREDITS 20. OTHER LIABILITIES 21. TOTAL LIABILITIES CAPITAL ACCOUNT 22. CAPITAL STOCK 3 a. Preferred Stock a b. Common Stock b Total 23. SURPLUS a. Surplus (free) b. Paid-in surplus 24. SURPLUS RESERVES 25. UNDIVIDED PROFITS 26. APPRAISAL INCREMENT RESERVES 27. TOTAL CAPITAL ACCOUNTS 28. TOTAL LIABILITIES AND CAPITAL ACCOUNTS CONTINGENT ACCOUNTS Trust department accounts assets held for: Trust and other fiduciary accounts Common trust funds Investment/fund management accounts FCDU trust accounts Others (specify) TOTAL CONTINGENT ACCOUNTS 3. These accounts, for purposes of this report, include paid-in portion which are not actually issued with stock a. Subscription receivable Preferred b. Subscription receivable Common CBP 7-16-05 (Revised 1990) CONTINGENT ACCOUNTS Unused Commercial letters of credit Domestic letters of credit outstanding (Sight & Usance) Sight import letters of credit outstanding Usance letters of credit outstanding Deferred letters of credit Revolving letters of credit Export letters of credit confirmed Inward bills for collection: Foreign Domestic Outward bills for collection: Foreign Domestic CB Circular 343 Future exchange bought Future exchange sold Items held for safekeeping/custodianship Items held for safekeeping Government bonds and securities held for custodianship Commercial papers held for custodianship Trust department accounts assets held for: Trust and other fiduciary accounts Common trust funds Investment/fund management accounts FCDU trust accounts Others Total CBP 7-16-351M for Banks 7-26-231M for IH (with investment management authority) Deadline: On or before the 10th banking day following end of the reference quarter ________________________________ (Name of Bank/NBFI) REPORT ON INVESTMENT MANAGEMENT ACTIVITIES (In Thousand Pesos) I. Investment Management Department Assets and Accountabilities as of Quarter Ended ___________________ A. Assets 1 Investments in Government Securities _____________ 2 Investments in Other Securities and Debt Instruments * _____________ 3 Loans and Discounts * _____________ 4 Investments in Shares of Stock a. Short-Term Equity Investments _____________ b. Long-Term Equity Investments _____________ 5 Investments in Real Estate _____________ 6 Investments in Common Trust Funds _____________ 7 Real Properties Administered _____________ 8 Real and Other Properties Acquired in Settlement of Loans _____________ 9 Miscellaneous Receivables _____________ 10 Deposits in Banks * _____________ 11 Cash _____________ 12 Checks and Other Cash Items _____________ 13 Miscellaneous Assets _____________ 14 Foreign Currency Assets Non-FCDU/EFCDU _____________ 15 Allowance for Probable Losses * _____________ 16 Total Assets _____________ B. Accountabilities 1 Investment management Accounts_____________ a. Principal _____________ b. Income _____________ 2 Unearned Income _____________ 3 Other Accountabilities _____________ 4 Total Accountabilities _____________ II. Investment management Department Income and Expenses From January 1 to ____________. (End of Calendar Quarter) A. Income _____________ 1 Fees and Commissions 2 Other Income B. Expenses _____________ 1 Compensation/Fringe benefits _____________ 2 Depreciation/Amortization _____________ 3 Management and Other Professional Fees _____________ 4 Taxes and Licenses _____________ 5 Other Expenses _____________ Rent _____________ Power, Light and Water _____________ Postage, Telephone, Cables and Telegram _____________ Advertising and Publicity _____________ Miscellaneous Expenses _____________ C. Operating Income (Loss) _____________ III. Basic Security Deposit for the Faithful Performance of Investment Management Activities A. Basic Security Deposit Total Asset Held Month End 1 _____________________ _____________ 2 _____________________ _____________ 3 _____________________ _____________ 4 Average for the Quarter _____________ 5 Base Amount of Security Deposit (1% of A.4 but not less than P500,000.00 _____________ B. Government Securities Deposited with _____________ Central Bank (as of report date) C. Excess/(Additional) Government Security Deposit (B-A5) _____________ IV. Surplus Reserves (To be accomplished for the second quarter report only and to be supported by a copy of the immediately preceding calendar year's audited financial statements.) A. Outstanding Balance as of January 1, 19__ _____________ B. Amount Transferred for Year 19___ (based on 10% of the net income from investment management operations as shown in the audited financial statements) _____________ C. Outstanding Balance as of December 31, 19__ _____________ Certified Correct: ________________________ Signature of Authorized Officer ________________________ Designation Supporting Schedules A. Investments in Other Securities and Debt Instruments (Item I.A.2) ______________ 1 According to type * Government Securities without guarantee ______________ * Money Market or Deposit Substitute Instruments ______________ * Others ______________ 2 According to original maturity * one year and below ______________ * over one year ______________ B. Loans and Discounts (Item I.A.3) ______________ 1 According to type * Agricultural Loans ______________ * Commercial Loans ______________ * Industrial Loans ______________ * Real Estate Loans ______________ * Consumption Loans ______________ * Other Loans and Discounts ______________ 2 According to original maturity * one year and below ______________ * over one year ______________ 3 According to status * Current ______________ * Restructured ______________ * Past Due ______________ * Real Estate Loans ______________ * Items in Litigation ______________ 4 According to security * secured ______________ * unsecured ______________ C. Deposits in Banks (Item I.A.10) ______________ 1 Time Deposits * Own Bank (for banks) ______________ * Other Banks ______________ 2 Savings Deposits * Own Bank (for banks) ______________ * Other Banks ______________ 3 Demand Deposits * Own Bank (for banks) ______________ * Other Banks ______________ D. Allowance for Probable Losses (Item I.A.15) ______________ 1 Investments in Other Securities and Debt Instruments ______________ 2 Loans and Discounts ______________ 3 Real & other Properties Acquired in Settlement of Loans ______________ 4 Investments in Shares of Stock ______________ 5 Investments in Real Estate ______________ 6 Miscellaneous Receivables ______________ E. Exposures to Directors, Officers Stockholders and Their Related Interests ______________ 1 Investments in Other Securities and Debt Instruments ______________ 2 Loans and Discounts ______________ 3 Investments in Shares of Stock ______________ 4 Investments in Real Estate ______________ 5 Others ______________