New Rules on the Registration and Sale of Pre-Need Plans Under Section 16 of the Securities Regulation Code

September 3, 2001 SEC MEMORANDUM FOR : Director Arturo M. San Gil ERID FROM : Director Francisco H. Villaruz, Jr. NTD SUBJECT : New Rules On The Registration And Sale Of Pre-Need Plans Under Section 16 Of The Securities Regulation Code We are furnishing you the soft copy of the New Rules on the Registration and Sale of Pre-Need Plans Under Section 16 of the Securities Regulation Code for posting in the SEC Website and the hard copy for the library. Thank you. (SGD.) FRANCISCO H. VILLARUZ, JR. Director NEW RULES ON THE REGISTRATION AND SALE OF PRE- NEED PLANS UNDER SECTION 16 OF THE SECURITIES REGULATION CODE Rule 1 Definition of Terms As used in these Rules: 1.1. "Commission" refers to the Securities and Exchange Commission. 1.2. "Pre-Need Plans" are contracts which provide for the performance of future service/s or payment of future monetary consideration at the time of actual need, payable either in cash or installment by Planholders at prices stated in the Contract with or without interest or insurance coverage and includes life, pension, education, interment, and other plans which the Commission may from time to time approve. 1.3. "Pre-Need Company" or "issuer" means any corporation registered with the Commission and authorized/licensed to sell or offer for sale Pre-Need Plans. A Pre-Need Company may be a single plan (selling one type of Pre-Need Plan) or multi-plan (selling more than one (1) type of Pre-Need Plan). 1.4. "Planholder" means any person, natural or juridical, who purchases Pre-Need Plans for whom or for whose beneficiaries future services and/or payments are to be rendered or made at the time of need or for whom or for whose beneficiaries payment/benefits are to be delivered as stipulated and guaranteed by the Pre-Need Company at the time of need or maturity of the Contract. The term includes the assignee, transferee, and any successor in interest of such Planholder. 1.5. "Contract Price" is the stipulated price paid by the Planholder for the purchase of a Pre-Need Plan. Contract Price may be paid either in lump sum (single payment) or in installments. 1.6. "Benefits" are the money or services which the Pre-Need Company undertakes to deliver in the future to the Planholder or his beneficiary. 1.7. Insurance Premium Reserve is the amount that must be set aside by a Pre-Need Company to pay for premiums for insurance coverage, if any, of fully paid Planholders. 1.8 "Salesman" means a natural person engaged in the sale, whether on commission or salary basis, of Pre-Need Plans upon authority of a registered Pre-Need Company and registered by the Commission to engage in the business of selling Pre-Need Plans. 1.9 "Trust Fund" means a fund set up from Planholders' payments, separate and distinct from the paid-up capital of a registered Pre-Need Company, established with a Trustee under a trust agreement approved by the Commission, to pay for the Benefits as provided in the Pre-Need Plan. 1.10 "Liquidity Reserve Fund" means a portion of the Trust Fund set aside by the Trustee to cover the Benefits due to Planholders during the ensuing year. 1.11 "Plan Value" is the value of the Benefits which the Pre-Need Company undertakes to deliver upon maturity. 1.12 "Fixed Value Plans" are Pre-Need Plans whose benefits and costs are fixed and pre-determined at the inception or purchase of the Plan. 1.13 "Actual Cost or Traditional Plans" are Pre-Need Plans wherein the benefits or services at the time they are due are guaranteed, regardless of any increase in cost from the originally assumed values since the date of issue of the Pre-Need Plan. 1.14 "Actuarial reserve Liability" (ARL) is the measure of liabilities of the Pre-Need Company for its In-Force Plans or Lapsed Plans as of valuation date. 1.15. "In Force Plan" means a Pre-Need Plan for which the Pre-Need Company has an outstanding obligation, either for (1) delivery of benefits or services or (2) payment of termination value. 1.16 "Delinquent Plan" is a Pre-Need Plan where any due installment has been unpaid. 1.17. "Lapsed Plan" means a Delinquent Plan which has remained unpaid beyond the grace period of two (2) months from date of delinquency. 1.18. "Reinstatement period" means the period within which a Lapsed Plan may be reinstated which shall in no case extend beyond two (2) years from the lapse of the grace period. 1.19. "Cancelled Plan" means a Lapsed which has remained unpaid for more than two (2) years counted from the lapse of the grace period. 1.20. "Surrender" means the termination of a Pre-Need Plan at the option of the Planholder in exchange for its termination value at surrender date. 1.21. "Termination Value" is the amount the Planholder should be paid upon surrender of the Pre-Need Plan prior to maturity or availment of full benefits. 1.22. "Federation" shall mean the Philippine Federation Of Pre-Need Plan Companies. Rule 2 Minimum Paid-up Capital of Pre-Need Plan Company Any new corporation applying for registration to act as an issuer of Pre-Need Plans shall have a minimum paid-up capital of One Hundred Million Pesos (P100,000,000.00); provided, that existing Pre-Need Companies with paid up capital of less than One Hundred Million Pesos (P100,000,000.00) shall have until April 30, 2002 to comply with this requirement. For this purpose, the moratorium on registration of new Pre-Need Companies shall be extended up to April 30, 2002. Provided however, that the moratorium does not apply to companies that acquire the shares and/or the assets and liabilities of existing Pre-Need Companies and who meet the P100.0 Million paid-up requirement. Rule 3 Registration of Pre-Need Plans No corporation shall issue, offer for sale, or sell Pre-Need Plans unless such plans shall have been registered under Rule 4. Rule 4 Registration Procedure 4.1 All Pre-Need Plans shall be registered by the issuer or its authorized representative by filing with the Commission six (6) copies of the following: 1. Duly accomplished Registration Statements 2. Board resolution authorizing the registration of applicant's securities 3. Opinion of independent counsel on the legality of the issue 4. Supporting documents: a.) Latest Articles Of Incorporation and By-laws of the Issuer b.) Trust agreement with the Trustee c.) Copies of leaflets, brochures, press releases, handbills or other printed/typewritten/mimeographed literatures which the issuer intends to distribute to the public. d.) Copies of related contracts such as mortuary contracts, school contracts or other services provider's contracts. e.) List of schools for traditional education plans, including current costs of promised benefits. f.) Copies of agency contracts with general agents, agencies, counselors, and salesmen g.) Curriculum vitae of Officers and Directors h.) Photographs of the signatories to the registration Statement taken not more than 30 days prior to the filing of registration statements. i.) NBI clearance of the Directors and Principal Officers of the issuer or current passport j.) Training Program for agents, agencies, counselors, and salesmen k.) Application of dealer's license for initial registration l.) Specimen of Plan contracts m.) Plan application form n.) Plan contract/agreement o.) Specimen copies of Group Master Policy for Group Credit Life and Group Yearly Renewable Term including copies of insurance riders for supplementary insurance benefits; sample copies of individual insurance certificates p.) Detailed Price schedule showing minimum and maximum pricing for the Notice and Order q.) The written consent of the expert to be named as such and who has certified any part of the Registration Statement or any documents included therein shall be secured and attached to the Registration Statement 5. Audited financial statement accompanied by a long form audit report of the certifying auditors as of a date not more than ninety (90) days prior to the date of filing of the Registration Statement, with the balance sheet showing all the assets of the issuer, the nature and cost thereof whenever determinable, with intangible items segregated, including any loan to, or from any officer, director, stockholder or person directly or indirectly controlling or controlled by the issuer, or person under direct or indirect common control with the issuer, and all the liabilities and surplus of the issuer showing how and from what sources such surplus was created. If the above cannot be complied with, an unaudited financial statement as of a date not more than ninety (90) days prior to the date of filing of the Registration Statement, certified under oath by the principal officer of the company, or person performing similar functions, may be submitted. And in addition, the latest audited financial statement accompanied by a long form audit report. 6. Latest interim financial statements for the month preceding the filing of the Registration Statement 7. Actuarial feasibility study with actuarial certification of SEC accredited pre-need actuary containing the following: i.) A viability model which includes, but is not limited to, the following: A) Interest rate assumptions; B) Withdrawal assumptions: lapses and surrenders C) Schedule of Trust Fund deposits and projections; D) Amount and costs of plan benefits including the contingent benefits availment rates assumed for mortuary-type benefits; E) Expenses and loading including, but not limited to, all required fees and taxes, commissions, overrides, bonuses, premiums on insured benefits, and all other charges; F) Schedule of Termination Values; G) Schedule of Projected Reserve Liability Values; H) Pricing schedule including how the gross pre-need price was generated with actuarial formulations. ii.) A statement certifying that the actuarial formulations used in the viability model are in accordance with generally accepted actuarial principles and practices, existing laws, and pertinent rules and regulations of the Commission; iii.) A statement of opinion that the actuarial assumptions used in the viability model are reasonable and appropriate for the plan; iv.) A statement certifying that the plan price/s, scheduled trust fund contributions, projected reserve liabilities, and termination values are in accordance with generally accepted actuarial principles. v.) A statement certifying that the actuary has reviewed the provisions of the plan contract relative to its benefits and guarantees which have been quantified and considered in the pricing, reserve valuation, trust fund contribution, and termination values; vi.) A statement of opinion that all insurance benefits included in the plan agreement are covered under insurance contract(s) with a duly licensed insurance carrier. vii.) Actuarial notes on the plan description, formulations and assumptions used in the viability model for the complete duration of the plan; 4.2. The Registration Statement shall be signed by the issuer's Chief Executive Officer or Chief Operating Officer or Chief Finance Officer or a Corporate Officer performing similar functions. 4.3. The registration Statement shall be properly completed all items shall be answered; provided that items which are not applicable shall be filled with "n.a.". If the issuer is selling two (2) or more types of Pre-Need Plans, the amount and number for each type of plan to be registered shall be specified. Where applicable, all answers shall be consistent with those stated in the actuarial study submitted under Rule 4.1, paragraph 7 of this Rule. 4.4. Upon filing of the Registration Statement, the issuer shall pay the filing fee as prescribed by the Commission, and the act of such filing shall be immediately published by the Commission at the expense of the issuer, in two (2) newspapers of general circulation in the Philippines, once a week for two (2) consecutive weeks, reciting that a Registration Statement for the sale of such plans has been filed, and that the Registration Statement, as well as the papers attached thereto, are open for inspection during business hours. 4.5 Processing of applications for registration of new plans shall be completed within forty-five (45) working days from receipt of complete application and payment of fees. 4.6. If, at any time, the information contained in the Registration Statement is or has become materially misleading, incorrect, inadequate or incomplete or the sale or offering for sale of the Pre-Need Plans covered thereby tends to work a fraud or prejudice to the investing public, the issuer shall immediately file an amendment to the Registration Statement. Failure to do so shall cause the application of Rule 9.1. Rule 5 Limitation on Information Only the information or representations contained in the Registration Statement, including exhibits thereto shall be considered as authorized by the issuer, and any information or representation not included therein shall be regarded as proceeding from an unauthorized source. Rule 6 Certificate of Registration of Pre-Need Plans 6.1. A Certificate of Registration of Pre-Need Plans and a Permit to Offer for Sale or Sell Pre-Need Plans issued by the Commission, shall be subject to the following terms and conditions: a.) The selling price of the Plans shall be at prices contained in the Registration Statement and any subsequent increase or decrease in price shall not be effected without the prior approval of the Commission; b.) No resale of Cancelled or Lapsed Plans is allowed; c.) Only registered and licensed salesmen or general agent shall be allowed by the issuer to sell, offer for sale or collect payments for Pre-Need Plans; d.) The issuer, before appointing a salesman or general agent, or opening, closing, or transferring branches, shall secure the prior approval of the Commission; e.) No Plans shall be sold without prior registration from the Commission; f.) Trust Fund deposits shall be in accordance with the rates used in the actuarial studies submitted under Rule 4.1, paragraph 7 (i.) subparagraph C and shall be made within twenty (20) days from the end of each reference month for payments received from Plans sold either in cash or installment. The report of such deposits shall also be submitted to the Commission within the same period; g.) The Trust Fund, inclusive of earnings, shall be administered and managed by a trust company, bank or investment house authorized to perform trust functions in the Philippines. Investment of the Trust Fund shall be in accordance with Rules 17 and 18 and other related rules; h.) No withdrawal shall be made from the Trust Fund except for paying the Benefits such as monetary consideration, cost of the service rendered or properties delivered, bank charges and investment expenses in the operation of the trust fund, termination values payable to Planholders, annuities and taxes on trust funds, contributions of cancelled plans to the Trust Fund, reasonable withdrawals for minor repairs and costs of ordinary maintenance of trust funds assets; i.) The required minimum paid up capital shall be maintained unimpaired; j.) The Audited Annual Financial Statements of the Pre-Need Company, prepared in accordance with the pre-Need Uniform Chart of Accounts set forth in Rule 31, exclusive of the Notes to Financial Statements, and the last quarter Trust Fund Statement shall be published within one hundred twenty (120) days after the end of the fiscal year, as required under Rule 23.1.2. A copy of such financial statement as published, together with the publisher's certificate shall be submitted to the Commission within ten (10) days after said publication; k.) All advertisements need not be approved by the Commission but shall contain the disclaimer provided in Rule 14.3; l.) All reportorial requirements required under the Code, these Rules and other relevant laws and/or shall be complied with; m.) A sworn financial report on the Trust Fund shall be submitted to the Commission by the Trustee within ten (10) days from the end of the previous month and by the Pre-need Company within thirty (30) days from the end of each quarter; n.) Violation of any or all the conditions imposed in the Certificate of Registration or Permit To Sell shall subject the issuer and/or its responsible officials to the sanctions and penalties provided in applicable laws and/or rules. 6.2. The Commission reserves the right to add, alter, change, amend or otherwise modify any or all of the foregoing conditions or to impose any other condition and to recall the certificate of Registration pursuant thereto, to effect therein the necessary changes, alterations or modifications if public interest or the protection of the investors warrants such action. Rule 7 Compliance Procedures 7.1. All Pre-Need Companies shall constitute a complaints action unit in their respective offices which shall have telephone hotlines to the Pre-Need Company listed in the telephone directory to handle complaints and answer the concerns of Planholders. A list of the telephone hotlines shall be furnished to the Commission. 7.2. All Pre-Need Companies shall designate a compliance officer to act as liaison officer between the Pre-Need Company and the Commission who shall be available to the Commission for referral of requirements for registration and other compliance. The name of the designated compliance officer shall be furnished to the Commission, and shall be updated within seven (7) days of the change. 7.3. Pre-Need Companies selling life plans shall submit a list of their accredited mortuaries, their telephone numbers and contact persons. Any change/s therein shall be reported to the Commission within fifteen (15) days from such change. 7.4. Pre-Need Companies shall issue identification cards to all fully-paid Planholders containing the basic information on the Pre-Need Plans bought to facilitate delivery of services/payment of benefits. Rule 8 Suspension Of Permit To Sell of Pre-Need Plans 8.1. If, at any time the information contained in the Registration Statement filed is or has become materially misleading, incorrect, inadequate or incomplete or the sale or offering for sale of the Pre-Need Plans covered thereby may work or tend to work a fraud or prejudice the investing public, the Commission may require the issuer such further information necessary or conduct an investigation to ascertain whether the registration or Permit To Sell such Pre-Need Plan should be cancelled on any of the grounds set forth in Rule 9.1. 8.2. The Commission may suspend the Permit To sell such Pre-Need plan pending further investigation, be entering an order specifying the grounds for such action and by notifying by mail, personally, by telephone confirmed in writing, or by telegraph, the issuer and every general agent who shall have notified the Commission of an intention to sell such Pre-Need Plan. 8.3. Refusal to furnish information required by the Commission within the time fixed by the Commission, may be a proper ground for the entry of such Order of suspension. 8.4. The Order, although binding on the person notified thereof, shall be deemed confidential and shall not be published. Upon the entry of such order of suspension, no further sales of such Pre-Need Plan shall be made until the Commission orders otherwise. 8.5. In the event of the entry of an order of suspension, the Commission shall give a prompt hearing to the parties involved. If upon such hearing, the Commission shall determine that the Permit To Sell of any such Pre-Need Plan should be cancelled on any ground specified herein, it shall enter a final order cancelling the registration and the Permit To Sell and prohibiting the sale of such Pre-Need Plan. If, however, upon such hearing the Commission finds that the sale of the Plans will neither be fraudulent nor result in fraud, it shall forthwith enter an order lifting the order of suspension, and the Pre-Need Plan shall be restored to its status as a registered Pre-Need Plan contract under the Code, as of the date of such order of suspension. 8.6. Travel bans may be recommended to be issued by the appropriate authority on all the officers and directors of the issuer, upon issuance of a Cease and Desist Order or Order of suspension. Rule 9 Involuntary Cancellation of Registration 9.1. The Commission may cancel the registration of any Pre-Need Plan and the Permit To Sell such Pre-Need Plan by issuing an Order to this effect, setting forth its findings in respect thereto, if, after due notice and hearing, it shall appear that the issuer: a.) Is insolvent; b.) Has violated any of the provisions of the Code, or the rules promulgated pursuant thereto, or any order of the Commission of which the issuer has notice; c.) Has been or is engaged or is about to engage in fraudulent transactions; d.) Is in any other way dishonest or has made any fraudulent representation in any circular or other literature that has been distributed concerning the issuer or its Pre-Need Plans; e.) Does not conduct its business in accordance with law. 9.2. The Commission may compel the production of all the books and records of the issuer, may administer oaths to, and examine the officers of such issuer or any other person connected therewith as to its business or affairs, and may require a balance sheet exhibiting the assets and liabilities of such issuer and/or its income or profit statement, certified to by an independent certified public accountant. 9.3. If the issuer shall refuse to permit an examination to be made by the Commission, its refusal shall give ground for the cancellation of registration. 9.4. Notice of issuance of an order of cancellation shall be given by mail, personally, by telephone confirmed in writing, or by telegraph, to the issuer and every dealer and broker who shall have notified the Commission of an intention to sell such Pre-Need Plan. 9.5. The power of the Commission to cancel the registration and/or the Permit To Sell is without prejudice to its power under the Securities Regulation Code to enforce compliance therewith. Rule 10 Voluntary Cancellation Of Registration Or Suspension Of Permit To Sell' 10.1 A registration of a Pre-Need Plan may be cancelled or a Permit To Sell may be suspended or cancelled by the Commission upon Petition for its suspension and/or cancellation, as the case may be, by the issuer as herein provided. 10.2. A petition for the cancellation of registration of a Pre-Need Plan or a Petition for suspension and/or cancellation of a Permit To Sell shall be accompanied by the following: a.) Petition for the cancellation of the registration or Petition for Suspension and/or Cancellation For The Permit To Sell stating the reasons therefor; b.) Proof of the reasons for cancellation of registration or suspension and/or cancellation of the Permit To Sell; c.) Proof of publication of a Notice to Stockholders/Investors/Planholders of said Petition For Cancellation of Registration and/or Petition for Suspension and/or Cancellation of a Permit to Sell; d.) Board Resolution certified under oath by the Corporate Secretary of the issuer and attested to by the President or one performing similar functions approving such Petition For Cancellation and/or Suspension as the case may be; e.) List of all Planholders; f.) A Certification under oath by the Treasurer of the issuer attested to by the President that the Planholders' contributions were refunded and their claims fully settled; g.) A joint and several assumption of liability executed by the Treasurer and the President of the issuer for claims that may arise as a result of said cancellation/suspension; and h.) Evidence of sufficiency of the trust fund to cover payment of outstanding liabilities to Planholders. 10.3. After filing of the Petition and supporting documents and payment of the filing fee, the Petition shall be immediately published by the issuer in two (2) newspapers of general circulation, once a week for two (2) consecutive weeks reciting the contents of the Petition and notifying Planholders to file their claims with the issuer. 10.4. If after the completion of the aforesaid publication, the Commission finds that the petition together with all the other papers and documents attached thereto is on its face complete and that no party stands to suffer damage thereby, it shall issue an order cancelling said registration or cancelling and/or suspending the Permit to Sell. However, such order shall not preclude any Planholder from his available remedies under the law should the cancellation and/or suspension cause him damage. Rule 11 Registration of Additional Plans 11.1. For applications for registration of additional plans which involve a change in benefits or other terms and conditions of existing plans contracts or a change in actuarial assumptions, a new Registration Statement shall be filed, specifically providing the requirements under Rule 4.1. pars. 1 to 4 (b-f, 1-p), 5-7, Rules 4.2.-4.4. 11.2. Processing of Applications for additional plans which involve a change in benefits or other terms and conditions of existing plan contract or a change in actuarial assumptions shall be completed within thirty (30) working days from receipt of complete application and payment of filing fee. 11.3. If there are no changes in the benefits and other terms of the additional Pre-Need Plans sought to be registered from that previously registered with the Commission, then submission of the requirements under Rule 4.1. pars. 1-3, 4 (p), 5 and 6 shall suffice provided that the Pre-Need Company simultaneously submits a sworn certification duly accomplished by a Commission accredited actuary, on the prescribed form; and provided further, that, should economic developments emerge impacting on the actuarial assumptions previously utilized, a new actuarial study shall be required; and provided finally, that a sworn statement shall likewise be filed, signed by the persons required to sign the registration statement, to the effect that there has been no change in the information/documents previously filed. 11.4. Processing of applications for additional plans which do not involve a change in benefits or terms and conditions of existing plan contracts or actuarial assumptions shall be completed within twenty (20) working days from receipt of complete application and payment of filing fee. Rule 12 Amendments to the Pre-Need Plan Contract or Other Documents Pertinent to Registration 12.1. No Pre-Need Plan contract, trust agreement, or other documents pertinent to the registration of the plans shall be amended or modified without prior approval of the Commission, and such amendment or modification shall neither affect adversely the Planholders thereof nor impair any term or condition in the Pre-Need Plan or other related documents. 12.2. Applications for price increase of Pre-Need plans without any changes in benefits and actuarial assumptions shall not be subjected to actuarial review, and may be filed by submission of a duly notarized Commission prescribed actuarial certification that there are no changes in plan benefits and assumptions, provided, that there are no trust fund deficiencies/violations; and provided further, that the order rendering the Registration Statement effective was issued more than a year but not exceeding three (3) years from the date of the approval of the original petition; and provided, finally, that a revised price schedule is simultaneously submitted. 12.3. For purposes hereof, a petition for price increase without any change in benefits and assumptions refers to a plan whose promised benefits have not been changed, both in manner and timing of payment, and whose actuarial formulations have not been revised in arriving at a new price increase causing the original assumptions of trust and deposit rates, interest rates, expense rates, inflation rates, and availment and decrement rates used in the original pricing to remain unchanged. 12.4. The price increase approved by the Commission shall only apply to Pre-Need Plans sold after the approval sought under this Rule shall have been granted and shall in no case apply to plans sold during the pendency of the application herein. 12.5. The processing of applications for price increase without any change in benefits or actuarial assumptions shall be completed within twenty (20) working days from receipt of complete application and payment of filing fee. 12.6. Any other amendments which involve a change in benefits or the contract or actuarial assumptions shall require the issuer to file a new Registration Statement, specifically, providing the requirements under Rule 4.1, pars. 1-4 (1-p), 5-7, Rules 4.2-4.4. 12.7. The processing of applications for any other amendments which involve a change in benefits or the contract or actuarial assumptions shall be completed within thirty (30) working days from receipt of complete application and payment of filing fee. 12.8. The processing of applications for amendments other than those mentioned above which do not involve a change in benefits or terms of the contract or actuarial assumptions shall be completed within twenty (20) working days from receipt of complete application and payment of filing fee. Rule 13 Disclosure to Prospective Planholders 13.1. No Pre-need Plans registered with the SEC shall be sold unless an Information Brochure has been filed pursuant to Rule 4.1, par. 4 (c) and approved by the SEC together with the Registration Statement and is made available to the prospective Planholder. 13.2. The Information Brochure shall contain the following information: a.) Name, address, telephone number and identity of the person to contact to answer any questions or address any complaint; b.) The name and address of the trustee who will manage the Trust Fund; c.) Name, address, telephone number and identity of agent, if any; d.) A statement that the salesmen of the Pre-Need Company or the Agent has been authorized to sell Pre-Need Plans and licensed by the SEC, indicating that the Planholder can check these data with the office of the Pre-Need Company or the Agent; e.) A statement that: i.) The Pre-Need Company is required to contribute a certain percentage of payments received to a Trust Fund to be administered by a Trustee; ii.) To monitor the performance of the Trust Fund and the solvency of the Pre-Need Company, the Pre-Need Plan Company is required to file financial statements and audited reports with the SEC which may be inspected by Planholders at the Non-Traditional Securities and Instruments Dept.; iii.) Any default in payment which continues for more than two (2) years from date of lapse of the grace period of sixty (60) days will result in the cancellation of the plan contract and the forfeiture of any claims of the Planholder. 13.3. An Information Brochure shall not be used if the information contained therein is outdated or does not accurately reflect the terms of the Plan or the financial ability of the Pre-Need Company through the use of Trust Fund Assets. In such cases the Pre-Need Company shall submit an updated Information Brochure for approval of the SEC. 13.4. The SEC may suspend the Permit to sell Pre-Need Plans when there is a material change in the Information contained in the Information Brochure. Rule 14 Advertisements or Publications Made by the Issuer 14.1. The Commission shall not process/approve any advertisement of a Pre-Need Plan. 14.2. The approval of registration of Pre-Need Plans does not constitute a recommendation or endorsement of the registered Pre-Need Plans, and this fact shall be printed in bold face prominent type letters in all advertisements and/or literature which the issuer, general agent, broker or salesman shall distribute to prospective Planholders. 14.3. All advertisements are required to bear the following message in bold face prominent type: "THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED THIS ADVERTISEMENT OR DETERMINED IF THIS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY CONSTITUTES A VIOLATION OF THE SECURITIES REGULATION CODE AND IS CRIMINALLY PUNISHABLE. THE PUBLIC IS ENCOURAGED TO REPORT IMMEDIATELY TO THE SECURITIES AND EXCHANGE COMMISSION ANY MISREPRESENTATION OR FALSE OR INACCURATE STATEMENT." 14.4. Advertisement in broadcast medium shall likewise clearly emphasize that the Commission has not approved or passed upon the accuracy and completeness of such advertisement. Rule 15 Registration of Dealers, General Agents and Salesmen of Pre-Need Plans 15.1. Any issuer selling its own Pre-Need Plans shall be deemed a dealer in securities and shall be required to be registered as such and comply with all the provisions hereof; provided that the issuer selling different types of Pre-Need Plans shall be required to be registered as dealer only once for the different types of plans. 15.2. The issuer shall post a surety bond from a bonding company acceptable to the Commission in the amount of Three Hundred Thousand Pesos (P300,000.00) in favor of the Government of the Philippines and conditioned upon faithful compliance with the provisions of the Code and these Rules. The Commission may require an additional surety bond depending on the volume of sales of the issuer. 15.3. processing of new applications for registrations and license as Dealer shall be completed within twenty (20) working days from receipt of complete application and payment of fees, while applications for renewals shall be completed within eight (8) working days from receipt of complete application and payment of fees. 15.4. If the issuer contracts general agents or agencies to sell its pre-need plans, such general agents/agencies shall be required to comply with paid-up capital requirement for broker of securities and shall be duly registered as general agent/s or brokers of Pre-Need Plans by the Commission. General agents or agencies shall post a bond in the amount of One Hundred Thousand Pesos (P100,000.00). 15.5. Processing of new applications for registration and license as general agent or broker of Pre-Need Plans as well as renewals thereof shall be completed within eight (8) working days from receipt of complete application and payment of fees. 15.6. No salesman shall be allowed to sell or offer to sell Pre-Need Plans under this Rule, without being registered as such by the Commission. Registration shall be issued upon approval of the registration application and payment of the prescribe fee. 15.7. Registration shall not be approved unless the issuer or general agent engaging the salesman's services certifies under oath that the salesman has been duly trained pursuant to a training program approved by the Commission and has successfully passed an examination given by the issuer or general agent and approved by the Commission or the federation and/or has sold at least P10,000.00 worth of plans; provided, however, that Pre-Need Plans sold during the apprenticeship period shall be co-signed by a duly registered salesman. 15.8. registration shall cease upon the termination of engagement of the services of such salesman with the issuer or general agent, provided that it may be renewed for the ensuing year in accordance with this Rule. 15.9. Processing of applications for registration and license as a salesman as well as renewals thereof shall be completed within eight (8) working days from receipt of application and payment of fees. 15.10. Every registration under this Rule shall expire on the thirty-first day of December in each year, but a renewal for the succeeding year shall be issued upon application and payment of the fee, and furnishing such information specifically required by the Commission. Application for renewals shall be made not less than thirty (30) days nor more than sixty (60) days before the first day of the ensuing year, otherwise, they shall be treated as original applications. 15.11. The Commission shall charge a fee for every original application and every renewal thereof. 15.12. Any Pre-Need Company selling its own plans who fails to file an application for registration or renewal as a dealer in Pre-Need Plans or any general agent who fails to apply for registration or renewal as a broker of Pre-Need Plans within the period required by these rules or any salesman who sells plans without a valid license shall pay the appropriate penalty therefor. Rule 16 The Trust Fund 16.1. To guarantee the delivery of Benefits such as monetary consideration, cost of services rendered or property delivered, deposits shall be made by the issuer into a Trust Fund to be established for each type of plan in accordance with the rates used in the actuarial studies submitted under Rule 4.1, par. 7 (i) (C). 16.2. The minimum limits of the deposit contribution to the Trust Fund shall be 45% of the amount collected for life plans and 51% of the total amount collected for other plans unless a higher deposit contribution is determined by the actuary and duly approved by the Commission. 16.3. In case of installment payments, the minimum limits, unless the actuary and the Commission determines otherwise, of the deposit contributions to the Trust Fund shall be in accordance with the following schedule: Payment Received Life Plan Other Plan Collection of the 1st 20% 5% 5% of Contract Price Collection of the 2nd 20% 10% 10% of Contract Price Collection of the 3rd 20% 70% 80% of Contract Price Collection of the 4th 20% 70% 80% of Contract Price Collection of the 5th 20% 70% 80% of Contract Price 16.4. No withdrawal shall be made from the Trust Fund except for paying the Benefits such as monetary consideration, the cost of services rendered or property delivered, trust fees, bank charges and investment expenses in the operation of the Trust Fund, termination values payable to the Planholders, annuities, contributions of cancelled plans to the fund and taxes on Trust Funds. Furthermore, only reasonable withdrawals for minor repairs and costs of ordinary maintenance of trust fund assets shall be allowed. 16.5. The Trust Fund shall have the following conditions: a.) It must be established independently with the trust department of a trust company, bank or investment house doing business in the Philippines. The Trust Agreement shall be submitted to the Commission for approval before execution and shall contain the following salient provisions among others; i.) The manner in which the Trust Fund is to be operated; ii.) Investment powers of the trustee with respect to trust deposits, including the character and kind of investment; iii.) Auditing and settlement of accounts of the trustee with respect to the fund; iv.) Basis upon which the fund may be terminated; v.) Provisions for withdrawal of the fund; vi.) That the trustee shall submit to the power of the Commission to examine and verify the trust fund; vii.) An undertaking by the trustee that it shall abide by the rules and regulations of the Commission with respect to the Trust Fund; and viii.) An undertaking by the Trustee that it shall submit such other data or information as may be prescribed by the Commission. Rule 17 Investment of the Trust Fund 17.1. To ensure the liquidity of the Trust Fund to guarantee the delivery of the Benefits provided for under the plan contract and likewise obtain sufficient capital growth to meet the growing actuarial reserve liabilities, all investments of the Trust Fund/s of a Pre-Need Company shall be limited to the following and subject to limitations to wit: 1.) Fixed Income Instruments . These may be classified into short term and long term instruments. The instrument is short term if the maturity period is 365 days or less. This category includes: a.) Government securities which shall not be less than 10% of the trust fund equity. b.) Savings/time deposits and common trust fund with a commercial bank with satisfactory examination rating as of the last examination by the Bangko Sentral ng Pilipinas. c.) Commercial papers duly registered with the Commission with a credit rating of "1" for short term and Aaa" for long term based on the rating scale of an accredited Philippine Rating Agency or its equivalent at the time of investment. The maximum exposure to long-term commercial papers shall not exceed fifteen per cent (15%) of the total Trust Fund equity while the exposure to each commercial paper issuer shall not exceed ten per cent (10%) of the allocated amount. d.) Direct loans to corporations which are financially stable, profitable for the last three (3) years and have a good track record of paying their previous loans from the Trust Fund of Pre-Need Companies. These loans shall be fully secured by a real estate mortgage up to the extent of sixty per cent (60%) of the appraised value of the property at the time the loan was granted. The property shall be covered by a Transfer Certificate of Title registered in the name of the mortgagor and free from liens and encumbrances. The maximum amount to be allocated for direct loans shall not exceed five per cent (5%) of the total trust Fund equity while the amount to be granted to each corporate borrower shall not exceed ten per cent (10%) of the amount allocated. The maximum term of the loan should be two (2) years only. 2. Mutual Funds duly registered with the Commission, where such funds are invested only in fixed income instruments and blue chip securities subject to the limitations prescribed by law, rules and regulations. 3. Equities. Investments in equities shall be limited to stocks listed on the main board of a local Stock Exchange. These investments shall include stocks issued by companies that are financially stable, actively traded, possess good track record of growth and have declared dividends for the past three years. The amount to be allocated for this purpose shall not exceed twenty five per cent (25%) of the total trust fund equity while the investment in any particular issue shall not exceed ten per cent (10%) of the allocated amount. The investment shall be recorded at the aggregate of the lower of cost or market. Existing investments which are not in accordance herewith shall be disposed of by December 31, 2001. 4. Real Estate. These shall include real estate properties located in strategic areas of cities and first class municipalities. The Transfer Certificate of Title (TCT) shall be in the name of the seller, free from liens and encumbrances and shall be transferred in the name of the trustee in trust for the Planholders unless the seller/transferor is the Pre-Need company wherein an annotation to the TCT relative to the sale/transfer may be allowed. It shall be recorded at acquisition cost. However, the real estate shall be appraised every three (3) years by a licensed real estate appraiser, accredited by the Philippine Association of Real Estate Appraisers, to reflect the increase or decrease in the value of the property. In case the appraisal would result in an increase in the value, only sixty per cent (60%) of the appraisal increase is allowed to be recorded in the books of the trust fund but in case of decline in value, the entire decline shall be recorded. Appraisal increment should not be used to cover up the required monthly contribution to the trust fund. The total recorded value of the real estate investment shall not exceed twenty five per cent (25%) of the total trust fund equity of the pre-need company. In the event that the existing real estate investment exceeds the aforesaid limit, the same shall be leveled off to the prescribed limit by June 30, 2002. 17.2. Investments of the Trust Fund which are not in accordance with the preceding paragraphs shall not be allowed unless the prior written approval of the Commission had been secured. Rule 18 The Liquidity Reserve Funds 18.1. Notwithstanding the provisions of the immediately preceding Rule, no less than ten per cent (10%) of the net value of Trust Fund Assets per type of plan shall be set aside as a Liquidity reserve to cover the Benefits due to Planholders during the ensuing year unless the Actuary determines otherwise. For this purpose, the Trustee shall require the insurer to submit a list of fully paid plans payable during the year every beginning of the company's fiscal year. The following shall qualify as investments for the Liquidity Reserve Fund: i.) Loans secured by a hold-out on, assignment or pledge of deposits maintained either with the trustees or other banks, or of deposit substitutes or the trustee itself or mortgage and chattel mortgage bonds issued by the trustee; ii.) Treasury notes or bills, Central Bank Certificates of Indebtedness which are short-term and other government securities or bonds, and such other evidences of indebtedness or obligations, the servicing and repayment of which are fully guaranteed by the Republic of the Philippines; iii.) Repurchase agreement with any of those mentioned above, as underlying instruments thereof; iv.) Savings or time deposits with government owned banks or commercial banks; provided, that in no case shall any such savings or time deposit account be accepted or allowed under a "Bearer", "Numbered Account" or other similar arrangements; v.) Investments in fixed income instruments. Rule 19 Time of Making Deposits to the Trust Fund 19.1. Trust Fund deposits due by virtue of collections shall be made within twenty (20) days from the end of each reference month for payments received from plans sold either in cash or installment. Failure to make the Trust Fund Deposit shall subject the Pre-Need Company to payment of penalty. 19.2. Should the Commission discover a deficiency in the Trust Fund, it shall give notice of the same to the Pre-Need Company, and require said Company to make additional deposits to the Trust Fund. The Pre-Need Company shall have thirty (30) days from receipt of notice to make the said deposits and correct the deficiency. Failure to pay the deficiency in spite of notice by the Commission shall subject the Pre-Need Company to payment of penalty. Rule 20 Responsibilities of the Trustee 20.1. The Trustee shall exercise due diligence for the protection of the Planholders guided by sound investment principles. It shall have the exclusive management and control over the funds and the right at any time to sell, convert, invest, change, transfer or otherwise change or dispose of the assets comprising the funds. 20.2. The trustee shall not use the Trust Fund to invest in or extend any loan or credit accommodation to the Pre-Need Company, its directors, officers, stockholders, and related interests as well as to persons or enterprises controlling, owned or controlled by, or under common control with said company, its directors, officers, stockholders and related interests. Rule 21 Commission Power Regarding Trust Fund Assets The Commission may, at its discretion, demand for the conversion to cash or other near cash assets of the investments made by the Trustee to protect the interest of the Planholders. Rule 22 Encumbrance, Conveyance or Mortgage of Assets of Issuer No encumbrance, conveyance or mortgage over all or substantially all of the assets of the issuer shall be allowed without prior approval of the Commission. Rule 23 Annual Financial Statement 23.1. Annual Financial Statement The issuer shall submit to the Commission five (5) copies of its audited annual financial statements within one hundred five (105) days after the end of its fiscal year. To properly reflect the correct amount of liabilities as of the end of the fiscal year, the Actuarial Reserve Liabilities presented in the audited financial statements should be the amount shown in the Actuarial Valuation Report duly certified by an accredited actuary. The audited financial statements shall be in the form of the Pre-Need Uniform Chart Of Accounts (PNUCA) and shall consist of the Balance Sheet, Income Statement and Cash Flow Statement and shall be accompanied by: i.) the Actuarial Valuation Report described in Rule 23.2.3; ii.) the last quarter Trust Fund Statement and; iii.) a list of fully paid plans (availing and not availing), active plans and Lapsed Plans. 23.1.1. The said financial statement shall be signed by the President and Finance Officer of the Pre-Need Company certifying that said statement has been audited by an independent auditor. 23.1.2. Said annual statement shall be published together with the trust fund balance sheet, once a year within one hundred and twenty (120) days from the end of the fiscal year in a newspaper of general circulation in the city/province where the Pre-Need Company has its head office. A copy of such statement as published, together with the publisher's certificate, shall be submitted to the Commission within ten (10) days after said publication. 23.2. Actuarial Valuation Report 23.2.1. All actuaries employed/retained by Pre-Need Companies shall be required to be accredited by the Commission upon proper application. No actuary may be accredited unless he is a Fellow of good standing of the Actuarial Society of the Philippines and his application duly endorsed by it. Accreditation shall be renewed annually. Processing of applications for SEC accreditation as well as renewals thereof shall be completed within eight (8) working days from receipts of complete application and payment of fees. 23.2.2. The Commission shall not process/take action on any and all documents which require the opinion of an actuary unless he has been duly accredited as such by the Commission. 23.2.3. An actuarial valuation report (hereafter, AVR) duly certified by a Commission accredited actuary shall be submitted to the Commission simultaneously with the reports required in Rule 23.1 and shall contain the following information for each type of plan: 23.2.4. Exhibit A Actuarial Assumption and Methodology: 1.) Description of benefits and guarantees; 2.) Amount of plans registered and date of registration; 3.) Distribution of issued pre-need plan contracts showing numbers and amounts, by issue year; 4.) Actuarial assumptions used in the valuation of reserves, describing the bases for each assumption of: a.) interest rate; b.) inflation rate; c.) withdrawal rate; d.) contingent benefit availment rate, if applicable; e.) present actual cost of benefits as of valuation date, if applicable; f.) other pertinent assumptions; 5.) Actuarial formulas and methods used in the valuation of reserves; 6.) Justification for any changes in actuarial assumptions or methods. 23.2.5. Exhibit B Summary of Issued Contracts Per approved Format 23.2.6. Exhibit C Valuation Results by Products Line Per approved Format 23.2.7. Exhibit D Summary of Valuation results Per Approved Format 23.2.8. Exhibit E Certification and statement of opinion as to the appropriateness and reasonableness of the assumptions and level of reserves and that the insurance coverages are valid and in effect. 23.2.9. An Actuarial Statement that the Actuary has compared the amount of actuarial reserves as of the date of valuation to the amount of the trust Fund as of the same date and that he has conducted tests to verify the reasonableness and consistency of the data used in the actuarial valuation. 23.3. A Sworn Statement from the Insurer certifying the coverages or guarantees assumed by the insurance company indicating extent, term and duration of such coverages and/or guarantees. 23.4. Sworn statements from the Trustee/s on the trust Account/s, including: a. Statement that trust account/s are maintained in accordance with a trust agreement which has been approved by the Commission; b. Statement that trust account/s are free from liens and encumbrances other than liabilities indicated in the trust fund statement; c. The trust fund balance sheet/s as of valuation date, including the income statement/s for the year and subsidiary schedules that should identify the specific investments. 23.5. Sworn statements from the responsible officers of the Pre-Need Company stating that: a. The data on which the valuation was based are complete and accurate; b. Only withdrawals allowed by the Commission have been made from the Trust Fund; c. Deficiencies, if any, in the Trust Fund, have been duly addressed, and proof of the same. 23.6. Schedules showing the data for the last five (5) years or a shorter period, if applicable, on the required actuarial reserves, trust fund equity and net investment rate of return on the trust fund. 23.7. Other subsidiary schedules which the Commission may require, for purposes of table audit. 23.8. The foregoing certifications, reports and schedules required shall be prepared in accordance with the prescribed from. 23.9. The Commission may refer the AVR to an independent actuary for verification but the expenses incurred thereof shall be charged to the issuer, provided, however, that the AVR herein required shall not be referred by the Commission for evaluation/comment to an actuary who is connected in whatever capacity with a competing firm. 23.10. Any deficiency in the Trust Fund shall be covered by the issuer through additional deposit within thirty (30) days from submission of the actuarial valuation report of from notice of deficiency whichever is earlier. Any excess in the Trust Fund may be credited to future deposit requirements. Rule 24 Quarterly Reportorial Requirements 24.1. Every Pre-Need Company shall file with the commission, duplicate copies of its interim periodic reports containing the financial condition of the Pre-Need Company on a quarterly basis within forty five (45) days after the end of the quarter. The Statement of Condition shall be prepared in accordance with the Pre-Need Uniform Chart of Accounts (PNUCA) set forth in these Rules and shall be signed by the President and Finance Officer of the Pre-Need Company. 24.2. Every Pre-Need Company shall submit a "Trust Fund Statement", which is a sworn financial report of the Trust Fund, within thirty (30) days from the end of each quarter. A profit and loss statement in the maintenance of the Trust Fund assets shall be attached to the quarterly Trust Fund statement and any reduction in value due to the expenses shall be covered by additional deposits. 24.3. In the "Trust Fund Statement", marketable securities may be valued at lower of cost or market or market value provided full disclosure is made of the total cost and market as of statement date. The incremental value of the blue ship securities and those listed in the Main Board of a stock exchange may be allowed to cover any deficiency or future deposit requirement subject to such limitations as may be imposed by the Commission. 24.4. Every Pre-Need Company shall file a report on Lapsed Plans, Cancelled Plans and Surrendered Plans within sixty (60) days from the end of every quarter, reporting the following information: a.) name of planholder; b.) Type of plan; c.) number of installment/s paid; d.) total payment made; e.) Name of salesmen/branch; f.) Proof of Notice To Planholder of the Lapsation or Cancellation of his Pre-Need Plan. Rule 25 Monthly Reportorial Requirements 25.1. Within the first twenty (20) days from the end of the month during which Pre-Need Plans were sold, every Pre-Need Company shall submit to the Commission a report under oath executed in its behalf by its Treasurer or any other officer performing similar functions showing a list of plans sold contains; i.) the names of the Planholders; ii.) the type of plan purchased by each iii.) contract price per plan iv.) maturity value per plan v.) date of issue per plan vi.) the total number of plans sold vii.) the total amount paid thereon and viii.) the dates of maturity of the plans. 25.2. Within twenty (20) days from the end of each reference month, every Pre-Need Company shall submit a report to the Commission of deposits made to the Trust Fund, to be known as the "Monthly Collection Report". The Monthly Collection should indicate if the amount collected represents the 1st 20% to the 5th 20% of the Contract Price. 25.3. Every Pre-Need Company shall likewise file, on a monthly basis, a list of names of all salesmen alphabetically arranged whose services have been terminated. Such report shall be filed within forty-five (45) days from the end of the month covered by the report, and shall further contain a list of all salesmen on apprenticeship. Those who will be noted during the audit as having received commissions in spite of having been terminated shall be considered as having sold plan without license and imposed the corresponding penalty. 25.4. A monthly report of the Trust Fund shall be submitted by the TRUSTEE to the TRUSTOR and the SEC within twenty (20) days after the end of each month for TRUSTOR'S and SEC's reconciliation purposes and shall include the following: a.) Balance Sheet b.) An income statement, three (3) column report to include: i.) Month To Date income with equivalent ROI ii.) Year To Date Income with equivalent ROI c.) Return on Investment Computation Schedule i.) For the Month ii.) Year to Date d.) Schedule of Earning Assets e.) Investment Activity Report/Summary of Transactions Schedule f.) Portfolio Mix Analysis Schedule g.) Trustee's Certificate On Trust Fund Balance h.) Such other statements and schedules as may be reasonably requested by the Trustor Rule 26 Inspection of Books, Reports and Papers 26.1. The books, records and papers of the issuer shall be subject to examination by the Commission from time to time to the extent and in the manner prescribed by the Commission. 26.2. The information and documents required to be included in or filed with the Registration Statement shall be kept current in order to enable the Commission to determine the operations of the issuer. Rule 27 Default; Reinstatement Period Every issuer shall provide in all contracts issued to Planholders a grace period of at least two (2) months within which to pay unpaid installments. The said grace period shall be counted from the due date of the first unpaid installment. Non-payment beyond the grace period shall render the plans without further force and effect but the Planholder shall be allowed a period of not less than two (2) years from the lapse of the grace period within which reinstate his plan. No cancellation of plans shall be made by the issuer during such period when reinstatement may be effected. The Issuer must give written notice to the Planholder that his Plan will lapse if no payment is received within the grace period or that his Plan will be cancelled if not reinstated within the reinstatement period. Such written notice must be given prior to the expiration of the grace period or the reinstatement period as the case may be. Rule 28 Termination Values 28.1. A Planholder may terminate his In-Force plan at any time by giving written notice to the issuer. 28.2. A Pre-Need Contract shall contain a schedule of Termination Values to which the Planholder is entitled upon surrender of his Plan. Such Termination Value shall be fair, equitable and in compliance with the best practices internationally approved. The Termination Value shall be computed at the end of each anniversary year of the Contract and pre-determined by the actuary of the Pre-Need Company upon application for registration of the Pre-Need Plans with the Commission. Rule 29 Insurance 29.1. Except for Pre-Need Life Plans, all the terms and conditions applicable to the insurance contract shall be segregated from the terms and conditions applicable to the Pre-Need Plan. In conformity with the full disclosure policy of the Commission, and in accordance with the requirements of the Insurance Commission, the terms and conditions of insurance benefits to be provided by the insurance company to the Planholders shall be contained in the insurance certificate accompanying the Pre-Need Plan between the Pre-Need Company and the Planholder. 29.2. Except for Pre-Need Life Plans, the principal insurance benefits permitted to be obtained by a Pre-Need Company from a life insurance company are: a. Group Credit Life Insurance, for the unpaid installments of the Planholder; b. Insurance for the waiver of unpaid pre-need installments, due to Total and Permanent Disability of the Planholder; and c. Group Yearly Renewable Term Insurance and Accidental Death and Disability Insurance shall be allowed, subject to guidelines of the Insurance Commission and the terms and conditions of the master policy. 29.3. Any application for registration and price increase of Pre-Need Plans with insurance riders shall be accompanied by a copy of the group insurance master contracts duly approved by the Insurance Commission covering the insurance taken with the Pre-Need plans. A copy of the specimen individual certificates approved by the Insurance Commission corresponding to the said master contract, shall likewise be submitted. 29.4. In case of Pre-Need Life Plans, the Pre-Need Company shall obtain Group Yearly Renewable Term Insurance and Accidental Death and Disability Insurance, subject to the following conditions: a.) The cost of the insurance shall be built into the contract price and paid directly by the Pre-Need Company out of non-trust funds; b.) The Pre-Need Company is the owner and policyholder of the insurance policy but the beneficiary/ies are those named in the policy; c.) The Pre-Need Company shall be liable to its Planholders under the terms and conditions of the Life Plan Contract, notwithstanding the insolvency or refusal of the insurance company to pay the insurance proceeds. Provided, however, that if the claim arises during the contestability, period of the Life Plan Contract, and it is established that there was concealment and mispresentation of material facts by the planholder, then the planholder and/or his beneficiaries shall not be entitle to the benefits of the Life Plan. Rule 30 Compliance with the Contract Upon full payment by the Planholder, the issuer shall render to him, his assigns, or successors-in-interest the services or give the value thereof or deliver the property, or such other Benefits as stipulated in the Pre-Need Plan. Rule 31 Pre-Need Uniform Chart of Accounts (PNUCA), Brief Description, and Their Financial Statements Presentation 31.1. The Pre-Need Uniform Chart Of Accounts (PNUCA) in the following format shall be used by every Pre-Need Company in the accounting and reporting of their operations and of the Trust Funds for each type of Pre-Need Plan that said Company is authorized to sell: CacTSI 1. Balance Sheet Accounts a. Current Assets (i) Cash on Hand and in Banks The caption "cash" or "cash on hand or in banks" includes currency or cash items on hand (such as cash items awaiting deposit and cash in working funds) as well as peso or foreign currency deposit in banks which are unrestricted and immediately available for use in current operations. Foreign currency deposits shall be recorded at their respective foreign currency amounts and at their local currency equivalent at the applicable rate of exchange on transaction date. Notes to financial statements shall include disclosure of the amount of foreign currency in US$ equivalent and peso equivalent at both historical or booking rate and at the applicable exchange rate at report date. (ii) Short-Term Investments (Marketable Securities) This account should include only those securities which are readily marketable (i.e. such items which represent temporary investments of funds available for current operations and are intended to meet working capital requirements). This account usually includes current marketable equity securities (e.g. common, preferred and other capital stock for which there is an active trading market) and other short-term cash investments such as investments in bonds, commercial papers, government obligations and certificates of deposits. Redeemable preferred shares and convertible debts, however, shall be treated as debt instruments and included in bonds, mortgages, notes and other similar debt instruments. The purpose served by the investments is the controlling factor for its proper financial statements presentation. Investments in securities that are marketable are not normally classified among current assets if these are acquired for purposes of control, affiliation or for some continuing business advantage. Securities which are readily marketable may be held for several years and still be properly classified as short-term investments if management intends to sell them for working capital purposes whenever the need arises. Marketable equity securities shall be carried at the lower of its aggregate cost or market value, determined at balance sheet date. The amount by which aggregate cost of the portfolio exceeds market value shall be accounted for as the valuation allowance. Other short-term investments, on the other hand, should be reported at cost adjusted for any loss on price decline of the investments. The allowance for decline in value should be inclosed. (iii) Other Receivables This is a major account comprised of the following subsidiary accounts: (A) Insurance Claims Receivables This refers to company claims from the insurer for the unpaid balance of installments arising from the demise or disability of an insured planholder. (Insurance claim arising from the loss or damage to company properties or equipment are carried under "Other Insurance Claims" accounts, a subsidiary to "Other Receivables.") (B) Accounts Receivable Rendered Service This refers to receivables from planholders representing the unpaid balance of the gross price of an assigned plan already serviced. (C) Receivable from Trust Fund This account represents advances by the company for plan benefits paid to planholders that are chargeable to the trust fund. This amount must be deduced from the trust fund. (D) Advances to DOSRI This represents cash advances extended by the company to its Directors, Officers, Stockholders and related Interests such as employees, agencies and agents (E) If significant in amount, other receivables should be segregated by type, otherwise, they may be grouped in one figure captioned as Accounts Receivable Others, or another equivalent title. (iv) Inventories When applicable, inventories which consist of caskets, urns and memorial lots are carried at cost. (v) Other Current Assets This represents other items not readily and properly classified in any one of the preceding asset captions or items not sufficiently material to warrant a separate caption. If it is in excess of 5% of total current assets, it shall be stated separately. b. Trust Fund Trust Fund refers to the net asset value in a trust set up in a duly licensed trustee for providing for the cost of the benefits or services to be rendered. The Pre-Need Company deposits the prescribed portion of the amount paid by the Planholder. At all times, the net asset value in the trust fund should not be less than the Actuarial Reserve Liabilities (ARL) as determined by an actuary accredited by Commission. The Trust Fund shall be invested only in assets defined in these Rules. Assets in the Trust Fund shall be valued based on the Rules of the Commission and the provisions of SFAS No. 10 "Summary of Generally Accepted Accounting Principles on Investments", and Exposure Draft (ED) No. 30. The compositions of the trust Fund and its movements during the periods presented should be disclosed in the Notes to Financial Statements, including relevant investments policies adopted by the trust company, bank or investment house administering the fund. No part of the income from Trust Fund can be used to pay dividends to stockholders. Where there is an ambiguity between the amount of Trust Fund equity reported by the trustee as against amount shown in the Balance sheet, a reconciliation of the conflicting figures detailing the cause or causes thereof, shall be shown in the Notes to Financial Statements. c. Installment Contracts Receivables (ICR) This represents outstanding account balances arising from sales of pre-need plans on an installment basis. Installment contracts receivables include the outstanding unpaid installments on the Contract Price of In-Force Plans, including the outstanding unpaid installments of Lapsed but Reinstatable Plans or Plans in default for not more than two years. Plans Lapsed for more than two (2) years from lapse of grace period may be cancelled by the Company subject to prior notice to the Planholder. Cancelled plans are taken off the books and the outstanding balances of Cancelled Plans and of Surrendered Plans are deducted from the installment contracts receivables account. (The number and total amount of Contract Price of plans lapsed for a period of two years or less, and the number and total amount of Contract Price of Lapsed Plans reinstated during the year should be disclosed in the Notes to Financial Statements.) d. Other Investments Investments that are not readily marketable and are not intended to meet working capital requirements are classified under this account. Investments in securities of affiliates and related parties should be shown separately from other long-term investments in stocks. Investments in common stock of subsidiaries and affiliated companies should be accounted for based on SFAs No. 10 and ED No. 30. e. Property and Equipment This account shall include all tangible assets that are used in the conduct of the business and are not intended for sale in the ordinary course of business and with estimated useful lives exceeding one year. Property and equipment are generally carried at cost less allowance for depreciation. In case of revaluation, SFA No. 12 should be applied. Leasehold improvements are included under this caption if material in amount and if the terms of the lease extend over a long period of time; otherwise, the amount may be shown among deferred charges or other assets. They should be amortized over the remaining term of the lease (including renewal periods if it is probable that a renewal option will be exercised) or the life of the property whichever is shorter. f. Deferred Charges and Other Assets This account is a major non-current asset grouping in the Balance Sheet which absorbs subsidiary account balances amounting to less than five per cent (5%) of Total Assets. If more than five per cent (5%), each subsidiary account shall be presented separately under this grouping. Commissions, overrides, and bonuses paid to sales personnel after January 01, 2002 may be deferred subject to the following conditions. i.) Deferral shall be allowed only if the modified cash or accrual method of accounting is used by the Pre-Need Company; In case of cash method of accounting, no deferral shall be allowed. ii.) In case of pre-need plans with a payment period of five (5) years or more, commissions, overrides and bonuses may be deferred but shall be amortized in accordance with the following schedule: Year 1 40% Year 2 21% Balance shall be amortized equally over the remaining paying period. iii.) In case of plans with a payment period of less than five (5) years, commissions, overrides and bonuses paid may be deferred but shall be amortized at 50% for the first year and the balance shall be amortized over the remaining paying period. Commissions, overrides and bonuses paid to sales personnel before January 01, 2002 which have been deferred by the Pre-Need Company shall be amortized over the remaining paying period but in no case beyond five (5) years from January 01, 2002. Example of other asset accounts under this classification include, but is not limited to, the following: (i) Pre-Operating Expenses This represents actual expenses incurred in establishing a Pre-Need Company, or in opening a branch office thereof. The cost may include legal fees, promotional fees, incorporation fees, etc. The combined amount of which, is amortized normally over a period of five (5) years. (ii) Other Assets This represents other items not readily and properly classified in any one of the preceding asset captions or items not sufficiently material to warrant a separate caption. If it is in excess of five per cent (5%) of total assets, it must be stated separately. g. Current Liabilities (i) Accounts Payable and Accrued Expenses This is a major grouping among current liabilities in the Balance Sheet which shall include, but is not limited to, the following: (A) Taxes Payable This represents value-added tax, documentary stamp tax and other taxes payable by the pre-need company to the government in accordance with RA 8424. (B) Insurance Premium Payable This includes liabilities for unpaid premiums on group insurance of Company's personnel and non-life insurance premiums for Company's property and equipment, etc. (ii) Other Current Liabilities The following accounts may be stated separately if material in amount: (A) Dividends declared and not paid at balance sheet date (B) Acceptances payable (C) Liabilities under trust receipts (D) Portion of long-term debt due within one year (E) Any other current liability in excess of five per cent (5%) of total current liabilities. h. Actuarial Reserve Liabilities (ARL) Actuarial Reserve Liabilities represent the accrued net liabilities of the Pre-Need Company to its Planholders, as determined and certified by any actuary accredited by the Commission in accordance with generally accepted actuarial principles and practices together with the standards and guidelines set by the Commission; or, in their absence, the actuarial standards and guidelines of the Actuarial Society of the Philippines, or, in their absence, the international actuarial principles and standards. In the determination of the actuarial reserve of any Plan, the Actuary should take into account the deferred charges. The actuarial reserve should not be less than the corresponding Termination or Surrender Value of the Plan and shall be equal to the amount shown in the Actuarial Valuation Report as required under Rule 23.2.3. i. Benefits Payable This account includes amounts payable to Planholders and beneficiaries, in the course of settlement, and incurred but not reported claims on the Pre-Need contract such as due but unpaid matured benefits, surrender benefits and annuity payments. j. Planholder's Deposit (i) Planholder's Deposit Insurance Premium Amount collected from the Planholder for the payment of Planholder's insurance premiums to the insurer. (ii) Planholder's Deposit Others This represents amounts received from the Planholder for any of the following: (A) Payment with application for a new plan not yet issued, (B) Excess fractional payments of a regular installment, and (C) Payment received with application for the reinstatement of Lapsed Plan, within two years from date of lapse, with pending approval. k. Estimated Benefit Provision in ICR This account represents provision for benefits and other related expenses in the outstanding Installment Contracts Receivable (ICR) of all Plans sold on installment basis, as prescribed by the actuary in the actuarial pricing study approved by Commission. This account plus Unrealized Gross Income (UGI) in ICR shall be at all times equal to ICR. l. Unrealized Gross Income (UGI) in ICR This account represents the gross income provision, which is the difference between ICR and Estimated Benefit Provision. therefore, this account plus Estimated Benefit Provision in ICR shall be at all times equal to ICR. m. Counselor's Bond Reserve This account represents the aggregate amount of deductions from salesmen and agent's commissions, bonuses, and other cash incentives to accumulate a reserve. Upon separation of a salesman or agent from the company, his accountability will be charged to this accumulated bond reserves. n. Other Liabilities This represents other items not properly classified in any one of the preceding liability captions or items not sufficiently material to warrant a separate caption. If it is in excess of five per cent (5%) of total liabilities, it shall be stated separately. o. Stockholder's Equity This is a major section of the balance Sheet, which consists of, but is not limited to, the following prime accounts: (i) Authorized Capital Stock (ii) Subscribed Capital Stock (iii) Paid-up Capital Stock (iv) Additional Paid-in Capital (v) Retained Earnings (A) Unappropriated (B) Appropriated (shall be specified as to purpose) Retained earrings cannot be declared as dividends without prior approval from the Commission. 2. Statement of Income and Retained Earnings a. Income (i) Realized Gross Income This account represents estimated gross income from collections of Plan contracts. If ICR has been set up, the amount of realized gross income is determined by applying the estimated gross income rate used in setting up the UGI, to the actual collections. This account is presented in the income statement as the major source of revenue of pre-need companies. (ii) Other Operating Income Under this grouping, the following subsidiary accounts shall be separately presented: (A) Handling Fee This represents handling charges associated with installment payments other than annual basis or spot-cash sales. (B) New Issue Fee this is normally a one-time charge to new Planholders to cover underwriting and processing service of application, which can be a fixed amount or a percentage of the Contract price. (C) Amendment Fee This represents a fixed amount or percentage of the Contract Price charged to Planholders who apply for amendment of their in-force plans to cover processing cost and services. This shall also include reconstruction/re-replacement fee for lost contracts. (D) Reinstatement Fee This represents a fixed charge or a percentage of the Contract Price, charged to Planholders applying for reinstatement of Lapsed Plans to cover processing cost and services. (E) Surcharge on Lapsed Plan This represents additional charge to Planholders on past-due installment payments of Lapsed Plans, and is different and separate from reinstatement fee. (iii) Other Income Under this grouping, the following subsidiary accounts are separately presented: (A) Trust Fund Income This account represents all income generated by the Trust Fund (B) Commission Income This pertains to commission/referral fees received by the Pre-Need Company. (C) Investment/Interest Income This account refers to the amount of interest from securities of affiliates and unconsolidated subsidiaries, marketable securities and other securities held by the Company other than trust fund income. (D) Realized Capital Gains This represents gain or loss on disposal of securities. Gains are net of losses and losses are net of gains. Disclose the method followed in determining cost of securities sold. (E) Miscellaneous Income This refers to any material amount of miscellaneous income net of deductions. b. Operating Expenses (i) Plan Benefits This pertains to benefits to planholders and/or their beneficiary/ies, paid and accrued, such as, maturity, termination benefit, etc.; except benefits paid from insurance coverages. (ii) Increase (Decrease) in Actuarial Reserve Liabilities This account is equal to the actuarial reserve as determined by an actuary accredited by the Commission as at the end of the current year minus the sum of the reserve as of end of previous year and any additional actuarial reserve liabilities credited during the year from installments of Contract Price collected less realized gross income, and any increase in the reserve on account of change in valuation basis, if any such change occurred during the year. (iii) Direct/Acquisition Costs This is a major grouping of costs and expenses accounts immediately related to sales of Pre-Need Plans, and of acquiring the same. The following subsidiary accounts shall be presented separately under this grouping. (A) Commissions, Bonuses, and Incentives This represents compensation paid to sales personnel for the production of new business, and for servicing existing business pursuant to a formal "Commission Agreement." This compensation shall not exceed the limit set by the Commission. (B) Collection Fees and Bonuses This covers incentives granted for collection of non-commissionable installment accounts by authorized agents. this account may be presented separately from the account "Commissions, Bonuses, and Incentives", or as part thereof, depending upon the materiality of the amount. Collection fees and bonuses shall not exceed the limit set by the Commission. (C) Taxes This pertains to the taxes paid by the Pre-Need Company except income tax. (D) Prizes and Awards This account includes cost of prizes, awards and incidental expenses incurred in giving out prizes and awards, and other benefits granted to sales personnel for outstanding achievement in selling Pre-Need Plans. (E) Securities and Exchange Commission Registration Fee This pertains to the registration/filing fee paid to the Commission (F) General and Administrative Expenses Expenses not included in the foregoing are classified as "General and Administrative" or "Management and Operating Expenses" detailed on the face of the Statement of Income and Retained Earning, or in a separate listing schedule, or in the related "Notes to Financial Statement". Rule 32 Additional Disclosures to the Chart of Accounts 32.1. Where additional explanation of data in the preceding Rule are expected of the account in the financial statements, reference to the related "Notes to Financial Statements" shall be indicated after the account. In the balance sheet, trust funds account shall reflect a notation "Schedule No. _____" for additional explanation on how the trust fund equity has been arrived at. 32.2. Due to the high expectation of users of the financial statements, information pertaining to total collections for the year shall be shown or disclosed in the Income Statement, or in the accompanying "Notes to Financial Statements." 32.3. For purposes hereof, "total collections for the year" shall mean gross collections from payments of the Contract Price of Pre-Need Plans. Rule 33 Branches, Extension Offices 33.1. Any issuer or general agent desiring to establish or operate a branch, extension office or unit, in any locality, may be so permitted upon prior approval by the Commission. 33.2. Any change in address, closure or suspension of operation of said branch, extension office or unit shall require prior approval of the Commission. 33.3. An issuer may be requested to put up additional capital for the establishment of branches, extension offices or units, in an amount to be determined by the Commission. 33.4. Processing of applications for establishment, transfer or closure of branch offices or extension offices shall be completed within eight (8) working days from receipt of complete application and payment of fees. Rule 34 Closure of Branch Office(s) 34.1. Every Pre-Need Company desiring to close a branch office shall secure the prior approval of the Commission and in connection therewith, shall designate a resident agent/contact person in the area where the branches for closure are located who will receive payments of the Planholders to be deposited in the Pre-Need Company's designated bank account and attend to the Planholders' benefit claims, queries and complaints against the Pre-Need Company. 34.2. The following shall be submitted together with the application for closure: a. A copy of the affidavit of conformity of the resident agent/contact person or an agreement executed by and between the Pre-Need Company and the resident agent/contact person. b. A Notice to Planholders duly published informing them of the closure of the branch and the name and address of the resident agent/contact person who will attend to their installment payment, benefit claim, queries and complaints against the pre-need company. Publication shall be made in a newspaper of local circulation once at least two (2) weeks before effective date of closure, and the second publication within five (5) days from closure date. c. An affidavit duly executed by a responsible officer of the Pre-Need Company to the effect that: i.) said notice has been sent by registered mail to all planholders being served by the branch office at the last address shown in the records of the branch and ii.) that said notice has been posted in the said office and in two (2) conspicuous places in the municipality where the branch office is located. Rule 35 Prohibited Acts 35.1. As commission, the Pre-Need Company shall not pay in cash or securities, directly or indirectly, any amount in excess of ten per cent (10%) of the Contract Price of the plans authorized to be sold, payable only from the proceeds of the sale thereof, as and when they are actually collected and received by the Issuer, and provided that the amount of the commission herein granted shall be paid only to duly registered dealers or agent who effected the sale. However, no payment of commission shall be made if plans have not been actually sold by the dealers or agents, but were purchased by the buyers directly from the Pre-Need Company. 35.2. The issuance/sale of Pre-Need Plans in excess of the amount authorized under registration granted to the issuer shall be penalized by a fine, in such amount depending on the frequency of the violation and/or by suspension of operation. 35.3. Overpricing of plans above the amounts stated under said registration shall be penalized by a fine. 35.4. Financial Statements submitted to the Commission shall adhere strictly to the PNUCA set forth in these Rules. Any financial Statement filed not in accordance with the PNUCA shall be considered as not having been filed, and subject the Pre-Need Company to the corresponding penalties imposed by the Commission. 35.5. Any person who issues a false or misleading statement or omits to state a material fact when required to do so and who prepares certifications required in these Rules containing such false or misleading information shall be barred from practicing his profession in the Commission without prejudice to criminal or civil liabilities imposed under the Revised Securities Act. Rule 36 Fee, Fines And Penalties 36.1. The fees, fines and penalties that shall be imposed by the Commission are as per attached Schedule of Fees, Fines and Penalties which is incorporated as an integral part of these Rules. 36.2. The imposition of fines and penalties is without prejudice to the civil and criminal liabilities that may be imposed on the offending party or parties under the Revised Securities Code. Rule 37 Exceptions Upon application by an interested party, the Commission may grant exceptions to these rules on a case to case basis for meritorious and justifiable reasons established by the applicant and under such terms and conditions as the Commission may impose. Rule 38 Repealing Clause All rules and regulations or any part or provision thereof, inconsistent with these Rules or any part or provision thereof, are hereby repealed or modified accordingly. Rule 39 Effectivity These New Rules shall take effect fifteen (15) days after the date of last publication in two (2) newspapers of general circulation in the Philippines and shall apply to new plans registered after such effectivity. Insofar as plans registered prior to the effectivity of these New Rules, the latter shall apply effective April 30, 2002 unless otherwise provided herein. 16 August 2001, Mandaluyong City, Philippines (SGD.) LILIA R. BAUTISTA Chairperson (SGD.) EDIJER A. MARTINEZ (SGD.) FE ELOISA C. GLORIA Commissioner Commissioner (SGD.) JOSELIA J. POBLADOR (SGD.) JUANITA E. CUETO Commissioner Commissioner Appendix "A" I. FEES A. Registration/Licensing of Securities 1. New and Additional 1/10 of 1% of maximum aggregate price at which securities are proposed to be offered plus other fees 2. Petition for Price Increase P2,500 3. Petition for amendment of P2,500 Registration Statement/ contracts/all applications 4. Petition for release of balance P2,500 5. Petition for Cancellation of P2,500 Registration 6. Petition for Suspension and/or P2,500 Cancellation of Permit to Sell B. Dealer/Branch/Salesmen/General Agent 1. New 1.1. Dealer a. Head Office P10,000 + other fees b. Branch Office 1) Within Metro Manila P5,000 + other fees 2) Outside Metro Manila P2,500 + other fees 1.2. General Agent P5,000 + other fees 1.3. Salesman a. Dealer P200/salesman plus other fees b. General Agent P200/salesman plus other fees 2. Renewal 2.1. Dealer a. Head Office P5,000 plus other fees b. Branch Office 1) Within Metro Manila P2,500 plus other fees 2) Outside Metro Manila P1,500 2.2 General Agent P2,500 plus other fees 2.3. Salesmen P200/salesman plus other fees C. Others 1. Approval of Trust Agreement P2,500 2. Accreditation of Pre-Need P1,000 Actuaries 3. Certifications P300 II. PENALTIES/FINES A. For Late Filing/Non-filing of Reports 1. Annual Reports 1.1 Audited Financial Statements P5,000 Basic fines plus P100/day of delay 1.2. Actuarial Valuation Report P5,000 Basic fine plus P100/day of delay 2. Other periodic reports 2.1. Monthly P5,000 Basic fine plus P100/day of delay 2.2. Quarterly P5,000 Basic fine plus P100/day of delay 2.3. Others P5,000 Basic fine plus P100/day of delay B. For other violations 1. Issuance/Sale of Plans in 1st violation 2/10 of 1% of Excess of Authorized Amount the aggregate gross price of the plans sold 2nd violation 3/10 of 1% of the aggregate gross price of the plans sold 3rd violation 4/10 of 1% of the aggregate gross price of the plans sold 4th violation and succeeding violations suspension/ revocation of license 2. Overpricing of plans 1st violation 2/10 of 1% of the difference between the authorized plan value 2nd violation 3/10 of 1% of the difference between the authorized plan value 3rd violation 4/10 of 1% of the difference between the authorized plan value 4th and succeeding violations suspension or revocation of license 3. Unreported sales/collections 1st violation 2/10 of 1% of the aggregate gross pre- need price of the plans sold 2nd violation 3/10 of 1% of the aggregate gross pre- need price of the plans sold 3rd violation 4/10 of 1% of the aggregate gross pre- need price of the plans sold 4th and succeeding violations suspension or revocation of license 4. Late trust Fund Deposit P5,000 Basic fine plus P100/day of delay 5. Late/Non-Funding of Trust fund P5,000 Basic fine plus Deficiency P100/day of delay 6. Unauthorized Opening/Transfer/ P2,000/branch Closure of Branch 7. Unlicensed salesmen Maximum of P2,000/salesman 8. Late Filing of Renewal of the following: 8.1. Dealer's License P1,000 8.2. General Agent P1,000 9. Execution of Trust Agreement Maximum of P5,000 without SEC approval 10. Registration Statement with a) Suspension or revocation untrue statement of a material of its certificate and fact, or omitted to state any permit to offer securities material fact required to be b) Fine of no less than stated therein or necessary to P200 for each day of make the statements therein not continuing violation but misleading, or refused to permit not more than P50,000 in any lawful examination into its aggregate fine affairs c) Disqualification from being an officer, member of the board of directors or principal stockholder of an issuer whose securities are about to be registered pursuant to the Pre-Need Rules.