Senior Deputy Governor Gabriel Singson

November 3, 1983 Senior Deputy Governor Gabriel Singson Central Bank of the Philippines Manila Sir : This refers to your letter dated July 7, 1983, inquiring as to whether AGP Industrial Corporation (AGPI) and Trans-Philippines Investment Corporation (TPIC) are investment companies to be subject to Central Bank regulations requiring investment companies to periodically report their credit and equity exposure. LexLib It appears that the above-mentioned corporations claim that they are not investment companies. AGPI has represented that it is an ordinary stock corporation which actively engages through its 77.5% owned subsidiary , the Atlantic Gulf & Pacific Company of Manila, Inc. (AG & P) in the construction, heavy engineering and other related activities and that AG & P's highly diversified business activities are AGPI's main and sole business concern and function and AGPI regards its investment in AG & P as permanent one. The articles of incorporation of said corporation provides the following as its primary purpose: "To invest ink purchase, or otherwise provide, acquire and own, hold, manage , use, sell, operate , assign, transfer, mortgage, pledge, encumber, exchange or otherwise dispose of, or deal in real and personal property of every kind and description, including shares of stocks, bond, debentures, notes, evidences of indebtedness, and other securities, contract or corporations, association, domestic or foreign for whatever lawful purpose or purposes the same may have been organized to pay therefore, in money or by exchanging therefore stocks, bonds or other evidences or securities of this or any other corporations, and while the owner or holder of any such real or personal property, stocks, bonds, debentures, notes, evidences or indebtedness, and other securities, contracts, or obligations, or any person, corporation or corporations, association or associations, domestic or foreign, for whatever lawful purpose or purposes the same may have been organized to pay therefore, in money or by exchanging therefore stocks, bonds, or other evidences of indebtedness or securities of this or any other corporations, and while the owner or holder of any such real or personal property, stocks, bonds, debentures, contracts or obligations, to receive, collect and dispose of the interest, dividends, and income arising from such property and to possess and exercise in respect thereof all the rights, powers, and privileges of ownership, including all voting powers as any stock so owned." (emphasis supplied) With respect to TPIC, it represented that it is a BOI-registered export-oriented company directly engaged through its divisions, Philsilk Manufacturing in the business of manufacturing silk fabrics for exportation to Japan, and through other division, Trans-Philippines Exporters, in the business of exporting locally produced handicrafts, furnitures and other merchandise. It is also engaged through its wholly owned subsidiary (99.92%), the Binalbagan Isabela Sugar Company, Inc. in the manufacture of raw sugar for export as well as domestic sale and through its wholly-owned subsidiaries , the Metro Garments Manufacturing, Inc., in the manufacture and exportation of garments and lacquered products. TPIC, through its majority-owned subsidiary , AGPI, owns and controls 77.5% of AG & P and recently, TPIC acquired controlling interest and actively involves itself in the worldwide brassiere and foundation garment business of Exquisite Form Industries, Inc. of New York. Sixty-seven (67%) percent of its total revenues in fiscal year 1981-1982 were derived from export sale and management fees. Although TPIC normally incurs borrowing from financial institutions, their borrowings are primarily for the purpose of funding its own operating requirements. TPIC's outstanding capital stock is beneficially owned by less than 20 persons, and no public offering of its securities is being made nor presently proposed to be made. The articles of incorporation of said corporation provides the following as its primary purpose: "To buy, or otherwise acquire and own, hold, manage , use, operate, alter, lease, rent, sell, assign, transfer, mortgage, pledge, encumber, exchange or otherwise dispose of deal in real or personal property of every kind and description, including shares of stocks, bonds, debentures, notes, evidences of indebtedness, and other securities, contract or obligations of any corporation or corporations, association or associations, domestic or foreign and to pay therefore, in whole or in part, in cash or by exchanging therefore stocks, bonds, or other evidences of indebtedness or securities of this or any other person, firm or corporations." (emphasis supplied) The Central Bank, however, believes that since their primary purpose empowers them to invest in, purchase, acquire, own, hold, sell, assign, transfer or otherwise dispose of securities, said corporations may be considered investment companies and thus covered by CB regulations on the matter. After a careful study on the matter, it was observed that both corporations are not investment companies within the provisions of the Investment Company Act. It appears that both corporations are more of holding companies rather than investment companies. By holding company is meant "one which controls another as a subsidiary or affiliate by the power to elect its management. Affiliates are those concerns which are subject to common control and operated as part of a system". (Ballantine Law on Corporations, p. 308). In other words, a holding company is one which holds stocks in other companies for purposes of control rather than for mere investment . On the other hand, an investment trust or company aims at the safe and profitable employment of the funds while avoiding, for the participants, the direct responsibilities of control and management , which they would otherwise bear in connection with investing their funds. It usually avoids controlling interests and so limits its participation in any one security that directive and managerial responsibilities are not assumed . (Financial Handbook, J.I. Bogen 322-325). An "investment company, therefore, can easily be differentiated from a "holding company" in terms of its portfolio. The former has an active portfolio, buying and selling securities, while the latter has a passive portfolio, merely holding securities for control and management. The observation that subject corporations are holding companies rather than investment companies is supported by the use of the words "manage" and "operate" in their primary purpose, which may be interpreted that their intention is not merely to invest in securities but to manage their subsidiaries or affiliates. Subject corporations, therefore, are not considered investment companies within the purview of the Investment Company Act. Please be advised accordingly. Very truly yours, (SGD.) MANUEL G. ABELLO Chairman