PhilPlans First, Inc. (A Wholly-owned Subsidiary of Maestro Holdings, Inc.)

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1 PhilPlans First, Inc. (A Wholly-owned Subsidiary of Maestro Holdings, Inc.) Financial Statements December 31, 2016 and 2015 and Independent Auditor s Report

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11 PHILPLANS FIRST, INC. (A Wholly Owned Subsidiary of Maestro Holdings, Inc.) NOTES TO FINANCIAL STATEMENTS 1. Corporate Information PhilPlans First, Inc. (the Company) was incorporated in the Philippines to engage in the development of lawful institutional mediums for the maintenance, conduct, operation, marketing and sale of any and all types of securities (without acting as stock broker), including, but not limited to, education, pension and life plans. The Company s registered office address and principal place of business is 12th Floor, STI Holdings Center, 6764 Ayala Avenue, Makati City. The ultimate parent of the Company is Maestro Holdings, Inc., an entity incorporated in the Philippines. 2. Basis of Preparation The accompanying financial statements have been prepared on a historical cost basis, except for available-for-sale (AFS) financial assets and service assets - memorial lots [including those in the investments in trust funds and insurance premium fund] which have been measured at fair value. The financial statements are presented in Philippine Peso (P=), which is also the Company s functional currency. Amounts are adjusted to the nearest Philippine Peso unit, unless otherwise indicated. Statement of Compliance The accompanying separate financial statements of the Company, which are prepared for submission to the Securities and Exchange Commission (SEC) and the Bureau of Internal Revenue (BIR), have been prepared in accordance with accounting principles generally accepted in the Philippines for pre-need companies as set forth in the Pre-need Rule 31, As Amended: Accounting Standards for Pre-Need Plans and Pre-need Uniform Chart of Accounts (PNUCA) and applicable Insurance Commission (IC or the Commission) Circular Letter and accounting requirements. The specific accounting policies followed by the Company are disclosed in Note Pre-need Regulations Republic Act No On December 3, 2009, the Republic Act (RA) No. 9829, An Act Establishing the Pre-need Code of the Philippines, was approved. This act shall be known as the Pre-need Code of the Philippines. It is a consolidation of Senate Bill No and House Bill No passed by the Senate and the House of Representatives on September 30, 2009 and September 29, 2009, respectively. The following are the more significant provisions under RA No. 9829: Authority of the Insurance Commission. All pre-need companies shall be under the primary and exclusive supervision and regulation of the Insurance Commission (IC) (the Commission).

12 - 2 - Paid-up capital. A pre-need company incorporated after the effectivity of the Code shall have a minimum paid-up capital of P=100 million. Existing pre-need companies shall comply with the following minimum unimpaired paid-up capital: a. P=100 million for companies selling at least three (3) types of plan; b. P=75 million for companies selling two (2) types of plan; and c. P=50 million for companies selling a single type of plan. Trust fund. The trust fund shall at all times be sufficient to cover the required pre-need reserve (PNR). The RA specifies the minimum amount of corresponding contributions to the trust fund. Limitations on different investments of the trust fund(s). 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 and subject to limitations specified by the RA. Under Chapter 11, Section 47 of the Pre-need Code, the IC shall have the authority to make, amend and rescind such accounting rules and regulations applicable for pre-need companies. In the absence of new accounting rules, amendments to or rescission of the current accounting rules authorized by the IC, the Company continues to follow the amended PNUCA. Implementing Rules and Regulations (IRR) of RA No After the issuance of RA No. 9829, the Commission issued the IRR on March 8, The salient provisions of the IRR are the same with that of RA No SEC Memorandum Circular (SMC) No. 6, Series of 2002 The SEC issued SMC No. 6, Standards for Valuation of Actuarial Reserve Liabilities for Pre-Need Plans (SEC Circular No. 6), effective June 27, 2002 (amended April 10, 2003). The following are the more significant provisions of this Circular: a. Actuarial reserve liabilities (ARL) must be set up for all pre-need benefits guaranteed and payable by the pre-need company as defined in the pre-need plan contracts; b. Where insurance coverage is provided in the plan contract, insurance premium reserves must be set up as a separate liability account; c. The ARL must be determined by using a prospective method in accordance with the Guidelines and Standards of the Actuarial Society of the Philippines; d. Actuarial reserve valuation methods must be consistent with any allowed accounting adjustments for deferred expenses. The net level contribution method of prospective valuation for both pre-need benefits reserve and insurance premium reserve (IPR) shall be used when there is deferment of expenses. Only first year commissions, overrides and bonuses may be deferred. Administrative and other marketing expenses shall not qualify for deferral. The period of deferment shall not exceed the installment payment period and shall be in accordance with the New Pre-Need Rules which took effect on September 21, 2001; e. The ARL for a contract that has defaulted in payment of installments of the price, but which may still be reinstated, shall not be less than its reserve minus the uncollected contributions to

13 - 3 - reserve up to the date of valuation, multiplied by a validated reinstatement factor as determined by the actuary, provided the uncollected contributions to reserve is not reflected as an asset; f. The interest rate assumption in reserve valuation should be reflective of expenses and taxes incurred on investments, but the rate shall in no case exceed 80% of the average interest rate for the longest term Philippine government security traded during the previous three (3) months. If the experience net yield rate of the trust fund is higher than the set maximum, the actuary must show conclusive proof of the contracts whose reserves are being valued, before assuming such experience net yield; g. Rates of surrender, cancellation, utilization and inflation, when applied, must consider the actual experience of the company in the last three (3) years, or the industry, in the absence of a reliable company experience; h. In determining the ARL of fully paid plans, no decrement rates other than utilization rates for the contingent principal benefits may be used. The actuary shall submit to the SEC for approval the necessary justification for any exception made to this rule; and i. The actuary shall validate every year the actuarial assumptions used in the reserve valuation and shall include in the actuarial certification a statement of the validation procedure. Pre-Need Rule 31, as Amended: Accounting Standards for Pre-Need Plans and PNUCA On May 10, 2007, the SEC issued Pre-Need Rule 31, as Amended, which adopted the revised accounting standards and chart of accounts that shall be considered the generally accepted accounting principles in the Philippines for pre-need companies. This Amended Pre-need Rule 31 became effective for interim financial statements covering periods ended June 30, 2007 and onwards and for annual financial statements for the year ended December 31, 2007 and thereafter. The following are the more significant provisions under the Amended Pre-need Rule 31: Trust funds a. The net asset value in the trust funds shall be at least equal to the required PNR as determined by a qualified actuary using the method prescribed in this Rule. b. All requirements under the rules and regulations as may be promulgated by the SEC on trust funds shall be complied with. c. The recognition and measurement of the assets in the trust funds shall be in accordance with PAS 39, Financial Instruments: Recognition and Measurement, and PAS 40, Investment Property, and other applicable standards, depending on the composition of the fund. d. The component assets and liabilities of the trust funds shall be presented separately in the notes to financial statements. PNR a. PNR shall be set up for all pre-need benefits guaranteed and payable by the pre-need company as defined in the pre-need plan contracts;

14 - 4 - b. In recognizing PNR for education and pension plans, the general requirements of PAS 37, Provisions, Contingent Liabilities and Contingent Assets, on provisioning and the specific methodology provided under this item shall be complied with by the company. For life plans, the requirements of Philippine Financial Reporting Standard (PFRS) 4, Insurance Contracts, shall be complied with by the company; c. The amount recognized as a provision to cover the PNR shall be the best estimate of the expenditure required to settle the present obligation at the reporting date. The risks and uncertainties that inevitably surround many events and circumstances shall be taken into account in reaching the best estimate of a provision; d. Since the effect of the time value of money for pre-need plans is material, the amount of provision shall be the present value of the funding expected to be required to settle the obligation with due consideration of the different probabilities as follows: (i) On Currently-Being-Paid Plans (1) Provision for termination values applying the inactivity and surrender rate experience of the Company. The trend of surrender rate experience is disclosed in the company s notes to financial statements (Note 6); (2) For the portion of currently-being-paid plans that will reach full payment, applying the full payment experience of the Company, the liability is equivalent to the present value of future maturity benefits reduced by the present value of future trust fund contributions required per Product Model discounted at the approved hurdle rate per Product Model of the company. (ii) On Lapsed Plans within the Allowable Reinstatement Period (1) Provision for termination values applying the reinstatement experience of the Company. The trend of surrender rate experience is disclosed in the Company s notes to the financial statements (Note 6). (iii) On Fully Paid Plans (1) For those due for payment within the next five (5) years, the reserve is the present value of future maturity benefits discounted at the attainable rate, as determined and certified by the Company s trustee using industry best practices and principles which shall be indicated in such certification; (2) For those not yet due for payment within the next five (5) years, the reserve is the present value of future maturity benefits discounted at the approved hurdle rate per Product Model of the Company. (3) Provision for termination values applying the surrender rate experience of the company. The trend of surrender rate experience shall be disclosed in the company s notes to financial statements (Note 6); and (4) Liability shall be set up shall be equivalent to the present value of future maturity benefits reduced by the present value of future trust fund contributions required per Product Model discounted at the lower of attainable rate or discount rate provided by the IC of the company for SEC Approved plans and pricing discount rate for IC approved plans ;

15 - 5 - e. Future events that may affect the foregoing amounts shall be reflected in the amount of provision for PNR where there is sufficient objective evidence that they will occur; f. The rates of surrender, cancellation, reinstatement, utilization and inflation when applied, must consider the actual experience of the company in the last three (3) years, or the industry, in the absence of a reliable company experience; g. The computation of the foregoing assumptions shall be validated by the internal qualified actuary of the pre-need company. His or her validation report shall be provided to its external auditors for purposes of statutory audit of the financial statements of the company, and shall be submitted to the IC as a separate report; h. The probability of pre-termination or surrender of fully paid plans shall be considered in determining the PNR of fully paid plans. A pre-need termination experience on fully paid plans of 5% and below shall be considered insignificant. In such cases, derecognition of liability shall be recorded at pre-termination date; i. The disclosure requirement under PAS 1, Presentation of Financial Statements, relative to methods and assumptions used to estimate the PNR, including the sensitivity of the PNR amount, shall be complied with; and j. Any excess in the amount of the trust funds as a result of the revised reserving method shall neither be released from the fund nor be credited to offset against future required contributions. Insurance premium fund This represents corporate assets that are restricted to cover the payment of insurance premiums after the paying period of the pre-need plan (Note 11). This shall be at least equal to the amount computed for the IPR under paragraph 13 of Amended Pre-Need Rule. Other reserves The Company shall set-up other provisions in accordance with PAS 37 to cover obligations such as IPR (Note 18). Unless the IC shall so specifically require, a company may, at its option, set up other provisions as a prudent measure. Premium revenue Premiums from sale of pre-need plans shall be recognized as earned when collected. When premiums are recognized as income, the related cost of contracts shall be computed with the result that benefits and expenses are matched with such revenue. Trust fund income Income generated by the trust fund shall be included in the Investments in trust funds account under the asset section of the statement of financial position (Note 10). The amount of the trust fund income shall be disclosed in the notes to the financial statements (Notes 10, 17 and 19). The portion of the retained earnings representing the trust fund income shall be automatically restricted to payments of benefits of plan holders and such other related payments as allowed under the Pre-Need Rules.

16 - 6 - Cost of contracts issued This account pertains to: a. The increase in PNR as at the current year as compared to the provision for the same period of the previous year. If there is a decrease in the PNR as a result from new information or new developments, the amount shall be deducted from the Cost of contracts issued of the current period. In case of material prior period errors, the requirements of PAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, shall be complied with by the pre-need company; b. Amount of trust funds contributed during the year; and c. Documentary stamp tax and IC registration fees. The foregoing items shall be presented separately on the face of the statement of income. Other direct costs and expenses This account includes the following, which shall be presented separately in the notes to the financial statements: a. Basic commissions; b. Other commission such as overrides, bonuses; c. Insurance; and d. Other expenses that constitute direct cost of contracts issued. Individual subsidiary accounts for education plans and for pension plans must be maintained (e.g., [1] Cost of contracts issued - education plans, [2] Cost of contracts issued - pension plans ). SEC Interpretative Bulletin No. 1, Series of 2008 On January 17, 2008, the SEC issued a bulletin to guide pre-need corporations, pre-need actuaries and pre-need external auditors on the implementation of Amended Pre-need Rule 31 and PNUCA. The more significant provisions of this bulletin are as follows: PNR The PNR or the reserve for education plan, life plan and pension plan, covers the liabilities for education plan, life plan and pension plan. The PNR represents the present value of future pre-need benefits less the present value of future trust fund contributions. The PNR of the three (3) plan types should be maintained separately as they differ in treatment and assumptions. The amount indicated as PNR shall be the same as that stated in the actuarial valuation report and audited financial statements with the required disclosures. Discount rate The Company should compute the PNR using the SEC-approved hurdle rate per product model for Currently-Being-Paid Plans and Fully Paid Plans whose benefit payments are not due within the next five (5) years.

17 - 7 - The Company may also compute the present value of its liabilities using a lower discount rate other than the SEC-approved hurdle rate and the difference between the two computations shall be booked under the Other reserves account in the audited financial statements (Note 19), in accordance with the Amended Pre-need Rule 31. Other reserves Under the account Other reserves, the Company may, at its option and as a prudent measure, set up other provisions. Thus, the Other reserves account may include the following items: General administrative expense after the paying period; Paid-up capital reserves; Reserve for the difference in the PNR computation using a rate other than the IC-approved hurdle rate; and Other reserves as may be allowed by the Commission. IC Circular Letter No On November 23, 2012, the IC has issued Circular Letter relating to the Valuation of Transitory Pre-need Reserves (TPNR). The circular states that in order to provide regulatory leeway for old basket of plans previously approved by the SEC, the valuation of PNR shall be governed by the following: a. Discount interest rate for the PNR The transitory discount interest rate per year that shall be used in the valuation of PNR shall not exceed the lower of the attainable rates as certified by the Trustee and the following rates below: Year Discount Interest Rate % % % 2019 and onwards 6.00% For the year ended December 31, 2016 the Company has used the same attainable rate of 6.00% to 7.75% in valuing its PNR. b. Transitory Pre-need Reserve In effecting the transition in the valuation of reserves for old basket of plans, IC shall prescribe a TPNR with a maximum transition period of ten (10) years. For each of the pre-need plan categories, the TPNR shall be computed annually on all old basket of plans outstanding at the end of each year from 2012 to 2021 using the discount interest rates provided above. If the actual trust fund balance is higher than or equal to the resulting PNR then the liability set-up shall be the PNR. However, if the resulting PNR is greater than the actual trust fund balance at the end of the year, TPNR shall be computed. The actual trust fund balance shall be the trust fund balance at the end of the year net of any receivables by the pre-need company from the trustee for the contractual benefits outstanding as of the end of the year. The TPNR liability shall be recognized each year. The trust fund deficiency shall be funded by the pre-need company within sixty (60) days from April 30 following the valuation date.

18 - 8 - As of December 31, 2016, the Company s investment in trust fund is significantly higher than the PNR computed using the discount interest rates required by IC Circular Letter IC Circular Letter No On March 15, 2012, the IC issued Circular Letter No , Allowable Investments for Pre-need Trust Funds. In addition to the provisions of Section 34 of the Pre-need Code, Investment of the Trust Fund, the following additional investment outlets shall be allowed as Other Investments with corresponding maximum limits and subject to prior approval of the IC. The amount allocated shall not exceed twenty percent (20%) of the total trust fund while the investment in any particular item below shall not exceed fifteen percent (15%) of the trust fund. Provided, further, that no investment in any single entity shall exceed ten percent (10%) of the total value of the trust fund. a. Preferred shares - Preferred stock, also called preferred shares, preference shares, or simply preferred, is a special equity security that has properties of both an equity and a debt instrument and is generally considered a hybrid instrument. Preferred are senior (i.e., higher ranking) to a common stock but are subordinate to bonds. Preferred stock usually carries no voting rights, but may carry a dividend and may have priority over common stock in the payment of dividends and upon liquidation. b. Real estate investment trust (REIT) - Real estate investment trust or REIT as defined under Republic Act No is a stock corporation established in accordance with the Corporation Code of the Philippines and the rules and regulations promulgated by the IC principally for the purpose of owning income-generating real estate assets. For purposes of clarity, a REIT, although, designated as a trust does not have the same technical meaning as trust under existing laws and regulations but is used herein for the sole purpose of adopting the internationally accepted description of the company in accordance with global best practices. c. Tier 2 Notes - Tier 2 notes that generally constitute direct, unconditional, unsecured and subordinated obligations of a bank. More commonly, claims of all noteholders will enjoy priority over the rights and claims of holders of all classes of equity securities of a bank, including holders of preference shares, if any. The issuer bank should have a credit rating of no less than A from Philippine Rating Services Corporation (PhilRatings). d. Service assets - Under Republic Act No. 9829, Section 35 Responsibilities of the Trustee of Pre-need Companies under (c) 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 except for entities which are direct providers of pre-need companies. Service assets are investment by a pre-need company directly or through a service provider in resources or capabilities that may be used to offset a future liability. These are assets or shares which are not intended for resale or investment but to offset future liabilities. i. Pre-need companies differ from insurance companies because their obligations are not necessarily financial in nature. Some of their liabilities may be in the form of assets or services. Hence, there are arbitrage opportunities where the pre-need company is able to provide the service or asset at a cost below the amount originally projected in the financial model.

19 - 9 - ii. Mortuaries - Historically investments by pre-need companies in mortuaries have allowed some pre-need companies to answer their life plan obligation. Investments take the form of buying or investing in mortuaries, purchasing assets required to provide memorial services, such as hearses, cremation machines or loaning funds to independent mortuaries where conditions of the loan include providing discounted memorial services. iii. Memorial lots and/or columbaries - Some life plan liabilities are in the form of memorial lots or columbaries, where the commitment of the life plan company is to provide a complete funeral service including a memorial lot. Memorial lots or columbaries that are not part of the package of a funeral service shall be considered as inventories held for sale. In which case, the asset shall be considered as real estate. iv. Schools - Investments by pre-need companies in educational institutions would reduce the cost of servicing education plans, because the cost of education additional students is only marginal. The pre-need company would only have to spend on the marginal cost of educating additional students. v. Retirement homes - Some pension plans may include the provision of adult oriented housing for retirees as a benefit of the pension plan. Consequently, the ownership of such service assets will inoculate or control the liability of the pre-need company. As of December 31, 2016 and 2015, the Company has complied with the allowable investments under IC Circular Letter No (Note 10). IC Circular Letter No On August 7, 2015, the IC has issued Circular Letter relating to the Guidelines on the Management of the Trust Fund to govern the management and administration of the trust fund established for the payment of pre-need benefits under plan contracts and to provide an updated and more flexible choice of investments for the net surplus fund subject to rules and regulations that would ensure prudent investment management and protection of the interests of the planholders, including the promotion of the sound, stable and sustainable growth of the pre-need industry as provided for in Section 2 of the Pre-Need Code. Trust fund surplus The net asset value in the trust fund shall be at least equal to the required pre-need reserve liability (PRL) as determined by an accredited actuary. The PRL shall be computed in accordance with the prescribed applicable rate at the time of valuation. Net surplus fund The net surplus fund is an extended fund of the trust fund. Its availability shall be determined based on the trust fund income as of December 31 of the immediately preceding calendar year. The net surplus fund is determined as the difference between the trust fund surplus against the sum of provision for adverse deviation and excess liability reserve.

20 Trust fund surplus refers to the excess of the net asset value in the trust fund over the pre-need reserve liability. The net asset value is the trust fund balance at time of valuation. The net asset value is also referred to as trust fund equity. Investment of the trust fund and net surplus fund Investment of the trust fund shall be limited to the allowable investments provided for under Section 34 of the Pre-Need Code and to such other investments approved by the Commission, and shall be subject to the limitations found therein. In case there is a net surplus, investment of the same shall be limited to the items enumerated under Section 34 of the Pre-Need Code and other allowable investments approved by the Commission, without the percentage limits set forth. Any investment outlet not enumerated therein may be allowed subject to the prior approval of the Insurance Commission. The net surplus shall be placed in net surplus fund of each of the plan type (life, pension and education plan). Withdrawal of the excess liability reserves of closed accounts Withdrawal of the excess liability reserve (ELR) of closed accounts from the trust fund may be allowed subject to the prior approval of the Commission and payment of processing fee of P=50,000 per application. Request for the withdrawal of the ELR of closed accounts shall be submitted within thirty (30) days from receipt by the Commission of the Actuarial Valuation Report. In case the Commission acts favorably on the request, withdrawal shall be made within sixty (60) days from receipt of approval. No withdrawal after the sixty (60) day period shall be allowed by the trustee bank. The total plan deposit and ELR information per plan contract shall be included in the monthly trust fund withdrawal report submitted to the Commission. As of December 31, 2015, the Company has withdrawn the excess liability reserves of closed accounts amounting to P=1,000,000,000 upon the approval of the IC on September 14, 2015 (Note 10). 4. Changes in Accounting Policies The accounting policies adopted are consistent with those of the previous financial year, except that the Company has adopted the following new accounting pronouncements starting January 1, Adoption of these pronouncements did not have any significant impact on the Company s financial position or performance unless otherwise indicated. Amendments to PFRS 10, Consolidated Financial Statements, PFRS 12, Disclosure of Interests in Other Entities, and PAS 28, Investments in Associates and Joint Ventures, Investment Entities: Applying the Consolidation Exception These amendments clarify that the exemption in PFRS 10 from presenting financial statements applies to a parent entity that is a subsidiary of an investment entity that measures all of its subsidiaries at fair value. They also clarify that only a subsidiary of an investment entity that

21 is not an investment entity itself and that provides support services to the investment entity parent is consolidated. The amendments also allow an investor (that is not an investment entity and has an investment entity associate or joint venture) to retain the fair value measurement applied by the investment entity associate or joint venture to its interests in subsidiaries when applying the equity method. Amendments to PFRS 11, Joint Arrangements, Accounting for Acquisitions of Interests in Joint Operations The amendments to PFRS 11 require a joint operator that is accounting for the acquisition of an interest in a joint operation, in which the activity of the joint operation constitutes a business (as defined by PFRS 3), to apply the relevant PFRS 3 principles for business combinations accounting. The amendments also clarify that a previously held interest in a joint operation is not remeasured on the acquisition of an additional interest in the same joint operation while joint control is retained. In addition, a scope exclusion has been added to PFRS 11 to specify that the amendments do not apply when the parties sharing joint control, including the reporting entity, are under common control of the same ultimate controlling party. The amendments apply to both the acquisition of the initial interest in a joint operation and the acquisition of any additional interests in the same joint operation. PFRS 14, Regulatory Deferral Accounts PFRS 14 is an optional standard that allows an entity, whose activities are subject to rateregulation, to continue applying most of its existing accounting policies for regulatory deferral account balances upon its first-time adoption of PFRS. Entities that adopt PFRS 14 must present the regulatory deferral accounts as separate line items on the statement of financial position and present movements in these account balances as separate line items in the statement of income and other comprehensive income. The standard requires disclosures on the nature of, and risks associated with, the entity s rate-regulation and the effects of that rateregulation on its financial statements. Since the Company is an existing PFRS preparer, this standard would not apply. Amendments to PAS 1, Presentation of Financial Statements, Disclosure Initiative The amendments are intended to assist entities in applying judgment when meeting the presentation and disclosure requirements in PFRSs. They clarify the following: That entities shall not reduce the understandability of their financial statements by either obscuring material information with immaterial information; or aggregating material items that have different natures or functions That specific line items in the statement of income and other comprehensive income and the statement of financial position may be disaggregated That entities have flexibility as to the order in which they present the notes to financial statements That the share of other comprehensive income of associates and joint ventures accounted for using the equity method must be presented in aggregate as a single line item, and classified between those items that will or will not be subsequently reclassified to profit or loss.

22 Amendments to PAS 16, Property, Plant and Equipment and PAS 38, Intangible Assets, Clarification of Acceptable Methods of Depreciation and Amortization The amendments clarify the principle in PAS 16 and PAS 38 that revenue reflects a pattern of economic benefits that are generated from operating a business (of which the asset is part) rather than the economic benefits that are consumed through use of the asset. As a result, a revenue-based method cannot be used to depreciate property, plant and equipment and may only be used in very limited circumstances to amortize intangible assets. These amendments are applied prospectively. Amendments to PAS 16 and PAS 41, Agriculture: Bearer Plants The amendments change the accounting requirements for biological assets that meet the definition of bearer plants. Under the amendments, biological assets that meet the definition of bearer plants will no longer be within the scope of PAS 41. Instead, PAS 16 will apply. After initial recognition, bearer plants will be measured under PAS 16 at accumulated cost (before maturity) and using either the cost model or revaluation model (after maturity). The amendments also require that produce that grows on bearer plants will remain in the scope of PAS 41 measured at fair value less costs to sell. For government grants related to bearer plants, PAS 20, Accounting for Government Grants and Disclosure of Government Assistance, will apply. The amendments are applied retrospectively. Amendments to PAS 27, Separate Financial Statements, Equity Method in Separate Financial Statements The amendments allow entities to use the equity method to account for investments in subsidiaries, joint ventures and associates in their separate financial statements. Entities already applying PFRS and electing to change to the equity method in its separate financial statements will have to apply that change retrospectively. Annual Improvements to PFRSs Cycle Amendment to PFRS 5, Non-current Assets Held for Sale and Discontinued Operations, Changes in Methods of Disposal The amendment is applied prospectively and clarifies that changing from a disposal through sale to a disposal through distribution to owners and vice-versa should not be considered to be a new plan of disposal, rather it is a continuation of the original plan. There is, therefore, no interruption of the application of the requirements in PFRS 5. The amendment also clarifies that changing the disposal method does not change the date of classification. Amendment to PFRS 7, Financial Instruments: Disclosures, Servicing Contracts PFRS 7 requires an entity to provide disclosures for any continuing involvement in a transferred asset that is derecognized in its entirety. The amendment clarifies that a servicing contract that includes a fee can constitute continuing involvement in a financial asset. An entity must assess the nature of the fee and arrangement against the guidance for continuing involvement in PFRS 7 in order to assess whether the disclosures are required. The amendment is to be applied such that the assessment of which servicing contracts constitute

23 continuing involvement will need to be done retrospectively. However, comparative disclosures are not required to be provided for any period beginning before the annual period in which the entity first applies the amendments. Amendment to PFRS 7, Applicability of the Amendments to PFRS 7 to Condensed Interim Financial Statements This amendment is applied retrospectively and clarifies that the disclosures on offsetting of financial assets and financial liabilities are not required in the condensed interim financial report unless they provide a significant update to the information reported in the most recent annual report. Amendment to PAS 19, Employee Benefits, Discount Rate: Regional Market Issue This amendment is applied prospectively and clarifies that market depth of high quality corporate bonds is assessed based on the currency in which the obligation is denominated, rather than the country where the obligation is located. When there is no deep market for high quality corporate bonds in that currency, government bond rates must be used. Amendment to PAS 34, Interim Financial Reporting, Disclosure of Information Elsewhere in the Interim Financial Report The amendment is applied retrospectively and clarifies that the required interim disclosures must either be in the interim financial statements or incorporated by cross-reference between the interim financial statements and wherever they are included within the greater interim financial report (e.g., in the management commentary or risk report). Standards and Interpretation Issued but not yet Effective Pronouncements issued but not yet effective are listed below. Unless otherwise indicated, the Company does not expect that the future adoption of the said pronouncements to have a significant impact on its financial statements. The Company intends to adopt the following pronouncements when they become effective. Effective beginning on or after January 1, 2017 Amendment to PFRS 12, Clarification of the Scope of the Standard (Part of Annual Improvements to PFRSs Cycle) The amendments clarify that the disclosure requirements in PFRS 12, other than those relating to summarized financial information, apply to an entity s interest in a subsidiary, a joint venture or an associate (or a portion of its interest in a joint venture or an associate) that is classified (or included in a disposal Company that is classified) as held for sale. Amendments to PAS 7, Statement of Cash Flows, Disclosure Initiative The amendments to PAS 7 require an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes (such as foreign exchange gains or losses). On initial application of the amendments, entities are not required to provide comparative information for preceding periods. Early application of the amendments is permitted.

24 Amendments to PAS 12, Income Taxes, Recognition of Deferred Tax Assets for Unrealized Losses The amendments clarify that an entity needs to consider whether tax law restricts the sources of taxable profits against which it may make deductions on the reversal of that deductible temporary difference. Furthermore, the amendments provide guidance on how an entity should determine future taxable profits and explain the circumstances in which taxable profit may include the recovery of some assets for more than their carrying amount. Entities are required to apply the amendments retrospectively. However, on initial application of the amendments, the change in the opening equity of the earliest comparative period may be recognized in opening retained earnings (or in another component of equity, as appropriate), without allocating the change between opening retained earnings and other components of equity. Entities applying this relief must disclose that fact. Early application of the amendments is permitted. Effective beginning on or after January 1, 2018 Amendments to PFRS 2, Share-based Payment, Classification and Measurement of Sharebased Payment Transactions The amendments to PFRS 2 address three main areas: the effects of vesting conditions on the measurement of a cash-settled share-based payment transaction; the classification of a sharebased payment transaction with net settlement features for withholding tax obligations; and the accounting where a modification to the terms and conditions of a share-based payment transaction changes its classification from cash settled to equity settled. On adoption, entities are required to apply the amendments without restating prior periods, but retrospective application is permitted if elected for all three amendments and if other criteria are met. Early application of the amendments is permitted. Amendments to PFRS 4, Insurance Contracts, Applying PFRS 9, Financial Instruments, with PFRS 4 The amendments address concerns arising from implementing PFRS 9, the new financial instruments standard before implementing the forthcoming insurance contracts standard. They allow entities to choose between the overlay approach and the deferral approach to deal with the transitional challenges. The overlay approach gives all entities that issue insurance contracts the option to recognize in other comprehensive income, rather than profit or loss, the volatility that could arise when PFRS 9 is applied before the new insurance contracts standard is issued. On the other hand, the deferral approach gives entities whose activities are predominantly connected with insurance an optional temporary exemption from applying PFRS 9 until the earlier of application of the forthcoming insurance contracts standard or January 1, The overlay approach and the deferral approach will only be available to an entity if it has not previously applied PFRS 9. PFRS 15, Revenue from Contracts with Customers PFRS 15 establishes a new five-step model that will apply to revenue arising from contracts with customers. Under PFRS 15, revenue is recognized at an amount that reflects the

25 consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in PFRS 15 provide a more structured approach to measuring and recognizing revenue. The new revenue standard is applicable to all entities and will supersede all current revenue recognition requirements under PFRSs. Either a full or modified retrospective application is required for annual periods beginning on or after January 1, PFRS 9, Financial Instruments PFRS 9 reflects all phases of the financial instruments project and replaces PAS 39, Financial Instruments: Recognition and Measurement, and all previous versions of PFRS 9. The standard introduces new requirements for classification and measurement, impairment, and hedge accounting. PFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early application permitted. Retrospective application is required, but providing comparative information is not compulsory. For hedge accounting, the requirements are generally applied prospectively, with some limited exceptions. Amendments to PAS 28, Measuring an Associate or Joint Venture at Fair Value (Part of Annual Improvements to PFRSs Cycle) The amendments clarify that an entity that is a venture capital organization, or other qualifying entity, may elect, at initial recognition on an investment-by-investment basis, to measure its investments in associates and joint ventures at fair value through profit or loss. They also clarify that if an entity that is not itself an investment entity has an interest in an associate or joint venture that is an investment entity, the entity may, when applying the equity method, elect to retain the fair value measurement applied by that investment entity associate or joint venture to the investment entity associate s or joint venture s interests in subsidiaries. This election is made separately for each investment entity associate or joint venture, at the later of the date on which (a) the investment entity associate or joint venture is initially recognized; (b) the associate or joint venture becomes an investment entity; and (c) the investment entity associate or joint venture first becomes a parent. The amendments should be applied retrospectively, with earlier application permitted. Amendments to PAS 40, Investment Property, Transfers of Investment Property The amendments clarify when an entity should transfer property, including property under construction or development into, or out of investment property. The amendments state that a change in use occurs when the property meets, or ceases to meet, the definition of investment property and there is evidence of the change in use. A mere change in management s intentions for the use of a property does not provide evidence of a change in use. The amendments should be applied prospectively to changes in use that occur on or after the beginning of the annual reporting period in which the entity first applies the amendments. Retrospective application is only permitted if this is possible without the use of hindsight. Philippine Interpretation IFRIC-22, Foreign Currency Transactions and Advance Consideration The interpretation clarifies that in determining the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a

26 non-monetary asset or non-monetary liability relating to advance consideration, the date of the transaction is the date on which an entity initially recognizes the nonmonetary asset or nonmonetary liability arising from the advance consideration. If there are multiple payments or receipts in advance, then the entity must determine a date of the transactions for each payment or receipt of advance consideration. The interpretation may be applied on a fully retrospective basis. Entities may apply the interpretation prospectively to all assets, expenses and income in its scope that are initially recognized on or after the beginning of the reporting period in which the entity first applies the interpretation or the beginning of a prior reporting period presented as comparative information in the financial statements of the reporting period in which the entity first applies the interpretation. Effective beginning on or after January 1, 2019 PFRS 16, Leases Under the new standard, lessees will no longer classify their leases as either operating or finance leases in accordance with PAS 17, Leases. Rather, lessees will apply the single-asset model. Under this model, lessees will recognize the assets and related liabilities for most leases on their balance sheets, and subsequently, will depreciate the lease assets and recognize interest on the lease liabilities in their profit or loss. Leases with a term of 12 months or less or for which the underlying asset is of low value are exempted from these requirements. The accounting by lessors is substantially unchanged as the new standard carries forward the principles of lessor accounting under PAS 17. Lessors, however, will be required to disclose more information in their financial statements, particularly on the risk exposure to residual value. Entities may early adopt PFRS 16 but only if they have also adopted PFRS 15. When adopting PFRS 16, an entity is permitted to use either a full retrospective or a modified retrospective approach, with options to use certain transition reliefs. Deferred effectivity Amendments to PFRS 10 and PAS 28, Sale or Contribution of Assets between an Investor and its Associate or Joint Venture The amendments address the conflict between PFRS 10 and PAS 28 in dealing with the loss of control of a subsidiary that is sold or contributed to an associate or joint venture. The amendments clarify that a full gain or loss is recognized when a transfer to an associate or joint venture involves a business as defined in PFRS 3, Business Combinations. Any gain or loss resulting from the sale or contribution of assets that does not constitute a business, however, is recognized only to the extent of unrelated investors interests in the associate or joint venture. On January 13, 2016, the Financial Reporting Standards Council postponed the original effective date of January 1, 2016 of the said amendments until the International Accounting Standards Board has completed its broader review of the research project on equity accounting that may result in the simplification of accounting for such transactions and of other aspects of accounting for associates and joint ventures.

27 Summary of Significant Accounting Policies Foreign Currency Transactions and Translation The functional and presentation currency of the Company is the Philippine Peso (P=). Transactions in foreign currencies are initially recorded in the functional currency rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the end of the reporting period. Nonmonetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction and are not subsequently restated. Nonmonetary items measured at fair value in a foreign currency are translated using the exchange rate at the date when the fair value was determined. All foreign exchange differences are taken to profit or loss, except where it relates to equity securities where gains or losses are recognized directly in other comprehensive income. Product Classification For purposes of complying with the provisions of PFRS 4, the Company classifies its life plans as insurance contracts. Insurance contracts are defined as those contracts under which the Company (the insurer) accepts significant insurance risk from another party (the planholders) by agreeing to compensate the planholders if a specified uncertain future event (the insured event) adversely affects the planholder. As a general guideline, the Company defines significant insurance risk by comparing benefits paid with benefits payable if the insured event did not occur. Once a contract has been classified as an insurance contract, it remains an insurance contract for the remainder of its lifetime, even if the insurance risk is reduced significantly during this period, unless all rights and obligations are extinguished or expired. As provided under PFRS 4, this product classification exercise is solely for accounting purposes and does not make the Company an insurance company for statutory or regulatory purposes. The Company as a pre-need company is under the regulation of the IC. For financial options and guarantees which are not closely related to the host insurance contract, bifurcation is required to measure these embedded financial derivatives separately at fair value through profit or loss (FVPL). Bifurcation is not required if the embedded derivative is itself an insurance contract or when the host insurance contract itself is measured at FVPL. The surrender options within the life plans issued by the Company are treated as derivative financial instruments which are closely related to the host contract and therefore not bifurcated. As such, the Company does not separately measure options to surrender insurance contracts for a fixed amount (or an amount based on a fixed amount and an interest rate). As provided under SEC Interpretative Bulletin No. 1, Series of 2008, the reserves for life plans shall be included in the PNR account in the statement of financial position. Cash and Cash Equivalents Cash includes cash on hand and in banks. Cash equivalents (including those in the investments in trust funds and insurance premium fund) are short-term, highly liquid investments that are readily convertible to known amounts of cash with original maturities of three (3) months or less from the date of placement and that are subject to an insignificant risk of change in value.