PHILEQUITY PSE INDEX FUND, INC. (formerly "VANTAGE PSE INDEX FUND, INC.")

Transcription

1 FINAL PROSPECTUS OF PHILEQUITY PSE INDEX FUND, INC. (formerly "VANTAGE PSE INDEX FUND, INC.") AN OPEN-END INVESTMENT COMPANY 100,000,000 Shares COMMON STOCK The number of shares to be offered inclusive of what has already been subscribed to upon incorporation is One Hundred Million (100,000,000) Shares. Twenty-Five Million (25,000,000) Shares have been subscribed at incorporation at par value of P=1.00 per share. The price at which the Seventy-Five Million (75,000,000) shares are to be offered will be based on the next computed Net Asset Value Per Share after a subscription is made. The shares to be offered are not listed in the Philippine Stock Exchange, and shall be traded through its principal distributor, Philequity Management, Inc. (PEMI). PHILEQUITY MANAGEMENT, INC. PRINCIPAL DISTRIBUTOR 1 February 2005

2 No dealer, selling agent or any other person has been authorized to give information or make any representation not contained in this Prospectus. This Prospectus does not constitute an offer of any securities other than those to which it relates, or an offer to sell or a solicitation of an offer to buy any securities other than those to which it relates in any jurisdiction or to any person to whom it is unlawful to make such an offer or solicitation in such jurisdiction. The delivery of this Prospectus at any time does not imply that the information herein contained is correct as of any time subsequent to this date. The information contained in this Prospectus has been supplied by Philequity PSE Index Fund, Inc. unless otherwise stated. Philequity PSE Index Fund, Inc. accepts full responsibility for the accuracy of the information given herein, and confirms that there are no omissions of fact which would make any statement in this Prospectus misleading. Philequity Management, Inc., the investment manager of Philequity PSE Index Fund, Inc., has exerted reasonable efforts to verify the information herein and does not make any representations or warranties as to the accuracy or completeness of the materials contained herein. ALL REGISTRATION REQUIREMENTS HAVE BEEN MET AND ALL INFORMATION CONTAINED HEREIN IS TRUE AND CORRECT. 2

3 The following are the summary income statement and balance sheet of the Fund for calendar years 2002 and 2003: Income Statement 31 December December 2002 Revenue P 518, P 632, Less: Expenses and other Charges 126, ,940, Net Investment Income P 391, (P 2,308,035.00) Balance Sheet 31 December December 2002 Asset P 21,123, P 15,753, Liabilities 40, , Net Assets P 21,083, P 15,673,

4 TABLE OF CONTENTS PROSPECTUS SUMMARY... 7 GLOSSARY... 8 THE FUND... 9 Company Background... 9 Capitalization Right of Redemption Waiver of Pre-Emptive Rights Distribution of Dividends Restrictions on Transfer Ownership Incorporators, Board of Directors, and Officers Compensation of Directors and Executive Officers Effects of Government Regulation Properties Summary of Net Asset Value Holders Security Ownership of Certain Beneficial Owners and Management Security Ownership of Certain Record and Beneficial Owners Security Ownership of Management Legal Proceedings MANAGEMENT DISCUSSION AND ANALYSIS Mutual Fund Industry in the Philippines Top 5 Key Indicators Financial Condition INVESTMENT OBJECTIVE AND INVESTMENT POLICIES INVESTMENT RESTRICTIONS RISK FACTORS USE OF PROCEEDS INVESTMENT PROCEDURE Terms and Pricing of Securities Offering Price Sales Load Minimum Investment Subscription Procedure Investment Application Form

5 Eligible Investors Requirements for Corporate Applicants Acceptance of Investment Applications Payment Terms Refunds Delivery of Stock Certificates Periodic Fund Statement REDEMPTION OF SHARES NAV Per Share Computation Manner and Method of Redemption Redemption Price Minimum Holding Period and Redemption Charges Special Considerations Applicable Taxes COMPUTATION OF NET ASSET VALUE BENEFITS TO THE INVESTOR Professional Management and Supervision Diversification and Matching the Phisix Liquidity PARTIES INVOLVED IN THE FUND Investment Manager and Principal Distributor Company Profile Duties and Responsibilities Custodian Bank Transfer Agent Legal Counsel External Auditor Significant Employee Certain Relationships and Related Transactions EXPENSES CHARGEABLE TO THE FUND MANAGEMENT FEE EXPENSES CHARGEABLE TO THE INVESTMENT MANAGER

6 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the detailed information appearing elsewhere in this Prospectus. Issuer Philequity PSE Index Fund, Inc. (formerly "Vantage PSE Index Fund, Inc.") with office address at 2103 East Tower, Philippine Stock Exchange Centre, Exchange Road, Ortigas Center, Pasig City. The Fund s telephone number is (63) (2) Shares Offered/Par Value Common stock with par value of One Peso (P=1.00) per share Offering Price At NAV per share for the banking day, if payment is made within the daily cut-off time, plus a sales load. Proceeds from the offering As of the filing of this Amended Prospectus, total proceeds from the issuance of the shares of stock of the Fund is P25,000, The Proceeds were invested in various securities listed with the Philippine Stock Exchange. Sales Load The sales load fee shall be a maximum of five percent (5.0%) of the value of investment made at any one time by an investor. Daily Cut-Off Time 12:00 noon Minimum Investment P=200, for initial investments and P=50, for additional investments. Investment shall be on cash basis only. Installment sales are prohibited. Redemption Price The redemption price of the securities surrendered within the daily cut-off time shall be the next computed NAV per share after the request for redemption is received. Securities surrendered after the daily cut-off time shall be deemed to have been received on the following banking day. 6

7 Redemption Charge A redemption fee of two percent (2.0%) of the redemption proceeds will be deducted therefrom if redeemed on the first year, one and a half percent (1.5%) if redeemed on the second year and no redemption fee shall be deducted if redeemed beyond the second year from the time of purchase. Management Fee and Expenses A management fee equivalent to one and a half percent (1.5%) per annum of the average net asset value of the Fund's assets computed on a daily basis, shall be payable by the Fund to its investment manager, Philequity Management, Inc. Certain operating expenses of the Fund are deemed covered by the management fee and shall be for the account of Philequity Management, Inc. Investment Policies and Objective The investment objective of Philequity PSE Index Fund, Inc. is to generate income and achieve short-term capital appreciation by matching the performance of the PSE Composite Index ("Phisix"), through investment in the proportionate amount of Index stocks such that the performance of the Fund matches the Phisix. It is categorized under SEC ICA Rule 35-1 as growth-oriented. Risk Factors As the Fund is invested in PSE index stocks, various factors, such as market conditions, general political and economic situations, and the performance of corporations whose stocks comprise the Phisix may affect the prices of the stocks wherein the Fund is invested. Consequently, there may be instances when the redemption prices of redeemed shares may be less than the prices at which the shares were originally purchased. Dividend Policy Distribution of dividends is governed by Section 5, Article XII of the Fund s By-Laws. The Board of Directors by vote may declare cash dividends from the Fund s unrestricted retained earnings. No dividends were declared from the date of incorporation to the date of this report. GLOSSARY Investment Manager Philequity Management, Inc. Principal Distributor Philequity Management, Inc. 7

8 The "Fund" or the "Company" Philequity PSE Index Fund, Inc. (formerly "Vantage PSE Index Fund, Inc.") BSP Bangko Sentral ng Pilipinas Custodian Bank Equitable Banking Corporation Investor Any person, association or corporation who desires to invest in the shares of the Fund NAV Net Asset Value NIRC or R.A National Internal Revenue Code of 1997 Pesos or P= Philippine Peso, lawful currency of the Philippines PSE or the "Exchange" Philippine Stock Exchange, Inc. R.A Republic Act No or the Investment Company Act SEC or the "Commission" Securities and Exchange Commission "Shareholder" or "Stockholder Any natural or juridical person who has subscribed to the shares of the Fund. Transfer Agent Equitable Banking Corporation THE FUND A. Company Background Philequity PSE Index Fund, Inc. (formerly "Vantage PSE Index Fund, Inc.") was incorporated on 22 February The general character of the business of the Fund is an Open-End Mutual Fund established under the Investment Company Act, R.A The Fund operates as an investment company with a focus on short-term capital appreciation through investment 8

9 in the PSE Composite Index. The Fund issues mutual fund shares for sale to the public. Said mutual fund shares are sold through its Principal Distributor, Philequity Management, Inc. ("PEMI") in accordance with the Management and Distribution Agreement. The Fund is ready to redeem or buy back the shareholding of any investor at the applicable NAV per share. The Fund aims to provide small investors with the opportunity of themselves accessing the stock market by investing in shares of stock that comprise the PSE Composite Index ("Phisix") in such proportion that the performance of the Fund matches that of the Phisix. Inasmuch as the Phisix is subject to upturns and downturns, the Fund's focus is to capitalize on both short-term and long-term capital appreciation. The Fund shall maintain a portfolio of equity securities consisting solely of stocks of companies comprising the Index stocks. The investment objectives, policies and initial investment plans are discussed in detail under the topics Investment Objective and Investment Policies and Investment Restrictions. The Fund appointed PEMI as its investment manager and principal distributor. A detailed description of the duties of PEMI as investment manager and distributor, the investment procedure and the plan of distribution are discussed under the topic Parties Involved in the Fund and in the Management and Distribution Agreement. The Fund's securities and investments will be held by Equitable Banking Corporation, the Fund's Custodian Bank. B. Capitalization The Fund has an authorized capital stock of One Hundred Million Pesos (P=100,000,000.00) composed of One Hundred Million (100,000,000) unclassified common shares with par value of One Peso (P=1.00) per share. Out of the authorized capital stock, Twenty Five Million Pesos (P=25,000,000.00) worth of shares have been subscribed out of which subscription Twenty Five Million Pesos (P=25,000,000.00) has been paid up. The SEC has permitted the Fund to have a paid-in capital lower than Fifty Million Pesos (P= 50,000,000.00) as the Fund is one of a group of investment companies in existence under management by one investment company manager, Philequity Management, Inc. These investment companies are: Philequity Fund, Inc., Philequity Money Market Fund, Inc. (formerly "Vantage Money Market Fund, Inc.") and Philequity Dollar Income Fund, Inc. (formerly "Vantage Dollar Income Fund, Inc. ). The Fund registered its entire authorized capital stock with the Securities and Exchange Commission under SEC Form 8-1, Registration Statement under the Securities Regulation Code. The offer will be 75,000,000 shares to be priced at a prevailing net asset value per share plus the sales load fee. Unless applicable Philippine laws and regulations shall allow otherwise, the original promoters of the investment company who have subscribed and paid for the original capital of 9

10 the Fund, shall not be allowed to sell, transfer, convey, encumber or otherwise dispose of their shares/securities within twelve (12) months from the registration of the Fund. Each share of stock of the Fund is a voting stock with voting rights equal to every other outstanding share of stock, and subject to the following: 1. Right of Redemption The holder of any shares of stock, upon the presentation to Philequity Management, Inc., the Fund's principal distributor or any of the Fund's duly authorized representatives of the Custodian Receipt(s) and the stock certificate(s) for redemption, is entitled to receive by way of redemption approximately his proportionate share of the Fund's current net assets in cash, i.e. the net current asset value per share, subject to existing laws and the By-Laws of the Fund. 2. Waiver of Pre-emptive Rights The Articles of Incorporation of the Fund provide that no stockholder shall, because of his ownership of stock, have a pre-emptive or other right to purchase, subscribe for, or take any part of any stock or of any other securities convertible into or carrying options or warrants to purchase stock of the Fund. The Fund's Articles of Incorporation further provide that any part of such stock or other securities, may be disposed of by the Fund pursuant to the resolution of its Board of Directors, to such persons and upon such terms as the Board may deem proper, without first offering such stock or securities or any part thereof to existing stockholders. 3. Distribution of Dividends As provided under Article XII, Section 5 of the Fund's By-Laws, the Board of Directors shall by vote declare dividends and authorize the distribution of capital gains from any fund legally available therefor of the Fund whenever in their opinion, the condition of the Fund's finances will render it expedient for such dividends to be declared. The Board of Directors may make arrangements with its stockholders as it may deem desirable whereby dividends or other distributions or any part thereof may be reinvested in new shares of stock of the Fund instead of being paid in cash to the stockholders. No sales load fee shall be charged on such reinvestment. However, redemption of such reinvested shares shall be subject to redemption charges stated under the heading Redemption of Shares. No dividends were declared from the date of incorporation to the date of this report. 4. Restrictions on Transfer No transfer of stock of the Fund which would reduce the stock ownership or equity interest of Filipino citizens to less than the percentage required by applicable laws or regulations shall be caused or allowed to be recorded in the books of the Fund. 10

11 C. Ownership The names and address of the holders of common stock of the Fund, and the amount of securities held by each as of twenty days prior to the filing of this Registration Statement is set out below. NAME/ADDRESS NO. OF SHARES SUBSCRIBED AMOUNT OF CAPITAL STOCK SUBSCRIBED WEALTH SECURITIES, INC. 1 21/F East Tower, PSE Centre, Exchange Road Ortigas Center, Pasig City WEALTH SECURITIES, INC. FAO- BQ-01 21/F East Tower, PSE Centre, Exchange Road Ortigas Center, Pasig City GREGORIO T. YU 28/F East Tower, PSE Centre, Exchange Road Ortigas Center, Pasig City ENRIQUE P. ESTEBAN Unit 1103, Pacific Center Building, San Miguel Ave, Ortigas Center, Pasig City VICENTE R. JAYME, SR. Suite 2204/2205, Medical Plaza, Ortigas Center, Pasig City VIOLETA O. LUYM 20/F East Tower, PSE Centre, Exchange Road Ortigas Center, Pasig City A. BAYANI K. TAN 2704 East Tower, PSE Centre, Exchange Road Ortigas Center, Pasig City MARGARITO B. TEVES Unit 202 Greatwall Building, 136 Yakal Street, Makati City FELIPE U. YAP 1921 Kamias Street, Dasmarinas Village, Makati City 16,249,995 P= 16,249, ,749,998 8,749, TOTAL - 25,000,000 P= 25,000, Wealth Securities, Inc. is a broker and dealer in securities. Its shares of capital stock are owned by the following persons: Sy, Arsenio Go; Sy, Bian Co; Tan, Ruby Sy; Tan, Moises Ong and Sy, Valentino Go 11

12 Majority of the shares of the Fund are held by Wealth Securities, Inc. There are no corporations controlled by the Fund. The Corporations whose shares are commonly held with the Fund are the following: Philequity Money Market Fund, Inc. Philequity Dollar Income Fund, Inc. Vantage Securities Corporation Philequity Management, Inc. D. Incorporators, Board of Directors, and Officers The names of the incorporators of the Fund are: Name Ma. Gracia M. Pulido-Tan Hosanna T. Ayson Caesar J. Poblador Ma. Louisa M. Gonzales Ma. Clarissa P. Oben As of the date of filing of this Registration Statement, the names, ages and periods of service of all incumbent Directors and Executive Officers of the Company, are as follows: Name Citizenship Position Age Periods Served Gregorio T. Yu Violeta O. Luym A. Bayani K. Tan Felipe U. Yap Margarito B. Teves Enrique P. Esteban Vicente R. Jayme, Sr. Filipino Filipino Filipino Filipino Filipino Filipino Filipino Chairman of the Board/President Director/Treasurer Director/Corporate Secretary Director Independent Director Independent Director Independent Director to present 1999 to present 2000 to present 1999 to present 1999 to present 2001 to present 2001 to present Gregorio T. Yu Mr. Yu is the President and Chairman of Philequity PSE Index Fund, Inc. He was a Director and Officer in several public companies until 2001 which includes the following: (a) Belle 12

13 Corporation as the President and Chief Executive Officer; (b) Sinophil Corporation as President and Chief Executive Officer; and (c) APC Group, Inc. as Vice-Chairman. Until 2001, he was also President of the following companies: (a) Tagaytay Highlands International Golf Club, Inc.; (b) The Country Club at Tagaytay Highlands, Inc.; (c) Tagaytay Midlands Golf Club, and (d) Pacific Online Systems Corporation. He was Chairman of Belle Jai Alai Corporation and Vice Chairman of Philippine Global Communications, Inc. He is currently a director and member of the Executive Committee and Audit Committee of The International Exchange Bank. He is also the Chairman and President of (a) Philequity Fund, Inc., (b) Philequity Money Market Fund, Inc., (c) Philequity Dollar Income Fund, Inc. and (d) Lucky Star Network Communications Corporation. He is director of (a) ivantage Corporation and (b) CATS Motors, Inc. Additionally, he is a trustee of Xavier School, Inc. and Xavier School Educational and Trust Fund, Inc. Mr. Yu holds a graduate degree in Business Administration from Wharton School, University of Pennsylvania (1983) and a degree in Economics (summa cum laude) from De la Salle University (1978).. Enrique P. Esteban Mr. Esteban is a Director of Philequity PSE Index Fund, Inc. His present business affiliation includes: (a) Research Fellow, Center for Research and Communication Foundation, Inc.; (b) Trustee and Professor, University of Asia and the Pacific; (c) Chairman, AMEIC Working Grouop for HRD Development; (d) Director, Strategic Business Economics Consulting Group, Inc. BankWise, Metro Pacific Corporation, AB Capital and Investments Corporation, Mantrade Development Corporation, Inkwell Publishing Co., Inc., Philequity Fund, Inc., Philequity Money Market Fund, Inc. and Philequity Dollar Income Fund, Inc. Mr. Esteban graduated from the University of the Philippines receiving LLB Degree in 1959 and is a member of the Philippine Bar Association. He received his MBA Degree in 1965 from Wharton School of Finance and Commerce in the University of Pennsylvania. He received his Masters in Business Economics Degree in 1975 from the Center for Research and Communication. Vicente R. Jayme, Sr. Mr. Jayme is a director of Philequity PSE Index Fund, Inc. He served as executive director of the Asian Development Bank (ADB) from 1990 to He also held positions as Secretary, Department of Finance in 1987 to 1990 and as Secretary, Department of Public Works and Highways in 1986 to He has served as Chairman and/or Director, at one time or another, of around 40 business enterprises and corporations in the fields of banking and finance, shipping, insurance, consulting, chemicals, steel, construction, utilities and others. He is currently a director of Philequity Fund, Inc., Philequity Money Market Fund, Inc. and Philequity Dollar Income Fund, Inc. He obtained his master's degree in Economics from the Ateneo Graduate School and served as a fellow to the Economic Development Institute of World Bank. Violeta O. Luym Ms. Luym is a Director and Treasurer of Philequity PSE Index Fund, Inc. She is currently a Director and Treasurer of Philequity Fund, Inc., Philequity Money Market Fund, Inc. and Philequity Dollar Income Fund, Inc. and a Director of ivantage Corporation and Banco de Oro. She holds a Masters degree in Business Administration from the University of California Los Angeles and Bachelor of Science in Business Administration from Assumption College. 13

14 A. Bayani K. Tan Mr. Tan is a Director and Corporate Secretary of the Company. He is also currently a Director, Corporate Secretary, or both, of the following reporting Companies: Belle Corporation, First Abacus Financial Holdings Corporation, Sinophil Corporation, Tagaytay Highlands International Golf Club, Incorporated, Tagaytay Midlands Golf Club, Incorporated, The Country Club at Tagaytay Highlands, Incorporated, The Spa and Lodge at Tagaytay Highlands, Inc., Clearwater Country Club, Inc., ivantage Corporation, Destiny Financial Plans, Inc., Philequity Fund, Inc., Philequity Dollar Income Fund, Inc., Philequity Money Market Fund, Inc. He is the Managing Partner of Tan & Venturanza Law Offices and also a Director, Corporate Secretary, or both, of private companies such as International Exchange Bank, Belle Bay City Corporation, Oakridge Properties, Inc. and Herway, Inc. Mr. Tan is a member of the Philippine Bar. He holds a Bachelor of Arts Degree from San Beda College, a Bachelor of Laws Degree from the University of the Philippines, College of Law and a Master of Laws Degree from the New York University, School of Law. Margarito B. Teves Mr. Teves is a Director of Philequity PSE Index Fund, Inc. He is the President and Chief Executive Officer of the Land Bank of the Philippines. He also serves as director of the Bankers Association of the Philippines, Great Pacific Life Assurance Corporation, Pacific Plans, Inc., Center for Legislative Development, Inc., Philequity Fund, Inc., Philequity Money Market Fund, Inc. and Philequity Dollar Income Fund, Inc. He is trustee of the Ayala Foundation, Inc. and a member of the Eminent Persons Group of the Export Development Council. He is a member of the House of Representatives from 1987 to 1998 and served in various congressional committees/executive & legislative councils. He authored/co-authored various congressional bills in the fields of banking and finance, capital market reforms, human resource development and social reforms, as well as tax reforms. He obtained his masters degree in Development Economics from Williams College, Massachussets, USA. (1968) and a degree in Bachelor of Science in Business Economics from City of London College, London, England. Felipe U. Yap Mr. Yap is a Director of Philequity PSE Index Fund, Inc. He is currently the Chairman of the Board and Chief Executive Officer of Lepanto Consolidated Mining Company, Lepanto Investment & Development Corporation, Diamant Boart Philippines, Inc., Diamond Drilling Corporation of the Philippines, Far Southeast Gold Resources, Inc., Shipside, Inc. and Yapster e-conglomerate. He is the Chairman of the Board of First Lepanto Taisho Insurance Corporation, Lepanto Ceramics, Inc., Pepsi Cola Products, Inc. and Prime Orion Philippines, Inc. He is the President of BA-Lepanto Condominium Corporation, and Director of the following corporations namely: Cyber Bay Corporation, Manila Peninsula Hotel, Inc., Philippine Associated Smelting and Refining Corporation, Philippine Fire and Marine Insurance Corporation, South China Petroleum & Exploration, Inc., Zeus Holdings, Inc., Philequity Fund, Inc., Philequity Money Market Fund, Inc. and Philequity Dollar Income Fund, Inc. He also holds membership in the following organizations: Management Association of the Philippines, The Conference Board, and the Makati Business Club. He holds a degree in B.S. Philosophy from University of San Carlos, Cebu City. 14

15 None of the incumbent directors and officers are related to each other within the fourth civil degree either by affinity or consanguinity. The Fund has no significant employees, or persons other than the above-named directors and officers who are expected to make a significant contribution to the business of the Fund. E. Compensation of Directors and Executive Officers The directors and executive officers of the Fund have not received any form of compensation from inception up to present. Their contributed efforts to the Fund are on voluntary basis only. Also, there is no per diem, bonus, profit sharing or other compensation plan, pension or retirement plan, contract or arrangement in which any director or executive officer of the Fund will participate. F. Effects of Government Regulation With the lowering of the threshold amount of covered transactions under the Anti-Money Laundering Act of 2001 (Republic Act No. 9160) from P4,000, to P500,000.00, the investing public would be wary of attempting to invest an amount that would place their investment in such a position that would entail a report to the AMLA Council. Moreover, investors appear to consider the reportorial provision of the Anti-Money Laundering Act as an invasion of their secrecy of deposit, more so if the source of such investment is legitimate. Hence, with the AMLA as a discouraging factor, the Fund expects limited capital investment by shareholders in the near future. G. Properties Operations are conducted within the premises of the fund manager. All facilities are either owned or provided by the fund manager. Being a fund, the Fund has neither properties under its fixed assets accounts nor hire employees for its operation. H. Summary of Net Asset Value Below is the comparative tabulation of Net Asset Value of the Fund in the last three (3) years: YEAR 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter High Low High Low High Low High Low

16 I. Holders The number of common shareholders of record as of 31 December 2004 is 9. Common shares outstanding as of 31 December 2004 stood at 25,000,000 shares. The top 20 shareholders are as follows: TOP 20 SHAREHOLDERS OF PHILEQUITY PSE INDEX FUND, INC. AS OF 31 DECEMBER 2004 RECORD OWNER NUMBER OF SHARES % TO TOTAL 1 WEALTH SECURITIES, INC. 16,249, % 2 WEALTH SECURITIES, INC. - FAO-BQ-1 8,749, % 3 GREGORIO T. YU % ENRIQUE P. ESTEBAN % VICENTE JAYME, SR % VIOLETA O. LUYM % A. BAYANI K. TAN % MARGARITO B. TEVES % FELIPE U. YAP % J. Security Ownership of Certain Beneficial Owners and Management 1. Security Ownership of Certain Record and Beneficial Owners The following table shows the record and beneficial owners owning more than 5% of the outstanding capital stock of the Fund as of 31 December 2004: Title of Class Common Common Name and Address of Record Owner and Relationship with issuer Wealth Securities, Inc. 21/F East Tower, PSE Centre, Exchange Road, Ortigas Center, Pasig City Wealth Securities, Inc. (FAO-BQ-01) 21/F East Tower, PSE Centre, Exchange Road, Ortigas Center, Pasig City Citizenship Filipino Filipino Number of Shares Held 16,249,995/r 7/b 8,749,998/r Percent 65.00% 34.99% Wealth Securities, Inc. is the record owner of the 99.99% of the Fund s issued shares while its beneficial ownership is only 65% of the issued shares as investor of the Fund. The Board of 16

17 Directors of Wealth Securities, Inc. appoints from time to time its authorized representative to vote on its behalf in any of the Fund s stockholder s meeting. The Fund has no information as to the identity of the beneficial owner of the securities held by Wealth Securities, Inc. (FAO-BQ-1). 2. Security Ownership of Management The following is a tabular presentation of the shares recorded under the name of the directors and executive officers of the Company as of 31 December 2004: Title of Nationality Amount & Nature of Percent of Name of Beneficial Owner Class Beneficial Ownership Class common Gregorio T. Yu Filipino 1/r % common Violeta O. Luym Filipino 1/r % common A. Bayani K. Tan Filipino 1/r % common Felipe Yap Filipino 1/r % common Enrique P. Esteban Filipino 1/r % common Margarito B. Teves Filipino 1/r % common Vicente R. Jayme, Sr. Filipino 1/r % K. Legal Proceedings The Fund has not been involved in any litigation or disputes. The Fund does not foresee any legal dispute to be instituted either by any government agency or entity or by third persons. MANAGEMENT DISCUSSION AND ANALYSIS A. Mutual Fund Industry in the Philippines The mutual fund industry in the Philippines recorded unprecedented heights as total assets reached P50 Billion in July Total net sales from January to July amounted to P5 Billion. There are currently a total of 23 funds, all of which are members of the Investment Company Association of the Philippines (ICAP). Of the 23 funds, four (4) are equity funds, seven (7) are balanced funds, ten (10) are bond funds, one (1) is a money market fund, and one (1) is an index fund. Asset-wise, the industry is dominated by bond funds, which account for 93.7% of total funds. The only competitor of the Fund is the Philippine Index Fund. The Fund is expected to perform similar to its competitor since both are index funds and follow the same strategy. 17

18 B. Top 5 Key Indicators The Fund monitors the following indicators that affect its profitability: 1. Philippine Composite Index (Phisix) - Phisix is the benchmark used to track the Philippine stock market as an aggregate. The direction of the Phisix normally dictates the movement of equity fund, such as PEFI, since they invest primarily on Philippine equities. 2. Gross National Produce (GNP) and Gross Domestic Product (GDP) Growth. - The GNP and GDP growth usually mirrors the economic cycle. A positive outlook on the economy would be bullish for stocks and PEFI. A negative forecast, on the other hand, would be bearish for stocks and PEFI. 3. Interest Rates. - The level of interest rates is also a major factor in stock market activity. A low interest rate environment, which is indicative if liquidity in the market, is healthy for stocks. A high interest rate level results in the reverse. 4. Price to Earnings Ratio (P/E Ratio) of the Market. - The P/E Ratio and other valuation ratios are used to determine if companies are undervalued or not with respect to their earnings power. A low P/E Ratio in a stock is usually a signal that the stock is worth buying for PEFI. At the same time, low P/E Ratio for the market, as a whole, is a signal that it is worth increasing the equity weighing of PEFI vis a vis its holdings in cash. 5. Foreign Buying and Selling Activity. - Foreign trading activity is tracked daily by the Philippine Stock Exchange. Consistent net buying by foreign investors is positive for the market and PEFI, as well. C. Financial Condition Interim Period as of 30 September 2004 vs. CY 2003 Income generated by Philequity PSE Index Fund, Inc. is principally from gains on sale of securities comprising the Philippine Index (PHISIX). However, the fund has not actively traded in the PHISIX. Revenues slightly increased by P0.094 Million or 2.3% of revenues generated for the same period in 2003, from P0.408 Million in CY 2003 to P Million in The income derived was from dividends and interest. Total expenses is 10.25% and 41.15% of gross income for CY 2004 and 2003, respectively. As the fund manager of Philequity PSE Index Fund, Inc., Philequity Management, Inc., Philequity Management, Inc. has not charged any management fees since there has been no additions to the capital stock since its inception in February

19 Total Assets increased by P3.83 Million or 19.7% from P19.44 Million in interim period of 2003 to P25.61 Million for the same period in This is primarily the result of the recovery in market value of securities. Cash & Cash Equivalents increased from P1.96 Million in 31 December 2004 to P2.43 Million in 30 September 2004, or an increase of 23.87%. This is due to the dividend income as well as interest income. Investments in listed securities increased by as much as P4.08 Million mainly because of the increase in market prices used in the valuation of the securities. Accrued expenses includes audit fee of SGV & Co. which was settled in CY 2003 vs Income generated by the Fund is principally from gains on sale of securities comprising the Phisix. However, the fund has not actively traded in the Phisix. Revenues slightly increased by P0.010 Million, or 2% increase, from P0.508 Million in CY 2002 to P0.518 in CY The income derived was from dividends and interest. Total expenses is 24.4% and 28.4% of gross income for CY 2003 and 2002, respectively. The fund manager, PEMI, has not charged any management fees since there has been no additions to the capital stock since its inception in February Total assets increased by P5.37 Million or 34.08% in CY This is primarily the result of the recovery in market value of securities. Total accrued expenses decreased by 50% or P0.040 Million in CY 2003 representing the audit fee settled during the year. CY 2002 vs Total revenues decreased by P0.124 Million or 20% in CY 2002 in comparison with CY This can be attributed to the decrease in interest income in 2002 since investment was shifted from short-term placements to equities comprising the Phisix. Total expenses decreased by P2.796 Million or 95.09% from P2.94 Million in CY 2001 to P0.144 Million in CY 2002 due to the write-off of pre-operating and organization costs in 2001 following Statement of Financial Accounting Standards No. 38 (SFAS 38). There was no sale of capital stock, thus, PEMI did not initiate any charges for management fee. INVESTMENT OBJECTIVE AND INVESTMENT POLICIES The Fund is a growth-oriented fund. The objective of the Fund is to track and closely match the performance of the Phisix, the main barometer of the stock market, by buying and selling proportionate number of shares of the thirty three (33) stocks that compose the Phisix Index. 19

20 The Phisix is an index composed of stocks representative of the Commercial-Industrial Sector, Property Sector, Mining Sector, and Oil Sector of the Exchange. An index, on the other hand, is a compilation of statistical data from a basket of equities that represents the entire market of equities. An index may be price-weighted such as the Dow Jones Industrial Average, or capitalization-weighted such as the Phisix. In a capitalization-weighted index such as the Phisix, the component securities are accorded relative importance based on their market capitalization, or the product of the total number of securities issued and subscribed multiplied by the price per share. Accordingly, each component equity's influence on the value of the Phisix is directly proportionate to its market capitalization. The investments of the Fund will consist solely of shares of stock of companies which comprise the Phisix ("Index stocks"). Inasmuch as immediately investing the entire Fund, or large amounts of investments, at any one time in the Index stocks may result in an artificial increase in stock prices, a portion of the Fund shall also be invested in short-term debt securities and fixed-income securities until such time that the entire Fund can be properly allocated among all the Index stocks. The percentage of the Fund which will be invested in any one company and the percentage of voting securities of any one company which the Fund may acquire shall be determined by size of the Fund, the composition of the Phisix, and the proportion that the market capitalization of the company bears to the aggregate market capitalization of the Index stocks. In general, the larger the size of the Fund, the greater the percentage which may be invested in any one company. However, the Fund shall not invest more than ten percent (10%) of its assets in any one investee company and shall not acquire more than ten percent (10%) of the outstanding securities of any one company. The Fund shall not acquire more than ten percent (10%) outstanding securities of any one company/debt instrument issuer. For liquidity purposes, the Fund shall invest at least ten percent (10%) of its funds in liquid/semi-liquid assets, such as: (a) (b) Treasury notes or bills, Bangko Sentral ng Pilipinas ("BSP") 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. 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 arrangement. INVESTMENT RESTRICTIONS The investments of the Fund shall be subject to the following restrictions: 20

21 1. Unless the applicable Philippine laws, rules, regulations, and orders of the Securities and Exchange Commission ("SEC") provide otherwise, the Fund shall not sell securities short nor invest in any of the following: (a) (b) (c) (d) margin purchase of securities (investments in partly paid shares are excluded) commodity futures contract precious metals unlimited liability investments 2. The Fund shall not incur any further debt or borrowing unless at the time of its incurrence or immediately thereafter there is a net asset coverage of at least three hundred percent (300%) for all its borrowing, or such net asset coverage as the applicable Philippine laws and regulations may prescribe. In the event that such asset coverage shall at any time fall below 300% or the coverage required by law, the Fund shall within three (3) days after, or such period as the applicable Philippine laws and regulations may require, reduce the amount of borrowings to an extent that the net asset coverage shall be at least 300% or the coverage required by law. 3. Unless permitted by applicable Philippine laws, rules or regulations, the Fund shall not participate in an underwriting or selling group in connection with the public distribution of securities, except its own capital stock. 4. The Fund shall not invest in real estate properties and developments. 5. The Fund shall not invest in any company for the purposes of exercising control or management. 6. The Fund shall not issue or sell senior securities of which it is the issuer. 7. The Fund shall not extend loans to individuals. Loans or credit extensions to corporations shall be limited to commercial papers and bonds registered with the SEC, or subject of a grant of exemption therefrom, and which have been preapproved by the Board of Directors. 8. The Fund shall not invest in the securities of other investment companies. 9. The Fund shall not purchase from or sell to any of its officers or directors, or to any of the officers or directors of its investment adviser/s, manager or distributor/s or firm/s of which any of them are members, any security other than the capital stock of the Fund. 10. The total operational expenses of the Fund shall not exceed ten percent (10%) of its total investment fund, total net worth or total net asset value as shown in the previous year's audited financial statements, or such other limitations as may be prescribed by the applicable Philippine laws or regulations. 21

22 11. The Fund shall not change its investment objectives without prior approval of the majority of its stockholders. RISK FACTORS The Fund intends to invest in an equity-based portfolio designed to match the PSE Composite Index ("Phisix" or "Index"). As with any investment, the Fund s past performance is no guarantee of its future success. Over the long-term, however, the success of failure to profit in the fund will depend on the following: (i) the Fund s sales charges, fees and expenses; and (ii) the Fund s risks and volatility. Various risk factors can affect the market value of the assets of the Fund and can cause a fluctuation of the Fund's net asset value. The Fund, however, adopts steps to minimize, if not eliminate, the effect of these risks. The major risks facing the Fund are as follows: 1. Systematic risk - the risk related to the variability in price of the stock market as a whole. There is no way to address this risk since the Fund is an index fund, it naturally follow the variability of the stock market as a whole. 2. Unsystematic risk (company-specific) - the risk related to the variability in a stock price due to factors associated with the company. The Fund, being an index fund, is already properly diversified. 3. Liquidity risk - the risk that an investment may not find a ready buyer. This is negligible since the Fund only invests in listed equities. The general political and economic situations of the country also influence the net asset value of the Fund. As an illustration, when the country's general political and economic situations are perceived to be in turmoil, the stock market, in general, and the stocks comprising the PSE composite index, in particular, experience lack of trading interest that will consequently result in thin volume trading and narrow price volatility. Such situations generally will trigger a downward momentum for both the stock prices and trading volumes until the political and economic condition normalize. As a consequence, these instances can result to the redemption prices of redeemed shares being less than the prices at which the shares were originally purchased. Investors who redeem their shares during this time may not recover the full cost of their investment. However, as the purpose of the Fund is to match the Index, the average investor is given an opportunity to participate in the equities market. Moreover, investors generally should expect the return on the Fund to be less than the return on the Phisix as a result of the payment of loads, fees, charges and expenses and the Fund's holding of other assets for liquidity purposes and to satisfy redemption requests. 22

23 USE OF PROCEEDS The proceeds from the sale of the securities shall be held by the custodian bank. It shall be invested and reinvested by the Fund in stocks comprising the Phisix. The Fund shall be guided by the investment policies and restrictions on its investments under the topics Investment Objective and Investment Policies and Investment Restrictions. Inasmuch as immediately investing the entire Fund, or large amounts of investments, at any one time in the Index stocks may result in an artificial increase in stock prices, a portion of the Fund shall also be invested in short-term debt securities and fixed-income securities until such time that the entire Fund can be properly allocated among all the Index stocks. As of the filing of this Amended Prospectus, total proceeds from the issuance of the shares of stock of the Fund is P25,000, which were invested in various securities listed with the Philippine Stock Exchange. INVESTMENT PROCEDURE A. Terms and Pricing of Securities 1. Offering Price The price at which the securities are to be sold is at the Net Asset Value ("NAV") per share on the day of the purchase. A sales load fee shall also be charged on the day of the purchase. The daily cut-off time for the reckoning of the date of submission of the subscription application shall be 12:00 noon. If the application is received on or before the said cut-off time, the shares shall be valued based on the net asset value (NAV) per share for the same banking day. For applications received after the cut-off time, it shall be deemed to have been received the next banking day, and the NAV per share for the next banking day will be used as basis for payments. In both instances, a sales load fee shall be charged based on the total price of the application. NAV per share shall be the computed difference between total assets of the Fund and its total liabilities divided by the number of shares outstanding. The sale load fees for the amount of investment in an Investment Application shall be a maximum of five percent (5.0%). 2. Sales Load The sales load fee shall be a maximum of five percent (5.0%) of the value of investment made at any one time by an investor. 23

24 3. Minimum Investment Minimum initial investment of TWO HUNDRED THOUSAND PESOS (P=200,000.00) and a minimum of FIFTY THOUSAND PESOS (P=50,000.00) worth of shares for additional purchases. Payment shall be on cash basis only. B. Subscription Procedure 1. Investment Application Form An Investment Application Form and signature cards must be accomplished by the prospective investor in triplicate and must be submitted together with the appropriate payment to "Philequity PSE Index Fund, Inc." Once submitted, the Investment Application may not be cancelled in full or in part. An investment application, once accepted, shall constitute an agreement between the Investor and the Investment Manager/Principal Distributor for the purchase of the shares of the Fund at the time, in the manner and subject to the conditions set forth in this Prospectus and the Investment Application Form. Upon acceptance of the application, the Investor shall be furnished a copy of the approved Investment Application Form, and an official receipt will be issued to the investor if payment is made in cash. If payment is made by check, a provisional receipt shall be issued to the investor. 2. Eligible Investors The shares of the Fund may be purchased and held by any person of legal age or duly organized and existing corporations, partnerships or corporate entities regardless of nationality. The Articles of Incorporation of the Fund provides, however, that no transfer of shares of stock of the Fund which reduce the stock ownership or equity interest of Filipino citizens to less than the percentage required by applicable laws or regulations shall be caused or allowed to be recorded in the proper books of the Fund. The investor shall declare and warrant that there are no legal restrictions prohibiting the purchase of the shares applied for and that the Investor is otherwise eligible throughout the duration of the period that the Investor remains a shareholder of the Fund. 3. Requirements for Corporate Applicants For Investors other than individuals, the following documents, in addition to the Investment Application Form and the signature cards, must be accomplished and shall be considered integral parts thereof: (a) (b) Copy of the Investor's SEC Certificate of Registration, Articles of Incorporation and By-Laws; Notarized corporate secretary's certificate setting forth the resolutions of the Investor's Board of Directors or equivalent body: (a) authorizing the purchase of the shares of the Fund; (b) designating the signatories for the purpose; and (c) certifying the percentage of capital stock held by non-filipinos. 24

25 4. Acceptance of Investment Applications Applications for the number of shares and the applicable NAV are subject to acceptance and approval by the Principal Distributor. Upon acceptance of the Application, the Principal Distributor shall provide the Investor with a copy of the approved Investment Application Form and the confirmation of the acceptance. The Principal Distributor reserves the right to reject, scale-down and reallocate any application for the shares for whatever reason. Applications for which check payments are dishonored upon first presentment, as well as those which do not comply with the requirements set in this Prospectus and Investment Application Form, shall be rejected. The Principal Distributor shall inform the Investor of such reduction or rejection within seven (7) days after submission of the Investment Application. 5. Payment Terms Subscriptions shall be paid in full upon submission of a duly accomplished and executed Investment Application Form. Securities sold shall be on cash basis only. Installment sales are prohibited. Payments must be made in the form of: (a) cash; (b) personal or corporate check; or (c) a cashier's or manager's check, drawn against a bank account with a Bangko Sentral ng Pilipinas ("BSP") authorized agent bank located in Metro Manila. All such checks must be made payable to "Philequity PSE Index Fund, Inc." dated as of the date of the Investment Application, and remitted directly to the Principal Distributor at its principal office. An official receipt will be issued to the Investor in case of payments made in cash and cashier's or manager's check. In the case of payments made by personal or corporate check, a provisional receipt shall be issued to the Investor, and an official receipt shall be issued only when the check clears. 6. Refunds Refunds of payments for any rejected or scaled-down applications shall be made without interest by the Principal Distributor not later than seven (7) days after submission. The respective Investor shall receive a check, crossed "Payee's Account Only," mailed and delivered at the Investor's risk to the address specified in the Investment Application Form or to the corresponding distributor or any authorized investment salesmen of the Investor. 7. Delivery of Stock Certificates Upon the request of the Investor, stock certificates representing ownership of the shares of the Fund and Custodian Receipts shall be issued by the Transfer Agent and Custodian Bank, respectively, and shall be made available to the Investor as soon as practicable at the office(s) of the Transfer Agent and Custodian Bank. Any certificate that remains unclaimed for a period of thirty (30) days shall be mailed to the address specified in the Investment Application Form at the risk of the Investor. 25