SEC Form 20-IS

Information Statement Pursuant to Section 20 of the Securities and Regulation Code

C S 2 0 0 5 0 9 3 2 8

F I R S T M E T R O S A V E A N D L E A R N

E Q U I T Y F U N D I N C.

1 8 t h F L O O R P S B A N K 7 7 7 P A S E O D E

R O X A S C O R. S E D E Ñ O S T. M A K A T I

C I T Y

8 9 1 - 2 8 6 0

1 2 3 1 0 8 0 4

M R DDept. Requiring this Doc.

Total No. of Stockholders

File Number

Document I.D.

Remarks = Pls. use black ink for scanning purposes.

LCU

Cashier

Domestic Foreign

To be Accomplished by SEC Personnel concerned

Day

DEFINITIVE SEC FORM 20-IS

Total amount of Borrowings

INVESTMENT COMPANYSecondary License type, if applicable

Amended Articles Number/Section

Fiscal Year Annual MeetingForm Type

(Company's Full Name)

(Business Address: No. Street City / Town Province)

COVER SHEET

S.E.C. Registration Number

Month Day

HECTOR C. DE LEON

Contact Person Company Telephone Number

Month

2

SECURITIES AND EXCHANGE COMMISSION

SEC FORM 20-IS

INFORMATION STATEMENT PURSUANT TO SECTION 20 OF THE SECURITIES REGULATION CODE

1. Check the appropriate box ( ) Preliminary Information Statement (X) Definitive Information Statement

2. Name of registrant as specified in its charter: FIRST METRO SAVE AND LEARN EQUITY FUND, INC. 3. Province, Country or other jurisdiction of incorporation or organization; Metro Manila, Philippines 4. SEC Identification number: CS200509328

5. BIR Tax Identification Code: 238-518-996-000 6. Address of Principal Office: 18

th Floor, PS Bank Center, 777 Paseo de Roxas corner Sedeño St., Makati City

7. Telephone Numbers:

(632) 8912860, 8405710, Fax No. (632) 8160467

8. Date, time, place, of the meeting of security holders: Thursday, May 23, 2013 at 2:00 p.m., 19

th Floor, PS Bank Center, corner Sedeno St., Paseo de Roxas,

Makati City.

9. Approximate date on which the Information Statement is first to be sent or given to security holders:

May 2, 2013

10. Securities registered pursuant to Sections 4 and 8 of the RSA: Title of each class Number of Shares of Common Stock Outstanding (Par value of P1.00) Common Shares 933,083,502

The number of shares outstanding as of April 23, 2013 is 933,083,502 common shares which is entitled to 933,083,502 votes. The by-laws do not provide for cumulative voting rights. 11. Are any or all of registrant’s securities listed on the Philippine Stock Exchange?

No.

3

PART I - INFORMATION STATEMENT

A. GENERAL INFORMATION Item 1. Date, Time, and Place of Meeting of Security Holders: Date : Thursday, May 23, 2013

Time : 2:00 P.M. Place : 19

th Floor, PS Bank Center, corner Sedeno St., Paseo de

Roxas, Makati City.

Mailing Address of the Registrant 18

th Floor, PS Bank Center, 777 Paseo de Roxas corner Sedeño St., Makati City

Approximate date on which the Information Statement is first to be sent or given to security holders: May 2, 2013 Item 2. Right of Appraisal: There are no matters or proposed corporate actions which may give rise to a possible exercise by security holders of their appraisal rights under Title X of the Corporation Code of the Philippines. Item 3. Interest of Certain Persons in or Opposition to Matters to be Acted Upon: a) Other than election to office, there is no matter to be acted upon in which any director or executive officer is involved or had a direct, indirect or substantial interest. b) No one among the incumbent director has informed the registrant, in writing or otherwise, that he intends to oppose any action to be taken by the registrant at the Meeting. B. CONTROL & COMPENSATION INFORMATION

Item 4. Voting Securities and Principal Holders Thereof: :

a) Class of Voting Shares : Class of Voting Securities Total Outstanding Shares Votes Entitlement Common Shares 991,068,464 One (1) vote per share

b) Record Date

Stockholders of record as of April 23, 2013 are entitled to notice and to vote in the Annual Stockholders Meeting.

4

c) Security Ownership of Certain Record and Beneficial Owners and Management: The following stockholder owns more than 5% of the common voting securities as of April 23, 2013: Title of Class

Name and Address of Record Owner

Name of Beneficial Owner and Relationship

Citizenship No. of Shares held

Percentage to Outstanding shares

Common Shares

1-First Metro Investment Corporation, 45/F, GT Tower, Ayala Avenue corner HV dela Costa St., Makati City

First Metro Investment Corporation/Stockholder

Filipino

157,307,734 15.87%

Common Shares

2-PBC Capital Investment Corporation/ 45/F, GT Tower, Ayala Avenue corner HV de la Costa St., Makati City

PBC Capital Investment Corporation/Stockholder

Filipino 50,898,719 5.14%

1. FMIC, is the registered owner of the shares in the books of the Company. The Board of Directors of FMIC has the right to appoint actual person or persons acting individually or jointly to direct the voting or disposition of the shares held by the corporation. The person who will exercise the voting powers over the shares of FMIC is Mr. Francisco C. Sebastian or Mr. Roberto Juanchito T.Dispo or any officers appointed by the Board. 2. PBC Capital is the registered owner of the shares. The person who will exercise the voting powers over the shares of PBC Capital are Mr. Reynaldo B. Montalbo, Jr. and Ms. Stella Marie Piedad I. Torres or any officers appointed by the Board.

Security Ownership of Directors/Management: The directors and officers as a group held a total of 1,017,090 common voting shares as of April 23, 2013. This is broken down as follows:

Title of Class Name of Beneficial Owners

Amount and

Nature of

Ownership

Citizenship

Percent to

Outstanding

Shares

Common shares Bro. Manuel V. De Leon, FMS 1 Filipino 0.00%

Common shares Victor A. Abola* 1 Filipino 0.00%

Common shares Sister Lioba Tiamson* 1 Filipino 0.00%

Common shares Bernadette M. Nepomuceno* 1 Filipino 0.00%

Common shares Hector C. de Leon 45,597 Filipino 0.00%

Common shares Nimfa B. Pastrana 237,377 Filipino 0.02%

Common shares Jonathan Tabac 573,064 Filipino 0.06%

Common shares Marie Arabella D. Veron 22,492 Filipino 0.00%

Common shares Edwin B. Valeroso 138,556 Filipino 0.01%

*Independent Director

The Corporation knows of no other person holding more than 5% of common shares under a voting trust or similar agreement. There is no arrangement that may result in a change in control of the registrant. No change of control in the Corporation has occurred since the beginning of its last fiscal year.

5

Item 5. Directors and Executive Officers All directors are elected for a term of one year. Each Director shall hold office until the next annual meeting of shareholders and or until his/her successor shall have been elected and qualified. The by-laws do not provide for any cumulative voting rights in the election of directors. All other officers shall be elected/appointed by the Board of Directors. Vacancies occurring among such officers however arising, shall be filled by the Board. The Board of Directors The Board of Directors as of April 23, 2013 with positions held for the last Five (5) years. All directors are elected for a term of one year.

Bro. Manuel V. de Leon, FMS - 55 years old, Filipino. Director (2005 – present). He is the Chairman of the Board. He is also Chairman and Director of First Metro Save and Learn Fixed Income Fund, Inc. since 2005, First Metro Save and Learn Balanced Fund, Inc., since 2008, First Metro Save and Learn Dollar Bond Fund, Inc. and First Metro Global Opportunity Fund, Inc. He is also Director of First Metro Asset Management, Inc. (2005-present), Provincial Superior of Marist Brothers of the Schools - East Asia Province (from 2003 to present). He is the Founding President of SAGIP KA 2000 Foundation, Inc. (2000-present). He is Chairman of the Board of Notre Dame of Dadiangas University (2007-present), Notre Dame of Kidapawan College (2003-present), Notre Dame of Marbel University (1990-present). Among his past positions during the last five years, he was a Director of Catholic Educational Association of the Philippines (CEAP-NCR), Treasurer of CEAP, Board Member of COCOPEA and accreditor of PAASCU. He was an awardee of the Ten Outstanding Young Men (TOYM) in 1992. He has masteral and doctorate degrees in Education from University of the Philippines.

Victor A. Abola, 69 years old, Filipino. He finished his PhD in Development Management from University of Asia and the Pacific, his MS in Industrial Economics from Center for Research and Communication, and his BS in Commerce (Major in Accounting) from De La Salle University. He is an independent director of First Metro Save and Learn Equity Fund, Inc. since 2010. He is also director of First Metro Save & Learn Fixed Income Fund, Inc., since 2010, First Metro Save & Learn Balanced Fund, Inc. since 2010, First Metro Save and Learn Dollar Bond Fund, Inc. since 2010, First Metro Global Opportunity Fund Inc. since 2010 and First Metro Securities Brokerage Corp. since 2010. He is the program director of Strategic Business Economics Program of UA&P (2007-present), Executive Director of Roberto F. de Ocampo Center for Public Finance Regional Economic Cooperation Center for Research (2006-present), Director of Inkwell Publishing Co., Inc (1998-present), and Senior Economist at UA&P School of Economics lecturing on Economics Policy in graduate school programs (1997-present). Dr. Abola was USAID-Consultant as the Chief of Party, Fiscal Policy Analysis Activity project of the Department of Finance (1998-2001).

Mr. Hector C. De Leon – 49 years old, Filipino. President since June 2011. Mr. De Leon is also the President of First Metro Global Opportunity Fund, Inc. (since 2010), First Metro Save and Learn Fixed Income Fund, Inc. (since June 2011), First Metro Save and Learn Balanced Fund, Inc. (since June 2011) and First Metro Save and Learn Dollar Bond Bond Fund, Inc. (since June 2011) and First Metro Global Currency Fund, Inc. He is currently the Executive Vice President of First Metro Asset Management, Inc., a position he has held since August of 2007. He was formerly the EVP and Head of Sales and Marketing for Philequity Management, Inc (2006 to 2007). Before joining Philequity, he served as FVP for Capital Markets of Philam Asset Management Inc. (1996 to 2006) where he was instrumental in setting up and operating most of the company’s mutual funds. He was former Chairman of the Board of Trustees of the Investment Company Association of the Philippines from 2005 to 2006. Mr. de Leon has a Bachelors Degree in Electronics and Communications

6

Engineering from De La Salle University and took up Masters in Business Administration (MBA) at the Ateneo Graduate School of Business.

Sr. Lioba M. Tiamson, OSB - 87 years old, Filipino, Independent Director (from March 2008 to present). She is also an independent director of First Metro Save and Learn Equity Fund, Inc. since 2008, First Metro Save & Learn Balanced Fund (from March 2008 to present) & First Metro Save and Learn Dollar Bond Fund, Inc. (from November 2008 to present). She is a Director of Concorde Condominium Inc. (2007-present), Missionary Benedictine Sisters of Tutzing, Germany (2005-present), Director/Treasurer of Educational Capital Corporation (1995-present), chairperson of CEAP Retirement Plan Commission (2003-present). Sr. Lioba has a Bachelor of Science degree in Commerce from University of Santo Tomas and St. Scholastica’s College and a Master’s degree in Business Management from De La Salle University. She attended trainings at the Western Association of College and University Business Officers at Stanford University, USA.

Bernadette M. Nepomuceno, 60 years old. Filipino. Independent Director. Ms. Nepomuceno is also an Independent Director of First Metro Save & Learn Equity Fund, Inc. (since August 2012), First Metro Save & Learn Fixed Income Fund, Inc. (since August 2012), First Metro Save & Learn Balanced Fund, Inc. (since August 2012), First Metro Save & Learn Dollar Bond Fund, Inc. (since August 2012), First Metro Global Opportunity Fund, Inc. (since August 2012). Ms. Nepomuceno is the President of Private Education Retirement Annuity Association (PERAA)(from 2007-present). Among her past positions during the last five years, She was President of Holy Angel University (1994-August 2006); Board of Directors, Philippine Association of Colleges and Universities (1995-2006); Board of Directors, Coordinating Council of Private Education Association (2003-2006), among her other affiliations, includes: President, Sophia (Association of Women Presidents/Chancellors of Private Colleges & Universities, Inc.); Member, Technical Working Group on Management Development Program; CHED, Member, Ethics Committee, Lung Center of the Philippines; Board of Trustees, Private Education Retirement Annuity Association, Accreditor, Philippine Accrediting Association of Schools, Colleges and Universities (PAASCU), Founding member, Friends of Jung. She is also a Psychotherapist, in a Private Practice (2001-present). Ms. Nepomuceno has a Bachelor of Arts degree in Psychology from University of the Philippines (1972), She also has a Masters of Psychology, major in Social Psychology., Ateneo de Manila University (1998) (cand.). She took up Hypnotherapy, Psychology of Carl Jung.

Significant Employees No person who is not an executive officer is expected by the Corporation to make significant contribution to its business. Nominee Directors The following are nominees to the Board of Directors for election during annual Stockholders Meeting on Thursday, May 23, 2013:

Bro. Manuel V. De Leon Sister Lioba Tiamson* Dr. Victor A. Abola* Ms. Bernadette M. Nepomuceno* Mr. Hector C. de leon *Independent Directors

Independent Directors In accordance with SRC Rule 38(8)(F)(v), First Metro Save and Learn Equity Fund, Inc. has formulated its rules relative to the election of independent directors, as follows:

7

The Nomination Committee shall have at least three (3) members, one of whom is an independent director, and it shall promulgate the guidelines and criteria to govern the conduct of the nomination. The nomination of independent director/s shall be conducted by the Committee prior to a stockholder’s meeting. All recommendations shall be signed by the nominating stockholders together with the acceptance and conformity by the would-be nominees.

After the nomination, the Committee shall prepare a Final List of Candidates which shall contain all the information about all the nominees for independent directors, as required under SRC Rule 38. Only nominees whose names appear on the Final List of Candidates shall be eligible for election as Independent Director/s. No other nomination shall be entertained after the Final List of Candidates shall have been prepared and no further nomination shall be entertained or allowed on the floor during the stockholders’/membership meeting.

Sister Lioba Tiamson, Dr. Victor A. Abola and Ms.Bernadette M. Nepomuceno are nominees for independent directors of First Metro Save and Learn Equity Fund, and they were recommended to the Nominations Committee for election of independent directors by Atty. Melissa B. Reyes, stockholder, in accordance with the foregoing rules. Atty. Reyes has no relations with the nominees.

Sr. L ioba M. T iamson, OSB s its as Independent Director of First Metro Save & Learn Balanced Fund (from March 2008 to present) and First Metro Save and Learn Dollar Bond Fund, Inc. (since November 2008) and First Metro Global Opportunity Fund, Inc. (2010 to present). Currently, Treasurer of Educational Capital Corporation and Director of Concorde Condominium Inc. (2007-present), Board member, St. Scholastica Priory Fund Management; member, CEAP Commission (2003-present), member, CEAP Retirement Plan Board Commission. (2003 to present).

Dr. Victor A. Abola is an independent di rec tor of F irst Metro Save & Learn Fixed Income Fund, Inc. , ( s ince December 2010) Firs t Metro Save & Learn Balanced Fund, Inc . (s ince December 2010), Fi rst Metro Save and Learn Dol lar Bond Fund, Inc. (s ince December 2010) , Fi rst Metro Global Opportunity Fund, Inc . (s ince December 2010) and F irst Metro Secur it ies Bro kerage Corp. (s ince December 2010) . He is the program director of Strategic Bus iness Economics Program of UA&P (2007-present) , Executive Director of Rober to F. de Ocampo Center for Publ ic F inance Regional Economic Cooperat ion Center for Research (2006-present) , Director of Inkwel l Publ ish ing Co., Inc (1998 -present) , and Senior Economist at UA&P School of Economics lectur ing on Economics Pol icy in graduate school programs (1997-present) . Dr. Abola was USAID-Consultant as the Chief of Party, F iscal Pol icy Ana lys is Act ivi ty project of the Department of Finance (1998 -2001).

Bernadette M. Nepomuceno sits as Independent Director. Ms. Nepomuceno is also an Independent Director of First Metro Save & Learn Equity Fund, Inc. (since August 2012), First Metro Save & Learn Fixed Income Fund, Inc. (since August 2012), First Metro Save & Learn Balanced Fund, Inc. (since August 2012), First Metro Save & Learn Dollar Bond Fund, Inc. (since August 2012), First Metro Global Opportunity Fund, Inc. (since August 2012). Ms. Nepomuceno is the President of Private Education Retirement Annuity Association (PERAA) (from 2007-present). Among her past positions during the last five years, She was President of Holy Angel University (1994-August 2006); Board of Directors, Philippine Association of Colleges and Universities (1995-2006); Board of Directors, Coordinating Council of Private Education Association (2003-2006), among her other affiliations, includes: President, Sophia (Association of Women Presidents/Chancellors of Private Colleges & Universities, Inc.); Member, Technical Working Group on Management Development Program; CHED, Member, Ethics Committee, Lung Center of the Philippines; Board of Trustees, Private Education Retirement Annuity Association, Accreditor, Philippine Accrediting Association of Schools, Colleges and Universities (PAASCU), Founding member, Friends of Jung.

8

The current members of the Nominat ions Committee are, Bro. Manuel V. De Leon, FMS, and Sister L ioba T iamson. Mr. De Leon is the Chairman of the Committee.

Legal Proceedings

The Registrant has no material pending legal proceedings to which it is a party. None of the Board of Directors is:

involved in any legal proceeding the past five (5) years that are material to an evaluation of the ability or integrity of any director, any nominee for election as director, executive officer, underwriter, or control person of the Registrant;

involved in any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two (2) years prior to that time;

involved in or convicted by final judgment in any criminal proceeding, domestic or foreign, or subject to a pending criminal proceeding, foreign or domestic, excluding traffic violations and other minor offenses;

subject to any order, judgment, or decree not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, domestic or foreign, permanently or temporarily enjoining, barring, suspending, or otherwise limiting his involvement in any type of business, securities, commodities or banking activities; and

found by a domestic or foreign court of competent jurisdiction( in a civil action), the SEC or comparable foreign body, or a domestic or foreign exchange or organized trading market or self-regulatory organization, to have violated a securities or commodities law or regulation and the said judgment has not been reversed, suspended or vacated.

Family Relationships There are no other family relationships among the directors and officers listed above up to the fourth Civil Degrees either by consanguinity or affinity among the Directors, Officers or persons nominated. Relationships and Related Transactions There had been no material transaction nor is there any material transaction currently proposed to which the Company was, or is a party, or in which any director or executive officer of the Company, had or is to have a direct or indirect material interest.

13

PART II -COMPANY PROFILE

Brief Description of the General Nature and Scope of Business of the Company

The registrant is a stock corporation which was incorporated on May 27, 2005. It appointed First Metro Asset Management, Inc. (FAMI) as principal distributor of its shares of stock and will not sell or agree to sell any shares of its capital stock except through FAMI. These shares of stock were offered to the public beginning October 2005. As of December 31, 2012, the registrant’s total sales were P3.9 billion. This is the main source of the company’s revenues for the year. FAMI’S marketing strategy will be based on the strategic partnership of CEAP, Marist and First Metro Investment Corp. FAMI will capitalize on the endorsement of the CEAP in order to educate the teachers on the concept of savings and mutual fund investing. The CEAP membership composed of over 20,000 teachers will be a primary source of retail investors. This competitive advantage will be further strengthened by FMIC’s good track record, market experience and credibility, and position as the largest investment bank and backed-up by the largest universal bank in the country. FAMI will also set up a marketing network and accredit sub-distributors or agents to sell the shares. Accredited sub-distributors or agents are directly liable to FAMI. FAMI will likewise capitalize on its relationships with the companies under the Metrobank Group. The group, with its total employee force of over 14,000 will be an excellent source of retail investors and referrals to high net-worth individuals. The corporations under the group are potential sources of institutional funds that will enable the FAMI mutual funds to attain critical mass at a faster pace. Competition The competitive environment for the company’s products includes not only the products and services offered by the other Mutual Fund players, but all other investment instruments that the Company’s target market has access to. The institutional funds of this market (especially the bigger ones) evidently have access to almost all types of instruments locally available such as unit investment trust funds, pre-need plans, universal life products, and other bank products. The retail funds and smaller institutional funds, however, are more likely limited to simple bank products. There is a big opportunity to tap into both the institutional and retail investors. The registrant’s main competitors are the other mutual funds in the Equity Fund category of Philippine mutual funds. It considers the equity funds of Sunlife, Philam, and Philequity, as its main competitors. As of December 31, 2012, these three competitor Funds represent around 67% of the total equity funds sector; the total equity funds industry amounts to P21 billion. The company will be competing initially in terms of return on investment (ROI) and later on in terms of Fund size. Effect of existing governmental regulation The marking-to-market method of valuation assesses both equity and debt instruments based on the current market price of those investment instruments. Therefore, the interplay of demand and supply of those instruments and other macroeconomic factors affect their prices. The changes in the prices of equities will be reflected in the value of the net assets of the Fund. The Fund’s net asset value per share (NAVPS) is thus affected by this marking-to-market valuation.

The Fund believes that government regulations are intended to grow the mutual fund industry while protecting the interests of the investing public, thus, it will comply with the regulations imposed or to be imposed by government regulators. Also, the passage of the Personal Equity Retirement Account (PERA) and the Collective Investment Scheme bills into law will benefit the mutual fund industry.

14

Number of employees The Fund has no employees because all aspects of its operations and administration are subcontracted with third parties; hence it has no risks as far as labor problems are concerned. EXECUTIVE OFFICERS

Bro. Manuel V. de Leon, FMS - 55 years old, Filipino. Director (2005 – present). He is the Chairman of the Board. He is also Chairman and Director of First Metro Save and Learn Fixed Income Fund, Inc. , First Metro Save and Learn Balanced Fund, Inc ., First Metro Save and Learn Dollar Bond Fund, Inc. and First Metro Global Opportunity Currency Fund, Inc. as of March 22, 2011. He is a Director of First Metro Asset Management, Inc (2005-present). He is the Provincial Superior of Marist Brothers of the Schools - East Asia Province (from 2003 to present). He is the Founding President of SAGIP KA 2000 Foundation, Inc. (2000-present). He is Chairman of the Board of Notre Dame of Dadiangas University (2007-present), Notre Dame of Kidapawan College (2003-present), Notre Dame of Marbel University (1990-present). Among his past positions during the last five years, he was a Director of Catholic Educational Association of the Philippines (CEAP-NCR), Treasurer of CEAP, Board Member of COCOPEA and accreditor of PAASCU. He was an awardee of the Ten Outstanding Young Men (TOYM) in 1992. He has masteral and doctorate degrees in Education from University of the Philippines.

Mr. Hector C. De Leon – 49 years old, Filipino. President since June 2011. Mr. De Leon is also the President of First Metro Global Opportunity Fund, Inc. (since 2010), First Metro Save and Learn Fixed Income Fund, Inc. (since June 2011), First Metro Save and Learn Balanced Fund, Inc. (since June 2011) and First Metro Save and Learn Dollar Bond Fund, Inc. (since June 2011) He is currently the Executive Vice President of First Metro Asset Management, Inc., a position he has held since August of 2007. He was formerly the EVP and Head of Sales and Marketing for Philequity Management, Inc (2006 to 2007). Before joining Philequity, he served as FVP for Capital Markets of Philam Asset Management Inc. (1996 to 2006) where he was instrumental in setting up and operating most of the company’s mutual funds. He was former Chairman of the Board of Trustees of the Investment Company Association of the Philippines from 2005 to 2006. Mr. de Leon has a Bachelors Degree in Electronics and Communications Engineering from De La Salle University and took up Masters in Business Administration (MBA) at the Ateneo Graduate School of Business.

Atty. Nimfa B. Pastrana, 51 years old, Filipino. She is the Corporate Secretary of FMSALEF since 2005. She is also the corporate secretary of First Metro Save and Learn Fixed Income Fund, Inc., First Metro Save and Learn Balanced Fund and First Metro Save and Learn Dollar Bond Fund, Inc. Money Market Fund. She is also the Corporate Secretary of PBC Capital Investment Corporation, Prima Ventures Development Corporation, SBC Properties, Inc., First Metro Insurance Brokers Corp., FMIC Equities, Inc., First Metro Asset Management, Inc.,First Metro Securities Brokerage Corp. She currently holds the position of First Vice President, General Council and Head of Strategic Support Group and Assistant Corporate Secretary of First Metro Investment Corporation. She finished her A.B Philosophy course at the University of the Philippines and her Bachelor of Law at San Beda College.

Mr. Jonathan T. Tabac - 58 years old, Filipino, Compliance Officer. Term of office is one year and has served as such from May 2005 up to present. He is also the Compliance Officer of First Metro Investment Corporation, First Metro Securities Brokerage Corporation, First Metro Save and Learn Balanced Fund, Inc., First Metro Save and Learn Fixed Income Fund, Inc., and First Metro Asset Management, Inc (from May 2005 to present),. He was AVP and Compliance Officer of Citystate Savings Bank (2002-2003), Vice President of Maybank Philippines (formerly PNB Republic Planters Bank)-1997-2001 and Chairman of the Board of RPB Provident Fund, Inc.(1997-2001) Mr. Tabac finished BSC-Accounting from University of Baguio and MBA units from the University of Santo Tomas. He is a Certified Public Accountant.

15

Marie Arabella D. Veron – 52, Filipino. Ms. Veron is the Treasurer of First Metro Save and Learn Equity Fund, Inc. since 2005. Concurrently she serves as First Vice President and Controller of First Metro. She joined First Metro on May 4, 1992. Among her other positions are: Director of First Metro Asset Management, Inc. (since June 2010), Treasurer of PBC Capital Investment Corporation (since 2006), Director/Treasurer of SBC Properties, Inc. (2003-present), Treasurer of First Metro Save and Learn Dollar Bond Fund, Inc., First Metro Global Opportunity Fund, Inc., First Metro Save and Learn Fixed Income Fund Inc., and First Metro Save and Learn Balanced Fund, Inc. (since 2008). Ms. Veron finished her Bachelor of Science Degree in Business Administration, major in Accounting, cum laude, from the University of the East. She is a Certified Public Accountant and a Certified Management Accountant.

Dr. Edwin B. Valeroso - 49 years old, Filipino, Asst. Treasurer. Term of office is one year

and has served as such since June 2011. He is First Vice President of First Metro Asset

Management, Inc. He was the President of First Metro Save & Learn Balanced Fund (Jan

2007 to June 2011), First Metro Save and Learn Fixed Income Fund and First Metro Save

and Learn Dollar Bond Fund, Inc. (2008 to 2011). He was Vice President and Trustee of

Philippine Investment Funds Association (2006-present) and an Associate Professor Guest Lecturer at

De La Salle University-Graduate School of Business (2000-present). He was a Mutual Fund

Strategist/Consultant at First Metro Investment Corp. (2004-2005). Dr. Valeroso has a BS Actuarial

Mathematics degree from University of Santo Tomas, a Master’s degree in Applied Mathematics

(Actuarial Science) from University of the Philippines, and a Doctor of Business Administration degree

from De La Salle University-Manila. He is an alumnus of the Trust Institute Foundation of the

Philippines.

Principal Officers are appointed or elected annually by the Board of Directors at its first meeting following the Annual Meeting of Stockholders.

Number of Employees The Fund has no employees because all aspects of its operations and administration are subcontracted with third parties; hence it has no risks as far as labor problems are concerned.

Compliance with the Manual on Corporate Governance In line with the Securities and Exchange Commission’s Memorandum Circular No. 2 series of 2002, the Company has adopted its Manual on Corporate Governance providing for the best practices on governance. The duties responsibilities and authorities of the Board of Directors as well as qualifications of a director/officer are adopted and complied with. Board Committees were created, such as: the Audit Committee; the Nominations Committee which pre-qualifies and shortlists the nominees for independent directors to be elected in the annual stockholders meeting and the Compensation Committee which assist the Board of Directors in ensuring due observance of corporate governance principles and guidelines. A compliance officer has been appointed to manage the Compliance System of the Company and to monitor and evaluate compliance with the Manual of Corporate Governance. In general, the Company is in compliance with the leading practices in good corporate governance. This was reported in a Certification by the Compliance Officer filed with the Commission in January 2013. No director or officer of the Company was found in violation of the Manual. The Company has adopted a good governance scorecard to measure and determine the level of compliance by the Board of Directors and top-level management with its Manual of Corporate Governance. Every end of the current year, the scorecard patterned after the SEC-prescribed Corporate Governance Self-Rating Form (CG-SRF) shall be accomplished by the Compliance Officer. The result of this evaluation is submitted to the Board together with the CO’s recommendation for any sanctions of non-compliance and plans to improve corporate governance of the company. On the basis

16

of this scorecard, the Compliance Officer has issued to SEC a certification on the Company’s compliance with its Manual of Corporate Governance. The Compliance Officer likewise periodically reviews and improves the Manual to incorporate latest rules and regulations and best practices issued by regulators, if any.

SALEF has identified the following major risks involved in its businesses and other operations:

Various risk factors can affect the market value of the assets of the Fund and cause the Fund's net asset value to vary. Consequently, there are instances when redemption prices of redeemed shares may be 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. Market Risk. Market risk is the risk of change in fair value of financial instruments from fluctuation in foreign exchange rates (currency risk), market interest rates (interest rate risk) and market prices (equity price risk), whether such change in price is caused by factors specific to the individual instrument or its issuer or factors affecting all instruments traded in the market. The Funds exposure to market risk relates to equity price risk. Equity Price Risk. The Fund’s price risk exposure at year-end relates to financial assets whose values will fluctuate as a result of changes in market prices.

Such investment securities are subject to price risk due to changes in market values of instruments arising either from factors specific to individual instruments or their issuers or factors affecting all instruments traded in the market.

The Fund’s equity price risk policy requires it to manage such risks by (a) closely monitoring investment

objectives and constraints on investment by its Fund Manager; (b) detailed market observation and analysis; (c) setting of limits as to investment diversification (i.e. issuer, industry or sector, index); and (d) establishment of profit or loss tolerance.

The Fund measures the sensitivity of its investment securities by using PSE index (PSEi) fluctuations. Manager Risk. The performance of the Fund is dependent upon the investment manager’s skill in making appropriate investments. As a result, the Fund may under-perform the market or its peers. Also, the Fund may fail to meet its investment objectives. No single fund is intended to be a complete investment program, but individual funds, such as this Fund, can be an important part of a balanced and diversified investment program. Mutual funds have the following general risks: returns may vary, the investor may lose money, and the investor cannot be certain that the Fund will achieve its investment objective.

Credit Risk. Credit risk is the risk that one party to a financial instrument will fail to discharge an

obligation and cause the other party to incur a financial loss.

The Fund invests in government securities wherein the risk of default is considered minimal. Also, management policies prohibit engaging in lending operations without prior review and approval of its BOD. Another policy of the Fund directed at managing credit risk is that all sales of the Fund’s capital stock shall only be on cash basis. Installment sales are prohibited. Credit risk exposure is limited to the carrying amount of the financial assets. The maximum exposure to credit risk is represented by the carrying amounts of the financial assets that are carried in the statement of financial position and the related notes. There are no agreements concluded which reduced the maximum exposure to credit risk as of the reporting date. The Fund’s credit risk policy restricts the amount of investment in any single enterprise to 10% of the Fund’s NAV, except for government securities. Conversely, the total investment of the Fund in any one investee company must not exceed 10% of the outstanding securities.

17

The Fund is also not allowed to invest in securities of other investment companies and mutual funds.

Liquidity Risk. Liquidity or funding risk is the risk that an entity will encounter difficulty in raising funds to meet commitments associated with the financial instruments. Liquidity risk may result from either the inability to sell financial assets quickly at their fair values; or counterparty failing on repayment of a contractual obligation; or inability to generate cash inflows as anticipated. The Fund is exposed to daily cash redemptions of redeemable shares. It therefore invests the majority of its assets in investments that are traded in an active market and can be readily disposed of. The Fund has the ability to borrow in the short term to ensure settlement. No borrowings have arisen during the year.

PART III - SECURITIES OF THE REGISTRANT

Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters Market Information a. Below is the list of the highest and lowest Net Asset Value per Share (NAVPS) of SALEF for 2010, 2011, 2012 and interim period for 2013.

Year 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

2013 Highest 5.4617

Lowest 4.8069

2012 Highest 4.4007 4.5761 5.5776 4.8299

Lowest 3.7426 4.1954 4.47125 4.5445

2011 Highest 3.5494 3.5562 3.8916 3.7735

Lowest 3.1574 3.2981 3.2290 3.3239

b. There is no principal market where the Fund’s shares are traded, not even in the Philippine Stock Exchange due to its nature as an open-end investment company. The Fund’s shares are sold through its appointed Principal Distributor and sub-distributors. Holders As of March 31, 2013 there are 13,360 shareholders (including holders of shares in the deposit for future subscription) of the Company’s common stock. Shown below are the top twenty (20) shareholders, including the number of shares and percentage of ownership held by each (amounts in thousands).

18

%

No. SHAREHOLDER'S NAME SHARES OWNED OWNERSHIP*

1 FIRST METRO INVESTMENT CORPORATION 157,307,734 15.87%

2 PBC CAPITAL INVESTMENT CORP. 50,898,719 5.14%

3 CATHOLIC EDUCATIONAL ASSOC. OF THE PHILS. -

RETIREMENT FUND 40,490,717 4.09%

4 DE LA SALLE UNIVERSITY, INC. 36,414,232 3.67%

5 RAMON ABOITIZ FOUNDATION, INC. 23,833,357 2.40%

6 BOARD OF TRUSTEES OF PERAA 21,814,539 2.20%

7 RONNIEVIC C. LAGNADA 20,653,911 2.08%

8 WILSON LAO CHUA OR TIMOTHY LAO CHUA 19,393,752 1.96%

9 LA SALLIAN EDUCATIONAL INNOVATORS FOUNDATION 18,583,290 1.88%

10 INTERNATIONAL FAMILY FOOD SERVICES, INC. 15,440,804 1.56%

11 BENJAMIN JR. P. LOPEZ 12,885,837 1.30%

12 CRISTINA ONG YAP 12,683,611 1.28%

13 HERNANDO CAMACHO SUAREZ 9,425,313 0.95%

14 ERIC LEIGHTON B. HUDSON AND RAQUEL C. HUDSON 8,564,095 0.86%

15 GARY QUA GO OR GLORIA QUA GO OR GRACE QUA GO 8,289,195 0.84%

16 FMIC TRUST DIV. AS INVESTMENT MANAGER FOR 7,830,171 0.79%

IMA NO. 220-000001

17 CONCEPCION M. CAYCO OR CRISTINA M. CAYCO 7,407,457 0.75%

18 JAIME A. DAEZ 7,234,223 0.73%

19 RUBEN M. SANTOS OR ELEANOR C. SANTOS 6,922,348 0.70%

20 MEGA INTEGRATED AGRO-LIVESTOCK FARM CORP. 6,641,843 0.67%

*Computed based on outstanding shares

Dividends The Fund has not issued any cash dividends since its inception. The Board of Directors of the Fund may decide to declare dividends from the unrestricted retained earnings of the Fund at a time and percentage as the Board may deem proper and in accordance with law. The Fund may declare or pay dividends but limits those dividends to come from the Fund’s accumulated undistributed net income. The ability of the Fund to declare dividends therefore will be restricted by the amount of yearly net income generated. This would be dependent on the performance of the market and on the performance of the investment manager.

Recent Sale of Unregistered Securities

There are no securities of the registrant sold by it during the year which were not registered under the Code.

19

PART IV - MANAGEMENT DISCUSSION AND ANALYSIS

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Interim March 31, 2013

FINANCIAL CONDITION

Total resources of the Fund increased by 36.6% from the P5.6 billion, beginning of the year balance to

P 7.6 billion as of March 31, 2013 on account of the following:

Cash and Cash Equivalents

This account consists of :

2013 2012

Cash in banks 82,170,905 24,236,148

Time deposits 713,334,056 320,528,647

795,504,960 344,764,795

The increase came mostly from proceeds of sales of Fund shares.

. Cash in banks bear gross annual interest rates ranging from 0.375% to 0.50% . Time deposits bear gross annual interest rates of .6275 to 3% as of March 31, 2013 and 1.75%% to 4.75% in 2012. Financial Assets at Fair Value through Profit or Loss Financial assets at FVPL consist of the following held-for-trading (HFT) securities:

March 31, 2013 Dec. 31, 2012

Quoted equity securities 6,412,171,710 4,906,731,771

Private bonds 188,701,787 191,378,005

6,600,914,861 5,098,109,776

The carrying value of financial assets at FVPL includes fair value gains of P711.34 million and P=526.79 million as of March 31, 2013 and December 31, 2012, respectively.

Private bonds bear nominal annual interest rates ranging from 5.50%to 6.00% in 2013 and 2012

Additional investments and improvement in the market value of outstanding portfolio caused the 29.5%

or P1.5 billion increase in the account.

20

Loans and Receivables

This account consists of:

March 31, 2013 Dec. 31, 2012

Unquoted debt securities 138,600,000 140,000,000

Due from brokers 85,250,501 5,220,128

Accrued interest receivable 2,926,657 3,374,185

Dividends receivable 18,345,475 927,711

Accounts receivable 100,000 115,300

245,222,633 149,637,324

Unquoted Debt Securities Unquoted debt securities represent investments in commercial papers issued by an industrial institution which earn annual interest rate of 5.64% .

Due from brokers

Due from brokers represent receivables for securities sold but not yet settled as of statements of

financial position date. The increase is due to the rise in sales of stocks as of statement of condition

date, which will be collected three days after trade date;

Dividends receivable

Dividends receivable pertains to dividends earned from stock investments but are not yet collected as

of statement of position date. The substantial increase is due to the growth in our stock investments;

Accrued Interest Receivable

Accrued interest represents interest income on time deposits, short-term placements and unquoted

debt securities classified as loans. The decline is mainly due to collection of interest as of statement of

condition date.

Accounts Payable and Accrued Expenses

This account consists of:

March 31, 2013 Dec. 31, 2012

Financial liabilities

Due to brokers 4,502,619 8,325,454

Accounts payable 284,379,490 8,953,473

Payable to FAMI 15,582,166 15,426,228

Accrued expenses 390,914 248,176

304,855,189 32,953,331

Nonfinancial liabilities

Withholding taxes payable 1,952,690 1,310,869

Documentary stamp taxes payable 428,072 206,473

2,380,762 1,517,342

307,235,952 34,470,673

Due to brokers represents payable to brokers for securities purchased but not yet settled as of financial position date. The account is short term and is settled three days after the trade date.

21

Accounts payable represents payable to shareholders for the uncollected redemption proceeds, and subscriptions without confirmation from clients. Subscription is confirmed by submitting the required subscription documents. Once confirmed these subscriptions are reclassified to equity. The increase is due to the rise in uncollected redemptions proceeds as of financial position date. Payable to FAMI includes management fees, redemption fees, sales load fees and incentive fees. The increase is mainly due to incremental management fees relative to the climb in the net asset value of the Fund. Accrued expenses include professional fees, custodianship fees and retainer’s fee. The increase is mainly due to accrual of audit fees for 2013. Withholding tax payable increased mainly due to the upsurge on management fees payable to the fund manager and the rise in the stock investment transactions.

Derivative Liability At the date of inception and December 31, 2011, the fair values of the embedded call option of an unquoted debt security, shown as Derivative liability in the statements of financial position, amounted to P=2.79 million. In April 2012, the issuer of the aforementioned security opted to prepay its debt thereby closing the derivative liability together with its principal.

Equity went up by 32.0% as the Fund’s net subscription for the period amounted to P935.0 3illion

which is equivalent to 182.2 million shares. Retained earnings movement is attributed to the net income of

P841.3 million as reduced by the retained earnings portions of redemption proceeds. The authorized capital of the Fund is P=1.25 billion divided into 1.25 billion redeemable shares of P=1.00 par value with each share carrying one vote. As of March 31, 2013 and December 31, 2012, issued and fully paid shares amounted to 991.1 million and 938.4 million shares, respectively. The Fund’s capital is represented by these redeemable shares. The shares are entitled to dividends when declared and to the payment of a proportionate share of the Fund’s NAV on the redemption date or upon winding up of the Fund. The Fund’s issued shares are redeemed at their NAV calculated in accordance with redemption requirements. The total expected cash outflow on redemption of all the shares equals the Fund’s equity. Authorized Capital Stock On March 14, 2012, the BOD approved the increase in authorized capital stock from P1.00 billion divided into 1.00 billion redeemable common shares with a par value of P1.00 per share to P1.25 billion divided into 1.25 billion redeemable common shares with a par value of P1.00 per share. This action was approved by the stockholders on August 4, 2012. The application for increase in authorized capital stock was filed with the SEC on November 13, 2012 and was approved by the SEC on January 24, 2013. On February 25, 2013, the BOD approved the increase in the authorized capital of the Fund from P1.25 billion divided into 1.25 billion redeemable common shares with a par value of P1.00 per share to P3.00 billion divided into 3.00 billion redeemable common shares with a par value of P1.00 per share. The BOD also adopted a resolution that the increase in the authorized capital stock of P1.75 billion be made in tranches. The authorized capital stock will be initially increased by P1.00 billion while the succeeding increase will be executed upon determination and approval of the BOD. The authority of the BOD to increase the authorized capital stock is limited to P3.00 billion. Deposits for Future Shares Subscriptions Deposits for future shares subscriptions pertain to total consideration received in excess of the authorized capital of the Fund with the purpose of applying the same as payment for future issuance of redeemable shares.

22

Financial Reporting Bulletin (FRB) No. 6 issued by the SEC on February 16, 2012 and revised on January 24, 2013, requires an entity to classify deposit for future share subscription under equity if and only if, all of the following elements are present as of end of the reporting period: 1. The unissued authorized capital stock of the Fund is insufficient to cover the amount of shares classified as deposits for future shares subscriptions;

2. There is BOD approval on the proposed increase in authorized capital stock (for which a deposit was received by the Fund);

3. There is stockholders‟ approval of said proposed increase; and

4. The application for the approval of the proposed increase has been filed with the SEC. If any or all of the foregoing elements are not present, the deposit for future share subscription should be recognized as a liability.

RESULTS OF OPERATIONS

For the period ended March 31, 2013, First Metro Save & Learn Equity Fund, Inc. posted a net income

of P841.3 million as compared to P581.1 million net income for the same period in 2012 as the local

equities market remained bullish during the current period.

The highlights of the results of operations are as follows:

Marking-to-Market Gain on Stocks amounted to P711.3 million as the values of stocks rose

during the period. This represents 80.3% of Fund’s gross income;

The Realized Trading Gains is associated with the sale of the stock investments of the Fund

where it realized P138.7 million gains to maintain the level of stockholdings and to minimize losses;

Dividend Income rose by P10.6 million or 55.5% mainly due to the increase in our stock

portfolio;

Interest income This account consists of interest income on:

March 31, 2013 March 31, 2012

Financial assets at FVPL 2,654,282 -

Loans and receivables 1,890,092 5,543,167

Cash and cash equivalents 1,894,128 1,808,010

AFS investments - 35,000

6,438,502 7,386,177

The 12.8% decrease in interest income is due to decline in interest rates on fixed

income investments.

Operating Expenses includes management fees paid to FAMI that serves as the Fund’s

Investment Adviser, professional fees, transaction charges, directors’ fees and taxes and licenses. The

increase of P17.7 million or 90.0% as compared to the same period last year is mainly due to the

increase in management fees relative to rise in the net asset value of the Fund and documentary

stamps tax due to incline in the sale of the Funds’ shares.

Key Performance Indicators

SALEF has identified the following as its key performance indicators -- performance vs. benchmark and competitor funds, net income and market share.

23

SALEF was incorporated on May 27, 2005 with the objective of seeking long-term capital appreciation by investing primarily in carefully selected listed and non-listed equity securities. The Fund has appointed First Metro Asset Management, Inc. (FAMI) to serve as its Investment Company Adviser, Administrator and Principal Distributor. With the SEC’s approval of FAMI’s license to act as such on September 6, 2005 and its procedures firmed-up at the end of the same month, active management of SALEF’s assets was initiated in October 2005 with the objective of consistently outperforming its benchmark, which is the PSEi, and achieve a sizable net income. From an initial paid-up capitalization of P25,000,000.00 which translates to a minimal share in the mutual fund industry (under the equity fund category), the Fund’s paid-up capital is now P991,068,464.

SALEF has identified the following as its key performance indicators:

Net Asset Value Per Share - Net Asset Value per share rose from P4.8106 as of December

31, 2012 to P5.4607 as of March 31, 2013, representing a 13.5 % return on investment over a thre-

month period.

Sales for the quarter ended - The Fund had total sales of P2.604 billion for the quarter ended

March 31, 2012. This is P1.679 billion higher or 181.5% compared to the P924.7 million sales for the

same period in 2012.

Redemptions for the quarter ended - The Fund had total redemptions of P1.669 billion for the

quarter ended March 31, 2012. This is P1.348 billion or 282.8% higher as compared to the P436.0

million redemptions for the same period last year.

Net Income vs. Benchmark - The Fund posted a net income of P841.2 million as of March 31,

2013 as compared to a net income of P576.1 million in the same period last year.

The following basic ratios measure the financial performance of the Company for the three-months

ended March 31, 2013 and 2012 as well as, for the year-end of 2012:

As of

PERFORMANCE INDICATORS 2013 2012 Dec. 31, 2012

(Audited)

Return on Assets 1/ 51.56% 64.30% 22.39%

Return on Equity 2/ 52.93% 66.31% 22.82%

Cost-to-Income Ratio 3/ 4.25% 3.27% 12.55%

Net Asset Value per Unit 4/ 5.4607 4.3966 4.8106

Earnings per share 5/ 1.0237 0.6510 1.0400

As of March 31

(Unaudited)

1/ Average assets for period ended March 31 were computed based on the average of the beginning and ending balances,

whereby net income was annualized over the three-month period. 2/ Likewise, average equity for period ended March 31 was computed based on the average of the beginning and ending

balances, whereby net income was annualized over the three-month period. 3/

Operating expenses for the cost-to-income ratios do not include provision for probable losses and provision for income taxes. 4/ Net asset value per unit by deducting total liabilities from total assets to come up with the Net Assets and dividing with

the outstanding number of shares for the period.

5/ Net income divided by weighted average number of common shares.

Discussion and analysis of material events and/or uncertainties

The Fund Manager is not aware of any event and/or uncertainties that:

24

(a) will have a material impact on liquidity

(b) will trigger direct or contingent obligation that is material to the Fund including any default or

acceleration of obligation

(c) will have an impact on all material off-balance sheet transactions, arrangement, obligations and

other relationships of the Fund

(d) is a significant element of income or loss that did not arise from the Fund’s continuing

operations.

2012 The total resources of the Fund rose by P 2.5 Billion or 80% from P3.1 billion at the beginning of the year to P5.6 billion as of December 31, 2012. As of December 31, 2012, cash and cash equivalent amounting to P344.8 million consist of savings and current deposits mainly with Metrobank and PSBank, P24.3 million and time deposits, P320.5 million. The increase came mostly from sales of Fund shares.

Also, as of the same period, financial assets at fair value through profit or loss stood at P5.1 billion broken down as follow:

Quoted equity securities P 4,906,731,771

Private bonds 191,378,005

P 5,098,109,776

The equity portfolio of the Fund increased by P2.7 billion or 123% from December 31, 2011 balance of P2.2 million. Details of investments are as follow:

VALUE BASED ON

MARLET QUOTATION

NO. OF AT BALANCE

DESCRIPTION SHARES SHEET DATE

Ayala Corporation 434,180 224,253,970

Aboitiz Equity Ventures 382,600 20,239,540

25

Ayala Land, Inc. 11,056,500 291,338,775

Aboitiz Power Corporation 209,000 7,701,650

Benguet Corporation 21,100 400,900

Banco de Oro Unibank, Inc. 3,380,660 245,943,015

Belle Corporatiom 14,547,000 70,552,950

Bloomberry Resorts Corporation 5,912,500 77,926,750

Bank of Philippine Island 3,890 365,660

Dizon Copper-Silver Mines 3,570,000 53,478,600

DMCI Holdings, Inc. 1,021,000 55,082,950

D&L Industries, Inc. 10,800,000 47,412,000

Energy Development Corp. 20,475,000 137,592,000

First Gen Corporation 4,458,500 99,424,550

Filinvest Land, Inc. 17,643,000 26,288,070

Globe Telecom, Inc. 66,945 73,103,940

GMA Network Inc. 1,639,900 15,021,484

GT Capital Holdings, Inc. 352,640 218,636,800

Calapan Ventures, Inc. 5,503,000 22,507,270

JG Summit Holdings Inc. 3,275,200 127,077,760

Lepanto Mining Corporation 49,446,000 48,951,540

LaFarge Republic, Inc. 1,225,000 13,720,000

LT Group, Inc. 490,900 6,558,424

Marcventures Holdings, Inc. 20,492,000 36,270,840

Metropolitan Bank & Trust Co. 2,654,701 270,514,032

Megaworld 9,023,000 24,993,710

Manila Electric Company 483,340 125,958,404

Metro Pacific Investments 36,793,000 163,728,850

Nihao Mineral Resources International, Inc. 4,022,100 20,070,279

Oriental Peninsula Resources Group Inc. 52,525,288 162,828,393

The Philodrill Corporation 989,560,000 37,603,280

Petron Corporation 12,979,700 135,508,068

San Miguel Purefoods Company, Inc. 924,000 222,684,000

Puregold Price Club Inc. 6,948,300 225,124,920

Pepsi-Cola Product Philippines, Inc. 21,874,800 139,123,728

Philippine Savings Bank 2,363,256 233,962,344

Robinsons Land Corporation 4,132,491 85,749,188

Semirara Mining Corporation 373,650 87,135,180

Security Bank Corporation 408,350 63,702,600

SM Investment Corporation 370,380 326,119,590

SM Development Corporation 8,704,530 51,269,682

SM Prime Holdiings, Inc. 11,027,400 181,952,100

STI Education Systems Holdings, Inc. 12,340,000 12,463,400

Phil. Long Distance Company 57,779 146,180,870

Universal Robina Corporation 1,260,500 104,621,500

Vista Land and Lifescapes Inc. 34,141,900 165,588,215

1,389,374,980 4,906,731,771

26

Private bonds consist of the following:

VALUE BASED ON

MARLET QUOTATION

AT BALANCE

DESCRIPTION PRINCIPAL SHEET DATE

First Metro Investment Corporation 158,292,972 162,194,435

SM Investment Corporation 29,000,000 29,183,570

187,292,972 191,378,005

There were no private bonds classified as financial assets through profit and loss in

2011.

Loans and receivables consist of:

Unquoted debt securities 140,000,000

Due from brokers 5,220,128

Accrued interest receivable 3,374,185

Dividends receivable 927,711

Accounts receivable 115,300

149,637,324

The decrease in the account was mostly attributed to the decrease in investments in unquoted debt

securities. Unquoted debt securities represent investments in commercial papers issued by an industrial institutions which earn annual interest rate of 5.64%. Total liabilities dropped by 74% or P95.4 million mainly due to the decrease in accounts payable to brokers as offset by the increase in payables to the Fund manager and increase in withholding tax payable. Capital stock increased by 29% primarily due to the net subscriptions to the fund amounting to P769.2 million equivalent to 136.4 million shares. Total stockholders’ equity increased by 87% or P2.6 billion due to the net income of P973.0 million, net subscription to the fund of P769.2 million and deposit for future subscription of P1.0. During the year, the Fund issued 701.88 million shares and redeemed 565.43 million shares for P=3.87 billion and P=3.39 billion, respectively. Authorized Capital Stock On March 14, 2012, the BOD approved the increase in authorized capital stock from P=1.00 billion divided into 1.00 billion redeemable common shares with a par value of P=1.00 per share to P=1.25 billion divided into 1.25 billion redeemable common shares with a par value of P=1.00 per share. This action was approved by the stockholders on August 4, 2012. The application for increase in authorized capital stock was filed with the SEC on November 13, 2012 and was approved by the SEC on January 24, 2013. Registration with the SEC of the 250 million shares increase is in process. On February 25, 2013, the BOD approved the increase in the authorized capital of the Fund from P=1.25 billion divided into 1.25 billion redeemable common shares with a par value of P=1.00 per share to P=3.00 billion divided into 3.00 billion redeemable common shares with a par value of P=1.00 per share. The BOD also adopted a resolution that the increase in the authorized capital stock of P=1.75 billion be made in tranches. The authorized capital stock will be initially increased by P=1.00 billion while the

27

succeeding increase will be executed upon determination and approval of the BOD. The authority of the BOD to increase the authorized capital stock is limited to P=3.00 billion. Deposits for Future Shares Subscriptions Deposits for future shares subscriptions pertain to total consideration received in excess of the authorized capital of the Fund with the purpose of applying the same as payment for future issuance of redeemable shares. Financial Reporting Bulletin (FRB) No. 6 issued by the SEC on February 16, 2012 and revised on January 24, 2013, requires an entity to classify deposit for future share subscription under equity if and only if, all of the following elements are present as of end of the reporting period: 1. The unissued authorized capital stock of the Fund is insufficient to cover the amount of shares classified as deposits for future shares subscriptions; 2. There is BOD approval on the proposed increase in authorized capital stock (for which a deposit was received by the Fund); 3. There is stockholders’ approval of said proposed increase; and 4. The application for the approval of the proposed increase has been filed with the SEC. If any or all of the foregoing elements are not present, the deposit for future share subscription should be recognized as a liability. In 2012, the Fund’s balance of deposits for future shares subscriptions was received in cash from the following counterparties:

Existing stockholders: Other stockholders P=545,514,436 Related parties:

Other related party 420,000,000 Directors and officers 650,000

New investors 70,769,992

P=1,036,934,428

The deposits for future shares subscriptions as of December 31, 2012 is classified under equity section of the statement of financial position as the Fund met all the aforementioned conditions by the SEC. As of December 31, 2012 and 2011, the total number of holders of redeemable common shares (including holders of shares in the deposits for future shares subscription) is 11,334 and 6,128, respectively. The net asset value per share (NAVPS) of the Fund rose to P4.8106 per share in 2012 from P3.7761 per share at the beginning of the year giving the investors a 27.4% return on investment For the year ended December 31, 2012, First Metro Save & Learn Equity Fund, Inc. posted a net income of P973.0 million. This is P 869.4 million or 823% higher than the P105.4 million net incomes for the same period in 2011.

The highlights of the results of operations for the year ended December 31, 2011 are as follows:

1. The P 1.0 billion trading gain represents the realized gain of P 495.2 million from sale of held -

for-trading (HFT) securities , P3.2 million from sale of available-for-sale (AFS) investment, P2.8 million

from derivative liabilityon pre-terminated loans, P 1.1 million from sale of bonds and unrealized gain on

marking-to-market of P522.8 million on HFT securities.

2. Dividend income amounting to P33.8 million came primarily from the cash dividend received

from Tel share of P10.6 million, SCC shares of P6.0 million, TDY shares of P4.6 million , VLL shares

28

of P4.6 million, DMC shares of P2.8 million, MBT shares of P2.5 million, PX shares of P2.2 million,

RLC shares of P2.2 million, PSB shares of P2.1 million, MER shares of P2.0 million, SMPH shares of

P2.0 million, PSB shares of P1.7 million and GTCap shares of P1.4 among others;

3. Interest Income, which contributed P34.1 million to the total revenue generated by the Fund for the period, was derived from bank deposits, loans and bonds (HFT investments). The increase of P13.1 million or 63% was due to higher placements in corporate bonds;

4. Marking-to-market of various stock investments resulted to P522.8 million marking-to-market gains as of December 31, 2012 (11.7% of total cost) which is lower as compared to the P59.0 million marking-to-market gains (2.8% of total cost) last year;

5. Operating expenses rose by P60.7 million or 107% mainly due to the increase in management

fees, increase in documentary stamps tax due to the increase in sales of Funds’ shares and increase

in brokers’ commission relative to stocks investments. 2011 The total resources of the Fund rose by P 1.4 Billion or 93% from P1.7 Billion at the beginning of the year to P3.1 billion as of December 31, 2011. As of December 31, 2011, the account consist of savings and current deposits with Metrobank and PSBank (P222.8 million. time deposits (P422.1 million) and money market placements (P60.5 million) The increase came mostly from sales of Fund shares.

Also, as of the same period, the equity portfolio of the Fund stood at P 2.2 billion, an increase of P1.1

billion or 93% from December 31, 2010 balance of P1.1 million. Details of investments are as follow:

ENDING

NO. OF ACQUISITION CURRENT

STOCK DESCRIPTION SHARES COST VALUE

AGI Alliance Global Group, Inc. 1,365,000 14,293,638 14,059,500

ALI Ayala Land Inc 2,278,750 36,021,391 34,454,700

AP Aboitiz Power Corporation 354,000 10,423,321 10,496,100

AT ATLAS CONSOLIDATED MINING & DEV' 50,000 975,339 842,000

DGTL Digital Telecommunications Phils 15,430,000 24,696,580 24,688,000

DMC DMCI Holdings Inc 2,777,894 103,129,349 114,171,443

EDC Energy Development Corp. 18,710,323 116,641,728 116,939,519

FMIC First Metro Investment Corp. 1,779,750 97,795,990 103,225,500

H2O Calapan Ventures,Inc. 6,189,000 15,434,889 14,234,700

I I-Remit Corporation 174,232 455,115 357,176

ICT Intl Container Terminal Services 114,300 6,081,673 6,035,040

LC Lepanto Mining Corp. 30,896,000 53,929,586 47,579,840

LR Leisure & Resorts Worl Corp. 7,281,200 69,305,937 66,186,108

MA Manila Mining Corp."A" 738,300,000 47,503,891 42,821,400

MAB Manila Mining Corp."B" 175,000,000 12,824,456 10,325,000

MBT Metropolitan Bank & Trust Compan 3,317,586 220,890,036 225,264,089

29

MPI Metro Pacific Investments Corp. 41,664,000 156,235,142 149,573,760

NI Nihao Minerals International 1,350,000 5,887,145 6,088,500

ORE Oriental Peninsula Resources Grp 56,445,988 198,862,096 224,090,572

PGOLD Puregold Price Club,Inc. 4,741,200 60,426,986 84,677,832

PNB Phillipine National Bank 1,016,080 56,135,414 56,697,264

PSB Philippine Savings Bank 2,419,156 141,858,634 174,179,232

PX Philex Mining Corp. 5,482,655 105,065,468 111,959,225

RLC Robinson's Land Corp. 11,101,691 142,189,753 125,227,074

SCC Semirara Mining Corporation 520,410 106,815,098 115,114,692

SECB Security Bank Corporation 350,000 32,326,631 34,090,000

SFIP Swift Foods, Inc. Convertible Pr 308,968 1,856,868 278,071

TDY Tanduay Holdings 22,949,000 98,069,748 100,057,640

TEL Phil Long Distance Telephone Co. 11,045 26,113,719 27,877,580

VLL Vista Land & Lifescapes, Inc. 57,877,900 179,504,735 159,164,225

1,210,256,128 2,141,750,356 2,200,755,783

Loans and receivables consist of:

Unquoted debt securities 177,117,696

Due from brokers 5,420,216

Accrued interest receivable 2,249,808

Dividends receivable 637,192

Accounts receivable 5,000

185,429,912

The increase was mostly attributed to the increase in investments in unquoted debt securities, accounts receivables from brokers and accrued interest receivables as offsetted by the decrease in other

receivables. Unquoted debt securities is further broken down as follows:

FMIC Bonds 126,010,000

CitySavings Bank Corp Notes 51,107,696

177,117,696

Total liabilities rose by 275% or P95.3 million mainly due to the increase in accounts payable to brokers and uncollected redemptions proceeds as offset by the decrease in payables to the Fund manager due

to payment of incentive fees. Capital stock increased by 69% primarily due to the net subscriptions to the fund amounting to P1.2 billion equivalents to 327.6 million shares. Total stockholders’ equity increased by 79% or P1.3 billion due to the net income of P105.4 million, net subscription to the fund of P1.2 billion and unrealized gain on AFS of P1.0 million. As of the period ended, subscriptions to the Fund amounted to P 2.5 billion equivalents to 587.7 million shares while redemptions amounted to P1.3 billion equivalents to 321.3 million shares. For the period ended December 31, 2011, First Metro Save & Learn Equity Fund, Inc. posted a net income of P105.4 million. This is P 428.1 million or 80% lower than the P533.5 million net incomes for the same period in 2010.

31

The increase in dividend income from P10.0 million in 2009 to P18.5 million on 2010 is primarily due to increase in equity investment. Interest Income, which contributed P10.7 million to the total revenue generated by the Fund for the period, was derived from bank deposits and loans. The decrease of P0.6 million was due to lower placements in time deposits and lower interest rates in 2010 than last year; Operating expenses rose by 119% mainly due to the increase in management fees relative to the increase in net assets of the Fund, documentary stamps tax due to the increase in sales of Funds’ shares and accrual of incentive fees payable to the Fund Manager as the Fund’s performance exceeded

the hurdle rate set in the prospectus. Increase in the market value of various stock investments resulted to P319.7 million marking-to-market gains as of end of December 31, 2010 (38.9% of total cost) which is higher as compared to the P 107.0 million marking-to-market gains (16.2% of total cost) last year.

Finally, the net asset value per share (NAVPS) of the Fund rose to P2.1400 per share in 2009 from P1.3983 per share at the beginning of the year giving the investors a 53.04% return on investment Other Matters The Fund Manager is not aware of any event and/or uncertainties that:

will have a material impact on liquidity

will trigger direct or contingent obligation that is material to the Fund including any default or acceleration of obligation

will have an impact on all material off-balance sheet transactions, arrangement, obligations and other relationships of the Fund

is a significant element of income or loss that did not arise from the Fund’s continuing operations

there are no material commitments for capital expenditures during the past year and in the subsequent year.

DISCUSSION OF KEY PERFORMANCE INDICATORS

SALEF, incorporated on May 27, 2005, is classified as an investment company with moderate risk. Its investment objective is to seek long-term capital appreciation by investing primarily in carefully selected listed and non-listed equity securities. The Fund has First Metro Asset Management, Inc. (FAMI) as its Investment Company Adviser, Administrator and Principal Distributor. The Fund started with an initial paid-up capitalization of P25,000,000.00, a small portion of the mutual fund industry (under the equity fund category). SALEF has identified the following as its key performance indicators:

Net Asset Value Per Share - Net Asset Value per share increased from P3.7761 at the end of

December 31 2011 to P4.8106 as at end of December 31, 2012 representing an annual increase of

27.4%.

Sales for the year 2012 - The Fund had total sales of P 3.9 billion for the year 2012. This is

56.0% higher compared to last year’s P 2.5 billion. Likewise the number of account holders increased

from 6,128 to 11,334.

32

Redemptions for the year 2012 - The Fund had total redemptions of P3.4 billion for the year

ended December 31, 2012 which is 183.3% higher than the P1.2 billion redemption in 2011.

Net Income vs. Benchmark - The net income of the Fund increased by 823.1% from P 105.4

million net income in 2011 to P 973.0 million net income in 2012.

Market Share vs. Benchmark – As of December 31, 2011, the Fund held an 14.20% share in the Equity Funds category while 2.92% share among all mutual funds in terms of net assets. On the basis of account holders, the Fund has 6,128 outstanding accounts or 16.12% of the total number of accounts in the Equity Funds category.

The following basic ratios measure the financial performance of the Company for the years ended 2012, 2011 and 2010:

2012 2011 2010

Return on Assets 1/ 22.39% 4.40% 41.64%

Return on Equity 2/ 22.82% 4.56% 44.75%

Cost-to-Income Ratio 3/ 12.55% 38.59% 10.21%

Net Asset Value per Unit 4/ 4.8106 3.7760 3.4883

Earnings per share 5/ 1.0400 0.1700 1.3900

PERFORMANCE INDICATORSAs of December 31 (Audited)

1/ Average assets for period ended December 31 were computed based on the average of the beginning and ending balances, over the net income for the year.

2/ Likewise, average equity for period ended December 31 was computed based

on the average of the beginning and ending balances, over the net income for the year.

3/ Operating expenses for the cost-to-income ratios do not include provision for

probable losses and provision for income taxes. 4/ Net asset value per unit by deducting total liabilities from total assets to come

up with the Net Assets and dividing with the outstanding number of shares for the period.

5/ Net income divided by weighted average number of common shares.

Item 7. Financial Statements Audited Financial Statements Please refer to Exhibit 1. Statement of Management’s Responsibility for Financial Statements Please refer to Exhibit 2. Interim Financial Statements

Please refer to Exhibit 3

First Metro Save and Learn Equity Fund, Inc. (An Open-End Mutual Fund Company)

Financial Statements December 31, 2012 and 2011 and for the Years Ended December 31, 2012, 2011 and 2010 and Independent Auditors’ Report SyCip Gorres Velayo & Co.

*SGVMG500095*

INDEPENDENT AUDITORS’ REPORT The Shareholders and the Board of Directors First Metro Save and Learn Equity Fund, Inc. Report on the Financial Statements We have audited the accompanying financial statements of First Metro Save and Learn Equity Fund, Inc., an open-end mutual fund company, which comprise the statements of financial position as at December 31, 2012 and 2011, and the statements of comprehensive income, statements of changes in equity and statements of cash flows for each of the three years in the period ended December 31, 2012, and a summary of significant accounting policies and other explanatory information. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Philippine Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Philippine Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

SyCip Gorres Velayo & Co. 6760 Ayala Avenue 1226 Makati City Philippines

Phone: (632) 891 0307 Fax: (632) 819 0872 www.sgv.com.ph BOA/PRC Reg. No. 0001, December 28, 2012, valid until December 31, 2015 SEC Accreditation No. 0012-FR-3 (Group A), November 15, 2012, valid until November 16, 2015

A member firm of Ernst & Young Global Limited

*SGVMG500095*

- 2 -

Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of First Metro Save and Learn Equity Fund, Inc. as at December 31, 2012 and 2011, and its financial performance and its cash flows for each of the three years in the period ended December 31, 2012, in accordance with Philippine Financial Reporting Standards. Report on the Supplementary Information Required Under Revenue Regulations 19-2011 and 15-2010 Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary information required under Revenue Regulations 19-2011 and 15-2010 in Note 18 to the financial statements is presented for purposes of filing with the Bureau of Internal Revenue and is not a required part of the basic financial statements. Such information is the responsibility of the management of First Metro Save and Learn Equity Fund, Inc.. The information has been subjected to the auditing procedures applied in our audit of the basic financial statements. In our opinion, the information is fairly stated in all material respects in relation to the basic financial statements taken as a whole. SYCIP GORRES VELAYO & CO. Vicky Lee Salas Partner CPA Certificate No. 86838 SEC Accreditation No. 0115-AR-3 (Group A), February 14, 2013, valid until February 13, 2016 Tax Identification No. 129-434-735 BIR Accreditation No. 08-001998-53-2012, April 11, 2012, valid until April 10, 2015 PTR No. 3669690, January 2, 2013, Makati City April 22, 2013

*SGVMG500095*

FIRST METRO SAVE AND LEARN EQUITY FUND, INC. (An Open-End Mutual Fund Company) STATEMENTS OF FINANCIAL POSITION December 31 2012 2011

ASSETS

Cash and Cash Equivalents (Notes 6 and 16) P=344,764,795 P=705,435,939

Financial Assets at Fair Value through Profit or Loss (Note 7 and 16) 5,098,109,776 2,200,755,783

Available-for-Sale Investment (Note 7) – 6,046,078

Loans and Receivables (Notes 8 and 16) 149,637,324 185,429,912

Other Asset 395,164 307,477

P=5,592,907,059 P=3,097,975,189

LIABILITIES AND EQUITY

LIABILITIES

Accounts Payable and Accrued Expenses (Notes 9 and 16) P=34,470,673 P=127,091,747

Derivative Liability (Note 8) – 2,788,975 34,470,673 129,880,722

EQUITY

Capital Stock (Note 10) 938,450,880 801,999,478

Additional Paid-in Capital (Note 10) 2,446,920,221 1,814,189,882

Deposits for Future Shares Subscriptions (Note 10) 1,036,934,428 –

Net Unrealized Gain on Available-for-Sale Investment (Note 7) – 1,039,127

Retained Earnings 1,136,130,857 350,865,980 5,558,436,386 2,968,094,467

P=5,592,907,059 P=3,097,975,189 See accompanying Notes to Financial Statements.

*SGVMG500095*

FIRST METRO SAVE AND LEARN EQUITY FUND, INC. (An Open-End Mutual Fund Company) STATEMENTS OF COMPREHENSIVE INCOME Years Ended December 31 2012 2011 2010

INVESTMENT INCOME (Note 15) Trading and securities gains (Notes 7 and 8) P=1,029,025,448 P=121,478,884 P=566,387,966 Interest income (Note 12) 34,085,142 20,967,538 10,730,545 Dividend income (Note 16) 55,544,230 33,779,694 18,505,002 Miscellaneous income – 918,105 – 1,118,654,820 177,144,221 595,623,513

OPERATING EXPENSES Management fees (Note 16) 94,301,239 43,183,215 41,048,050 Taxes and licenses 23,861,828 15,492,603 12,465,079 Brokers’ commission (Note 16) 18,009,630 8,125,547 5,772,350 Custodian and clearing fees 855,718 480,492 278,428 Professional fees 422,960 372,240 616,000 Directors and officers fees (Note 16) 217,200 217,000 252,000 Miscellaneous (Note 14) 2,773,290 496,284 361,328 140,441,865 68,367,381 60,793,235

INVESTMENT INCOME BEFORE INCOME TAX 978,212,955 108,776,840 534,830,278

PROVISION FOR FINAL TAX (Note 13) 5,181,026 3,382,624 1,336,831

NET INVESTMENT INCOME 973,031,929 105,394,216 533,493,447

OTHER COMPREHENSIVE INCOME (LOSS)

Changes in fair value of available-for-sale investments (Note 7) (1,039,127) 1,039,127 –

TOTAL COMPREHENSIVE INCOME P=971,992,802 P=106,433,343 P=533,493,447 See accompanying Notes to Financial Statements.

*SGVMG500095*

FIRST METRO SAVE AND LEARN EQUITY FUND, INC. (An Open-End Mutual Fund Company) STATEMENTS OF CHANGES IN EQUITY

Number of Shares

Outstanding (Note 10)

Capital Stock (Note 10)

Additional Paid-in Capital

(Note 10)

Deposits for Future Shares Subscriptions

(Note 10)

Net Unrealized Gain on

Available- For-Sale

Investment (Note 7)

Retained Earnings

Total Equity

Balance at January 1, 2012 801,999,478 P=801,999,478 P=1,814,189,882 P=– P=1,039,127 P=350,865,980 P=2,968,094,467 Total comprehensive income for the year – – – – (1,039,127) 973,031,929 971,992,802 Subscriptions during the year – – – 1,138,472,111 – – 1,138,472,111 Shares issued during the year 701,880,201 701,880,201 3,272,965,214 (101,537,683) – – 3,873,307,732 Shares redeemed during the year (565,428,799) (565,428,799) (2,640,234,875) – – (187,767,052) (3,393,430,726) Balance at December 31, 2012 938,450,880 P=938,450,880 P=2,446,920,221 P=1,036,934,428 P=– P=1,136,130,857 P=5,558,436,386

Balance at January 1, 2011 474,420,334 P=474,420,334 P=801,167,883 P=– P=– P=379,337,420 P=1,654,925,637 Total comprehensive income for the year – – – – 1,039,127 105,394,216 106,433,343 Shares issued during the year 707,050,561 707,050,561 1,823,344,628 – – – 2,530,395,189 Shares redeemed during the year (379,471,417) (379,471,417) (810,322,629) – – (133,865,656) (1,323,659,702) Balance at December 31, 2011 801,999,478 P=801,999,478 P=1,814,189,882 P=– P=1,039,127 P=350,865,980 P=2,968,094,467

Balance at January 1, 2010 346,581,247 P=346,581,247 P=301,325,344 P=– P=– P=81,622,650 P=729,529,241 Total comprehensive income for the year – – – – – 533,493,447 533,493,447 Shares issued during the year 438,979,934 438,979,934 856,582,054 – – – 1,295,561,988 Shares redeemed during the year (311,140,847) (311,140,847) (356,739,515) – – (235,778,677) (903,659,039) Balance at December 31, 2010 474,420,334 P=474,420,334 P=801,167,883 P=– P=– P=379,337,420 P=1,654,925,637 See accompanying Notes to Financial Statements.

*SGVMG500095*

FIRST METRO SAVE AND LEARN EQUITY FUND, INC. (An Open-End Mutual Fund Company) STATEMENTS OF CASH FLOWS Years Ended December 31 2012 2011 2010

CASH FLOWS FROM OPERATING ACTIVITIES

Investment income before income tax P=978,212,955 P=108,776,840 P=534,830,278 Adjustments for:

Fair value loss (gain) on: Financial assets at fair value through

profit or loss (Note 7) (526,785,087) (59,005,427) (319,745,535) Derivative liability (Note 8) (2,788,975) (2,705,423) 2,175,372

Loss (gain) on sale/redemption of: Available-for-sale investments (Note 7) (3,185,620) (43,314,951) – Unquoted debt securities 1,137,855 (918,105) –

Changes in operating assets and liabilities: Decrease (increase) in the amounts of: Financial assets at fair value through

profit or loss (2,370,568,906) (1,000,336,113) (131,268,914) Loans and receivables 34,654,733 (12,454,178) (19,850,983) Other asset (87,687) (95,295) (107,727) Increase (decrease) in accounts payable

and accrued expenses (92,621,074) 97,987,821 (110,903,011) Net cash used in operations (1,982,031,806) (912,064,831) (44,870,520) Income taxes paid (5,181,026) (3,382,624) (1,336,831) Net cash used in operating activities (1,987,212,832) (915,447,455) (46,207,351)

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from sale of available-for-sale investments (Note 7) 88,192,571 1,379,009,834 –

Payments for purchases of available-for-sale investments (Note 7) (80,000,000) (1,340,701,834) –

Net cash provided by investing activities 8,192,571 38,308,000 –

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from: Deposits for future shares subscriptions

(Note 10) 1,138,472,111 – – Shares issued (Note 10) 3,873,307,732 2,530,395,189 1,295,561,988 Payments for shares redeemed (Note 10) (3,393,430,726) (1,323,659,702) (903,659,039) Net cash provided by financing activities 1,618,349,117 1,206,735,487 391,902,949

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (360,671,144) 329,596,032 345,695,598

CASH AND CASH EQUIVALENTS AT AND CASH EQUIVALENTS 705,435,939 375,839,907 30,144,309

CASH AND CASH EQUIVALENTS AT END OF YEAR (Note 6) P=344,764,795 P=705,435,939 P=375,839,907

(Forward)

*SGVMG500095*

- 2 -

Years Ended December 31 2012 2011 2010

OPERATIONAL CASH FLOWS FROM INTEREST AND DIVIDENDS

Interest received P=33,029,800 P=20,304,992 P=11,878,566 Dividends received 55,253,711 33,142,502 18,898,529 P=88,283,511 P=53,447,494 P=30,777,095 See accompanying Notes to Financial Statements.

*SGVMG500095*

FIRST METRO SAVE AND LEARN EQUITY FUND, INC. (An Open-End Mutual Fund Company) NOTES TO FINANCIAL STATEMENTS 1. Corporate Information

First Metro Save and Learn Equity Fund, Inc. (the Fund) was incorporated on May 27, 2005 and subsequently registered under the Philippine Investment Company Act (Republic Act No. 2629) on September 6, 2005 as an open-end mutual fund company engaged in selling its capital to the public and investing the proceeds in selected high grade stocks. As an open-end mutual fund company, it stands ready at any time to redeem its outstanding redeemable shares at net asset value (NAV) per share.

First Metro Asset Management, Inc. (FAMI) serves as the investment manager and principal distributor of the Fund. Metropolitan Bank & Trust Company - Trust Banking Group (MBTC-TBG) serves as the Fund’s stock and transfer agent.

The Fund, which is domiciled in the Philippines, has its principal place of business at 18th Floor, PSBank Center, 777 Paseo de Roxas, Makati City.

2. Accounting Policies

Basis of Financial Statement Preparation The accompanying financial statements have been prepared under the historical cost convention except for financial instruments at fair value through profit or loss (FVPL) and available-for- sale (AFS) investments that have been measured at fair value. The financial statements are presented in Philippine peso, which is the Fund’s functional currency. All amounts in the financial statements are rounded to the nearest peso unless otherwise indicated.

Statement of Compliance The financial statements of the Fund have been prepared in compliance with Philippine Financial Reporting Standards (PFRS).

Changes in Accounting Policies The accounting policies adopted are consistent with those of the previous financial year except for the following amended PFRS, which were adopted as of January 1, 2012: PFRS 7, Financial Instruments: Disclosures - Transfers of Financial Assets (Amendments) The amendments require additional disclosures about financial assets that have been transferred but not derecognized to enhance the understanding of the relationship between those assets that have not been derecognized and their associated liabilities. In addition, the amendments require disclosures about continuing involvement in derecognized assets to enable users of financial statements to evaluate the nature of, and risks associated with, the entity’s continuing involvement in those derecognized assets. The amendments have no impact on the Fund’s financial position or performance and financial statement disclosures. Philippine Accounting Standards (PAS) 12, Income Taxes - Deferred Tax: Recovery of Underlying Assets (Amendment) This amendment to PAS 12 clarifies the determination of deferred tax on investment property measured at fair value. The amendment introduces a rebuttable presumption that the carrying amount of investment property measured using the fair value model in PAS 40, Investment

- 2 -

*SGVMG500095*

Property, will be recovered through sale and, accordingly, requires that any related deferred tax should be measured on a ‘sale’ basis. The presumption is rebutted if the investment property is depreciable and it is held within a business model whose objective is to consume substantially all of the economic benefits in the investment property over time (‘use’ basis), rather than through sale. Furthermore, the amendment introduces the requirement that deferred tax on non-depreciable assets measured using the revaluation model in PAS 16, Property, Plant and Equipment, always be measured on a sale basis of the asset. The amendments are effective for periods beginning on or after January 1, 2012. The amendments have no impact on the financial statements of the Fund. Summary of Significant Accounting Policies

Financial Instruments - Initial Recognition and Subsequent Measurement Date of recognition The Fund recognizes a financial asset or a financial liability in the statement of financial position when it becomes a party to the contractual provisions of the instrument. Purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace are recognized on the settlement date, except for transactions involving equity securities which are recognized on the trade date. Deposits and receivables are recognized when cash is advanced or when the earning process is completed.

Initial recognition of financial instruments All financial instruments are initially recognized at fair value. Except for financial assets and financial liabilities at FVPL, the initial measurement of financial instruments includes transaction costs. The Fund classifies its financial assets in to the following categories: financial assets at FVPL, AFS investments, held-to-maturity (HTM) securities and loans and receivables, while financial liabilities are classified as financial liabilities at FVPL and financial liabilities at amortized cost. The classification depends on the purpose for which the investments were acquired and whether they are quoted in an active market. Management determines the classification of its investments at initial recognition and, where allowed and appropriate, re-evaluates such designation at every reporting date.

As of December 31, 2012 the Fund has no AFS investments and HTM securities. As of December 31, 2011, the Fund has no HTM securities.

Determination of fair value The fair value of financial instruments traded in an active market at the reporting date is based on their quoted market prices or dealer price quotations (bid price for long positions and asking price for short positions), without any deduction for transaction costs. When current bid and asking prices are not available, the price of the most recent transaction provides evidence of the current fair value as long as there has not been a significant change in economic circumstances since the time of the transaction.

For all other financial instruments not listed in an active market, the fair value is determined by using appropriate valuation techniques. Valuation techniques include net present value techniques, comparison to similar instruments for which market observable prices exist, option pricing models, and other relevant valuation models.

Financial assets or financial liabilities at FVPL This category consists of financial assets or financial liabilities that are held for trading (HFT) or designated by management as at FVPL on initial recognition.

- 3 -

*SGVMG500095*

Financial assets and financial liabilities at FVPL are recorded in the statement of financial position at fair value, with changes in the fair value (except those accounted for as accounting hedges) recorded under the ‘Trading and securities gain (loss)’ account in profit or loss.

Embedded derivatives Embedded derivatives are separated from their host contracts and carried at fair value when the entire hybrid contracts (composed of both the host contract and the embedded derivative) are not accounted for as financial assets at FVPL, when their economic risks and characteristics are not closely related to those of their respective host contracts, and when a separate instrument with the same terms as the embedded derivatives would meet the definition of a derivative. The Fund assesses whether embedded derivatives are required to be separated from the host contract when the Fund first becomes a party to the contract. Reassessment of embedded derivatives is only done when there are changes in the contract that significantly modifies the contractual cash flows.

The Fund has an embedded call option on one of its unquoted debt securities classified as loans and receivables. Such derivative financial instrument is initially recorded at fair value on the date at which the derivative contract is entered into and is subsequently remeasured at fair value. Any gains or losses arising from changes in the fair value of the derivative are taken directly to profit or loss and are included under ‘Trading and securities gain (loss)’ account. A derivative is carried as an asset when the fair value is positive and as a liability when the fair value is negative.

Loans and receivables Loans and receivables are financial assets with fixed or determinable payments and fixed maturities that are not quoted in an active market. They are not entered into with the intention of immediate or short-term resale and are not classified as financial assets at FVPL or designated as ‘AFS investments’. Loans and receivables consist of amounts due from brokers, unquoted debt securities, accrued interest receivable and dividends receivable.

After initial measurement, loans and receivables are subsequently measured at amortized cost, less any allowance for credit losses. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees and costs that are an integral part of the effective interest rate (EIR). The amortization is included in ‘Interest income’ in profit or loss. The losses arising from impairment are recognized in ‘Provision for impairment and credit losses’ in profit or loss. AFS investments AFS investments are those which are designated as such or do not qualify to be classified as designated as financial assets at FVPL, HTM securities, or loans and receivables. They are purchased and held indefinitely, and may be sold in response to liquidity requirements or changes in market conditions.

After initial measurement, AFS investments are subsequently measured at fair value. The unrealized gains and losses arising from the fair valuation of AFS investments are excluded, net of tax, from reported earnings and are presented as ‘Net unrealized gain (loss) on AFS investments’ in other comprehensive income (OCI).

When an AFS investment is disposed of, any cumulative gain or loss previously recognized in equity is recognized as ‘Trading and securities gain (loss)’ in profit or loss. Where the Fund holds more than one investment in the same security, these are deemed to be disposed of on a first-in first-out basis. The losses arising from any impairment of such securities are charged against current operations.

- 4 -

*SGVMG500095*

Financial liabilities at amortized cost Issued financial instruments or their components, are classified as liabilities under the appropriate financial liability accounts, where the substance of the contractual arrangements result in the Fund having an obligation either to deliver cash or another financial asset to the holder, or to satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of own equity shares. The components of issued financial instruments that contain both liability and equity elements are accounted for separately, with the equity component being assigned the residual amount after deducting from the instrument as a whole the amount separately determined as the fair value of the liability component on the date of issue.

Due to and due from brokers Amounts due to brokers are payables for securities purchased (in a regular way transaction) that have been contracted for but not yet delivered on the reporting date. Refer to the accounting policy for ‘financial liabilities at amortized cost’ for recognition and measurement.

Amounts due from brokers are receivables for securities sold (in a regular way transaction) that have been contracted for but not yet delivered on the reporting date. Refer to accounting policy for ‘loans and receivables’ for recognition and measurement.

Offsetting of Financial Instruments Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously.

Derecognition of Financial Assets and Liabilities Financial assets A financial asset (or where applicable, a part of a financial asset or part of a group of financial assets) is derecognized when: 1. the rights to receive cash flows from the asset have expired; 2. the Fund retains the right to receive cash flows from the asset, but has assumed an obligation

to pay them in full without material delay to a third party under a “pass-through” arrangement; or

3. the Fund has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained the risks and rewards of the asset but has transferred the control of the asset.

Where the Fund has transferred its rights to receive cash flows from an asset or has entered into a “pass-through” arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Fund’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Fund could be required to repay.

Financial liabilities A financial liability is derecognized when the obligation under the liability is discharged or cancelled or has expired. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in profit or loss.

- 5 -

*SGVMG500095*

Impairment of Financial Assets The Fund assesses at each reporting date whether there is objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

Financial assets at amortized cost For financial assets at amortized cost, the Fund first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant.

If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the financial asset’s carrying amount and the present value of the estimated future cash flows (excluding future credit losses that have not been incurred). The estimated future cash flows is discounted at the financial asset’s original EIR. The calculation of the present value of the estimated future cash flows of a collateralized financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable. The carrying amount of the financial asset is reduced through use of an allowance account and the amount of loss is charged against profit or loss. Interest income continues to be recognized based on the original EIR of the asset. Loans and receivables, together with the associated allowance accounts, are written off when there is no realistic prospect of future recovery and all collateral has been realized. If, in a subsequent year, the amount of the estimated impairment loss decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is reduced by adjusting the allowance account. If a future write-off is later recovered, any amounts formerly charged are credited to ‘Provision for impairment and credit losses’ in profit or loss.

If the Fund determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses for impairment. Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the counterparties’ ability to pay all amounts due according to the contractual terms of the assets being evaluated. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessment for impairment. Assets individually assessed for impairment for which no impairment loss was recognized are also collectively assessed for impairment.

- 6 -

*SGVMG500095*

For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of such credit risk characteristics as industry, past-due status and term. Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period in which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist currently.

AFS investments For AFS investments, the Fund assesses at each reporting date whether there is objective evidence that a financial asset or group of financial assets is impaired.

In the case of debt instruments classified as AFS investments, the Fund assesses individually whether there is objective evidence of impairment based on the same criteria as financial assets carried at amortized cost. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortized cost and the current fair value, less any impairment loss on that investment previously recognized in profit or loss. Future interest income is based on the reduced carrying amount and is accrued based on the rate of interest used to discount future cash flows for the purpose of measuring impairment loss. Such accrual is recorded as part of ‘Interest income’ in profit or loss. If subsequently, the fair value of a debt instrument increased and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed through profit or loss.

Cash and Cash Equivalents Cash and cash equivalents consist of demand, savings, and time deposits in banks and short-term placements. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash with original maturities of three months or less from dates of placement and are subject to an insignificant risk of changes in value.

Revenue Recognition Revenue is recognized to the extent that it is probable that economic benefits will flow to the Fund and the revenue can be reliably measured, regardless of when payment is being made. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duties. The Fund assesses its revenue arrangements against specific criteria in order to determine if it is acting as a principal or as an agent. The Fund has concluded that it is acting as a principal in all of its revenue arrangements. The following specific recognition criteria must also be met before income is recognized:

Interest income Interest income is recognized in profit or loss as it accrues, taking into account the effective yield of the asset. Interest income includes the amortization of any discount or premium or other differences between the initial carrying amount of an interest-bearing instrument and its amount at maturity calculated on an EIR basis.

Dividend income Dividend income is recognized when the Fund’s right to receive payment is established. Trading and securities gain (loss) Trading and securities gain (loss) represents results arising from trading activities, disposal of AFS investments, redemption of unquoted debt securities and all gains and losses from changes in the fair values of derivatives and financial assets at FVPL.

- 7 -

*SGVMG500095*

Expense Recognition Expenses are recognized when a decrease in future economic benefits related to a decrease in an asset or an increase in a liability has arisen that can be measured reliably. Expenses are recognized as incurred.

Income Taxes Current tax Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that have been enacted or substantially enacted at the reporting date.

Deferred tax Deferred tax is provided, using the liability method, on all temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax assets are recognized for all deductible temporary differences, carryforward of unused tax credits from the excess minimum corporate income tax (MCIT) over regular corporate income tax (RCIT) and unused net operating loss carryover (NOLCO), to the extent that it is probable that taxable income will be available against which the deductible temporary differences, carryforward of unused tax credits and unused NOLCO can be utilized. Deferred tax, however, is not recognized when it arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting income nor taxable income.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable income will be available to allow all or part of the deferred tax assets to be utilized. Unrecognized deferred tax assets are reassessed at each reporting date and are recognized to the extent that it has become probable that future taxable profit will allow the deferred tax assets to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are applicable to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantially enacted at the reporting date.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to offset current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

Current tax and deferred tax relating to items recognized in equity are recognized in OCI.

NAV Per Share NAV per share is computed by dividing net assets (total assets less total liabilities) by the total number of redeemable shares outstanding, including the equivalent number of shares in the deposits for future shares subscriptions, as of the reporting date. Share Capital Transactions The Fund issues redeemable shares, which are redeemable at the holder’s option. Redeemable shares can be put back to the Fund at any time for cash equal to a proportionate share of the Fund’s NAV.

- 8 -

*SGVMG500095*

The Fund’s redeemable shares have the following features which qualify them as puttable instruments classified as equity instruments:

• The shares entitle the holder to a pro rata share of the Fund’s net assets in the event of the

Fund’s liquidation. • The shares are in the class of instruments that is subordinate to all other classes of instruments. • All shares in the class of instruments that is subordinate to all other classes of instruments

have identical features. • The shares do not include any contractual obligation to deliver cash or another financial asset

other than the holder’s right to a pro rata share of the Fund’s net assets. • The total expected cash flows attributable to the shares over their life are based substantially

on the profit or loss, the change in the recognized net assets or the change in the fair value of the recognized and unrecognized net assets of the Fund over the life of the shares.

Further, the Fund does not have other financial instruments or contract that have: • Total cash flows based substantially on the profit or loss, the change in the recognized net

assets or the change in the fair value of the recognized and unrecognized net assets of the Fund; and

• The effect of substantially restricting or fixing the residual return to the holders of redeemable shares.

The Fund continuously assesses the classification of its redeemable shares. If the redeemable shares cease to have all the features or meet the conditions stated above, the Fund will reclassify the shares as financial liabilities and measure them at fair value at the date of reclassification, with any differences from the previous carrying amount recognized in equity. If the redeemable shares subsequently have all the features and meet the above conditions, the Fund will reclassify them as equity instruments and measure them at the carrying amount of the liabilities at the date of reclassification.

The issuance, acquisition and resale of redeemable shares are accounted for as equity transactions. Upon issuance of shares (or sale of treasury shares), the consideration received is included in equity. Own equity instruments which are acquired (treasury shares) are deducted from equity and accounted for at amounts equal to the consideration paid, including any directly attributable incremental costs. The Fund’s policy is not to keep shares in treasury, but rather to cancel them once repurchased. No gain or loss is recognized in profit or loss on the purchase, sale or issuance or cancellation of the Fund’s own equity instruments.

Transaction costs incurred by the Fund in issuing, acquiring or selling its own equity instruments are accounted for as a deduction from equity to the extent that they are incremental costs directly attributable to the equity transaction that otherwise would have been avoided. Deposits for Future Shares Subscriptions Deposits for future shares subscriptions (DFS) are treated as equity account if the following conditions are met:

1. The unissued authorized capital stock of the Company is insufficient to cover the amount of

shares classified as deposits for future shares subscriptions; 2. There is Board of Directors’ (BOD) approval on the proposed increase in authorized capital

stock (for which a deposit was received by the Company);

- 9 -

*SGVMG500095*

3. There is stockholders’ approval of said proposed increase; and 4. The application for the approval of the proposed increase has been filed with the Securities

and Exchange Commission (SEC) as of end of the reporting period.

DFS not meeting the foregoing conditions are treated as a financial liability. Dividend Distribution Dividend distributions are at the discretion of the Fund. A dividend distribution to the Fund’s shareholders is accounted for as a deduction from retained earnings. A proposed cash dividend is recognized as a liability in the period in which it is approved by the BOD of the Fund. A proposed stock dividend is recognized as a liability in the period in which it is approved by the BOD and shareholders representing at least two-thirds (2/3) of the outstanding capital stock of the Fund.

Provisions Provisions are recognized when the Fund has a present obligation (legal or constructive) where, as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Fund expects some or all of a provision to be reimbursed, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in profit or loss, net of any reimbursement. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as ‘Interest expense’.

Retained Earnings The amounts in retained earnings include accumulated investment income of previous periods reduced by excess of redemption costs over the original selling price of redeemed shares.

Contingent Liabilities and Contingent Assets Contingent liabilities are not recognized in the financial statements but are disclosed unless the possibility of an outflow of resources embodying benefits is remote. Contingent assets are not recognized in the financial statements but are disclosed when an inflow of economic benefits is probable. Segment Reporting The Fund is organized into one main operating segment which invests in equity and debt instruments. All of the Fund’s activities are interrelated and interdependent.

Subsequent Events Post-year-end events up to the date of the approval of the BOD of the financial statements that provide additional information about the Fund’s position at the reporting date (adjusting events) are reflected in the financial statements. Post-year-end events that are not adjusting events, if any, are disclosed in the notes when material to the financial statements.

- 10 -

*SGVMG500095*

Future Changes in Accounting Policies

New and amended standards

Standards issued but not yet effective as of December 31, 2012 are listed below. The listing of standards and interpretations issued are those that the Fund reasonably expects to be applicable at a future date. The Fund intends to adopt these standards and interpretations when they become effective. Effective 2013 PFRS 7, Financial Instruments: Disclosures – Offsetting Financial Assets and Financial Liabilities These amendments require an entity to disclose information about rights of set-off and related arrangements (such as collateral agreements). The new disclosures are required for all recognized financial instruments that are set off in accordance with PAS 32. These disclosures also apply to recognized financial instruments that are subject to an enforceable master netting arrangement or ‘similar agreement’, irrespective of whether they are set-off in accordance with PAS 32. The amendments require entities to disclose, in a tabular format unless another format is more appropriate, the following minimum quantitative information. This is presented separately for financial assets and financial liabilities recognized at the end of the reporting period: a) The gross amounts of those recognized financial assets and recognized financial liabilities; b) The amounts that are set off in accordance with the criteria in PAS 32 when determining the

net amounts presented in the statement of financial position; c) The net amounts presented in the statement of financial position; d) The amounts subject to an enforceable master netting arrangement or similar agreement that

are not otherwise included in (b) above, including: i. Amounts related to recognized financial instruments that do not meet some or all of the

offsetting criteria in PAS 32; and ii. Amounts related to financial collateral (including cash collateral); and

e) The net amount after deducting the amounts in (d) from the amounts in (c) above.

The amendments to PFRS 7 are to be retrospectively applied and are effective for annual periods beginning on or after January 1, 2013. The amendments affect disclosures only and have no impact on the Fund’s financial position or performance.

PFRS 10, Consolidated Financial Statements PFRS 10 replaces the portion of PAS 27, Consolidated and Separate Financial Statements, that addresses the accounting for consolidated financial statements. It also includes the issues raised in Standing Interpretations Committee (SIC) 12, Consolidation - Special Purpose Entities. PFRS 10 establishes a single control model that applies to all entities including special purpose entities. The changes introduced by PFRS 10 will require management to exercise significant judgment to determine which entities are controlled, and therefore, are required to be consolidated by a parent, compared with the requirements that were in PAS 27. The standard becomes effective for annual periods beginning on or after January 1, 2013. The standard has no potential impact on the Fund’s financial position or performance.

- 11 -

*SGVMG500095*

PFRS 11, Joint Arrangements PFRS 11 replaces PAS 31, Interests in Joint Ventures and SIC-13, Jointly-controlled Entities: Non-monetary Contributions by Venturers. PFRS 11 removes the option to account for jointly controlled entities (JCEs) using proportionate consolidation. Instead, JCEs that meet the definition of a joint venture must be accounted for using the equity method. This standard becomes effective for annual periods beginning on or after January 1, 2013. The standard has no potential impact on the Fund’s financial position or performance.

PFRS 12, Disclosure of Interests in Other Entities PFRS 12 includes all of the disclosures related to consolidated financial statements that were previously in PAS 27, as well as all the disclosures that were previously included in PAS 31 and PAS 28, Investments in Associates. These disclosures relate to an entity’s interests in subsidiaries, joint arrangements, associates and structured entities. A number of new disclosures are also required. The standard becomes effective for annual periods beginning on or after January 1, 2013.

The adoption of PFRS 12 will affect disclosures only and have no impact on the Fund’s financial position or performance.

PFRS 13, Fair Value Measurement PFRS 13 establishes a single source of guidance under PFRSs for all fair value measurements. PFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under PFRS when fair value is required or permitted. This standard should be applied prospectively as of the beginning of the annual period in which it is initially applied. Its disclosure requirements need not be applied in comparative information provided for periods before initial application of PFRS 13. The standard becomes effective for annual periods beginning on or after January 1, 2013.

The Fund is currently assessing the impact of adopting this standard on its financial position or performance. PAS 1, Presentation of Financial Statements - Presentation of Items of Other Comprehensive Income or OCI (Amendments) The amendments to PAS 1 change the grouping of items presented in OCI. Items that can be reclassified (or “recycled”) to profit or loss at a future point in time (for example, upon derecognition or settlement) will be presented separately from items that will never be recycled. The amendments affect presentation only and have no impact on the Fund’s financial position or performance. The amendment becomes effective for annual periods beginning on or after July 1, 2012. The amendments will be applied retrospectively and will result in the modification of the presentation of items of OCI.

PAS 19, Employee Benefits (Revised) Amendments to PAS 19 range from fundamental changes such as removing the corridor mechanism and the concept of expected returns on plan assets to simple clarifications and rewording. The revised standard also requires new disclosures such as, among others, a sensitivity analysis for each significant actuarial assumption, information on asset-liability matching strategies, duration of the defined benefit obligation, and disaggregation of plan assets by nature and risk. The amendments become effective for annual periods beginning on or after January 1, 2013. The standard has no potential impact on the Fund’s financial position or performance.

- 12 -

*SGVMG500095*

PAS 27, Separate Financial Statements (as revised in 2011) As a consequence of the issuance of the new PFRS 10 and PFRS 12, what remains of PAS 27 is limited to accounting for subsidiaries, jointly controlled entities, and associates in the separate financial statements. The adoption of the amended PAS 27 will not have a significant impact on the separate financial statements of the entities in the Fund. The amendment becomes effective for annual periods beginning on or after January 1, 2013. The standard has no potential impact on the Fund’s financial position or performance.

PAS 28, Investments in Associates and Joint Ventures (as revised in 2011) As a consequence of the issuance of the new PFRS 11 and PFRS 12, PAS 28 has been renamed PAS 28, Investments in Associates and Joint Ventures, and describes the application of the equity method to investments in joint ventures in addition to associates. The amendment becomes effective for annual periods beginning on or after January 1, 2013. The standard has no potential impact on the Fund’s financial position or performance.

Philippine Interpretation IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine This interpretation applies to waste removal (stripping) costs incurred in surface mining activity, during the production phase of the mine. The interpretation addresses the accounting for the benefit from the stripping activity. The interpretation is effective for annual periods beginning on or after January 1, 2013. This new interpretation is not relevant to the Fund. Effective 2014 PAS 32, Financial Instruments: Presentation - Offsetting Financial Assets and Financial Liabilities (Amendments) The amendments clarify the meaning of “currently has a legally enforceable right to set-off” and also clarify the application of the PAS 32 offsetting criteria to settlement systems (such as central clearing house systems) which apply gross settlement mechanisms that are not simultaneous. The amendments affect presentation only and have no impact on the Fund’s financial position or performance. The amendments to PAS 32 are to be retrospectively applied for annual periods beginning on or after January 1, 2014. The amendments has no potential impact on the Fund’s financial position or performance. Effective 2015

PFRS 9, Financial Instruments PFRS 9, as issued, reflects the first phase on the replacement of PAS 39 and applies to the classification and measurement of financial assets and liabilities as defined in PAS 39. Work on impairment of financial instruments and hedge accounting is still ongoing, with a view to replacing PAS 39 in its entirety. PFRS 9 requires all financial assets to be measured at fair value at initial recognition. A debt financial asset may, if the fair value option (FVO) is not invoked, be subsequently measured at amortized cost if it is held within a business model that has the objective to hold the assets to collect the contractual cash flows and its contractual terms give rise, on specified dates, to cash flows that are solely payments of principal and interest on the principal outstanding. All other debt instruments are subsequently measured at fair value through profit or loss. All equity financial assets are measured at fair value either through OCI or profit or loss. Equity financial assets held for trading must be measured at fair value through profit or loss. For FVO liabilities, the amount of change in the fair value of a liability that is attributable to changes in credit risk must be presented in OCI. The remainder of the change in fair value is presented in profit or loss, unless presentation of the fair value change in respect of the liability’s credit risk in OCI would create or enlarge an accounting mismatch in profit or loss. All other PAS 39 classification and measurement requirements for financial liabilities have been carried forward

- 13 -

*SGVMG500095*

into PFRS 9, including the embedded derivative separation rules and the criteria for using the FVO. The adoption of the first phase of PFRS 9 will have an effect on the classification and measurement of the Fund’s financial assets, but will potentially have no impact on the classification and measurement of the Fund’s financial liabilities. PFRS 9 is effective for annual periods beginning on or after January 1, 2015. Philippine Interpretation IFRIC 15, Agreements for the Construction of Real Estate This interpretation covers accounting for revenue and associated expenses by entities that undertake the construction of real estate directly or through subcontractors. The SEC and the Financial Reporting Standards Council (FRSC) have deferred the effectivity of this interpretation until the final Revenue standard is issued by the International Accounting Standards Board (IASB) and an evaluation of the requirements of the final Revenue standard against the practices of the Philippine real estate industry is completed. Adoption of the interpretation when it becomes effective will not have any impact on the financial statements of the Fund. Annual Improvements to PFRSs (2009-2011 cycle) The Annual Improvements to PFRSs (2009-2011 cycle) contain non-urgent but necessary amendments to PFRSs. The amendments are effective for annual periods beginning on or after January 1, 2013 and are applied retrospectively. Earlier application is permitted.

PFRS 1, First-time Adoption of PFRS – Borrowing Costs The amendment clarifies that, upon adoption of PFRS, an entity that capitalized borrowing costs in accordance with its previous generally accepted accounting principles, may carry forward, without any adjustment, the amount previously capitalized in its opening statement of financial position at the date of transition. Subsequent to the adoption of PFRS, borrowing costs are recognized in accordance with PAS 23, Borrowing Costs. The amendment does not apply to the Fund as it is not a first-time adopter of PFRS.

PAS 1, Presentation of Financial Statements - Clarification of the requirements for comparative information The amendments clarify the requirements for comparative information that are disclosed voluntarily and those that are mandatory due to retrospective application of an accounting policy, or retrospective restatement or reclassification of items in the financial statements. An entity must include comparative information in the related notes to the financial statements when it voluntarily provides comparative information beyond the minimum required comparative period. The additional comparative period does not need to contain a complete set of financial statements. On the other hand, supporting notes for the third balance sheet (mandatory when there is a retrospective application of an accounting policy, or retrospective restatement or reclassification of items in the financial statements) are not required. The amendments affect disclosures only and have no impact on the Fund’s financial position or performance.

PAS 16, Property, Plant and Equipment - Classification of servicing equipment The amendment clarifies that spare parts, stand-by equipment and servicing equipment should be recognized as property, plant and equipment when they meet the definition of property, plant and equipment and should be recognized as inventory if otherwise. The amendment will not have any impact on the Fund’s financial position or performance.

- 14 -

*SGVMG500095*

PAS 32, Financial Instruments: Presentation - Tax effect of distribution to holders of equity instruments The amendment clarifies that income taxes relating to distributions to equity holders and to transaction costs of an equity transaction are accounted for in accordance with PAS 12, Income Taxes. The Fund expects that this amendment will not have any impact on its financial position or performance. PAS 34, Interim Financial Reporting - Interim financial reporting and segment information for total assets and liabilities The amendment clarifies that the total assets and liabilities for a particular reportable segment need to be disclosed only when the amounts are regularly provided to the chief operating decision maker and there has been a material change from the amount disclosed in the entity’s previous annual financial statements for that reportable segment. The amendment affects disclosures only and has no impact on the Fund’s financial position or performance.

3. Significant Accounting Judgments and Estimates

The preparation of the financial statements in compliance with PFRS requires the use of judgments and estimates. These judgments and estimates affect the reported amounts of assets and liabilities and contingent assets and liabilities at the reporting date, as well as the reported income and expenses for the year. Although the estimates are based on management’s best knowledge and judgment of current facts as at the reporting date, the actual outcome may differ from these estimates, which may possibly be significant.

Judgments and estimates are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The following are the critical judgments and key estimates that pose a significant risk of material adjustment to the carrying amounts of assets and liabilities within the next financial year:

Judgments a. Fair value of financial instruments

Where the fair values of financial assets and financial liabilities recorded in the statement of financial position cannot be derived from active markets, these are determined using internal valuation techniques that include the use of generally accepted market valuation models. The inputs to these models are taken from observable markets where possible, but where this is not feasible, estimates are used in establishing fair values. These estimates may include considerations of liquidity, volatility and correlation.

b. Financial assets not quoted in an active market The Fund classifies financial assets by evaluating, among others, whether the asset is quoted or not in an active market. Included in the evaluation on whether a financial asset is quoted in an active market is the determination on whether quoted prices are readily and regularly available, and whether those prices represent actual and regularly occurring market transactions on an arm’s length basis.

- 15 -

*SGVMG500095*

c. Embedded derivatives Where a hybrid instrument is not classified as a financial asset or liability at FVPL, the Fund evaluates whether the embedded derivative should be bifurcated and accounted for separately. This includes assessing whether the embedded derivative has a close economic relationship to the host contract.

d. Going concern The management has made an assessment of the Fund’s ability to continue as a going concern and is satisfied that the Fund has the resources to continue in business for the foreseeable future. Furthermore, management is not aware of any material uncertainties that may cast significant doubt upon the Fund’s ability to continue as a going concern. Therefore, the financial statements continue to be prepared on a going concern basis.

Estimates a. Credit losses of loans and receivables

The Fund reviews its loans and receivables at each reporting date to assess whether a provision for credit losses should be recorded in profit or loss. In particular, judgment of management is required in the estimation of the amount and timing of future cash flows when determining the level of allowance required. Such estimates are based on assumptions about a number of factors and actual results may differ resulting in future changes to the allowance.

As of December 31, 2012 and 2011, the carrying values of loans and receivables are disclosed in Note 8. The Fund assessed that these loans and receivables are not impaired as of December 31, 2012 and 2011.

b. Impairment of AFS investment The Fund classifies certain financial assets as AFS investments and recognizes movements in their fair value directly in equity. When the fair value declines, the Fund makes assumptions about the decline in value to determine whether it is an impairment loss that should be recognized in profit or loss. As of December 31, 2011, the carrying value of the Fund’s AFS investment is disclosed in Note 7. The Fund assessed that this AFS investment is not impaired as of December 31, 2011.

c. Fair value of embedded derivatives The fair value of a derivative that is not quoted in an active market is determined using valuation techniques such as discounted cash flow analysis and standard option pricing models. Where valuation techniques are used to determine fair values, they are validated and periodically reviewed by qualified personnel independent of the area that created them. All models are reviewed before they are used, and models are calibrated to ensure that outputs reflect actual data and comparative market prices. To the extent practicable, models use only observable data, however, areas such as credit risk (both own and counterparty), volatilities and correlations require management to make estimates. Changes in assumptions about these factors could affect the reported fair value of a financial instrument (refer to Note 8 for information on the carrying value of this instrument).

d. Recognition of deferred tax assets

Deferred tax assets are recognized for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and level of future taxable profits together with future tax planning strategies.

- 16 -

*SGVMG500095*

The estimates of future taxable income indicate that certain temporary differences will not be realized in the future. As of December 31, 2012 and 2011, the components of unrecognized deferred tax assets are disclosed in Note 13.

4. Financial Risk Management Objectives and Policies

Introduction The Fund has exposures to the following risks from the use of financial instruments:

a. Credit risk b. Liquidity risk c. Market risk Risk Management Framework The BOD has overall responsibility for the oversight of the Fund’s risk management process. Supporting the BOD in this function is the Audit Committee (AC).

The AC is responsible for monitoring compliance with the Company’s risk management policies and procedures, and for reviewing the adequacy of risk management practices in relation to the risks faced by the Company. The AC is assisted in these functions by the Internal Audit Group of Metrobank. The Internal Audit Group undertakes both regular and ad-hoc reviews of risk management controls and procedures, the results of which are reported to the AC. Under the management and distribution agreement of the Fund with FAMI as its Investment Manager and Principal Distributor of the Fund, FAMI manages the resources and operations of the Fund. Also, under the memorandum of agreement between FAMI and First Metro Investment Corporation (FMIC), FMIC covers the implementation and ongoing management of the Investment Guidelines outlined in the Fund’s prospectus.

FMIC’s BOD, through its board-level Risk Management Committee (RMC), is actively involved in planning, approving, reviewing, and assessing all risks involved within the Fund.

The Compliance Division (CD) of FMIC also collaborates with the RMC. The main task of the CD is to monitor and assess compliance of the Fund to the rules and regulations outlined in Fund’s prospectus as well as their compliance with the rules of the relevant regulatory bodies. The CD is also tasked to properly disseminate these rules and regulations to the Fund. FMIC’s Chief Risk Officer (CRO) manages and oversees the day-to-day activities of the Risk Management Group (RMG). RMG is tasked with identifying, analyzing, measuring, controlling and evaluating risk exposures arising from fluctuations in the prices or market values of instruments, products and transactions of FMIC and certain subsidiaries. It is responsible for recommending trading risk and liquidity management policies, setting uniform standards of risk assessment and measurement, providing senior management with periodic evaluation and simulation and analyzing limit compliance exceptions. The RMG furnishes daily reports to the FAMI and provides monthly reports to the RMC.

- 17 -

*SGVMG500095*

Nature of Risks and Risk Management Objectives and Policies The Fund’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects of such unpredictability on the Fund’s financial performance.

The Fund is governed by the provisions in its prospectus that incorporated relevant investment rules and regulations by regulators such as the Investment Company Act and the SEC, among others.

Specifically, the Fund primarily invests in equity securities, however, as a tactical move, a portion of the Fund may also be invested in government securities and in SEC-registered commercial papers but taking precautions of the market conditions, the level of interest rates, and of liquidity needs.

Moreover, the Fund’s investment activities are also guided by the following limits/conditions:

• Maximum investment in any single enterprise is allowed but only up to 10.00% of the Fund’s

NAV, except for investments in securities issued by the Philippine Government or its instrumentalities and, in no case, shall the total investment of the Fund exceed 10.00% of the outstanding securities of any one investee company.

• Investments to margin purchases of securities, commodity futures contracts, precious metals, unlimited liability instruments, short selling of currencies and securities are not allowed.

• Lending operations to corporations or other entities, public or private, shall not be engaged without prior review and approval of its BOD. Approvals however, are only to those determined to be financially sound.

• Underwriting or selling activities in connection with distribution of securities with the public shall not be participated except for its own capital stock.

• Investment in any company for the purpose of exercising control or management or to invest in the securities of other investment companies and real estate companies is prohibited.

• Anti-Money Laundering Law shall be observed in the acceptance of investment applications. • Sales of the Fund’s capital stock shall be on cash basis only and installment sales are

prohibited.

Credit risk Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss.

The Fund invests in government securities wherein the risk of default is considered minimal. Also, management policies prohibit engaging in lending operations without prior review and approval of its BOD. Another policy of the Fund directed at managing credit risk is that all sales of the Fund’s capital stock shall only be on cash basis. Installment sales are prohibited.

The Fund’s credit risk policy restricts the amount of investment in any single enterprise to 10.00% of the Fund’s NAV, except for government securities. Conversely, the total investment of the Fund in any one investee company must not exceed 10.00% of the outstanding securities.

- 18 -

*SGVMG500095*

The Fund is also not allowed to invest in securities of other investment companies and mutual funds.

The Fund manages credit risks by transacting with accredited counterparties only. Credit exposures are closely monitored to ensure that payments are made on time. Credit risk exposure is limited to the carrying amount of the financial assets. The maximum exposure to credit risk is represented by the carrying amounts of the financial assets that are carried in the statements of financial position and the related notes. There are no agreements concluded which reduced the maximum exposure to credit risk as of the reporting date. As of December 31, 2012 and 2011, the Fund does not hold collateral for the outstanding financial assets.

As of December 31, 2011, an unquoted debt security amounting to P=51.11 million is fully secured by certain receivables assigned by the debt issuer. Concentration of risks of financial assets with credit risk exposure An analysis of concentrations of credit risk by industry is shown below:

December 31, 2012

Cash and Cash Equivalents

Loans and Receivables

Investment Securities* Total

Holding firms P=– P=698,400 P=1,395,009,370 P=1,395,707,770 Financial intermediaries 344,764,795 7,173,030 976,682,086 1,328,619,911 Industrial companies – 141,765,894 927,303,526 1,069,069,420 Property – – 715,780,590 715,780,590 Mining & oil – – 545,976,240 545,976,240 Services – – 537,357,964 537,357,964 P=344,764,795 P=149,637,324 P=5,098,109,776 P=5,592,511,895 *Comprised of financial assets at FVPL.

December 31, 2011 Cash and Cash

Equivalents Loans and

Receivables Investment Securities* Total

Financial intermediaries P=705,435,939 P=184,995,335 P=593,813,261 P=1,484,244,535 Mining & oil – – 558,821,229 558,821,229 Property – – 318,846,000 318,846,000 Holding firms – – 277,804,703 277,804,703 Industrial companies – – 242,006,030 242,006,030 Services – 288,600 209,464,560 209,753,160 Government – 145,977 6,046,078 6,192,055 P=705,435,939 P=185,429,912 P=2,206,801,861 P=3,097,667,712 *Comprised of financial assets at FVPL and AFS investments.

The Fund focuses on industries and enterprises with strong growth potentials and or profitable historical financial performance. There may be concentration on certain industries at various points in time, depending on the overall condition of the financial and capital markets. All of the Fund’s financial assets are located in the Philippines.

- 19 -

*SGVMG500095*

The following table shows the credit quality of the Fund’s financial assets:

December 31, 2012 Neither Past Due nor Impaired

High Grade Standard

Grade Substandard

Grade Total Loans and receivables: Unquoted debt securities P=– P=140,000,000 P=– P=140,000,000 Due from brokers – 5,220,128 – 5,220,128 Accrued interest receivable 698,400 2,675,785 – 3,374,185 Dividend receivable – 927,711 – 927,711 Accounts receivable – 115,300 – 115,300 698,400 148,938,924 – 149,637,324 Time deposits – 320,528,647 – 320,528,647 Cash in banks – 24,236,148 – 24,236,148 698,400 493,703,719 – 494,402,119 Financial assets at FVPL:

Quoted equity securities 1,997,800,633 2,691,902,508 217,028,630 4,906,731,771 Private bonds 29,183,570 162,194,435 – 191,378,005

P=2,027,682,603 P=3,347,800,662 P=217,028,630 P=5,592,511,895

December 31, 2011 Neither Past Due nor Impaired

High Grade Standard

Grade Substandard

Grade Total Loans and receivables: Unquoted debt securities P=– P=177,117,696 P=– P=177,117,696 Due from brokers – 5,420,216 – 5,420,216 Accrued interest receivable 145,977 2,103,831 – 2,249,808 Dividend receivable 288,600 348,592 – 637,192 Accounts receivable – 5,000 – 5,000 434,577 184,995,335 – 185,429,912 Time deposits – 422,123,609 – 422,123,609 Cash in banks – 222,802,091 – 222,802,091 Short-term placements – 60,510,239 – 60,510,239 434,577 890,431,274 – 890,865,851 Financial assets at FVPL: 319,205,187 1,343,532,260 538,018,336 2,200,755,783 AFS Investments 6,046,078 – – 6,046,078 P=325,685,842 P=2,233,963,534 P=538,018,336 P=3,097,667,712

The Fund’s basis in grading its financial assets is as follows:

High grade - Entities that are highly liquid, sustain operating trends, unlikely to be affected by external factors and have competent management that uses current business models.

Standard grade - Entities that meet performance expectation, unlikely to be affected by external factors and have competent management that uses current business models.

Substandard grade - Entities with marginal liquidity and have a declining trend in operations or an imbalanced position in the balance sheet, though not to the point that repayment is jeopardized. As of December 31, 2012 and 2011, the Fund has no past due or impaired financial assets. It also does not have restructured loans for both periods.

- 20 -

*SGVMG500095*

Liquidity risk Liquidity or funding risk is the risk that an entity will encounter difficulty in raising funds to meet commitments associated with financial instruments. Liquidity risk may result from either the inability to sell financial assets quickly at their fair values; the counterparty failing on repayment of a contractual obligation; or, the inability to generate cash inflows as anticipated. The Fund is exposed to daily cash redemptions of its redeemable shares. It therefore invests majority of its assets in investments that are traded in an active market and can be readily disposed of, such as equity securities. The Fund has the ability to borrow within a short-term period to ensure settlement of amounts due. No such borrowings have arisen during the year. The Fund’s policy prescribes that at least 10.00% of its total assets is invested in any of the following: • Government securities such as treasury bills, fixed rate treasury notes, retail treasury bonds,

progress bonds and small-denominated treasury bonds; • Certificates of deposit; • SEC-registered commercial papers and bonds with a rating of at least Philippine Rating

System (PRS) 2 for short-term tenors and PRS Aaa for long-term tenors; • Bankers’ acceptance; and • Other allowed fixed income instruments As of December 31, 2012 and 2011, the Fund has complied with the above requirements. Also, the Fund shall not incur any further debt or borrowing, unless at the time it is incurred or immediately thereafter, there is asset coverage of at least 300.00% for all its borrowings. In the event that such asset coverage shall at any time fall below 300.00%, the Fund shall, within three days thereafter, reduce the amount of borrowings to an extent that the asset coverage of such borrowings shall be at least 300.00%.

The tables below, for the period indicated, show the maturity profile of the financial assets and liabilities of the Fund based on contractual undiscounted cash flows:

December 31, 2012

On demand Up to

1 month More than

1 to 3 months More than

3 to 6 months More than

6 to 12 months Beyond 1

year Total Financial Assets Loans and receivables: Unquoted debt security P=– P=– P=– P=– P=– P=140,000,000 P=140,000,000 Accrued interest receivable – 2,758,834 2,444,963 3,690,332 7,380,663 98,374,229 114,649,021

Due from brokers – 5,220,128 – – – – 5,220,128 Dividends receivable – 927,711 – – – – 927,711

Accounts receivable 115,300 – – – – – 115,300 115,300 8,906,673 2,444,963 3,690,332 7,380,663 238,374,229 260,912,160 Time deposits – 320,528,647 – – – – 320,528,647 Cash in bank 24,236,148 – – – – – 24,236,148 24,351,448 329,435,320 2,444,963 3,690,332 7,380,663 238,374,229 605,676,955 Financial assets at FVPL: Quoted equity securities 4,906,731,771 – – – – – 4,906,731,771

Private bonds 191,378,005 – – – – – 91,378,005 5,122,461,224 329,435,320 2,444,963 3,690,332 7,380,663 238,374,229 5,703,786,731 Financial Liabilities Financial liabilities at amortized cost: Payable to FAMI – 15,426,228 – – – – 15,426,228 Accounts payable – 8,953,473 – – – – 8,953,473 Due to brokers – 8,325,454 – – – – 8,325,454 Accrued expenses – 26,416 221,760 – – – 248,176 – 32,731,571 221,760 – – – 32,953,331 Redeemable shares 5,558,436,386 – – – – – 5,558,436,386 Net asset (liability) (P=435,975,162) P=296,703,749 P=2,223,203 P=3,690,332 P=7,380,663 P=238,374,229 P=112,397,014

- 21 -

*SGVMG500095*

December 31, 2011

On demand Up to

1 month More than

1 to 3 months More than

3 to 6 months More than

6 to 12 months Beyond 1

year Total Financial Assets Loans and receivables: Unquoted debt security P=– P=– P=– P=– P=– P=175,010,000 P=175,010,000 Accrued interest receivable – 2,031,841 1,782,654 2,392,187 4,946,570 36,555,230 47,708,482

Due from brokers – 5,420,216 – – – – 5,420,216 Dividends receivable – 637,192 – – – – 637,192

Accounts receivable 5,000 – – – – – 5,000 5,000 8,089,249 1,782,654 2,392,187 4,946,570 211,565,230 228,780,890 Time deposits – 422,123,609 – – – – 422,123,609 Cash in bank 222,802,091 – – – – – 222,802,091

Short-term placements – 60,510,239 – – – – 60,510,239 222,807,091 490,723,097 1,782,654 2,392,187 4,946,570 211,565,230 934,216,829 Financial assets at FVPL: Quoted equity securities 2,200,755,783 – – – – – 2,200,755,783 AFS investments:

Government debt securities – – – – – 5,068,633 5,068,633 2,423,562,874 490,723,097 1,782,654 2,392,187 4,946,570 216,633,863 3,140,041,245 Financial Liabilities Financial liabilities at amortized cost: Due to brokers – 111,519,505 – – – – 111,519,505 Accounts payable – 9,299,814 – – – – 9,299,814 Payable to FAMI – 4,863,371 – – – – 4,863,371 Accrued expenses – 12,993 101,200 – – – 114,193 – 125,695,683 101,200 – – – 125,796,883 Redeemable shares 2,968,094,467 – – – – – 2,968,094,467 Net asset (liability) (P=544,531,593) P=365,027,414 P=1,681,454 P=2,392,187 P=4,946,570 P=216,633,863 P=46,149,895

Market risk Market risk is the risk of changes in the fair value of financial instruments from fluctuations in foreign exchange rates (currency risk), market interest rates (interest rate risk) and market prices (equity price risk), whether such changes in prices are caused by factors specific to the individual instrument or its issuer or factors affecting all instruments traded in the market. The Funds exposure to market risk relates to interest rate risk and equity price risk. Risks to the financial instruments are managed by (a) closely monitoring investment objectives and constraints on investment by its Investment Manager; (b) detailed market observation and analysis; (c) setting limits on investment diversification i.e., issuer, industry, or sector index; and (d) establishment of profit and/or loss tolerance. Fair value interest rate risk Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate because of changes in interest rates. The Fund’s fixed income securities are exposed to such risk.

The table below demonstrates the sensitivity to a reasonably possible change in interest rates with all other variables held constant, of the Fund’s net income before tax (through the impact on interest on financial debt assets at FVPL) and the Fund’s equity (through the impact on unrealized gain/loss on AFS fixed rate debt securities).

Change in interest rates (in basis points) December 31, 2012 + 50 - 50 Sensitivity of income (P=4,080,486) P=4,184,735

Change in interest rates (in basis points) December 31, 2011 + 50 - 50 Sensitivity of equity (P=340,326) P=368,889

- 22 -

*SGVMG500095*

Equity price risk The Fund’s equity price risk exposure at year-end relates to financial assets whose values will fluctuate as a result of changes in market prices.

Such investment securities are subject to equity price risk due to changes in market values of instruments arising either from factors specific to individual instruments or their issuers or factors affecting all instruments traded in the market. The Fund measures the sensitivity of its investment securities by using the Philippine Stock Exchange index (PSEi) fluctuations.

The following table sets forth the impact of changes in the PSEi on the Fund’s fair value gain (loss) on its financial assets at FVPL as of December 31, 2012 and 2011:

2012 2011 Changes in PSEi 16.98% (16.98%) 14.40% (14.40%) Change in fair value gain (loss) on financial assets at

FVPL at equity portfolio under: Holding firms P=242,747,556 (P=242,747,556) P=45,118,406 (P=45,118,406) Industrial companies 144,829,121 (144,829,121) 18,117,020 (18,117,020) Financial intermediaries 122,827,848 (122,827,848) 69,864,962 (69,864,962) Property 120,450,133 (120,450,133) 46,467,052 (46,467,052) Services 88,947,922 (88,947,922) 26,499,839 (26,499,839) Mining and oil 77,725,044 (77,725,044) 101,111,772 (101,111,772)

Total P=797,527,624 (P=797,527,624) P=307,179,051 (P=307,179,051) As a percentage of the Fund’s net trading gain (loss)

for the year 152.55% (152.55%) 520.59% (520.59%)

5. Fair Value Measurement

Except for unquoted debt securities under ‘Loans and receivables’, all financial assets and liabilities have carrying amounts that approximate their fair values. As of December 31, 2012 and 2011, unquoted debt securities with carrying amounts of P=140.00 million and P=177.12 million, respectively have fair values amounting to P=157.23 million and P=188.69 million, respectively.

The methods and assumptions used by the Fund in estimating fair values of financial instruments are:

Financial assets at FVPL and AFS investments - fair values are generally based on quoted market prices. Unquoted debt securities - fair values of loans are estimated using the discounted cash flow methodology, using the Fund’s current incremental lending rates for similar types of loans. Where the instrument reprices on a quarterly basis or has a relatively short maturity, the carrying amounts approximate fair values.

Financial assets and liabilities at cost - carrying values approximate fair values since these instruments are liquid and have short-term maturities (less than three months). These financial instruments comprise cash and cash equivalents, loans and receivables other than unquoted debt securities, accounts payable and accrued expenses.

Derivative liability - fair value is estimated based on prices derived using acceptable valuation models.

- 23 -

*SGVMG500095*

Fair Value Hierarchy The Fund uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

• Quoted market prices in active markets for identical assets or liabilities (Level 1); • Inputs other than quoted prices included in Level 1 that are observable for the asset or liability,

either directly (as prices) or indirectly (derived from prices) (Level 2); and • Inputs for the asset or liability that are not based on observable market data (unobservable

inputs) (Level 3).

Financial assets at FVPL as of December 31, 2012 and 2011 and AFS investments as of December 31, 2011 are measured at fair value using level 1 inputs. Derivative liabilities are measured at fair value using level 2 inputs as of December 31, 2011.

As of December 31, 2012 and 2011, the Fund has no financial instruments that are reported within Level 3 and there were no transfers made among the three levels in the fair value hierarchy.

6. Cash and Cash Equivalents

This account consists of:

2012 2011 Cash in banks P=24,236,148 P=222,802,091 Time deposits 320,528,647 422,123,609 Short-term placements – 60,510,239 P=344,764,795 P=705,435,939

Cash in banks bear annual interest rates ranging from 0.25% to 0.75% in 2012 and 2011.

Time deposits bear annual interest rates ranging from 1.75% to 4.75% in 2012 and from 1.00% to 4.75% in 2011.

As of December 31, 2011, short-term placements represent investments in deposit substitutes with terms of less than 90 days issued by a related party (Note 16) and which earns annual interest of 4.50%.

7. Trading and Investment Securities

This account consists of:

2012 2011 Financial assets at FVPL P=5,098,109,776 P=2,200,755,783 AFS investment – 6,046,078 P=5,098,109,776 P=2,206,801,861

- 24 -

*SGVMG500095*

Financial Assets at FVPL Financial assets at FVPL consist of the following HFT securities:

2012 2011 Quoted equity securities P=4,906,731,771 P=2,200,755,783 Private bonds 191,378,005 – P=5,098,109,776 P=2,200,755,783

The carrying value of financial assets at FVPL includes fair value gains of P=526.79 million and P=59.01 million as of December 31, 2012 and 2011, respectively. Private bonds bear nominal annual interest rates ranging from 5.50% to 6.00% in 2012. AFS investment As of December 31, 2011, this account comprises government securities which bear annual interest of 8.14%. In 2012, the Fund acquired and sold government securities amounting to P=80.00 million and P=88.19 million, respectively. In 2011, the Fund acquired and sold government securities amounting to P=1.34 billion and P=1.38 billion, respectively. The changes in the net unrealized gain on AFS investments of the Fund in 2012 and 2011 follow:

2012 2011 Balance at January 1 P=1,039,127 P=– Fair value changes during the year 2,146,493 44,354,078 Amounts realized in profit or loss (3,185,620) (43,314,951) Net change during the year (1,039,127) 1,039,127 Balance at December 31 P=– P=1,039,127

Trading and Securities Gains The composition of trading and securities gain follows:

2012 2011 2010 Realized gains from sale of: Financial assets at FVPL P=496,265,766 P=16,453,083 P=248,817,803 AFS investments 3,185,620 43,314,951 – 499,451,386 59,768,034 248,817,803 Changes in fair value of: Financial assets at FVPL 526,785,087 59,005,427 319,745,535 Derivative liability 2,788,975 2,705,423 (2,175,372) 529,574,062 61,710,850 317,570,163 P=1,029,025,448 P=121,478,884 P=566,387,966

- 25 -

*SGVMG500095*

8. Loans and Receivables

This account consists of:

2012 2011 Unquoted debt securities P=140,000,000 P=177,117,696 Due from brokers 5,220,128 5,420,216 Accrued interest receivable 3,374,185 2,249,808 Dividends receivable 927,711 637,192 Accounts receivable 115,300 5,000 P=149,637,324 P=185,429,912

Unquoted Debt Securities Unquoted debt securities represent investments in commercial papers issued by financial and industrial institutions which earn annual interest rate of 5.64% in 2012 and from 4.50% to 9.59% in 2011. An unquoted debt security with a carrying value of P=51.11 million as of December 31, 2011, has an embedded call option which allows the issuer to redeem this instrument prior to its maturity but subject to a prepayment penalty of 1.50% of the outstanding principal. The call option was separated from its host instrument and is measured at fair value.

Derivative Liability As of December 31, 2011, the fair value of the embedded call option, shown as ‘Derivative liability’ in the statements of financial position, amounted to P=2.79 million. Changes in the fair value of the derivative liability amounting to a gain of P=2.79 million and P=2.71 million in 2012 and 2011, respectively, and a loss of P=2.18 million in 2010, are shown under ‘Trading and securities gain (loss)’ in the statements of comprehensive income.

Due from Brokers This represents receivables for securities sold but not yet settled as of reporting date.

9. Accounts Payable and Accrued Expenses

This account consists of:

2012 2011 Financial liabilities (Note 16): Payable to FAMI P=15,426,228 P=4,863,371 Accounts payable 8,953,473 9,299,814 Due to brokers 8,325,454 111,519,505 Accrued expenses 248,176 114,193 32,953,331 125,796,883 Nonfinancial liabilities: Withholding taxes payable 1,310,869 698,543 Documentary stamp taxes payable 206,473 596,321 1,517,342 1,294,864 P=34,470,673 P=127,091,747

- 26 -

*SGVMG500095*

Payable to FAMI includes unpaid management fees, redemption fees, sales load fees and incentive fees.

Accounts payable represents amounts payable to shareholders for the unpaid redemption proceeds, as well as subscriptions without confirmation from clients. A subscription is confirmed by submitting the required subscription documents. Once confirmed, these subscriptions are reclassified to equity. Due to brokers represents amounts payable to brokers for securities purchased but not yet settled as of reporting date.

Accrued expenses include professional fees, custodianship fees and retainer’s fee.

10. Equity

The authorized capital of the Fund is P=1.00 billion divided into 1.00 billion redeemable common shares of P=1.00 par value with each share carrying one vote. As of December 31, 2012 and 2011, issued and fully paid shares totaled 938.45 million and 802.00 million shares, respectively. The Fund’s capital is represented by these redeemable shares. Quantitative information about the Fund’s capital is provided in the statements of changes in equity. The shares are entitled to dividends when declared and to payment of a proportionate share of the Fund’s NAV on the redemption date or upon winding up of the Fund. The Fund’s issued shares are redeemed at their NAV calculated in accordance with redemption requirements. The total expected cash outflow on redemption of all the shares equals the Fund’s equity. For the purpose of calculating the NAV per share attributable to holders of redeemable shares, the Fund's investments in listed equity securities held for trading and AFS investments are valued on the basis of closing prices and Philippine Dealing System Transaction - R2 (PDST - R2), respectively. This valuation is different from PAS 39 valuation requirement which requires the use of bid price in the determination of fair value.

As of December 31, 2012 and 2011, the reconciliation between the Fund’s equity and the NAV per share calculated using closing prices follows:

2012 2011 Total equity calculated under PFRS P=5,558,436,386 P=2,968,094,467 Adjustment from bid prices to closing prices

and PDST - R2 26,167,911 60,312,285 Net asset value attributable to holders

of redeemable shares (a) 5,584,604,297 3,028,406,752 Number of redeemable shares* (b) 1,160,890,851 801,999,478 NAV per share (a/b) P=4.8106 P=3.7761

* Includes equivalent number of shares in the deposits for future shares subscriptions totaling 222,439,971 shares as of December 31, 2012

Issuance, repurchase and resale of redeemable shares are based on NAV per share attributable to holders of redeemable shares.

- 27 -

*SGVMG500095*

In 2012, 2011 and 2010, the Fund issued shares for a total amount P=3.87 billion, P=2.53 billion and P=1.30 billion, respectively, and redeemed shares for a total amount of P=3.39 billion, P=1.32 billion and P=0.90 billion, respectively. Authorized Capital Stock On March 14, 2012, the BOD approved the increase in authorized capital stock from P=1.00 billion divided into 1.00 billion redeemable common shares with a par value of P=1.00 per share to P=1.25 billion divided into 1.25 billion redeemable common shares with a par value of P=1.00 per share. This action was approved by the stockholders on August 4, 2012. The application for increase in authorized capital stock was presented for filing with the SEC on November 13, 2012 and was approved by the SEC on January 24, 2013. On February 25, 2013, the BOD approved the increase in the authorized capital of the Fund from P=1.25 billion divided into 1.25 billion redeemable common shares with a par value of P=1.00 per share to P=3.00 billion divided into 3.00 billion redeemable common shares with a par value of P=1.00 per share. The BOD also adopted a resolution that the increase in the authorized capital stock of P=1.75 billion be made in tranches. The authorized capital stock will be initially increased by P=1.00 billion while the succeeding increase will be executed upon determination and approval of the BOD. The authority of the BOD to increase the authorized capital stock is limited to P=3.00 billion. Deposits for Future Shares Subscriptions Deposits for future shares subscriptions pertain to total consideration received in excess of the authorized capital of the Fund with the purpose of applying the same as payment for future issuance of redeemable shares. Financial Reporting Bulletin (FRB) No. 6 issued by the SEC on February 16, 2012 and revised on January 24, 2013, requires an entity to classify deposit for future share subscription under equity if and only if, all of the following elements are present as of end of the reporting period: 1. The unissued authorized capital stock of the Fund is insufficient to cover the amount of shares

classified as deposits for future shares subscriptions; 2. There is BOD approval on the proposed increase in authorized capital stock (for which a

deposit was received by the Fund); 3. There is stockholders’ approval of said proposed increase; and 4. The application for the approval of the proposed increase has been filed with the SEC.

If any or all of the foregoing elements are not present, the deposit for future share subscription should be recognized as a liability. In 2012, the Fund’s balance of deposits for future shares subscriptions was received in cash from the following counterparties:

Existing stockholders: Other stockholders P=545,514,436 Related parties:

Other related party 420,000,000 Directors and officers 650,000

New investors 70,769,992 P=1,036,934,428

- 28 -

*SGVMG500095*

On April 15, 2013, the Fund requested for an exemptive relief from the requirements of FRB No. 6 by allowing the Fund to treat its deposits for future shares subscriptions as equity and to include the same in the computation of the NAV per share. In its letter dated April 19, 2013, the SEC opined that the applicable FRB No. 6 that is at issue in relation to the Fund’s deposits for future shares subscriptions, is the original version issued by the SEC on February 16, 2012, which provides that a company should not consider a deposit for future share subscription as an equity instrument unless all of the following elements are present: 1. There is a lack or insufficiency of authorized unissued shares of stock to cover the deposit; 2. The BOD and the stockholders have approved an increase in authorized capital stock to cover

the shares corresponding to the amount of the deposit; and 3. An application for the approval of the increase in authorized capital stock has been presented

for filing or filed with the SEC. The SEC confirmed that the foregoing requirements have been met by the Fund prior to the issuance of the revised FRB No. 006 on January 24, 2013 and thus allowed the Fund to recognize its deposits for future shares subscriptions as equity and to include the same in the computation of the NAV per share. As of December 31, 2012 and 2011, the total number of holders of redeemable common shares (including holders of shares in the deposits for future shares subscription) is 11,334 and 6,128, respectively.

Capital Management As a result of the ability to issue, repurchase and resell shares, the capital of the Fund can vary depending on the demand for redemptions and subscriptions to the Fund. The Fund’s objective is to achieve medium-term capital growth through investing in a selection of equity instruments. The Fund seeks to provide as high a level of current income, consistent with the preservation of capital and liquidity by observing regulatory guidelines and applying risk mitigating controls.

All security investments present a risk of loss of capital. The Investment Manager manages this risk through a careful selection of equity securities and other investments within specified limits. The Fund’s overall market positions are monitored on a daily basis by the Investment Manager and are reviewed on a quarterly basis by the BOD.

No changes were made in the objectives, policies and processes from the previous years. The Fund’s capital, as provided in the statement of changes in equity, comprise its capital stock, additional paid-in capital, deposits for future shares subscriptions, retained earnings and net unrealized gain on AFS investment. Minimum Capital Requirement As an investment company registered with the SEC, the Fund must continually comply with the minimum subscribed and paid-up capital of P=50.00 million. As of December 31, 2012 and 2011, the Fund has complied with the externally imposed capital requirement.

- 29 -

*SGVMG500095*

11. Maturity Analysis of Assets and Liabilities

The following table shows an analysis of assets and liabilities analyzed according to whether they are expected to be recovered or settled within one year and beyond one year from financial position dates:

2012 2011

Less than

twelve months Over

twelve months Total Less than

twelve months Over

twelve months Total Financial Assets Cash in bank P=24,236,148 P=– P=24,236,148 P=222,802,091 P=– P=222,802,091 Time deposits 320,528,647 – 320,528,647 422,123,609 – 422,123,609 Short-term placements – – – 60,510,239 – 60,510,239 Financial assets at FVPL:

Quoted equity securities 4,906,731,771 – 4,906,731,771 2,200,755,783 – 2,200,755,783 Private bonds 191,378,005 – 191,378,005 – – –

AFS investments: Government debt securities – – – – 6,046,078 6,046,078

5,442,874,571 – 5,442,874,571 2,906,191,722 6,046,078 2,912,237,800 Loans and receivables:

Unquoted debt security – 140,000,000 140,000,000 – 177,117,696 177,117,696 Due from brokers 5,220,128 – 5,220,128 2,249,808 – 2,249,808 Accrued interest receivable 3,374,185 – 3,374,185 5,420,216 – 5,420,216 Dividends receivable 927,711 – 927,711 637,192 – 637,192 Accounts receivable 115,300 – 115,300 5,000 – 5,000

9,637,324 140,000,000 149,637,324 8,312,216 177,117,696 185,429,912 Total Financial Assets 5,452,511,895 140,000,000 5,592,511,895 2,914,503,938 183,163,774 3,097,667,712 Nonfinancial Asset Other asset – 395,164 395,164 – 307,477 307,477 Total Assets P=5,452,511,895 P=140,395,164 P=5,592,907,059 P=2,914,503,938 P=183,471,251 P=3,097,975,189

Financial Liabilities Payable to FAMI P=15,426,228 P=– P=15,426,228 P=4,863,371 P=– P=4,863,371 Accounts payable 8,953,473 – 8,953,473 9,299,814 – 9,299,814 Due to brokers 8,325,454 – 8,325,454 111,519,505 – 111,519,505 Accrued expenses 248,176 – 248,176 – 2,788,975 2,788,975 Derivative liability – – – 114,193 – 114,193 32,953,331 – 32,953,331 125,796,883 2,788,975 128,585,858 Nonfinancial Liabilities Withholding taxes payable 1,310,869 – 1,310,869 698,543 – 698,543 Documentary stamp taxes payable 206,473 – 206,473 596,321 – 596,321 1,517,342 – 1,517,342 1,294,864 – 1,294,864 Total Liabilities P=34,470,673 P=– P=34,470,673 P=127,091,747 P=2,788,975 P=129,880,722

12. Interest Income This account consists of interest income from:

2012 2011 2010 Financial assets at FVPL P=17,728,243 P=– P=– Loans and receivables (Note 16) 9,797,340 8,066,736 7,837,902 Cash and cash equivalents (Note 16) 6,442,892 6,570,864 2,892,643 AFS investments 116,667 6,329,938 – P=34,085,142 P=20,967,538 P=10,730,545

13. Income Taxes

Provision for final tax pertains mainly to the 20.00% final withholding tax on gross interest income from bank deposits, short-term placements, and loans and discounts.

- 30 -

*SGVMG500095*

Current tax regulations provide that the RCIT rate shall be 30.00% starting January 1, 2009 and that interest allowed as a deductible expense is reduced by 33.00% of interest income subjected to final tax.

Starting July 1, 2008, an optional standard deduction (OSD) equivalent to 40.00% of gross income maybe claimed as an alternative deduction in computing for the RCIT. The Fund has elected to claim itemized deductions instead of OSD for its 2012, 2011 and 2010 RCIT computations. Current tax regulations also provide for MCIT of 2.00% on modified gross income and allow a NOLCO. The MCIT and NOLCO may be applied against the Fund’s income tax liability and taxable income, respectively, over a three-year period from the year of inception.

Details of the Fund’s NOLCO are as follows:

Inception Year Amount Expired Balance Expiry Year 2009 P=8,853,003 P=8,853,003 P=– 2012 2010 40,014,221 – 40,014,221 2013 2011 46,193,772 – 46,193,772 2014 2012 96,683,114 – 96,683,114 2015 P=191,744,110 P=8,853,003 P=182,891,107

The Fund did not set up deferred tax asset/liability on the following temporary differences:

2012 2011 NOLCO P=182,891,107 P=95,060,996 Fair value changes on derivative liability, net of

amortization of premium – 681,279 Accrued expenses 19,260,590 4,479,502 P=202,151,697 P=100,221,777

The Fund believes that it is not reasonably probable that these temporary differences will be realized in the future. The reconciliation of the statutory income tax to effective income tax follows:

2012 2011 2010 Statutory income tax rate 30.00% 30.00% 30.00% Tax effect of: Unrealized trading gain on financial assets at FVPL (16.16) (16.27) (17.93) Tax-paid income (15.49) (5.81) (13.75) Tax-exempt income (1.83) (21.52) (1.04) Movements in unrecognized deferred tax assets 3.42 13.45 2.41 Non-deductible expense 0.59 3.26 0.56 Effective income tax rate 0.53% 3.11% 0.25%

- 31 -

*SGVMG500095*

14. Miscellaneous Expense

This account consists of:

2012 2011 2010 Loss on pretermination of unquoted

debt securities P=1,137,855 P=– P=– Transaction charges 824,621 358,914 192,169 Other miscellaneous expenses 810,814 137,370 169,159 P=2,773,290 P=496,284 P=361,328

Transaction charges include expenses incurred from acquisitions and disposals of HFT securities. Other miscellaneous expenses include insurance premiums, notarial fees and membership fees and dues.

15. Segment Information

For management purposes, the Fund is organized into one main operating segment, which invests in equity securities and debt instruments. All of the Fund’s activities are interrelated and interdependent. Accordingly, all significant operating decisions are based upon analysis of the Fund as one segment. The financial results from this segment are equivalent to the financial statements of the Fund as a whole. The table below analyzes the Fund’s operating income per investment type:

2012 2011 2010 Equity securities P=1,073,351,497 P=109,238,204 P=587,068,340 Debt instruments including deposit

placements 42,514,348 65,200,594 10,730,545 Changes in fair value of derivative liability

(Notes 7 and 8) 2,788,975 2,705,423 (2,175,372) P=1,118,654,820 P=177,144,221 P=595,623,513

16. Related Party Transactions

In the ordinary course of business, the Fund has transactions with related parties. Parties are related if one party has the ability, directly or indirectly, to control the other parties or exercise significant influence over the other party in making financial and operating decisions and the parties are subject to common control or common significant influence.

The Fund’s related parties also include key management personnel, close family members of key management personnel and entities which are controlled, significantly influenced by or for which significant voting power is held by key management personnel or their close family members.

- 32 -

*SGVMG500095*

Details of investments in the Funds by related parties are set out below:

Number of shares held at

January 1

% interest held at

January 1

Number of shares

acquired during

the year

Number of shares

disposed during the

year

Number of shares held at

December 31

% interest held at

December 31 2012 FMIC1 157,307,734 19.61% 91,781,211 – 249,088,945 21.45% PBC Capital Investment

Corporation (PBC) 49,033,389 6.11% 8,270,331 6,405,001 50,898,719 4.38% SBC Properties, Inc. – 0.00% 4,929,862 – 4,929,862 0.42% FAMI 2,475,436 0.31% 1,533,810 – 4,009,246 0.24%

Directors and officers2 485,548 0.06% 686,827 152,001 1,020,374 0.09% 2011 FMIC 31,954,226 6.74% 125,353,508 – 157,307,734 19.61% PBC 9,048,678 1.91% 39,984,711 – 49,033,389 6.11% FAMI 1,023,467 0.22% 1,451,969 – 2,475,436 0.31% FMSBC 929,541 0.20% 198,119 1,127,660 – – Directors and officers 166,510 0.04% 340,839 21,801 485,548 0.06%

1 Includes equivalent number of shares in the deposits for future shares subscriptions totaling 91,781,211 as of December 31, 2012. 2 Includes equivalent number of shares in the deposits for future shares subscriptions totaling 139,298 as of December 31, 2012.

The Fund currently has a Management and Distribution Agreement with FAMI and a Stock and Transfer Agency Agreement with MBTC-TBG (the Agreements). The Agreements cover the services to be rendered by FAMI and MBTC-TBG, and the payment of fees based on the Fund’s average NAV computed on a daily basis, except for stock and transfer agency fee, as follows:

Service Account Rate 2012 2011 2010 Fund management and distribution

Management fee*

1.75% to 1.875% of the Fund’s average net asset value computed on a daily basis P=94,204,979 P=43,087,215 P=21,125,365

Fund management and distribution

Incentive fee** 10% of realized appreciation in value

of net assets in excess of the defined hurdle rate – –

19,826,685 Stock and transfer agency Retainer’s fee P=8,000 per month accrued daily 96,260 96,000 96,000 P=94,301,239 P=43,183,215 P=41,048,050

* On December 14, 2011, the BOD of the Fund approved the increase in management fee from 1.75% to 1.875% effective March 2012. ** Included in management fees in the statements of comprehensive income. The management and retainer’s fee are paid on a monthly basis while the incentive fees are paid annually. These agreements shall remain in effect from year to year, unless otherwise terminated or amended by the parties in accordance with specified terms and conditions. Incentive fee is recognized when the appreciation in value of the Fund’s net assets is in excess of the defined hurdle rate. The fee is equivalent to one tenth (1/10) of the realized appreciation in value of the Fund's net assets in excess of the defined hurdle rate equivalent to PSEi annual performance plus 6.50%. As of December 31, 2012 and 2011, the realized appreciation of the Fund’s net assets did not exceed the defined hurdle rate.

The following table provides the total amount of investments in time deposits and short-term placements entered into with related parties for the relevant financial year:

Other Related Parties Amount/Volume* Outstanding Balance Terms Conditions 2012:

Placements P=78,356,965,457 1 - 48 days; Unsecured; Maturities 78,519,070,659 P=320,528,647 1.75% - 4.75% No impairment

2011: Placements P35,826,648,178 1 - 182 days; Unsecured; Maturities 35,820,251,138 P482,633,848 1.00% - 4.50% No impairment

*Volume of transactions includes rolled over balances.

- 33 -

*SGVMG500095*

As of December 31, 2012 and 2011, the Fund’s investments in equity and debt securities of its related parties are as follows: 2012 Other Related Parties Amount/Volume Outstanding Balance Terms Conditions Financial assets at FVPL:

Equity Securities: Outright purchase P=819,788,628 On demand; Unsecured; Outright sale 856,237,177 P=723,113,176 Non-interest bearing No impairment

Debt Securities: Outright purchase 283,355,000 On demand; Unsecured; Outright sale 251,390,000 159,283,773 3.88% - 5.68% No impairment

2011 Other Related Parties Amount/Volume Outstanding Balance Terms Conditions Financial assets at FVPL:

Equity Securities: Outright purchase P=731,187,899 On demand; Unsecured; Outright sale 307,651,446 P=502,668,821 Non-interest bearing No impairment

Loans: Placements 240,000,000 5 years and 3 months; Unsecured; Maturities 113,990,000 126,010,000 5.68% No impairment

Outright purchases and outright sales of equity and debt securities of the Fund with its related parties in 2012 and 2011 follow:

2012 2011 Other Related Parties Purchase of securities P=2,965,440,782 P=1,662,827,871 Sale of securities 1,133,076,192 1,350,025,752

The following table shows other related party transactions included in the financial statements:

Elements of Transactions

Statements of Financial

Position Amounts Statements of Comprehensive

Income Amounts Related Party Relationship Account 2012 2011 2012 2011 2010 MBTC Entity with significant

influence over the Fund Cash and cash equivalents P=21,496,742 P=218,298,069

Accrued interest receivable 49,860 41,003 Interest income P=5,711,147 P=1,818,413 P=1,804,129 Dividend income 2,532,776 71,000 – Trading gain - net 92,186,316 4,509,225 –

FMIC Entity with significant influence over the Fund

Interest income

7,184,241

1,213,834

2,567,569

Trading gain - net 42,956,021 5,489,355 –

FAMI Investment manager Payable to FAMI 15,426,228 4,863,371 Accrued interest receivable – 42,291 Interest income 861,531 995,578 3,711,789

Philippine Savings Bank Other related party Cash and cash equivalents 1,166,300 3,119,263 Accrued interest receivable – 286,644 Interest income 715,909 4,521,294 1,088,514 Dividend income 3,841,990 1,045,776 46,841 Trading gain (loss) 31,894,706 32,407,406 (519,128)

FMSBC Other related party Due from brokers 5,210,354 5,420,216 Due to brokers 15,478 92,899,362 Broker’s commission 9,656,068 3,651,650 1,335,950

First Metro Save and Learn Fixed Income Fund, Inc.

Other related party Accounts payable - others – 1,542,482

Directors and officers Directors and officers Accounts payable - others – 10,000 Directors’ and officers’ fees 217,200 217,000 252,000

FMIC, a subsidiary of MBTC, is the major shareholders of the Fund. Other related parties are entities which are under common significant influence as the Fund or are under common control of FMIC and MBTC.

- 34 -

*SGVMG500095*

Terms and conditions of transactions with related parties Transactions between related parties are based on terms similar to those offered to nonrelated parties. Outstanding balances at year-end are unsecured and settlement occurs in cash. There are no provisions for doubtful debts related to outstanding balances. There have been no guaranties provided or received for any related party receivables or payables.

17. Approval for the Release of the Financial Statements

The accompanying financial statements were authorized for issue by the BOD of the Fund on April 22, 2013.

18. Report on the Supplementary Information Required Under Revenue Regulations 19-2011 and 15-2010

Supplementary Information Required Under Revenue Regulations No. 19-2011 In addition to the required supplementary information under Revenue Regulation (RR) 15-2010, on December 9, 2011, the BIR issued RR 19-2011 which prescribes the new BIR forms that will be used for income tax filing. Specifically, companies are required to disclose certain information in their respective note to financial statements. For the taxable year December 31, 2012, the Fund reported the following revenues and expenses: Revenues

Services/operations P=9,596,018 Expenses

Cost of services: Management fees P=79,423,891

Itemized deductions: Brokers’ commission P=18,009,630 Taxes and licenses 5,618,038 Other services 855,718

Transaction charges 824,621 Professional fees 422,960 Director's fees 217,200 Management fees 96,260

Membership fees and dues 20,000 Insurance premium 600

Miscellaneous 790,214 P=26,855,241

- 35 -

*SGVMG500095*

Supplementary Information Required Under Revenue Regulations No. 15-2010 On November 25, 2010, the Bureau of Internal Revenue issued RR 15-2010 to amend certain provisions of RR 21-2002. RR 15-2010 provides that starting 2010 the notes to financial statements shall include information on taxes and licenses paid or accrued during the taxable year.

The Fund reported and/or paid the following types of taxes for the year: Taxes and Licenses As of December 31, 2012, taxes and licenses of the Fund consist of:

Stock transaction tax P=18,243,790 Documentary stamp tax 4,646,273 Local taxes 971,765 P=23,861,828

Stock transaction tax represents ½ of 1% of the gross selling price of securities sold by the Fund.

Documentary stamp tax pertains to tax paid on the original issuance of redeemable shares during the year. As of December 31, 2012, outstanding documentary stamp tax payable amounted to P=0.21 million.

Withholding Taxes Total remittances made by the Fund amounting to P=12.49 million in 2012 pertain to expanded withholding taxes. As of December 31, 2012, the outstanding balance of withholding taxes payable amounted to P=1.31 million.

First Metro Save and Learn Equity Fund, Inc. (An Open-End Mutual Fund Company)

Financial Statements December 31, 2012 and 2011 and for the Years Ended December 31, 2012, 2011 and 2010 and Independent Auditors’ Report SyCip Gorres Velayo & Co.

*SGVMG500095*

INDEPENDENT AUDITORS’ REPORT The Shareholders and the Board of Directors First Metro Save and Learn Equity Fund, Inc. Report on the Financial Statements We have audited the accompanying financial statements of First Metro Save and Learn Equity Fund, Inc., an open-end mutual fund company, which comprise the statements of financial position as at December 31, 2012 and 2011, and the statements of comprehensive income, statements of changes in equity and statements of cash flows for each of the three years in the period ended December 31, 2012, and a summary of significant accounting policies and other explanatory information. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Philippine Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Philippine Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

SyCip Gorres Velayo & Co. 6760 Ayala Avenue 1226 Makati City Philippines

Phone: (632) 891 0307 Fax: (632) 819 0872 www.sgv.com.ph BOA/PRC Reg. No. 0001, December 28, 2012, valid until December 31, 2015 SEC Accreditation No. 0012-FR-3 (Group A), November 15, 2012, valid until November 16, 2015

A member firm of Ernst & Young Global Limited

*SGVMG500095*

- 2 -

Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of First Metro Save and Learn Equity Fund, Inc. as at December 31, 2012 and 2011, and its financial performance and its cash flows for each of the three years in the period ended December 31, 2012, in accordance with Philippine Financial Reporting Standards. Report on the Supplementary Information Required Under Revenue Regulations 19-2011 and 15-2010 Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary information required under Revenue Regulations 19-2011 and 15-2010 in Note 18 to the financial statements is presented for purposes of filing with the Bureau of Internal Revenue and is not a required part of the basic financial statements. Such information is the responsibility of the management of First Metro Save and Learn Equity Fund, Inc.. The information has been subjected to the auditing procedures applied in our audit of the basic financial statements. In our opinion, the information is fairly stated in all material respects in relation to the basic financial statements taken as a whole. SYCIP GORRES VELAYO & CO. Vicky Lee Salas Partner CPA Certificate No. 86838 SEC Accreditation No. 0115-AR-3 (Group A), February 14, 2013, valid until February 13, 2016 Tax Identification No. 129-434-735 BIR Accreditation No. 08-001998-53-2012, April 11, 2012, valid until April 10, 2015 PTR No. 3669690, January 2, 2013, Makati City April 22, 2013

*SGVMG500095*

FIRST METRO SAVE AND LEARN EQUITY FUND, INC. (An Open-End Mutual Fund Company) STATEMENTS OF FINANCIAL POSITION December 31 2012 2011

ASSETS

Cash and Cash Equivalents (Notes 6 and 16) P=344,764,795 P=705,435,939

Financial Assets at Fair Value through Profit or Loss (Note 7 and 16) 5,098,109,776 2,200,755,783

Available-for-Sale Investment (Note 7) – 6,046,078

Loans and Receivables (Notes 8 and 16) 149,637,324 185,429,912

Other Asset 395,164 307,477

P=5,592,907,059 P=3,097,975,189

LIABILITIES AND EQUITY

LIABILITIES

Accounts Payable and Accrued Expenses (Notes 9 and 16) P=34,470,673 P=127,091,747

Derivative Liability (Note 8) – 2,788,975 34,470,673 129,880,722

EQUITY

Capital Stock (Note 10) 938,450,880 801,999,478

Additional Paid-in Capital (Note 10) 2,446,920,221 1,814,189,882

Deposits for Future Shares Subscriptions (Note 10) 1,036,934,428 –

Net Unrealized Gain on Available-for-Sale Investment (Note 7) – 1,039,127

Retained Earnings 1,136,130,857 350,865,980 5,558,436,386 2,968,094,467

P=5,592,907,059 P=3,097,975,189 See accompanying Notes to Financial Statements.

*SGVMG500095*

FIRST METRO SAVE AND LEARN EQUITY FUND, INC. (An Open-End Mutual Fund Company) STATEMENTS OF COMPREHENSIVE INCOME Years Ended December 31 2012 2011 2010

INVESTMENT INCOME (Note 15) Trading and securities gains (Notes 7 and 8) P=1,029,025,448 P=121,478,884 P=566,387,966 Interest income (Note 12) 34,085,142 20,967,538 10,730,545 Dividend income (Note 16) 55,544,230 33,779,694 18,505,002 Miscellaneous income – 918,105 – 1,118,654,820 177,144,221 595,623,513

OPERATING EXPENSES Management fees (Note 16) 94,301,239 43,183,215 41,048,050 Taxes and licenses 23,861,828 15,492,603 12,465,079 Brokers’ commission (Note 16) 18,009,630 8,125,547 5,772,350 Custodian and clearing fees 855,718 480,492 278,428 Professional fees 422,960 372,240 616,000 Directors and officers fees (Note 16) 217,200 217,000 252,000 Miscellaneous (Note 14) 2,773,290 496,284 361,328 140,441,865 68,367,381 60,793,235

INVESTMENT INCOME BEFORE INCOME TAX 978,212,955 108,776,840 534,830,278

PROVISION FOR FINAL TAX (Note 13) 5,181,026 3,382,624 1,336,831

NET INVESTMENT INCOME 973,031,929 105,394,216 533,493,447

OTHER COMPREHENSIVE INCOME (LOSS)

Changes in fair value of available-for-sale investments (Note 7) (1,039,127) 1,039,127 –

TOTAL COMPREHENSIVE INCOME P=971,992,802 P=106,433,343 P=533,493,447 See accompanying Notes to Financial Statements.

*SGVMG500095*

FIRST METRO SAVE AND LEARN EQUITY FUND, INC. (An Open-End Mutual Fund Company) STATEMENTS OF CHANGES IN EQUITY

Number of Shares

Outstanding (Note 10)

Capital Stock (Note 10)

Additional Paid-in Capital

(Note 10)

Deposits for Future Shares Subscriptions

(Note 10)

Net Unrealized Gain on

Available- For-Sale

Investment (Note 7)

Retained Earnings

Total Equity

Balance at January 1, 2012 801,999,478 P=801,999,478 P=1,814,189,882 P=– P=1,039,127 P=350,865,980 P=2,968,094,467 Total comprehensive income for the year – – – – (1,039,127) 973,031,929 971,992,802 Subscriptions during the year – – – 1,138,472,111 – – 1,138,472,111 Shares issued during the year 701,880,201 701,880,201 3,272,965,214 (101,537,683) – – 3,873,307,732 Shares redeemed during the year (565,428,799) (565,428,799) (2,640,234,875) – – (187,767,052) (3,393,430,726) Balance at December 31, 2012 938,450,880 P=938,450,880 P=2,446,920,221 P=1,036,934,428 P=– P=1,136,130,857 P=5,558,436,386

Balance at January 1, 2011 474,420,334 P=474,420,334 P=801,167,883 P=– P=– P=379,337,420 P=1,654,925,637 Total comprehensive income for the year – – – – 1,039,127 105,394,216 106,433,343 Shares issued during the year 707,050,561 707,050,561 1,823,344,628 – – – 2,530,395,189 Shares redeemed during the year (379,471,417) (379,471,417) (810,322,629) – – (133,865,656) (1,323,659,702) Balance at December 31, 2011 801,999,478 P=801,999,478 P=1,814,189,882 P=– P=1,039,127 P=350,865,980 P=2,968,094,467

Balance at January 1, 2010 346,581,247 P=346,581,247 P=301,325,344 P=– P=– P=81,622,650 P=729,529,241 Total comprehensive income for the year – – – – – 533,493,447 533,493,447 Shares issued during the year 438,979,934 438,979,934 856,582,054 – – – 1,295,561,988 Shares redeemed during the year (311,140,847) (311,140,847) (356,739,515) – – (235,778,677) (903,659,039) Balance at December 31, 2010 474,420,334 P=474,420,334 P=801,167,883 P=– P=– P=379,337,420 P=1,654,925,637 See accompanying Notes to Financial Statements.

*SGVMG500095*

FIRST METRO SAVE AND LEARN EQUITY FUND, INC. (An Open-End Mutual Fund Company) STATEMENTS OF CASH FLOWS Years Ended December 31 2012 2011 2010

CASH FLOWS FROM OPERATING ACTIVITIES

Investment income before income tax P=978,212,955 P=108,776,840 P=534,830,278 Adjustments for:

Fair value loss (gain) on: Financial assets at fair value through

profit or loss (Note 7) (526,785,087) (59,005,427) (319,745,535) Derivative liability (Note 8) (2,788,975) (2,705,423) 2,175,372

Loss (gain) on sale/redemption of: Available-for-sale investments (Note 7) (3,185,620) (43,314,951) – Unquoted debt securities 1,137,855 (918,105) –

Changes in operating assets and liabilities: Decrease (increase) in the amounts of: Financial assets at fair value through

profit or loss (2,370,568,906) (1,000,336,113) (131,268,914) Loans and receivables 34,654,733 (12,454,178) (19,850,983) Other asset (87,687) (95,295) (107,727) Increase (decrease) in accounts payable

and accrued expenses (92,621,074) 97,987,821 (110,903,011) Net cash used in operations (1,982,031,806) (912,064,831) (44,870,520) Income taxes paid (5,181,026) (3,382,624) (1,336,831) Net cash used in operating activities (1,987,212,832) (915,447,455) (46,207,351)

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from sale of available-for-sale investments (Note 7) 88,192,571 1,379,009,834 –

Payments for purchases of available-for-sale investments (Note 7) (80,000,000) (1,340,701,834) –

Net cash provided by investing activities 8,192,571 38,308,000 –

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from: Deposits for future shares subscriptions

(Note 10) 1,138,472,111 – – Shares issued (Note 10) 3,873,307,732 2,530,395,189 1,295,561,988 Payments for shares redeemed (Note 10) (3,393,430,726) (1,323,659,702) (903,659,039) Net cash provided by financing activities 1,618,349,117 1,206,735,487 391,902,949

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (360,671,144) 329,596,032 345,695,598

CASH AND CASH EQUIVALENTS AT AND CASH EQUIVALENTS 705,435,939 375,839,907 30,144,309

CASH AND CASH EQUIVALENTS AT END OF YEAR (Note 6) P=344,764,795 P=705,435,939 P=375,839,907

(Forward)

*SGVMG500095*

- 2 -

Years Ended December 31 2012 2011 2010

OPERATIONAL CASH FLOWS FROM INTEREST AND DIVIDENDS

Interest received P=33,029,800 P=20,304,992 P=11,878,566 Dividends received 55,253,711 33,142,502 18,898,529 P=88,283,511 P=53,447,494 P=30,777,095 See accompanying Notes to Financial Statements.

*SGVMG500095*

FIRST METRO SAVE AND LEARN EQUITY FUND, INC. (An Open-End Mutual Fund Company) NOTES TO FINANCIAL STATEMENTS 1. Corporate Information

First Metro Save and Learn Equity Fund, Inc. (the Fund) was incorporated on May 27, 2005 and subsequently registered under the Philippine Investment Company Act (Republic Act No. 2629) on September 6, 2005 as an open-end mutual fund company engaged in selling its capital to the public and investing the proceeds in selected high grade stocks. As an open-end mutual fund company, it stands ready at any time to redeem its outstanding redeemable shares at net asset value (NAV) per share.

First Metro Asset Management, Inc. (FAMI) serves as the investment manager and principal distributor of the Fund. Metropolitan Bank & Trust Company - Trust Banking Group (MBTC-TBG) serves as the Fund’s stock and transfer agent.

The Fund, which is domiciled in the Philippines, has its principal place of business at 18th Floor, PSBank Center, 777 Paseo de Roxas, Makati City.

2. Accounting Policies

Basis of Financial Statement Preparation The accompanying financial statements have been prepared under the historical cost convention except for financial instruments at fair value through profit or loss (FVPL) and available-for- sale (AFS) investments that have been measured at fair value. The financial statements are presented in Philippine peso, which is the Fund’s functional currency. All amounts in the financial statements are rounded to the nearest peso unless otherwise indicated.

Statement of Compliance The financial statements of the Fund have been prepared in compliance with Philippine Financial Reporting Standards (PFRS).

Changes in Accounting Policies The accounting policies adopted are consistent with those of the previous financial year except for the following amended PFRS, which were adopted as of January 1, 2012: PFRS 7, Financial Instruments: Disclosures - Transfers of Financial Assets (Amendments) The amendments require additional disclosures about financial assets that have been transferred but not derecognized to enhance the understanding of the relationship between those assets that have not been derecognized and their associated liabilities. In addition, the amendments require disclosures about continuing involvement in derecognized assets to enable users of financial statements to evaluate the nature of, and risks associated with, the entity’s continuing involvement in those derecognized assets. The amendments have no impact on the Fund’s financial position or performance and financial statement disclosures. Philippine Accounting Standards (PAS) 12, Income Taxes - Deferred Tax: Recovery of Underlying Assets (Amendment) This amendment to PAS 12 clarifies the determination of deferred tax on investment property measured at fair value. The amendment introduces a rebuttable presumption that the carrying amount of investment property measured using the fair value model in PAS 40, Investment

- 2 -

*SGVMG500095*

Property, will be recovered through sale and, accordingly, requires that any related deferred tax should be measured on a ‘sale’ basis. The presumption is rebutted if the investment property is depreciable and it is held within a business model whose objective is to consume substantially all of the economic benefits in the investment property over time (‘use’ basis), rather than through sale. Furthermore, the amendment introduces the requirement that deferred tax on non-depreciable assets measured using the revaluation model in PAS 16, Property, Plant and Equipment, always be measured on a sale basis of the asset. The amendments are effective for periods beginning on or after January 1, 2012. The amendments have no impact on the financial statements of the Fund. Summary of Significant Accounting Policies

Financial Instruments - Initial Recognition and Subsequent Measurement Date of recognition The Fund recognizes a financial asset or a financial liability in the statement of financial position when it becomes a party to the contractual provisions of the instrument. Purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace are recognized on the settlement date, except for transactions involving equity securities which are recognized on the trade date. Deposits and receivables are recognized when cash is advanced or when the earning process is completed.

Initial recognition of financial instruments All financial instruments are initially recognized at fair value. Except for financial assets and financial liabilities at FVPL, the initial measurement of financial instruments includes transaction costs. The Fund classifies its financial assets in to the following categories: financial assets at FVPL, AFS investments, held-to-maturity (HTM) securities and loans and receivables, while financial liabilities are classified as financial liabilities at FVPL and financial liabilities at amortized cost. The classification depends on the purpose for which the investments were acquired and whether they are quoted in an active market. Management determines the classification of its investments at initial recognition and, where allowed and appropriate, re-evaluates such designation at every reporting date.

As of December 31, 2012 the Fund has no AFS investments and HTM securities. As of December 31, 2011, the Fund has no HTM securities.

Determination of fair value The fair value of financial instruments traded in an active market at the reporting date is based on their quoted market prices or dealer price quotations (bid price for long positions and asking price for short positions), without any deduction for transaction costs. When current bid and asking prices are not available, the price of the most recent transaction provides evidence of the current fair value as long as there has not been a significant change in economic circumstances since the time of the transaction.

For all other financial instruments not listed in an active market, the fair value is determined by using appropriate valuation techniques. Valuation techniques include net present value techniques, comparison to similar instruments for which market observable prices exist, option pricing models, and other relevant valuation models.

Financial assets or financial liabilities at FVPL This category consists of financial assets or financial liabilities that are held for trading (HFT) or designated by management as at FVPL on initial recognition.

- 3 -

*SGVMG500095*

Financial assets and financial liabilities at FVPL are recorded in the statement of financial position at fair value, with changes in the fair value (except those accounted for as accounting hedges) recorded under the ‘Trading and securities gain (loss)’ account in profit or loss.

Embedded derivatives Embedded derivatives are separated from their host contracts and carried at fair value when the entire hybrid contracts (composed of both the host contract and the embedded derivative) are not accounted for as financial assets at FVPL, when their economic risks and characteristics are not closely related to those of their respective host contracts, and when a separate instrument with the same terms as the embedded derivatives would meet the definition of a derivative. The Fund assesses whether embedded derivatives are required to be separated from the host contract when the Fund first becomes a party to the contract. Reassessment of embedded derivatives is only done when there are changes in the contract that significantly modifies the contractual cash flows.

The Fund has an embedded call option on one of its unquoted debt securities classified as loans and receivables. Such derivative financial instrument is initially recorded at fair value on the date at which the derivative contract is entered into and is subsequently remeasured at fair value. Any gains or losses arising from changes in the fair value of the derivative are taken directly to profit or loss and are included under ‘Trading and securities gain (loss)’ account. A derivative is carried as an asset when the fair value is positive and as a liability when the fair value is negative.

Loans and receivables Loans and receivables are financial assets with fixed or determinable payments and fixed maturities that are not quoted in an active market. They are not entered into with the intention of immediate or short-term resale and are not classified as financial assets at FVPL or designated as ‘AFS investments’. Loans and receivables consist of amounts due from brokers, unquoted debt securities, accrued interest receivable and dividends receivable.

After initial measurement, loans and receivables are subsequently measured at amortized cost, less any allowance for credit losses. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees and costs that are an integral part of the effective interest rate (EIR). The amortization is included in ‘Interest income’ in profit or loss. The losses arising from impairment are recognized in ‘Provision for impairment and credit losses’ in profit or loss. AFS investments AFS investments are those which are designated as such or do not qualify to be classified as designated as financial assets at FVPL, HTM securities, or loans and receivables. They are purchased and held indefinitely, and may be sold in response to liquidity requirements or changes in market conditions.

After initial measurement, AFS investments are subsequently measured at fair value. The unrealized gains and losses arising from the fair valuation of AFS investments are excluded, net of tax, from reported earnings and are presented as ‘Net unrealized gain (loss) on AFS investments’ in other comprehensive income (OCI).

When an AFS investment is disposed of, any cumulative gain or loss previously recognized in equity is recognized as ‘Trading and securities gain (loss)’ in profit or loss. Where the Fund holds more than one investment in the same security, these are deemed to be disposed of on a first-in first-out basis. The losses arising from any impairment of such securities are charged against current operations.

- 4 -

*SGVMG500095*

Financial liabilities at amortized cost Issued financial instruments or their components, are classified as liabilities under the appropriate financial liability accounts, where the substance of the contractual arrangements result in the Fund having an obligation either to deliver cash or another financial asset to the holder, or to satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of own equity shares. The components of issued financial instruments that contain both liability and equity elements are accounted for separately, with the equity component being assigned the residual amount after deducting from the instrument as a whole the amount separately determined as the fair value of the liability component on the date of issue.

Due to and due from brokers Amounts due to brokers are payables for securities purchased (in a regular way transaction) that have been contracted for but not yet delivered on the reporting date. Refer to the accounting policy for ‘financial liabilities at amortized cost’ for recognition and measurement.

Amounts due from brokers are receivables for securities sold (in a regular way transaction) that have been contracted for but not yet delivered on the reporting date. Refer to accounting policy for ‘loans and receivables’ for recognition and measurement.

Offsetting of Financial Instruments Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously.

Derecognition of Financial Assets and Liabilities Financial assets A financial asset (or where applicable, a part of a financial asset or part of a group of financial assets) is derecognized when: 1. the rights to receive cash flows from the asset have expired; 2. the Fund retains the right to receive cash flows from the asset, but has assumed an obligation

to pay them in full without material delay to a third party under a “pass-through” arrangement; or

3. the Fund has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained the risks and rewards of the asset but has transferred the control of the asset.

Where the Fund has transferred its rights to receive cash flows from an asset or has entered into a “pass-through” arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Fund’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Fund could be required to repay.

Financial liabilities A financial liability is derecognized when the obligation under the liability is discharged or cancelled or has expired. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in profit or loss.

- 5 -

*SGVMG500095*

Impairment of Financial Assets The Fund assesses at each reporting date whether there is objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

Financial assets at amortized cost For financial assets at amortized cost, the Fund first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant.

If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the financial asset’s carrying amount and the present value of the estimated future cash flows (excluding future credit losses that have not been incurred). The estimated future cash flows is discounted at the financial asset’s original EIR. The calculation of the present value of the estimated future cash flows of a collateralized financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable. The carrying amount of the financial asset is reduced through use of an allowance account and the amount of loss is charged against profit or loss. Interest income continues to be recognized based on the original EIR of the asset. Loans and receivables, together with the associated allowance accounts, are written off when there is no realistic prospect of future recovery and all collateral has been realized. If, in a subsequent year, the amount of the estimated impairment loss decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is reduced by adjusting the allowance account. If a future write-off is later recovered, any amounts formerly charged are credited to ‘Provision for impairment and credit losses’ in profit or loss.

If the Fund determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses for impairment. Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the counterparties’ ability to pay all amounts due according to the contractual terms of the assets being evaluated. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessment for impairment. Assets individually assessed for impairment for which no impairment loss was recognized are also collectively assessed for impairment.

- 6 -

*SGVMG500095*

For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of such credit risk characteristics as industry, past-due status and term. Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period in which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist currently.

AFS investments For AFS investments, the Fund assesses at each reporting date whether there is objective evidence that a financial asset or group of financial assets is impaired.

In the case of debt instruments classified as AFS investments, the Fund assesses individually whether there is objective evidence of impairment based on the same criteria as financial assets carried at amortized cost. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortized cost and the current fair value, less any impairment loss on that investment previously recognized in profit or loss. Future interest income is based on the reduced carrying amount and is accrued based on the rate of interest used to discount future cash flows for the purpose of measuring impairment loss. Such accrual is recorded as part of ‘Interest income’ in profit or loss. If subsequently, the fair value of a debt instrument increased and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed through profit or loss.

Cash and Cash Equivalents Cash and cash equivalents consist of demand, savings, and time deposits in banks and short-term placements. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash with original maturities of three months or less from dates of placement and are subject to an insignificant risk of changes in value.

Revenue Recognition Revenue is recognized to the extent that it is probable that economic benefits will flow to the Fund and the revenue can be reliably measured, regardless of when payment is being made. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duties. The Fund assesses its revenue arrangements against specific criteria in order to determine if it is acting as a principal or as an agent. The Fund has concluded that it is acting as a principal in all of its revenue arrangements. The following specific recognition criteria must also be met before income is recognized:

Interest income Interest income is recognized in profit or loss as it accrues, taking into account the effective yield of the asset. Interest income includes the amortization of any discount or premium or other differences between the initial carrying amount of an interest-bearing instrument and its amount at maturity calculated on an EIR basis.

Dividend income Dividend income is recognized when the Fund’s right to receive payment is established. Trading and securities gain (loss) Trading and securities gain (loss) represents results arising from trading activities, disposal of AFS investments, redemption of unquoted debt securities and all gains and losses from changes in the fair values of derivatives and financial assets at FVPL.

- 7 -

*SGVMG500095*

Expense Recognition Expenses are recognized when a decrease in future economic benefits related to a decrease in an asset or an increase in a liability has arisen that can be measured reliably. Expenses are recognized as incurred.

Income Taxes Current tax Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that have been enacted or substantially enacted at the reporting date.

Deferred tax Deferred tax is provided, using the liability method, on all temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax assets are recognized for all deductible temporary differences, carryforward of unused tax credits from the excess minimum corporate income tax (MCIT) over regular corporate income tax (RCIT) and unused net operating loss carryover (NOLCO), to the extent that it is probable that taxable income will be available against which the deductible temporary differences, carryforward of unused tax credits and unused NOLCO can be utilized. Deferred tax, however, is not recognized when it arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting income nor taxable income.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable income will be available to allow all or part of the deferred tax assets to be utilized. Unrecognized deferred tax assets are reassessed at each reporting date and are recognized to the extent that it has become probable that future taxable profit will allow the deferred tax assets to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are applicable to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantially enacted at the reporting date.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to offset current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

Current tax and deferred tax relating to items recognized in equity are recognized in OCI.

NAV Per Share NAV per share is computed by dividing net assets (total assets less total liabilities) by the total number of redeemable shares outstanding, including the equivalent number of shares in the deposits for future shares subscriptions, as of the reporting date. Share Capital Transactions The Fund issues redeemable shares, which are redeemable at the holder’s option. Redeemable shares can be put back to the Fund at any time for cash equal to a proportionate share of the Fund’s NAV.

- 8 -

*SGVMG500095*

The Fund’s redeemable shares have the following features which qualify them as puttable instruments classified as equity instruments:

• The shares entitle the holder to a pro rata share of the Fund’s net assets in the event of the

Fund’s liquidation. • The shares are in the class of instruments that is subordinate to all other classes of instruments. • All shares in the class of instruments that is subordinate to all other classes of instruments

have identical features. • The shares do not include any contractual obligation to deliver cash or another financial asset

other than the holder’s right to a pro rata share of the Fund’s net assets. • The total expected cash flows attributable to the shares over their life are based substantially

on the profit or loss, the change in the recognized net assets or the change in the fair value of the recognized and unrecognized net assets of the Fund over the life of the shares.

Further, the Fund does not have other financial instruments or contract that have: • Total cash flows based substantially on the profit or loss, the change in the recognized net

assets or the change in the fair value of the recognized and unrecognized net assets of the Fund; and

• The effect of substantially restricting or fixing the residual return to the holders of redeemable shares.

The Fund continuously assesses the classification of its redeemable shares. If the redeemable shares cease to have all the features or meet the conditions stated above, the Fund will reclassify the shares as financial liabilities and measure them at fair value at the date of reclassification, with any differences from the previous carrying amount recognized in equity. If the redeemable shares subsequently have all the features and meet the above conditions, the Fund will reclassify them as equity instruments and measure them at the carrying amount of the liabilities at the date of reclassification.

The issuance, acquisition and resale of redeemable shares are accounted for as equity transactions. Upon issuance of shares (or sale of treasury shares), the consideration received is included in equity. Own equity instruments which are acquired (treasury shares) are deducted from equity and accounted for at amounts equal to the consideration paid, including any directly attributable incremental costs. The Fund’s policy is not to keep shares in treasury, but rather to cancel them once repurchased. No gain or loss is recognized in profit or loss on the purchase, sale or issuance or cancellation of the Fund’s own equity instruments.

Transaction costs incurred by the Fund in issuing, acquiring or selling its own equity instruments are accounted for as a deduction from equity to the extent that they are incremental costs directly attributable to the equity transaction that otherwise would have been avoided. Deposits for Future Shares Subscriptions Deposits for future shares subscriptions (DFS) are treated as equity account if the following conditions are met:

1. The unissued authorized capital stock of the Company is insufficient to cover the amount of

shares classified as deposits for future shares subscriptions; 2. There is Board of Directors’ (BOD) approval on the proposed increase in authorized capital

stock (for which a deposit was received by the Company);

- 9 -

*SGVMG500095*

3. There is stockholders’ approval of said proposed increase; and 4. The application for the approval of the proposed increase has been filed with the Securities

and Exchange Commission (SEC) as of end of the reporting period.

DFS not meeting the foregoing conditions are treated as a financial liability. Dividend Distribution Dividend distributions are at the discretion of the Fund. A dividend distribution to the Fund’s shareholders is accounted for as a deduction from retained earnings. A proposed cash dividend is recognized as a liability in the period in which it is approved by the BOD of the Fund. A proposed stock dividend is recognized as a liability in the period in which it is approved by the BOD and shareholders representing at least two-thirds (2/3) of the outstanding capital stock of the Fund.

Provisions Provisions are recognized when the Fund has a present obligation (legal or constructive) where, as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Fund expects some or all of a provision to be reimbursed, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in profit or loss, net of any reimbursement. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as ‘Interest expense’.

Retained Earnings The amounts in retained earnings include accumulated investment income of previous periods reduced by excess of redemption costs over the original selling price of redeemed shares.

Contingent Liabilities and Contingent Assets Contingent liabilities are not recognized in the financial statements but are disclosed unless the possibility of an outflow of resources embodying benefits is remote. Contingent assets are not recognized in the financial statements but are disclosed when an inflow of economic benefits is probable. Segment Reporting The Fund is organized into one main operating segment which invests in equity and debt instruments. All of the Fund’s activities are interrelated and interdependent.

Subsequent Events Post-year-end events up to the date of the approval of the BOD of the financial statements that provide additional information about the Fund’s position at the reporting date (adjusting events) are reflected in the financial statements. Post-year-end events that are not adjusting events, if any, are disclosed in the notes when material to the financial statements.

- 10 -

*SGVMG500095*

Future Changes in Accounting Policies

New and amended standards

Standards issued but not yet effective as of December 31, 2012 are listed below. The listing of standards and interpretations issued are those that the Fund reasonably expects to be applicable at a future date. The Fund intends to adopt these standards and interpretations when they become effective. Effective 2013 PFRS 7, Financial Instruments: Disclosures – Offsetting Financial Assets and Financial Liabilities These amendments require an entity to disclose information about rights of set-off and related arrangements (such as collateral agreements). The new disclosures are required for all recognized financial instruments that are set off in accordance with PAS 32. These disclosures also apply to recognized financial instruments that are subject to an enforceable master netting arrangement or ‘similar agreement’, irrespective of whether they are set-off in accordance with PAS 32. The amendments require entities to disclose, in a tabular format unless another format is more appropriate, the following minimum quantitative information. This is presented separately for financial assets and financial liabilities recognized at the end of the reporting period: a) The gross amounts of those recognized financial assets and recognized financial liabilities; b) The amounts that are set off in accordance with the criteria in PAS 32 when determining the

net amounts presented in the statement of financial position; c) The net amounts presented in the statement of financial position; d) The amounts subject to an enforceable master netting arrangement or similar agreement that

are not otherwise included in (b) above, including: i. Amounts related to recognized financial instruments that do not meet some or all of the

offsetting criteria in PAS 32; and ii. Amounts related to financial collateral (including cash collateral); and

e) The net amount after deducting the amounts in (d) from the amounts in (c) above.

The amendments to PFRS 7 are to be retrospectively applied and are effective for annual periods beginning on or after January 1, 2013. The amendments affect disclosures only and have no impact on the Fund’s financial position or performance.

PFRS 10, Consolidated Financial Statements PFRS 10 replaces the portion of PAS 27, Consolidated and Separate Financial Statements, that addresses the accounting for consolidated financial statements. It also includes the issues raised in Standing Interpretations Committee (SIC) 12, Consolidation - Special Purpose Entities. PFRS 10 establishes a single control model that applies to all entities including special purpose entities. The changes introduced by PFRS 10 will require management to exercise significant judgment to determine which entities are controlled, and therefore, are required to be consolidated by a parent, compared with the requirements that were in PAS 27. The standard becomes effective for annual periods beginning on or after January 1, 2013. The standard has no potential impact on the Fund’s financial position or performance.

- 11 -

*SGVMG500095*

PFRS 11, Joint Arrangements PFRS 11 replaces PAS 31, Interests in Joint Ventures and SIC-13, Jointly-controlled Entities: Non-monetary Contributions by Venturers. PFRS 11 removes the option to account for jointly controlled entities (JCEs) using proportionate consolidation. Instead, JCEs that meet the definition of a joint venture must be accounted for using the equity method. This standard becomes effective for annual periods beginning on or after January 1, 2013. The standard has no potential impact on the Fund’s financial position or performance.

PFRS 12, Disclosure of Interests in Other Entities PFRS 12 includes all of the disclosures related to consolidated financial statements that were previously in PAS 27, as well as all the disclosures that were previously included in PAS 31 and PAS 28, Investments in Associates. These disclosures relate to an entity’s interests in subsidiaries, joint arrangements, associates and structured entities. A number of new disclosures are also required. The standard becomes effective for annual periods beginning on or after January 1, 2013.

The adoption of PFRS 12 will affect disclosures only and have no impact on the Fund’s financial position or performance.

PFRS 13, Fair Value Measurement PFRS 13 establishes a single source of guidance under PFRSs for all fair value measurements. PFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under PFRS when fair value is required or permitted. This standard should be applied prospectively as of the beginning of the annual period in which it is initially applied. Its disclosure requirements need not be applied in comparative information provided for periods before initial application of PFRS 13. The standard becomes effective for annual periods beginning on or after January 1, 2013.

The Fund is currently assessing the impact of adopting this standard on its financial position or performance. PAS 1, Presentation of Financial Statements - Presentation of Items of Other Comprehensive Income or OCI (Amendments) The amendments to PAS 1 change the grouping of items presented in OCI. Items that can be reclassified (or “recycled”) to profit or loss at a future point in time (for example, upon derecognition or settlement) will be presented separately from items that will never be recycled. The amendments affect presentation only and have no impact on the Fund’s financial position or performance. The amendment becomes effective for annual periods beginning on or after July 1, 2012. The amendments will be applied retrospectively and will result in the modification of the presentation of items of OCI.

PAS 19, Employee Benefits (Revised) Amendments to PAS 19 range from fundamental changes such as removing the corridor mechanism and the concept of expected returns on plan assets to simple clarifications and rewording. The revised standard also requires new disclosures such as, among others, a sensitivity analysis for each significant actuarial assumption, information on asset-liability matching strategies, duration of the defined benefit obligation, and disaggregation of plan assets by nature and risk. The amendments become effective for annual periods beginning on or after January 1, 2013. The standard has no potential impact on the Fund’s financial position or performance.

- 12 -

*SGVMG500095*

PAS 27, Separate Financial Statements (as revised in 2011) As a consequence of the issuance of the new PFRS 10 and PFRS 12, what remains of PAS 27 is limited to accounting for subsidiaries, jointly controlled entities, and associates in the separate financial statements. The adoption of the amended PAS 27 will not have a significant impact on the separate financial statements of the entities in the Fund. The amendment becomes effective for annual periods beginning on or after January 1, 2013. The standard has no potential impact on the Fund’s financial position or performance.

PAS 28, Investments in Associates and Joint Ventures (as revised in 2011) As a consequence of the issuance of the new PFRS 11 and PFRS 12, PAS 28 has been renamed PAS 28, Investments in Associates and Joint Ventures, and describes the application of the equity method to investments in joint ventures in addition to associates. The amendment becomes effective for annual periods beginning on or after January 1, 2013. The standard has no potential impact on the Fund’s financial position or performance.

Philippine Interpretation IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine This interpretation applies to waste removal (stripping) costs incurred in surface mining activity, during the production phase of the mine. The interpretation addresses the accounting for the benefit from the stripping activity. The interpretation is effective for annual periods beginning on or after January 1, 2013. This new interpretation is not relevant to the Fund. Effective 2014 PAS 32, Financial Instruments: Presentation - Offsetting Financial Assets and Financial Liabilities (Amendments) The amendments clarify the meaning of “currently has a legally enforceable right to set-off” and also clarify the application of the PAS 32 offsetting criteria to settlement systems (such as central clearing house systems) which apply gross settlement mechanisms that are not simultaneous. The amendments affect presentation only and have no impact on the Fund’s financial position or performance. The amendments to PAS 32 are to be retrospectively applied for annual periods beginning on or after January 1, 2014. The amendments has no potential impact on the Fund’s financial position or performance. Effective 2015

PFRS 9, Financial Instruments PFRS 9, as issued, reflects the first phase on the replacement of PAS 39 and applies to the classification and measurement of financial assets and liabilities as defined in PAS 39. Work on impairment of financial instruments and hedge accounting is still ongoing, with a view to replacing PAS 39 in its entirety. PFRS 9 requires all financial assets to be measured at fair value at initial recognition. A debt financial asset may, if the fair value option (FVO) is not invoked, be subsequently measured at amortized cost if it is held within a business model that has the objective to hold the assets to collect the contractual cash flows and its contractual terms give rise, on specified dates, to cash flows that are solely payments of principal and interest on the principal outstanding. All other debt instruments are subsequently measured at fair value through profit or loss. All equity financial assets are measured at fair value either through OCI or profit or loss. Equity financial assets held for trading must be measured at fair value through profit or loss. For FVO liabilities, the amount of change in the fair value of a liability that is attributable to changes in credit risk must be presented in OCI. The remainder of the change in fair value is presented in profit or loss, unless presentation of the fair value change in respect of the liability’s credit risk in OCI would create or enlarge an accounting mismatch in profit or loss. All other PAS 39 classification and measurement requirements for financial liabilities have been carried forward

- 13 -

*SGVMG500095*

into PFRS 9, including the embedded derivative separation rules and the criteria for using the FVO. The adoption of the first phase of PFRS 9 will have an effect on the classification and measurement of the Fund’s financial assets, but will potentially have no impact on the classification and measurement of the Fund’s financial liabilities. PFRS 9 is effective for annual periods beginning on or after January 1, 2015. Philippine Interpretation IFRIC 15, Agreements for the Construction of Real Estate This interpretation covers accounting for revenue and associated expenses by entities that undertake the construction of real estate directly or through subcontractors. The SEC and the Financial Reporting Standards Council (FRSC) have deferred the effectivity of this interpretation until the final Revenue standard is issued by the International Accounting Standards Board (IASB) and an evaluation of the requirements of the final Revenue standard against the practices of the Philippine real estate industry is completed. Adoption of the interpretation when it becomes effective will not have any impact on the financial statements of the Fund. Annual Improvements to PFRSs (2009-2011 cycle) The Annual Improvements to PFRSs (2009-2011 cycle) contain non-urgent but necessary amendments to PFRSs. The amendments are effective for annual periods beginning on or after January 1, 2013 and are applied retrospectively. Earlier application is permitted.

PFRS 1, First-time Adoption of PFRS – Borrowing Costs The amendment clarifies that, upon adoption of PFRS, an entity that capitalized borrowing costs in accordance with its previous generally accepted accounting principles, may carry forward, without any adjustment, the amount previously capitalized in its opening statement of financial position at the date of transition. Subsequent to the adoption of PFRS, borrowing costs are recognized in accordance with PAS 23, Borrowing Costs. The amendment does not apply to the Fund as it is not a first-time adopter of PFRS.

PAS 1, Presentation of Financial Statements - Clarification of the requirements for comparative information The amendments clarify the requirements for comparative information that are disclosed voluntarily and those that are mandatory due to retrospective application of an accounting policy, or retrospective restatement or reclassification of items in the financial statements. An entity must include comparative information in the related notes to the financial statements when it voluntarily provides comparative information beyond the minimum required comparative period. The additional comparative period does not need to contain a complete set of financial statements. On the other hand, supporting notes for the third balance sheet (mandatory when there is a retrospective application of an accounting policy, or retrospective restatement or reclassification of items in the financial statements) are not required. The amendments affect disclosures only and have no impact on the Fund’s financial position or performance.

PAS 16, Property, Plant and Equipment - Classification of servicing equipment The amendment clarifies that spare parts, stand-by equipment and servicing equipment should be recognized as property, plant and equipment when they meet the definition of property, plant and equipment and should be recognized as inventory if otherwise. The amendment will not have any impact on the Fund’s financial position or performance.

- 14 -

*SGVMG500095*

PAS 32, Financial Instruments: Presentation - Tax effect of distribution to holders of equity instruments The amendment clarifies that income taxes relating to distributions to equity holders and to transaction costs of an equity transaction are accounted for in accordance with PAS 12, Income Taxes. The Fund expects that this amendment will not have any impact on its financial position or performance. PAS 34, Interim Financial Reporting - Interim financial reporting and segment information for total assets and liabilities The amendment clarifies that the total assets and liabilities for a particular reportable segment need to be disclosed only when the amounts are regularly provided to the chief operating decision maker and there has been a material change from the amount disclosed in the entity’s previous annual financial statements for that reportable segment. The amendment affects disclosures only and has no impact on the Fund’s financial position or performance.

3. Significant Accounting Judgments and Estimates

The preparation of the financial statements in compliance with PFRS requires the use of judgments and estimates. These judgments and estimates affect the reported amounts of assets and liabilities and contingent assets and liabilities at the reporting date, as well as the reported income and expenses for the year. Although the estimates are based on management’s best knowledge and judgment of current facts as at the reporting date, the actual outcome may differ from these estimates, which may possibly be significant.

Judgments and estimates are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The following are the critical judgments and key estimates that pose a significant risk of material adjustment to the carrying amounts of assets and liabilities within the next financial year:

Judgments a. Fair value of financial instruments

Where the fair values of financial assets and financial liabilities recorded in the statement of financial position cannot be derived from active markets, these are determined using internal valuation techniques that include the use of generally accepted market valuation models. The inputs to these models are taken from observable markets where possible, but where this is not feasible, estimates are used in establishing fair values. These estimates may include considerations of liquidity, volatility and correlation.

b. Financial assets not quoted in an active market The Fund classifies financial assets by evaluating, among others, whether the asset is quoted or not in an active market. Included in the evaluation on whether a financial asset is quoted in an active market is the determination on whether quoted prices are readily and regularly available, and whether those prices represent actual and regularly occurring market transactions on an arm’s length basis.

- 15 -

*SGVMG500095*

c. Embedded derivatives Where a hybrid instrument is not classified as a financial asset or liability at FVPL, the Fund evaluates whether the embedded derivative should be bifurcated and accounted for separately. This includes assessing whether the embedded derivative has a close economic relationship to the host contract.

d. Going concern The management has made an assessment of the Fund’s ability to continue as a going concern and is satisfied that the Fund has the resources to continue in business for the foreseeable future. Furthermore, management is not aware of any material uncertainties that may cast significant doubt upon the Fund’s ability to continue as a going concern. Therefore, the financial statements continue to be prepared on a going concern basis.

Estimates a. Credit losses of loans and receivables

The Fund reviews its loans and receivables at each reporting date to assess whether a provision for credit losses should be recorded in profit or loss. In particular, judgment of management is required in the estimation of the amount and timing of future cash flows when determining the level of allowance required. Such estimates are based on assumptions about a number of factors and actual results may differ resulting in future changes to the allowance.

As of December 31, 2012 and 2011, the carrying values of loans and receivables are disclosed in Note 8. The Fund assessed that these loans and receivables are not impaired as of December 31, 2012 and 2011.

b. Impairment of AFS investment The Fund classifies certain financial assets as AFS investments and recognizes movements in their fair value directly in equity. When the fair value declines, the Fund makes assumptions about the decline in value to determine whether it is an impairment loss that should be recognized in profit or loss. As of December 31, 2011, the carrying value of the Fund’s AFS investment is disclosed in Note 7. The Fund assessed that this AFS investment is not impaired as of December 31, 2011.

c. Fair value of embedded derivatives The fair value of a derivative that is not quoted in an active market is determined using valuation techniques such as discounted cash flow analysis and standard option pricing models. Where valuation techniques are used to determine fair values, they are validated and periodically reviewed by qualified personnel independent of the area that created them. All models are reviewed before they are used, and models are calibrated to ensure that outputs reflect actual data and comparative market prices. To the extent practicable, models use only observable data, however, areas such as credit risk (both own and counterparty), volatilities and correlations require management to make estimates. Changes in assumptions about these factors could affect the reported fair value of a financial instrument (refer to Note 8 for information on the carrying value of this instrument).

d. Recognition of deferred tax assets

Deferred tax assets are recognized for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and level of future taxable profits together with future tax planning strategies.

- 16 -

*SGVMG500095*

The estimates of future taxable income indicate that certain temporary differences will not be realized in the future. As of December 31, 2012 and 2011, the components of unrecognized deferred tax assets are disclosed in Note 13.

4. Financial Risk Management Objectives and Policies

Introduction The Fund has exposures to the following risks from the use of financial instruments:

a. Credit risk b. Liquidity risk c. Market risk Risk Management Framework The BOD has overall responsibility for the oversight of the Fund’s risk management process. Supporting the BOD in this function is the Audit Committee (AC).

The AC is responsible for monitoring compliance with the Company’s risk management policies and procedures, and for reviewing the adequacy of risk management practices in relation to the risks faced by the Company. The AC is assisted in these functions by the Internal Audit Group of Metrobank. The Internal Audit Group undertakes both regular and ad-hoc reviews of risk management controls and procedures, the results of which are reported to the AC. Under the management and distribution agreement of the Fund with FAMI as its Investment Manager and Principal Distributor of the Fund, FAMI manages the resources and operations of the Fund. Also, under the memorandum of agreement between FAMI and First Metro Investment Corporation (FMIC), FMIC covers the implementation and ongoing management of the Investment Guidelines outlined in the Fund’s prospectus.

FMIC’s BOD, through its board-level Risk Management Committee (RMC), is actively involved in planning, approving, reviewing, and assessing all risks involved within the Fund.

The Compliance Division (CD) of FMIC also collaborates with the RMC. The main task of the CD is to monitor and assess compliance of the Fund to the rules and regulations outlined in Fund’s prospectus as well as their compliance with the rules of the relevant regulatory bodies. The CD is also tasked to properly disseminate these rules and regulations to the Fund. FMIC’s Chief Risk Officer (CRO) manages and oversees the day-to-day activities of the Risk Management Group (RMG). RMG is tasked with identifying, analyzing, measuring, controlling and evaluating risk exposures arising from fluctuations in the prices or market values of instruments, products and transactions of FMIC and certain subsidiaries. It is responsible for recommending trading risk and liquidity management policies, setting uniform standards of risk assessment and measurement, providing senior management with periodic evaluation and simulation and analyzing limit compliance exceptions. The RMG furnishes daily reports to the FAMI and provides monthly reports to the RMC.

- 17 -

*SGVMG500095*

Nature of Risks and Risk Management Objectives and Policies The Fund’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects of such unpredictability on the Fund’s financial performance.

The Fund is governed by the provisions in its prospectus that incorporated relevant investment rules and regulations by regulators such as the Investment Company Act and the SEC, among others.

Specifically, the Fund primarily invests in equity securities, however, as a tactical move, a portion of the Fund may also be invested in government securities and in SEC-registered commercial papers but taking precautions of the market conditions, the level of interest rates, and of liquidity needs.

Moreover, the Fund’s investment activities are also guided by the following limits/conditions:

• Maximum investment in any single enterprise is allowed but only up to 10.00% of the Fund’s

NAV, except for investments in securities issued by the Philippine Government or its instrumentalities and, in no case, shall the total investment of the Fund exceed 10.00% of the outstanding securities of any one investee company.

• Investments to margin purchases of securities, commodity futures contracts, precious metals, unlimited liability instruments, short selling of currencies and securities are not allowed.

• Lending operations to corporations or other entities, public or private, shall not be engaged without prior review and approval of its BOD. Approvals however, are only to those determined to be financially sound.

• Underwriting or selling activities in connection with distribution of securities with the public shall not be participated except for its own capital stock.

• Investment in any company for the purpose of exercising control or management or to invest in the securities of other investment companies and real estate companies is prohibited.

• Anti-Money Laundering Law shall be observed in the acceptance of investment applications. • Sales of the Fund’s capital stock shall be on cash basis only and installment sales are

prohibited.

Credit risk Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss.

The Fund invests in government securities wherein the risk of default is considered minimal. Also, management policies prohibit engaging in lending operations without prior review and approval of its BOD. Another policy of the Fund directed at managing credit risk is that all sales of the Fund’s capital stock shall only be on cash basis. Installment sales are prohibited.

The Fund’s credit risk policy restricts the amount of investment in any single enterprise to 10.00% of the Fund’s NAV, except for government securities. Conversely, the total investment of the Fund in any one investee company must not exceed 10.00% of the outstanding securities.

- 18 -

*SGVMG500095*

The Fund is also not allowed to invest in securities of other investment companies and mutual funds.

The Fund manages credit risks by transacting with accredited counterparties only. Credit exposures are closely monitored to ensure that payments are made on time. Credit risk exposure is limited to the carrying amount of the financial assets. The maximum exposure to credit risk is represented by the carrying amounts of the financial assets that are carried in the statements of financial position and the related notes. There are no agreements concluded which reduced the maximum exposure to credit risk as of the reporting date. As of December 31, 2012 and 2011, the Fund does not hold collateral for the outstanding financial assets.

As of December 31, 2011, an unquoted debt security amounting to P=51.11 million is fully secured by certain receivables assigned by the debt issuer. Concentration of risks of financial assets with credit risk exposure An analysis of concentrations of credit risk by industry is shown below:

December 31, 2012

Cash and Cash Equivalents

Loans and Receivables

Investment Securities* Total

Holding firms P=– P=698,400 P=1,395,009,370 P=1,395,707,770 Financial intermediaries 344,764,795 7,173,030 976,682,086 1,328,619,911 Industrial companies – 141,765,894 927,303,526 1,069,069,420 Property – – 715,780,590 715,780,590 Mining & oil – – 545,976,240 545,976,240 Services – – 537,357,964 537,357,964 P=344,764,795 P=149,637,324 P=5,098,109,776 P=5,592,511,895 *Comprised of financial assets at FVPL.

December 31, 2011 Cash and Cash

Equivalents Loans and

Receivables Investment Securities* Total

Financial intermediaries P=705,435,939 P=184,995,335 P=593,813,261 P=1,484,244,535 Mining & oil – – 558,821,229 558,821,229 Property – – 318,846,000 318,846,000 Holding firms – – 277,804,703 277,804,703 Industrial companies – – 242,006,030 242,006,030 Services – 288,600 209,464,560 209,753,160 Government – 145,977 6,046,078 6,192,055 P=705,435,939 P=185,429,912 P=2,206,801,861 P=3,097,667,712 *Comprised of financial assets at FVPL and AFS investments.

The Fund focuses on industries and enterprises with strong growth potentials and or profitable historical financial performance. There may be concentration on certain industries at various points in time, depending on the overall condition of the financial and capital markets. All of the Fund’s financial assets are located in the Philippines.

- 19 -

*SGVMG500095*

The following table shows the credit quality of the Fund’s financial assets:

December 31, 2012 Neither Past Due nor Impaired

High Grade Standard

Grade Substandard

Grade Total Loans and receivables: Unquoted debt securities P=– P=140,000,000 P=– P=140,000,000 Due from brokers – 5,220,128 – 5,220,128 Accrued interest receivable 698,400 2,675,785 – 3,374,185 Dividend receivable – 927,711 – 927,711 Accounts receivable – 115,300 – 115,300 698,400 148,938,924 – 149,637,324 Time deposits – 320,528,647 – 320,528,647 Cash in banks – 24,236,148 – 24,236,148 698,400 493,703,719 – 494,402,119 Financial assets at FVPL:

Quoted equity securities 1,997,800,633 2,691,902,508 217,028,630 4,906,731,771 Private bonds 29,183,570 162,194,435 – 191,378,005

P=2,027,682,603 P=3,347,800,662 P=217,028,630 P=5,592,511,895

December 31, 2011 Neither Past Due nor Impaired

High Grade Standard

Grade Substandard

Grade Total Loans and receivables: Unquoted debt securities P=– P=177,117,696 P=– P=177,117,696 Due from brokers – 5,420,216 – 5,420,216 Accrued interest receivable 145,977 2,103,831 – 2,249,808 Dividend receivable 288,600 348,592 – 637,192 Accounts receivable – 5,000 – 5,000 434,577 184,995,335 – 185,429,912 Time deposits – 422,123,609 – 422,123,609 Cash in banks – 222,802,091 – 222,802,091 Short-term placements – 60,510,239 – 60,510,239 434,577 890,431,274 – 890,865,851 Financial assets at FVPL: 319,205,187 1,343,532,260 538,018,336 2,200,755,783 AFS Investments 6,046,078 – – 6,046,078 P=325,685,842 P=2,233,963,534 P=538,018,336 P=3,097,667,712

The Fund’s basis in grading its financial assets is as follows:

High grade - Entities that are highly liquid, sustain operating trends, unlikely to be affected by external factors and have competent management that uses current business models.

Standard grade - Entities that meet performance expectation, unlikely to be affected by external factors and have competent management that uses current business models.

Substandard grade - Entities with marginal liquidity and have a declining trend in operations or an imbalanced position in the balance sheet, though not to the point that repayment is jeopardized. As of December 31, 2012 and 2011, the Fund has no past due or impaired financial assets. It also does not have restructured loans for both periods.

- 20 -

*SGVMG500095*

Liquidity risk Liquidity or funding risk is the risk that an entity will encounter difficulty in raising funds to meet commitments associated with financial instruments. Liquidity risk may result from either the inability to sell financial assets quickly at their fair values; the counterparty failing on repayment of a contractual obligation; or, the inability to generate cash inflows as anticipated. The Fund is exposed to daily cash redemptions of its redeemable shares. It therefore invests majority of its assets in investments that are traded in an active market and can be readily disposed of, such as equity securities. The Fund has the ability to borrow within a short-term period to ensure settlement of amounts due. No such borrowings have arisen during the year. The Fund’s policy prescribes that at least 10.00% of its total assets is invested in any of the following: • Government securities such as treasury bills, fixed rate treasury notes, retail treasury bonds,

progress bonds and small-denominated treasury bonds; • Certificates of deposit; • SEC-registered commercial papers and bonds with a rating of at least Philippine Rating

System (PRS) 2 for short-term tenors and PRS Aaa for long-term tenors; • Bankers’ acceptance; and • Other allowed fixed income instruments As of December 31, 2012 and 2011, the Fund has complied with the above requirements. Also, the Fund shall not incur any further debt or borrowing, unless at the time it is incurred or immediately thereafter, there is asset coverage of at least 300.00% for all its borrowings. In the event that such asset coverage shall at any time fall below 300.00%, the Fund shall, within three days thereafter, reduce the amount of borrowings to an extent that the asset coverage of such borrowings shall be at least 300.00%.

The tables below, for the period indicated, show the maturity profile of the financial assets and liabilities of the Fund based on contractual undiscounted cash flows:

December 31, 2012

On demand Up to

1 month More than

1 to 3 months More than

3 to 6 months More than

6 to 12 months Beyond 1

year Total Financial Assets Loans and receivables: Unquoted debt security P=– P=– P=– P=– P=– P=140,000,000 P=140,000,000 Accrued interest receivable – 2,758,834 2,444,963 3,690,332 7,380,663 98,374,229 114,649,021

Due from brokers – 5,220,128 – – – – 5,220,128 Dividends receivable – 927,711 – – – – 927,711

Accounts receivable 115,300 – – – – – 115,300 115,300 8,906,673 2,444,963 3,690,332 7,380,663 238,374,229 260,912,160 Time deposits – 320,528,647 – – – – 320,528,647 Cash in bank 24,236,148 – – – – – 24,236,148 24,351,448 329,435,320 2,444,963 3,690,332 7,380,663 238,374,229 605,676,955 Financial assets at FVPL: Quoted equity securities 4,906,731,771 – – – – – 4,906,731,771

Private bonds 191,378,005 – – – – – 91,378,005 5,122,461,224 329,435,320 2,444,963 3,690,332 7,380,663 238,374,229 5,703,786,731 Financial Liabilities Financial liabilities at amortized cost: Payable to FAMI – 15,426,228 – – – – 15,426,228 Accounts payable – 8,953,473 – – – – 8,953,473 Due to brokers – 8,325,454 – – – – 8,325,454 Accrued expenses – 26,416 221,760 – – – 248,176 – 32,731,571 221,760 – – – 32,953,331 Redeemable shares 5,558,436,386 – – – – – 5,558,436,386 Net asset (liability) (P=435,975,162) P=296,703,749 P=2,223,203 P=3,690,332 P=7,380,663 P=238,374,229 P=112,397,014

- 21 -

*SGVMG500095*

December 31, 2011

On demand Up to

1 month More than

1 to 3 months More than

3 to 6 months More than

6 to 12 months Beyond 1

year Total Financial Assets Loans and receivables: Unquoted debt security P=– P=– P=– P=– P=– P=175,010,000 P=175,010,000 Accrued interest receivable – 2,031,841 1,782,654 2,392,187 4,946,570 36,555,230 47,708,482

Due from brokers – 5,420,216 – – – – 5,420,216 Dividends receivable – 637,192 – – – – 637,192

Accounts receivable 5,000 – – – – – 5,000 5,000 8,089,249 1,782,654 2,392,187 4,946,570 211,565,230 228,780,890 Time deposits – 422,123,609 – – – – 422,123,609 Cash in bank 222,802,091 – – – – – 222,802,091

Short-term placements – 60,510,239 – – – – 60,510,239 222,807,091 490,723,097 1,782,654 2,392,187 4,946,570 211,565,230 934,216,829 Financial assets at FVPL: Quoted equity securities 2,200,755,783 – – – – – 2,200,755,783 AFS investments:

Government debt securities – – – – – 5,068,633 5,068,633 2,423,562,874 490,723,097 1,782,654 2,392,187 4,946,570 216,633,863 3,140,041,245 Financial Liabilities Financial liabilities at amortized cost: Due to brokers – 111,519,505 – – – – 111,519,505 Accounts payable – 9,299,814 – – – – 9,299,814 Payable to FAMI – 4,863,371 – – – – 4,863,371 Accrued expenses – 12,993 101,200 – – – 114,193 – 125,695,683 101,200 – – – 125,796,883 Redeemable shares 2,968,094,467 – – – – – 2,968,094,467 Net asset (liability) (P=544,531,593) P=365,027,414 P=1,681,454 P=2,392,187 P=4,946,570 P=216,633,863 P=46,149,895

Market risk Market risk is the risk of changes in the fair value of financial instruments from fluctuations in foreign exchange rates (currency risk), market interest rates (interest rate risk) and market prices (equity price risk), whether such changes in prices are caused by factors specific to the individual instrument or its issuer or factors affecting all instruments traded in the market. The Funds exposure to market risk relates to interest rate risk and equity price risk. Risks to the financial instruments are managed by (a) closely monitoring investment objectives and constraints on investment by its Investment Manager; (b) detailed market observation and analysis; (c) setting limits on investment diversification i.e., issuer, industry, or sector index; and (d) establishment of profit and/or loss tolerance. Fair value interest rate risk Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate because of changes in interest rates. The Fund’s fixed income securities are exposed to such risk.

The table below demonstrates the sensitivity to a reasonably possible change in interest rates with all other variables held constant, of the Fund’s net income before tax (through the impact on interest on financial debt assets at FVPL) and the Fund’s equity (through the impact on unrealized gain/loss on AFS fixed rate debt securities).

Change in interest rates (in basis points) December 31, 2012 + 50 - 50 Sensitivity of income (P=4,080,486) P=4,184,735

Change in interest rates (in basis points) December 31, 2011 + 50 - 50 Sensitivity of equity (P=340,326) P=368,889

- 22 -

*SGVMG500095*

Equity price risk The Fund’s equity price risk exposure at year-end relates to financial assets whose values will fluctuate as a result of changes in market prices.

Such investment securities are subject to equity price risk due to changes in market values of instruments arising either from factors specific to individual instruments or their issuers or factors affecting all instruments traded in the market. The Fund measures the sensitivity of its investment securities by using the Philippine Stock Exchange index (PSEi) fluctuations.

The following table sets forth the impact of changes in the PSEi on the Fund’s fair value gain (loss) on its financial assets at FVPL as of December 31, 2012 and 2011:

2012 2011 Changes in PSEi 16.98% (16.98%) 14.40% (14.40%) Change in fair value gain (loss) on financial assets at

FVPL at equity portfolio under: Holding firms P=242,747,556 (P=242,747,556) P=45,118,406 (P=45,118,406) Industrial companies 144,829,121 (144,829,121) 18,117,020 (18,117,020) Financial intermediaries 122,827,848 (122,827,848) 69,864,962 (69,864,962) Property 120,450,133 (120,450,133) 46,467,052 (46,467,052) Services 88,947,922 (88,947,922) 26,499,839 (26,499,839) Mining and oil 77,725,044 (77,725,044) 101,111,772 (101,111,772)

Total P=797,527,624 (P=797,527,624) P=307,179,051 (P=307,179,051) As a percentage of the Fund’s net trading gain (loss)

for the year 152.55% (152.55%) 520.59% (520.59%)

5. Fair Value Measurement

Except for unquoted debt securities under ‘Loans and receivables’, all financial assets and liabilities have carrying amounts that approximate their fair values. As of December 31, 2012 and 2011, unquoted debt securities with carrying amounts of P=140.00 million and P=177.12 million, respectively have fair values amounting to P=157.23 million and P=188.69 million, respectively.

The methods and assumptions used by the Fund in estimating fair values of financial instruments are:

Financial assets at FVPL and AFS investments - fair values are generally based on quoted market prices. Unquoted debt securities - fair values of loans are estimated using the discounted cash flow methodology, using the Fund’s current incremental lending rates for similar types of loans. Where the instrument reprices on a quarterly basis or has a relatively short maturity, the carrying amounts approximate fair values.

Financial assets and liabilities at cost - carrying values approximate fair values since these instruments are liquid and have short-term maturities (less than three months). These financial instruments comprise cash and cash equivalents, loans and receivables other than unquoted debt securities, accounts payable and accrued expenses.

Derivative liability - fair value is estimated based on prices derived using acceptable valuation models.

- 23 -

*SGVMG500095*

Fair Value Hierarchy The Fund uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

• Quoted market prices in active markets for identical assets or liabilities (Level 1); • Inputs other than quoted prices included in Level 1 that are observable for the asset or liability,

either directly (as prices) or indirectly (derived from prices) (Level 2); and • Inputs for the asset or liability that are not based on observable market data (unobservable

inputs) (Level 3).

Financial assets at FVPL as of December 31, 2012 and 2011 and AFS investments as of December 31, 2011 are measured at fair value using level 1 inputs. Derivative liabilities are measured at fair value using level 2 inputs as of December 31, 2011.

As of December 31, 2012 and 2011, the Fund has no financial instruments that are reported within Level 3 and there were no transfers made among the three levels in the fair value hierarchy.

6. Cash and Cash Equivalents

This account consists of:

2012 2011 Cash in banks P=24,236,148 P=222,802,091 Time deposits 320,528,647 422,123,609 Short-term placements – 60,510,239 P=344,764,795 P=705,435,939

Cash in banks bear annual interest rates ranging from 0.25% to 0.75% in 2012 and 2011.

Time deposits bear annual interest rates ranging from 1.75% to 4.75% in 2012 and from 1.00% to 4.75% in 2011.

As of December 31, 2011, short-term placements represent investments in deposit substitutes with terms of less than 90 days issued by a related party (Note 16) and which earns annual interest of 4.50%.

7. Trading and Investment Securities

This account consists of:

2012 2011 Financial assets at FVPL P=5,098,109,776 P=2,200,755,783 AFS investment – 6,046,078 P=5,098,109,776 P=2,206,801,861

- 24 -

*SGVMG500095*

Financial Assets at FVPL Financial assets at FVPL consist of the following HFT securities:

2012 2011 Quoted equity securities P=4,906,731,771 P=2,200,755,783 Private bonds 191,378,005 – P=5,098,109,776 P=2,200,755,783

The carrying value of financial assets at FVPL includes fair value gains of P=526.79 million and P=59.01 million as of December 31, 2012 and 2011, respectively. Private bonds bear nominal annual interest rates ranging from 5.50% to 6.00% in 2012. AFS investment As of December 31, 2011, this account comprises government securities which bear annual interest of 8.14%. In 2012, the Fund acquired and sold government securities amounting to P=80.00 million and P=88.19 million, respectively. In 2011, the Fund acquired and sold government securities amounting to P=1.34 billion and P=1.38 billion, respectively. The changes in the net unrealized gain on AFS investments of the Fund in 2012 and 2011 follow:

2012 2011 Balance at January 1 P=1,039,127 P=– Fair value changes during the year 2,146,493 44,354,078 Amounts realized in profit or loss (3,185,620) (43,314,951) Net change during the year (1,039,127) 1,039,127 Balance at December 31 P=– P=1,039,127

Trading and Securities Gains The composition of trading and securities gain follows:

2012 2011 2010 Realized gains from sale of: Financial assets at FVPL P=496,265,766 P=16,453,083 P=248,817,803 AFS investments 3,185,620 43,314,951 – 499,451,386 59,768,034 248,817,803 Changes in fair value of: Financial assets at FVPL 526,785,087 59,005,427 319,745,535 Derivative liability 2,788,975 2,705,423 (2,175,372) 529,574,062 61,710,850 317,570,163 P=1,029,025,448 P=121,478,884 P=566,387,966

- 25 -

*SGVMG500095*

8. Loans and Receivables

This account consists of:

2012 2011 Unquoted debt securities P=140,000,000 P=177,117,696 Due from brokers 5,220,128 5,420,216 Accrued interest receivable 3,374,185 2,249,808 Dividends receivable 927,711 637,192 Accounts receivable 115,300 5,000 P=149,637,324 P=185,429,912

Unquoted Debt Securities Unquoted debt securities represent investments in commercial papers issued by financial and industrial institutions which earn annual interest rate of 5.64% in 2012 and from 4.50% to 9.59% in 2011. An unquoted debt security with a carrying value of P=51.11 million as of December 31, 2011, has an embedded call option which allows the issuer to redeem this instrument prior to its maturity but subject to a prepayment penalty of 1.50% of the outstanding principal. The call option was separated from its host instrument and is measured at fair value.

Derivative Liability As of December 31, 2011, the fair value of the embedded call option, shown as ‘Derivative liability’ in the statements of financial position, amounted to P=2.79 million. Changes in the fair value of the derivative liability amounting to a gain of P=2.79 million and P=2.71 million in 2012 and 2011, respectively, and a loss of P=2.18 million in 2010, are shown under ‘Trading and securities gain (loss)’ in the statements of comprehensive income.

Due from Brokers This represents receivables for securities sold but not yet settled as of reporting date.

9. Accounts Payable and Accrued Expenses

This account consists of:

2012 2011 Financial liabilities (Note 16): Payable to FAMI P=15,426,228 P=4,863,371 Accounts payable 8,953,473 9,299,814 Due to brokers 8,325,454 111,519,505 Accrued expenses 248,176 114,193 32,953,331 125,796,883 Nonfinancial liabilities: Withholding taxes payable 1,310,869 698,543 Documentary stamp taxes payable 206,473 596,321 1,517,342 1,294,864 P=34,470,673 P=127,091,747

- 26 -

*SGVMG500095*

Payable to FAMI includes unpaid management fees, redemption fees, sales load fees and incentive fees.

Accounts payable represents amounts payable to shareholders for the unpaid redemption proceeds, as well as subscriptions without confirmation from clients. A subscription is confirmed by submitting the required subscription documents. Once confirmed, these subscriptions are reclassified to equity. Due to brokers represents amounts payable to brokers for securities purchased but not yet settled as of reporting date.

Accrued expenses include professional fees, custodianship fees and retainer’s fee.

10. Equity

The authorized capital of the Fund is P=1.00 billion divided into 1.00 billion redeemable common shares of P=1.00 par value with each share carrying one vote. As of December 31, 2012 and 2011, issued and fully paid shares totaled 938.45 million and 802.00 million shares, respectively. The Fund’s capital is represented by these redeemable shares. Quantitative information about the Fund’s capital is provided in the statements of changes in equity. The shares are entitled to dividends when declared and to payment of a proportionate share of the Fund’s NAV on the redemption date or upon winding up of the Fund. The Fund’s issued shares are redeemed at their NAV calculated in accordance with redemption requirements. The total expected cash outflow on redemption of all the shares equals the Fund’s equity. For the purpose of calculating the NAV per share attributable to holders of redeemable shares, the Fund's investments in listed equity securities held for trading and AFS investments are valued on the basis of closing prices and Philippine Dealing System Transaction - R2 (PDST - R2), respectively. This valuation is different from PAS 39 valuation requirement which requires the use of bid price in the determination of fair value.

As of December 31, 2012 and 2011, the reconciliation between the Fund’s equity and the NAV per share calculated using closing prices follows:

2012 2011 Total equity calculated under PFRS P=5,558,436,386 P=2,968,094,467 Adjustment from bid prices to closing prices

and PDST - R2 26,167,911 60,312,285 Net asset value attributable to holders

of redeemable shares (a) 5,584,604,297 3,028,406,752 Number of redeemable shares* (b) 1,160,890,851 801,999,478 NAV per share (a/b) P=4.8106 P=3.7761

* Includes equivalent number of shares in the deposits for future shares subscriptions totaling 222,439,971 shares as of December 31, 2012

Issuance, repurchase and resale of redeemable shares are based on NAV per share attributable to holders of redeemable shares.

- 27 -

*SGVMG500095*

In 2012, 2011 and 2010, the Fund issued shares for a total amount P=3.87 billion, P=2.53 billion and P=1.30 billion, respectively, and redeemed shares for a total amount of P=3.39 billion, P=1.32 billion and P=0.90 billion, respectively. Authorized Capital Stock On March 14, 2012, the BOD approved the increase in authorized capital stock from P=1.00 billion divided into 1.00 billion redeemable common shares with a par value of P=1.00 per share to P=1.25 billion divided into 1.25 billion redeemable common shares with a par value of P=1.00 per share. This action was approved by the stockholders on August 4, 2012. The application for increase in authorized capital stock was presented for filing with the SEC on November 13, 2012 and was approved by the SEC on January 24, 2013. On February 25, 2013, the BOD approved the increase in the authorized capital of the Fund from P=1.25 billion divided into 1.25 billion redeemable common shares with a par value of P=1.00 per share to P=3.00 billion divided into 3.00 billion redeemable common shares with a par value of P=1.00 per share. The BOD also adopted a resolution that the increase in the authorized capital stock of P=1.75 billion be made in tranches. The authorized capital stock will be initially increased by P=1.00 billion while the succeeding increase will be executed upon determination and approval of the BOD. The authority of the BOD to increase the authorized capital stock is limited to P=3.00 billion. Deposits for Future Shares Subscriptions Deposits for future shares subscriptions pertain to total consideration received in excess of the authorized capital of the Fund with the purpose of applying the same as payment for future issuance of redeemable shares. Financial Reporting Bulletin (FRB) No. 6 issued by the SEC on February 16, 2012 and revised on January 24, 2013, requires an entity to classify deposit for future share subscription under equity if and only if, all of the following elements are present as of end of the reporting period: 1. The unissued authorized capital stock of the Fund is insufficient to cover the amount of shares

classified as deposits for future shares subscriptions; 2. There is BOD approval on the proposed increase in authorized capital stock (for which a

deposit was received by the Fund); 3. There is stockholders’ approval of said proposed increase; and 4. The application for the approval of the proposed increase has been filed with the SEC.

If any or all of the foregoing elements are not present, the deposit for future share subscription should be recognized as a liability. In 2012, the Fund’s balance of deposits for future shares subscriptions was received in cash from the following counterparties:

Existing stockholders: Other stockholders P=545,514,436 Related parties:

Other related party 420,000,000 Directors and officers 650,000

New investors 70,769,992 P=1,036,934,428

- 28 -

*SGVMG500095*

On April 15, 2013, the Fund requested for an exemptive relief from the requirements of FRB No. 6 by allowing the Fund to treat its deposits for future shares subscriptions as equity and to include the same in the computation of the NAV per share. In its letter dated April 19, 2013, the SEC opined that the applicable FRB No. 6 that is at issue in relation to the Fund’s deposits for future shares subscriptions, is the original version issued by the SEC on February 16, 2012, which provides that a company should not consider a deposit for future share subscription as an equity instrument unless all of the following elements are present: 1. There is a lack or insufficiency of authorized unissued shares of stock to cover the deposit; 2. The BOD and the stockholders have approved an increase in authorized capital stock to cover

the shares corresponding to the amount of the deposit; and 3. An application for the approval of the increase in authorized capital stock has been presented

for filing or filed with the SEC. The SEC confirmed that the foregoing requirements have been met by the Fund prior to the issuance of the revised FRB No. 006 on January 24, 2013 and thus allowed the Fund to recognize its deposits for future shares subscriptions as equity and to include the same in the computation of the NAV per share. As of December 31, 2012 and 2011, the total number of holders of redeemable common shares (including holders of shares in the deposits for future shares subscription) is 11,334 and 6,128, respectively.

Capital Management As a result of the ability to issue, repurchase and resell shares, the capital of the Fund can vary depending on the demand for redemptions and subscriptions to the Fund. The Fund’s objective is to achieve medium-term capital growth through investing in a selection of equity instruments. The Fund seeks to provide as high a level of current income, consistent with the preservation of capital and liquidity by observing regulatory guidelines and applying risk mitigating controls.

All security investments present a risk of loss of capital. The Investment Manager manages this risk through a careful selection of equity securities and other investments within specified limits. The Fund’s overall market positions are monitored on a daily basis by the Investment Manager and are reviewed on a quarterly basis by the BOD.

No changes were made in the objectives, policies and processes from the previous years. The Fund’s capital, as provided in the statement of changes in equity, comprise its capital stock, additional paid-in capital, deposits for future shares subscriptions, retained earnings and net unrealized gain on AFS investment. Minimum Capital Requirement As an investment company registered with the SEC, the Fund must continually comply with the minimum subscribed and paid-up capital of P=50.00 million. As of December 31, 2012 and 2011, the Fund has complied with the externally imposed capital requirement.

- 29 -

*SGVMG500095*

11. Maturity Analysis of Assets and Liabilities

The following table shows an analysis of assets and liabilities analyzed according to whether they are expected to be recovered or settled within one year and beyond one year from financial position dates:

2012 2011

Less than

twelve months Over

twelve months Total Less than

twelve months Over

twelve months Total Financial Assets Cash in bank P=24,236,148 P=– P=24,236,148 P=222,802,091 P=– P=222,802,091 Time deposits 320,528,647 – 320,528,647 422,123,609 – 422,123,609 Short-term placements – – – 60,510,239 – 60,510,239 Financial assets at FVPL:

Quoted equity securities 4,906,731,771 – 4,906,731,771 2,200,755,783 – 2,200,755,783 Private bonds 191,378,005 – 191,378,005 – – –

AFS investments: Government debt securities – – – – 6,046,078 6,046,078

5,442,874,571 – 5,442,874,571 2,906,191,722 6,046,078 2,912,237,800 Loans and receivables:

Unquoted debt security – 140,000,000 140,000,000 – 177,117,696 177,117,696 Due from brokers 5,220,128 – 5,220,128 2,249,808 – 2,249,808 Accrued interest receivable 3,374,185 – 3,374,185 5,420,216 – 5,420,216 Dividends receivable 927,711 – 927,711 637,192 – 637,192 Accounts receivable 115,300 – 115,300 5,000 – 5,000

9,637,324 140,000,000 149,637,324 8,312,216 177,117,696 185,429,912 Total Financial Assets 5,452,511,895 140,000,000 5,592,511,895 2,914,503,938 183,163,774 3,097,667,712 Nonfinancial Asset Other asset – 395,164 395,164 – 307,477 307,477 Total Assets P=5,452,511,895 P=140,395,164 P=5,592,907,059 P=2,914,503,938 P=183,471,251 P=3,097,975,189

Financial Liabilities Payable to FAMI P=15,426,228 P=– P=15,426,228 P=4,863,371 P=– P=4,863,371 Accounts payable 8,953,473 – 8,953,473 9,299,814 – 9,299,814 Due to brokers 8,325,454 – 8,325,454 111,519,505 – 111,519,505 Accrued expenses 248,176 – 248,176 – 2,788,975 2,788,975 Derivative liability – – – 114,193 – 114,193 32,953,331 – 32,953,331 125,796,883 2,788,975 128,585,858 Nonfinancial Liabilities Withholding taxes payable 1,310,869 – 1,310,869 698,543 – 698,543 Documentary stamp taxes payable 206,473 – 206,473 596,321 – 596,321 1,517,342 – 1,517,342 1,294,864 – 1,294,864 Total Liabilities P=34,470,673 P=– P=34,470,673 P=127,091,747 P=2,788,975 P=129,880,722

12. Interest Income This account consists of interest income from:

2012 2011 2010 Financial assets at FVPL P=17,728,243 P=– P=– Loans and receivables (Note 16) 9,797,340 8,066,736 7,837,902 Cash and cash equivalents (Note 16) 6,442,892 6,570,864 2,892,643 AFS investments 116,667 6,329,938 – P=34,085,142 P=20,967,538 P=10,730,545

13. Income Taxes

Provision for final tax pertains mainly to the 20.00% final withholding tax on gross interest income from bank deposits, short-term placements, and loans and discounts.

- 30 -

*SGVMG500095*

Current tax regulations provide that the RCIT rate shall be 30.00% starting January 1, 2009 and that interest allowed as a deductible expense is reduced by 33.00% of interest income subjected to final tax.

Starting July 1, 2008, an optional standard deduction (OSD) equivalent to 40.00% of gross income maybe claimed as an alternative deduction in computing for the RCIT. The Fund has elected to claim itemized deductions instead of OSD for its 2012, 2011 and 2010 RCIT computations. Current tax regulations also provide for MCIT of 2.00% on modified gross income and allow a NOLCO. The MCIT and NOLCO may be applied against the Fund’s income tax liability and taxable income, respectively, over a three-year period from the year of inception.

Details of the Fund’s NOLCO are as follows:

Inception Year Amount Expired Balance Expiry Year 2009 P=8,853,003 P=8,853,003 P=– 2012 2010 40,014,221 – 40,014,221 2013 2011 46,193,772 – 46,193,772 2014 2012 96,683,114 – 96,683,114 2015 P=191,744,110 P=8,853,003 P=182,891,107

The Fund did not set up deferred tax asset/liability on the following temporary differences:

2012 2011 NOLCO P=182,891,107 P=95,060,996 Fair value changes on derivative liability, net of

amortization of premium – 681,279 Accrued expenses 19,260,590 4,479,502 P=202,151,697 P=100,221,777

The Fund believes that it is not reasonably probable that these temporary differences will be realized in the future. The reconciliation of the statutory income tax to effective income tax follows:

2012 2011 2010 Statutory income tax rate 30.00% 30.00% 30.00% Tax effect of: Unrealized trading gain on financial assets at FVPL (16.16) (16.27) (17.93) Tax-paid income (15.49) (5.81) (13.75) Tax-exempt income (1.83) (21.52) (1.04) Movements in unrecognized deferred tax assets 3.42 13.45 2.41 Non-deductible expense 0.59 3.26 0.56 Effective income tax rate 0.53% 3.11% 0.25%

- 31 -

*SGVMG500095*

14. Miscellaneous Expense

This account consists of:

2012 2011 2010 Loss on pretermination of unquoted

debt securities P=1,137,855 P=– P=– Transaction charges 824,621 358,914 192,169 Other miscellaneous expenses 810,814 137,370 169,159 P=2,773,290 P=496,284 P=361,328

Transaction charges include expenses incurred from acquisitions and disposals of HFT securities. Other miscellaneous expenses include insurance premiums, notarial fees and membership fees and dues.

15. Segment Information

For management purposes, the Fund is organized into one main operating segment, which invests in equity securities and debt instruments. All of the Fund’s activities are interrelated and interdependent. Accordingly, all significant operating decisions are based upon analysis of the Fund as one segment. The financial results from this segment are equivalent to the financial statements of the Fund as a whole. The table below analyzes the Fund’s operating income per investment type:

2012 2011 2010 Equity securities P=1,073,351,497 P=109,238,204 P=587,068,340 Debt instruments including deposit

placements 42,514,348 65,200,594 10,730,545 Changes in fair value of derivative liability

(Notes 7 and 8) 2,788,975 2,705,423 (2,175,372) P=1,118,654,820 P=177,144,221 P=595,623,513

16. Related Party Transactions

In the ordinary course of business, the Fund has transactions with related parties. Parties are related if one party has the ability, directly or indirectly, to control the other parties or exercise significant influence over the other party in making financial and operating decisions and the parties are subject to common control or common significant influence.

The Fund’s related parties also include key management personnel, close family members of key management personnel and entities which are controlled, significantly influenced by or for which significant voting power is held by key management personnel or their close family members.

- 32 -

*SGVMG500095*

Details of investments in the Funds by related parties are set out below:

Number of shares held at

January 1

% interest held at

January 1

Number of shares

acquired during

the year

Number of shares

disposed during the

year

Number of shares held at

December 31

% interest held at

December 31 2012 FMIC1 157,307,734 19.61% 91,781,211 – 249,088,945 21.45% PBC Capital Investment

Corporation (PBC) 49,033,389 6.11% 8,270,331 6,405,001 50,898,719 4.38% SBC Properties, Inc. – 0.00% 4,929,862 – 4,929,862 0.42% FAMI 2,475,436 0.31% 1,533,810 – 4,009,246 0.24%

Directors and officers2 485,548 0.06% 686,827 152,001 1,020,374 0.09% 2011 FMIC 31,954,226 6.74% 125,353,508 – 157,307,734 19.61% PBC 9,048,678 1.91% 39,984,711 – 49,033,389 6.11% FAMI 1,023,467 0.22% 1,451,969 – 2,475,436 0.31% FMSBC 929,541 0.20% 198,119 1,127,660 – – Directors and officers 166,510 0.04% 340,839 21,801 485,548 0.06%

1 Includes equivalent number of shares in the deposits for future shares subscriptions totaling 91,781,211 as of December 31, 2012. 2 Includes equivalent number of shares in the deposits for future shares subscriptions totaling 139,298 as of December 31, 2012.

The Fund currently has a Management and Distribution Agreement with FAMI and a Stock and Transfer Agency Agreement with MBTC-TBG (the Agreements). The Agreements cover the services to be rendered by FAMI and MBTC-TBG, and the payment of fees based on the Fund’s average NAV computed on a daily basis, except for stock and transfer agency fee, as follows:

Service Account Rate 2012 2011 2010 Fund management and distribution

Management fee*

1.75% to 1.875% of the Fund’s average net asset value computed on a daily basis P=94,204,979 P=43,087,215 P=21,125,365

Fund management and distribution

Incentive fee** 10% of realized appreciation in value

of net assets in excess of the defined hurdle rate – –

19,826,685 Stock and transfer agency Retainer’s fee P=8,000 per month accrued daily 96,260 96,000 96,000 P=94,301,239 P=43,183,215 P=41,048,050

* On December 14, 2011, the BOD of the Fund approved the increase in management fee from 1.75% to 1.875% effective March 2012. ** Included in management fees in the statements of comprehensive income. The management and retainer’s fee are paid on a monthly basis while the incentive fees are paid annually. These agreements shall remain in effect from year to year, unless otherwise terminated or amended by the parties in accordance with specified terms and conditions. Incentive fee is recognized when the appreciation in value of the Fund’s net assets is in excess of the defined hurdle rate. The fee is equivalent to one tenth (1/10) of the realized appreciation in value of the Fund's net assets in excess of the defined hurdle rate equivalent to PSEi annual performance plus 6.50%. As of December 31, 2012 and 2011, the realized appreciation of the Fund’s net assets did not exceed the defined hurdle rate.

The following table provides the total amount of investments in time deposits and short-term placements entered into with related parties for the relevant financial year:

Other Related Parties Amount/Volume* Outstanding Balance Terms Conditions 2012:

Placements P=78,356,965,457 1 - 48 days; Unsecured; Maturities 78,519,070,659 P=320,528,647 1.75% - 4.75% No impairment

2011: Placements P35,826,648,178 1 - 182 days; Unsecured; Maturities 35,820,251,138 P482,633,848 1.00% - 4.50% No impairment

*Volume of transactions includes rolled over balances.

- 33 -

*SGVMG500095*

As of December 31, 2012 and 2011, the Fund’s investments in equity and debt securities of its related parties are as follows: 2012 Other Related Parties Amount/Volume Outstanding Balance Terms Conditions Financial assets at FVPL:

Equity Securities: Outright purchase P=819,788,628 On demand; Unsecured; Outright sale 856,237,177 P=723,113,176 Non-interest bearing No impairment

Debt Securities: Outright purchase 283,355,000 On demand; Unsecured; Outright sale 251,390,000 159,283,773 3.88% - 5.68% No impairment

2011 Other Related Parties Amount/Volume Outstanding Balance Terms Conditions Financial assets at FVPL:

Equity Securities: Outright purchase P=731,187,899 On demand; Unsecured; Outright sale 307,651,446 P=502,668,821 Non-interest bearing No impairment

Loans: Placements 240,000,000 5 years and 3 months; Unsecured; Maturities 113,990,000 126,010,000 5.68% No impairment

Outright purchases and outright sales of equity and debt securities of the Fund with its related parties in 2012 and 2011 follow:

2012 2011 Other Related Parties Purchase of securities P=2,965,440,782 P=1,662,827,871 Sale of securities 1,133,076,192 1,350,025,752

The following table shows other related party transactions included in the financial statements:

Elements of Transactions

Statements of Financial

Position Amounts Statements of Comprehensive

Income Amounts Related Party Relationship Account 2012 2011 2012 2011 2010 MBTC Entity with significant

influence over the Fund Cash and cash equivalents P=21,496,742 P=218,298,069

Accrued interest receivable 49,860 41,003 Interest income P=5,711,147 P=1,818,413 P=1,804,129 Dividend income 2,532,776 71,000 – Trading gain - net 92,186,316 4,509,225 –

FMIC Entity with significant influence over the Fund

Interest income

7,184,241

1,213,834

2,567,569

Trading gain - net 42,956,021 5,489,355 –

FAMI Investment manager Payable to FAMI 15,426,228 4,863,371 Accrued interest receivable – 42,291 Interest income 861,531 995,578 3,711,789

Philippine Savings Bank Other related party Cash and cash equivalents 1,166,300 3,119,263 Accrued interest receivable – 286,644 Interest income 715,909 4,521,294 1,088,514 Dividend income 3,841,990 1,045,776 46,841 Trading gain (loss) 31,894,706 32,407,406 (519,128)

FMSBC Other related party Due from brokers 5,210,354 5,420,216 Due to brokers 15,478 92,899,362 Broker’s commission 9,656,068 3,651,650 1,335,950

First Metro Save and Learn Fixed Income Fund, Inc.

Other related party Accounts payable - others – 1,542,482

Directors and officers Directors and officers Accounts payable - others – 10,000 Directors’ and officers’ fees 217,200 217,000 252,000

FMIC, a subsidiary of MBTC, is the major shareholders of the Fund. Other related parties are entities which are under common significant influence as the Fund or are under common control of FMIC and MBTC.

- 34 -

*SGVMG500095*

Terms and conditions of transactions with related parties Transactions between related parties are based on terms similar to those offered to nonrelated parties. Outstanding balances at year-end are unsecured and settlement occurs in cash. There are no provisions for doubtful debts related to outstanding balances. There have been no guaranties provided or received for any related party receivables or payables.

17. Approval for the Release of the Financial Statements

The accompanying financial statements were authorized for issue by the BOD of the Fund on April 22, 2013.

18. Report on the Supplementary Information Required Under Revenue Regulations 19-2011 and 15-2010

Supplementary Information Required Under Revenue Regulations No. 19-2011 In addition to the required supplementary information under Revenue Regulation (RR) 15-2010, on December 9, 2011, the BIR issued RR 19-2011 which prescribes the new BIR forms that will be used for income tax filing. Specifically, companies are required to disclose certain information in their respective note to financial statements. For the taxable year December 31, 2012, the Fund reported the following revenues and expenses: Revenues

Services/operations P=9,596,018 Expenses

Cost of services: Management fees P=79,423,891

Itemized deductions: Brokers’ commission P=18,009,630 Taxes and licenses 5,618,038 Other services 855,718

Transaction charges 824,621 Professional fees 422,960 Director's fees 217,200 Management fees 96,260

Membership fees and dues 20,000 Insurance premium 600

Miscellaneous 790,214 P=26,855,241

- 35 -

*SGVMG500095*

Supplementary Information Required Under Revenue Regulations No. 15-2010 On November 25, 2010, the Bureau of Internal Revenue issued RR 15-2010 to amend certain provisions of RR 21-2002. RR 15-2010 provides that starting 2010 the notes to financial statements shall include information on taxes and licenses paid or accrued during the taxable year.

The Fund reported and/or paid the following types of taxes for the year: Taxes and Licenses As of December 31, 2012, taxes and licenses of the Fund consist of:

Stock transaction tax P=18,243,790 Documentary stamp tax 4,646,273 Local taxes 971,765 P=23,861,828

Stock transaction tax represents ½ of 1% of the gross selling price of securities sold by the Fund.

Documentary stamp tax pertains to tax paid on the original issuance of redeemable shares during the year. As of December 31, 2012, outstanding documentary stamp tax payable amounted to P=0.21 million.

Withholding Taxes Total remittances made by the Fund amounting to P=12.49 million in 2012 pertain to expanded withholding taxes. As of December 31, 2012, the outstanding balance of withholding taxes payable amounted to P=1.31 million.

Exhibit 3

FIRST METRO SAVE AND LEARN EQUITY FUND, INC.

(An Open-End Mutual Fund Company) STATEMENTS OF CONDITION

Increase/

March 31, 2013 December 31, 2012 (Decrease)

(Unaudited) (Audited)

Cash and Cash Equivalents P 795,504,960 P 344,764,795 P 450,740,165

Financial Assets at FVPL 6,600,873,497 5,098,109,776 1,502,763,721

Loans and Receivables 245,222,633 149,637,324 95,585,309

Creditable Withholding Taxes 395,164 395,164 -

P 7,641,996,253 P 5,592,907,059 P 2,049,089,195

Accounts Payable and Accrued Expenses P 307,235,952 P 34,470,673 P 272,765,279

Derivative Liability - - -

307,235,952 34,470,673 272,765,279

NET ASSET VALUE P 7,334,760,301 P 5,558,436,386 P 1,776,323,914

COMPOSITION OF NET ASSET VALUE

Capital Stock - Common P 991,068,464 P 938,450,880 P 52,617,584

Additional Paid-in Capital 2,596,862,720 2,446,920,221 149,942,499

Deposit for future subscription 1,769,415,674 1,036,934,428 732,481,246

Retained Earnings

Balance at beginning of the year 1,136,130,857 350,865,980 785,264,877

Net Income 841,282,587 973,031,929 (131,749,342)

Shares redeemed during the year 0 (187,767,052) 187,767,052

NET ASSET VALUE P 7,334,760,301 P 5,558,436,386 P 1,776,323,915

NET ASSET VALUE PER SHARE P 5.4607 P 4.8106 0.6501

ASSETS

LIABILITIES

As of

FIRST METRO SAVE AND LEARN EQUITY FUND, INC.

(An Open-End Mutual Fund Company) STATEMENTS OF COMPREHENSIVE INCOME

2013 2012

INCOME

Marking-to-Market Gains P 711,343,159 P 387,405,469

Trading Gains 138,684,530 187,672,893

Dividend Income 29,797,477 19,164,699

Interest Income 6,438,503 7,386,177

Other Income - -

Total Operating Income 886,263,668 601,629,238

EXPENSES

Management Fees 34,198,484 17,373,155

Taxes and Licenses 2,585,167 1,790,714

Transaction Charges 80,123 158,581

Professional Fees 143,166 136,748

Custodian & Clearing Fees 214,730 105,776

Directors and Officers Fees 60,500 48,000

Retainer's Fees 31,671 23,934

Membership Fees 20,000 20,000

Miscellaneous Expenses 41,034 22,912

Total Expenses 37,374,875 19,679,820

INVESTMENT INCOME BEFORE INCOME TAX 848,888,794 581,949,418

Provision for Income Tax - Final 7,606,207 5,832,519

NET INVESTMENT INCOME 841,282,587 576,116,899

OTHER COMPREHENSIVE INCOME

Changes in fair value of available-for-sale invesment - -

TOTAL COMPREHENSIVE INCOME 841,282,587 576,116,899

Earnings per Share P 1.0237 P 0.6510

For the Period Ended March 31

FIRST METRO SAVE AND LEARN EQUITY FUND, INC.

(An Open-End Mutual Fund Company) STATEMENTS OF CHANGES IN CAPITAL FUNDS

2013 2012

CAPITAL STOCK - P 1.00 par value

Authorized - 1,250,000,000 shares

Issued and outstanding - 991,068,464 shares in March

2013; 923,456,103 shares in March 2012 P 991,068,464 P 923,456,103

CAPITAL PAID IN EXCESS OF PAR VALUE 2,596,862,720 2,181,426,019

DEPOSIT FOR FUTURE SUBSCRIPTION 1,769,415,674 -

RETAINED EARNINGS

Balance at beginning of year 1,136,130,857 350,865,980

Net Income 841,282,587 576,116,899

Balance at end of quarter 1,977,413,444 926,982,879

P 7,334,760,301 P 4,031,865,001

As of March 31

FIRST METRO SAVE AND LEARN EQUITY FUND, INC.

(An Open-End Mutual Fund Company) STATEMENTS OF CASH FLOW

2013 2012

CASH FLOWS FROM OPERATING ACTIVITIES

Income before Income Tax P 848,888,794 P 581,949,418

Adjustment to reconcile income before tax to net cash

generated from (used) in operations:

Interest Income (6,438,503) (7,386,177)

Dividend Income (29,797,477) (19,164,699)

Changes in operating assets and liabilities:

Decrease/(Increase) in:

Financial Assets at Fair Value through Profit or Loss (1,502,763,721) (940,081,031)

Available-for-Sale Securities - 5,006,951

Loans and Receivables (78,615,073) (332,344,410)

Other Assets - (24,019)

Increase/(Decrease) in:

Accounts Payable & Accrued Expenses 272,765,279 (40,645,127)

Derivative Liability - 2,705,423

Net cash used in operations (495,960,700) (749,983,671)

Interest income received 6,886,031 6,078,254

Income taxes paid (7,606,207) (5,832,519)

Net cash used in operating activities (496,680,877) (749,737,936)

CASH FLOWS FROM INVESTING ACTIVITIES

Dividends received 12,379,713 8,004,137

Net cash provided by (used in) investing activities 12,379,713 8,004,137

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from issuance of capital stock 2,604,104,997 924,727,076

Payment of redemption proceeds (1,669,063,668) (436,034,314)

Net cash provided by financing activities 935,041,328 488,692,762

NET DECREASE IN CASH & CASH EQUIVALENTS 450,740,165 (253,041,037)

CASH AND CASH EQUIVALENTS

Beginning balance 344,764,795 705,435,939

Ending balance P 795,504,960 P 452,394,902

For the Period Ended March 31

FIRST METRO SAVE AND LEARN EQUITY FUND, INC.

(An Open-End Mutual Fund Company)

NOTES TO FINANCIAL STATEMENTS

1. Corporate Information

First Metro Save and Learn Equity Fund, Inc. (the Fund) was incorporated on May 27, 2005 and

subsequently registered under the Philippine Investment Company Act (Republic Act No. 2629) on

September 6, 2005 as an open-end mutual fund company engaged in selling its capital to the public

and investing the proceeds in selected high grade stocks. As an open-end mutual fund company, it

stands ready at any time to redeem its outstanding redeemable shares at net asset value (NAV) per

share.

First Metro Asset Management, Inc. (FAMI) serves as the investment manager and principal

distributor of the Fund. Metropolitan Bank & Trust Company - Trust Banking Group (MBTC-

TBG) serves as the Fund‟s stock and transfer agent.

The Fund, which is domiciled in the Philippines, has its principal place of business at 18th Floor,

PSBank Center, 777 Paseo de Roxas, Makati City.

2. Accounting Policies

Basis of Financial Statement Preparation

The accompanying financial statements have been prepared under the historical cost convention

except for financial instruments at fair value through profit or loss (FVPL) and available-for-

sale (AFS) investments that have been measured at fair value. The financial statements are

presented in Philippine peso, which is the Fund‟s functional currency. All amounts in the financial

statements are rounded to the nearest peso unless otherwise indicated.

Statement of Compliance

The financial statements of the Fund have been prepared in compliance with Philippine Financial

Reporting Standards (PFRS).

Changes in Accounting Policies

The accounting policies adopted are consistent with those of the previous financial year except for

the following amended PFRS, which were adopted as of January 1, 2012:

PFRS 7, Financial Instruments: Disclosures - Transfers of Financial Assets (Amendments)

The amendments require additional disclosures about financial assets that have been transferred but

not derecognized to enhance the understanding of the relationship between those assets that have

not been derecognized and their associated liabilities. In addition, the amendments require

disclosures about continuing involvement in derecognized assets to enable users of financial

statements to evaluate the nature of, and risks associated with, the entity‟s continuing involvement

in those derecognized assets. The amendments have no impact on the Fund‟s financial position or

performance and financial statement disclosures.

Philippine Accounting Standards (PAS) 12, Income Taxes - Deferred Tax: Recovery of Underlying

Assets (Amendment)

This amendment to PAS 12 clarifies the determination of deferred tax on investment property

measured at fair value. The amendment introduces a rebuttable presumption that the carrying

amount of investment property measured using the fair value model in PAS 40, Investment

Property, will be recovered through sale and, accordingly, requires that any related deferred tax

should be measured on a „sale‟ basis. The presumption is rebutted if the investment property is

depreciable and it is held within a business model whose objective is to consume substantially all of

the economic benefits in the investment property over time („use‟ basis), rather than through sale.

Furthermore, the amendment introduces the requirement that deferred tax on non-depreciable assets

measured using the revaluation model in PAS 16, Property, Plant and Equipment, always be

measured on a sale basis of the asset. The amendments are effective for periods beginning on or

after January 1, 2012. The amendments have no impact on the financial statements of the Fund.

Summary of Significant Accounting Policies

Financial Instruments - Initial Recognition and Subsequent Measurement

Date of recognition

The Fund recognizes a financial asset or a financial liability in the statement of financial position

when it becomes a party to the contractual provisions of the instrument. Purchases or sales of

financial assets that require delivery of assets within the time frame established by regulation or

convention in the marketplace are recognized on the settlement date, except for transactions

involving equity securities which are recognized on the trade date. Deposits and receivables are

recognized when cash is advanced or when the earning process is completed.

Initial recognition of financial instruments

All financial instruments are initially recognized at fair value. Except for financial assets and

financial liabilities at FVPL, the initial measurement of financial instruments includes transaction

costs. The Fund classifies its financial assets in to the following categories: financial assets at

FVPL, AFS investments, held-to-maturity (HTM) securities and loans and receivables, while

financial liabilities are classified as financial liabilities at FVPL and financial liabilities at amortized

cost. The classification depends on the purpose for which the investments were acquired and

whether they are quoted in an active market. Management determines the classification of its

investments at initial recognition and, where allowed and appropriate, re-evaluates such designation

at every reporting date.

As of December 31, 2012 the Fund has no AFS investments and HTM securities. As of December

31, 2011, the Fund has no HTM securities.

Determination of fair value

The fair value of financial instruments traded in an active market at the reporting date is based on

their quoted market prices or dealer price quotations (bid price for long positions and asking price

for short positions), without any deduction for transaction costs. When current bid and asking

prices are not available, the price of the most recent transaction provides evidence of the current fair

value as long as there has not been a significant change in economic circumstances since the time of

the transaction.

For all other financial instruments not listed in an active market, the fair value is determined by

using appropriate valuation techniques. Valuation techniques include net present value techniques,

comparison to similar instruments for which market observable prices exist, option pricing models,

and other relevant valuation models.

Financial assets or financial liabilities at FVPL

This category consists of financial assets or financial liabilities that are held for trading (HFT) or

designated by management as at FVPL on initial recognition.

Financial assets and financial liabilities at FVPL are recorded in the statement of financial position

at fair value, with changes in the fair value (except those accounted for as accounting hedges)

recorded under the „Trading and securities gain (loss)‟ account in profit or loss.

Embedded derivatives

Embedded derivatives are separated from their host contracts and carried at fair value when the

entire hybrid contracts (composed of both the host contract and the embedded derivative) are not

accounted for as financial assets at FVPL, when their economic risks and characteristics are not

closely related to those of their respective host contracts, and when a separate instrument with the

same terms as the embedded derivatives would meet the definition of a derivative. The Fund

assesses whether embedded derivatives are required to be separated from the host contract when the

Fund first becomes a party to the contract. Reassessment of embedded derivatives is only done

when there are changes in the contract that significantly modifies the contractual cash flows.

The Fund has an embedded call option on one of its unquoted debt securities classified as loans and

receivables. Such derivative financial instrument is initially recorded at fair value on the date at

which the derivative contract is entered into and is subsequently remeasured at fair value. Any

gains or losses arising from changes in the fair value of the derivative are taken directly to profit or

loss and are included under „Trading and securities gain (loss)‟ account. A derivative is carried as

an asset when the fair value is positive and as a liability when the fair value is negative.

Loans and receivables

Loans and receivables are financial assets with fixed or determinable payments and fixed maturities

that are not quoted in an active market. They are not entered into with the intention of immediate

or short-term resale and are not classified as financial assets at FVPL or designated as „AFS

investments‟. Loans and receivables consist of amounts due from brokers, unquoted debt

securities, accrued interest receivable and dividends receivable.

After initial measurement, loans and receivables are subsequently measured at amortized cost, less

any allowance for credit losses. Amortized cost is calculated by taking into account any discount or

premium on acquisition and fees and costs that are an integral part of the effective interest rate

(EIR). The amortization is included in „Interest income‟ in profit or loss. The losses arising from

impairment are recognized in „Provision for impairment and credit losses‟ in profit or loss.

AFS investments

AFS investments are those which are designated as such or do not qualify to be classified as

designated as financial assets at FVPL, HTM securities, or loans and receivables. They are

purchased and held indefinitely, and may be sold in response to liquidity requirements or changes

in market conditions.

After initial measurement, AFS investments are subsequently measured at fair value. The

unrealized gains and losses arising from the fair valuation of AFS investments are excluded, net of

tax, from reported earnings and are presented as „Net unrealized gain (loss) on AFS investments‟ in

other comprehensive income (OCI).

When an AFS investment is disposed of, any cumulative gain or loss previously recognized in

equity is recognized as „Trading and securities gain (loss)‟ in profit or loss. Where the Fund holds

more than one investment in the same security, these are deemed to be disposed of on a first-in

first-out basis. The losses arising from any impairment of such securities are charged against

current operations.

Financial liabilities at amortized cost

Issued financial instruments or their components, are classified as liabilities under the appropriate

financial liability accounts, where the substance of the contractual arrangements result in the Fund

having an obligation either to deliver cash or another financial asset to the holder, or to satisfy the

obligation other than by the exchange of a fixed amount of cash or another financial asset for a

fixed number of own equity shares. The components of issued financial instruments that contain

both liability and equity elements are accounted for separately, with the equity component being

assigned the residual amount after deducting from the instrument as a whole the amount separately

determined as the fair value of the liability component on the date of issue.

Due to and due from brokers

Amounts due to brokers are payables for securities purchased (in a regular way transaction) that

have been contracted for but not yet delivered on the reporting date. Refer to the accounting policy

for „financial liabilities at amortized cost‟ for recognition and measurement.

Amounts due from brokers are receivables for securities sold (in a regular way transaction) that

have been contracted for but not yet delivered on the reporting date. Refer to accounting policy for

„loans and receivables‟ for recognition and measurement.

Offsetting of Financial Instruments

Financial assets and financial liabilities are offset and the net amount reported in the statement of

financial position if, and only if, there is a currently enforceable legal right to offset the recognized

amounts and there is an intention to settle on a net basis, or to realize the asset and settle the

liability simultaneously.

Derecognition of Financial Assets and Liabilities

Financial assets

A financial asset (or where applicable, a part of a financial asset or part of a group of financial

assets) is derecognized when:

1. the rights to receive cash flows from the asset have expired;

2. the Fund retains the right to receive cash flows from the asset, but has assumed an obligation to

pay them in full without material delay to a third party under a “pass-through” arrangement; or

3. the Fund has transferred its rights to receive cash flows from the asset and either (a) has

transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor

retained the risks and rewards of the asset but has transferred the control of the asset.

Where the Fund has transferred its rights to receive cash flows from an asset or has entered into a

“pass-through” arrangement, and has neither transferred nor retained substantially all the risks and

rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the

Fund‟s continuing involvement in the asset. Continuing involvement that takes the form of a

guarantee over the transferred asset is measured at the lower of the original carrying amount of the

asset and the maximum amount of consideration that the Fund could be required to repay.

Financial liabilities

A financial liability is derecognized when the obligation under the liability is discharged or

cancelled or has expired. Where an existing financial liability is replaced by another from the same

lender on substantially different terms, or the terms of an existing liability are substantially

modified, such an exchange or modification is treated as a derecognition of the original liability and

the recognition of a new liability, and the difference in the respective carrying amounts is

recognized in profit or loss.

Impairment of Financial Assets

The Fund assesses at each reporting date whether there is objective evidence that a financial asset

or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed

to be impaired if, and only if, there is objective evidence of impairment as a result of one or more

events that has occurred after the initial recognition of the asset (an incurred „loss event‟) and that

loss event (or events) has an impact on the estimated future cash flows of the financial asset or the

group of financial assets that can be reliably estimated. Evidence of impairment may include

indications that the borrower or a group of borrowers is experiencing significant financial difficulty,

default or delinquency in interest or principal payments, the probability that they will enter

bankruptcy or other financial reorganization and where observable data indicate that there is a

measurable decrease in the estimated future cash flows, such as changes in arrears or economic

conditions that correlate with defaults.

Financial assets at amortized cost

For financial assets at amortized cost, the Fund first assesses whether objective evidence of

impairment exists individually for financial assets that are individually significant, or collectively

for financial assets that are not individually significant.

If there is objective evidence that an impairment loss has been incurred, the amount of the loss is

measured as the difference between the financial asset‟s carrying amount and the present value of

the estimated future cash flows (excluding future credit losses that have not been incurred). The

estimated future cash flows is discounted at the financial asset‟s original EIR. The calculation of

the present value of the estimated future cash flows of a collateralized financial asset reflects the

cash flows that may result from foreclosure less costs for obtaining and selling the collateral,

whether or not foreclosure is probable.

The carrying amount of the financial asset is reduced through use of an allowance account and the

amount of loss is charged against profit or loss. Interest income continues to be recognized based

on the original EIR of the asset. Loans and receivables, together with the associated allowance

accounts, are written off when there is no realistic prospect of future recovery and all collateral has

been realized. If, in a subsequent year, the amount of the estimated impairment loss decreases

because of an event occurring after the impairment was recognized, the previously recognized

impairment loss is reduced by adjusting the allowance account. If a future write-off is later

recovered, any amounts formerly charged are credited to „Provision for impairment and credit

losses‟ in profit or loss.

If the Fund determines that no objective evidence of impairment exists for an individually assessed

financial asset, whether significant or not, it includes the asset in a group of financial assets with

similar credit risk characteristics and collectively assesses for impairment. Those characteristics are

relevant to the estimation of future cash flows for groups of such assets by being indicative of the

counterparties‟ ability to pay all amounts due according to the contractual terms of the assets being

evaluated. Assets that are individually assessed for impairment and for which an impairment loss

is, or continues to be, recognized are not included in a collective assessment for impairment. Assets

individually assessed for impairment for which no impairment loss was recognized are also

collectively assessed for impairment.

For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis

of such credit risk characteristics as industry, past-due status and term. Future cash flows in a

group of financial assets that are collectively evaluated for impairment are estimated on the basis of

historical loss experience for assets with credit risk characteristics similar to those in the group.

Historical loss experience is adjusted on the basis of current observable data to reflect the effects of

current conditions that did not affect the period in which the historical loss experience is based and

to remove the effects of conditions in the historical period that do not exist currently.

AFS investments

For AFS investments, the Fund assesses at each reporting date whether there is objective evidence

that a financial asset or group of financial assets is impaired.

In the case of debt instruments classified as AFS investments, the Fund assesses individually

whether there is objective evidence of impairment based on the same criteria as financial assets

carried at amortized cost. However, the amount recorded for impairment is the cumulative loss

measured as the difference between the amortized cost and the current fair value, less any

impairment loss on that investment previously recognized in profit or loss. Future interest income

is based on the reduced carrying amount and is accrued based on the rate of interest used to

discount future cash flows for the purpose of measuring impairment loss. Such accrual is recorded

as part of „Interest income‟ in profit or loss. If subsequently, the fair value of a debt instrument

increased and the increase can be objectively related to an event occurring after the impairment loss

was recognized in profit or loss, the impairment loss is reversed through profit or loss.

Cash and Cash Equivalents

Cash and cash equivalents consist of demand, savings, and time deposits in banks and short-term

placements. Cash equivalents are short-term, highly liquid investments that are readily convertible

to known amounts of cash with original maturities of three months or less from dates of placement

and are subject to an insignificant risk of changes in value.

Revenue Recognition

Revenue is recognized to the extent that it is probable that economic benefits will flow to the Fund

and the revenue can be reliably measured, regardless of when payment is being made. Revenue is

measured at the fair value of the consideration received or receivable, taking into account

contractually defined terms of payment and excluding taxes or duties. The Fund assesses its

revenue arrangements against specific criteria in order to determine if it is acting as a principal or as

an agent. The Fund has concluded that it is acting as a principal in all of its revenue arrangements.

The following specific recognition criteria must also be met before income is recognized:

Interest income

Interest income is recognized in profit or loss as it accrues, taking into account the effective yield of

the asset. Interest income includes the amortization of any discount or premium or other

differences between the initial carrying amount of an interest-bearing instrument and its amount at

maturity calculated on an EIR basis.

Dividend income

Dividend income is recognized when the Fund‟s right to receive payment is established.

Trading and securities gain (loss)

Trading and securities gain (loss) represents results arising from trading activities, disposal of AFS

investments, redemption of unquoted debt securities and all gains and losses from changes in the

fair values of derivatives and financial assets at FVPL.

Expense Recognition

Expenses are recognized when a decrease in future economic benefits related to a decrease in an

asset or an increase in a liability has arisen that can be measured reliably. Expenses are recognized

as incurred.

Income Taxes

Current tax

Current tax assets and liabilities for the current and prior periods are measured at the amount

expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to

compute the amount are those that have been enacted or substantially enacted at the reporting date.

Deferred tax

Deferred tax is provided, using the liability method, on all temporary differences at the reporting

date between the tax bases of assets and liabilities and their carrying amounts for financial reporting

purposes.

Deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax assets are

recognized for all deductible temporary differences, carryforward of unused tax credits from the

excess minimum corporate income tax (MCIT) over regular corporate income tax (RCIT) and

unused net operating loss carryover (NOLCO), to the extent that it is probable that taxable income

will be available against which the deductible temporary differences, carryforward of unused tax

credits and unused NOLCO can be utilized. Deferred tax, however, is not recognized when it arises

from the initial recognition of an asset or liability in a transaction that is not a business combination

and, at the time of the transaction, affects neither the accounting income nor taxable income.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the

extent that it is no longer probable that sufficient taxable income will be available to allow all or

part of the deferred tax assets to be utilized. Unrecognized deferred tax assets are reassessed at

each reporting date and are recognized to the extent that it has become probable that future taxable

profit will allow the deferred tax assets to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are applicable to the period

when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been

enacted or substantially enacted at the reporting date.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to offset

current tax assets against current tax liabilities and the deferred taxes relate to the same taxable

entity and the same taxation authority.

Current tax and deferred tax relating to items recognized in equity are recognized in OCI.

NAV Per Share

NAV per share is computed by dividing net assets (total assets less total liabilities) by the total

number of redeemable shares outstanding, including the equivalent number of shares in the deposits

for future shares subscriptions, as of the reporting date.

Share Capital Transactions

The Fund issues redeemable shares, which are redeemable at the holder‟s option. Redeemable

shares can be put back to the Fund at any time for cash equal to a proportionate share of the Fund‟s

NAV.

The Fund‟s redeemable shares have the following features which qualify them as puttable

instruments classified as equity instruments:

The shares entitle the holder to a pro rata share of the Fund‟s net assets in the event of the

Fund‟s liquidation.

The shares are in the class of instruments that is subordinate to all other classes of instruments.

All shares in the class of instruments that is subordinate to all other classes of instruments have

identical features.

The shares do not include any contractual obligation to deliver cash or another financial asset

other than the holder‟s right to a pro rata share of the Fund‟s net assets.

The total expected cash flows attributable to the shares over their life are based substantially on

the profit or loss, the change in the recognized net assets or the change in the fair value of the

recognized and unrecognized net assets of the Fund over the life of the shares.

Further, the Fund does not have other financial instruments or contract that have:

Total cash flows based substantially on the profit or loss, the change in the recognized net

assets or the change in the fair value of the recognized and unrecognized net assets of the Fund;

and

The effect of substantially restricting or fixing the residual return to the holders of redeemable

shares.

The Fund continuously assesses the classification of its redeemable shares. If the redeemable

shares cease to have all the features or meet the conditions stated above, the Fund will reclassify the

shares as financial liabilities and measure them at fair value at the date of reclassification, with any

differences from the previous carrying amount recognized in equity. If the redeemable shares

subsequently have all the features and meet the above conditions, the Fund will reclassify them as

equity instruments and measure them at the carrying amount of the liabilities at the date of

reclassification.

The issuance, acquisition and resale of redeemable shares are accounted for as equity transactions.

Upon issuance of shares (or sale of treasury shares), the consideration received is included in

equity. Own equity instruments which are acquired (treasury shares) are deducted from equity and

accounted for at amounts equal to the consideration paid, including any directly attributable

incremental costs. The Fund‟s policy is not to keep shares in treasury, but rather to cancel them

once repurchased. No gain or loss is recognized in profit or loss on the purchase, sale or issuance

or cancellation of the Fund‟s own equity instruments.

Transaction costs incurred by the Fund in issuing, acquiring or selling its own equity instruments

are accounted for as a deduction from equity to the extent that they are incremental costs directly

attributable to the equity transaction that otherwise would have been avoided.

Deposits for Future Shares Subscriptions

Deposits for future shares subscriptions are recorded based on the amounts received. These are

subscriptions received from prospective investors for the Fund‟s redeemable shares, which are yet

to be issued, pending approval by the Securities and Exchange Commission (SEC). This will be

reclassified to “Capital Stock” and “Additional Paid-in Capital” upon approval by the SEC for the

Fund to issue additional redeemable shares.

Dividend Distribution

Dividend distributions are at the discretion of the Fund. A dividend distribution to the Fund‟s

shareholders is accounted for as a deduction from retained earnings. A proposed cash dividend is

recognized as a liability in the period in which it is approved by the board of directors (BOD) of the

Fund. A proposed stock dividend is recognized as a liability in the period in which it is approved

by the BOD and shareholders representing at least two-thirds (2/3) of the outstanding capital stock

of the Fund.

Provisions

Provisions are recognized when the Fund has a present obligation (legal or constructive) where, as a

result of a past event, it is probable that an outflow of resources embodying economic benefits will

be required to settle the obligation and a reliable estimate can be made of the amount of the

obligation. Where the Fund expects some or all of a provision to be reimbursed, the reimbursement

is recognized as a separate asset but only when the reimbursement is virtually certain. The expense

relating to any provision is presented in profit or loss, net of any reimbursement. If the effect of the

time value of money is material, provisions are determined by discounting the expected future cash

flows at a pre-tax rate that reflects current market assessments of the time value of money and,

where appropriate, the risks specific to the liability. Where discounting is used, the increase in the

provision due to the passage of time is recognized as „Interest expense‟.

Retained Earnings

The amounts in retained earnings include accumulated investment income of previous periods

reduced by excess of redemption costs over the original selling price of redeemed shares.

Contingent Liabilities and Contingent Assets

Contingent liabilities are not recognized in the financial statements but are disclosed unless the

possibility of an outflow of resources embodying benefits is remote. Contingent assets are not

recognized in the financial statements but are disclosed when an inflow of economic benefits is

probable.

Segment Reporting

The Fund is organized into one main operating segment which invests in equity and debt

instruments. All of the Fund‟s activities are interrelated and interdependent.

Subsequent Events

Post-year-end events up to the date of the approval of the BOD of the financial statements that

provide additional information about the Fund‟s position at the reporting date (adjusting events) are

reflected in the financial statements. Post-year-end events that are not adjusting events, if any, are

disclosed in the notes when material to the financial statements.

Future Changes in Accounting Policies

New and amended standards

Standards issued but not yet effective as of December 31, 2012 are listed below. The listing of

standards and interpretations issued are those that the Fund reasonably expects to be applicable at a

future date. The Fund intends to adopt these standards and interpretations when they become

effective.

Effective 2013

PFRS 7, Financial Instruments: Disclosures – Offsetting Financial Assets and Financial Liabilities

These amendments require an entity to disclose information about rights of set-off and related

arrangements (such as collateral agreements). The new disclosures are required for all recognized

financial instruments that are set off in accordance with PAS 32. These disclosures also apply to

recognized financial instruments that are subject to an enforceable master netting arrangement or

„similar agreement‟, irrespective of whether they are set-off in accordance with PAS 32. The

amendments require entities to disclose, in a tabular format unless another format is more

appropriate, the following minimum quantitative information. This is presented separately for

financial assets and financial liabilities recognized at the end of the reporting period:

a) The gross amounts of those recognized financial assets and recognized financial liabilities;

b) The amounts that are set off in accordance with the criteria in PAS 32 when determining the net

amounts presented in the statement of financial position;

c) The net amounts presented in the statement of financial position;

d) The amounts subject to an enforceable master netting arrangement or similar agreement that are

not otherwise included in (b) above, including:

i. Amounts related to recognized financial instruments that do not meet some or all of the

offsetting criteria in PAS 32; and

ii. Amounts related to financial collateral (including cash collateral); and

e) The net amount after deducting the amounts in (d) from the amounts in (c) above.

The amendments to PFRS 7 are to be retrospectively applied and are effective for annual periods

beginning on or after January 1, 2013. The amendments affect disclosures only and have no impact

on the Fund‟s financial position or performance.

PFRS 10, Consolidated Financial Statements

PFRS 10 replaces the portion of PAS 27, Consolidated and Separate Financial Statements, that

addresses the accounting for consolidated financial statements. It also includes the issues raised in

Standing Interpretations Committee (SIC) 12, Consolidation - Special Purpose Entities. PFRS 10

establishes a single control model that applies to all entities including special purpose entities. The

changes introduced by PFRS 10 will require management to exercise significant judgment to

determine which entities are controlled, and therefore, are required to be consolidated by a parent,

compared with the requirements that were in PAS 27. The Fund has adopted the standard

beginning January 1, 2013. The standard has no impact on the Fund‟s financial position or

performance.

PFRS 11, Joint Arrangements

PFRS 11 replaces PAS 31, Interests in Joint Ventures and SIC-13, Jointly-controlled Entities: Non-

monetary Contributions by Venturers. PFRS 11 removes the option to account for jointly

controlled entities (JCEs) using proportionate consolidation. Instead, JCEs that meet the definition

of a joint venture must be accounted for using the equity method. This Fund has adopted the

standard beginning January 1, 2013. The standard has no impact on the Fund‟s financial position or

performance

PFRS 12, Disclosure of Interests in Other Entities

PFRS 12 includes all of the disclosures related to consolidated financial statements that were

previously in PAS 27, as well as all the disclosures that were previously included in PAS 31 and

PAS 28, Investments in Associates. These disclosures relate to an entity‟s interests in subsidiaries,

joint arrangements, associates and structured entities. A number of new disclosures are also

required. The standard became effective for annual periods beginning on or after

January 1, 2013.

The adoption of PFRS 12 will affect disclosures only and have no impact on the Fund‟s financial

position or performance.

PFRS 13, Fair Value Measurement

PFRS 13 establishes a single source of guidance under PFRSs for all fair value measurements.

PFRS 13 does not change when an entity is required to use fair value, but rather provides guidance

on how to measure fair value under PFRS when fair value is required or permitted. This standard

should be applied prospectively as of the beginning of the annual period in which it is initially

applied. Its disclosure requirements need not be applied in comparative information provided for

periods before initial application of PFRS 13. The Fund adopted the standard beginning January 1,

2013 and has incorporated its impact on its financial position or performance as of March 31.

2013.

PAS 1, Presentation of Financial Statements - Presentation of Items of Other Comprehensive

Income or OCI (Amendments)

The amendments to PAS 1 change the grouping of items presented in OCI. Items that can be

reclassified (or “recycled”) to profit or loss at a future point in time (for example, upon

derecognition or settlement) will be presented separately from items that will never be recycled.

The amendments affect presentation only and have no impact on the Fund‟s financial position or

performance. The amendment becomes effective for annual periods beginning on or after

July 1, 2012. The amendments will be applied retrospectively and will result in the modification of

the presentation of items of OCI.

PAS 19, Employee Benefits (Revised)

Amendments to PAS 19 range from fundamental changes such as removing the corridor mechanism

and the concept of expected returns on plan assets to simple clarifications and rewording. The

revised standard also requires new disclosures such as, among others, a sensitivity analysis for each

significant actuarial assumption, information on asset-liability matching strategies, duration of the

defined benefit obligation, and disaggregation of plan assets by nature and risk. The amendments

become effective for annual periods beginning on or after

January 1, 2013. The standard has no potential impact on the Fund‟s financial position or

performance.

PAS 27, Separate Financial Statements (as revised in 2011)

As a consequence of the issuance of the new PFRS 10 and PFRS 12, what remains of PAS 27 is

limited to accounting for subsidiaries, jointly controlled entities, and associates in the separate

financial statements. The adoption of the amended PAS 27 will not have a significant impact on the

separate financial statements of the entities in the Fund. The amendment became effective for

annual periods beginning on or after January 1, 2013. The standard has no impact on the Fund‟s

financial position or performance.

PAS 28, Investments in Associates and Joint Ventures (as revised in 2011)

As a consequence of the issuance of the new PFRS 11 and PFRS 12, PAS 28 has been renamed

PAS 28, Investments in Associates and Joint Ventures, and describes the application of the equity

method to investments in joint ventures in addition to associates. The amendment became effective

for annual periods beginning on or after January 1, 2013. The standard has no impact on the Fund‟s

financial position or performance.

Philippine Interpretation IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine

This interpretation applies to waste removal (stripping) costs incurred in surface mining activity,

during the production phase of the mine. The interpretation addresses the accounting for the benefit

from the stripping activity. The interpretation is effective for annual periods beginning on or after

January 1, 2013. This new interpretation is not relevant to the Fund.

Effective 2014

PAS 32, Financial Instruments: Presentation - Offsetting Financial Assets and Financial Liabilities

(Amendments)

The amendments clarify the meaning of “currently has a legally enforceable right to set-off” and

also clarify the application of the PAS 32 offsetting criteria to settlement systems (such as central

clearing house systems) which apply gross settlement mechanisms that are not simultaneous. The

amendments affect presentation only and have no impact on the Fund‟s financial position or

performance. The amendments to PAS 32 are to be retrospectively applied for annual periods

beginning on or after January 1, 2014. The Fund is currently assessing the impact of the

amendments to PAS 32.

Effective 2015

PFRS 9, Financial Instruments

PFRS 9, as issued, reflects the first phase on the replacement of PAS 39 and applies to the

classification and measurement of financial assets and liabilities as defined in PAS 39. Work on

impairment of financial instruments and hedge accounting is still ongoing, with a view to replacing

PAS 39 in its entirety. PFRS 9 requires all financial assets to be measured at fair value at initial

recognition. A debt financial asset may, if the fair value option (FVO) is not invoked, be

subsequently measured at amortized cost if it is held within a business model that has the objective

to hold the assets to collect the contractual cash flows and its contractual terms give rise, on

specified dates, to cash flows that are solely payments of principal and interest on the principal

outstanding. All other debt instruments are subsequently measured at fair value through profit or

loss. All equity financial assets are measured at fair value either through OCI or profit or loss.

Equity financial assets held for trading must be measured at fair value through profit or loss. For

FVO liabilities, the amount of change in the fair value of a liability that is attributable to changes in

credit risk must be presented in OCI. The remainder of the change in fair value is presented in

profit or loss, unless presentation of the fair value change in respect of the liability‟s credit risk in

OCI would create or enlarge an accounting mismatch in profit or loss. All other PAS 39

classification and measurement requirements for financial liabilities have been carried forward into

PFRS 9, including the embedded derivative separation rules and the criteria for using the FVO.

The adoption of the first phase of PFRS 9 will have an effect on the classification and measurement

of the Fund‟s financial assets, but will potentially have no impact on the classification and

measurement of the Fund‟s financial liabilities. PFRS 9 is effective for annual periods beginning

on or after January 1, 2015.

Philippine Interpretation IFRIC 15, Agreements for the Construction of Real Estate

This interpretation covers accounting for revenue and associated expenses by entities that undertake

the construction of real estate directly or through subcontractors. The SEC and the Financial

Reporting Standards Council (FRSC) have deferred the effectivity of this interpretation until the

final Revenue standard is issued by the International Accounting Standards Board (IASB) and an

evaluation of the requirements of the final Revenue standard against the practices of the Philippine

real estate industry is completed. Adoption of the interpretation when it becomes effective will not

have any impact on the financial statements of the Fund.

Annual Improvements to PFRSs (2009-2011 cycle)

The Annual Improvements to PFRSs (2009-2011 cycle) contain non-urgent but necessary

amendments to PFRSs. The amendments are effective for annual periods beginning on or after

January 1, 2013 and are applied retrospectively. Earlier application is permitted.

PFRS 1, First-time Adoption of PFRS – Borrowing Costs

The amendment clarifies that, upon adoption of PFRS, an entity that capitalized borrowing costs in

accordance with its previous generally accepted accounting principles, may carry forward, without

any adjustment, the amount previously capitalized in its opening statement of financial position at

the date of transition. Subsequent to the adoption of PFRS, borrowing costs are recognized in

accordance with PAS 23, Borrowing Costs. The amendment does not apply to the Fund as it is not

a first-time adopter of PFRS.

PAS 1, Presentation of Financial Statements - Clarification of the requirements for comparative

information

The amendments clarify the requirements for comparative information that are disclosed voluntarily

and those that are mandatory due to retrospective application of an accounting policy, or

retrospective restatement or reclassification of items in the financial statements. An entity must

include comparative information in the related notes to the financial statements when it voluntarily

provides comparative information beyond the minimum required comparative period. The

additional comparative period does not need to contain a complete set of financial statements. On

the other hand, supporting notes for the third balance sheet (mandatory when there is a retrospective

application of an accounting policy, or retrospective restatement or reclassification of items in the

financial statements) are not required. The amendments affect disclosures only and have no impact

on the Fund‟s financial position or performance.

PAS 16, Property, Plant and Equipment - Classification of servicing equipment

The amendment clarifies that spare parts, stand-by equipment and servicing equipment should be

recognized as property, plant and equipment when they meet the definition of property, plant and

equipment and should be recognized as inventory if otherwise. The amendment will not have any

impact on the Fund‟s financial position or performance.

PAS 32, Financial Instruments: Presentation - Tax effect of distribution to holders of equity

instruments

The amendment clarifies that income taxes relating to distributions to equity holders and to

transaction costs of an equity transaction are accounted for in accordance with PAS 12, Income

Taxes. The Fund expects that this amendment will not have any impact on its financial position or

performance.

PAS 34, Interim Financial Reporting - Interim financial reporting and segment information for

total assets and liabilities

The amendment clarifies that the total assets and liabilities for a particular reportable segment need

to be disclosed only when the amounts are regularly provided to the chief operating decision maker

and there has been a material change from the amount disclosed in the entity‟s previous annual

financial statements for that reportable segment. The amendment affects disclosures only and has

no impact on the Fund‟s financial position or performance.

3. Significant Accounting Judgments and Estimates

The preparation of the financial statements in compliance with PFRS requires the use of judgments

and estimates. These judgments and estimates affect the reported amounts of assets and liabilities

and contingent assets and liabilities at the reporting date, as well as the reported income and

expenses for the year. Although the estimates are based on management‟s best knowledge and

judgment of current facts as at the reporting date, the actual outcome may differ from these

estimates, which may possibly be significant.

Judgments and estimates are continually evaluated and are based on historical experience and other

factors, including expectations of future events that are believed to be reasonable under the

circumstances.

The following are the critical judgments and key estimates that pose a significant risk of material

adjustment to the carrying amounts of assets and liabilities within the next financial year:

Judgments

a. Fair value of financial instruments

Where the fair values of financial assets and financial liabilities recorded in the statement of

financial position cannot be derived from active markets, these are determined using internal

valuation techniques that include the use of generally accepted market valuation models. The

inputs to these models are taken from observable markets where possible, but where this is not

feasible, estimates are used in establishing fair values. These estimates may include

considerations of liquidity, volatility and correlation.

b. Financial assets not quoted in an active market

The Fund classifies financial assets by evaluating, among others, whether the asset is quoted or

not in an active market. Included in the evaluation on whether a financial asset is quoted in an

active market is the determination on whether quoted prices are readily and regularly available,

and whether those prices represent actual and regularly occurring market transactions on an

arm‟s length basis.

c. Embedded derivatives

Where a hybrid instrument is not classified as a financial asset or liability at FVPL, the Fund

evaluates whether the embedded derivative should be bifurcated and accounted for separately.

This includes assessing whether the embedded derivative has a close economic relationship to

the host contract.

d. Going concern

The management has made an assessment of the Fund‟s ability to continue as a going concern

and is satisfied that the Fund has the resources to continue in business for the foreseeable

future. Furthermore, management is not aware of any material uncertainties that may cast

significant doubt upon the Fund‟s ability to continue as a going concern. Therefore, the

financial statements continue to be prepared on a going concern basis.

Estimates

a. Credit losses of loans and receivables

The Fund reviews its loans and receivables at each reporting date to assess whether a provision

for credit losses should be recorded in profit or loss. In particular, judgment of management is

required in the estimation of the amount and timing of future cash flows when determining the

level of allowance required. Such estimates are based on assumptions about a number of

factors and actual results may differ resulting in future changes to the allowance.

The Fund assessed that these loans and receivables are not impaired as of March 31, 2013 and

December 31, 2012.

b. Impairment of AFS investment

The Fund classifies certain financial assets as AFS investments and recognizes movements in

their fair value directly in equity. When the fair value declines, the Fund makes assumptions

about the decline in value to determine whether it is an impairment loss that should be

recognized in profit or loss. As of March 31, 2013 and December 31, 2012, the Fund has no

AFS investment.

c. Fair value of embedded derivatives

The fair value of a derivative that is not quoted in an active market is determined using

valuation techniques such as discounted cash flow analysis and standard option pricing models.

Where valuation techniques are used to determine fair values, they are validated and

periodically reviewed by qualified personnel independent of the area that created them. All

models are reviewed before they are used, and models are calibrated to ensure that outputs

reflect actual data and comparative market prices. To the extent practicable, models use only

observable data, however, areas such as credit risk (both own and counterparty), volatilities and

correlations require management to make estimates. Changes in assumptions about these

factors could affect the reported fair value of a financial instrument.

Recognition of deferred tax assets

Deferred tax assets are recognized for all unused tax losses to the extent that it is probable that

taxable profit will be available against which the losses can be utilized. Significant

management judgment is required to determine the amount of deferred tax assets that can be

recognized, based upon the likely timing and level of future taxable profits together with future

tax planning strategies.

The estimates of future taxable income indicate that certain temporary differences will not be

realized in the future.

Financial Risk Management Objectives and Policies

Introduction

The Fund has exposures to the following risks from the use of financial instruments:

a. Credit risk

b. Liquidity risk

c. Market risk

Risk Management Framework

The BOD has overall responsibility for the oversight of the Fund‟s risk management process.

Supporting the BOD in this function is the Audit Committee (AC).

The AC is responsible for monitoring compliance with the Company‟s risk management policies

and procedures, and for reviewing the adequacy of risk management practices in relation to the

risks faced by the Company. The AC is assisted in these functions by the Internal Audit Group of

Metrobank. The Internal Audit Group undertakes both regular and ad-hoc reviews of risk

management controls and procedures, the results of which are reported to the AC.

Under the management and distribution agreement of the Fund with FAMI as its Investment

Manager and Principal Distributor of the Fund, FAMI manages the resources and operations of the

Fund. Also, under the memorandum of agreement between FAMI and First Metro Investment

Corporation (FMIC), FMIC covers the implementation and ongoing management of the Investment

Guidelines outlined in the Fund‟s prospectus.

FMIC‟s BOD, through its board-level Risk Management Committee (RMC), is actively involved in

planning, approving, reviewing, and assessing all risks involved within the Fund.

The Compliance Division (CD) of FMIC also collaborates with the RMC. The main task of the CD

is to monitor and assess compliance of the Fund to the rules and regulations outlined in Fund‟s

prospectus as well as their compliance with the rules of the relevant regulatory bodies. The CD is

also tasked to properly disseminate these rules and regulations to the Fund.

FMIC‟s Chief Risk Officer (CRO) manages and oversees the day-to-day activities of the Risk

Management Group (RMG). RMG is tasked with identifying, analyzing, measuring, controlling

and evaluating risk exposures arising from fluctuations in the prices or market values of

instruments, products and transactions of FMIC and certain subsidiaries. It is responsible for

recommending trading risk and liquidity management policies, setting uniform standards of risk

assessment and measurement, providing senior management with periodic evaluation and

simulation and analyzing limit compliance exceptions. The RMG furnishes daily reports to the

FAMI and provides monthly reports to the RMC.

Nature of Risks and Risk Management Objectives and Policies

The Fund‟s overall risk management program focuses on the unpredictability of financial markets

and seeks to minimize potential adverse effects of such unpredictability on the Fund‟s financial

performance.

The Fund is governed by the provisions in its prospectus that incorporated relevant investment rules

and regulations by regulators such as the Investment Company Act and the SEC, among others.

Specifically, the Fund primarily invests in equity securities, however, as a tactical move, a portion

of the Fund may also be invested in government securities and in SEC-registered commercial

papers but taking precautions of the market conditions, the level of interest rates, and of liquidity

needs.

Moreover, the Fund‟s investment activities are also guided by the following limits/conditions:

Maximum investment in any single enterprise is allowed but only up to 10.00% of the Fund‟s

NAV, except for investments in securities issued by the Philippine Government or its

instrumentalities and, in no case, shall the total investment of the Fund exceed 10.00% of the

outstanding securities of any one investee company.

Investments to margin purchases of securities, commodity futures contracts, precious metals,

unlimited liability instruments, short selling of currencies and securities are not allowed.

Lending operations to corporations or other entities, public or private, shall not be engaged

without prior review and approval of its BOD. Approvals however, are only to those

determined to be financially sound.

Underwriting or selling activities in connection with distribution of securities with the public

shall not be participated except for its own capital stock.

Investment in any company for the purpose of exercising control or management or to invest in

the securities of other investment companies and real estate companies is prohibited.

Anti-Money Laundering Law shall be observed in the acceptance of investment applications.

Sales of the Fund‟s capital stock shall be on cash basis only and installment sales are

prohibited.

Credit risk

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and

cause the other party to incur a financial loss.

The Fund invests in government securities wherein the risk of default is considered minimal. Also,

management policies prohibit engaging in lending operations without prior review and approval of

its BOD. Another policy of the Fund directed at managing credit risk is that all sales of the Fund‟s

capital stock shall only be on cash basis. Installment sales are prohibited.

The Fund‟s credit risk policy restricts the amount of investment in any single enterprise to 10.00%

of the Fund‟s NAV, except for government securities. Conversely, the total investment of the Fund

in any one investee company must not exceed 10.00% of the outstanding securities.

The Fund is also not allowed to invest in securities of other investment companies and mutual

funds.

The Fund manages credit risks by transacting with accredited counterparties only. Credit exposures

are closely monitored to ensure that payments are made on time.

Credit risk exposure is limited to the carrying amount of the financial assets. The maximum

exposure to credit risk is represented by the carrying amounts of the financial assets that are carried

in the statements of financial position and the related notes. There are no agreements concluded

which reduced the maximum exposure to credit risk as of the reporting date.

As of March 31, 2013 and December 31, 2012, the Fund does not hold collateral for the

outstanding financial assets.

The Fund focuses on industries and enterprises with strong growth potentials and or profitable

historical financial performance. There may be concentration on certain industries at various points

in time, depending on the overall condition of the financial and capital markets.

All of the Fund‟s financial assets are located in the Philippines.

The Fund‟s basis in grading its financial assets is as follows:

High grade - Entities that are highly liquid, sustain operating trends, unlikely to be affected by

external factors and have competent management that uses current business models.

Standard grade - Entities that meet performance expectation, unlikely to be affected by external

factors and have competent management that uses current business models.

Substandard grade - Entities with marginal liquidity and have a declining trend in operations or an

imbalanced position in the balance sheet, though not to the point that repayment is jeopardized.

As of March 31, 2013 and December 31, 2012, the Fund has no past due or impaired financial

assets. It also does not have restructured loans for both periods.

Liquidity risk

Liquidity or funding risk is the risk that an entity will encounter difficulty in raising funds to meet

commitments associated with financial instruments. Liquidity risk may result from either the

inability to sell financial assets quickly at their fair values; the counterparty failing on repayment of

a contractual obligation; or, the inability to generate cash inflows as anticipated.

The Fund is exposed to daily cash redemptions of its redeemable shares. It therefore invests

majority of its assets in investments that are traded in an active market and can be readily disposed

of, such as equity securities. The Fund has the ability to borrow within a short-term period to

ensure settlement of amounts due. No such borrowings have arisen during the year.

The Fund‟s policy prescribes that at least 10.00% of its total assets is invested in any of the

following:

Government securities such as treasury bills, fixed rate treasury notes, retail treasury bonds,

progress bonds and small-denominated treasury bonds;

Certificates of deposit;

SEC-registered commercial papers and bonds with a rating of at least Philippine Rating System

(PRS) 2 for short-term tenors and PRS Aaa for long-term tenors;

Bankers‟ acceptance; and

Other allowed fixed income instruments

As of March 31, 2013 and December 31, 2012, the Fund has complied with the above requirements.

Also, the Fund shall not incur any further debt or borrowing, unless at the time it is incurred or

immediately thereafter, there is asset coverage of at least 300.00% for all its borrowings. In the

event that such asset coverage shall at any time fall below 300.00%, the Fund shall, within three

days thereafter, reduce the amount of borrowings to an extent that the asset coverage of such

borrowings shall be at least 300.00%.

Market risk

Market risk is the risk of changes in the fair value of financial instruments from fluctuations in

foreign exchange rates (currency risk), market interest rates (interest rate risk) and market prices

(equity price risk), whether such changes in prices are caused by factors specific to the individual

instrument or its issuer or factors affecting all instruments traded in the market. The Funds

exposure to market risk relates to interest rate risk and equity price risk.

Risks to the financial instruments are managed by (a) closely monitoring investment objectives and

constraints on investment by its Investment Manager; (b) detailed market observation and analysis;

(c) setting limits on investment diversification i.e., issuer, industry, or sector index; and

(d) establishment of profit and/or loss tolerance.

Fair value interest rate risk

Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate because

of changes in interest rates. The Fund‟s fixed income securities are exposed to such risk.

Equity price risk

The Fund‟s equity price risk exposure at quarter-end relates to financial assets whose values will

fluctuate as a result of changes in market prices.

Such investment securities are subject to equity price risk due to changes in market values of

instruments arising either from factors specific to individual instruments or their issuers or factors

affecting all instruments traded in the market.The Fund measures the sensitivity of its investment

securities by using the Philippine Stock Exchange index (PSEi) fluctuations.

4. Fair Value Measurement

Except for unquoted debt securities under „Loans and receivables‟, all financial assets and liabilities

have carrying amounts that approximate their fair values. As of March 31, 2013 and December 31,

2012, unquoted debt securities with carrying amounts of P138.6 million and P=140.00 million.

The methods and assumptions used by the Fund in estimating fair values of financial instruments

are:

Financial assets at FVPL and AFS investments - fair values are generally based on quoted market

prices.

Unquoted debt securities - fair values of loans are estimated using the discounted cash flow

methodology, using the Fund‟s current incremental lending rates for similar types of loans. Where

the instrument reprices on a quarterly basis or has a relatively short maturity, the carrying amounts

approximate fair values.

Financial assets and liabilities at cost - carrying values approximate fair values since these

instruments are liquid and have short-term maturities (less than three months). These financial

instruments comprise cash and cash equivalents, loans and receivables other than unquoted debt

securities, accounts payable and accrued expenses.

Derivative liability - fair value is estimated based on prices derived using acceptable valuation

models.

Fair Value Hierarchy

The Fund uses the following hierarchy for determining and disclosing the fair value of financial

instruments by valuation technique:

Quoted market prices in active markets for identical assets or liabilities (Level 1);

Inputs other than quoted prices included in Level 1 that are observable for the asset or liability,

either directly (as prices) or indirectly (derived from prices) (Level 2); and

Inputs for the asset or liability that are not based on observable market data (unobservable

inputs) (Level 3).

Financial assets at FVPL as of March 31, 2013 and December 31, 2012 and AFS are measured at

fair value using level 1 inputs.

As of March 31, 2013 and December 31, 2012, the Fund has no financial instruments that are

reported within Level 3 and there were no transfers made among the three levels in the fair value

hierarchy.

5. Equity

Capital Management

As a result of the ability to issue, repurchase and resell shares, the capital of the Fund can

vary depending on the demand for redemptions and subscriptions to the Fund.

The Fund‟s objective is to achieve medium-term capital growth through investing in a selection

of equity instruments. The Fund seeks to provide as high a level of current income, consistent

with the preservation of capital and liquidity by observing regulatory guidelines and applying

risk mitigating controls.

All security investments present a risk of loss of capital. The Investment Manager manages this

risk through a careful selection of equity securities and other investments within specified

limits. The Fund‟s overall market positions are monitored on a daily basis by the Investment

Manager and are reviewed on a quarterly basis by the BOD.

No changes were made in the objectives, policies and processes from the previous years.

The Fund‟s capital, as provided in the statement of changes in equity, comprise its capital stock,

additional paid-in capital, retained earnings and net unrealized gain on AFS investment.

Minimum Capital Requirement

As an investment company registered with the SEC, the Fund must continually comply with the

minimum subscribed and paid-up capital of P=50.00 million. As of March 31, 2013 and

December 31, 2012, the Fund has complied with the externally imposed capital requirement.

8. Income Taxes

Provision for final tax pertains mainly to the 20.00% final withholding tax on gross interest

income from bank deposits, short-term placements, and loans and discounts.

Current tax regulations provide that the RCIT rate shall be 30.00% starting January 1, 2009 and

that interest allowed as a deductible expense is reduced by 33.00% of interest income subjected

to final tax.

Starting July 1, 2008, an optional standard deduction (OSD) equivalent to 40.00% of gross

income maybe claimed as an alternative deduction in computing for the RCIT. The Fund has

elected to claim itemized deductions instead of OSD for its 2012, 2011 and 2010 RCIT

computations.

Current tax regulations also provide for MCIT of 2.00% on modified gross income and allow a

NOLCO. The MCIT and NOLCO may be applied against the Fund‟s income tax liability and

taxable income, respectively, over a three-year period from the year of inception.

9. Segment Information

For management purposes, the Fund is organized into one main operating segment, which

invests in equity securities and debt instruments. All of the Fund‟s activities are interrelated

and interdependent. Accordingly, all significant operating decisions are based upon analysis of

the Fund as one segment. The financial results from this segment are equivalent to the financial

statements of the Fund as a whole.

10. Related Party Transactions

In the ordinary course of business, the Fund has transactions with related parties. Parties are

related if one party has the ability, directly or indirectly, to control the other parties or exercise

significant influence over the other party in making financial and operating decisions and the

parties are subject to common control or common significant influence.

The Fund‟s related parties also include key management personnel, close family members of

key management personnel and entities which are controlled, significantly influenced by or for

which significant voting power is held by key management personnel or their close family

members.

The Fund currently has a Management and Distribution Agreement with FAMI and a Stock and

Transfer Agency Agreement with MBTC-TBG (the Agreements). The Agreements cover the

services to be rendered by FAMI and MBTC-TBG, and the payment of fees based on the

Fund‟s average NAV computed on a daily basis, except for stock and transfer agency fee.

The management and retainer‟s fee are paid on a monthly basis while the incentive fees are

paid annually. These agreements shall remain in effect from year to year, unless otherwise

terminated or amended by the parties in accordance with specified terms and conditions.

Incentive fee is recognized when the appreciation in value of the Fund‟s net assets is in excess

of the defined hurdle rate. The fee is equivalent to one tenth (1/10) of the realized appreciation

in value of the Fund's net assets in excess of the defined hurdle rate equivalent to PSEi annual

performance plus 6.50%. As of March 31, 2013 and December 31, 2012 , the realized

appreciation of the Fund‟s net assets did not exceed the defined hurdle rate.

Terms and conditions of transactions with related parties

Transactions between related parties are based on terms similar to those offered to nonrelated

parties. Outstanding balances at year-end are unsecured and settlement occurs in cash. There

are no provisions for doubtful debts related to outstanding balances. There have been no

guaranties provided or received for any related party receivables or payables.

PART II – OTHER INFORMATION

1. SCHEDULE OF FINANCIAL ASSETS AT FVPL

As of March 31, 2013

Equity

ENDING MARK TO

NO. OF ACQUISITION CURRENT MARKET

DESCRIPTION SHARES COST VALUE GAIN(LOSS)

AYALA CORPORATION 564,180 P 296,834,663 P 319,325,880 P 22,491,217

ABOITIZ EQUITY VENTURES 482,600 25,817,745 26,615,390 797,645

ALLIANCE GLOBAL GROUP, INC. 2,000,000 40,453,049 42,300,000 1,846,951

AYALA LAND, INC. 10,182,700 271,404,574 332,974,290 61,569,716

ABOITIZ POWER CORPORATION 209,000 7,722,550 7,733,000 10,450

ATLAS CONST. MINING AND DEVT CORP. 551,120 11,950,241 12,372,644 422,403

BENGUET CORPORATION 21,100 400,900 373,470 (27,430)

BANCO DE ORO UNIBANK, INC 2,074,660 152,730,231 186,200,735 33,470,504

BELLE CORPORATION 14,547,000 70,698,420 82,917,900 12,219,480

BLOOMBERRY RESORTS CORPORATION 39,100 517,193 556,784 39,591

DIZON COPPER-SILVER MINES 3,570,000 53,907,000 36,699,600 (17,207,400)

DMCI HOLDINGS INC. 1,981,000 106,092,392 108,955,000 2,862,608

D&L INDUSTRIES, INC. 28,550,200 163,632,634 199,565,898 35,933,264

ENERGY DEVELOPMENT CORP. 20,895,000 143,385,596 134,981,700 (8,403,896)

FIRST GEN CORPORATION 10,775,900 259,472,328 266,703,525 7,231,197

FILINVEST LAND, INC. 40,931,000 73,369,664 81,043,380 7,673,716

GLOBE TELECOM INC 56,995 63,221,359 68,394,000 5,172,641

GT CAPITAL HOLDINGS INC. 419,230 264,805,809 307,295,590 42,489,781

CALAPAN VENTURES, INC 5,503,000 24,158,170 24,763,500 605,330

JG SUMMIT HOLDINGS INC 5,065,200 200,022,624 215,271,000 15,248,376

LEPANTO MINING CORPORATION 51,446,000 51,552,090 54,532,760 2,980,670

LOPEZ HOLDINGS CORPORATION 11,621,800 87,135,445 83,909,396 (3,226,049)

LAFARGE REPUBLIC, INC 3,275,000 36,912,794 35,632,000 (1,280,794)

MARCVENTURES HOLDINGS, INC. 20,492,000 37,910,200 35,861,000 (2,049,200)

METROPOLITAN BANK & TRUST CO. 1,811,701 200,508,765 211,969,017 11,460,252

MEGAWORLD 5,023,000 13,913,710 19,539,470 5,625,760

MANILA ELECTRIC COMPANY 748,340 211,527,743 244,407,844 32,880,101

METRO PACIFIC INVESTMENTS CORP. 46,893,000 212,727,065 261,662,940 48,935,875

NIHAO MINERAL RESOURCES INTERNATIONAL,INC4,022,100 20,070,279 14,117,571 (5,952,708)

NICKEL ASIA CORPORATION 3,221,940 70,066,093 77,326,560 7,260,467

ORIENTAL PENINSULA RESOURCES GROUP INC. 55,456,988 174,443,225 182,453,491 8,010,265

THE PHILODRILL CORPORATION 989,560,000 38,592,840 41,561,520 2,968,680

PETRON CORPORATION 8,311,100 93,294,986 118,848,730 25,553,744

SAN MIGUEL PURE FOODS COMPANY, INC. 462,630 112,881,720 127,038,198 14,156,478

PUREGOLD PRICE CLUB INC. 6,269,500 208,139,340 251,093,475 42,954,135

PEPSI-COLA PRODUCTS PHILIPPINES, INC 44,561,500 286,050,789 279,846,220 (6,204,569)

PHOENIX PETROLEUM PHILIPPINES, INC. 5,200,000 55,245,569 49,660,000 (5,585,569)

PHILIPPINE SAVINGS BANK 2,307,006 230,700,600 316,059,822 85,359,222

RIZAL COMMERCIAL BANKING CORPORATION 2,300,400 149,073,285 161,028,000 11,954,715

ROBINSON LAND CORPORATION 3,782,491 78,575,019 96,453,521 17,878,502

ROCKWELL LAND CORPORATION 7,248,000 21,857,203 21,454,080 (403,123)

SEMIRARA MINING CORPORATION 373,650 87,248,425 99,914,010 12,665,585

SM INVESTMENT CORPORATION 338,950 304,797,130 377,929,250 73,132,120

SM PRIME HOLDINGS INC 14,749,000 256,851,806 281,705,900 24,854,094

PHIL LONG DISTANCE TELEPHONE COMPANY 63,579 163,933,868 189,974,052 26,040,184

UNIVERSAL ROBINA CORPORATION 1,260,500 105,692,925 142,436,500 36,743,575

VISTA LAND AND LIFESCAPES INC. 33,341,900 162,041,634 180,713,098 18,671,464

1,472,561,060 5,702,341,688 6,412,171,710 709,830,022

Corporate Bonds

First Metro Investment Corporation 157,975,000 159,389,952 1,414,952

SM Investment Corporation 29,000,000 29,311,834 311,834

186,975,000 188,701,787 1,726,787

2. PERCENTAGE OF FVPL INVESTMENTS IN A SINGLE ENTERPRISE TO NET

ASSETS As of March 31, 2013

Equity

ENDING % TO NET

NO. OF ACQUISITION CURRENT ASSET

DESCRIPTION SHARES COST VALUE VALUE

AYALA CORPORATION 564,180 P 296,834,663 P 319,325,880 4.4%

ABOITIZ EQUITY VENTURES 482,600 25,817,745 26,615,390 0.4%

ALLIANCE GLOBAL GROUP, INC. 2,000,000 40,453,049 42,300,000 0.6%

AYALA LAND, INC. 10,182,700 271,404,574 332,974,290 4.5%

ABOITIZ POWER CORPORATION 209,000 7,722,550 7,733,000 0.1%

ATLAS CONST. MINING AND DEVT CORP. 551,120 11,950,241 12,372,644 0.2%

BENGUET CORPORATION 21,100 400,900 373,470 0.0%

BANCO DE ORO UNIBANK, INC 2,074,660 152,730,231 186,200,735 2.5%

BELLE CORPORATION 14,547,000 70,698,420 82,917,900 1.1%

BLOOMBERRY RESORTS CORPORATION 39,100 517,193 556,784 0.0%

DIZON COPPER-SILVER MINES 3,570,000 53,907,000 36,699,600 0.5%

DMCI HOLDINGS INC. 1,981,000 106,092,392 108,955,000 1.5%

D&L INDUSTRIES, INC. 28,550,200 163,632,634 199,565,898 2.7%

ENERGY DEVELOPMENT CORP. 20,895,000 143,385,596 134,981,700 1.8%

FIRST GEN CORPORATION 10,775,900 259,472,328 266,703,525 3.6%

FILINVEST LAND, INC. 40,931,000 73,369,664 81,043,380 1.1%

GLOBE TELECOM INC 56,995 63,221,359 68,394,000 0.9%

GT CAPITAL HOLDINGS INC. 419,230 264,805,809 307,295,590 4.2%

CALAPAN VENTURES, INC 5,503,000 24,158,170 24,763,500 0.3%

JG SUMMIT HOLDINGS INC 5,065,200 200,022,624 215,271,000 2.9%

LEPANTO MINING CORPORATION 51,446,000 51,552,090 54,532,760 0.7%

LOPEZ HOLDINGS CORPORATION 11,621,800 87,135,445 83,909,396 1.1%

LAFARGE REPUBLIC, INC 3,275,000 36,912,794 35,632,000 0.5%

MARCVENTURES HOLDINGS, INC. 20,492,000 37,910,200 35,861,000 0.5%

METROPOLITAN BANK & TRUST CO. 1,811,701 200,508,765 211,969,017 2.9%

MEGAWORLD 5,023,000 13,913,710 19,539,470 0.3%

MANILA ELECTRIC COMPANY 748,340 211,527,743 244,407,844 3.3%

METRO PACIFIC INVESTMENTS CORP. 46,893,000 212,727,065 261,662,940 3.6%

NIHAO MINERAL RESOURCES INTERNATIONAL,INC4,022,100 20,070,279 14,117,571 0.2%

NICKEL ASIA CORPORATION 3,221,940 70,066,093 77,326,560 1.1%

ORIENTAL PENINSULA RESOURCES GROUP INC. 55,456,988 174,443,225 182,453,491 2.5%

THE PHILODRILL CORPORATION 989,560,000 38,592,840 41,561,520 0.6%

PETRON CORPORATION 8,311,100 93,294,986 118,848,730 1.6%

SAN MIGUEL PURE FOODS COMPANY, INC. 462,630 112,881,720 127,038,198 1.7%

PUREGOLD PRICE CLUB INC. 6,269,500 208,139,340 251,093,475 3.4%

PEPSI-COLA PRODUCTS PHILIPPINES, INC 44,561,500 286,050,789 279,846,220 3.8%

PHOENIX PETROLEUM PHILIPPINES, INC. 5,200,000 55,245,569 49,660,000 0.7%

PHILIPPINE SAVINGS BANK 2,307,006 230,700,600 316,059,822 4.3%

RIZAL COMMERCIAL BANKING CORPORATION 2,300,400 149,073,285 161,028,000 2.2%

ROBINSON LAND CORPORATION 3,782,491 78,575,019 96,453,521 1.3%

ROCKWELL LAND CORPORATION 7,248,000 21,857,203 21,454,080 0.3%

SEMIRARA MINING CORPORATION 373,650 87,248,425 99,914,010 1.4%

SM INVESTMENT CORPORATION 338,950 304,797,130 377,929,250 5.2%

SM PRIME HOLDINGS INC 14,749,000 256,851,806 281,705,900 3.8%

PHIL LONG DISTANCE TELEPHONE COMPANY 63,579 163,933,868 189,974,052 2.6%

UNIVERSAL ROBINA CORPORATION 1,260,500 105,692,925 142,436,500 1.9%

VISTA LAND AND LIFESCAPES INC. 33,341,900 162,041,634 180,713,098 2.5%

1,472,561,060 5,702,341,688 6,412,171,710

Corporate Bonds

First Metro Investment Corporation 157,975,000 159,389,952 2.2%

SM Investment Corporation 29,000,000 29,311,834 0.4%

186,975,000 188,701,787

3. PERCENTAGE OF FVPL INVESTMENTS TO THE OUTSTANDING SECURITIES OF

AN INVESTEE COMPANY

As of March 31, 2013

Equity

% TO

ENDING OUTSTANDING

NO. OF ACQUISITION CURRENT SECURITIES OF

DESCRIPTION SHARES COST VALUE INVESTEE CO.

AYALA CORPORATION 564,180 P 296,834,662.76 P 319,325,880.00 P 0.095%

ABOITIZ EQUITY VENTURES 482,600 25,817,744.70 26,615,390.00 0.009%

ALLIANCE GLOBAL GROUP, INC. 2,000,000 40,453,049.40 42,300,000.00 0.019%

AYALA LAND, INC. 10,182,700 271,404,574.46 332,974,290.00 0.074%

ABOITIZ POWER CORPORATION 209,000 7,722,550.00 7,733,000.00 0.003%

ATLAS CONST. MINING AND DEVT CORP. 551,120 11,950,241.49 12,372,644.00 0.027%

BENGUET CORPORATION 21,100 400,900.00 373,470.00 0.019%

BANCO DE ORO UNIBANK, INC 2,074,660 152,730,230.76 186,200,735.00 0.058%

BELLE CORPORATION 14,547,000 70,698,420.00 82,917,900.00 0.138%

BLOOMBERRY RESORTS CORPORATION 39,100 517,193.07 556,784.00 0.000%

DIZON COPPER-SILVER MINES 3,570,000 53,907,000.00 36,699,600.00 4.577%

DMCI HOLDINGS INC. 1,981,000 106,092,391.63 108,955,000.00 0.075%

D&L INDUSTRIES, INC. 28,550,200 163,632,634.03 199,565,898.00 0.799%

ENERGY DEVELOPMENT CORP. 20,895,000 143,385,596.43 134,981,700.00 0.111%

FIRST GEN CORPORATION 10,775,900 259,472,327.55 266,703,525.00 0.320%

FILINVEST LAND, INC. 40,931,000 73,369,663.79 81,043,380.00 0.169%

GLOBE TELECOM INC 56,995 63,221,358.94 68,394,000.00 0.043%

GT CAPITAL HOLDINGS INC. 419,230 264,805,808.62 307,295,590.00 0.241%

CALAPAN VENTURES, INC 5,503,000 24,158,170.00 24,763,500.00 3.394%

JG SUMMIT HOLDINGS INC 5,065,200 200,022,623.98 215,271,000.00 0.075%

LEPANTO MINING CORPORATION 51,446,000 51,552,090.00 54,532,760.00 0.197%

LOPEZ HOLDINGS CORPORATION 11,621,800 87,135,445.47 83,909,396.00 0.254%

LAFARGE REPUBLIC, INC 3,275,000 36,912,793.50 35,632,000.00 0.056%

MARCVENTURES HOLDINGS, INC. 20,492,000 37,910,200.00 35,861,000.00 1.181%

METROPOLITAN BANK & TRUST CO. 1,811,701 200,508,765.37 211,969,017.00 0.086%

MEGAWORLD 5,023,000 13,913,710.00 19,539,470.00 0.017%

MANILA ELECTRIC COMPANY 748,340 211,527,742.52 244,407,844.00 0.066%

METRO PACIFIC INVESTMENTS CORP. 46,893,000 212,727,065.09 261,662,940.00 0.180%

NIHAO MINERAL RESOURCES INTERNATIONAL,INC4,022,100 20,070,279.00 14,117,571.00 0.441%

NICKEL ASIA CORPORATION 3,221,940 70,066,093.18 77,326,560.00 0.160%

ORIENTAL PENINSULA RESOURCES GROUP INC.55,456,988 174,443,225.34 182,453,490.52 3.819%

THE PHILODRILL CORPORATION 989,560,000 38,592,840.00 41,561,520.00 0.516%

PETRON CORPORATION 8,311,100 93,294,985.58 118,848,730.00 0.089%

SAN MIGUEL PURE FOODS COMPANY, INC. 462,630 112,881,720.00 127,038,198.00 0.278%

PUREGOLD PRICE CLUB INC. 6,269,500 208,139,340.22 251,093,475.00 0.227%

PEPSI-COLA PRODUCTS PHILIPPINES, INC 44,561,500 286,050,788.67 279,846,220.00 1.206%

PHOENIX PETROLEUM PHILIPPINES, INC. 5,200,000 55,245,568.80 49,660,000.00 0.473%

PHILIPPINE SAVINGS BANK 2,307,006 230,700,600.00 316,059,822.00 0.960%

RIZAL COMMERCIAL BANKING CORPORATION 2,300,400 149,073,285.35 161,028,000.00 0.202%

ROBINSON LAND CORPORATION 3,782,491 78,575,018.50 96,453,520.50 0.092%

ROCKWELL LAND CORPORATION 7,248,000 21,857,202.60 21,454,080.00 0.119%

SEMIRARA MINING CORPORATION 373,650 87,248,424.84 99,914,010.00 0.105%

SM INVESTMENT CORPORATION 338,950 304,797,129.74 377,929,250.00 0.054%

SM PRIME HOLDINGS INC 14,749,000 256,851,805.90 281,705,900.00 0.085%

PHIL LONG DISTANCE TELEPHONE COMPANY 63,579 163,933,867.96 189,974,052.00 0.029%

UNIVERSAL ROBINA CORPORATION 1,260,500 105,692,925.00 142,436,500.00 0.058%

VISTA LAND AND LIFESCAPES INC. 33,341,900 162,041,634.00 180,713,098.00 0.390%

1,472,561,060 5,702,341,688 6,412,171,710

Corporate Bonds

FIRST METRO INVESTMENT CORP. FMIC 2-17 73,630,000 74,629,027 1.5%

FIRST METRO INVESTMENT CORP. FMIC 17 R16 84,345,000 84,760,925 2.1%

SM INVESTMENT CORPORATION SMIC 29,000,000 29,311,834 0.5%

186,975,000 188,701,787

4. UNQUOTED DEBT SECURITIES

As of March 31, 2013

Issuing Entity Amount

MANILA ELECTRIC COMPANY 138,600,000

138,600,000

MAKATI OFFICE: 18 Floor, PS Bank Center, 777 Paseo de Roxas, corner Sedeño St., Makati City