Fund-of-Funds Primer 1. What is a Fund-of-Funds? A Fund-of-Funds is a Unit Investment Trust Fund (UITF) that invests in other collective investment schemes (CIS). A CIS is an investment vehicle where funds are solicited from investors for collective investment and which are managed for the account of such investors. Examples of CIS are UITFs, Mutual Funds, and Exchange Traded Funds (ETFs). A Fund-of-Funds is mandated to invest AT LEAST 90% of its assets in more than one CIS. Such underlying CIS are selected consistent with the provisions on the investment objective and investment policy of the Fund’s Plan Rules, following the Trustee's established investment process. A local or foreign CIS in which the Fund-of-Funds invests all or a portion of its assets is also called a Target Fund. Here is a graphic representation of a Unit Investment Trust Fund-of-Funds. The Unit Investment Trust Fund (“Fund”), operating as a Fund-of-Funds is NOT a DEPOSIT product and is not an obligation of, or guaranteed, or insured by the Bank of the Philippine Islands or its affiliates or subsidiaries and is not insured by the Philippine Deposit Insurance Corporation (PDIC). Due to the nature of the investments, yield and potential yields cannot be guaranteed. Any income or loss arising from market fluctuations and price volatility of the securities held by the Fund, even if invested in government securities, is for the account of the trustor. As such, units of participation of the trustor in the Fund, when redeemed, may be worth more or be worth less than his/her initial participation/contribution. Historical performance, when presented, is purely for reference purposes and is not a guarantee of future results. The Trustee is not liable for losses, unless upon willful default, evident bad faith or gross negligence. Trustors are advised to read the Declaration of Trust for the Fund, which may be obtained from the office of the Trustee, before deciding to invest. 2. What makes a Fund-of-Funds similar to a regular UITF? A Fund-of-Funds, like a regular UITF, is established and operated subject to the provision of its Plan Rules. It must also comply with all the regulations issued by the Bangko Sentral ng Pilipinas (BSP), particularly BSP Circular No. 767. All investors who wish to invest in a Fund-of-Funds must also take a client suitability assessment to establish the suitability of the investor to the Fund. The determination of the market value of the investments of the Fund shall be in accordance with existing BSP rules and regulations on marking to market valuation of investment instruments. 3. What makes a Fund-of-Funds different from a regular UITF? Fund-of-Funds are allowed to invest at least 90% of its assets in more than one CIS. On the other hand, regular UITFs are not. Regular UITFs can only invest directly in securities such as stocks, bonds or money-market instruments. The performance of Fund-of-Funds is not only driven by market environment and the management of the overall portfolio of the Fund by BPI Asset Management. The manner by which each of the underlying target funds are managed by their respective fund managers will also affect the performance of the Fund-of-Funds. 4. What are the exposure limits to a Fund-of-Funds? To protect investors from taking on too much risk, all Fund-of-Funds must comply with the exposure limits set by the BSP. There are 2 limits to remember: a) The first exposure limit is between the Fund-of-Funds and the CIS. Investments in any one CIS must not exceed 10% of the total market value of the CIS. b) The second exposure limit is similar to the regular UITF exposure limit wherein combined exposure to any entity and its related parties must not exceed 15% of the market value of the CIS. The Unit Investment Trust Fund (“Fund”), operating as a Fund-of-Funds is NOT a DEPOSIT product and is not an obligation of, or guaranteed, or insured by the Bank of the Philippine Islands or its affiliates or subsidiaries and is not insured by the Philippine Deposit Insurance Corporation (PDIC). Due to the nature of the investments, yield and potential yields cannot be guaranteed. Any income or loss arising from market fluctuations and price volatility of the securities held by the Fund, even if invested in government securities, is for the account of the trustor. As such, units of participation of the trustor in the Fund, when redeemed, may be worth more or be worth less than his/her initial participation/contribution. Historical performance, when presented, is purely for reference purposes and is not a guarantee of future results. The Trustee is not liable for losses, unless upon willful default, evident bad faith or gross negligence. Trustors are advised to read the Declaration of Trust for the Fund, which may be obtained from the office of the Trustee, before deciding to invest. 5. What are the other unique requirements for a Fund-of-Funds? The underlying CIS of a Fund-of-Funds must also comply with the following requirements: a) The investment objectives of the CIS are aligned with that of the Fund-of-Funds. b) The underlying investments of the CIS are limited to the allowable investment outlets under the UITF regulations. c) The CIS has no investment in other CIS. d) The CIS are supervised by a Regulatory Authority: i. Philippine-domiciled CIS – regulated by the BSP or the Securities and Exchange Commission (SEC). ii. Foreign CIS – a Regulatory Authority that is a member of the International Organization of Securities Commission (IOSCO). e) The CIS are registered, authorized and approved in its home jurisdiction by a Regulatory Authority. 6. Can the Trustee change the target funds of the Fund-of-Funds? BPI, as the Fund’s Trustee, has the discretion to choose and switch target funds due to the following reasons: a) Performance vis-à-vis expectations b) Change of focus c) Resignation of fund managers d) Closure of target funds e) Prolonged suspension of trading 7. How will investors be notified in case of switching of target funds? If the new target fund has a similar investment objective to the Fund-of-Funds, then there is no need to change the Plan Rules of the Fund-of-Funds. The switch in target funds shall be communicated to existing investors via any of the following: a) Disclosure in the fund fact sheet or fund performance report. b) Disclosure in the Quarterly Investment Disclosure Statement. c) An announcement in the Trustee’s website. However, when the switching of target funds results to a change in the investment objective of the Fund-of- Funds, the Trustee will notify existing investors on the amendments done in the Plan Rules. If they are not in conformity with the amendments, investors should be allowed to withdraw their participations within a reasonable time but in no case less than thirty (30) calendar days. This is consistent with BSP Circular 447. The Unit Investment Trust Fund (“Fund”), operating as a Fund-of-Funds is NOT a DEPOSIT product and is not an obligation of, or guaranteed, or insured by the Bank of the Philippine Islands or its affiliates or subsidiaries and is not insured by the Philippine Deposit Insurance Corporation (PDIC). Due to the nature of the investments, yield and potential yields cannot be guaranteed. Any income or loss arising from market fluctuations and price volatility of the securities held by the Fund, even if invested in government securities, is for the account of the trustor. As such, units of participation of the trustor in the Fund, when redeemed, may be worth more or be worth less than his/her initial participation/contribution. Historical performance, when presented, is purely for reference purposes and is not a guarantee of future results. The Trustee is not liable for losses, unless upon willful default, evident bad faith or gross negligence. Trustors are advised to read the Declaration of Trust for the Fund, which may be obtained from the office of the Trustee, before deciding to invest. 8. What are the benefits of investing in a BPI Fund-of-Funds? Here are the compelling reasons for considering BPI Fund-of-Funds. a) Simplicity and convenience – FoFs is your access to expertly managed investment funds available outside of the Philippines which would otherwise not be easily available to retail individuals. You can invest in the BPI Fund-of-Funds through any BPI branch or through BPI Expressonline at your most convenient time. b) Affordability – For a minimum of USD 500, you can already diversify in various investment strategies offered by the BPI Fund-of-Funds. c) Greater diversification – As each of the target funds is a diversified portfolio in itself, FoFs is thus several times diversified which should help further reduce volatility in returns, aside from the fact that there could also be further diversity in the fund managers. d) Expertise of various reputable fund managers in a single fund – Each of the underlying target funds have been carefully selected through BPI’s due-diligence and robust accreditation process. Thus BPI Fund-of-Funds carry the best-of-breed investment funds. The Unit Investment Trust Fund (“Fund”), operating as a Fund-of-Funds is NOT a DEPOSIT product and is not an obligation of, or guaranteed, or insured by the Bank of the Philippine Islands or its affiliates or subsidiaries and is not insured by the Philippine Deposit Insurance Corporation (PDIC).