Message from the Chairperson 2

Development Portfolio Operations 4LendingDevelopmental DepositsEquity InvestmentDevelopment Cooperation

Institutional Matters 8GovernancePolicies & Systems DevelopmentEvents

Swiss ExitClean AIr Initiative

CommitteesMedium Term Development

Planning Process

Financial Report 13

CONTENTS

Alliance of Philippine Partners inEnterprise Development (APPEND)

Association of Foundations, Inc.(AF)

CONVERGENCE for CommunityArea Centered Development(CONVERGENCE)

Federation of People's SustainableDevelopment Cooperative, Inc.(FPSDC)

Freedom from Debt Coalition(FDC)

Green Forum Philippines (GF)

HELVETAS

Magbassa Kita Foundation, Inc.(MKFI)

Mindanao Alliance of Self-HelpSocieties-Southern Philippines

Education Center for Co-ops(MASS-SPECC)

Mindanao Coalition forDevelopment (MINCODE)

National Confederation ofCooperatives (NATCCO)

National Council of SocialDevelopment (NCSD)

National Council of Churches inthe Philippines (NCCP)

National Secretariat for SocialAction (NASSA)

NGO Center for CooperativeDevelopment (NGO-CCD)

Oiko Credit Foundation Philippines,Inc.

Partnership of Philippine SupportService Agencies (PHILSSA)

Philippine Business for SocialProgress (PBSP)

Philippine Network for RuralDevelopment Institute (PhilNet-RDI)

Philippine Partnership for theDevelopment of Human Resourcesin Rural Areas (PhilDHRRA)

Philippine Network for Helping theHardcore Poor (Philnet)

SWISSCONTACT

Swiss Interchurch Aid (HEKS)

Visayas Cooperative Central FundFederation (VICTO-VCF)

Women's Action Network forDevelopment (WAND)

Eco-Enterprise Advisory

Martin TanchulingLydia EnrileCarlito SantosSam FerrerJune RodriguezFelix TanedoNapoleon Reymunde

Development PortfolioManagement

Betta Socorro SaleraCesar BelangelChriste Rowena PlantillaLarry MillanArchimedes Diaz

Investment and Finance

Archimedes DiazMa. Lourdes LedesmaCressente PaezLarry MillanDina AnitanGil SalazarBert PardalisSylvia Paraguya

Internal AffairsCesar VillanuevaSr. Rosanne MallillinJune RodriguezGil SalazarFelix Tanedo

Membership

Sylvia ParaguyaCesar VillanuevaCorazon ParaisoGilbert MarambaCeleste ReyesMartin TanchulingDonato Alcoba

General Assembly

Managing organizational shifts is seldom easy, more so, if such changes involve a blend of people, organizations,policies, systems and strategic directions.

The difficult organizational transition the Foundation has undergone extended well into the year 2003. However,significant progress and milestones have been accomplished along the way, and I am confident that these will lead ustoward becoming more responsive and effective as a resource-service institution.

While another change in the top management of the Foundation was inevitable, the focus to deliver results requiredof its mandate was the primary goal of the Foundation in 2003. This was marked by 22 new project approvals involvingloans and developmental deposits amounting to a total of PhP 101.75 million, exceeding the targets for the year by132%. It saw an expanded partnership not only with private social entrepreneurs, but more so with community financialinstitutions as alternative and better investment outlets that can offer both the social and financial return for theFoundation. Furthermore, with 41% of all projects and 25% of total development portfolio investments originatingin Mindanao, the Foundation lived up to its commitment to uphold continuing interventions to rural poverty.

Likewise, the grants facility of FSSI, in partnership with NOVIB, was restructured to align and harmonize with theFoundation’s other programs and services, providing support to a total of 52 projects involving various communityorganizations amounting to PhP 3.8 million.

Distribution of Projects byOrganizational Type

NGO30%

Cooperative26%

PO1%

Private43%

DEVELOPMENT PORTFOLIO OPERATIONS

Sustainable Development is development that meets the needs of the present without compromisingthe ability of future generations to meet their own needs.

-Brundtland Report

Portfolio by Organizational Type

By end of December 2003, FSSI assisted 44 projectsunder its development portfolio investments. Cooperativeshad the most number with 17 supported projects, whichcorresponds to only 26% of total portfolio. Privateentrepreneurs came in second with 14 projects valued atP44 million. Other NGOs also served as sponsors to 12projects worth P31 million or 30%. Finally, Samahan ngMagsasaka represents the lone peoples’ organization inthe group, which represents 1% of total projects. Thisposes a challenge to FSSI to expand its reach in supportingcommunity based organizations.

44

The Foundation has also increased its involvement in themicrofinance sector with 11 cooperatives and banksavailing developmental deposits in the third quarter ofthe year. Overall, total loans and developmental depositsapprovals were accorded to 22 projects with a cumulativeamount of P101.75 million, translating to 132% abovetargets.

A total of P38.57 million or 37% of approvals was releasedfor the projects during the period, bringing the value ofthe overall net development portfolio ending December2003 to P109.314 million or 17% of the total assets. Thesefunds were extended to various project partners such ascooperatives, other NGO’s, private entrepreneurs andpeople’s organization.

In 2003, the Foundation took balanced steps to address the needs of different marginalized communities throughoutthe country. FSSI opened the newly structured Fund for Sustainable Civil Society (FSCS), a partnership with NOVIBto communities seeking funding aid for sustainable enterprises outside the Foundation’s core programs of coconut coir,solid waste management and microfinance.

Project Approvals 2003Target vs. Actual

In m

illio

n pe

sos

0102030405060

Loans DevelopmentalDeposits

Grants

Target Actual

Portfolio by Geographical Origin

FSSI seeks to strike a balance in the distribution of projectsthroughout the country. For 2003, the Foundation increased itsefforts in Mindanao with 9 out of 11 developmental depositapprovals located in the region. Overall, Mindanao represent 18projects valued at P25 million or 41% of total portfolio. Luzoncorresponds to 48% or P70 million worth of investments to 21projects while Visayas completes the pie with 11% or 5 projectsvalued at P 8 million.

TechServices

Agri-AquaProduction

OthersSWMCoco CoirMFI05

101520253035404550

Portfolio Distribution per Project Category

In M

illio

nP

esos

5

Microfinance projects are valued at P43 millionor 42% of the portfolio.The Foundation’sinvolvement in the coconut coir cluster garnered36% with a value of P37 million. Agricultureand Aquaculture production projects are valuedat P8 million while solid waste managementprojects correspond to only 1%.

Mindanao41%

Luzon48%

Visayas11%

Distribution basedon Geographical Origin

Portfolio by Project Category

In the first seven years, the Foundation looked for different models for community enterprises that embodied thesustainable development principle of ecological soundness as well as economic viability. Microfinance and coconut coirenterprises are the most predominant in the portfolio.

Loan Approvals,2003Geographical Distribution

Luzon36%

Visayas18%

Mindanao46%

LENDING

Total net loan receivables for community enterprises andmicrofinance institutions at the end of 2003 amounted to PhP36million for 29 projects compared with PhP 72 million for 27projects for the period ending 2002. The decline was due to asignificant provision in loan loss allowance amounting to PhP38million.Approval of new loan accounts for 2003 alone amounted to PhP56 million for 11 projects. The average loan size for new accountswas PhP 5 million. Of the 11 projects, five projects or 46% arefrom Mindanao with an approved loan amount of P15 million.Luzon, on the other hand, accounts for 36% or four projectstotaling P29 million. Finally, Visayas makes up 18% or twoprojects with an approved loan of P12 million.

DEVELOPMENTAL DEPOSITS

Developmental deposits portfolio as of 2003 amounted to PhP30 million for 16 accounts. Of the 16, eleven (11) areapprovals for the year with PhP46 million available to community financial institutions for time deposits and depositlines, which translates to an average deposit amount of PhP4 million.

Developmental Deposits Approved, 2003

18%

82% LuzonMindanao

Approvals for the year on developmentaldeposit surpassed the targeted PhP42mil l ion . This represents 108%accomplishment of the projected numberof approvals. Disbursements, on the otherhand, were at PhP20 million or 61% oftotal project disbursements for 2003.

6

Nine out of 11 projects are cooperatives in Mindanao. Thesevarious multipurpose cooperatives in Davao del Sur, Davao delNorte, Compostela Valley and North Cotabato areas represent82% of total approval for the year. The rest, which represent 18%of the total, are the New Rural Bank of San Leonardo, which hasbeen recognized by the Bangko Sentral ng Pilipinas as model ofrural banking practice; and the Center for Agriculture and RuralDevelopment Bank, which is the largest microfinance institutionin the country.

Table 1. Loan Approvals, January - December 2003

Name of Partner Amount Approved LocationMASS-SPECC 5,000,000 MindanaoJoyJoy Food 2,000,000 MindanaoDairy Devt Foundation of the Phils. 2,000,000 LuzonRural Bank of Talisayan 3,000,000 MindanaoNGOs for Integrated Protected Areas 2,000,000 LuzonSoriano Multipurpose Fiber Corp. 15,000,000 LuzonCenter for Community Transformation 10,000,000 LuzonN. Mindanao Fed. of Dairy Coop 250,000 MindanaoTumandok Crafts Industries 2,000,000 VisayasNegros Women for Tomorrow 10,000,000 VisayasKasanyangan Foundation, Inc. 5,000,000 Mindanao

Total 56,250,000

Disbursements for loan accounts for theyear was close to P13 million, 20% ofwhich are disbursements for three existingaccounts. Full disbursements were achievedfor three new accounts, namely MASS-SPECC, Dairy Development Foundationof the Philippines and NGOs for IntegratedProtected Areas.

Loan approvals for the year resulted in164% accomplishment compared to thetarget approval for the period of P35million.

Table 2. Developmental Deposits Approved, Jan - Dec 2003

Name of Partner Amount Approved LocationAgdao Multipurpose Cooperative 1,500,000 MindanaoBansalan Cooperative Society 4,000,000 MindanaoKapalong Cooperative 3,000,000 MindanaoMakilala Multipurpose Cooperative 1,000,000 MindanaoNabunturan Integrated Cooperative 3,000,000 MindanaoPantukan Chess Club 1,000,000 MindanaoSamal Island Mult. Cooperative 2,000,000 MindanaoSanta Catalina Mult. Cooperative 1,000,000 MindanaoUSPD Savings and Credit Coop 5,000,000 MindanaoCARD Bank 12,000,000 LuzonNew Rural Bank of San Leonardo 12,000,000 LuzonTotal 45,500,000

Grant proponents, 2003

Cooperatives12%

PeoplesOrganization

4%

Others16%

NGO68%

EQUITY FINANCING

In 2003, the Foundation approved the equity investmentto the Swisscontact project for the Clean Air Now!Exhibit. The highlight of the exhibit was the launchingof the alpha model of the retrofitted two-stroke tricycleengine using the direct injection system, which wasalso supported by FSSI through its grants program. 1

DEVELOPMENTAL COOPERATION– Small Grants Program

Development cooperation combines the small grantsprogram of the Foundation as well as the partnershipwith NOVIB for the Fund for a Sustainable CivilSociety (FSCS). Target beneficiaries are community-based organizations and other NGOs that are involvedin eco-enterprise development but are not able to meetthe requirements to avail of FSSI’s financial products.

7

In 2003 alone, financial support was extended to 51 projects amounting to PhP3.9 million. Other non-governmentorganizations availed of funding from the grants program with 68% of proponents coming from this sector whilecooperatives and peoples’ organizations make up 12% and 4%, respectively. Other organizations seeking assistance fortheir advocacy and technology development activities represent 16%.

Of the total, 14 projects totaling P1.3 million were funded under the FSCS. NOVIB contributed close to P1.2 millionto the fund while P1.1 million came from FSSI. Projects under the FSCS include business plan development for CampExplore in Marikina with SERVE, Inc. as proponent, institutional strengtheningprogram for Magbikin Aetas (NationalIntegrated Protected Areas) and the First National Eco-waste Multi-sector Conference and Technology Fair (Sagip PasigMovement), to name a few. There are currently 26 proposals worth P7.3 million in the pipeline.

On the other hand, the small grants window gave financialsupport of PhP 1.6 million to 32 projects, which rangefrom workshop for public market stakeholders to acomparative study on the utilization of organic fertilizersto advocacy program for clean air, among others.

Total grant assistance of FSSI amounted to P2.7 million,which is 30% higher than the allotted PhP2 million forgrants at the start of the year.

1The approved investment for the project did not push through as Swisscontact already generated enough funding to support the exhibit.

8

INSTITUTIONAL MATTERSGovernance

The year 2003 marked a continued organizational transitionin FSSI with movement in top management - the entry inthe second half of the year of a new executive directorand associate executive director. At the same time, a newset of Board of Trustees was put into place.

The implementation of a new organizational structure alsopaved the way for additional staff in the DevelopmentPortfolio Unit to operate the risk management, developmentcooperation and eco-enterprise development operationsof the Foundation.

The various Committees, formed as Technical WorkingCommittees in the previous year, were institutionalizedand operational providing technical support to the Boardin areas of investment and finance, internal affairs,development portfolio management, membership and eco-enterprise development.

Policies and Systems Development

The Foundation met the challenges of 2003 by strengthening the organization’s policies and systems. A review andenhancement of critical policy areas and systems were undertaken primarily in human resource management, investmentsand finance and development portfolio management. The approval of key policies and strategies paved the way forincreased participation of the committees and the staff, facilitating the work of the Board of Trustees.

During the year, FSSI has undertaken the review, revision and setting in place of seven policy clusters and systems.Financial Policy and Guidelines on Commercial Portfolio InvestmentsGeneral Policy on Development Portfolio InvestmentsReview of Job Evaluation resulting to:

New & updated job descriptionsNew Job classification/ranking–

Review of Compensation Structure resulting to a revised compensation structure based on gross-up schemeNew management structureInventory of operations policy

Table 4. Small Grants, January - December 2003

Organization AmountAlter Trade 50,000Broad Initiatives for Negros Dev't, Inc. 50,000Cagayan Valley Federation of Cooperatives 50,000CAM-Swiss Contact 80,000Center for Servant Leadership, Philippines 49,475Dairy Dev't Foundation of the Philippines 44,000Gratia Plena Social Action Centers 75,000Helvetas, Phil 48,000Institute of Popular Democracy 100,000Institute for Small Farms and Industries 50,000IDEAS 100,000Manggagawang Kababaihan Mithi ay Paglaya 50,000Mindanao Resource Center for Development 50,000National Confederation of Cooperatives 100,000Pamana Ka sa Pilipinas 20,000PBSP Employees Multi-Purpose Cooperative 1,800People's Global Exchange-Phil, Inc. 50,000Phil Alliance of Human Rights Advocates 37,500Phil Cooperative Center 50,000Phil Federation of Cooperatives 50,000Pitad Foundation 43,000PUP Student Credit & Service Cooperative 12,500Rural Development Institute-Sultan Kudarat 80,000REAPS Foundation, Inc 7,700Solid Waste Management Association of the Phil 100,000South-West Point College, Inc 12,800Tambuyog Development Center 9,000TFM 50,000TODAPILIPINAS 50,000Trainers' Collective, Inc 5,000University of Saint La Salle 100,000VICTO-VCF 50,000

Total 1,625,775

9

EVENT HIGHLIGHTS

The year also saw the development of the Foundation’s logo to serve as a visual cue and provide unique identificationfor FSSI. The logo was immediately put into use in the financial products brochure, which was disseminated during theSocial Development Week exhibit and the Clean Air Now! Fair in the last quarter of 2003. In conjunction with theparticipation in these exhibits is the production of the FSSI documentary in VCD, Building Partnerships, and BreakingVicious Cycles, which was also given out to the public.

Towards the end of the year, the Foundation hosted a press briefing at the Somerset Millennium Hotel in Makati toannounce the exit of the Swiss government from the FSSI Board of Trustees. This signifies a major milestone in theinnovative debt-for-development swap initiated by the Swiss people for the Filipinos. As a final token, the Swiss embassyprovided financial support to the Medium Term Development Planning activity of the Foundation.

The Swiss Ambassador, H.E. Elise Favre, and FSSI Chairperson, Maria Teresa Diokno-Pascual, issued a joint statementduring the press conference. The event saw the participation of representatives of major dailies and a television newscrew. It was followed by a reception at the Ambassador’s residence.

Joint Statement by the Embassy of Switzerland,represented by H.E. Lise Favre, Ambassador of Switzerland to the Philippines

and theFoundation for a Sustainable Society, Inc. (FSSI),

represented by Ms. Maria Teresa Diokno-Pascual, Chairperson

Today we announce the decision of the Swiss Government to exit from the Board of Trustees of the Foundation fora Sustainable Society, Inc.

The Swiss Government’s decision to withdraw from FSSI is a vote of confidence in the Foundation and its managers,who are working together with the Philippine Government to bring FSSI closer to its vision and mission. The SwissGovernment is convinced that the Foundation is in the responsible hands of prudent managers and trustees whoare fully aware of their accountabilities to themselves, their beneficiaries, the broad Filipino and Swiss NGO communities,and the Governments of both the Philippines and Switzerland.

In March 1991, on the occasion of the Swiss Confederation’s 700th anniversary, a bill creating the Swiss Debt ReductionFacility (SDRF) was passed in Switzerland, reducing the debt of many developing nations through a “creative debtrelief” scheme. The Philippines was among the countries to benefit from the SDRF, a result of an earlier broad-basednational debt relief campaign mobilized by major Swiss development organizations.

10

The underlying idea behind creative debt relief is that it could be used as a direct development tool to benefit thepoor at the micro level: in exchange for the debt cancellation, the government of the debtor country commits itselfto redeem in local currency, a part of the cancelled debt and turn it into a so-called counterpart fund for administrationby its civil society for the financing of sustainable domestic development activities.

This innovative debt-for-development swap was what was extended to the Philippines in 1995. Half of the totalPhilippine debt that was cancelled by Switzerland, amounting to CHF 42.4 million or the equivalent of PhP 454 millionat that time, was set-up by the Philippine Government, and turned over to a foundation created and managed byPhilippine civil society organizations. Thus was born the Foundation for a Sustainable Society, Inc., or FSSI.

Both Governments of the Republic of the Philippines and the Swiss Confederation have participated in FSSI asobservers in the Board of Trustees. On the part of the Swiss Government, its participation in the Board was seenfrom the beginning as temporary. After more than eight years of service in FSSI, the Swiss Government has decidedthat it is now time to withdraw.

This decision comes at a point when the FSSI has completed an external evaluation of its first six years in operation(1995-2001), and has instituted reforms partly in response to this evaluation. The FSSI is also currently undergoing amedium-term planning exercise, an activity which would map out FSSI’s plan for the next 7 years, and which the SwissGovernment is financially assisting as a fitting final contribution marking its exit.

The assets of the Foundation, in nominal value, have grown from the initial level of PhP 454 million at the time ofthe Foundation’s establishment, to PhP 641 million as of the end of 2002. The Foundation has 26 member-organizationsand has supported over 600 projects throughout the country. Its present development portfolio consisting of loans,development deposits and equity investments amounts to PhP 101.1 million as of end-October 2003. This is expectedto expand further in the coming years.

The civil society member-organizations of the FSSI wholeheartedly thank the people of Switzerland for their unwaveringsupport and solidarity. They understand and accept the decision of the Swiss Government to exit from FSSI, andsee this as a new phase in the life of the Foundation.

The Swiss Government, as it concludes the bilateral component of its successful debt-relief programme with thePhilippines, expresses its gratitude for the enriching dialogue during the period of its participation in FSSI, and wishesthe Board of Trustees as well as the Executive Director and her team a successful continuation of their activities.

In the challenging days and years ahead, the work of fostering and strengthening innovation in the lives of themarginalized communities in the Philippines will remain the focus of the work of the members, management and staffof the FSSI, in partnership with the Philippine government, and with the communities themselves.

Makati City, 16 December 2003.

11

COMMITTEES

The Foundation had four active committees in 2003 made up of General Assembly members and headed by members ofthe Board – Eco-Enterprise Advisory, Development Portfolio Management, Investment and Finance, and Internal Affairs.

Eco-Enterprise Advisory Committee

The Eco-Enterprise Advisory Committee has three functions to ensure that projects are consistent with the Foundation’svision and mission – project development, project appraisal and policy development. In 2003, the EEAC met eight timesto accommodate the volume of project proposals applying for loans, developmental deposits and grants.

The EEAC oversaw the approval of eleven accounts each for loans and developmental deposits products as well as oneaccount for equity financing. Furthermore, there were 51 projects under the small grants window, which the Committeeelevated for Board-approval. Overall, the Committee managed to move close to P107 million for funding of communityenterprise projects.

Development Portfolio Management Committee

The Development Portfolio Management Committee is tasked with program development and monitoring to ensure thatthe Foundation’s development portfolio is at par with the standards set by the Board of Trustees. The DPMC met jointlywith the EEAC in 2003 to put into place a revised appraisal system that will aid staff in assessing and evaluating projects.

Investment and Finance Committee

In 2003, the Investment and Finance Committee oversaw the review and revision of the Commercial Investment Policy.The policy outlined several measures to ensure the effective and efficient management of the original trust fund heldin different trustee banks. Furthermore, the IFC together with the EEAC developed conditional policies on developmentportfolio.

Internal A ffairs Committee

The Internal A ffairs committee facilitated the conduct of the Human Resource Review for 2003, which paved the wayfor realignment of staff positions to the growing needs of the institution. The IAC also handled the recruitment of theExecutive Director and the Associate Executive Director, the performance evaluation of the outgoing Executive Director,

MEDIUM TERM DEVELOPMENT PLANNING PROCESS

The Medium Term Development Planning process marks a major milestone in the Foundation’s seven-year history. Withfunding coming from SECCO as a parting gift from the Swiss government, the strategic planning exercise started in thelast quarter of the year and was facilitated by the Asian Institute of Management – Asian Center for Entrepreneurship.

The process included the conduct of an assessment of the Foundation’s external environment and its internal organization.The preparation for the MTDP kicked off with focus group discussions with staff and the Board of Trustees as well as animpact survey given out to project partners. The internal assessment was further strengthened with the conduct of twoimpact case studies on FSSI’s intervention in the coco-coir and solid waste management sub-sectors. The outcome of theprimary and secondary research will be an input to the culminating planning workshop the following year where the seven-year plan will be drafted.

12

Special Project: Clean Two-Stroke Tricycle Retrofit Program for Manila

Diesel vehicles like jeepneys, buses and tricycles are by far the most popular method of mass transportation in thePhilippines. However, they are also some of the worst polluters of the environment and cause serious harm to people’shealth. W hat's more, the World Bank has estimated the cost of air pollution in the country at US$1.5 billion in lostwages and medical expenses.

Fortunately, programs have been launched to reduce diesel pollution drastically. One is the Clean Two-Stroke TricycleRetrofit Program for Manila, which was launched early 2003 through the cooperation of Swisscontact Philippines, theFoundation for a Sustainable Society, Inc.(FSSI), Colorado State University as well as various private donors from theUnited States.

The project aims to reduce pollution from these tricycles since they have become an important part of the daily livesof commuters and a source of livelihood for drivers and operators. To spare them from the sanctions outlined in theClean A ir A ct, the project will adapt direct-injection technology for retrofit on existing two-stroke engines in MetroManila. This approach can reduce harmful emissions by up to 90 percent, reduce fuel consumption by 33%, and hasthe potential of dramatically reducing air pollution in the country.

The Foundation has provided funding for Phase I or the research and technology development stage of the retrofittingproject. This stage involves development and demonstration of the tricycle prototype at the University of Colorado’sEngines Laboratory.

A fter its completion, the tricycle was shipped back to Manila in time for the Clean A ir NOW! Exhibition in November2003, which saw the participation of government agencies, private corporations, international funding agencies and theTricycle Operators and Drivers Association.

13

Certified Public Accountants

REPORT OF INDEPENDENT AUDITORS

The Board of TrusteesFoundation for a Sustainable Society

(FSSI) Incorporated(A Nonstock, Nonprofit Corporation)

We have audited the accompanying statements of financial position of the Foundation for a Sustainable Society (FSSI)Incorporated as of December 31, 2003 and 2002, and the related statements of revenues and expenses, changes in fundbalance and cash flows for the years then ended. These financial statements are the responsibility of the Foundation’smanagement. Our responsibility is to express an opinion on these f inancial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards in the Philippines. Those standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether the financial statements arefree of material misstatement. A n audit includes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial positionof Foundation for a Sustainable Society (FSSI) Incorporated as of December 31, 2003 and 2002, and the results of itsoperations and its cash flows for the years ended in accordance with generally accepted accounting principles in thePhilippines.

20th Floor Tower 1The Enterprise Center6766 Ayala Avenue1200 Makati CityPhilippinesT +63 2 886-5511F +63 2 886-5506; +63 2 886-5507W www.punongbayan-araullo.comOffices in Cebu, Davao, Cavite

Member of Grant Thornton International

PTR No. 7050349January 13, 2004Makati City

March 12, 2004

FINANCIAL REPORT

See notes to Financial Statements14

FOUNDATION FOR A SUSTAINABLE SOCIETY (FSSI) INCORPORATED(A Nonstock, Nonprofit Corporation)

STATEMENTS OF FINANCIAL POSITIONDECEMBER 31, 2003 AND 2002

2003

P 636,427

24,359,805

27,290,735

36,639,311

511,579,021

40,016,672

13,105,548

P 653,627,519

P 496,465

6,193,256

6,689,721

85,500 454,822,597 ( 13,407,689 ) 205,437,390 646,937,798

P 653,627,519

2002

P 450,412

9,647,876

7,197,485

72,318,126

495,646,413

39,734,371

15,691,575

P 640,686,258

P 976,146

7,401,649

8,377,795

85,500454,822,597

( 22,557,165)199,957,531632,308,463

P 640,686,258

ASSETS

CASH

SHORT-TERM INVESTMENTS

DEPOSITS WITH COMMUNITY FINANCIAL INSTITUIONS (Note 3)

LOANS RECEIVABLE - PROJECTS-Net (Note 4)

FUNDS HELD IN TRUST - Net (Note 5)

PROPERTY AND EQUIPMENT - Net (Note 6)

OTHER ASSETS - Net (Notes 7 and 12)

TOTAL ASSETS

LIABILITIES AND FUND BALANCE

ACCOUNTS PAYABLE AND OTHER LIABILITIES

UNUSED PROJECT FUNDS (Note 7)

FUND BALANCEMembers' contributionsGrant (Note 1)Net unrealized losses in value

of investment portfolio (Note 4)Cumulative excess of revenues over expenses

TOTAL LIABILITIES AND FUND BALANCE

See notes to Financial Statements15

2003

P 48,321,8341,707,500

1,518,1461,263,782

416,037571,528

53,798,827

31,029,3824,261,0872,893,6801,730,7691,581,5091,111,2071,047,259

875,985801,695681,649666,275165,240

1,473,231

48,318,968

P 5,479,859

2002

P 31,542,9323,492,254

1,037,8855,130,042

440,133494,413

42,137,659

4,328,4473,736,8422,560,4292,002,7791,228,997

463,5961,324,745

144,783801,833465,765

1,623,0261,724,4451,220,680

21,626,367

P 20,511,292

FOUNDATION FOR A SUSTAINABLE SOCIETY (FSSI) INCORPORATED(A Nonstock, Nonprofit Corporation)

STATEMENTS OF REVENUES AND EXPENSESFOR THE Y EARS ENDED DECEMBER 31, 2003 AND 2002

REVENUES

Income from fundsheld in trust (Note 5)GrantsInterest income from:

InvestmentsProjects

Guarantee fees (Note 7)Others

EXPENSES

Provision for probable losses (Notes 4 and 5)Salaries and wagesProject and development grants (Note 9)Employee benefits (Note 10)MeetingsProject monitoring and developmentProfessional feesNovib project expenses (Note 8)DepreciationUtilities and communicationSasakawa project expenses (Note 8)Ford project expenses (Note 8)Other expenses (Note 11)

EXCESS OF REVENUES OVER EXPENSES (Note 12)

See notes to Financial Statements

2002

P 85,500

454,822,597

( 12,173,150)( 10,384,015)

( 22,557,165)

179,446,23920,511,292

199,957,531

P 632,308,463

(P 10,384,015)

2003

P 85,500

454,822,597

( 22,557,165)9,149,476

( 13,407,689)

199,957,5315,479,859

205,437,390

P 646,937,798

P 9,149,476

FOUNDATION FOR A SUSTAINABLE SOCIETY (FSSI) INCORPORATED(A Nonstock, Nonprofit Corporation)

STATEMENTS OF CHANGES IN FUND BALANCEFOR THE Y EARS ENDED DECEMBER 31, 2003 AND 2002

16

MEMBERS’ CONTRIBUTIONS

GRANT (Note 1)

NET UNREALIZED LOSSES IN VALUEOF INVESTMENT PORTFOLIO (Note 5)Balance at the beginning of yearRecovery (decline) in value

Balance at end of year

CUMULATIVE EXCESS OF REVENUESOVER EXPENSESBalance at the beginning of yearExcess of revenues over expenses

Balance at end of year

TOTAL FUND BALANCE

Net Gains (Losses) Directly Recognized in Equity

See notes to Financial Statements17

2003

P 5,479,859

31,029,382801,695

( 2,781,928)( 39,763)( 314,440)

34,147,805( 12,815,000)

19,191805( 479,681)( 1,208,393)

38,863,536

( 14,711,929)

( 21,226,532)( 7,407,788)

3,915,210( 1,324,233)

1,483,311280,000

( 38,991,961)

-

314,440

186,015

450,412

P 636,427

2002

P 20,511,292

4,328,447801,833

( 6,167,927)-

( 257,197)19,216,448

( 35,175,000)25,307,107

( 106,987)( 1,847,195)

7,394,373

7,039,073

( 1,380,909)( 6,292,932)

5,221,776( 470,150)( 1,910,780)

-

2,206,078

( 10,121,800)

257,197

( 264,152)

714,564

P 450,412

FOUNDATION FOR A SUSTAINABLE SOCIETY (FSSI) INCORPORATED(A Nonstock, Nonprofit Corporation)

STATEMENTS OF CASH FLOW SFOR THE Y EARS ENDED DECEMBER 31, 2003 AND 2002

CASH FLOW S FROM OPERATING ACTIVITESExcess of revenues over expensesAdjustments for:

Provision for probable lossesDepreciationInterest incomeGain on sale of property and equipmentUnrealized foreign exchange gains

Operating income before working capital changesProject loan releasesProceeds from collection of project loansDecrease in accounts payable and other liabilitiesDecrease in unused project funds

Net Cash From Operating Activities

CASH FLOW S FROM INVESTING ACTIVITIESDecrease (increase) in short term investmentsIncrease in deposits with community

financial institutionsIncrease in funds held in trustInterest receivedAcquisitions of property and equipmentDecrease (increase) in other assetsProceeds from sale of property and equipment

Net Cash From (Used In) Investing Activities

CASH FLOW S FROM FINANCING ACTIVITYPayment of loan borrowings

EFFECTS OF FOREIGN EXCHANGE RATECHANGES ON CASH

NET INCREASE (DECREASE) IN CASH

CASH AT BEGINNING OF Y EAR

CASH AT END OF Y EAR

18

FOUNDATION FOR A SUSTAINABLE SOCIETY (FSSI) INCORPORATED(A Nonstock, Nonprofit Corporation)

NOTES TO FINANCIAL STATEMENTSDECEMBER 31, 2003 AND 2002

1. CORPORATE INFORMATION

Foundation for a Sustainable Society (FSSI) Incorporated(the “Foundation”), a nonstock, nonprofit corporation, wasregistered with the Securities and Exchange Commission onSeptember 6, 1995. The Foundation is presently engaged inproviding financial andnonfinancial services by means of grants, guarantees, loansand equity infusion into community-based eco-enterprises.

On September 6, 1995, the Philippine Government,through the Department of Finance, granted P454.8 millionconsisting of 5% in cash and 95% in government securitiesto the Foundation from the proceeds of a debt cancellationunder the Bilateral Agreement on the Reduction of ExternalDebt entered into by the Governments of the Philippines andSwitzerland on A ugust 11, 1995. On December 16, 2003,the Swiss government, in a joint statement by the Embassyof Switzerland represented by the Ambassador of Switzerlandto the Philippines and the Foundation represented by theChairman of the Board of Trustees (BOT), expressed itsdecision to exit from the BOT of the Foundation. The decisionis a vote of confidence in the Foundation and its managers,who are working together with the Philippine government tobring the Foundation to its v ision and m ission.

The registered office of the Foundation is located at UnitE, 46 Samar Avenue Cor. Eugenio Lopez St., South Triangle,Quezon City.

The Foundation operates within the Philippines and had14 and 11 regular employees as of December 31, 2003 and2002, respectively.

The financial statements of the Foundation for the yearsended December 31, 2003 and 2002 were authorized for issueby the Foundation’s Executive Director on March 12, 2004.

2. SUMMARY OF SIGNIFICANTACCOUNTING POLICIES

B asis of Preparation of F in an cial S tatem en ts

The f inancial statements have been prepared inaccordance with generally accepted accounting standards inthe Philippines.

The f inancial statements have been prepared on ahistorical cost basis, except for the Funds Held in Trust whichis valued at the lower of aggregate cost or market.

The accounting policies have been consistently appliedby the Foundation and are consistent with those used in theprevious year, except for the adoption of new accountingstandards as stated below.

Adoption of New Accounting Standards

In 2003, the Company adopted the following Statementsof Financial A ccounting Standards (“SFA S”)/InternationalA ccounting Standards (“IA S”) issued by the A ccountingStandards Council (“ASC”) which became effective on January1, 2003, that are relevant to Foundation:

SFAS 8A : Deferral of Foreign Exchange Differences

SFAS 10/IAS 10 : Events A fter the Balance SheetDate

SFAS 20/IAS 20 : A ccounting for GovernmentGrants

A nd A ccounting for GovernmentAssitance

SFAS 37/IAS 37 : Pro v i s i o n s , C o n t i n g e n tLiabilities and

Contingent Assets

The Foundation’s adoption of these new accountingstandards listed above did not have any material effects onfinancial statements, hence, did not result in any adjustmentsto the financial statements of the current and prior years.

In 2002 and prior years, the Foundation adopted the newpronouncements issued by the ASC which became effectivein those years.

Impact of New Accounting Standard Effective Subsequentto 2003

The following new accounting standards issued by theASC that will be effective subsequent to 2003 are applicableto the Foundation:

· In 2004, SFAS 12/IAS 12, Income Taxes issued by theASC will be effective. This new standard which will becomeeffective, January 1, 2004, prescribes the accounting treatmentfor current and future tax consequences of current and futuretax consequences of the future recovery or settlement of thecarrying amount of assets or liabilities that are recognized inthe balance sheet of an entity and transactions and otherevents of the current period that are recognized in the entity’sfinancial statements. The Foundation will adopt SFAS 12/IAS12 in 2004 as required, and is currently evaluating the impactof the adoption of SFA S 12/IA S 12 on the Foundation’sfinancial statements.

· SFA S 21 / IA S 21, The Effects of Changes in ForeignExchange Rates. This new accounting standard which willbecome effective, January 1, 2005, requires the recognitionof foreign exchange differences as income or as expenses inthe period in which they arise and allows capitalization offoreign exchange losses only under certain restrictiveconditions. Accordingly, the Foundation determined that theeffect of its adoption of SFAS 21 / IAS 21 on January 1, 2005will not be material.

19

Loans Receivable - Projects

Loans receivable - projects are stated at their outstandingbalances reduced by the allowance for probable losses.

The allowance for probable losses is the estimated amountof losses in the Foundation’s portfolio, based on managementevaluation of the collectibility of loans. The allowance forprobable losses is established through a provision for loan lossescharged to expense. Loans are written-off against the allowancefor probable losses when management believes that the collectibilityof the principal is unlikely.

Funds Held in Trust

Funds held in trust are valued at the lower of aggregate costor market value at statement of financial position date. The excessof aggregate cost or market value is accounted for as valuationallowance. The accumulated change in the valuation allowanceis included as a separate component of fund balance in thestatements of financial position.

Property and Equipment

Property and equipment are carried at cost less accumulateddepreciation and any impairment in value. The cost of an assetcomprises its purchase price and directly attributable costs ofbringing the asset to working condition for its intended use.Expenditures for additions, improvements and renewals arecapitalized; expenditures for repairs and maintenance are chargedto expense as incurred. W hen assets are retired or otherwisedisposed of, the cost and related accumulated depreciation areremoved from the accounts and any resulting gain or loss isreflected in income for the period.

Depreciation is computed on the straight-line basis over theestimated useful lives of the assets as follows:

Building and improvements 3 to 20 yearsOffice equipment 4 to 5 yearsTransportation equipment 10 yearsFurniture and fixtures 5 years

Fully depreciated assets are retained in the accounts untilthey are no longer in use and no further charge for depreciationis made in respect of those assets.

The carrying values of property and equipment are reviewedfor impairment when events or changes in circumstances indicatethat their carrying values may not be recoverable. If any suchindication exists and where the carrying values exceed the estimatedrecoverable amount, the assets or cash generating units are writtendown to their recoverable amount. The recoverable amount ofproperty and equipment is the greater of net selling price andvalue in use. In assessing value in use, the estimated future cashflows are discounted to their present value using a pre-tax discountrate that reflects current market assessments of time value ofmoney and the risks specific to the asset. For an asset that doesnot generate largely independent cash inflows, the recoverable

amount is determined for the cash-generating unit to which theasset belongs. Impairment losses are recognized in the statementof revenue and expenses.

If there is any indication at the financial position date thatan impairment loss recognized for an asset in prior years may nolonger exist or may have decreased, the Foundation estimates therecoverable amount of that asset and the carrying amount of theasset is adjusted to the recoverable amount resulting in the reversalof the impairment loss.

Revenue Recognition

Revenue is recognized to the extent that it is probable thatthe economic benefits will flow to the Foundation and the revenuecan be reliably measured. Interest income on funds held in trust,projects and investments are recognized as the interest accrues,tak ing into account the ef f ectiv e y ield on the asset.

Employee Benefits

The Foundation has a defined benefit pension plan covering allregular full-time employees. The pension plan is tax-qualified,noncontributory and administered by a trustee. The cost ofproviding benefits under the plan is determined using the projectedunit credit actuarial valuation method, which utilizes the normalcost, actuarial accrued liability and unfunded actuarial liabilityconcepts. Past service cost is amortized and actuarial gains andlosses are recognized over the expected remaining working livesof the employees covered by the plan.

Grants

Grants received for specific projects are initially recognizedas liabilities to the donors at the time the funds are received.These grants are recognized as revenue at the time project relatedexpenses are incurred. Excess of grants received over expensesincurred is shown as Unused Project Funds, a liability accountin the statements of financial position.

Foreign Currency Transactions

The accounting records of the Foundation are maintained inPhilippine pesos. Foreign currency transactions during the yearare translated into Philippine peso at exchange rates whichapproximate those prevailing transaction dates. Foreign currencymonetary assets and liabilities at the statement of revenue andexpense dates are translated into Philippine pesos at exchangerates which approximates those prevailing on that date. Exchangegains and losses are recognized in income for the period.

3. DE PO S I T S W I T H C O M M UN I T Y FI N A N C I A LINSTITUTIONS

This account represents placements in community financialinstitution such as development banks, microfinance institutions,cooperatives, cooperative banks and rural banks that pursuedevelopmental objectives. Regular time deposits and depositslines are placed with community f inancial institutions thatdemonstrate stable f inancial performance and comply withmicrofinance industry standards.

20

4.LOANS RECEIVABLE - PROJECTS

This account represents loans granted to the followingcooperatives and other organizations which earn interest at ratesranging from 11% to 13% per annum:

These loans are collateralized by certain real estate and chattelmortgages and assignment of certain inventory and receivablesof the respect iv e cooperat iv es and organiz at ions.

5. FUNDS HELD IN TRUST

The Foundation has trustee banks acting as fund managersto invest the Fund in combination of equities, securities and otherinstruments. The Fund is held by the following Trustee Banks asof December 31:

The Foundation has an investment committee whichcoordinates with trustee banks for the efficient and effectivemanagement of the Fund. The investment committee receivesreports regularly from the trustee banks which it uses to reviewthe valuation of the assets comprising the Fund. The balance ofthe allowance for probable loan losses and decline in value ofinvestments is based on the reports sent by these trustee banks.

6. PROPERTY AND EQUIPMENTA reconciliation of the carrying amounts at the beginning and end of 2003 and the gross carrying amounts and the accumulated of property and equipment are shown below:

2003

P 18,587,5005,775,5565,000,0005,000,0004,300,0004,000,0003,694,0003,000,0003,000,0002,263,4172,162,1842,137,5912,000,0001,655,0001,614,3401,411,2271,385,0001,265,4391,235,2941,191,0711,000,000

950,186775,000604,000480,000315,000304,599300,000139,673

--

75,546,077( 38,906,766)

P 36,639,311

CocoTechLIKAS, Inc.Juboken Enterprises, Inc.MASS-SPECCPrime Advantage CorporationCAVALCOAtikhaBMS Rural Bank, Inc.Rural Bank TalisayanHortonetLubis Enterprises Inc.DFFFC, Inc.Dairy Dev’t Foundation of the Phils, Inc.HDEAlay sa Kapatid International FoundationPITAD Foundation, Inc.Sandigan ng MagsasakaBonsol Integrated FarmsFaires Machine PhilippinesTagudin Multi-Purpose CooperativeIPIL Consumer Multi-Purpose CooperativeBINDQuadrant Engineering ServicesCART, Inc.IDEASJoy Joy Foods, Inc.Agarophyta Philippines, Inc.Misamis Oriental-Cagayan de Oro FederationPCART, Inc.New Rural Bank of San LeonardoABS-CBN Foundation

Allowance for probable losses

2002

P 18,587,5005,775,5565,000,000-4,300,000

4,000,0003,694,0005,000,000-2,300,0002,162,1842,137,591-2,205,0032,041,3421,803,9671,385,0001,500,0031,852,9411,266,0711,800,0001,005,416

575,000604,000779,500

-278,931300,000608,877

10,000,000960,000

81,922,886( 9,604,760)

P 72,318,126

Building and Office Transportation Furniture andImprovement Equipment Equipment Fixtures Land Total

Balance at January 1, 2003,net of accumulateddepreciation and

impairment P 5,515,064 P 715,013 P 689,046 P 57,248 P 32,758,000 P 39,734,371Additions 19,594 338,652 939,500 26,487 - 1,324,233Disposals - - ( 240,236 ) - - ( 240,236 )

Depreciation chargefor the year ( 429,863 ) ( 224,477 ) ( 124,363 ) ( 22,993 ) - ( 801,696 )

Balance at December 31, 2003, net of accumulated depreciation and

impairment P 5,104,795 P 829,188 P 1,263,947 P 60,742 P 32,758,000 P 40,016,672

January 1, 2003Cost P 7,662,269 P 2,212,201 P 1,453,256 P 667,520 P 32,758,000 P 44,753,246Accumulated

Depreciation ( 2,147,205 ) ( 1,497,188 ) ( 764,210 ) ( 610,272 ) - ( 5,018,875 )

Net carrying amount P 5,515,064 P 715,013 P 689,046 P 57,248 P 32,758,000 P 39,734,371

December 31, 2003Cost P 7,681,863 P 2,550,853 P 1,507,682 P 694,007 P 32,758,000 P 45,192,405Accumulated

depreciation ( 2,577,068 ) ( 1,721,665 ) ( 243,735 ) ( 633,265 ) - ( 5,175,733 )

Net carrying amount P 5,104,795 P 829,188 P 1,263,947 P 60,742 P 32,758,000 P 40,016,672

2003

P 163,185,309134,961,502127,057,891

41,545,66137,054,39924,395,398

528,200,160

( 13,407,689)( 3,213,450)

P 511,579,021

2002

P 133,374,80784,960,816

118,232,73753,575,24752,951,85977,696,901

520,792,367

( 22,557,165)( 2,588,789)

P 495,646,413

Bank of the Philippine IslandsEquitable PCI BankMetropolitan Bank and Trust CompanyDeutsche BankRizal Commercial Banking CorporationAB Capital and Investment Corporation

Allowance for:Decline in value of investmentsProbable losses

The Project Guarantees of P4,000,000 was established bythe Foundation to support small-scale projects implementedby the New Rural Bank of San Leonardo. Portion of theguarantee deposit earns a guarantee fee at the rate of 12% perannum both in 2003 and 2002, while the unused portion of theguarantee earns interest equal to the time deposit interest rateof 9% per annum in 2003 and 2002.

The investment in stocks represents investment in 92,100shares at P10 par, 10% cumulative preferred stock, Series "B"of Manila Electric Company.

The Foundation’s restricted deposit pertains to depositwith a closed bank for which an allowance for probable losseswas provided for in full on the outstanding balance as ofDecember 31, 2003 and 2002.

8. FUND GRANTS

In December 2002, the Foundation was awarded a grantamounting to US$103,386 by the Netherlands Organizationfor International Development Cooperation (Novib). Suchgrant is to be used for capacity building of grant-makingorganizations and for providing grants and services to projectsfocusing on service delivery and livelihood development ofpoor countries in the Philippines. A s of December 31, 2003,the Foundation had already received fund amounting toP5,369,869. The unused funds as of December 31 amountedto P4,349,101 in 2003 and P5,225,086 in 2002. These areincluded as part of Unused Project Funds in the statements offinancial position.

In June 2003 and 2002 and October 2001, the Foundationwas awarded grants amounting to US$9,311, US$30,000 andUS$31,260, respectively, by the Sasakawa Peace Foundation.Such grants are to be used to build a knowledge base of effectiveenvironmental strategies and technologies that maximize thecollaboration of civil society and business. A s of December31, 2003, the Foundation had already received funds amountingto P3,268,871. The unused funds as of December 31 amountedto P979,569 in 2003 and P1,146,737 in 2002. These are alsoincluded as part of Unused Project Funds in the statements offinancial position.

In April 1999, the Foundation has been awarded a grantamounting to US$280,000 by the Ford Foundation. Such grantis to be used in support of generating livelihoods and improvingdegraded agricultural ecosystems through the developmentand dissemination of coconut-based technologies. In A ugust2000, the Foundation has been awarded an additional grant ofUS$100,000 by the Ford Foundation as a supplemental grantrelative to the original agreement entered into by the Foundationand Ford Foundation. As of December 31, 2003, the Foundationhad already received P15,772,315 of the fund. The unusedfunds as of December 31 amounted to P864,586 in 2003 andP1,029,826 in 2002 which are presented as part of the UnusedProject Funds in the statements of f inancial position.

9. PROJECT AND DEVELOPMENTAL GRANTS

These represent grants provided for development activitiessuch as technical assistance, economic research, feasibilitystudies, product research and development, pilot production,capability building and other activities. The Foundationawarded grants to the following:

Small grants represent grants to various non-governmentorganizations for the same purpose as the projects but at anamount not in excess of P100,000. Small grant releases weregiven to 36 proponents and 43 proponents in 2003 and 2002,respectively. Development grants represent grants to institutionswith developmental objectives at an amount ranging fromP100,000 but not to exceed P500,000.Developmental grant releases in 2003 were given to 8proponents. Project grant to Swisscontact, a foundation basedin Zurich, Switzerland that supports the promotion of smalland medium enterprises, represents grants to various transportorganizations that promote Clear A ir Project.

10. EMPLOY EE BENEFITS

The Foundation maintains a tax-qualified, noncontributoryretirement plan that is being administered by a local trusteebank covering all regular full-time employees. Total retirementbenefit expense shown as part of Employee Benefits in thestatements of revenues and expenses amounted to P184,901in 2003 and P136,383 in 2002. As of December 31, 2003, thefair value of the plan assets amounted to P1,045,249. Theannual contribution to the retirement plan covers the currentservice cost and the amortization of the past service cost.

21

7. OTHER ASSETSThis account consists of:

2002

P 1,932,929--

542,50085,000

P 2,560,429

2003

P 1,999,660450,000444,020

--

P 2,893,680

Small grantsSwisscontactDevelopmental grantsAsian Institute of ManagementBMS Rural Bank Inc.

Equity - projectsProject guaranteesRestricted depositInterest receivable - projectsLoans and advances to officers and employeesInvestment in stocks, at costOthers (see Note 12)

A llowance for probable losses

2002

P 4,160,0004,000,0003,461,0463,521,1901,918,307

921,0001,171,078

19,152,621( 3,461,046)

P 15,691,575

2003

P 4,160,0004,000,0003,461,0462,387,9081,393,790

921,0001,345,566

17,669,310( 4,563,762)

P 13,105,548

11. OTHER EXPENSES

T his account is com posed of the f ollow ing:

12. INCOME TAXES

The Foundation is a corporation not organized for profit butoperated mainly for the promotion of social welfare ascontemplated under section 30(g) [formerly 26(g)] of the TaxCode, as amended and, therefore, exempt from the payment ofincome tax on income received by it as such organization.

However, it is subject to corresponding internal revenuetaxes imposed under the Tax Code on its income derived fromany of its properties, real or personal, or any activities conductedfor profit regardless of the disposition. There are no income taxexpense provided for these activities for the years ended December31, 2003 and 2002 as the Foundation incurred net operating losses(NOL) from these activities amounting to P6,895,516 in 2003,

P4,634,416 in 2002 and P9,178,602 in 2001. These NOL can beclaimed as deduction against its future taxable income derivedfrom any of its taxable activities for the next three consecutiveyears the NOL were incurred. The NOL amounting to P10,849,233incurred in 2000 expired in 2003.

The Foundation is required to pay the minimum corporateincome tax (MCIT), which is computed at 2% of gross incomederived from its profit activities, as defined under the taxregulations. The Foundation’s MCIT, shown as part of OtherAssets account in the statements of financial position (see Note6), amounted to P14,586 in 2003 and P3,414 in 2002 which canbe deducted against the regular income tax arising from its taxableactivities up to 2006 and 2005, respectively.

13. PROHIBITION AGAINST SHARING INCORPORATE ASSETS AND EARNINGS

Upon the dissolution and winding up of the affairs of theFoundation, no person or persons shall be entitled to share in thedistribution of any corporate assets. All members of the Foundationshall be deemed to have expressly agreed and consented thatupon such dissolution of the Foundation, whether voluntary orinvoluntary, the assets of the Foundation, after paying its liabilities,shall be conveyed and transferred to any qualified foundationengaged in activities in the Philippines substantially similar tothose of the Foundation’s or to the Republic of the Philippinesor any of its agencies, instrumentalities or political subdivisionsas the Board of Trustees may decide.

22

Security ServicesPublication and SuppliesStaff trainingRepairs and maintenanceTransportationTaxes and licensesMiscellaneous

2002

P 377,345321,257

65,946267,348

47,40245,42095,962

P 1,220,680

2003

P 495,770355,976183,460178,834

45,70344,696

168,792

P 1,473,231

FSSI STAFF

Emma Lim-Sandrino Executive DirectorAugusto Camba Associate Executive Director

Ariel Nones Senior Program OfficerArlen Barrameda Senior Program OfficerMariel Vincent Rapisura Senior Program OfficerMa. Eliz Tugade Senior Program OfficerReynante Maruquez Program OfficerAida Batingan Program Assistant

Emmanoelle V. Garalde Communication and MIS Officer

Erlinda Torres-Velarga Finance ManagerMyra Guiao-Paule BookkeeperRosalind Hernandez-Sichon Accounting Assistant

Avelina Lagmay Administrative OfficerZenon Cartagena Driver/MessengerJose Lastimoso Utility/MessengerFlor Cabatingan Utility

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Unit E #46 Samar Avenue corner Eugenio Lopez Street, South TriangleQuezon City Philippines 1103

Telefax: (632) 9288671/ (632) 4114702/ (632) 4114703Email: fssi@fssi.com.ph

Website: http://www.fssi.com.ph