UNIT PRICING POLICY OVERVIEW. Scope This policy applies to MAP Super and AEF except where noted otherwise.

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1 UNIT PRICING POLICY Scope This policy applies to MAP Super and AEF except where noted otherwise. MAP unit pricing policy incorporates the following key areas: Overview Unit Pricing Frequency Calculating the unit price formula Calculating the unit price - diagram Valuation approach Tax provisioning Reconciliations and controls Transaction costs Unit pricing methodology Resourcing and timetable Errors and compensation Suspension and resumption of unit pricing process Smoothing of returns OVERVIEW In considering this Unit Pricing Policy, MAP has had regard to the Joint ASIC and APRA guide Unit pricing Guide to good practice (updated August 2008). In setting this policy framework MAP recognises the following: Strategic unit pricing issues need to be properly considered to ensure we measure up to industry good practice; Adequate resources need to be allocated to the unit pricing function; MAP shall act honestly, diligently and impartially and in the best interests of all members when striking unit prices; MAP s risk management culture aims to ensure unit pricing errors are avoided or quickly identified and where there are errors, they shall be promptly and appropriately addressed; Robust systems and controls are required which are monitored and reported on; and The framework will be subject to regular internal monitoring and review and external audit. MAP embraces the following principles of good practice: Unit pricing policies and practice will be consistent with the governing documents for each product; Sound unit pricing policies and procedures will be implemented consistently and kept up-todate; Adjustments to unit price, if based on sound policy, are not errors; Judgement may be applied to develop estimates in some circumstances; and Information for unit holders should be accessible, timely and useful. Page 1 of 8

2 3.1.2 UNIT PRICING FREQUENCY Unit prices are calculated weekly as at close of business on Friday (or the last prior business day if Friday is a public holiday). This is referred to as week-end unit price. Unit prices are also calculated as at the last business day of each month. The week-end unit price is used to transact on the members database and the monthly unit price is used for internal and external reporting purposes CALCULATING THE UNIT PRICE FORMULA The value of the notional units in each investment option, and the unit price for each option, changes with the value of all of the underlying assets of the investment option you have chosen. Unit prices are calculated using the following steps: Step 1 Each week MAP calculates the net value of the assets attributable to each investment option Step 2 This value is then divided by the number of units on issue in the investment option. Step 3 This derives a unit price at which MAP values units for contributions, withdrawals, rollover and switches between investment options. Value of Assets Value of Liabilities Unit price = Number of units on Issue Each pool has a separate unit price and, for purposes of this formula, assets, liabilities and numbers of units are segregated between pools. Assets means all the Cash and Investments held by the Trustee upon the trusts of a Division and without limiting the generality of the foregoing includes: (a) amounts owing to the Division by debtors; (b) income accruing from Investments of the Division to the extent not included in the preceding paragraph of this definition; (c) the proceeds of sale of any unsettled Investments; (d) Deferred tax assets (DTA); and (e) all additions or accretions (if any) to the Division which arise by way of dividend interest premium or distribution or which are otherwise received and for the time being retained. Liabilities means: (a) unpaid administrative costs and expenses of the Division including the fees of the Trustee determined in respect of that Division; (b) accrued charges owing in respect of or in relation to any of the Investments of the Division; (c) deposits or margin calls (if any) required to be paid under any Futures Contract and any Put Option or Call Option; (d) any provisions for Tax which in the opinion of the Trustee should be taken into account; (e) such other liabilities or other expenditure which in the opinion of the Trustee should be taken into account and which have not otherwise been taken into account in determining the amount of the Liabilities of the Division in any of the preceding paragraphs of this definition; (f) Deferred tax liabilities (DTL) (g) amounts borrowed (if any) for the purpose of the Division and remaining owing together with interest thereon. Page 2 of 8

3 3.1.4 CALCULATING THE UNIT PRICE DIAGRAM Member / contributor Applications, redemptions, switch requests to MAP Unit Registry / Member Database Records of unit holders, number of units they hold in the fund and latest unit price to value units in the fund Asset Portfolio Fund assets by asset class - Number of units of fund managers - Fund Manager unit prices - Corporate action records Unit Price Calcuation System Calculate Net Assets Divide by number of units Determine Unit Price Investment Accounting System Assets - investments, income & distributions Liabilities - fee, tax, expenses, interest Website Publish price, returns, econcomic updates, annual reports VALUATION APPROACH Financial assets held by MAP Master Superannuation Plan and the MAP Australian Equity Fund are valued at net market value (NMV) and fair value respectively, with changes in NMV and fair value being recognised directly in the profit or loss for the year. Fair value or NMV is determined based on unit prices provided by investment managers. MAP does not hold any investments where fair value is based on internal valuation models or other techniques that require significant judgement and/or estimates. MAP does not typically have any material direct exposure to significantly distressed or frozen assets. The impact of any indirect exposure that is held in a managed fund is inherent in the quoted redemption prices of that fund. Unit prices are released at the completion of the pricing process where the following valuation approach is utilised: Asset Category Securities issued within Australia Securities issued outside Australia Investments in unlisted unit trusts Where unit prices are to be available after 2pm on business day of valuation date Valuation base: - Confirmed trades received before trade cut off time on valuation date - Security prices, yields as at close of market on valuation date Valuation base: - Confirmed trades received before trade cut off time on valuation date - Security prices, yields as at close of market on valuation date - Interest accrued to date - Exchange rates as at 4pm Sydney time on valuation date Valuation base: - Confirmed settlements received before trade cut off time on valuation date - Latest available price issued by 2pm on price calculation date Page 3 of 8

4 ACTUAL ( HARD ) AND ESTIMATED UNIT PRICEs The above valuation approach typically enables MAP to strike hard or actual week-end unit prices, as opposed to soft or estimated unit prices. Where actual data is not available, MAP may strike a soft unit price based on appropriate criteria such as index or other relevant market movements under the supervision of the Chief Investment Officer, Manager Finance and Administration and/or Investment Accountant. MAP does not apply soft prices as part of normal business operations i.e. estimates are only used when actual or hard prices are not available in a timely manner from Fund Manager to strike the current week unit price. Any estimated unit prices will be checked when the following week-end unit price is struck and any adjustments will be incorporated into that following unit price. These estimates generally do not constitute an error or give rise to member compensation issues, however where any adjustments are required reference should be made to Policy & Procedure 3.8 Unit Pricing Errors and Compensation FORWARD VS HISTORIC UNIT PRICING MAP uses forward, as opposed to historic, pricing to calculate unit prices. With forward pricing, applications to buy or sell units are processed using a price calculated and published after the application or withdrawal requests have been received. This reduces the potential for arbitrage. As unit prices are calculated less frequently than daily, the use of forward pricing means that applications are accumulated in the period leading up to the calculation of the unit price, and processed as soon as possible after calculating the price ( batching ) TAX PROVISIONING This section on Tax Provisioning applies to MAP Super only. The MAP AEF has a policy of fully distributing its taxable income, hence it has no tax liability. A provision for tax is included in the week-end unit price by processing an accrual of estimated tax for the unit pricing period. This provision is based on a fixed percentage of estimated year to date investment income for each pricing period. The tax provision also includes estimates for tax credit benefits (including imputation and foreign tax credits) for the pricing period. The estimated tax accrual is solely used for unit pricing purposes and will be reversed once the Tax Provision true-up for the corresponding period is processed, at least annually The tax provision in the week-end unit price will include negative movements for tax losses (realised and unrealised). The total YTD tax position is reviewed quarterly by management to ensure tax losses (if applicable) are reasonable and no capping or recognition eligibility issues arise. (refer MAP s Deferred Tax Asset Policy). On payment of the tax laibility, the accruals for the corresponding period are reversed. TREATMENT OF IMPUTATION CREDITS/FOREIGN TAX CREDITS Imputation credits reflect tax already paid by the company and provide a reduction in tax liability to the Fund. An estimate of imputation and foreign tax credits are included the weekly tax provision where a distribution is received by a fund manager. Imputation credits are calculated based on maximum allowable rebate i.e. 30/70. Foreign tax credits are calculated based on information relating to prior year and historical distribution components. TREATMENT OF CAPITAL GAINS Some assets are subject to capital gains tax. Where an asset is sold within 12 months of acquisition, the gain is generally taxable at 15%. Where it is sold more than 12 months after acquisition, the gain Page 4 of 8

5 is generally taxed at 10%. This assumes only current year losses are offset against current year gains. However, if MAP has carried forward CGT losses, then 100% of the gain is offset against losses before any tax or discounted tax rates are applied. The treatment of unrealised capital gains and losses is taxed at the discounted rate 10% based on the assumption of long term future asset turnover i.e. held for more than 12 months. DEFERRED TAX ASSETS (DTA) A Deferred Tax Asset (DTA) occurs when an entity makes a taxable loss. Whereas a taxable profit creates a liability to the ATO, a taxable loss creates a potential tax deduction in future years. MAP Super may from time to time have a DTA and the value of the DTA becomes part of the unit price calculation. Refer MAP s Deferred Tax Asset Policy for MAP s approach to recognising DTAs RECONCILIATIONS AND CONTROLS MOVEMENT IN UNIT PRICES MAP compares the movement in the weekly unit prices from Fund Managers against appropriate weekly index returns movement, provided by the CIO. Where the variation in the weekly price movement exceeds 2% or where the variation in the weekly price movement to the index returns exceeds 2%, further investigation is triggered to verify the accuracy of the unit prices. If Finance & Admin find no errors in the calculation, the unit prices will be referred to Investments for review before release. This reasonability check is embedded in the unit pricing calculation process. COMPLIANCE Weekly/monthly unit pricing for Super/AEF must be reviewed by the Manager before prices are issued on a timely basis to ensure that the compliance obligations of the business are being attended to. To ensure that this process occurs, there is a checklist for calculation of unit prices that must be signed by the preparer and reviewer. This checklist can be found in N:/Checklists & Forms/ and is signed off by preparer and reviewer electronically. UNIT PRICE ROUNDING Unit prices are calculated to an accuracy of 4 decimal places which, for current unit prices (in the region of $50), represents a maximum rounding error of % ($50 / ). Over the fund as a whole, the potential error is approximately $300 (on a fund size of $300mil). MAP systems have the capability of pricing to 6 decimal places. MAP monitors the potential size of this rounding error and, where the level of error becomes unacceptable due to changes in unit prices and fund size, MAP will reassess the number of decimal places used for its unit pricing TRANSACTION COSTS A buy/sell spread is the margin by which the issue and redemption prices differ from the unit price. This buy/sell spread may be imposed by funds to reflect the costs of purchase and sale of investments. It is fixed, based on the Trustee s estimate of the transactions costs incurred in buying and selling the underlying assets, which make up the Fund. These transaction costs include such items as brokerage. Page 5 of 8

6 MAP SUPER Most fund transactions can be met from the Fund s cash flows and therefore MAP has chosen not to levy a buy/sell spread for the MAP Superannuation Plan. However, the Trustee s underlying Investment Managers levy buy/sell spreads and the approximate effect of this is included in the Investment Costs per the PDS. MAP AEF A separate allowance for transactions costs is included in the calculation of the unit price i.e. application price and redemption price. Asset valuations do not include allowances for the costs of buying or selling assets. When members purchase units in the Fund, they pay the issue price, which is the unit price plus a buy spread. When they redeem units, they are paid the redemption price, which is the unit price less a sell spread. This buy/sell margin is fixed by MAP based on MAP s estimate of the transaction costs incurred in buying and selling the underlying assets which make up the Fund. MAP reserves the right to vary the margin from time to time UNIT PRICING METHODOLOGY TRANSACTIONS ON THE MEMBERS DATABASE MONEY IN Because unit prices are calculated weekly, money invested with MAP will receive next week end unit price that is after or on the date of investment with MAP. There will be discretion to depart from this process only for money received next business day after 30 June by post. For discretion to be exercised envelopes must be post marked 30 June. Notes: Received by MAP means banked into MAP s bank account or received by any staff member at any location. We differentiate between 30 June and other months for tax reasons only. MONEY BEING WITHDRAWN OR SWITCHED Withdrawals and pool switches will be processed at the next week end unit price that is on or after the date MAP receives written notification of withdrawal/switch. Normally, payment of withdrawals and notification of switches will take approximately 15 business days from receipt of withdrawal or switch form. (Note that SIS Regulation 6.35 requires payment within 30 days). MONTHLY UNIT PRICES Where the month-end falls on either Saturday or Sunday, the last week-end unit prices will also be taken to be the monthly unit prices for MAP Super. The difference between the last week-end unit prices in the month and the monthly unit prices (if calculated) would be immaterial. These slight differences are due to different unit prices at week-end and month-end for managed investments held by MAP Super. However, MAP Australian Equity Fund has a significantly different unit price at the last week-end of the month and at month-end due to the accrual of management and custodian fees at month-end only. General industry practice is that other fund managers accrue management and custodian fees on a daily basis. Given this, then the last week-end unit price in the month input for MAP AEF to MAP Super is the monthly unit price. All other unit prices for investment held by MAP Super are input at the week-end unit price. Page 6 of 8

7 PENSION TAX ADJUSTMENT MAP superannuation accounts are all invested through the MAP Pooled Superannuation Trust and, for each pool, a common unit price is used for all account types. Because the proportion of fund earnings relating to pension funds is tax free, a common unit price is not equitable to pension accounts which should have higher returns (to the extent that non-pension accounts incur a tax expense). In order to avoid this inequity, each time the fund is priced, pension fund members receive additional units referred to as a pension tax adjustment. The adjustment is calculated on a pool-by-pool basis based on the tax expense attributable to that pool multiplied by the proportion of pool funds attributable to pension accounts. Where a pool has positive taxable income, the add back of tax expense will result in a positive pension tax adjustment. Where a pool has a tax loss, the add back of negative tax expense will result in a negative pension tax adjustment RESOURCING AND TIMETABLE RESOURCING To ensure timely processing of unit prices, the following policies apply: The Senior Accountant, Investment Accountant and Accountant will be unable to take annual leave at the same time. The impact of public holidays will be considered as they arise, but normally it is unnecessary for Finance & Admin to work on public holidays. Should this be required, time in lieu will be applicable. As the availability of the AEF unit price directly impacts on the Super unit price, the AEF must be finalised by lunchtime of the 2 nd business day following week/month-end. To ensure that the Accountant and Investment Officer/Accountant can efficiently provide a unit price for either the AEF or Super, the Accountant will attend to the weekly AEF, monthly Super unit prices and the Investment Accountant/Officer will attend to the weekly Super, monthly AEF unit prices. In the absence of the Accountant or Investment Accountant, the Manager - Finance & Administration can assist in the calculation of unit prices. TIMETABLE Briefly, the timetable requirements for weekly/monthly unit pricing are as follows: Following COB Friday/ end of month Day 1 Bank Rec for AEF then Super completed by Finance Officer Day 2 AEF Unit Prices completed by Accountant & provided to Manager for review Day 2 AEF Unit Prices are published internally and on the website after COB. Day 4 Super Unit Prices completed by Investment Officer/Accountant Day 5 Super Unit Prices provided to Manager/Investment Accountant for review Day 5 Super Unit Prices are published internally and on the website after COB. Day 10 Super Withdrawals/Switches finalised/reviewed by Finance Officer and Accountant ERRORS & COMPENSATION Where an error is made in unit pricing and members have transacted during the period in which the price was incorrect, those members will have been inappropriately advantaged or disadvantaged. This is dealt with under Policy & Procedure 3.8 Unit Pricing Errors and Compensation. Page 7 of 8

8 SUSPENSION AND RESUMPTION OF UNIT PRICING PROCESS From time to time, it may be necessary to suspend unit pricing in situations where information is not available to properly price units, or where pricing units using available information may result in inequity between unitholders. Examples of this may include: Market price of underlying assets not being available. Asset markets becoming extremely volatile. Events cause by a force majeure Periods where distributions are being calculated by MAP or the underlying managers Refer to MAP s Liquidity Policy 8.23, Crisis Management Section D SMOOTHING OF RETURNS Smoothing is a term meaning the use of reserves to the reduce volatility of returns between periods. MAP s policy on smoothing is set out in Policy 8.21, Reserving for MAP Master Super Plan. Page 8 of 8