ANNUAL FINANCIAL STATEMENTS

Transcription

1 ANNUAL FINANCIAL STATEMENTS NAME OF RETIREMENT FUND: THE PENSION FUND OF THE UNIVERSITY OF THE FREE STATE FINANCIAL SERVICES BOARD REGISTRATION NUMBER: SOUTH AFRICAN REVENUE SERVICES APPROVAL NUMBER: 18/20/4/36680 For the period ended: 31 December 2008 CONTENTS Page Page A Regulatory information 1-3 HA Notes to the annual financial statements B Statement of responsibility by the Management Board 4 HB Report of the valuator C Statement of responsibility by I Report by the independent auditors to the principal officer 5 the Registrar of Pension Funds on factual findings D Report of the independent auditors 6-7 IA Schedule pertaining to annual financial E Report of the Management Board 8-11 statements F Statement of net assets and funds 12 IB Assurance report of the independent auditors to the Registrar of Pension G Statement of changes in net Funds assets and funds 13-14

2 Page 1 REGULATORY INFORMATION Registered office of the fund: Postal address: P O Box 339 Bloemfontein 9300 Physical address: George du Toit Administration Building UFS Bloemfontein 9301 Financial reporting periods to: Current: 31 December 2008 Previous: 31 December 2007 Management Board: Full name Prof J V du Plessis Dr N Bagarette Prof D A Viljoen Prof F P Retief Mr A van der Bijl Mr P J G Coetzer Prof T Verschoor Mr C R Liebenberg Prof L C Buys Capacity* Date appointed Date resigned C/E 1 December 2004 N/A E 1 December 2008 N/A E 1 December 2004 N/A E 1 December November 2008 M 1 December 2004 N/A M 1 December 2004 N/A M 1 December 2004 N/A M 1 December 2004 N/A P 1 December 2004 N/A * - 'A' denotes alternate * - 'C' denotes chairperson * - 'E' denotes employer appointed * - 'I' denotes independent * - 'M' denotes member elected * - 'P' denotes pensioner representative (appointed by management board) * - 'R' denotes appointed by the Registrar of Pension Funds * - 'S' denotes secundi Fund officers: Full name: Postal address: Physical address: Telephone number: address: Principal officer Mr A van der Bijl P O Box 339, Bloemfontein, 9300 George du Toit Administration Building, UFS, Bloemfontein, 9301 (051) arie@ufs.ac.za Monitoring person* Management Board P O Box 339, Bloemfontein, 9300 George du Toit Administration Building, UFS, Bloemfontein, 9301 (051) arie@ufs.ac.za *(In terms of section 13A of the Pension Funds Act in South Africa)

3 Page 2 REGULATORY INFORMATION (continued) Fund officers: (continued) Full name: Postal address: Physical address: Telephone number: Actuary/Valuator Mr A Lester Private Bag X30, Rondebosch, 7701 Great Westerford Building, Second Floor, No 240, Main Road, Rondebosch, 7700 (021) Auditors PricewaterhouseCoopers Inc. PO Box 818, Bloemfontein, Second Avenue, Bloemfontein, 9301 (051) Professional service providers: Benefit administrator Fund consultant Full name: ABSA Consultants and Actuaries ABSA Consultants and Actuaries (Pty) Ltd (Pty) Ltd Postal address: PO Box 12839, Brandhof, 9324 PO Box 12839, Brandhof, 9324 Physical address: c/o Henry Street and Donald Murray c/o Henry Street and Donald Murray Avenue, Bloemfontein, 9301 Avenue, Bloemfontein, 9301 Telephone number: Benefit administrator's (051) registration (051) number in terms of section 13B: 24/70 24/70 Fund Consultant's FAIS registration number: FSP 327 FSP 327 Full name: Postal address: Physical address: Telephone number: (021) Investment administrator's registration number in terms of section 13B: 24/31 Full name: Postal address: Physical address: Telephone number: Investment administrator's registration number in terms of section 13B: 24/34 Investment administrators Coronation Fund Managers P O Box 993, Cape Town, 8000 Coronation House, Boundary Terraces, 1 Mariendahl Lane, Newlands, 7700 Investment administrators Allan Gray Life Limited P O Box 51318, V&A Waterfront, Cape Town, 8002 Granger Bay Court, Beach Road, V&A Waterfront, Cape Town, 8001 (021) /403 Investment administrators Investment administrators RMB Asset Management Investec Asset Managers P O Box , Sandton, 2146 P O Box 1655, Cape Town, Merchant Place, 1 Fredman Drive, 36 Hans Strijdom Avenue, Sandton, 2196 Foreshore, Cape Town, 8001 (011) (012) /61

4 Page 3 REGULATORY INFORMATION (continued) Professional service providers: (continued) Investment administrators Investment administrators Full name: Postal address: Physical address: ABSA Asset Management P O Box 44952, Claremont, nd Floor, Swiss House, Claremont, Cape Town, 7708 N/A N/A N/A Telephone number: (021) N/A Investment administrator's registration number in terms of section 13B: 1997/017903/07 N/A Full name: Postal address: Physical address: Telephone number: FSB approval no: Risk insurer Risk Insurer Jacques Malan Risk Management Sanlam (Pty) Ltd P O Box 3950, Tyger Valley, 7536 P O Box 1, Sanlamhof, 7532 The Gihon, 4th Floor, Cnr Sportica & 2 Strand Road, Bellville, 7530 Bill Bezuidenhout Streets, Tyger Valley, 7530 (021) (021) Participating employers: The following employers participate in the fund in terms of the rules of the fund: University of the Free State Parexel (South Africa) (Pty) Ltd

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9 Page 8 SCHEDULE E REPORT OF THE MANAGEMENT BOARD 1. DESCRIPTION OF FUND 1.1. Type of fund In terms of Section 1 of the Income Tax Act, 1962 the fund is classified as a pension fund. The fund is a defined benefit fund (Option A and B) and a fixed contribution fund (Option C and D) Benefits Summary in terms of the rules of the fund The fund is a defined benefit and fixed contribution plan, provides lump sum payments and pensions to retirees and their dependants, as well as death benefits and withdrawal benefits Strategy of the Management Board towards unclaimed benefits In terms of the rules of the fund complete records, as prescribed, are maintained as from the date the member concerned exits the fund. In the event of such member being traced, the member's benefit is paid in full. This has been the fund's historical practice. Refer to note 9 to the financial statements In respect of unclaimed benefits, complete records, as prescribed, are maintained as from 1 December Contributions Description in terms of the rules of the fund Members' contributions. Members contribute at a rate of 7.5% and 8% of pensionable salary Employers' contributions. Participating employers contribute at a rate of 15% of pensionable salary Rule amendments Rule no Description and motivation Date of Board resolution Effective date Date registered by the Financial Services Board Date approved by the South African Revenue Services 8 Provision for late retirement 9 Investment choices 9 Unit pricing of fund assets 9 Provision for transfer of members of the Provident Fund 9 Provision for reserve 21/11/ /11/ /06/ /06/ /11/ /12/ /06/ /06/ /11/ /12/ /06/ /06/ /11/ /12/ /06/ /06/ /11/ /12/ /06/ /06/2008

10 Page 9 SCHEDULE E REPORT OF THE MANAGEMENT BOARD (continued) 1. DESCRIPTION OF FUND (continued) 1.4. Rule amendments (continued) Rule no Description and motivation Date of Board resolution Effective date Date registered by the Financial Services Board Date approved by the South African Revenue Services 10 Definition of entitled spouse 11 Remuneration of principal officer 12 Provision for spouse's pension 13 Beneficiaries 14 Equitable share and Unclaimed Benefits 05/06/ /06/ /06/ /06/ /06/ /08/ /06/ /06/ /11/ /12/ /02/ /03/ /06/ /01/ /02/ /03/ /06/ /12/ /02/ /03/ Reserves Refer to note 21 for reserves. 2. INVESTMENT REPORT 2.1. Investment strategy The fund's Management Board has formulated an investment strategy whereby the investments are managed according to the principles as set out below. This investment strategy complies with the provisions of Regulation 28 of the Pension Funds Act in South Africa General The fund's investment portfolios are with the following Investment Administrators: Coronation Fund Managers Allan Gray Life Limited RMB Asset Management Investec Asset Managers ABSA Asset Management Individual member choice (Option D only) Members may change their investment choices on an annual basis. Members may choose between the following investment portfolios: Long Term Capital Growth portfolio Stable portfolio Money Market portfolio Life Stage portfolio - Management Board default portfolio Unclaimed benefits Unclaimed benefits are invested Surplus apportionment allocations A nil-surplus apportionment scheme was noted on 19 October 2005 by the Financial Services Board.

11 Page 10 SCHEDULE E REPORT OF THE MANAGEMENT BOARD (continued) 2. INVESTMENT REPORT (continued) Reserve accounts Reserves are invested Management of investments The fund's investments consist of a money market portfolio with ABSA Asset Management and managed portfolios with Coronation Fund Managers, Allan Gray Life Limited, RMB Asset Management and Investec Asset Managers. The investment administrators have complete discretion as to the composition of their share of the portfolio within the boundaries allowed by their mandate and by the Pension Funds Act in South Africa. The Management Board meets at regular intervals to discuss the investment policy and to monitor the asset allocation and performance of the investment administrators against the investment strategy of the fund. The investment administrators are remunerated on a fee basis. The fair value of the fund s investments, administered by the investment administrators, at the end of the period was: Current period Previous period R R Coronation Fund Managers Allan Gray Life Limited RMB Asset Management Investec Asset Managers ABSA Asset management Total Value of Investments MEMBERSHIP Numbers at beginning of period Adjustments Additions Transfers in Transfers out Withdrawals Retirements Retrenchments Deaths Transfers (from)/to disability members Active members Paid-up members Disability members Pensioners Unclaimed benefits ( 1) ( 45) ( 43) ( 2) - ( 1) ( 5) - ( 4)

12 Page 11 SCHEDULE E REPORT OF THE MANAGEMENT BOARD (continued) 4. ACTUARIAL VALUATION A statutory actuarial valuation was undertaken at 1 January The valuation showed that the fund was more than 100% funded. The actuarial valuation of 31 December 2008 is in progress. The financial statements summarise the transactions and net assets of the fund. They do not take account of liabilities to pay pensions and other benefits in the future. In accordance with the rules of the fund, the actuarial position of the fund, which does take account of such liabilities, is examined and reported on by the actuary at intervals not exceeding three years. Refer to the report of the valuator on page SURPLUS APPORTIONMENT A nil-surplus apportionment scheme was noted on 19 October 2005 by the Financial Services Board. 6. HOUSING LOAN FACILITIES No loans, but guarantees to members, were granted in terms of rule and the provisions of section 19(5) of the Pension Funds Act in South Africa, and are secured by such members' withdrawal benefits. 7. INVESTMENTS IN PARTICIPATING EMPLOYERS The fund holds no investments in the participating employers. 8. SUBSEQUENT EVENTS No events subsequent to the year-end and this report were identified that materially influence these statements. 9. SIGNIFICANT MATTERS No significant matters occurred during the period under review.

13 Page 12 SCHEDULE F STATEMENT OF NET ASSETS AND FUNDS At 31 December 2008 ASSETS Notes R R Non-current assets Property, plant and equipment Investments Housing loan facilities Surplus improperly used receivable Current assets Transfers receivable Accounts receivable Contributions receivable Cash at bank Surplus improperly used receivable Total assets FUNDS AND LIABILITIES Members' funds and surplus account Members' individual accounts Accumulated Funds Amounts to be allocated Member surplus account Reserves Reserve accounts Revaluation reserve : Property, plant and equipment Total funds and reserves Non-current liabilities Employer surplus account Financial liabilities Provisions Unclaimed benefits Current liabilities Transfers payable Benefits payable - Current members Benefits payable - Former members Unclaimed benefits (current) Accounts payable Retirement fund taxation Total funds and liabilities

14 Page 13 SCHEDULE G STATEMENT OF CHANGES IN NET ASSETS AND FUNDS Notes Members' individual accounts & amounts to be allocated OR Accumulated funds Reserve Total accounts current period R R R R Total previous period Contributions received and accrued Contributions transferred from reserve accounts Contributions transferred from surplus accounts Surplus improperly utilised Re-insurance proceeds Net investment income 13.1 ( ) - ( ) Less: Allocated to unclaimed benefits Other income Less: ( ) - ( ) ( ) Re-insurance premiums ( ) - ( ) ( ) Administration expenses 14 ( ) - ( ) ( ) Retirement fund taxation ( ) Net income before transfers and benefits Transfers and benefits ( ) - ( ) ( ) Transfers from other funds Transfers to other funds Benefits 8 ( ) - ( ) ( ) Net income/(loss) after transfers and benefits (carried forward) ( ) - ( )

15 Page 14 SCHEDULE G STATEMENT OF CHANGES IN NET ASSETS AND FUNDS (continued) Notes Members' individual accounts & amounts to be allocated OR Accumulated funds Total previous period Total Reserve accounts current period R R R R Net income/(loss) after transfers and benefits (brought forward) ( ) - ( ) Funds and reserves Balance at beginning of period Allocated to unclaimed benefits Prior period adjustments Transfer between reserve accounts Investment return allocated Current members Former members Surplus and reserve accounts 21 ( ) Surplus apportionment Revaluation surplus: Property, plant & equipment Transfer between reserve accounts Employer reserve account Employer surplus account Member surplus account Allocations to/from surplus accounts Benefits to former members Surplus transfer payments Benefit enhancements - other Surplus transfers received Balance at end of period

16 Page 15 NOTES TO THE FINANCIAL STATEMENTS PRINCIPAL ACCOUNTING POLICIES The following are the principal accounting policies used by the fund, which are consistent with those of the previous year. Purpose and basis of preparation of financial statements The financial statements are prepared for regulatory purposes in accordance with the Regulations to the Pension Funds Act. The Regulations require that the basis of accounting applied by the pension funds comprise of general adherence to Generally Accepted Accounting Practice, as applied to retirement funds in South Africa, except for the requirements applicable to the: Disclosure of cash flow information Disclosure of prior year adjustments Presentation of consolidated financial statements in which investments in subsidiaries are consolidated in accordance with the standard on consolidated and separate financial statements. The financial statements are prepared on the historical cost and going concern basis, modified by the valuation of financial instruments to fair value. Financial instruments Measurement Financial instruments carried on the balance sheet include cash and bank balances, investments, receivables and payables. Financial instruments are initially measured at cost as of trade date, which includes transaction costs. Subsequent to initial recognition, these instruments are measured as set out below. Investments Held-to-maturity investments are measured at amortised cost using effective interest rates. Available-for-sale and held-for-trading investments are measured at fair value. The fair value of marketable securities is calculated by reference to Stock Exchange quoted selling prices at the close of business on the statement of funds and net assets date. Units in unit trusts are valued at the repurchase price. The value of unlisted shares and derivatives are determined by the Management Board using appropriate valuation methods. Kruger Rands are valued at market value. Insurance policies Linked policies Insurance policies linked to listed investments are valued at fair value, i.e. equivalent to market value of the underlying assets, as certified by the insurers concerned. Non-linked policies Guaranteed insurance policies are valued at fair value, i.e. equivalent to the guaranteed amount and non-vested bonuses, as certified by the insurers concerned. Non-vested bonuses are included in the fair value calculation to the extent that it is not expected that there will be significant variability in the value of non-vested bonuses. Accounts receivable Accounts receivable originated by the fund are stated at amortised cost less provision for doubtful debts. Cash and cash equivalents Cash and cash equivalents are measured at fair value.

17 Page 16 NOTES TO THE FINANCIAL STATEMENTS PRINCIPAL ACCOUNTING POLICIES (continued) Accounts payable Accounts payable are recognised at amortised cost, namely original debt less principal payments and amortisations. Provisions Provisions are recognised when the fund has a present legal or constructive obligation as a result of past events, for which it is probable that an outflow of economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Where the effect of discounting to present value is material, provisions are adjusted to reflect the time value of money. Contributions Gross contributions are brought to account on the accrual basis except for voluntary contributions, which are recorded in the period in which they are received. Dividend income, insurance policy income and interest Interest is recognised on a time proportion basis, taking account of the principal outstanding and the effective rate over the period to maturity, when it is determined that such income will accrue to the fund. Insurance policy income and dividends are recognised when entitlement to revenue is established. Gains and losses on subsequent measurement Gains and losses on subsequent measurement to fair value of investments and of all other financial instruments are recognised in the net investment income during the period in which the change arises. Transfers to and from the fund Section 14 and 15B transfers to or from the fund are recognised on approval being granted by the Financial Services Board. Individual transfers are recognised when the individual member's transfer is received or paid. Comparatives Where necessary, comparative figures have been reclassified to conform to changes in presentation in the current period.

18 Page 17 NOTES TO THE FINANCIAL STATEMENTS 1. Property, plant and equipment (Not applicable) 2. Investments 2.1 Investment summary Local Foreign Total Total Fair value Amortised Categorised Current Previous Current cost per period period period Current IAS 39 period R R R R R R R Cash and deposits Fair value through Bills, bonds and securities Equities: - Equities with primary listing on JSE Equities with secondary listing on JSE Other foreign listed equities Unlisted equities Insurance Policies: - Market related policies Collective investment schemes Other Total profit or loss Fair value through profit or loss Fair value through profit or loss Fair value through profit or loss Fair value through profit or loss Fair value through profit or loss Fair value through profit or loss Fair value through profit or loss Fair value through profit or loss

19 Page 18 NOTES TO THE FINANCIAL STATEMENTS 2.2 Investments in participating employer/s (Not applicable) 2.3 Investment properties (Not applicable) 3. Housing loan facilities 3.1 Housing loans (Not applicable) 3.2 Housing loan guarantees The fund has granted guarantees to Peoples Bank (Nedbank) for loans granted to members. Guarantees amounting to R were renewable on 1 January The amount of the guarantee may not exceed 50% of the cash benefit that a member would receive if he or she had to terminate membership to the fund voluntarily, limited to instalments not being more than 25% of spendable income.

20 Page 19 NOTES TO THE FINANCIAL STATEMENTS 4. Accounts receivable R R Sundry debtors PAYE Transfers from other funds Number of members Applied for not yet approved A B C (A+B+C-D) At beginning Transfers Return on Assets (Contingency) of period approved transfers transferred R R R R R R At end of period In terms of section 14 Vista University Pension Fund The Provident Fund of the - University of the Free State Individual transfers Transfers approved Return on transfers Statement of changes in net assets and funds

21 Page 20 NOTES TO THE FINANCIAL STATEMENTS 6. Revaluation reserve - Property, plant and equipment (Not applicable) 7 Transfers to other funds (Not applicable) 8. Benefits 8.1 Benefits - current members A B C D E A+B+C-D-E At beginning of period Benefits for current period Return allocated Payments Transferred to unclaimed benefits At end of period R R R R R R Monthly pensions Lump sums on retirements Full benefit Lump sums before retirement Death benefits Withdrawal benefits Net benefit payments Benefits for current period Return allocated - Statement of changes in net assets and funds Benefits in terms of surplus apportionment (Not applicable)

22 Page 21 NOTES TO THE FINANCIAL STATEMENTS 9. Unclaimed benefits R R At beginning of period Transferred from benefits Benefits paid ( 7 658) - Balance at end of period Accounts payable R R Actuarial fees Administration fees Group Life premium Provision for audit fees Sundry creditors Retirement fund taxation R R Taxable income Less: Formulae reduction Retirement fund taxable amount Retirement fund relevant rate At beginning of period Retirement fund taxation Retirement fund taxation paid - ( ) At end of period Contributions Towards retirement Towards reinsurance and expenses Contributions received R R R R R At beginning of period At end of period Member contributions - received and accrued Employer contributions - received and accrued Additional voluntary contributions - members Towards retirement Towards re-insurance and expenses Statement of changes in net assets

23 Page 22 NOTES TO THE FINANCIAL STATEMENTS 13.1 Net investment income R R Income from investment Dividends Interest Income from insurance policies Other portfolios Adjustment to fair value ( ) ( ) Profit on sale of investments ( ) Less: Expenses incurred in managing investments ( ) ( ) ( ) Other income (Not applicable) 14. Administration expenses R R Actuarial fees Administration fees Audit fees Audit services Bank charges Electronic tax directive Fidelity Insurance Forex Administration FSB Levies Institute of Retirement Funds Investment advisor fees Investment choice fees Investment consultancy fees Office expenses Principal Officer Retirement Fund seminars Prior period adjustment - change in accounting policy (Not applicable) 16. Financial liabilities and provisions Financial liabilities (Not applicable) Provisions (Not applicable)

24 Page 23 NOTES TO THE FINANCIAL STATEMENTS 17. Risk management policies 17.1 Solvency risk Solvency risk is the risk that the investment returns on assets will not be sufficient to meet the fund's contractual obligations to members. Continuous monitoring by the Management Board and the fund's actuary takes place to ensure that appropriate assets are held where the fund's obligation to members is dependent upon the performance of specific portfolio assets and that a suitable match of assets exists for all other liabilities Credit risk Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation, and cause the fund to incur a financial loss. The Management Board monitors receivable balances on an ongoing basis with the result that the fund's exposure to bad debts is not significant. An appropriate level of provision is maintained Legal risk Legal risk is the risk that the fund will be exposed to a contractual obligation for which provision has not been made. Legal representatives of the fund monitor the drafting of contracts to ensure that the rights and obligations of all parties are clearly set out Cash flow risk Cash flow risk is the risk that future cash flows associated with monetary financial instruments will fluctuate in amount. In the case of a floating rate debt instrument, for example, such fluctuations result in a change in the effective interest rate of the financial instrument, usually without a corresponding change in its fair value. The Management Board monitors cash flows on a quarterly basis Currency risk Currency risk is the risk that the value of an instrument will fluctuate in rands owing to changes in foreign exchange rates. The fund's exposure to currency risk is mainly in respect of foreign investments made on behalf of members of the fund for the purpose of seeking desirable international diversification of investments. The Management Board monitors this aspect of the fund and limits it to 20% of total assets Liquidity risk Liquidity risk is the risk that the fund will encounter difficulty in raising funds to meet commitments associated with financial instruments. The fund's liabilities are backed by appropriate assets and it has significant liquid resources Market risk Market risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market prices or market interest rates. The Management Board limits market risk by diversifiying the investments across a variety of financial instruments.

25 Page 24 NOTES TO THE FINANCIAL STATEMENTS 17. Risk management policies (continued) 17.8 Investments Investments in equities are valued at fair value and are therefore susceptible to market fluctuations. 18. Promised retirement benefits The actuarial present value of promised retirement benefits, distinguishing between vested benefits and nonvested benefits is set out in the report of the valuator. 19. Related party transactions The following transactions between the participating employer and the fund occurred during the period: - Investments are managed with the aim of maximising the fund s returns while limiting risk to acceptable levels within the framework of statutory requirements. Continuous monitoring takes place to ensure that appropriate assets are held where the liabilities are dependent upon the performance of specific portfolios of assets and that a suitable match of assets exists for all non market related liabilities. The participating employers made contributions to the fund for members retirement and disability benefits and towards the fund s expenses to the value of R and R respectively (Refer note 12 of the financial statements). 20. Operating lease commitments Not applicable.

26 Page 25 NOTES TO THE FINANCIAL STATEMENTS 21. Surplus and reserve accounts Member/ pensioner surplus account Employer surplus account Total reserves Employer protection reserve Contingency reserve Operational reserve Risk reserve Pensioner reserve Other reserves R R R R R R R R R Balance at beginning of period ( ) Statement of changes in net assets Contributions received and accrued Net investment income Less: Re-insurance premiums Administration expenses Retirement fund taxation Net balance before transfers and benefits Transfers and benefits Transfers from other funds Transfers to other funds Benefits Net balance after transfers and benefits At end of period

27 Page 26 NOTES TO THE FINANCIAL STATEMENTS 22. Surplus improperly utilised receivable (Not applicable) 23. Amounts to be allocated (Not applicable)

28 Pension Fund of the University of Free State Annual Financial Statements as at 31 December 2007 Report of the Valuator Particulars (set out as specified) of the financial condition of the Fund at the last statutory valuation effective 31 December 2005: Item R million 1. Net assets available for benefits (a) The actuarial value of the net assets available for benefits, for the purposes of comparison with the actuarial present value of promised retirement benefits 3. The actuarial present value of promised retirement benefits (b) : Split as: Vested Benefits (c) Non-vested benefits Contingency reserve account balances 60.1 (a) (b) Net assets available for benefits are the fair value of the assets of the Fund less liabilities other than the actuarial present value of promised benefits. The actuarial present value of promised retirement benefits means: i. The actuarial liabilities in respect of past service benefits of active members, with due allowance for future salary increases where these affect the benefits in respect of past service, and with due allowance for increases at rates consistent with the pension increase policy of the fund (75% of inflation) for defined benefit members aged 50 and older, but only 30% of inflation for defined benefit members younger than 50. ii. The actuarial liabilities in respect of pensions in course of payment, including any contingent annuity payable on the death of a pensioner, with due allowance for increases at rates consistent with the pension increase policy of the fund (75% of inflation), but does not allow for any future management action that may be taken to protect the financial soundness of the Fund; and iii. Any other accrued liability (c) Vested benefits are benefits, the right to which, under the conditions of the fund, are not conditional upon continued employment.

29 5. Details of the valuation method adopted: (a) Benefit obligations Defined contribution active members: Member s Equitable Share Pensioners: actuarial present value of pensions in payment with implicit allowance for future pension increases in accordance with pension increase policy. Defined benefit active members: attained age method (since the defined benefit section of the Fund is closed to new entrants). (b) Contingency reserves Investment risk in respect of pensioners and active defined benefit members: additional amount required to match benefit obligations using index-linked bonds providing for future pension increases of 75% of inflation for all members. Contingency reserves were set up in accordance with the FSB Circular PF117, but only to the extent that assets were available to set up such reserves. The ideal and actual level of the contingency reserves are as follows: R million Ideal level Actual level Defined benefit in-service member contingency reserves Pensioner contingency reserves * Defined contribution contingency reserves Total contingency reserves * The total pensioner liability (best estimate actuarial reserve value plus solvency reserve) has been set equal to the Notional Pensioner Account. This amount (R338.3 million) is slightly in excess of the total reserve of R330.2 million which is required to cover the liability on the solvency reserve basis

30 6. Details of the actuarial bases adopted (a) Assets: Market value of assets (b) Benefit obligations Valuation basis item Defined benefit members before retirement Pensioners and defined benefit members in retirement Inflation assumption 4.00% 4.00% Gross investment return (net of manager fees) 7.75% 7.75% - Provision for general salary increases (merit salary increases per table below) - Provision for pension increases per policy (75% of inflation) (5.00%) N/a N/a (3.00%)* - Provision for retirement fund tax (1) (0.25%) N/a Net gap 2.50% 4.75% Mortality pre retirement SA 85/90 N/a post retirement PA (90) rated down by 2 years Resignations, ill-health retirement Per table below N/a * For defined benefit members under the age of 50 and Category C members (defined contribution members with a defined benefit underpin), provision was only made for pension increases of 1.25% p.a. Age Resignation rate per 1000 members over next 12 months Ill-health retirement rate per 1000 members over next 12 months

31 Age Retirement rates per 1000 members over next 12 months Age Average promotional salary increase at age % % % % % % % % (c) For purposes of prescribed minimum benefits: Valuation basis assumption Defined benefit members before retirement Defined benefit members in retirement Net return (earnings yield basis before retirement) 2.53% 4.75%* Mortality pre retirement SA 85/90 N/a post retirement PA (90) rated down 2 years Resignations, ill-health retirement Nil N/a * For defined benefit members under the age of 50 and Category C members (defined contribution members with a defined benefit underpin), the net discount rate used was 6.5% p.a.

32 (d) Contingency reserves Contingency reserves have only been established in respect of investment risk Valuation basis item DB members before retirement Pensioners and defined benefit members in retirement Gross yield on index-linked bonds 2.80% 2.80% Less provision for restructuring costs (0.55%) (0.55%) = Adjusted yield on index-linked bonds 2.25% 2.25% Add expected inflation 4.00% 4.00% Gross nominal long term yield assumed 6.25% 6.25% Less provision for general salary increases (merit salary increases per table above) Less provision for pension increases per policy (75% of inflation) (5.00%) N/a N/a 3.00% Net investment return assumed 1.25% 3.25% 7. Any other particulars deemed necessary by the valuator The pension increase policy of the Fund is to grant pension increases in line with 75% of headline inflation. Increases are subject to affordability. The historic funding basis of the Fund for such increases has been too weak and at this valuation basis the basis was strengthened to provide for increases in line with the policy (on a best estimate basis) for Category A and B defined benefit members aged 50 and older and pensioners. Subject to affordability the intention is the strengthen the basis for Category A and B defined benefit members younger than 50 to be in line with the increase policy. In the interim the Fund should communicate to such members that the current fund basis only makes provision for pension increases of some 30% of headline inflation. 8. A statement as to whether the Fund was in a sound financial condition for the purposes of the Pension Funds Act,1956: I confirm that the Fund is in a sound financial condition as at 31 December 2007.

33 A. Lester B.Sc., F.I.A. In my capacity as the Valuator to the Fund and a Director of Fifth Quadrant Actuaries & Consultants Cape Town 7 April 2008

34 Page 33 SCHEDULE I REPORT OF THE INDEPENDENT AUDITORS TO THE REGISTRAR OF PENSION FUNDS ON FACTUAL FINDINGS Scope We have performed the procedures agreed with you and enumerated below with respect to the accounting records of for the period ended 31 December 2008 as required in terms of section 15 of the Pension Funds Act of South Africa, (the Act). Our engagement was undertaken in accordance with the International Standard on Related Services (4400) Engagements to perform agreed-upon procedures regarding financial information. The responsibility for determining the adequacy or otherwise of the procedures agreed to be performed is that of the Registrar of Pension Funds. Procedures and Findings Our procedures and the corresponding findings thereon are set out in the table below Procedures We selected a sample of the lesser of 25 or 10% of participating employers and for the following three months: February 2008, July 2008 and December 2008, performed the following procedures: We agreed, in total, the data received by the administrator to the cash received by the fund. Findings The data received by the administrator agreed to the cash received by the fund. We inspected the bank statements, as appropriate, for Contributions were deposited with a registered bank in the date on which the cash was received to determine accordance with section 13 A of the Act. whether the contributions were deposited with a registered bank in accordance with section 13A of the Act and whether late payment interest has been raised in terms of regulation 33, where applicable. We inspected the accounting records of the fund to No arrear contributions existed at year-end, therefore determine whether amounts disclosed as arrear not applicable. contributions at period-end have been paid to the fund in accordance with the requirements of section 13A of the Act. We inspected the list of investments held by the fund The fund does not hold investments prohibited in for any investments prohibited in terms of terms of section 19(4) of the Act. section 19 (4) of the Act. 2.1 Where investments held in the participating employer Not applicable. exceeded 5%, we inspected the appropriate Financial Services Board approval. 2.2 We obtained written confirmations of investment The details of the confirmations received agreed to the balances and agreed details of the confirmations investment balances reflected in the general ledger. received to the investment balances reflected in the general ledger.

35 Page 34 SCHEDULE I REPORT OF THE INDEPENDENT AUDITORS TO THE REGISTRAR OF PENSION FUNDS ON FACTUAL FINDINGS Procedures and Findings (continued) 3. Procedures Findings We obtained the list of housing loans granted to No housing loans were granted to the members by the members by the fund in terms of section 19(5) of the fund, therefore not applicable. Act by the fund as at 31 December 2008 and performed the following procedures: 3.1 We agreed the loans on the above list to the Not applicable. corresponding account in the general ledger. 3.2 From the above list, we selected a sample of the Not applicable. lesser of 25 or 10% of housing loans. We determined whether the selected housing loans were granted in terms of the requirements of section 19(5) of the Act, in terms of the security provided and the interest rates applied to the loans. 3.3 If the fund issued more than 100 loans or the total Not applicable. principal debt of all outstanding loans exceeded R , we determined whether the fund was registered as a credit provider under the National Credit Act, 2005 (the NCA) and whether an assurance report had been issued to the National Credit Regulator in terms of section 16(1)(b) of the NCA and regulations 67 and 68 to the NCA We obtained the list of housing loan guarantees The total guarantees issued did not exceed the total granted to members by the fund in terms of section member individual fund credits. 19(5) of the Act as at 31 December We selected a sample of the lesser of 25 or 10% of housing guarantees from the list. For the sample selected, we compared the total for guarantees issued on behalf of the total of members to the total of member individual fund credits, to determine whether the total guarantees issued exceeded the total member individual fund credits allowed in terms of the Act and/or the rules of the fund. We obtained a list of other loans as at 31 December No other loans were granted during the period under 2008 and determined whether these loans were review, therefore not applicable. granted in terms of the requirements of section 19(5)B. 6. We obtained written confirmation from the fund's Fidelity insurance cover was in place throughout the insurer that fidelity insurance cover was in place period ended 31 December throughout the period ended 31 December 2008.

36 Page 35 SCHEDULE I REPORT OF THE INDEPENDENT AUDITORS TO THE REGISTRAR OF PENSION FUNDS ON FACTUAL FINDINGS Procedures and Findings (continued) Procedures We obtained the list of section 14 transfers to and from the fund throughout the period ended 31 December 2008, selected a sample of the lesser of 25 or 10% transfers in and the lesser of 25 or 10% transfers out, and performed the following procedures: Findings We agreed the section 14 transfers to and from the The section 14 transfers to the fund agreed to the fund to the approved section 14 documentation approved section 14 documentation received from the received from the Financial Services Board in respect Financial Services Board. of each transfer. We agreed the above list of section 14 transfers to the corresponding account in the general ledger. The list of section 14 transfers agreed to the corresponding account in the general ledger. We determined by inspection whether the transfers The transfers were received within 60 days of were received/paid within 60 days of approval and approval and growth and investment returns were whether the growth and interest return had been allocated form date of receipt. allocated from date of receipt/payment. In respect of unitised funds, we selected a sample of The conversion of transfers in was correctly the lesser of 25 or 10% of the members transferred calculated. and recalculated the purchase of units for the amount received using the unit price per the administration system on the date of receipt. (Where units were purchased after date of receipt investment return was included from the date of receipt to the date of purchase) We obtained a list of accumulated member credits as reflected on the administrator's member register as at 31 December 2008 and performed the following procedures: We agreed the closing balance on the list to the The closing balance on the list agreed to the corresponding account in the annual financial corresponding account in the annual financial statements as at 31 December statements as at 31 December We selected a sample of the lesser of 25 or 10 % of the members from the list and performed the following procedures: We agreed the member and employer contributions The member and employer contributions received for received for the selected members per the the selected members per the administrator s system administrator's system to information supplied by the agreed to information supplied by the participating participating employers for a sample of 3 months. employers for the 3 months selected.

37 Page 36 SCHEDULE I REPORT OF THE INDEPENDENT AUDITORS TO THE REGISTRAR OF PENSION FUNDS ON FACTUAL FINDINGS Procedures and Findings (continued) Procedures In respect of unitised investment products, we recalculated the conversion of the selected contributions at the unit price per the administration system on the dates that the contributions were invested and determined whether these units were correctly calculated and added to the existing units for the full period. Findings The conversion of contributions into units was correctly calculated and was correctly added to the members existing units. In respect of unitised investment products, we The conversion of the units was correctly calculated recalculated the conversion of units at the end of the and agreed to the amount on the member's record on period at the period end unit price and agreed the the member register. amount to the member's record on the member register. In respect of unitised investment products, we agreed The unit price did agree to the unit prices on the the period end unit price as authorised in terms of the administration system. rules of the fund to the unit prices on the administration system used to calculate the member credits. In respect of non-unitised investment products, we The return allocated to the member's fund credit on agreed the return allocated to the member's fund the administrator's records agreed to the return credit on the administrator's records to the return approved in accordance with a trustees' resolution or approved in accordance with a resolution of the the rules of the fund. Management Board or the rules of the fund. We selected a sample of the lesser of 25 or 10% of The portfolios were correctly switched and the correct members who switched between investment portfolios amount was switched in accordance with notification during the period and determined whether the of the member's election. Fees deducted were portfolios were correctly switched and that the correct approved by the Management Board. amount was switched in accordance with notification of the member's election. We inspected whether any fees deducted were approved by the Management Board. If a surplus apportionment scheme was approved by A nil-surplus apportionment scheme has been the FSB in the current period, we selected a sample of submitted to the Financial Services Board. the lesser of 25 or 10% from the surplus schedules and we agreed the allocation of the fund surplus of the scheme to the individual allocation in the member records per the administration system.

38 Page 37 SCHEDULE I REPORT OF THE INDEPENDENT AUDITORS TO THE REGISTRAR OF PENSION FUNDS ON FACTUAL FINDINGS Procedures and Findings (continued) Procedures We agreed the opening balance to the prior year financial statements. We obtained a list of lump sum benefits reflected as expenses in the fund's Statement of Changes in Net Assets and Funds and performed the following procedures: Findings For unitised investment products where member The values of investments specified be the members portfolios are backed by specific portfolios, we agreed investment choice agreed to the members liabilities the values of investments specified by the members per product for that choice. investment choice to the members liabilities per product for that choice and inspected the accuracy of reconciling items. We inspected the most recent statutory valuation In accordance with the valuation report, the fund was report to determine whether the fund was underfunded. For under-funded funds we determined not under funded. whether a scheme, as required in terms of section 18 of Pension Fund Act in South Africa, has been implemented to remedy the shortfall. We obtained the analysis of the movements in the fund's reserve accounts from the financial statements and performed the following procedures: The opening balance agreed to the prior period financial statements. We inspected the rules of the fund to determine The movements in the Fund's reserve account were in whether the nature of the movements in the fund's terms of the rules of the fund. reserve accounts were in terms of the rules of the fund and the Act. We agreed the list to the respective general ledger benefit expense accounts. We selected a sample of the lesser of 25 benefits or 10% of the total benefit expenses from the list and performed the following procedures: The list agreed to the respective general ledger benefit expense accounts We agreed the claim to the applicable, authorised supporting documentation. The claim agreed to the applicable, authorised supporting documentation.