EGISTATION NUMBE 12/8/31608/1 ANNUAL FINANCIAL STATEMENTS FO THE EPOTING PEIOD ENDED 31 DECEMBE 2005
ANNUAL FINANCIAL STATEMENTS For the reporting period ended 31 December 2005 Financial Services Board registration number: 12/8/31608/1 South African evenue Services approval number: 18/20/4/36261 SCHEDULE CONTENTS PAGE A egulatory Information 3 B Statement of esponsibility by the Board of Trustees 8 C Statement of esponsibility by the Principal Officer 10 D eport of the Independent Auditors 11 E eport of the Board of Trustees 12 F Statement of Net Assets and Funds 16 G Statement of Changes in Net Assets and Funds 17 HA Notes to the Annual Financial Statements 18 HB eport of the Valuator 30 I eport of the Independent Auditors to the egistrar of Pension Funds on Factual Findings IA Schedule pertaining to Annual Financial Statements 37 IB Assets held in Compliance with egulation 28 and Assurance eport of the Independent Auditors to the egistrar of Pension Funds 32 46 2
SCHEDULE A egulatory Information egistered office of the fund Postal address: P O Box 652071 Benmore 2010 South Africa Physical address: 10 Torsvale Crescent Torsvale Park La Lucia idge Office Estate La Lucia KwaZulu-Natal 4051 South Africa Financial reporting periods Current period: 01/01/2005 to 31/12/2005 Previous period: 01/01/2004 to 31/12/2004 Board of trustees Capacity Date appointed Date resigned Employer appointed trustees H Clarkson T Jones S D Maharaj C Mitchell Alternate 21 November 2005 M Murray Alternate 21 November 2005 Palmer 21 November 2005 I A S Vally Member elected trustees de Kadt S Higgins-Opitz Alternate 01 May 2005 K Hodnett J D Krige Suchipersadh Alternate 01 May 2005 J Swart Chairperson T Tenza Alternate 30 April 2005 P M van Uytrecht 3
SCHEDULE A egulatory Information Fund officers Principal officer Name: J D Krige Postal address: University of KwaZulu-Natal Durban KwaZulu-Natal 4041 South Africa Physical address: University of KwaZulu-Natal etirement Fund c/o School of Mathematics University of KwaZulu-Natal Westville KwaZulu-Natal 4041 South Africa Telephone number: +27 (0)31 260 1036 Email address: krige@ukzn.ac.za Date appointed: 01 January 1995 Monitoring person Name: J D Krige Postal address: University of KwaZulu-Natal Durban KwaZulu-Natal 4041 South Africa Physical address: University of KwaZulu-Natal etirement Fund c/o School of Mathematics University of KwaZulu-Natal Westville KwaZulu-Natal 4041 South Africa Telephone number: +27 (0)31 260 1036 Email address: krige@ukzn.ac.za Date appointed: 01 January 1995 4
SCHEDULE A egulatory Information Professional service providers Valuator Name: Qualifications: Organisation: M Hayler BSc (Hons), FIA Alexander Forbes Financial Services (a division of Alexander Forbes Group (Proprietary) Limited) Postal address: P O Box 782 Umhlanga ocks KwaZulu-Natal 4320 South Africa Telephone number: +27 (0)31 573 8000 Physical address: 10 Torsvale Crescent Torsvale Park La Lucia idge Office Estate La Lucia KwaZulu-Natal 4051 South Africa Auditors Full name: Qualifications: Postal address: Private Bag X6 Gallo Manor 2052 South Africa Deloitte & Touche Chartered Accountants (SA) egistered Accountants and Auditors Physical address: Deloitte Place The Woodlands 20 Woodlands Drive Woodmead Sandton 2196 South Africa Telephone number: +27 (0)11 806 5000 Benefit administrators Full name: Alexander Forbes Financial Services (a division of Alexander Forbes Group (Proprietary) Limited) Section 13B registration number: 24/65 Postal address: P O Box 782 Umhlanga ocks 4320 KwaZulu-Natal South Africa Physical address: 10 Torsvale Crescent Torsvale Park La Lucia idge Office Estate La Lucia KwaZulu-Natal 4051 South Africa Telephone number: +27 (0)31 573 8000 5
SCHEDULE A egulatory Information Fund consultants Name: Alexander Forbes Financial Services (a division of Alexander Forbes Group (Proprietary) Limited) FAIS registration number: 1177 Postal address: P O Box 782 Umhlanga ocks KwaZulu-Natal 4320 South Africa Physical address: 10 Torsvale Crescent Torsvale Park La Lucia idge Office Estate La Lucia KwaZulu-Natal 4051 South Africa Telephone number: +27 (0)31 573 8000 Investment administrators Full name: Allan Gray Limited Section 13B registration number: 24/69 Postal address: P O Box 51318 V&A Waterfront Cape Town 8020 South Africa Physical address: Granger Bay Court Beach oad V&A Waterfront Cape Town 8001 South Africa Telephone number: +27 (0)21 415 2300 Full name: Investec Asset Management (Proprietary) Limited Section 13B registration number: 24/61 Postal address: P O Box 1655 Cape Town 8000 South Africa Physical address: 5th Floor Norwich on St George's 5 St. George's Mall Cape Town 8001 South Africa Telephone number: +27 (0)21 416 2000 6
SCHEDULE A egulatory Information Full name: Investment Solutions Limited Section 13B registration number: 24/217 Postal address: P O Box 786055 Sandton 2146 South Africa Physical address: Investment Solutions Office Park 63 Wierda oad East Wierda Valley Sandown 2196 South Africa Telephone number: +27 (0)11 505 6000 Participating employer The following employer participates in the fund in terms of the rules of the fund: University of KwaZulu-Natal and Associated Employers 7
SCHEDULE B Statement of esponsibility by the Board of Trustees esponsibilities The board of trustees hereby certify to the best of their knowledge and belief that, during the period under review, in execution of their duties they: ensured that proper registers, books and records of the operations of the fund were kept, inclusive of proper minutes of all resolutions passed by the board of trustees; ensured that proper internal control systems were employed by or on behalf of the fund; ensured that adequate and appropriate information was communicated to the members of the fund, informing them of their rights, benefits and duties in terms of the rules of the fund; took all reasonable steps to ensure that contributions were paid timeously to the fund or reported where necessary in accordance with Section 13A and egulation 33 of the Pension Funds Act in South Africa; obtained expert advice on matters where they lacked sufficient expertise; ensured that the rules, operation and administration of the fund complied with the Pension Funds Act, the Financial Institutions (Protection of Funds) Act, and all other applicable laws in South Africa; ensured that fidelity cover deemed adequate and in compliance with the rules of the fund was maintained; and ensured that investments of the fund were implemented and maintained in accordance with the fund's investment strategy. Approval of the annual financial statements The annual financial statements of the University of Kwazulu-Natal etirement Fund are the responsibility of the board of trustees. The board of trustees fulfils this responsibility by ensuring the implementation and maintenance of accounting systems and practices adequately supported by internal controls. These controls, which are implemented and executed by the fund and/or its benefit administrators, provide reasonable assurance that: the fund's assets are safeguarded; transactions are properly authorised and executed; and the financial records are reliable. The annual financial statements set out on pages 12 to Error! Bookmark not defined. have been prepared for regulatory purposes in accordance with: the basis of accounting applicable to retirement funds in South Africa as indicated in the principal accounting policies contained in the notes to the financial statements on pages 18 20. the financial rules of the fund; and the provisions of the Pension Funds Act in South Africa. These financial statements have been reported on by the independent auditors, who were given unrestricted access to all financial records and related data, including minutes of all relevant meetings. The board of trustees believes that all representations made to the independent auditors during their audit were valid and appropriate. The report of the independent auditors is presented on page 11. 8
SCHEDULE B Statement of esponsibility by the Board of Trustees These financial statements: were approved by the board of trustees on 31 December 2005; are certified by them to the best of their knowledge and belief to be correct; fairly represent the net assets of the fund at 31 December 2005 as well as the results of its activities for the period then ended; and are signed on behalf of the board of trustees by: J Swart Chairperson Pietermaritzburg H Clarkson Board Member Durban S D Maharaj Board Member Durban 9
SCHEDULE C Statement of esponsibility by the Principal Officer I confirm that for the period under review the University of Kwazulu-Natal etirement Fund has lodged with the egistrar of Pension Funds all such returns, statements, documents and any other information required in terms of the Pension Funds Act in South Africa. J D Krige Principal Officer Durban 10
SCHEDULE D eport of the Independent Auditors to the Trustees of University of Kwazulu-Natal etirement Fund We have audited the financial statements of the University of Kwazulu-Natal etirement Fund set out on pages 122 to Error! Bookmark not defined.9 for the period ended 31 December 2005. These financial statements are the responsibility of the board of trustees. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in these financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the trustees, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. The financial statements are prepared for regulatory purposes on the basis of accounting applicable to retirement funds in South Africa as indicated in the principal accounting policies contained in the notes to the financial statements on pages 18 20. In our opinion, these financial statements present fairly, in all material respects, the net assets of the fund at 31 December 2005 and the results of its activities for the period then ended in accordance with the basis of accounting applicable to retirement funds in South Africa, the financial rules of the fund and the requirements of the Pension Funds Act in South Africa. Deloitte & Touche Per: D Munu Partner Johannesburg 11
SCHEDULE E eport of the Board of Trustees 1. Description of the fund Type of fund In terms of Section 1 of the Income Tax Act, 1962 the fund is classified as a provident fund. The fund is a defined contribution fund. Benefits Fund benefits The fund provides retirement and other benefits for employees and former employees of the employer, and benefits in the event of their death. Unclaimed Benefits If a benefit due under the fund is not claimed within one year from the date on which it became due for payment, it will remain in a separate account against the name of the beneficiary until claimed or dispensed with in terms of prevailing legislation. Contributions Members' contributions Members do not contribute to the Fund. Employers' contributions The participating employer contributes a total of 22,5% of members' fund salaries of which a minimum of 17,5% is applied to members' retirement funding benefits, the balance of 5% being available to finance risk benefits and administration expenses. Any portion of this balance not required for these purposes is applied to members' retirement funding benefits. ule amendments ule amendment no. Date of board of trustees' resolution Effective date Date registered by the Financial Services Board Date approved by South African evenue Services ule amendment 2 08/06/2005 01/06/2005 11/07/2005 19/08/2005 Description and motivation of rule amendments ule amendment 2 Provided for the appointment of an employer trustee on a rotational basis and for the term for all trustees to be extended from 2 years to 3 years. Only the significant rule amendments have been disclosed above. All rule amendments are available for inspection at the registered office of the fund. 12
SCHEDULE E eport of the Board of Trustees eserves eserve Account At 31 December 2005, an Unallocated Surplus eserve Account existed in terms of the rules of the fund. The amount, if any, standing to the credit of this reserve account, less any costs and expenses specifically arising as a result of the fund's compliance with the Pension Funds Second Amendment Act, Act No. 39 of 2001, was subject to apportionment in terms of Section 15B of the Act. The reserve account has had a zero balance since 31 December 2003 and, subsequent to year end, has been removed by a change to the rules of the fund. 2. Investments Investment strategy The investment strategy of the fund is set by the board of trustees after taking due consideration of the advice of the fund's investment and other professional advisors. The investments are managed according to the following principles: General principles The general investment principles of the fund, in operation at the reporting date, are to achieve a real long term investment return to provide a substantial contribution to the retirement funding of members and to limit the risk of capital depreciation through a diversified investment portfolio (see annexure A). The investment principles are conducted through direct and indirect investments in collective schemes and insurance policies. For the year ended 31 December 2005 the trustees adopted the following policy: - 50% of net contributions to Allan Gray asset Management and - 50% of net contributions to Investec Asset Management (Proprietary) Limited Unclaimed benefits These are invested with Investment Solutions Limited in their Banker portfolio. Management of investments It is the fund's policy to mandate investment administrators to manage the fund's investments in accordance with the fund's investment strategy. Investment administrators are granted complete discretion as to the management and composition of the investment portfolios subject to their mandate and the limitations imposed by the Pension Fund Act in South Africa. Investment administrators are selected on their performance, sector or specialist knowledge, professional competence and ability to deliver on the fund's investment strategy. Investment administrators are remunerated on a basis of fee payments which are deducted from income earned. The board of trustees meets regularly to (i) discuss and if necessary review the investment strategy, (ii) discuss and if necessary review the investment management policy, and (iii) monitor the asset allocation and performance of the investment administrators against the investment strategy of the fund. 13
SCHEDULE E eport of the Board of Trustees The fair value of the fund's investments, administered by the investment administrators at the end of the period is: Current period Previous period Allan Gray Investment Managers 458 110 527 320 501 490 Investment Solutions Limited 43 024 062 48 711 733 Investec Asset Management (Proprietary) Limited 441 766 871 335 577 901 Total investments managed by investment administrators 942 901 460 704 791 124 3. Membership Active members At beginning of period 2 442 Additions 133 Less: Withdrawals 72 Deaths 9 etirements 20 Adjustments 52 At end of period 2 422 Adjustments Late withdrawals 26 Late retirements 25 Late death 1 Unclaimed benefits At beginning of period 205 Less: Settled in full 1 At end of period 204 4. Actuarial valuation In terms of regulations under the Pension Funds Act in South Africa, the egistrar has withdrawn any existing valuation exemption. These funds are now required to submit an actuarial valuation at the end of the reporting period following 7 December 2003. The surplus apportionment date of the fund has been set as at 31 December 2003. 14
SCHEDULE E eport of the Board of Trustees 5. Surplus apportionment Nil surplus The surplus apportionment date of the fund is 31 December 2003. The trustees, in consultation with the valuator, have determined that there is no surplus to be apportioned. The nil return was submitted to the egistrar on 26 May 2005. The egistrar accepted the nil return on 09 February 2006. 6. Housing loan facilities Housing loan guarantees The fund has granted housing loan guarantees in terms of rule 13.3.2 of the fund and Section 19(5) of the Pension Fund Act in South Africa for the defined contribution members of the fund. Each loan is secured by the withdrawal benefit of the respective member. 7. Investments in participating employer The fund holds no investments in the participating employer. 8. Subsequent events Since the end of the period the following significant events have occurred. Settlement offer for inappropriate disclosure of fees The fund administrator, Alexander Forbes, performs the practice of bulking of the fund current accounts, which improves the interest rates which are paid to funds on the balances in their current accounts. The fees paid to the administrator by the banks was historically not properly disclosed. The administrator ceased to earn income for this practice in September 2004. Announcements have been made by Alexander Forbes that settlement amounts will be paid to the affected funds, to compensate each fund for the nondisclosure of fees. A settlement offer of 1 930 709 has been made to the Fund. The offer is currently under consideration by the trustees. Closure of the Unallocated Surplus eserve Account The unallocated surplus eserve Account maintained by the fund has been closed by means of a rule change which, subsequent to year end, has been duly registered with the relevant authorities. 15
SCHEDULE F Statement of Net Assets and Funds At 31 December 2005 ASSETS Notes Current period Previous period Non current assets Investments 1 942 901 460 704 791 124 942 901 460 704 791 124 Current assets Accounts receivable 3 139 285 297 351 Contributions receivable 4 6 609 480 6 139 191 Cash at bank 13 505 043 5 194 091 20 253 808 11 630 633 Total assets 963 155 268 716 421 757 FUNDS AND LIABILITIES Members' funds Members' individual accounts 900 144 839 682 247 633 Amounts to be allocated 11 4 964 267 0 905 109 106 682 247 633 Total funds and reserves 905 109 106 682 247 633 Non-current liabilities Unclaimed benefits 5 2 114 967 1 988 856 2 114 967 1 988 856 Current liabilities etirement fund taxation 6 256 617 256 988 Benefits payable 7 55 538 120 31 790 060 Accounts payable 8 136 458 138 220 55 931 195 32 185 268 Total funds and liabilities 963 155 268 716 421 757 16
SCHEDULE G Statement of Changes in Net Assets and Funds For the reporting period ended 31 December 2005 Notes Members' individual accounts and amounts to be allocated Members' surplus account eserve accounts Current period Previous period Contributions received and accrued 4 79 686 663 0 0 79 686 663 75 730 153 Net investment income 9 228 458 009 0 0 228 458 009 125 598 100 Net income before expenses 308 144 672 0 0 308 144 672 201 328 253 Less: Administration expenses 10 1 333 850 0 0 1 333 850 1 252 235 etirement fund taxation 6 3 495 892 0 0 3 495 892 2 986 145 Net income before transfers and benefits 303 314 930 0 0 303 314 930 197 089 873 Transfers and benefits Transfers from other funds 0 0 0 0 274 024 Benefits 7 (79 805 721) 0 0 (79 805 721) (45 523 627) Net income before funds and reserves 223 509 209 0 0 223 509 209 151 840 270 Funds and reserves Balance at beginning of period 682 247 633 0 0 682 247 633 530 407 363 Net income before net investment return allocated 905 756 842 0 0 905 756 842 682 247 633 Net investment return allocated Benefits payable current members 7 (490 058) 0 0 (490 058) 0 Unclaimed benefits 5 (157 678) 0 0 (157 678) 0 Balance at end of period 905 109 106 0 0 905 109 106 682 247 633 17
SCHEDULE G Statement of Changes in Net Assets and Funds For the reporting period ended 31 December 2005 Basis of preparation The financial statements are prepared for regulatory purposes in accordance with the egulations of the Pension Funds Act in South Africa. The regulations require that the basis of accounting comprise Generally Accepted Accounting Practice, as applied to retirement funds in South Africa, except for the following requirements: 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 and presented on the going concern, accrual, historical cost and fair value basis. The financial statements are measured and presented in the functional currency. Principal accounting policies The following are the principal accounting policies adopted and applied consistently for similar transactions, other events and circumstances for the reporting period, and are consistent in all material respects with those applied to the previous period by the fund. Investments Investments in financial instruments A financial instrument is any contract that gives rise to both a financial asset of one entity and a financial liability or equity instrument of another entity. A financial asset or a financial liability is recognised when its contractual arrangements becomes binding. Investments in financial instruments are classified and measured as follows: Investment Classification Carrying value Equities: JSE - primary listing At fair value through Net Investment Income Fair value JSE - secondary listing At fair value through Net Investment Income Fair value Foreign listed equities At fair value through Net Investment Income Fair value Unlisted equities At fair value through Net Investment Income Fair value Collective investment schemes At fair value through Net Investment Income Fair value Bills, bonds and securities At fair value through Net Investment Income Fair value Insurance policies: Non-linked policies At fair value through Net Investment Income Fair value Linked policies At fair value through Net Investment Income Fair value Cash and deposits At fair value through Net Investment Income Fair value At fair value through statement of changes in net assets and funds (net investment income) A financial asset at fair value through the statement of changes in net assets and funds is recognised on acquisition using trade date accounting. Upon initial recognition it is designated at fair value through the statement of changes in net assets and funds. 18
SCHEDULE G Statement of Changes in Net Assets and Funds For the reporting period ended 31 December 2005 Carrying value A financial asset at fair value through the statement of changes in net assets and funds is measured at fair value, which is the fair value without any deduction for transaction costs that may be incurred on sale or other disposal. Transaction costs on acquisition are expensed on occurrence through the statement of changes in net assets and funds. Fair value is determined as follows: Listed investments Investments listed on a recognised stock exchange are valued by reference to stock exchange quoted selling prices at the close of business on the reporting date. Unlisted investments Unlisted equity investments are calculated by the board of trustees, with reference to the directors' valuation as at the end of the reporting period. Linked insurance policies Linked insurance policies are valued at the equivalent to the market value of the underlying assets as certified by the investment insurers concerned. Non-linked insurance policies Non-linked insurance policies are valued at the equivalent of the guaranteed amount and bonuses as certified by the insurer concerned. Non-vested income is included in the valuation. Collective investment schemes Collective investment schemes are valued at the repurchase price. Cash and deposits Cash and deposits are valued at market value. Transfers from other funds Individual transfers from other funds Individual transfers are recognised when the individual member's transfer value is received. Other financial instruments Financial instruments other than investments and transfers to and from other funds are recognised at amortised cost. Other financial assets are tested for impairment annually and adjusted for any impairment write offs and reversals. Contributions Contributions are brought to account on the accrual basis. Dividend income Dividend income is recognised when the right to receive payment is established. 19
SCHEDULE G Statement of Changes in Net Assets and Funds For the reporting period ended 31 December 2005 Insurance policy income Insurance policy income is recognised when the right to receive payment is established. Interest income Interest income 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. Comparatives Where necessary, comparative figures have been reclassified to conform to changes in presentation in the current reporting period. 20
SCHEDULE HA Notes to the Annual Financial Statements 1. Investments Investment summary Local Foreign Current period Previous period At fair value Equities: Equities with primary listing on JSE 573 299 110 0 573 299 110 0 Equities with secondary listing on JSE 38 784 332 0 38 784 332 0 Collective investment schemes 123 516 070 83 995 610 207 511 680 0 Bills, Bonds and Securities 59 824 336 0 59 824 336 0 Insurance policies Non-linked policies 38 399 888 4 319 779 42 719 667 46 472 116 Linked policies 304 394 0 304 394 658 319 008 Cash and cash deposits 20 457 941 0 20 457 941 0 854 586 071 88 315 389 942 901 460 704 791 124 2. Housing loan facilities Housing loan guarantees The fund may provide guarantees to financial institutions to secure housing loans for its members. The guarantees are limited to 80% of the relevant members' withdrawal benefits, in terms of the rules of the fund and Section 19(5) of the Pension Funds Act in South Africa. Each guarantee is secured by the withdrawal benefit of the member on whose behalf the guarantee was granted. As at 31 December 2005 the balance of housing loans granted by Alexander Forbes HomePlan JV with Absa for the fund was 7,618,616.72 The total housing loan guarantee facility amounting to 15 000 000 is renewable on 31 August 2006. 21
SCHEDULE HA Notes to the Annual Financial Statements 3. Accounts receivable Current period Previous period Income accruals Dividends 138 700 177 756 Prepaid expenses 0 119 595 Taxation authorities egional services council levies 585 0 139 285 297 351 4. Contributions At beginning of period Towards retirement Towards reinsurance and expenses Contributions received and accrued At end of period Employers contributions 6 139 191 77 889 629 1 797 034 (79 216 374) 6 609 480 eceived and accrued 6 139 191 77 889 629 1 797 034 (79 216 374) 6 609 480 6 139 191 77 889 629 1 797 034 (79 216 374) 6 609 480 eported as: Contributions receivable 6 139 191 6 609 480 Contributions payable 0 0 6 139 191 6 609 480 Movement on Statement of Changes in Net Assets and Funds Towards retirement 77 889 629 Towards reinsurance and expenses 1 797 034 Total 79 686 663 22
SCHEDULE HA Notes to the Annual Financial Statements 5. Unclaimed benefits Current period Previous period At beginning of period 1 988 856 2 333 448 Net investment return 157 678 365 Less: Benefits paid 31 567 344 957 Balance at end of period 2 114 967 1 988 856 6. etirement fund taxation Current period Previous period Taxable income 19 421 622 17 171 878 Less: Formulae reduction 0 0 etirement fund taxable amount 19 421 622 17 171 878 etirement fund taxation at 18% 3 495 892 2 986 145 Movement on Statement of Changes in Net Assets and Funds 3 495 892 2 986 145 Balance at beginning of period 256 988 152 195 etirement fund taxation 3 495 892 2 986 145 Less: Amount paid 3 496 263 2 986 145 Balance at end of period 256 617 256 988 23
SCHEDULE HA Notes to the Annual Financial Statements 7. Benefits At beginning of period Benefits for current period Net investment return Payments Transferred to unclaimed benefits At end of period On retirement 22 922 280 47 775 603 134 838 (37 267 905) 0 33 564 816 Lump sums on retirement Full benefit 22 922 280 47 775 603 134 838 (37 267 905) 0 33 564 816 Pre-retirement 8 867 780 32 030 118 355 220 (19 279 814) 0 21 973 304 Lump sums before retirement Death benefits 2 451 197 3 943 481 165 572 (1 347 529) 0 5 212 721 Withdrawal benefits 6 416 583 28 086 637 189 648 (17 932 285) 0 16 760 583 31 790 060 79 805 721 490 058 (56 547 719) 0 55 538 120 Movement on Statement of Changes in Net Assets and Funds Benefits awarded 79 805 721 0 Benefits 79 805 721 8. Accounts payable Current period Previous period Administration fees 89 057 83 805 Auditors' remuneration 47 401 35 650 Taxation authorities egional services council levies 0 18 765 136 458 138 220 24
SCHEDULE HA Notes to the Annual Financial Statements 9. Net investment income Current period Previous period Dividends received 19 742 497 11 662 308 Fair value adjustments 187 519 645 98 783 576 Insurance policies income 6 197 323 3 088 517 Interest received 20 486 786 15 588 562 Less: Expenses incurred in managing investments: Investment administrator fees 5 488 242 3 524 863 228 458 009 125 598 100 10. Administration expenses Current period Previous period Administration fees 1 077 689 1 032 638 Bank charges 667 631 Fidelity insurance cover 8 000 5 200 Office expenses 122 250 99 950 South African eserve Bank billing 513 771 Auditors' remuneration: Audit fees 47 547 35 128 egional services council levies 57 785 62 546 Financial Services Board levies 19 399 15 371 1 333 850 1 252 235 25
SCHEDULE HA Notes to the Annual Financial Statements 11. Amounts to be allocated Current period Previous period Investment return to be allocated 4 964 267 0 At end of period 4 964 267 0 26
SCHEDULE HA Notes to the Annual Financial Statements 12. isk management policies Market risk Market risk is the risk that the value of a financial instrument will fluctuate as a result of changes in the market. Market risk applies to all investments accounted for at fair value. Market risk comprises: Currency risk Currency risk is the risk that the value of a financial instrument will fluctuate, in ands, because of changes in foreign exchange rates. Fair value interest rate risk Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate because of changes in market interest rates. Price risk Price risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market prices, whether those changes are caused by factors specific to the individual instrument or its issuer, or by factors affecting all instruments traded in the market. The investment mandate is structured by the board of trustees to be consistent with the fund's investment strategy. Market risk is managed in accordance with the fund's investment strategy and within the framework of statutory requirements. All components of market risk are, in turn, managed by the independent asset managers, appointed by the trustees in accordance with their mandates or investment policies, through diversification. Cash flow interest rate risk Cash flow interest rate risk is the risk that future cash flows of a financial instrument will fluctuate because of changes in the interest rate. In the case of a floating rate debt instrument, for example, such fluctuations would result in a change in the effective interest rate of the financial instrument, usually without a corresponding change in its value. Cash flow interest risk is limited to interest bearing financial instruments that are accounted for at amortised cost. Cash flow interest rate risk is managed in accordance with the fund's investment strategy by the fund's independent asset managers, in accordance with their mandates or investment policies, inter alia, by entering into floating rate loan agreements in preference to fixed rate agreements. 27
SCHEDULE HA Notes to the Annual Financial Statements Credit risk Credit risk is the risk that one-party to a financial instrument will fail to discharge an obligation, and cause the other party to incur a financial loss. A credit risk also arises when the fund has the right of set-off or to settle net in respect of certain assets and liabilities but does not intend to do so. Credit risk is managed by investing in well researched institutions of high credit standing and reputation. Liquidity risk Liquidity risk is the risk that the fund will encounter difficulty in raising funds to meet commitments associated with financial instruments. Liquidity risk may result from an inability to sell a financial asset at close to its fair value on short notice. This risk is managed by evaluating the liquidity restrictions of all fund investments and then evaluating the possible impact of such restrictions, taking into account the diversification within the fund's investments. Solvency risk Solvency risk is the risk that the investment returns on assets will not be sufficient to meet the fund's contractual obligation to members. Periodic valuations are conducted by the actuary of the fund at least at the intervals prescribed by the Pension Funds Act in South Africa. The board of trustees, with the advice of the fund's actuary, considers and takes corrective action to mitigate this risk and to ensure that appropriate assets are held to meet the fund's obligation to members and all other liabilities. Legal risk Legal risk is the risk that the fund will be exposed to contractual obligations which have not been provided for. The fund ensures that provisions have been raised in the financial statements for all significant contractual obligations in terms of the rules. 28
SCHEDULE HA Notes to the Annual Financial Statements 13. elated party transactions Participating employer and fund transactions The following transactions between the participating employer and the fund occurred during the period: The participating employer made contributions to the fund for members' retirement and towards the fund's expenses to the value of 77 889 629 and 1 797 034 respectively. (efer note 4 of the financial statements). 29
SCHEDULE HA Notes to the Annual Financial Statements 30
eport of the Independent Auditors to the egistrar and Schedules to the Annual Financial Statements SCHEDULE CONTENTS PAGE I IA eport of the Independent Auditors to the egistrar of Pension Funds on Factual Findings Schedules to the Annual Financial Statements IA Investment summary schedule 37 IA Equities 38 IA Bills, bonds and securities 41 IA Cash and deposits 42 IA Non-linked insurance policies 43 IA Linked insurance policies 43 IA Collective investment schemes 43 IA isk management policies 44 IA Credit/counterparty risk 44 IB Assurance report of the independent auditors to the egistrar of Pension Funds IB Assets held in compliance with egulation 28 46 32 45 31
SCHEDULE I eport of the Independent Auditors to the egistrar 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 the University of Kwazulu-Natal etirement Fund for the period ended 31 December 2005, as required by you in terms of Section 15 of the Pension Funds Act in South Africa, (the Act). Our engagement was undertaken in accordance with the International Standard on elated Services (4400) Engagements applicable to agreed-upon procedures engagements regarding financial information. The responsibility for determining the adequacy or otherwise of the procedures agreed to be performed is that of the egistrar of Pension Funds. Procedures and findings Our procedures and the corresponding findings thereon are set out in the table below. Procedures Findings 1 We selected 3 pay points and for the following three months: March 2005, September 2005 and December 2005, performed the following procedures: 1.1 We agreed, in total, the data received by the administrator to the cash received by the fund. 1.2 We inspected the bank statements or mutual building society records, as appropriate, for the date on which the cash was received to determine 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 found that the data received by the administrator agreed to the cash received by the fund. We found that contributions were deposited with a registered bank in accordance with section 13A of the Act. 1.4 We inspected the accounting records of the fund to determine whether amounts disclosed as arrear contributions at year-end have been paid to the fund in accordance with the requirements of section 13A of the Act. 2 We inspected the list of investments held by the fund for any investments prohibited in terms of section 19(4) of the Act. 2.1 Where investments held in the participating employer exceeded 5% we inspected the appropriate Financial Services Board approval. 2.2 We obtained written confirmations of investment balances from the investment managers and agreed details of the confirmations received to the investment balances reflected in the general ledger. We found that amounts disclosed as arrear contributions at year-end have been paid to the fund in accordance with the requirements of section 13A of the Act. We found that the fund does not hold investments prohibited in terms of section 19(4) of the Act. Not applicable to the fund. We found that the investment balances agreed to the details in the confirmation received from the investment managers. 32
SCHEDULE I eport of the Independent Auditors to the egistrar of Pension Funds on Factual Findings Procedures 3 We obtained the list of housing loans granted to members by the fund in terms of section 19(5) of the Act by the fund as at 31 December 2005. 3.1 We agreed the loans of the above list to the corresponding account in the general ledger. 3.2 From the above list, we selected 25 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 We compared the total guarantees issued on behalf of the members to the total of the members' individual fund credits, to determine whether the total guarantees issued exceeded the total members' individual fund credits. 4 We obtained a list of all other loans as at 31 December 2005 and determined whether these loans were granted in terms of the requirements of section 19(5)B. 5 We obtained a written confirmation from the fund's insurer that the fidelity insurance cover was in place for the financial period ended 31 December 2005. 6 We obtained the list of section 14 transfers to and from the fund for the period ending 31 December 2005 and performed the following procedures: 6.1 We agreed the section 14 transfers to and from the fund to the approved section 14 documentation received from the Financial Services Board in respect of each transfer. 6.2 We agreed the above list of section 14 transfers to the corresponding account in the general ledger. Findings Not applicable to the fund. Not applicable to the fund. We found that the total guarantees issued did not exceed the members' individual fund credits. Not applicable to the fund. We found that the confirmation indicated that fidelity cover was in place for the financial period ending 31 December 2005. Not applicable to the fund. Not applicable to the fund. 33
SCHEDULE I eport of the Independent Auditors to the egistrar of Pension Funds on Factual Findings Procedures 7 We obtained a list of accumulated member credits as reflected on the administrator's member register as at 31 December 2005. 7.1 We agreed the closing balance on the list to the corresponding account in the general ledger. 7.2 We selected a sample of the lesser of 25 or 30% of the number of members from the list and performed the following procedures for each member: 7.2.1 We agreed the employer contributions received for the selected members per the administrator's system to information supplied by the participating employers for a sample of 3 months. 7.2.2 We agreed the return allocated to the member's fund credit on the administrator's records to the return approved in accordance with a trustee resolution or the rules of the fund. Findings The closing balance did not agree to the corresponding account in the annual financial statements by an amount of 4 964 267 relating to investment returns that duly would be allocated to members. We found the employer contributions received for the selected member per the administrator's system agreed to information supplied by the participating employers for the 3 months selected. We found that the return allocated to the member's fund credit on the administrator's records agreed to the return approved in accordance with a trustee resolution or the rules of the fund. 7.3 If the member was entitled to an allocation of the fund surplus, we agreed the surplus added to the member's records to the surplus allocated in terms of the egistrar of Pension Funds approved surplus apportionment scheme. 8 We inspected the most recent statutory valuation report dated 31 December 2003 on the valuator's findings relating to the funding levels of the fund and performed the following procedures: 8.1 We determined whether, in accordance with the valuation report, the fund was under funded. Not applicable to the fund. We found that, in accordance with the valuation report, the fund was not under funded. 34
SCHEDULE I eport of the Independent Auditors to the egistrar of Pension Funds on Factual Findings Procedures 8.2 Where a fund was under funded, we agreed that a scheme, as required in terms of section 18 of the Pension Fund Act in South Africa, has been proposed and is being implemented, to remedy the shortfall. 9 We obtained the analysis of the movements in the fund's reserve accounts from the financial statements and performed the following procedures: 9.1 We agreed the opening balance to the prior year financial statements. (in the funds first year of operation we obtained a signed representation letter relating to the opening balances from the administrator). 9.2 We inspected the rules of the fund to determine whether the nature of the movements in the fund's reserve accounts were in terms of the rules of the fund. 10 We obtained a list of lump sum benefits reflected as expenses in the fund's Statements of Changes in Net Assets and Funds (deaths, retirement, withdrawals and retrenchments) and performed the following procedures: 10.1 We agreed the list to the respective general ledger benefit expense accounts. 10.2 From the above list we selected the lesser of 10 benefits or 5% of the number of benefit expenses listed and performed the following procedures: 10.2.1 We agreed the claim to the applicable, authorised supporting documentation. 10.2.2 For death benefits, where a portion of the benefit had been reinsured by the fund, we determined whether the recovery from the insurer had been received by the fund. 10.2.3 We agreed the opening fund credit for the member to the opening fund credit report and determined whether contributions were added every month until the date of exit. [either by amount or in case of unitised funds, by units] We agreed the balance paid out to member to the fund credit report or administration system as at the date of exit. Findings Not applicable to the fund. Not applicable to the fund. Not applicable to the fund. We found that the list agreed to the respective general ledger benefit expense accounts. We found that the claims agreed to the authorised supporting documentation. Not applicable to the fund. We found that the opening fund credit for the member agreed to the opening fund credit report and the contributions were added every month until the date of exit. We found that the balance paid out to member agreed to the fund credit report or administration system as at date of exit. 35
SCHEDULE I eport of the Independent Auditors to the egistrar of Pension Funds on Factual Findings Procedures 10.2.4 We inspected documentation authorising the payouts made by the fund. 11 We obtained a copy of the pensioner's payroll and performed the following procedures: 11.1 We agreed the total pensions paid to the corresponding account in the general ledger. 11.2 From the above list we selected the lesser of 10 pensions or 5% number of pensions paid as listed and performed the following procedures: 11.2.1 We agreed the pensioner increases to approved trustee resolutions. 11.2.2 We inspected the certificates of existence for the pensioners selected. 12 Where the fund has reinsured its pensioners with an insurer, we obtained a written confirmation of the pensions paid from the insurer and agreed this to the fund's general ledger pension expense accounts. Findings We found that the payouts made by the fund agreed to authorising documentation. Not applicable to the fund. Not applicable to the fund. Not applicable to the fund. Not applicable to the fund. As the above procedures do not constitute either an audit or a review made in accordance with International Standards on Auditing or International Standards on eview Engagements, we do not express any assurance on the procedures performed. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you. Our report is solely for regulatory purposes and may not be distributed to, or relied on, by parties other than the egistrar of Pension Funds. Deloitte & Touche Per: D Munu Partner Johannesburg 36
SCHEDULE IA Schedules to the Annual Financial Statements Investment summary schedule Direct investments Non-linked insurance policies Linked insurance policies Collective investment schemes Total Local Foreign Total % of foreign exposure Notes 4 5 6 Investment properties 0 3 356 165 0 0 3 356 165 3 356 165 0 0.00% Equities: 1 Equities with primary listing on JSE 573 299 110 15 839 930 0 0 589 139 040 589 139 040 0 0.00% Equities with secondary listing on 38 784 332 4 634 981 0 0 43 419 313 43 419 313 0 0.00% JSE Foreign listed equities 0 2 532 619 0 0 2 532 619 0 2 532 619 100.00% Equity index-linked instruments 0 1 148 653 0 0 1 148 653 1 148 653 0 0.00% Unlisted equities 0 229 788 0 0 229 788 229 788 0 0.00% Bills, bonds and securities 2 59 824 336 8 498 158 0 0 68 322 494 67 289 657 1 032 837 1.51% Collective investment policies 0 0 0 207 511 680 207 511 680 123 516 070 83 995 610 40.48% Cash and deposits 3 33 962 984 6 233 688 304 394 0 40 501 066 39 992 428 508 638 1.26% Other assets under management 0 245 685 0 0 245 685 0 245 685 100.00% 705 870 762 42 719 667 304 394 207 511 680 956 406 503 868 091 114 88 315 389 9.23% 37
SCHEDULE IA Schedules to the Annual Financial Statements 1. Equities Fair value Primary listing on JSE 573 299 110 Secondary listing on JSE 38 784 332 612 083 442 Primary listing on JSE Issued shares No. of shares held % Holding Fair value Ordinary shares ABSA Group Limited 666 855 074 202 895 0.03% 20 492 395 AFGI Limited 365 815 000 346 200 0.09% 1 900 638 African Bank Investments Limited 498 367 686 324 900 0.07% 7 960 050 African Oxygen Limited 342 852 910 612 900 0.18% 15 812 820 African ainbow Minerals Gold Limited 205 149 667 147 425 0.07% 6 190 376 Allan Gray Property Trust 996 043 081 2 060 000 0.21% 11 268 200 Allied Electronics Corporation Limited 97 174 115 182 000 0.19% 3 822 000 Anglo American Platinum Corporation Limited 218 494 956 37 000 0.02% 16 909 000 Anglogold Limited 265 092 132 6 600 0.00% 2 072 400 Apexhi - B 234 629 178 345 100 0.15% 5 000 499 ApexHi Properties Limited 234 629 178 229 200 0.10% 3 036 900 Aspen Pharmacare Holdings Limited 384 906 462 88 822 0.02% 2 966 655 Assore Limited 28 000 000 3 120 0.01% 468 000 Astral Foods Limited 44 627 513 77 000 0.17% 5 929 000 Atlas Properties Limited 63 784 922 100 000 0.16% 1 430 000 Bidbee Limited 45 002 000 74 864 0.17% 4 149 712 Bidvest Limited 322 365 386 48 414 0.02% 4 478 295 Bidvest Limited 322 365 386 2 305 0.00% 73 760 Caxton Publishers and Printers Limited 493 450 243 321 501 0.07% 5 124 726 Consol Limited 315 473 188 141 565 0.04% 1 691 702 Coronation Fund Managers Limited 383 881 588 375 000 0.10% 2 062 500 Datatec Limited 146 359 468 208 080 0.14% 4 161 600 38
SCHEDULE IA Schedules to the Annual Financial Statements Firstrand Limited 5 615 032 468 1 198 323 0.02% 22 109 059 Gencor Limited 348 590 257 101 820 0.03% 19 346 Gold Fields Limited 493 408 068 25 885 0.01% 2 893 943 Harmony Gold Mining Company Limited 394 161 367 220 949 0.06% 18 758 570 Hyprop Investments Limited 143 137 272 86 923 0.06% 2 299 998 Illovo Sugar Limited 339 533 800 765 500 0.23% 9 711 300 Impala Platinum Holdings Limited 67 064 294 34 335 0.05% 32 000 220 Investec Group Limited 43 999 527 3 400 0.01% 938 400 JCI Limited 2 218 477 000 4 692 930 0.21% 750 869 Johnnic Communications Limited 103 821 159 178 779 0.17% 9 654 066 Liberty Group Limited 278 164 413 38 863 0.01% 2 934 157 Liberty Holdings Limited 49 081 401 5 000 0.01% 945 000 Martprop Property Fund 1 450 368 1 100 000 75.84% 3 619 000 Medi-Clinic Corporation Limited 394 355 227 223 576 0.06% 4 024 368 Metropolitan Life Limited 649 066 000 607 268 0.09% 7 196 125 MTN Group Limited 1 665 350 015 443 200 0.03% 27 544 880 Mutual & Federal Insurance Company Limited 281 021 455 261 958 0.09% 8 120 698 Nampak Limited 652 087 661 780 017 0.12% 13 135 486 Naspers Limited 314 548 700 58 048 0.02% 6 501 956 Nedbank Group Limited 443 020 656 131 117 0.03% 13 111 700 New Aplitec Part Trust 131 500 000 150 374 0.11% 3 736 794 New Clicks Holdings Limited 375 304 532 259 390 0.07% 2 256 693 Northam Platinum Limited 234 286 000 243 000 0.10% 4 617 000 Omnia Holdings Limited 45 177 461 86 000 0.19% 3 216 400 Pick 'n Pay Holdings Limited 527 249 082 497 600 0.09% 6 443 920 Pick 'n Pay Stores Limited 486 133 882 272 000 0.06% 7 806 400 andgold & Exploration Company Limited 74 813 128 106 700 0.14% 949 630 eal Africa Holdings Limited 371 757 625 471 510 0.13% 2 381 126 emgro Limited 486 493 650 249 121 0.05% 30 392 762 eunert Limited 193 993 716 193 200 0.10% 10 162 320 MB Holdings Limited 1 187 808 570 419 600 0.04% 11 706 840 Sanlam Limited 2 408 608 304 1 013 000 0.04% 15 387 470 Santam Limited 116 252 637 46 000 0.04% 3 703 000 39