Investment Portfolio Review (IPR) report User guide for the Time Weighted Return (TWR) IPR report June/2009 v1.2 Released

Summary This document provides an overview of the new Time Weighted Return (TWR) IPR report deployed by MoneyOne. Information contained in this guide covers: how to generate the report the reasons for adopting the TWR methodology important aspects of the report a detailed description of the TWR methodology a worked example that shows the calculations and business rules behind the report Also contained are some common questions and answers about the report. If you have any feedback on this guide or further questions, please email them to [email protected] or call Client Services and ask for the MoneyOne helpdesk.

Introduction This help card describes the features and methods used to create the MoneyOne Investment Portfolio Review report. The (IPR) is designed to provide Advisers with a snapshot of member’s individual investment returns, displaying net returns of a member’s investment portfolios over a selected date range. The report provides a comparison between the current investment valuation/asset allocation and the original investment authority for each investment held by the member. The TWR IPR report uses methodology consistent with the GIPS® standard, which was introduced in 1993 in North America and was approved by the CFA Institute Board of Governors in 2005, creating a single global standard of investment performance reporting standards worldwide. The Global Investment Performance Standard (GIPS®) is a globally-known standard for the calculation and presentation of investment performance that has been formally approved by the Investment and Financial Services Association (IFSA). The report can be obtained via MoneyOne Office, MoneyOne Online or by contacting Client Services. To locate the report from MoneyOne Office, complete the following steps: 1.

Log into Money One Office using your user name and password

2.

Select Reports on the left hand side of the screen

3. Tick Investment Portfolio Review along with the member you wish to generate the report for 4.

Hit Download reports

To locate the report from MoneyOne Online complete the following steps: 1. Log into the MoneyOne Online website using your adviser code and password 2.

Select an investor you wish to run the report for

3.

Select the Reports tab

4.

Select IPR from the Report Name field and the required date range

5.

Hit Submit

Understanding your performance report

Account summary statistics

Investor name and account number The product that the investor holds

The date-range period of this report Adviser contact details

Only investments held as at the report end date are shown

Investment values and profile as at the report end date

Personalised returns for this report period

1, 3 and 5 year returns shown only when investments are held continuously for these periods

Understanding your performance report (continued) Investment values as at the report start date

Unit statistics as at the report end date Investment values at the report end date

If the investor has a CMT account or margin loan associated with this account, then summary details on these will be shown on the IPR report. An asset allocation breakdown is also provided. Note - The report has no page numbers, so unwanted sections may be discarded.

Explanation of the report The Investment Portfolio Review (IPR) report provides advisers with an industry standard way to calculate, monitor and compare returns across an investor’s account. A time weighted return methodology is used to calculate the return percentages displayed within the report.

Calculating the return percentage Taking into account client feedback and industry practice, MoneyOne has chosen to follow the IFSA recommended GIPS® Standard Time Weighted Return (TWR) algorithm for use in calculating returns on platform investments. Every time a balance-affecting transaction or unit price change occurs on an investment or account as a whole; a valuation and return calculation needs to be performed for that specific event. The individual return for this period n is noted as rnx in the formula. The MoneyOne TWR IPR report calculates the rnx value for each investment every day to produce a true daily time weighted return. The TWR for the investment or account is calculated by chain-multiplying all of the individual rnx values that occurred within the report period. When the report period exceeds a year (365 days) an annualized TWR is calculated and displayed. The 1, 3 and 5 year returns are calculated for this account by chain-multiplying together all of the rnx values for the 1, 3 and 5 years leading up to the report end date. The returns will only show when the investment has been held continuously for that period.

The Time Weighted Return (TWR) methodology Adopting this algorithm will provide advisers with a global standard methodology that is well recognised and supported within the financial services industry. The IPR report uses the TWR methodology to calculate returns information. methodology:

This

is an industry standard returns methodology follows the IFSA recommendation

adopted

Global

Industry

Performance

Standards

(GIPS®)

eliminates the effect of capital contributions (and withdrawals) on performance returns improves accuracy by using daily portfolio valuations and calculating the return daily the return is simpler to understand than previous MoneyOne methods of calculation

Calculating TWR and rnx The formula used in the calculation of the IPR report percentage return figures are shown and explained below.

TWR = (rn1 + 1) * (rn2 + 1) * (rn3 + 1) * … * (rnx + 1) – 1 where each rnx is calculated by rnx = (EMV – CF)/BMV – 1

Where:

TWR is the time weighted return for the period rnx is the return for period number x EMV is the end market value (closing balance) for the period CF is the cash flow for the period BMV is the beginning market value (opening balance) for the period

Within the IPR report, the TWR is calculated for: the report period 1, 3 and 5 years leading up to the report end date and since the inception of the account.

Cash flow Cash flow is a concept used by the TWR performance calculation. It indicates events that should not impact reported performance. For example, at the portfolio (account) level, cash flow is the movement of capital in/out of the account. At the individual investment level, cash flow would be unit buys/sells. Within the MoneyOne TWR IPR report, all insurance premiums, government taxes and charges, deposits and withdrawals are treated as cash flows. For more information on the transactions that impact performance, please refer to the “Impact of transactions” section of this user guide.

Transactions used for this example report The following table lists the transactions that are used as a reference throughout this help card. The scenario is a new account that has one investment option and a Cash Account. The cash account pays interest during the period and the investment has paid a distribution. The platform collects an administration and custodian fee during the period. Cash Account Date

Transaction

Units in Tx

Unit Price

Amount

1/03/2009

Opening balance

2/03/2009

Deposit

10,000.00

$1.0000

$ 10,000.00

$10,000.00

3/03/2009

Switch From

- 8,000.00

$1.0000

-$ 8,000.00

$ 2,000.00

15/03/2009 28/03/2009

Interest Investment Earnings

4.17 415.76

$1.0000 $1.0000

$ 4.17 $ 415.76

$ 2,004.17 $ 2,419.93

29/03/2009

Administration Fee

- 4.75

$1.0000

-$ 4.75

$ 2,415.18

29/03/2009

Administration Fee GST refundable

- 0.05

$1.0000

-$ 0.05

$ 2,415.13

30/03/2009

Custodian Fee

-1.00

$1.0000

-$1.00

$ 2,414,13

30/03/2009

Custodian Fee GST Refundable

- 0.01

$1.0000

-$ 0.01

$ 2,414.12

-

Balance $ 0.00

Investment Fund Date

Transaction

1/03/2009

Opening balance

3/03/2009

Switch To

Units Held

Unit Price

Amount

-

Balance $ 0.00

5,197.03

$1.5201

$ 7,900.00

$7,900.00

6/03/2009

(Investment unit price update)

5,197.03

$1.5151

$7,874.01

8/03/2009

(Investment unit price update)

5,197.03

$1.5101

$7,848.03

10/03/2009

(Investment unit price update)

5,197.03

$1.5051

$7,822.04

12/03/2009

(Investment unit price update)

5,197.03

$1.5001

$7,796.06

14/03/2009

(Investment unit price update)

5,197.03

$1.4951

$7,770.07

16/03/2009

(Investment unit price update)

5,197.03

$1.5001

$7,796.06

18/03/2009

(Investment unit price update)

5,197.03

$1.5051

$7,822.04

20/03/2009

(Investment unit price update)

5,197.03

$1.5101

$7,848.03

22/03/2009

(Investment unit price update)

5,197.03

$1.5151

$7,874.01

24/03/2009

(Investment unit price update)

5,197.03

$1.5201

$7,900.00

26/03/2009

(Investment unit price update)

5,197.03

$1.5251

$7,925.99

28/03/2009

(Investment unit price update)

5,197.03

$1.4500

$7,535.69

30/03/2009

(Investment unit price update)

5,197.03

$1.4601

$7,588.18

Defining the start and end date The start date used for these calculations is the more recent of: the selected period start date in MoneyOne OR the investor’s fund start date. For example: Selected start date in MoneyOne

= 1 January 2009

Fund start date

= 1 March 2009

The start date used would be 1 March 2009

The end date used for these calculations is the older/earlier of: the selected period start date in MoneyOne OR the investor’s fund end date OR today. For example: Selected end date = 30 June 2009 Fund end date

= n/a as the account is still active

Today

= 30 March 2009

The end date used would be 30 March 2009.

Calculating an investor’s opening balance This is the balance of the investor’s account as at midnight at the beginning of the start date. For this example, the amount was $0.00

Calculating an investor’s net inflows The net inflows include all balance affecting transactions that have occurred during the report period. Net inflows = inflows - outflows. For example: inflows include transactions such as rollovers, contributions, deposits, investment switches and unit redemptions outflows include transactions such as pension payments, benefit payments, regular withdrawals, investment switches, unit redemptions, fees, taxes and insurance premiums For this example, the net inflows transactions are: Cash Account Date

Transaction

Units in tx

Unit price

Amount

2/03/2009

Deposit

10,000.00

$1.0000

$ 10,000.00

3/03/2009 28/03/2009

Switch From Investment Earnings

- 8,000.00 415.76

$1.0000 $1.0000

-$ 8,000.00 $ 415.76

29/03/2009

Administration Fee

- 4.75

$1.0000

-$ 4.75

29/03/2009

Administration Fee GST refundable

- 0.05

$1.0000

-$ 0.05

30/03/2009

Custodian Fee

-1.00

$1.0000

-$1.00

30/03/2009

Custodian Fee GST Refundable

- 0.01

$1.0000

-$ 0.01

Investment Fund Date 3/03/2009

Transaction Switch To

Units held 5,197.03

Unit price $1.5201

Amount $ 7,900.00

In order for the report calculations to function, earnings on an investment are not shown as inflows against that particular investment. These are shown in the Investment Earnings column for that investment. This is why cash account interest on 15/03/2009 is not shown. From the perspective of the Cash Account, however, the investment distribution is an inflow.

Other account statistics Deposits include rollovers, contributions, deposits and regular savings plan deposits Withdrawals include benefit payments, pension payments and regular withdrawals

Calculating an investor’s closing balance This is the balance of the investor’s account as at the close of business at the report end date.

The amount can be reconciled by the following: Opening balance + net inflows + unconfirmed amount + investment earnings = closing balance

For this example, the values are: $0.00 + $10,309.95 + $0.00 – 307.65 = $10,002.30

Impact of transactions There are three categories of transactions when considering the returns calculation for an event. These categorisations are specified by the TWR reporting methodology. Transactions that impact returns for the investment and the account Transactions in this category have a direct impact on the returns calculation for both the investment(s) the transaction occurs on, and on the account as a whole. They are: ID

Name

Sometimes known as*

114

Investment Earnings Distributed

Income Distribution

117

Investment Distribution Amendment

Income Distribution

123

Unit Re-Investment Distribution

Reinvestment of Distribution

126

Management Fee Rebate Distributed

Income Distribution

134

Bond Interest Distributed

Bond Interest Distribution

156

Share Cash Distribution

Share Income Received

157

Share Capital Return

n/a

158

Share Units Distribution

Share Units Received

210

Expense Recovery

Management Fee

211

Administration Fee

Management Fee

212

Adviser Review Fee

Management Fee

*The name in the Sometimes known as column are used by some products. Although not seen as transactions, changes to unit price and buy/sell spreads are reflected in the returns calculation at the investment and account level.

Impact of transactions (continued) Transactions that impact returns for the account only Transactions in this category (where applicable to the account) have a direct impact on the return of the investor account, but not against an individual investment. In this way the investment returns are more realistic. They are generally dollar-based fees and can be seen as a cost of operating the wrap/master trust account. They are: ID

Name

Sometimes known as*

202

Custodian Fee

Expense Recoveries or Management Fee

209 217

Member Fee Member Fee in Arrears

Management Fee

218

Account Adjustment

n/a

224

Transaction Fee

n/a

225

Regular Withdrawal Fee

n/a

226

Transfer Fee

239

Direct Shares Trade Fee

n/a Management Fee

249

Share Brokerage Fee

n/a

278

Correction Adjustment

2201

Compliance Fee

n/a Expense Recoveries

2202

Compliance Fee in Arrears

Expense Recoveries

2203

Expense Recoveries

2227

Trustee Fee

n/a Expense Recoveries

Member Fee or Management Fee

*The name in the Sometimes Known As column are used by some products.

Transactions that do not impact returns For the purposes of calculating the return for an account or investment, all other balance-affecting fees and transactions (including switches, government taxes and charges, insurance premiums, deposits and withdrawals) are considered by the TWR methodology to be cash flows and of no impact to the return calculation. They are, essentially, ignored.

On the following pages the return calculations for this example report are shown.

Calculating the investor’s cash account return Note Date 1

Transaction

Units

Unit Price

Amount

Balance

0.00

EMV

1/03/2009

Opening balance

2/03/2009

Deposit

10,000.00

$1.0000

$10,000.00

$10,000.00

$10,000.00

3/03/2009

Switch From

- 8,000.00

$1.0000

-$8,000.00

$2,000.00

$2,000.00

4.17

$1.0000

$4.17

$2,004.17

$2,004.17

CF

BMV

r

r+1

$10,000.00

0.00%

1.0000

$10,000.00

0.00%

1.0000

$2,000.00

0.21%

1.0021

$ 0.00 -$8,000.00

2

15/03/2009

Interest

3a

28/03/2009

Investment Earnings

415.76

$1.0000

$415.76

$2,419.93

$2,419.93

$415.76

$2,004.17

0.00%

1.0000

4a

29/03/2009

- 4.75

$1.0000

-$4.75

$2,415.18

$2,415.18

-$4.75

$2,419.93

0.00%

1.0000

4b

29/03/2009

- 0.05

$1.0000

-$0.05

$2,415.13

$2,415.13

-$0.05

$2,415.18

0.00%

1.0000

5

29/03/2009

Administration Fee Administration Fee GST refundable Administration Fee apportionment

-0.05%

0.9995

6a

30/03/2009

- 1.00

$1.0000

-$1.00

$2,414.13

$2,414.13

-$1.00

$2,415.13

0.00%

1.0000

6b

30/03/2009

Custodian Fee Custodian Fee GST Refundable

- 0.01

$1.0000

-$0.01

$2,414.12

$2,414.12

-$0.01

$2,414.13

0.00%

1.0000

0.16%

1.0016

TOTAL Notes:

For simplicity within this example, only calculations for days with balance changes are shown. For all other days, TWR will calculate r = 0; or having no impact on performance. Within the actual IPR report calculation, r is calculated every day. 1. For the first transaction on an investment or an account (eg. When the BMV = $0.00) then BMV = CF and CF = 0 2. Cash account interest is a positive return on the Cash Account 3a. The investment earnings are earned by the investment, therefore for the cash account, they are a cash flow 4a. The administration fee is FUM-based and therefore is apportioned equally across all cash and investments held at the time it is charged. Therefore it is initially shown as a cash flow to eliminate it from the cash account returns. 4b. The IPR report does not treat government taxes and charges as return-effecting. To exclude them, they are treated as a cash flow at all times 5. The administration fee portion is calculated as 1 - $fee / $account balance = 1 - $4.75/$9,950.82 = 0.05% 6a. The custodian fee is a fixed dollar fee and is therefore apportioned only at the account level – not across cash and investments. Therefore it is shown as a cash flow to eliminate it from the Cash Account returns. 6b. The IPR report does not treat government taxes and charges as return-effecting. To exclude them, they are treated as a cash flow at all times r. The return r is calculated by chain multiplying all the r+1 values together and subtracting one

Calculating the investor’s investment fund return Note Date

1

Transaction

1/03/2009

Opening balance

3/03/2009

Switch To

Unit Price

Units

Amount

-

Balance

EMV

CF

BMV

r

r+1

$0.00

5,197.03

$1.5201

$7,900.00

$7,900.00

$7,900.00

$8,000.00

-1.25%

0.9875

6/03/2009

Unit price update

5,197.03

$1.5151

$7,874.01

$7,874.01

$7,900.00

-0.33%

0.9967

8/03/2009

Unit price update

5,197.03

$1.5101

$7,848.03

$7,848.03

$7,874.01

-0.33%

0.9967

10/03/2009

Unit price update

5,197.03

$1.5051

$7,822.04

$7,822.04

$7,848.03

-0.33%

0.9967

12/03/2009

Unit price update

5,197.03

$1.5001

$7,796.06

$7,796.06

$7,822.04

-0.33%

0.9967

14/03/2009

Unit price update

5,197.03

$1.4951

$7,770.07

$7,770.07

$7,796.06

-0.33%

0.9967

16/03/2009

Unit price update

5,197.03

$1.5001

$7,796.06

$7,796.06

$7,770.07

0.33%

1.0033

18/03/2009

Unit price update

5,197.03

$1.5051

$7,822.04

$7,822.04

$7,796.06

0.33%

1.0033

20/03/2009

Unit price update

5,197.03

$1.5101

$7,848.03

$7,848.03

$7,822.04

0.33%

1.0033

22/03/2009

Unit price update

5,197.03

$1.5151

$7,874.01

$7,874.01

$7,848.03

0.33%

1.0033

24/03/2009

Unit price update

5,197.03

$1.5201

$7,900.00

$7,900.00

$7,874.01

0.33%

1.0033

26/03/2009

5,197.03

$1.5251

$7,925.99

$7,925.99

$7,900.00

0.33%

1.0033

5,197.03

$1.4500

$7,535.69

$7,535.69

$7,925.99

0.32%

1.0032

-0.05%

0.9995

5,197.03

0.70%

1.0070

0.04%

1.0004

3b

28/03/2009

5

29/03/2009

Unit price update Investment Earnings Administration Fee apportionment

30/03/2009

Unit price update

$1.4601

$7,588.18

-$415.76

$7,588.18

TOTAL

$7,535.69

Notes: For simplicity within this example, only calculations for days with balance changes are shown. For all other days, TWR will calculate r = 0; or having no impact on performance. Within the actual IPR report calculation, r is calculated every day. 1. For the first transaction on an investment or an account (eg. When the BMV = $0.00) then BMV = CF and CF = 0. In this case, the BMV is the amount switched from cash – so the buy/sell differential is accounted for. 3b. The investment earnings were paid to the cash account. Therefore, to show them as a return against the investment, they are shown as a –ve cashflow that doesn’t affect the balance. The change in balance comes from the investment unit price going ex-distribution. 5. The administration fee portion is calculated as 1 - $fee / $account balance = 1 - $4.75/$9,950.82 = 0.05% r. The return r is calculated by chain multiplying all the r+1 values together and subtracting one

Calculating the investor’s account return Note Date 1

7

Balance

1/03/2009

Opening balance

2/03/2009

Deposit

3/03/2009

Switch to Investment

EMV

CF

BMV

r

r+1

$0.0 $10,000.00

$10,000.00

$10,000.00

0.00%

1.0000

$9,900.00

$9,900.00

$10,000.00

-1.00%

0.9900

6/03/2009

Unit price update

$9,874.01

$9,874.01

$9,900.00

-0.26%

0.9974

8/03/2009

Unit price update

$9,848.03

$9,848.03

$9,874.01

-0.26%

0.9974

10/03/2009

Unit price update

$9,822.04

$9,822.04

$9,848.03

-0.26%

0.9974

12/03/2009

Unit price update

$9,796.06

$9,796.06

$9,822.04

-0.26%

0.9974

14/03/2009

Unit price update

$9,770.07

$9,770.07

$9,796.06

-0.27%

0.9973

$9,774.24

$9,774.24

$9,770.07

0.04%

1.0004

15/03/2009

5

Transaction

Interest

16/03/2009

Unit price update

$9,800.23

$9,800.23

$9,774.24

0.27%

1.0027

18/03/2009

Unit price update

$9,826.21

$9,826.21

$9,800.23

0.27%

1.0027

20/03/2009

Unit price update

$9,852.20

$9,852.20

$9,826.21

0.26%

1.0026

22/03/2009

Unit price update

$9,878.18

$9,878.18

$9,852.20

0.26%

1.0026

24/03/2009

Unit price update

$9,904.17

$9,904.17

$9,878.18

0.26%

1.0026

26/03/2009

Unit price update

$9,930.16

$9,930.16

$9,904.17

0.26%

1.0026

$9,930.16

0.26%

1.0026

0.00%

1.0000

-0.05%

0.9995

0.53%

1.0053

-0.01%

0.9999

0.02%

1.0002

28/03/2009

Investment Earnings

$9,955.62

$9,955.62

29/03/2009

Administration Fee and GST

$9,950.82

$9,950.82

-$4.80

$9,955.62

29/03/2009

Administration Fee apportionment

30/03/2009

Custodian FEE and GST

$10,002.30

$10,002.30

$1.01

$9,950.82

30/03/2009

Custodian Fee apportionment

TOTAL Notes:

For simplicity within this example, only calculations for days with balance changes are shown. For all other days, TWR will calculate r = 0; or having no impact on performance. Within the actual IPR report calculation, r is calculated every day. 1. For the first transaction on an investment or an account (eg. When the BMV = $0.00) then BMV = CF and CF = 0. In this case, the BMV is the amount switched from cash – so the buy/sell differential is accounted for. 5. The administration fee portion is calculated as 1 - $fee / $account balance = 1 - $4.75/$9,950.82 = 0.05% 5. The custodian fee portion is calculated as 1 - $fee / $account balance = 1 - $1.00/$7,535.69 = 0.01%. As this fee is flatdollar based, it is only apportioned against the account return, not against any individual investment returns r. The return r is calculated by chain multiplying all the r+1 values together and subtracting one

Calculating the other return percentages As this example report runs for one month from account inception, the calculated percentages for the report period match the since inception percentages. As the account is only one month old at the report end date, there are no annualised report period return or 1,3,5 year returns displayed.

Some frequently asked questions and answers 1. Why is the return different from the old IPR? The return will be different from the old report as a different, more accurate calculation method is used. 2. Why can’t I see investment XYZ on the report? Even if an investment was held during the report period, the calculated return will only show if it was held on report end date. This is a requirement of the TWR methodology. 3. What if I believe the returns for XYZ to be incorrect? If you believe a return to be incorrect, please check the “Investment Date” as return calculations are reset to 0 when a members holdings in an investment are 0 After doing this, if you still believe the return to be inaccurate, please contact your Business Development Manager who will be able to assist with your enquiry. 4. I generated a report for a client on two consecutive days and the figures are different? Please check that the date ranges you have selected for the report are the same. You may also need to check whether the member has had any backdated transactions on their account that could impact the return. Re-issued (back-dated) unit prices from fund managers may also impact this. 5. Why is one of my member’s investments showing a zero value? This may occur is a member pulls 100% of funds out of a particular investment during the report period. 6. Why aren’t corporate actions handled in the report? Corporate action events are currently not stored in the Oasis system in a format that allows the report to handle them. Investigations are currently underway to determine if this can be catered for in future report releases. Communication on any changes regarding corporate actions will be sent to you as information comes to hand. 7. How are taxed considered under the TWR calculation? The effect of Government taxes and charges are ignored under this new returns calculation. This is a requirement of the TWR method, as the TWR methodology does not accurately reflect accrual-based taxes and charges.

8. Some returns look too high / too low? When receiving investment distributions and cash account interest, Oasis utilize an “average daily balance” method to apportion the income across investors. However, the TWR method uses the investment balance on the day of payment to calculate the percentage return. An example is that an account opened with the entire balance ($100,000) remaining in cash for a month, then being invested into managed funds (leaving $2,000 in cash), then followed by an interest payment. This will generate a large return because the interest was earned on the $100,000 balance, but accredited to the $2,000 balance on the day of payment. $100,000 @ 3% p.a. will earn $250 in one month. However, if $98,000 of the money was invested the day before the interest is paid, then the TWR calculation is 2,250/2,000 = 12.5% for that event (150% p.a.). This is an extreme case, and effect is diluted over time, but results in a higher than expected return. Another case that can cause this behavior is when a large percentage of the money is removed then re-added to the cash account or an investment. Returns will appear too low if, in the above scenario, a large amount is added to the investment close to the day of the distribution/interest payment. The correction for this is to implement accrual calculations across the TWR IPR report, which is being investigated for a potential future release. However, this is a direct result of the industry-standard TWR methodology, and should not be considered incorrect. 9. Returns and valuations when distributions are paid When a fund manager pays a distribution (most significantly around 30/June) the unit price will go ex-distribution (fall) to reflect the expected payment amount. However, it may be some time before the distribution is sent to the platform for processing into investor accounts. Although the distribution will be credited with an effective date to match the ex-price; until this happens the investment valuation and return will appear lower than expected. This is a direct result of the distribution timing and should not be considered incorrect. Historical reporting (eg. A report created in August for the previous financial year) will report as expected when all the distribution payments have been cleared.