5.3170 Income Processingdocs.sungard.com/InvestOne/140Doc/System_Manual/Section... · 2016-04-14 · system manual - section - 5.3170 – investment pool fund processing income processing

SYSTEM MANUAL - SECTION - 5.3170 – INVESTMENT POOL FUND PROCESSING INCOME PROCESSING – PASSED INCOME

1 Overview .......................................................................................................... 1 2 Interest Processing ............................................................................................ 3

2.1 POOLED FUND ACTIVITY ...................................................................................... 3 2.2 INTEREST ALLOCATION ..................................................................................... 16 2.3 TOP-LEVEL FUND ACTIVITY ................................................................................ 18

3 Dividend Processing ......................................................................................... 20 3.1 DIVIDEND ALLOCATION ..................................................................................... 24 3.2 TOP-LEVEL FUND ACTIVITY ................................................................................ 28

4 Interest on Pool Cash ....................................................................................... 30 5 Reconciliation of Top-Level Funds to the Pool ....................................................... 33 6 Top-Level Fund Valuation .................................................................................. 34

6.1 DISTRIBUTION AND ACCUMULATION OF INCOME ........................................................ 34

THIS DOCUMENT CONTAINS PROPRIETARY INFORMATION OF SUNGARD ASSET ARENA INVESTMENT ACCOUNTING. NO COPY OR OTHER REPRODUCTION SHALL BE MADE WITHOUT WRITTEN PERMISSION OF SUNGARD.

SYSTEM MANUAL - SECTION - 5.3170 – INVESTMENT POOL FUND PROCESSING INCOME PROCESSING – OVERVIEW, INTEREST PROCESSING

1 OVERVIEW

This section describes the processing of income activity within the Pooled Funds structure. Income accruals as well as payments can processed in the Pool or the Top-Level Fund, including interest, dividends and any related withholding and reclaim. The user can choose whether to settle income in the Pool or the Top-Level Fund on the Account Special Processing Definition (AASP) screen. The POOL ALLOC field on AASP allows the user to decide whether to settle income at the Pool Level (option 1 or 2), or at the Top-Level (option 3). For Pools which have no base country defined, tax will be calculated for the Pool fund based on the country and tax group of each Top-Level invested into that pool. The withholding and reclaim values attributable to each Top-level Fund are then allocated down to the same fund as if these values were independently calculated at the Top-Level Fund. The following examples demonstrate the income movements that occur based on which POOL ALLOCATION option (1, 2, or 3) is selected on the AASP screen:


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2 INTEREST PROCESSING

2.1 POOLED FUND ACTIVITY

PURCHASED INCOME Special consideration must be given to purchased and sold income on bonds. Interest purchased/sold on a bond is not split as income to the funds owning the pool. It is not income earned, but a receivable purchased with pool assets. As such, it is an asset of the pool to be split to the funds based on the current allocation factors, just like any other asset, and it remains part of the Pool NAV. This also applies to any unrealized/realized “FX” gain and loss on purchased/sold interest. Income sold on the sale of a bond position is first applied to any purchased income on the position. The sold income decreases the value of the purchased income. (The income has been received so the receivable can be cleared.) After the purchased income has been cleared, any remaining sold income is earned, and as such is passed out of the Investment Pool to the Top-Level Fund. Example 1: Settled Foreign BUY with Purchased Interest. On 1st September, Pool A based in GBP processes a settled Buy on a USD Bond. The exchange rate is 1.3:

BUY USD GBP

Principal 10,000.00 7,692.31

Income 991.67 762.82

General Ledger Debit Credit

BUY

DR Income 762.82

DR Security at Value 7,692.31

DR Passed Liability 762.82

CR Currency Allowance 8,455.13

CR Passed Income 762.82


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Debit Credit

Generated CDN

DR Currency Allowance 8,455.13

CR Currency at Value 8,455.13

Generated INCTR

DR Cash (Principal) 762.82

CR Cash (Income) 762.82

Manual CBUY

DR Currency at Value 8,455.13

CR Cash (Principal) 8,455.13

INCOME ACCRUAL The daily accrued income is allocated to the Top-Level funds based on the current ownership in the Pool for that day. Only the Interest accrual on fixed income securities and any related revaluation of the accrual held in a Pool generate passed accrual. The Passed Values for all income are displayed in the Account Valuation Balance (VSVB3) screen. The purchased interest or any revaluation of the purchased interest is not included in the passed accrual as it is treated as an Asset. Example 1 (continued): Accrued Income following BUY transaction. On the 1st of September the USD Bond displays the following amounts on VSHO:

VSHO USD GBP

Purchased 991.67 762.82

Income 994.44 764.95

Daily Accrual 2.77 2.13


Accrual

DR Accrued Inc. Recv’ble 764.95

DR Passed Income 764.95

CR Income 764.95

CR Passed Liability 764.95

Passed Accrual


CR Other Payable 764.95


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Remaining Balance after Settled Buy and Accrual

Capital Asset

Security at Value 7,692.31

Cash Principal (7,692.31)

Income Asset

Cash (Income) (762.82)

Accrued Inc. Rec’ble 764.95

Income Liability

Other Payable (764.95)

Passed Liability 762.82

Income P/L

Income (2.13)

Passed Income 2.13

REVALUATION OF INCOME The 2nd September exchange rate is 1.4. The revaluation of the income is split between the revaluation of the purchased interest (remains in the NAV of the Pool) and revaluation of the earned income (is passed). For this example we assume the price of the security remains the same. Purchased

USD 991.67 / 1.3 = GBP 762.82

USD 991.67 / 1.4 = GBP 708.33 Revaluation: 54.49

Earned Income

USD 2.77 / 1.3 = GBP 2.13

USD 2.77 / 1.4 = GBP 1.98 Revaluation: 0.15

Additional Accrual 2nd

USD 2.77 / 1.4 = GBP 1.98


Purchased Interest revaluation

DR Unrealised Exch. G/L 54.49

DR Other Receivable Capital (A038) 54.49

Earned Income Revaluation

DR Unrealised Exch. G/L 0.15

CR Accrued Inc. Rec’ble 0.15

Passed Accrual Revaluation

DR Other Payable 0.15

CR Unrealised Exch. G/L 0.15

Accrual

DR Accrued Inc. Rec’ble 1.98


CR Income 1.98


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Passed Accrual


CR Other Payable 1.98

Remaining Balance after Settled Buy, Revaluation and Accrual

Capital Asset



Other Receivable Capital (54.49)

Capital

Unrealised Exchange G/L 54.49

Income Asset

Cash (Income) (762.82)


Income Liability

Other Payable (766.78)


Income P/L

Income (4.11)

Passed Income 4.11

INTEREST RECEIPT WITH PURCHASED INCOME

When the interest is received, it relieves the purchased income first before relieving any earned income. The INT transaction generates a PSINC for the earned income amount only. The purchased income portion is allocated as a receivable, like any other asset. Example 1 (continued): INT Receipt following BUY transaction, accrual and revaluation. On the 3rd September the Pool receives the INT payment and the exchange rate is now 1.5.

INT USD GBP Income 997.21 664.80 PSINC Sum of Daily Accrual 5.54 3.69 The revaluation of the INT transaction needs to be split between Purchased Income and Earned Income. The purchased Income and its revaluation remain in the NAV of the Pool, where the Earned Income and its revaluation is passed out of the Pool: Local USD Rate Base GBP Basis GBP Revaluation INT 997.21 1.5 664.80 766.78 - 101.98 Purchased 991.67 1.5 661.11 762.82 - 101.71 Earned 5.54 1.5 3.69 3.96 -0.27


As per current functionality, Investment Accounting (InvestOne) reverses out all accrual and revaluation before posting the INT transaction:


Reversal of Accrual


DR Income 766.93

CR Unrealised Exch G/L 0.15


CR Accrued Income Receivable 766.78

Reversal of Passed Accrual


DR Unrealised Exch G/L 0.15


Reversal of Purchased Income Revaluation

DR Other Receivable Capital 54.49


Debit Credit

Generated INT

DR Real. Exch. G/L (inc) 0.27

DR Real. Exch G/L 101.71

DR Currency Allowance 664.80


CR Income 766.78


Generated CUP USD 0001

DR Currency at Value 664.80

CR Currency Allowance 664.80

Generated CSELL USD 0001

DR Cash Income 664.80

CR Currency at Value 664.80

Generated PSINC Passed Interest



CR Real Exch G/L (inc) 0.27

Generated CDN USD 0001



Manual CBUY USD 0001


CR Cash Income 3.69


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Debit Credit

Generated CAPTR


CR Cash Principal 101.71

Remaining Balance after INT

Capital Asset



Other Receivable Capital 0.00

Capital

Realised Exchange G/L 101.71


Income Asset

Cash (Income) 0.00


Income Liability

Other Payable 0.00


Income P/L

Income (3.96)

Passed Income 3.96

Realised G/L Inc 0.00

ALERT: The user must make sure that no currency income is left in the pool after the INT has been process. A manual CBUY transaction can be entered for the PSINC Value and a CSELL can be generated for the INT transaction using the “FX” flag on the DAFT screen. If currency income is left in the Pool, the system automatically revalues the balance using the exchange rate of that day leaving an income balance in the Pool and therefore an incorrect NAV. The utility report run on the Pooling Analysis (POOLRP) screen flags any income balance left in the Pool.

INTEREST PAYMENT WITH PURCHASED INCOME (INCOME SETTLES IN TOP-LEVEL)

Provided that the relieved purchased income is an asset of the fund, it has to settle in the pool, no matter how the pool chooses to settle its income. With this being said, the income transaction which relieves purchased interest needs to have different general ledger effects from regular income transactions when the Pool chooses to settle income in the Top-Level Fund (Pool Allocation 3 on AASP screen). Further, earned income needs to be booked under Currency Allowance and the portion of income that represents purchased interest has to be accounted for under Pooled Currency Allowance because it belongs to the pool.


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General Ledger for Interest or Short Interest

On Effective Date

INT DR Other Income Receivable

CR Interest

On Actual Settle date

INT DR Pooled Currency Allowance

CR Other Income Payable

On Effective Date

INTOP DR Interest

CR Other Income Payable

On Actual Settle Date

INTOP DR Other Income Payable

CR Pooled Currency Allowance

For all foreign interest transactions that relieve purchased income in the Top-Level Fund, one currency transaction (CUP) for the amount of purchased income must be generated to update Pool’s currency. A separate CUP has to be generated to update the currency balance of the TLF for the amount of earned income. The below diagram shows the currency transactions that need to be generated for the INT payments that relieve purchased interest.

Purchased Interest Earned Interest INT POOL:CCY* CUP CCY* CUP INTOP POOL:CCY* CDN CCY* CDN

* For Top-Level OEIC’s POOL:CCY and CCY with qualifier (0001).

Domestic income transactions that relieve purchased interest settle in the base currency of the Top-Level Fund and no CUP or CDN is needed for the earned income amount. However, the purchased interest still needs to be passed to pool’s currency by currency up/currency down transaction.

SOLD INCOME As with purchased interest, interest sold on a bond is not split as income to the funds owning the pool. Income sold on the sale of a bond position is first to be applied to any purchased income on the position. The sold income decreases the value of the purchased income first. (The income has been received so the receivable can be cleared.) After the purchased income has been cleared, any remaining sold income is earned and as such is passed out of the Investment Pool to the Top-Level Fund by a generated PSIC transaction. If the purchased income has already been previously relieved by an INT before the SELL occurs, the system still generates a PSIC transaction with zero value.


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Example 2: Settled Foreign SELL with Sold Interest. Taking the above example, on 3rd September, instead of an INT being generated, the security is sold. The revaluation of the SELL transaction needs to be split between Purchased Income and Earned Income. The purchased Income and its revaluation remain in the NAV of the Pool, where the Earned Income and its revaluation is passed out of the Pool: Local USD Rate Base GBP Basis GBP Revaluation SELL Principal 10,000.00 1.5 6,666.67 7,692.31 - 1,025.64 SELL Income 997.21 1.5 664.80 766.78 - 101.98 Purchased 991.67 1.5 661.11 762.82 - 101.71 Earned 5.54 1.5 3.69 3.96 - 0.27 As per current functionality, Investment Accounting (InvestOne) reverses out all accrual and revaluation before posting the SELL transaction:


Reversal of Accrual


DR Income 766.93











Debit Credit

SELL


DR Real. Exch G/L 1,127.35



CR Income 766.78


CR Security at Value 7,692.31

Generated CUP



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Debit Credit


Generated PSIC Passed Interest




Generated CDN



Manual CSELL USD

DR Cash Capital 7,327.78


Generated CAPTR



Remaining Balance after SELL

Capital Asset

Security at Value 0.00



Capital



Income Asset

Cash (Income) 0.00


Income Liability

Other Payable 0.00


Income P/L

Income (3.96)

Passed Income 3.96


MATURITY OF INCOME As with purchased/sold interest, interest matured on a bond is not split as income to the funds owning the pool. Income maturity on a bond position is first applied to any purchased income on the position. The maturity of income decreases the value of the purchased income first. (The income has been received so the receivable can be cleared.) After the purchased income has been cleared, the remaining income is earned and as such is passed out of the Investment Pool to the Top-Level Fund by a generated PSINC transaction.


Example 3: Settled Foreign MATU. Taking the above example, on 3rd September, instead of a SELL being generated, the security is matured. The revaluation of the MATU transaction needs to be split between Purchased Income and Earned Income. The purchased Income and its revaluation remain in the NAV of the Pool, where the Earned Income and its revaluation is passed out of the Pool: Local USD Rate Base GBP Basis GBP Revaluation MATU Principal 10,000.00 1.5 6,666.67 7,692.31 - 1,025.64 MATU Income 997.21 1.5 664.80 766.78 - 101.98 Purchased 991.67 1.5 661.11 762.82 - 101.71 Earned 5.54 1.5 3.69 3.96 - 0.27 As per current functionality, Investment Accounting (InvestOne) reverses out all accrual and revaluation before posting the MATU transaction:


Reversal of Accrual


DR Income 766.93











Debit Credit

Generated MATU


DR Real. Exch G/L 1,127.35



CR Income 766.78


CR Security at Value 7,692.31


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Generated CUP



Manual CSELL USD

DR Cash Capital 7,331.47


Generated PSINC Passed Maturity




Generated CDN 0001



Generated CUP 0001



Manual CSELL USD 0001



Generated CAPTR



Remaining Balance after MATU

Capital Asset

Security at Value 0.00

Cash Principal (462.65)


Capital



Income Asset

Cash (Income) 0.00


Income Liability

Other Payable 0.00


Income P/L

Income (3.96)

Passed Income 3.96



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ALERT: The user must make sure that no currency income is left in the pool after the MATU has been process. A manual CSELL transaction must be entered. If currency income is left in the Pool, the system automatically revalues the balance using the exchange rate of that day leaving an income balance in the Pool and therefore an incorrect NAV. The utility report run on the Pooling Analysis (POOLRP) Screen flags any income balance left in the Pool.


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TRANSACTION CODES As displayed in the example below, when interest are received, sold or matured with any withholding and reclaim, the system automatically generates a passed transaction to remove the earned income (not the purchased interest) from the NAV of the pool.

MATU PSINC SELL PSIC

MATU- PSINC- RSELL PSIC-

MATU+ PSINC RBSELL PSIC

RMATU PSINC-

RBMATU PSINC

INT PSINC RECL PSRECL

INT - PSINC- RECL- PSRCL-

INT + PSINC RECL+ PSRECL

RINT PSINC- RRECL PSRCL-

RBINT PSINC RBRECL PSRECL

WEXP PSWEXP RECU PSRECL

WEXP- PSWXP- RECU- PSRCL-

WEXP+ PSWXP RECU+ PSRECL

RWEXP PSWXP- RRECU PSRCL-

RBWEXP PSWEXP RBRECU PSRECL


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2.2 INTEREST ALLOCATION

All purchased or earned interest is allocated to the Top Level Funds based on the current ownership factor. The allocation process only allocates the local values, as the Top Level Funds can have a different exchange rate source than the pool. Purchased Interest being an asset, it is rebalanced between Top Level Funds when a change of ownership occurs. The allocation can be summarized as follows: Accrual: Allocated using the current ownership factor.

Payment: Allocated using the sum of interest accruals for each TLF up to the prior day of the pay date. This stops the allocation of income to Top-Level Funds that are not entitled to it.

Adjustment: Allocated based on the ownership factors in effect as of the trade date of the transaction.

Reversal: Allocated based on the sum of the accrual as at trade date of the transaction. If the trade date of the reversal transaction (RINT) entered match the effective date of the original transaction (INT), then the amount of the reversal transaction is split to the TLF the same way as the original transaction was.

Payment with no accrual:

Allocated base on the ownership factors in effect as of the trade date of the transaction. A payment with no accrual is considered by the system as an adjustment.

EXAMPLES For the purpose of this example, all transactions are settled. ACCRUAL Pool 1 has the following activity:

Security UK Treasury Transaction BUY Settlement date Day1 Shares 10,000 Principal 10,000 Income 975 Daily accrual 2.77

POOL FUND A FUND B FUND C

DAY 1 Ownership 100% 50% 50% 0%

Purchased interest 975.00 487.50 487.50 0.00

Daily accrual 2.77 1.39 1.38 0.00

DAY 2 Ownership 100% 48% 22% 30%

Rebalancing of Purch. Int. -19.50 -273.00 292.50

Daily accrual 2.77 1.33 0.61 0.83

DAY 3 Ownership 100% 40% 15% 45%

Rebalancing of Purch. Int. -78.00 -68.25 146.25

Daily accrual 2.77 1.11 0.42 1.24

DAY 4 Ownership 100% 20% 45% 35%

Rebalancing of Purch. Int. -195.00 292.50 -97.50

Daily accrual 2.77 0.55 1.25 0.97


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PAYMENT On Day 4 the pool receives an Interest Payment. The INT is allocated based on the sum of the accruals and purchased income up to Day 3, plus or minus any rebalancing of purchased income happening on Day 4, to arrive at the total on which the payment allocation is based:

POOL FUND A FUND B FUND C TOTAL DAY 3 Sum of Purchased interest 975.00 390.00 146.25 438.75 Sum of Daily accrual 8.31 3.83 2.41 2.07

TOTAL 983.31 393.83 148.66 440.82 Rebalancing of Day 4. -195.00 292.50 -97.50

TOTAL 983.31 198.83 441.16 343.32

Sum of the Accrual Ownership 100% 20.220479807% 44.864793401% 34.91472679% Interest Receipt Allocation 983.31 198.83 441.16 343.32

ADJUSTMENT On Day 5 an Interest Adjustment is process for 150.00 on the pool with a Trade Date of Day 4. The allocation process uses the ownership factor as of the trade date entered on the INT – (day 4), not the sum of the accrual of Day 4, or the ownership factor of Day 5. If the user wants to make an adjustment on an INT related to a Bond, it is preferable to use Reversal and Rebook transactions, which allocate based on the sum of the accrual of the transaction being reversed. Adjustments are generally used for Interest on Cash balances. POOL FUND A FUND B FUND C DAY 4 Ownership 100% 20% 45% 35% Interest Receipt Allocation 983.31 198.83 441.16 343.32 DAY 5 Ownership 100% 25% 60% 15% INT – with trade day Day 4. -150.00 -30.00 -67.50 -52.50 REVERSALS On Day 5 a Reversal and Rebook for 1000 of the Interest received on Day 4 is processed on the pool with a Trade Date to equal the effective date of the original transaction. The allocation process allocates the reversal and rebook in exactly the same way as the original transaction if the pool fund allocates reversals based on effective date of the original trade ( ‘O’ on RV/RB field on AASP or ALOC RV/RB on DARV). With current ownership, any reversal and rebook with earned income or expense will allocate based on the sum of the accrual at the time of the original transaction. Purchased income will allocate on current ownership.


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POOL FUND A FUND B FUND C DAY 4 Ownership 100% 20% 45% 35% Interest Receipt Allocation 983.31 198.83 441.16 343.32 DAY 5 Ownership 100% 25% 60% 15% RINT with Trade Day 4. -983.31 -198.83 -441.16 -343.32 RBINT with Trade Date Day4 1,000.00 202.20 448.65 349.15

2.3 TOP-LEVEL FUND ACTIVITY

ACCRUAL All accruals are split to the Top-Level Funds using the allocation process. This process creates a holding and pool-lot records for each accrual. All interest accrual passed up from the Pool are in the currency of the security they originated from. The accruals are reported the same way as on any other funds types. In addition, they are also reported separately on the currency Balance Base Amounts (CBAL6) screen, and all Pool-Lots are displayed on the Pool Fund Data Analysis (VSPHDA) screen. On the transaction analysis report, the “Trading Account” Spectra code (A8) displays the Pool number from which the transaction originates in the event of the same transaction on the same security being processed on multiple pools.

PAYMENT When an Interest payment is received in the Pool, the allocation process automatically splits it to the Top-Level Funds based on the allocation method explained previously. An Interest Transaction INT is created on the Top-Level Fund and is shown passing through the pooled currency position of the Top-Level Fund. For Top-Level OEIC, it passes through the pooled income currency (qualifier 0001). All transactions coming from the Pool are considered global when being split to the Top-Level Fund. This is to make sure that the cash received from the Pool is dissociated from the base cash of the Top-Level Fund. Therefore, when an income transaction is processed (whether domestic or global), a currency transaction CUP is generated out of translation to update the currency balance. Another currency transaction CDN is also generated to update the currency balance for the currency paid to the funds. The two generated currency transactions are exactly offsetting each others, netting to zero. They simply track the flow of the currency through the pool, up to the Top-Level Funds. The interest is applied to the currency of the Top-Level Fund using the PSCCRC (Passed Cash/Currency Receipt) transaction. For Top-Level OEIC, it is written to the income currency (qualifier of 0001). Finally, a CSELL (Currency Sell) transaction is also generated to convert the currency to cash.


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General Ledger for Interest or Reclaim

INT/RECL DR Pooled Currency Allowance

CR Interest Income or Withholding Tax Exp/Reclaim

CUP DR Pooled Currency at Value


CDN DR Pooled Currency Allowance

CR Pooled Currency at Value

PSCCRC DR Currency at Value


CSELL DR Cash (Income)

CR Currency at Value

Ending Result

DR Cash (Income)

CR Interest Income or Withholding Tax Exp/Reclaim

General Ledger for Withholding Tax

WEXP DR Withholding Tax Exp/Reclaim


CDN DR Pooled Currency Allowance

CR Pooled Currency at Value

CUP DR Pooled Currency at Value


PSCCPD DR Pooled Currency Allowance

CR Currency at Value

CBUY DR Currency at Value

CR Cash (Income)

Ending Result

DR Withholding Tax Exp/Reclaim

CR Cash (Income)

Pooled interest payments are reported separately on the Currency Balance Base Amount (CBAL6) screen and the Pool Fund Data Analysis (VSPHDA) screen.

SYSTEM MANUAL - SECTION - 5.3170 – INVESTMENT POOL FUND PROCESSING INCOME PROCESSING – INTEREST ON POOL CASH

3 DIVIDEND PROCESSING

All dividends, withholding tax and reclaims are processed in the Pools for Pool funds with a base country defined on the Account Definition II (AAMF) screen and that select either Pool Allocation level 1 or 2, on the Account Special Processing Definition (AASP) screen. The Pools then pass all related dividend activity (accruals/payment) onto each Top-Level Fund. For Pools which have no base country defined, the gross dividend accruals is calculated based on the Pool holdings and passed to the Top Level Funds. For these Pools, withholding or reclaim accruals are calculated based on the base country/tax group (withholding tax and reclaim rates) of a TLF as well as the local value of the dividend accrual attributable to each Top-Level Fund. The local dividend is computed by multiplying the local dividend value at the pool fund by the ownership factor available on the ex-date of the dividend. Later, that local value of the dividend corresponding to each Top-Level Fund is multiplied by the tax rates (matching with the base country and tax group of TLF) in order to figure out the withholding and reclaim accrual. Lastly, in order to derive at the pool’s withholding and reclaim accruals, the amounts for all Top-Level Fund’s has to be aggregated. The same values then need to be allocated to each Top-Level Fund. The allocation process creates one withholding/reclaim accrual for each holding and pool-lot record Pooled Fund Activity

ACCRUAL The dividend accruals are processed in the Pools using existing functionalities. Each dividend accrues in the currency of the security. Each valuation period, the Pool calculates the dividend accruals during the normal inventory (sweep) processing in accordance with the income rate of the Corporate Actions – Rates (DECR) screen. Just like any other type of account, when the income is accrued for the Pool, the income receivable account is updated. In addition, for Investment Pools, two other accounts, “Passed Income” and “Passed Liabilities”, are updated. Dividend Accrual Journal Entries

DR Accrued Income Receivable

DR Passed Income

CR Dividend Income

CR Passed Liability

Withholding Accrual Journal Entries

DR Withholding Tax Exp/Reclaim

DR Passed With/Recl Exp Liability

CR Other Payable

CR Passed With/Recl

Reclaim Accrual Journal Entries

DR Reclaim Receivable

DR Passed With/Recl

CR Withholding Tax Exp/Reclaim

CR Passed With/Recl Exp Liability


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All dividend accruals are displayed and reported the same way as OEIC dividend accruals are.


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PASSED ACCRUAL: The system automatically allocates all Pool Dividend, Withholding, Reclaim accruals to the Top-Level Funds for each valuation period. No transactions are generated for the passed accrual. However, all passed dividend/withholding/reclaim accruals amounts are displayed on the Account Valuation Balance (VSVB3) screen for domestic amount and on the Currency Balance Base Amounts (CBAL6) screen for global amounts. The Passed Accruals update the “Other Payable” and “Passed Liability” accounts: Passed Income Journal Entries

DR Passed Liability

CR Other Payable

Passed Withholding Expense Journal Entries

DR Other Receivable


Passed Reclaim Journal Entries


CR Reclaim Payable

The receivable value from the dividend and reclaim accrual contra with the payable value of the passed accrual and vice versa for the withholding tax accrual, so the income earned has no effect on the net assets of the Pool. The net effect on the Pool is zero. The Pool is not to be affected by exchange gain loss on the accrued income. Since the income receivable and the income payable offset each other, any exchange gain or loss to one is offset by the other.

PAYMENT:

Pool level dividend, withholding tax and reclaims are paid in the currency of the security. Like in any other accounts, the transaction generator (BGTG) generates all the Dividend, Withholding and Reclaim transactions. The payments update the same accounts as the accruals (Passed Income and Passed Liability): DIVD

General Ledger DR Passed Income

DR Cash (Income)

CR Dividend Income

CR Passed Liability

WEXP

General Ledger DR Withholding Tax Exp/Reclaim


CR Cash (Income)

CR Passed With/Recl


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RECL

General Ledger DR Passed With/Recl

DR Cash (Income)

CR Withholding Tax Exp/Reclaim


Dividend, withholding payment and reclaim receipt are shown online similar to the OEIC. As current functionality, when a foreign income transaction is processed, a currency transaction is generated out of translation to update the currency balance. In addition, a currency transaction is also generated to update the currency balance for the currency paid to the funds. The two generated currency transaction are exactly offsetting each other, netting to zero. They simply track the flow of the currency through the pool, up to the Top-Level Funds.

PASSED DIVIDEND, WITHHOLDING, RECLAIM TRANSACTIONS: When dividend transactions are processed a Passed-Income transaction is created to offset it. When withholding or reclaims apply, a Passed-withholding and Passed-Reclaim are also created to offset them. The same applies to adjustment or reversal transactions.

DIVD PSINC RECL PSRECL

DIVD- PSINC- RECL- PSRCL-

DIVD+ PSINC RECL+ PSRECL

RDIVD PSINC- RRECL PSRCL-

RBDIVD PSINC RBRECL PSRECL

WEXP PSWEXP RECU PSRECL

WEXP- PSWXP- RECU- PSRCL-

WEXP+ PSWXP RECU+ PSRECL

RWEXP PSWXP- RRECU PSRCL-

RBWEXP PSWEXP RBRECU PSRECL

The Passed-Income transactions include both the local currency and the Pool base currency value of the income. For income payment in foreign currency, the passed transactions are created after the base currency equivalent of the foreign income has been determined in translation. The value of the passed transaction must be exactly equal to the values of the original income transaction. The total of the income transaction and the generated Passed-Income transaction related to dividend should net to zero. As well as “Cash (Income)”, the Passed transaction also updates “Passed Liability”


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PSINC

General Ledger DR Passed Liability

CR Cash (Income)

PSWEXP

General Ledger DR Cash (Income)


PSRECL

General Ledger DR Passed With/Recl Exp Liability

CR Reclaim Payable

These transactions are displayed on line in all places where the dividend transactions are. In addition, they are also displayed on the Account Valuation Balances (VSVB3) screen for domestic amount and on the Currency Balance Base Amounts (CBAL6) screen, (See “New Online Reporting Screen” section for detail of the fields).

3.1 DIVIDEND ALLOCATION

The Top-Level Fund cannot have Dividend activity other than the one passed from the Pools. For the above reason, the TLF accounts must have all generator fields on the Account Definition (AAAD) screen set up as “N”. Therefore, all Pools dividends and related taxes must be passed to the TLF each valuation period. As with any other passed transactions, a holding is generated in the Top-Level Fund for each passed transaction. The holding also has pool-lots under it for each Pool. For Pools which have no base country defined, the gross dividend and interest transactions are calculated on the pool holdings and passed to the Top Level Funds. For these Pools, withholding tax or reclaim transactions are generated on the Pool but the calculation of tax values is different. Withholding tax and reclaim transactions for cross jurisdictional Pools are based on the base country of the TLF (withholding tax and reclaim rates), and ownership percentage* effective date on the ex-date of the dividend of each Top-level Fund invested into that Pool. The local value of the dividend or interest attributable to each Top-Level Fund is used later to compute tax values at each TLF. This is done by multiplying the value of the local dividend/interest for the TLF by the withholding/reclaim rate (that is matching to the Base Country and Tax Group of that specific Top-Level Fund). The tax values on the Pool are obtained by summing all withholdings and reclaims for each individual Top-Level Fund owning the Pool. Lastly, the values corresponding to each TLF that were used to calculate the withholding and reclaim amounts at the Pool are utilized when allocating the withholding and reclaim transactions to the TLF’s. The allocation process only allocates the local values of the transactions (base values are calculated during the translation of the Top-Level Funds).


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The allocation can be summarized as follows: Accrual: Allocated using the current ownership factor.

Payment: Allocated using the sum of dividend accruals for each TLF up to the prior day of the pay date. Normally, the dividend accrual has been allocated on EX DATE using the ownership factor on this date, and the payment is split using this allocation. Any Top-Level Fund that came in after EX DATE is not entitled to a proportion of the payment.

Adjustment: Allocated based on the ownership factors in effect as of the trade date of the transaction.

Reversal: Allocated based on the sum of the accrual as at trade date of the transaction. If the trade date of the reversal transaction (RDIVD) entered match the effective date of the original transaction (DIVD), then the amount of the reversal transaction is split to the TLF the same way as the original transaction was.

Payment with no accrual:

Allocated base on the ownership factors in effect as of the trade date of the transaction. A payment with no accrual is considered by the system as an adjustment.


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3.1.1 Examples

In these examples, the percentage amounts shown in the box underneath the fund represents the current ownership factor.

ACCRUAL Pool 1 displays the following information on the Corporate Actions / Rates (DECR) screen:

Security: ATT Ex-date: Day 1 Pay-date: Day 4 Income rate: 0.1

Pool 1 hold 10,000 shares in security ATT as at ex-date. Day 1:

$600 $400FUND A FUND B

60% 40%

POOL 1

$1,000Day 2: No further accrual. Fund C invests into Pool 1 Day 3: No further accrual. Fund B invests more into Pool 1

FUND A FUND B FUND C50.00% 30.00% 20.00%

POOL 1

FUND A FUND B FUND C50.00% 40.00% 10.00%

POOL 1


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PAYMENT Day 4: Fund D invests into Pool 1 and ATT pays its dividend

$600 $400.00FUND A FUND B FUND C FUND D40.00% 30.00% 20.00% 10.00%

POOL 1

$1,000

ADJUSTMENT Day 5: Fund D invests more money into Pool 1. An adjustment of $500 is made with a trade

date of day 4. The allocation process uses the ownership factor as of the trade date day 4, even if the ownership factor of day 5 is different.

$200 $150.00 $100 $50FUND A FUND B FUND C FUND D45.00% 25.00% 15.00% 15.00%

POOL 1 $500

REVERSALS Day 5: The payment of $1000 is reversed and a rebook is made for $1200 with a trade date

to equal the effective date of the original DIVD transaction that is, day 4.

$720 $480

F U N D A F U N D B F U N D C F U N D D45.00% 25.00% 15.00% 15.00%

P O O L 1

$1,200

($600) ($400 .00)

($1 ,000)

The income is allocated from the Pool to the Top-Level Funds at each valuation period. The allocation generates the following activity:


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3.2 TOP-LEVEL FUND ACTIVITY

ACCRUAL All accruals are split to the Top-Level Funds using the allocation process. This process creates a holding and pool-lot records for each accrual. All dividend accrual passed up from the Pool are in the currency of the security they originated from. All the pooled accruals are reported the same way as accrual on other funds types are. In addition, they are also reported separately on the Currency Balance Base Amounts (CBAL6) screen. All Pool-Lots are displayed on the Pool Fund Data Analysis (VSPHDA) screen.

PAYMENT When the dividend payment is received in the Pool, the allocation process automatically splits it to the Top-Level Funds. A Dividend transaction DIVD is created on the TLF and is shown passing through the pooled currency position of the TLF. For Top-Level OEIC, it passes through pooled income currency (qualifier 0001). All transaction coming from the Pool is considered global when being split in the Top-Level Funds. Therefore, when a domestic income transaction is processed , a currency transaction CUP is generated out of translation to update the currency balance. Another currency transaction CDN is also generated to update the currency balance for the currency paid to the funds. The two generated currency transaction are exactly offsetting each other, netting to zero. They simply track the flow of the currency through the pool, up to the Top-Level Funds. The dividend is applied to the currency of the Top-Level Fund using the PSCCRC (Passed Cash/Currency Receipt) transaction. For Top-Level OEIC, it is written to the income currency (qualifier of 0001). Finally, a CSELL (Currency Sell) transaction is also generated to convert the currency to cash.


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GENERAL LEDGER FOR DIVIDEND OR RECLAIM

Debit Credit

DIVD/RECL Pooled Currency Allowance

Dividend Income or Withholding Tax Exp/Reclaim

CUP Pooled Currency at Value

Pooled Currency Allowance

CDN Pooled Currency Allowance

Pooled Currency at Value

PSCCRC Currency at Value


CSELL Cash (Income)

Currency at Value

Ending Result:

Cash (Income)

Dividend Income or Withholding Tax Exp/Reclaim

GENERAL LEDGER FOR WITHHOLDING TAX

Debit Credit

WEXP Withholding Tax Exp/Reclaim






PSCCPD Pooled Currency Allowance

Currency at Value

CBUY Currency at Value

Cash (Income)

Ending Result:

Withholding Tax Exp/Reclaim

Cash (Income)

Pooled dividend payments are reported separately on the Currency Balance Base Amount (CBAL6) screen and the Pool Fund Data Analysis (VSPHDA) screen.


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Cross Jurisdictional Pools For Pools with no Base Country defined on the Account Definition II screen (AAMF), or that choose to settle income in the Top-Level Fund via POOL ALLOC option 3 on the Account Special Processing Definition screen (AASP), the generated INT, DIVD or RECL on the Top-Level Fund passes through the currency position of the Top-Level Fund. For Top-Level OEIC funds, it passes through the income currency (qualifier 0001). For all foreign income transactions in the Top-Level Fund, a currency transaction CUP is generated out of translation to update the currency balance of the Top-Level Fund. The CUP will be processed under the currency or income currency (OEIC) of the Top-Level Fund and not the pool fund. Domestic income transactions will settle in the base currency of the Top-Level Fund and no CUP or CDN is needed. Under new settlement option no currency sell (CSELL) or Passed Cash Receipt (PSCCRC) transaction codes are generated as the Top-Level Fund is receiving currency now. The main difference for allocating a withholding expense is that a CDN is generated out of translation instead of a CUP. The currency buy (CBUY) or Passed Cash Paid are not generated because the income settles in the Top-Level Fund.

GENERAL LEDGER FOR INTEREST, DIVIDEND OR RECLAIM

Debit Credit

INT/DIVD/RECL Pooled Currency Allowance

Interest/Dividend Income/Reclaim



Ending Result: Pooled Currency Allowance

Interest/Dividend Income/Reclaim

GENERAL LEDGER FOR WITHHOLDING TAX

Debit Credit

WEXP Withholding Tax Exp/Reclaim




Ending Result: Withholding Tax Expense


4 INTEREST ON POOL CASH

Interest accruals or interest payments on a Cash balance held in a Pool are passed to each Top-Level Fund. Passed transactions are generated in the Pool for each interest transaction on Cash and Passed Journal entries are posted for interest accruals on pool cash.


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Interest accrued on a Cash balance held in a Pool is allocated to a Top-Level Fund as interest accrued on a pooled currency balance. An INT transaction for Cash in a Pool is allocated as a CINC transaction for Pooled Currency in a Top-Level Fund. The following examples show how an INT transaction for Cash in a USD-base Pool is allocated as a CINC for Pool:USD in a USD-based Top-Level Fund (assuming100% ownership). Example 1: Investment Pool and Top-Level Mutual Fund have Same Base Currency How an INT transaction for Cash in a Pool is allocated to a Top-Level Mutual Fund: Account: Investment Pool General Ledger

Security: Cash DR:Cash (Income)

Tran: INT DR:Passed Income

Income: 100.00 CR:Income

CR:Passed Liability

Account: Investment Pool General Ledger

Security: Cash DR:Passed Liability

Tran: PSINC CR:Cash (Income)

Income: 100.00

Account: Top-Level Fund General Ledger

Security: Pool:USD DR:Pooled Currency at Value

Tran: CINC CR:Income

Shares/Par: 100.0000

Principal: 100.00


Security: USD DR:Currency at Value

Tran: PSCCRC CR:Pooled Currency Allowance


Principal: 100.00


Security: Pool:USD DR:Pooled Currency Allowance

Tran: CDN CR:Pooled Currency at Value


100.00


Security: USD DR:Cash (Principal)

Tran: CSELL CR:Currency at Value


Principal: 100.00


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Example 2: Investment Pool and Top-Level OEIC have Same Base Currency This example shows how an INT transaction for Cash in a Pool is allocated to a Top-Level OEIC:


Security: Cash DR:Cash (Income)

Tran: INT DR:Passed Income

Income: 100.00 CR:Income

CR:Passed Liability


Security: Cash DR:Passed Liability

Tran: PSINC CR:Cash (Income)

Income: 100.00


Security: Pool:USD DR:Pooled Currency at Value

Tran: CINC CR:Income


Principal: 100.00


Security: USD 00001 DR:Currency at Value

Tran: PSCCRC CR:Pooled Currency Allowance


Principal: 100.00


Security: Pool:USD DR:Pooled Currency Allowance

Tran: CDN CR:Pooled Currency at Value


Principal: 100.00


Security: USD 00001 DR:Cash (Income)

Tran: CSELL CR:Currency at Value


Principal: 100.00

SYSTEM MANUAL - SECTION - 5.3170 – INVESTMENT POOL FUND PROCESSING INCOME PROCESSING – RECONCILIATION OF TOP-LEVEL FUNDS TO THE POOL

5 RECONCILIATION OF TOP-LEVEL FUNDS TO THE POOL

The reconciliation process checks that the local value of the dividend, interest, withholding tax and reclaim at the Pool Level matches the total local values of dividend, interest, withholding tax and reclaim allocated to the Top-Level Funds (as Pools and TLF could have different base currencies). The reconciliation process is as follows: For each outstanding dividend, interest, withholding tax or reclaim on the Pool, the system identifies each corresponding dividend, interest, withholding tax or reclaim held by the Top-Level Funds relating to that Pool (identified by pool-lot), sums and compares the following items: Top Level Funds Investment Pool

Local gross income accrued and paid Local gross income accrued and paid

Local tax withholding accrued and paid Local tax withholding accrued and paid

Local tax reclaims accrued and paid Local tax reclaims accrued and paid

Local net amount accrued and paid Local net amount accrued and paid

For any dividend, interest, withholding tax or reclaim where the amounts do not reconcile, the system produces an exception.


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SYSTEM MANUAL - SECTION - 5.3170 – INVESTMENT POOL FUND PROCESSING INCOME PROCESSING –TOP-LEVEL FUND VALUATION


6 TOP-LEVEL FUND VALUATION

Once the allocation processed is finished, the fund can be valued in the “Top-Level Valuation” (TLFVL) screen. However, for the valuation of the TLF to be meaningful, all of the Pools that the fund is invested in should be allocated through the period to be valued. The TLF valuation process should apply prices and exchange rates to the currency transactions and positions allocated from the Pools.

6.1 DISTRIBUTION AND ACCUMULATION OF INCOME

The distribution and accumulation of income of the TLF is process with the same functionality. The distribution/accumulation of the income of the TLF has no impact in the Pool as it has no income left.

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5.3170 Income Processingdocs.sungard.com/InvestOne/140Doc/System_Manual/Section... · 2016-04-14 · system manual - section - 5.3170 – investment pool fund processing income processing