van Eyk Blueprint International Shares Fund ARSN Annual report - 30 June 2014

Transcription

1 van Eyk Blueprint International Shares Fund ARSN Annual report - 30 June 2014

2 ARSN Annual report - 30 June 2014 Contents Page Directors' Report 1 Auditor's Independence Declaration 5 Statement of Comprehensive Income 6 Statement of Financial Position 7 Statement of Changes in Equity 8 Statement of Cash Flows 9 10 Directors' Declaration 33 Independent Auditor's Report 34 This financial report covers van Eyk Blueprint International Shares Fund as an individual entity. The Responsible Entity of van Eyk Blueprint International Shares Fund is Macquarie Investment Management Limited (ABN ). The Responsible Entity's registered office is No. 50 Martin Place, Sydney, NSW 2000.

3 Directors' Report 30 June 2014 The directors of Macquarie Investment Management Limited ("MIML"), a wholly owned subsidiary of Macquarie Group Limited ("MGL"), the Responsible Entity of van Eyk Blueprint International Shares Fund, present their report together with the financial report of van Eyk Blueprint International Shares Fund (the "Trust") for the year ended 30 June Principal activities The Trust invests in unlisted unit trusts and derivatives in accordance with the Trust Constitution. The Trust did not have any employees during the year. There were no significant changes in the nature of the Trust s activities during the year. Directors The following persons held office as directors of MIML during the year or since the end of the year and up to the date of this report: H Brown (appointed 01/07/2014) M Davis (appointed 01/11/2015) J Edstein (appointed 01/07/2013) I Miller (appointed 01/07/2013) J Skender (appointed 01/07/2013, resigned 30/06/2014) B Terry (resigned 30/06/2015) Review and results of operations Results The performance of the Trust, as represented by the results of its operations, was as follows: Operating profit before finance costs attributable to unitholders () 14,791 25,985 Distributions Distribution paid and payable () 3,589 4,961 Distribution (cents per unit) Significant changes in state of affairs The Trust invested in Artefact Partners Global Opportunities Fund Limited ("Artefact") between July and October 2012 after the investment was selected for the Trust by van Eyk Research Pty Ltd ( Investment Manager ), who was the Investment Manager of the Trust at that time. Unbeknownst to the Responsible Entity until July 2014 and contrary to Artefact s investment mandate, Artefact came to be fully invested in Torchlight Fund LP ("Torchlight") subsequent to the Trust s investment in Artefact in As a result of Artefact s investment in Torchlight, Artefact, and the Trust s investment in Artefact, became illiquid. On 1 August 2014, the Responsible Entity suspended applications and redemptions for the Trust, after becoming aware that the Trust s investment in Artefact was illiquid. The Trust ceased trading on 15 August 2014 and will be wound up once it has realised all of its investments. The Trust will continue to be managed in accordance with the Trust Constitution until that time. 1

4 Directors' Report 30 June 2014 Significant changes in state of affairs (continued) In the opinion of the directors, there were no other significant changes in the state of affairs of the Trust that occurred during the financial year under review. Matters subsequent to the end of the financial year On 1 August 2014, the Responsible Entity suspended applications and redemptions for the Trust, after becoming aware that one of the Trust s material assets, its receivable from Artefact, was illiquid. The Trust ceased trading on 15 August 2014 and is in the process of being wound-up in accordance with the Trust's Constitution. On 15 September 2014, the Investment Manager of the Trust, van Eyk Research Pty Ltd ( van Eyk ), entered into voluntary administration. On 16 September 2014, the Responsible Entity terminated van Eyk's appointment as Investment Manager of the Trust and accordingly, after this date, van Eyk no longer provided investment management services to the Trust. In August 2014, Artefact was placed into voluntary liquidation. Artefact was placed under the control of independent liquidators in June As at the date of this report, the Trust has outstanding redemption proceeds of $10,931,802 for its investment in Artefact, having received $19,992,604 towards payment of the outstanding redemption since the Trust ceased trading. The Responsible Entity has been advised by Artefact s liquidators that Artefact has received the full remaining amount owing to it from its underlying investment, which is approximately the same as the amount that Artefact owes to the Trust, and that the liquidators of Artefact will make a final distribution to creditors, including the Trust, in due course. Based on available information, the Trust does not expect to recover the full outstanding redemption proceeds of $10,931,802 from its investment in Artefact due to liquidation costs and other creditor claims in relation to the Artefact liquidation. At the date of this report, the Trust continues to carry the Artefact receivable at its full outstanding redemption value of $10,931,802 as, on 19 May 2016, the Trust entered into a limited recourse loan deed with MQ Capital Pty Limited ( MQ Capital ), a wholly owned subsidiary of MGL, that included the Trust receiving an amount equal to the outstanding balance of the Artefact receivable. The loan from MQ Capital is only repayable from any amounts received by the Trust from its investment in Artefact, legal proceedings to which the Trust is a party or from the former Investment Manager of the Trust in connection with Artefact. As a result, there will be no impact on the net assets of the Trust from any subsequent impairment losses recognised in relation to the Artefact receivable. In January 2015, the Responsible Entity commenced proceedings against Artefact, Artefact s investment manager and adviser and others in the High Court of England and Wales alleging breach of investment mandate and seeking payment of the outstanding redemption proceeds and other amounts (including interest and costs). The proceedings are continuing. On 19 May 2016, the Trust entered into a limited recourse loan deed with MQ Capital, resulting in the Trust receiving an interest free loan of $12,287,672 (the Loan ) from MQ Capital. Repayment of the Loan is limited to any amounts received by the Trust from its investment in Artefact or from the former Investment Manager of the Trust in connection with Artefact or from proceeds received from certain legal proceedings to which the Trust is a party. On 20 May 2016, the full amount of the Loan was used by the Trust to pay termination proceeds to unitholders. The termination proceeds included a payment to unitholders of an amount equal to the outstanding balance of the Artefact receivable ($10,931,802). Subsequent amounts received by the Trust from its investment in Artefact, from the Investment Manager or the legal proceedings to which the Trust is a party will be used to repay the Loan from MQ Capital. It is not expected that the Trust will receive, from these sources, any excess over and above the amount of the Loan from MQ Capital. However, if this were to occur, any excess amount would be returned to unitholders as an additional payment of termination proceeds. As at the date of this report, the Trust has paid termination proceeds to unitholders totalling $99,121,783, an amount per unit equal to 102.2% of unit value at the date that the Trust ceased trading. 2

5 Directors' Report 30 June 2014 Matters subsequent to the end of the financial year (continued) No other matter or circumstance has arisen since 30 June 2014 that has significantly affected, or may significantly affect: (i) the operations of the Trust in future financial years, or (ii) the results of those operations in future financial years, or (iii) the state of affairs of the Trust in future financial years. Likely developments and expected results of operations The Trust ceased trading on 15 August 2014 and is in the process of being wound-up in accordance with the Trust's Constitution. Further information on likely developments in the operations of the Trust and the expected results of those operations have not been included in this report because the Responsible Entity believes it would be likely to result in unreasonable prejudice to the Trust. Indemnification and insurance of officers and auditors No insurance premiums are paid for out of the assets of the Trust in regards to insurance cover provided to either the officers of the Responsible Entity or the auditors of the Trust. Under the Trust Constitution, the Responsible Entity of the Trust is entitled to be indemnified out of the assets of the Trust for any liability incurred by it in properly performing or exercising any of its powers or duties in relation to the Trust. Fees paid to and interests held in the Trust by the Responsible Entity or its associates Fees paid to the Responsible Entity and its associates out of Trust property during the year are disclosed in note 11 of the financial statements. No fees were paid out of Trust property to the directors of the Responsible Entity during the year (2013: Nil). The number of interests in the Trust held by the Responsible Entity, its directors or its associates as at the end of the financial year are disclosed in note 11 of the financial statements. Interests in the Trust The movement in units on issue in the Trust during the year is disclosed in note 6 of the financial statements. The value of the Trust s assets and liabilities is disclosed on the statement of financial position and derived using the basis set out in note 2 of the financial statements. Environmental regulation The operations of the Trust are not subject to any particular or significant environmental regulations under a Commonwealth, State or Territory law. 3

6 Directors' Report 30 June 2014 Rounding of amounts to the nearest thousand dollars Pursuant to Class Order 98/100 issued by the Australian Securities & Investments Commission, relating to the "rounding off" of amounts in the directors' report and financial report, amounts in the directors' report and financial report have been rounded off to the nearest thousand dollars in accordance with that Class Order, unless otherwise indicated. Auditor's independence declaration A copy of the Auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 5. This report is made in accordance with a resolution of the directors. Director:... I Miller Sydney 20 July

7 Ernst & Young 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: Fax: ey.com/au Auditor s Independence Declaration to the Directors of Macquarie Investment Management Limited As lead auditor for the audit of van Eyk Blueprint International Shares Fund for the financial year ended 30 June 2014, I declare to the best of my knowledge and belief, there have been: a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b) no contraventions of any applicable code of professional conduct in relation to the audit. Ernst & Young Darren Handley-Greaves Partner 20 July 2016

8 Statement of Comprehensive Income Notes Income Distribution income 3,176 1,573 Net gains on financial instruments held at fair value through profit or loss 5 12,463 24,922 Rebate income Total net income 15,792 26,903 Expenses Responsible Entity fees 11 (963) (918) Interest expense Other operating expenses (16) - (22) - Total operating expenses (1,001) (918) Operating profit 14,791 25,985 Finance costs attributable to unitholders Distributions to unitholders (3,589) (4,961) Increase in net assets attributable to unitholders 6 (11,202) (21,024) Profit/(loss) for the year - - Other comprehensive income for the year - - Total comprehensive income for the year - - The above statement of comprehensive income should be read in conjunction with the accompanying notes. 6

9 Statement of Financial Position As at 30 June 2014 Notes Assets Cash and cash equivalents Margin accounts 1,133 - Other receivables Financial assets held at fair value through profit or loss 9 69, ,125 Due from underlying investments 8 30, Total assets 102, ,049 Liabilities Redemptions payable Distributions payable 457 1,360 Responsible Entity fees payable Withholding tax payable - 3 Financial liabilities held at fair value through profit or loss Total liabilities (excluding net assets attributable to unitholders) 1,537 2,333 Net assets attributable to unitholders - liability 6 100, ,716 The above statement of financial position should be read in conjunction with the accompanying notes. 7

10 Statement of Changes in Equity Total equity at the beginning of the year - - Total comprehensive income for the year - - Transactions with owners in their capacity as owners - - Total equity at the end of the year - - Under Australian Accounting Standards, net assets attributable to unitholders are classified as a liability rather than equity. As a result there was no equity at the start or end of the year. The above statement of changes in equity should be read in conjunction with the accompanying notes. 8

11 Statement of Cash Flows Notes Cash flows from operating activities: Proceeds from sale of financial instruments held at fair value through profit or loss 135, ,669 Purchase of financial instruments held at fair value through profit or loss (94,836) (179,442) Rebate income received Interest paid (16) - Responsible Entity fees paid (955) (912) Payment of other expenses (22) - Net cash inflow from operating activities 12(a) 40,197 48,722 Cash flows from financing activities: Proceeds from applications by unitholders 10,819 19,223 Payments for redemptions by unitholders (49,100) (66,999) Distributions paid (1,919) (607) Withholding tax paid (3) (2) Net cash outflow from financing activities (40,203) (48,385) Net (decrease)/increase in cash and cash equivalents (6) 337 Cash and cash equivalents at the beginning of the year Effects of foreign currency exchange rate changes on cash and cash equivalents (161) 12 Cash and cash equivalents at the end of the year Non-cash financing activities 12(b) 2,573 3,288 The above statement of cash flows should be read in conjunction with the accompanying notes. 9

12 1 General information This financial report covers van Eyk Blueprint International Shares Fund (the "Trust") as an individual entity. The Trust was constituted on 17 January 2003 and it ceased trading on 15 August The Trust is a registered managed investment scheme domiciled in Australia. The Responsible Entity of the Trust is Macquarie Investment Management Limited (the "Responsible Entity''). The Responsible Entity s registered office is No. 50 Martin Place, Sydney, NSW The financial report is presented in Australian dollars. During the year, the Investment Manager of the Trust was van Eyk Research Pty Ltd (the "Investment Manager"). On 15 September 2014, the Investment Manager of the Trust, van Eyk Research Pty Ltd ("van Eyk"), entered into voluntary administration. On 16 September 2014, the Responsible Entity terminated van Eyk's appointment as Investment Manager of the Trust and accordingly, after this date, van Eyk no longer provided investment management services to the Trust. On 1 August 2014, the Responsible Entity suspended applications and redemptions for the Trust, after becoming aware that one of the Trust s material assets, its receivable from Artefact Partners Global Opportunities Fund Limited ("Artefact"), was illiquid. The Trust ceased trading on 15 August 2014 and is in the process of being wound-up in accordance with the Trust's Constitution. As at the date of this report, the Trust has outstanding redemption proceeds of $10,931,802 for its investment in Artefact, having received $19,992,604 towards payment of the outstanding redemption since the Trust ceased trading. The Responsible Entity has been advised by Artefact s liquidators that Artefact has received the full remaining amount owing to it from its underlying investment, which is approximately the same as the amount that Artefact owes to the Trust, and that the liquidators of Artefact will make a final distribution to creditors, including the Trust, in due course. Based on available information, the Trust does not expect to recover the full outstanding redemption proceeds of $10,931,802 from its investment in Artefact due to liquidation costs and other creditor claims in relation to the Artefact liquidation. At the date of this report, the Trust continues to carry the Artefact receivable at its full outstanding redemption value of $10,931,802 as, on 19 May 2016, the Trust entered into a limited recourse loan deed with MQ Capital Pty Limited ( MQ Capital ), a wholly owned subsidiary of Macquarie Group Limited ("MGL"), that included the Trust receiving an amount equal to the outstanding balance of the Artefact receivable. The loan from MQ Capital is only repayable from any amounts received by the Trust from its investment in Artefact, legal proceedings to which the Trust is a party or from the former Investment Manager of the Trust in connection with Artefact. As a result, there will be no impact on the net assets of the Trust from any subsequent impairment losses recognised in relation to the Artefact receivable. On 19 May 2016, the Trust entered into a limited recourse loan deed with MQ Capital, resulting in the Trust receiving an interest free loan of $12,287,672 (the Loan ) from MQ Capital. Repayment of the Loan is limited to any amounts received by the Trust from its investment in Artefact or from the former Investment Manager of the Trust in connection with Artefact or from proceeds received from certain legal proceedings to which the Trust is a party. On 20 May 2016, the full amount of the Loan was used by the Trust to pay termination proceeds to unitholders. The termination proceeds included a payment to unitholders of an amount equal to the outstanding balance of the Artefact receivable ($10,931,802). Subsequent amounts received by the Trust from its investment in Artefact, from the Investment Manager or the legal proceedings to which the Trust is a party will be used to repay the Loan from MQ Capital. It is not expected that the Trust will receive, from these sources, any excess over and above the amount of the Loan from MQ Capital. However, if this were to occur, any excess amount would be returned to unitholders as an additional payment of termination proceeds. As at the date of this report, the Trust has paid termination proceeds to unitholders totalling $99,121,783, an amount per unit equal to 102.2% of unit value at the date that the Trust ceased trading. The financial statements were authorised for issue by the directors on 20 July The directors of the Responsible Entity have the power to amend and reissue the financial report. 10

13 2 Summary of significant accounting policies The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated in the following text. (a) Basis of preparation This general purpose financial report has been prepared in accordance with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001 in Australia. The financial report is prepared on a liquidation basis as the Trust ceased trading on 15 August There has been no impact of using the liquidation basis of accounting in the current period. The statement of financial position is presented on a liquidity basis. Assets and liabilities are presented in decreasing order of liquidity and do not distinguish between current and non-current. All balances are expected to be recovered or settled within twelve months after the end of each reporting period, except for investments in financial assets, net assets attributable to unitholders and the amount due from the underlying investment in Artefact. The amount expected to be recovered or settled within twelve months after the end of each reporting period cannot be reliably determined. Where necessary, comparative information has been reclassified to be consistent with current period disclosures. Changes in Australian Accounting Standards The Trust has adopted all mandatory Australian Accounting Standards and Interpretations for the financial year beginning on or after 1 July The following key Accounting Standards and amendments to Accounting Standards became applicable in the current financial year: (i) AASB 10 Consolidated Financial Statements and related standards AASB 11 Joint Arrangements, AASB 12 Disclosure of Interest in Other Entities (effective from 1 January 2013) AASB 10 Consolidated Financial Statements establishes a new control model that applies to all entities. It replaces parts of AASB 127 Consolidated and Separate Financial Statements dealing with the accounting for consolidated financial statements and UIG Consolidation - Special Purpose Entities. AASB 11 Joint Arrangements and AASB 12 Disclosure of Interest in Other Entities affect the level of disclosures surrounding the Trust s interests in subsidiaries, associates, joint ventures and unconsolidated structured entities. Adoption of these standards has not had any effect on the financial position, performance or financial report disclosures of the Trust. (ii) AASB 13 Fair Value Measurement (effective from 1 January 2013) AASB 13 Fair Value Measurement establishes a single source of guidance under AASB for determining the fair value of assets and liabilities. AASB 13 Fair Value Measurement does not change when an entity is required to use fair value, but rather, provides guidance on how to determine fair value when fair value is required or permitted. Application of this definition may result in different fair values being determined for the relevant assets. AASB 13 Fair Value Measurement also expands the disclosure requirements for all assets or liabilities carried at fair value. This includes information about the assumptions made and the qualitative impact of those assumptions on the fair value determined. 11

14 2 Summary of significant accounting policies (continued) (a) Basis of preparation (continued) (ii) AASB 13 Fair Value Measurement (effective from 1 January 2013) (continued) Adoption of this standard has not had any effect on the financial position, performance or financial report disclosures of the Trust. (iii) AASB Amendments to Australian Accounting Standards - Disclosures - Offsetting Financial Assets and Financial Liabilities (effective from 1 January 2013) These amendments require an entity to disclose information about rights of set-off and related arrangements (such as collateral agreements). The aim of the amendments is to provide users of financial statements with information about the effect or potential effect of such rights and arrangements on the Trust s financial position. The new disclosures are required for all recognised financial instruments that are set off in accordance with AASB 132 Financial Instruments: Presentation. These disclosures also apply to recognised financial instruments that are subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are set off in accordance with AASB 132 Financial Instruments: Presentation. The application of these amendments has not had any effect on the financial position or performance of the Trust; however the disclosure requirements are more comprehensive than the previously existing disclosure requirements. AASB Amendments to Australian Accounting Standards - Disclosures - Offsetting - Financial Assets and Financial Liabilities, disclosures are provided in note 3(f). Compliance with International Financial Reporting Standards The financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. (b) Financial instruments (i) Classification The Trust's investments are categorised as at fair value through profit or loss. They comprise:! Financial instruments held for trading These include derivative financial instruments such as futures and foreign currency forward contracts. The Trust does not designate any derivatives as hedges in a hedging relationship.! Financial instruments designated at fair value through profit or loss upon initial recognition These include financial assets that are not held for trading purposes and which may be sold. These include investments in unlisted unit trusts. Financial assets and financial liabilities designated at fair value through profit or loss at inception are those that are managed and their performance evaluated on a fair value basis in accordance with the Trust s documented investment strategy. The Trust s policy is for the Responsible Entity to evaluate the information about these financial assets on a fair value basis together with other related financial information. Loans and receivables comprise amounts due to the Trust. 12

15 2 Summary of significant accounting policies (continued) (b) Financial instruments (continued) (ii) Recognition/derecognition The Trust recognises financial assets and financial liabilities on the date it becomes party to the contractual agreement (trade date) and recognises changes in fair value of the financial assets or financial liabilities from this date. Investments are derecognised when the right to receive cashflows from the investments has expired or the Trust has transferred substantially all risks and rewards of ownership. (iii) Measurement (a) Financial assets and financial liabilities held at fair value through profit or loss Financial assets and financial liabilities held at fair value through profit or loss are measured initially at fair value excluding any transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability. Transaction costs on financial assets and financial liabilities at fair value through profit or loss are expensed immediately. Subsequent to initial recognition, all instruments held at fair value through profit or loss are measured at fair value with changes in their fair value recognised in the statement of comprehensive income.! Fair value in an active market The fair value of financial assets and financial liabilities traded in active markets is based on their quoted market prices at the statement of financial position date without any deduction for estimated future selling costs. Financial assets are priced at current bid prices, while financial liabilities are priced at current asking prices.! Fair value in an inactive or unquoted market The fair value of financial assets and financial liabilities that are not traded in an active market is determined using valuation techniques. These include the use of recent arm s length market transactions, reference to the current fair value of a substantially similar other instrument, discounted cash flow techniques, option pricing models or any other valuation technique that provides a reliable estimate of prices obtained in actual market transactions. Where discounted cash flow techniques are used, estimated future cash flows are based on management s best estimates and the discount rate used in a market rate at the statement of financial position date applicable for an instrument with similar terms and conditions. For other pricing models, inputs are based on market data at the statement of financial position date. Fair values for unquoted equity investments are estimated, if possible, using applicable pricing/earnings ratios for similar listed companies adjusted to reflect the specific circumstances of the issuer. The fair value of derivatives that are not exchange traded is estimated at the amount that the Trust would receive or pay to terminate the contract at the statement of financial position date taking into account current market conditions (volatility and appropriate yield curve) and the current creditworthiness of the counterparties. Investments in unlisted unit trusts are recorded at the redemption value per unit as reported by the managers of such trusts. Details on how the fair value of financial instruments is determined are disclosed in note 3(e). 13

16 2 Summary of significant accounting policies (continued) (b) Financial instruments (continued) (iii) Measurement (continued) (b) Loans and receivables Loans and receivables are measured initially at fair value plus transaction costs and subsequently amortised using the effective interest method, less impairment losses if any. Such assets are reviewed at each statement of financial position date to determine whether there is objective evidence of impairment. If any such indication of impairment exists, an impairment calculation is undertaken and any impairment loss is recognised in the statement of comprehensive income as the difference between the asset s carrying amount and the present value of estimated future cash flows discounted at the original effective interest rate. If in a subsequent period the amount of an impairment loss recognised on a financial asset carried at amortised cost decreases and the decrease can be linked objectively to an event occurring after the write-down, the write-down is reversed through the statement of comprehensive income. (iv) Offsetting financial instruments Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position if, and only if, there is a legally enforceable right to offset the recognised amounts at all times and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. (c) Net assets attributable to unitholders Units are redeemable at the unitholders' option and are therefore classified as financial liabilities. The units can be put back to the Trust at any time for cash based on the redemption price. The fair value of redeemable units is measured at the redemption amount that is payable (based on the redemption unit price) at the statement of financial position date if unitholders exercised their right to put the units back to the Trust. (d) Cash and cash equivalents For the purpose of presentation in the statement of cash flows, cash includes cash on hand and deposits held at call with financial institutions. Cash equivalents include other short-term, highly liquid investments with original maturities of three months or less from the date of acquisition that are readily convertible to known amounts of cash, which are subject to an insignificant risk of changes in value and are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes. Bank overdrafts, if any, are shown separately on the statement of financial position. Payments and receipts relating to the purchase and sale of investment securities are classified as cash flows from operating activities, as movements in the fair value of these securities represent the Trust's main income generating activity. (e) Margin accounts Margin accounts comprise cash held as collateral for derivative transactions. The cash is held by the broker and is only available to meet margin calls. 14

17 2 Summary of significant accounting policies (continued) (f) Income Distributions from trusts are recognised on an entitlements basis. Rebate income is recognised in the statement of comprehensive income on an accruals basis. (g) Expenses All expenses, including Responsible Entity fees, are recognised in the statement of comprehensive income on an accruals basis. (h) Income tax Under current legislation, the Trust is not subject to income tax as unitholders are presently entitled to the income of the Trust. Financial instruments held at fair value may include unrealised capital gains. Should such a gain be realised, that portion of the gain that is subject to capital gains tax will be distributed so that the Trust is not subject to capital gains tax. The Trust may incur withholding tax imposed by certain countries on investment income. Such income is recorded gross of withholding tax in the statement of comprehensive income. Realised capital losses are not distributed to unitholders but are retained in the Trust to be offset against any realised capital gains. If realised capital gains exceed realised capital losses, the excess is distributed to unitholders. The benefits of imputation credits and tax paid are passed on to unitholders. (i) Foreign currency translation (i) Functional and presentation currency Items included in the Trust s financial statements are measured using the currency of the primary economic environment in which it operates (the functional currency ). This is the Australian dollar, which reflects the currency of the economy in which the Trust competes for funds and is regulated. The Australian dollar is also the Trust s presentation currency. (ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translations at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of comprehensive income. The Trust does not isolate that portion of gains or losses on securities and derivative financial instruments that are measured at fair value through profit or loss and which is due to changes in foreign exchange rates from that which is due to changes in the market price of securities. Such fluctuations are included with the net gains on financial instruments at fair value through profit or loss. 15

18 2 Summary of significant accounting policies (continued) (j) Distributions In accordance with the Trust Constitution, the Trust fully distributes its distributable income, and any other amounts determined by the Responsible Entity, to unitholders by cash or reinvestment. The distributions to unitholders are recognised in the statement of comprehensive income as finance costs attributable to unitholders. (k) Movement in net assets attributable to unitholders Income and expenses that are not included in distributable income and not distributed to unitholders are included in net assets attributable to unitholders. Unrealised gains and losses on financial instruments are included in net assets attributable to unitholders as they are not distributed to unitholders until realised. Capital losses are not distributed to unitholders but are retained to be offset against any future realised capital gains. Movements in net assets attributable to unitholders are recognised in the statement of comprehensive income as finance costs attributable to unitholders. (l) Receivables Receivables include assets and accrued income owing to the Trust which have not been received at year end and may include such items as distribution and Reduced Input Tax Credits ("RITC"). Distribution income is accrued when the right to receive payment is established. Amounts are generally received within 30 days of being recorded as receivables. (m) Due from underlying investments Amounts due from underlying investments may include outstanding redemption proceeds receivable from underlying investments. The amounts are recognised as receivable once a redemption notice has been made by the Trust to the underlying investment and is recognised at the fair value of the underlying investment at the date of redemption. (n) Payables Payables include liabilities and accrued expenses owing by the Trust which are unpaid as at year end. The distribution amount payable to unitholders as at year end is recognised separately in the statement of financial position as unitholders are presently entitled to the distributable income under the Trust Constitution. The redemption amount payable to unitholders as at year end is recognised separately in the statement of financial position. The withholding tax payable as at year end is recognised separately in the statement of financial position as under certain circumstances tax is withheld from distributions to unitholders in accordance with applicable legislation. 16

19 2 Summary of significant accounting policies (continued) (o) Goods and Services Tax ("GST") The GST incurred on the costs of various services provided to the Trust by third parties such as Responsible Entity fees have been passed onto the Trust. The Trust qualifies for RITC hence Responsible Entity fees and other expenses have been recognised in the statement of comprehensive income net of the amount of GST recoverable from the Australian Taxation Office ("ATO"). Accounts payable are inclusive of GST. The net amount of GST recoverable from the ATO is included in receivables in the statement of financial position. Cash flows relating to GST are included as cash flows from operating activities in the statement of cash flows on a gross basis. (p) Applications and redemptions Applications received for units in the Trust are recorded net of any entry fees payable prior to the issue of units in the Trust. Redemptions from the Trust are recorded gross of any exit fees payable after the cancellation of units redeemed. (q) Use of estimates The Responsible Entity makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates are continually evaluated and based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Certain financial instruments, for example, over-the-counter derivatives and unquoted securities are fair valued using valuation techniques. Where valuation techniques (for example, pricing models) are used to determine fair values, they are validated and periodically reviewed by experienced personnel of the Responsible Entity, independent of the area that created them. Models are calibrated by back-testing to actual transactions to ensure that outputs are reliable. Models use observable data to the extent practicable. However, inputs such as credit risk (both own and counterparty), volatilities and correlations require management to make estimates. Changes in assumptions about these inputs could affect the reported fair value of financial instruments. For certain other financial instruments, including accounts payable, the carrying amounts approximate fair value due to the immediate or short-term nature of these financial instruments. 17

20 2 Summary of significant accounting policies (continued) (r) New accounting standards and interpretations Certain new accounting standards and interpretations have been published that are not mandatory for the 30 June 2014 reporting periods. The Responsible Entity s assessment of the impact of these new standards (to the extent relevant to the Trust) and interpretations is set out below: (i) AASB 9 Financial Instruments, AASB Amendments to Australian Accounting Standards arising from AASB 9, AASB Amendments to Australian Accounting Standards - Conceptual Framework, Materiality and Financial Instruments - Part C and related amendment AASB and AASB Amendments to Accounting Standards AASB 9 Financial Instruments applies to annual reporting periods beginning on or after 1 January 2018 and will therefore apply to the Trust from 1 July AASB 9 Financial Instruments requires all financial instruments to be measured at fair value unless the criteria for amortised cost are met. The application of the standard is not expected to change the measurement basis of any of the Trust's current financial instruments, however, AASB 9 Financial Instruments allows the Trust to elect to present gains and losses on financial instruments held at fair value through other comprehensive income, which may impact the presentation of these gains and losses. The impact of the standard may also change if the nature of the Trust's activities or investments changes prior to initial application. The Trust is continuing to assess the full impact of adopting AASB 9 Financial Instruments. (ii) AASB Amendments to Australian Accounting Standards - Offsetting Financial Assets and Financial Liabilities These amendments clarify the meaning of a legally enforceable right to set-off. The amendments also clarify the application of AASB 132 Financial Instruments: Presentation offsetting criteria to settlement systems (such as central clearing house systems) which apply gross settlement mechanisms that are not simultaneous. These amendments are not expected to impact the Trust s financial position or performance and become effective for annual periods beginning on or after 1 January 2014 and will therefore apply to the Trust from 1 July The Trust does not intend to early adopt AASB Amendments to Australian Accounting Standards - Offsetting Financial Assets and Financial Liabilities as permitted by the standard. Management does not expect these amendments will have a significant effect on the financial position, performance or financial report disclosures of the Trust. (iii) AASB Amendments to Australian Accounting Standards - Investment Entities AASB Amendments to Australian Accounting Standards - Investment Entities applies to annual reporting periods beginning on or after 1 January 2014 and will therefore apply to the Trust from 1 July Under AASB Amendments to Australian Accounting Standards - Investment Entities, an investment entity may apply the exemption to consolidation and instead account for its investments in subsidiaries at fair value through profit and loss. Where the Trust qualifies as an investment entity, the change in accounting policy will be applied retrospectively in accordance with the transition provisions of AASB 10 Consolidated Financial Statements. The amendments also introduce new disclosure requirements for investment entities to AASB 12 Disclosure of Interests in Other Entities and AASB 127 Separate Financial Statements. The Trust does not intend to early adopt AASB Amendments to Australian Accounting Standards - Investment Entities as permitted by the standard. Management does not expect these amendments will have a significant effect on the financial position, performance or financial report disclosures of the Trust. 18

21 2 Summary of significant accounting policies (continued) (r) New accounting standards and interpretations (continued) (iv) AASB Amendments to Australian Accounting Standards Disclosure initiative: AASB 101 Presentation of Financial Statements These amendments clarify the materiality requirements in AASB 101. These amendments also clarify that specific line items in the statement of comprehensive income and the statement of financial position may be disaggregated and that the entities have flexibility as to the order in which they present the notes to financial statements. These amendments are not expected to impact the Trust s financial position or performance and become effective for annual periods beginning on or after 1 January 2016 and will therefore apply to the Trust from 1 July The Trust does not intend to early adopt AASB as permitted by the standard. Management does not expect these amendments will have a significant effect on the financial position, performance or financial report disclosures of the Trust. (v) AASB Amendments to Australian Accounting Standards Investment Entities: Applying the Consolidation Exception AASB introduces a choice in application of the equity method by a non-investment entity investor to an investment entity investee. When a non-investment entity investor applies the equity method to an investment entity associate or joint venture, the investor may retain the fair value measurement applied by the investment entity associate or joint venture to its interests in subsidiaries, or reverse the fair value measurement to conform to the accounting policies of the investor. AASB is effective for annual reporting periods beginning on or after 1 January As the Trust does not have any subsidiary investments, the application of this standard has no impact on the financial position nor performance of the Trust. Standards and interpretations that are not expected to have a material impact on the Trust have not been included. (s) Rounding of amounts Pursuant to Class Order 98/100 issued by the Australian Securities & Investments Commission, relating to the "rounding off" of amounts in the directors' report and financial report, amounts in the directors' report and financial report have been rounded off to the nearest thousand dollars in accordance with that Class Order, unless otherwise indicated. 3 Financial risk management (a) Strategy in using financial instruments The Trust s activities expose it to a variety of financial risks: market risk (which may include price risk, foreign exchange risk and interest rate risk), credit risk and liquidity risk. The Responsible Entity s overall risk management programme focuses on ensuring compliance with the Trust s investment guidelines and seeks to maximise the returns derived for the level of risk to which the Trust is exposed. The Trust uses derivatives and other instruments for trading purposes and in connection with its risk management activities. 19

22 3 Financial risk management (continued) (a) Strategy in using financial instruments (continued) The Trust may use derivative financial instruments:! to gain or reduce the Trust s exposure to a particular security or index! for currency hedging. Derivatives are not used to gear (leverage) the portfolio. Gearing a portfolio would occur if the level of exposure to the markets exceed the underlying value of the Trust. Financial risk management is monitored by the Responsible Entity's risk management department under policies approved by the Responsible Entity's senior managers or by the board of directors of the Responsible Entity (the "Board"). The Responsible Entity reviews any identified high and medium severity exceptions to internal risk policies and procedures on a quarterly basis. (b) Market risk (i) Price risk The Trust trades in financial instruments such as unlisted unit trusts, exchange traded instruments and overthe-counter instruments, such as derivatives. Price risk is managed by seeking to ensure that the Trust is investing in accordance with its stated objectives. The Trust's unlisted unit trusts and derivatives are susceptible to market price risk arising from uncertainties about future prices of the instruments. At 30 June 2014, the Trust's market risk is affected by changes in market prices. If the exposure of financial assets and financial liabilities at 30 June 2014 had increased by 10% with all other variables held constant, this would have increased net assets attributable to unitholders by approximately $9,774,596 (2013: 10%; $12,612,457). Conversely, if the exposure of financial assets and financial liabilities at 30 June 2014 had decreased by 10% with all other variables held constant, this would have decreased net assets attributable to unitholders by approximately $9,774,596 (2013: 10%; $12,612,457). (ii) Foreign exchange risk The Trust holds both monetary and non-monetary assets and liabilities denominated in currencies other than the Australian dollars. The foreign exchange risk relating to non-monetary assets and liabilities is a component of price risk. Foreign exchange risk arises as the value of monetary assets and liabilities denominated in other currencies will fluctuate due to changes in exchange rates. Concentration and monitoring of currency risk Notwithstanding that investments in non-monetary items do not give rise to currency risk under the accounting standards, the Trust monitors its exposure to each currency on both monetary and non-monetary assets and liabilities as a percentage of net assets attributable to unitholders in order to ensure that its risk to adverse currency movements remains within its mandate limits. 20

23 3 Financial risk management (continued) (b) Market risk (continued) (ii) Foreign exchange risk (continued) The table below sets out the Trust's foreign currency exposure at the reporting date. % of net assets attributable to unitholders Currency USD 14% 9% Others* 18% - Total 32% 9% * The foreign currency exposure relating to monetary assets and liabilities in all other currencies is individually not material to the Trust. There are no mandate limits on the Trust's exposure to foreign currency. Foreign exchange risk on monetary assets and monetary liabilities is measured using sensitivity analysis. The following table summarises the sensitivity of the Trust to foreign exchange risk as at 30 June The sensitivity of profit/(loss) for the year and the impact on net assets attributable to unitholders is the effect of a reasonably possible change in foreign exchange rates on monetary assets and liabilities held at year end. If exchange rates increased or decreased by 10%, with all other variables remaining constant, the approximate movement in net assets attributable to unitholders would amount to the following. In practice, the actual results may differ from the below sensitivity analysis and the difference could be significant. Foreign exchange risk USD USD +10%/-10% +10%/-10% A A Impact on operating profit/net assets attributable to unitholders 459/(459) -/(-) (iii) Interest rate risk The Trust is not subject to significant amounts of interest rate risk due to fluctuations in the prevailing levels of market interest rates. Any excess cash and cash equivalents are invested at short-term market interest rates. (c) Credit risk Credit risk arises from cash and cash equivalents, deposits with banks and other financial institutions, counterparties to derivatives and amounts due from brokers. None of these assets are impaired nor past due but not impaired. 21