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1 Aberdeen Actively Hedged International Equities Fund ARSN Annual financial report

2 Aberdeen Actively Hedged International Equities Fund ARSN Annual financial report Contents Page Directors report 2 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 11 Directors declaration 34 Independent auditor s report to the unitholders of the 35-1-

3 Directors report 30 June 2016 Directors report The directors of Aberdeen Asset Management Limited, the Responsible Entity (the Responsible Entity ) of the Aberdeen Actively Hedged International Equities Fund (the Scheme ), present their report together with the financial statements of the Scheme for the year ended 30 June 2016 and the auditor s report thereon. Responsible Entity The registered office and principal place of business of the Responsible Entity and the Scheme is Level 10, 255 George Street, Sydney NSW The directors of Aberdeen Asset Management Limited during or since the end of the financial year and up to the date of this report are as follows: Hugh Young Brett Jollie Mark Daniels Robert Penaloza Gil Orski Stuart James Nicholas George Bishop Principal activities The Scheme is a registered managed investment scheme domiciled in Australia. The Scheme continued to invest in international equity securities in accordance with the provisions of the Scheme s Constitution. The overall investment objective of the Scheme is to provide investors with high capital growth over the medium to long term by seeking exposure to companies listed on securities exchanges around the world. The Scheme aims to outperform the MSCI All Countries World Accumulation Index (ex Australia) ( MSCI Index ) over the suggested investment time frame (5 years plus). The Scheme did not have any employees during the year. -2-

4 Directors report 30 June 2016 Directors report Review and results of operations Results The performance of the Scheme, as represented by the results of its operations, was as follows: 30 June 2016 Year ended 30 June 2015 Operating profit/(loss) ($) (25,915,983) 110,851,127 Distributions Distributions paid/payable ($) 24,888,925 20,588,086 Distributions (cents per unit) Interests of the Responsible Entity The following fees were paid and payable to the Responsible Entity from the Scheme during the financial year $ 2015 $ Management fees paid and payable by the Scheme 8,955,100 9,835,571 Valuation of assets 2016 $ 2015 $ Value of total Scheme assets as at 30 June 795,916,687 1,028,929,219 The basis for valuation of the Scheme s assets is disclosed in Note 2, Note 3 and Note 5 to the financial statements. Significant changes in the state of affairs In the opinion of the Responsible Entity, there were no significant changes in the state of affairs of the Scheme that occurred during the financial year. Matters subsequent to the end of the financial year As the investments are measured at their 30 June 2016 fair values in the financial report, any volatility in values subsequent to the reporting date are not reflected in the statement of comprehensive income or the statement of financial position. However the current value of investments has been reflected in the current unit price. No matter or circumstance has arisen since 30 June 2016 that has significantly affected, or may significantly affect: (i) (ii) (iii) the operations of the Scheme in future financial years, or the results of those operations in future financial years, or the state of affairs of the Scheme in future financial years. Likely developments and expected results of operations The Scheme will continue to pursue its policy of increasing returns through active investment selection. -3-

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7 Statement of comprehensive income Statement of comprehensive income 30 June 2016 Year ended 30 June 2015 Notes $ $ Investment income Interest income 148, ,399 Dividends income 25,523,857 29,194,951 Net gains/(losses) on financial instruments held at fair value through profit or loss 6 (39,463,274) 93,890,295 Net foreign exchange gains/(losses) (543,941) 555,603 Other operating income 41,462 4,553 Total net investment income/(loss) (14,293,500) 123,996,801 Expenses Management fees 17 8,955,100 9,835,571 Transaction costs 566, ,230 Withholding tax expense 2,020,670 2,689,694 Other operating expenses 80, ,179 Total operating expenses 11,622,483 13,145,674 Profit/(loss) from operating activities (25,915,983) 110,851,127 Finance costs Distributions to unitholders 11 (24,888,925) (20,588,086) Change in net assets attributable to unitholders 10 (50,804,908) 90,263,041 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-

8 Statement of financial position As at 30 June 2016 Statement of financial position As at 30 June June 2015 Notes $ $ Assets Cash and cash equivalents 12 8,391,958 17,837,873 Receivables 15 5,257,101 5,158,239 Applications receivable 175, ,058 Balances due from brokers 84, ,408 Financial assets held at fair value through profit or loss 7,9 782,008,163 1,004,727,641 Total assets 795,916,687 1,028,929,219 Liabilities Payables , ,383 Redemptions payable 2,544,658 1,257,124 Distributions payable 11 17,184,328 14,955,646 Financial liabilities held at fair value through profit or loss 8,9 372,692 - Total liabilities (excluding net assets attributable to unitholders) 20,722,900 17,036,153 Net assets attributable to unitholders ,193,787 1,011,893,066 Represented by: Net assets attributable to unitholders at redemption price 775,705,737 1,012,463,061 Adjustments arising from different unit pricing and accounting standard valuation principles (511,950) (569,995) 775,193,787 1,011,893,066 The above statement of financial position should be read in conjunction with the accompanying notes. -7-

9 Statement of changes in equity Statement of changes in equity The Scheme s net assets attributable to unitholders are classified as a liability under AASB 132 Financial Instruments: Presentation. As such, the Scheme has no equity and no items of changes in equity have been presented for the current or comparative year. -8-

10 Statement of cash flows Statement of cash flows 30 June 2016 Year ended 30 June 2015 Notes $ $ Cash flows from operating activities Proceeds from sale of financial instruments held at fair value through profit or loss 387,072, ,715,556 Purchase of financial instruments held at fair value through profit or loss (201,927,249) (147,009,126) Dividends received 21,996,224 26,031,151 Interest received 171, ,012 Other income received 85,383 - Management fees paid (9,157,396) (10,544,081) Payment of other operating expenses (646,578) (3,410,724) Proceeds from / (payments for) foreign exchange movements (453,693) 464,366 Net cash inflow/(outflow) from operating activities 13(a) 197,140,550 49,580,154 Cash flows from financing activities Proceeds from applications by unitholders 88,576, ,114,126 Payments for redemptions by unitholders (280,117,507) (147,668,805) Distributions paid (14,955,645) (20,953,464) Net cash inflow/(outflow) from financing activities (206,496,217) (39,508,143) Net increase/(decrease) in cash and cash equivalents (9,355,667) 10,072,011 Cash and cash equivalents at the beginning of the year 17,837,873 7,674,625 Effects of foreign currency exchange rate changes on cash and cash equivalents (90,248) 91,237 Cash and cash equivalents at the end of the year 12 8,391,958 17,837,873 The above statement of cash flows should be read in conjunction with the accompanying notes. -9-

11 Contents of the notes to the financial statements Page 1 General information 11 2 Summary of significant accounting policies 11 3 Financial risk management 16 4 Offsetting financial assets and financial liabilities 22 5 Fair value measurement 23 6 Net gains/(losses) on financial instruments held at fair value through profit or loss 25 7 Financial assets held at fair value through profit or loss 26 8 Financial liabilities held at fair value through profit or loss 26 9 Derivative financial instruments Net assets attributable to unitholders Distributions to unitholders Cash and cash equivalents Reconciliation of profit/(loss) to net cash inflow/(outflow) from operating activities Remuneration of auditors Receivables Payables Related party transactions Events occurring after the reporting period Contingent assets and liabilities and commitments

12 1 General information These financial statements cover the (the Scheme ) as an individual entity. The Responsible Entity of the Scheme is Aberdeen Asset Management Limited (the Responsible Entity ). The Responsible Entity s registered office is Level 10, 255 George Street, Sydney NSW The financial statements are presented in Australian currency. The Scheme continued to invest in international equity securities in accordance with the provisions of the Scheme s Constitution. The overall investment objective of the Scheme is to provide investors with high capital growth over the medium to long term by seeking exposure to companies listed on securities exchanges around the world. The Scheme aims to outperform the MSCI All Countries World Accumulation Index (ex Australia) ( MSCI Index ) over the suggested investment time frame (5 years plus). The annual financial statements were authorised for issue by the directors on 15 September The directors of the Responsible Entity have the power to amend and reissue the financial statements. 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. (a) Basis of preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards (AASBs) adopted by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001 in Australia. is a for-profit Scheme for the purpose of preparing the financial report. The financial statements are prepared on the basis of fair value measurement of assets and liabilities except where otherwise stated. The statement of financial position is presented on a liquidity basis. Assets and liabilities are presented in decreasing order of liquidity and are not distinguished between current and non-current. All balances are expected to be recovered or settled within twelve months, except for investments in financial assets and net assets attributable to unitholders. The Scheme manages financial assets based on the economic circumstances at any given point in time, as well as to meet any liquidity requirements. As such, it is expected that a portion of the portfolio will be realised within 12 months, however, an estimate of that amount cannot be determined as at reporting date. In the case of net assets attributable to unitholders, the units are redeemable on demand at the unitholder s option. However, holders of these instruments typically retain them for the medium to long term. As such, the amount expected to be settled within 12 months cannot be reliably determined. (i) Compliance with International Financial Reporting Standards (IFRS) The financial report of the Scheme complies with IFRS and interpretations adopted by the International Accounting Standards Board (IASB). (ii) New and amended standards adopted by the Scheme There are no standards, interpretations or amendments to existing standards that are effective for the first time for the financial year beginning 1 July 2015 that would be expected to have a material impact on the Scheme. -11-

13 2 Summary of significant accounting policies (b) Financial instruments (i) Classification The Scheme s investments are categorised as at fair value through profit or loss. They comprise: Financial instruments held for trading These include derivative financial instruments including foreign currency contracts. The Scheme 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 are investments in listed equity securities. 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 Scheme s documented investment strategy. The Scheme s policy is for the Responsible Entity to evaluate the information about these financial instruments on a fair value basis together with other related financial information. (ii) Recognition/derecognition The Scheme 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 cash flows from the investments have expired or the Scheme has transferred substantially all risks and rewards of ownership. (iii) Measurement and measurement principles Financial assets and liabilities held at fair value through profit or loss At initial recognition, the Scheme measures financial assets and financial liabilities at fair value. Transaction costs on financial assets and financial liabilities carried at fair value through profit or loss are expensed in the statement of comprehensive income. Subsequent to initial recognition, all financial assets and financial liabilities at fair value through profit or loss are measured at fair value. Gains and losses arising from changes in the fair value of the financial assets or financial liabilities at fair value through profit or loss category are presented in the statement of comprehensive income within net gains/(losses) on financial instruments held at fair value through profit or loss in the period in which they arise. Further details on how the fair values of financial instruments are determined are disclosed in Note 5. (iv) Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. Refer to Note 4 to the financial statements for further information. Income and expenses are presented on a net basis only when permitted under AASBs, e.g. for gains and losses arising from a group of similar transactions, such as gains and losses from financial instruments at fair value through profit or loss. -12-

14 2 Summary of significant accounting policies (c) Net assets attributable to unitholders Units are redeemable at the unitholders option, however, applications and redemptions may be suspended by the Responsible Entity if it is in the best interests of the unitholders. The units are classified as financial liabilities as the Scheme is required to distribute its distributable income. The units can be put back to the Scheme at any time for cash based on the redemption price. The carrying value of redeemable units is measured as the redemption amount that is payable (based on the redemption unit price) at the end of the reporting period if unitholders exercised their right to put the units back to the Scheme. (d) Specific instruments Cash and cash equivalents Cash comprises current deposits with banks. Cash equivalents are short-term highly liquid investments that are readily convertible to known amounts of cash, 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. Securities purchased under agreements to resell (reverse repurchase agreements) are reported not as purchases of the securities, but as receivables and are carried in the Statement of Financial Position at amortised cost. Derivative financial instruments Derivative financial instruments are recognised initially at fair value. The gain or loss on remeasurement to fair value is recognised immediately in the statement of comprehensive income. (e) Investment income Interest income is recognised in the statement of comprehensive income using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial asset or financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts throughout the expected life of the financial instrument, or a shorter period where appropriate, to the net carrying amount of the financial asset or liability. When calculating the effective interest rate, the Scheme estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment options) but does not consider future credit losses. The calculation includes all fees paid or received between the parties to the contract that are an integral part of the effective interest rate, including transaction costs and all other premiums or discounts. (f) Dividend income Dividend income is recognised on the ex-dividend date with any related foreign withholding tax recorded as an expense. (g) Expenses All expenses, including management fees are recognised in the statement of comprehensive income on an accruals basis. (h) Foreign exchange gains and losses Foreign exchange gains and losses on financial assets and financial liabilities at fair value through profit or loss are recognised together with other changes in the fair value. Included in the statement of comprehensive income line item, net changes in financial instruments held at fair value through profit or loss are net foreign exchange gains and losses on monetary financial assets and financial liabilities. -13-

15 2 Summary of significant accounting policies (i) Income tax Under current legislation, the Scheme is not subject to income tax provided the taxable income of the Scheme is fully distributed either by way of cash or reinvestment (i.e. unitholders are presently entitled to the income of the Scheme). 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 Scheme is not subject to capital gains tax. (j) Distributions In accordance with the Scheme s Constitution, the Scheme fully distributes its distributable (taxable) income, and any other amounts determined by the Responsible Entity, to unitholders by cash or reinvestment. The distributions are recognised in the statement of comprehensive income as finance costs attributable to unitholders. Distributions paid are included in cash flows from financing activities in the statement of cash flows. (k) Redeemable units All redeemable units issued by the Scheme provide the investors with the right to redemption for cash and give rise to a financial liability. In accordance with the product disclosure document the Scheme is contractually obliged to redeem units at redemption price, which includes an allowance for transaction costs that would be incurred by the Scheme on disposal of its assets required to fund the redemptions. As a result of the transaction cost factor, there will be a difference between the carrying amount of the net assets of the Scheme (excluding the unitholder s funds classified as a financial liability) and the contractual amount payable to unitholders which is based on the redemption price. The adjustments arising from different unit pricing and accounting standard valuation principles are presented in the statement of financial position as part of the net assets attributable to unitholders. (l) Change in net assets attributable to unitholders Income not distributed is included in the statement of comprehensive income as change in net assets attributable to unitholders. (m) Foreign currency translation (i) Functional and presentation currency Items included in the Scheme 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 Scheme competes for funds and is regulated. The Australian dollar is also the Scheme 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. Material 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 Scheme 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 or losses on financial instruments at fair value through profit or loss. -14-

16 2 Summary of significant accounting policies (n) Balance due from/to brokers These amounts represent margin accounts and receivables for securities sold and payables for securities purchased that have been contracted but not yet delivered by the end of the reporting period. Trades are recorded on trade date, and normally settled within three business days. A provision for impairment is established when there is objective evidence that the Scheme will not be able to collect all amounts in full. (o) Receivables Receivables may include amounts for interest and dividends. Interest is accrued at the reporting date from the time of last payment in accordance with the policy set out in Note 2(e) above. Dividends are accrued when the right to receive payment is established. Amounts are generally received within 30 days of being recorded as receivables. A provision for impairment is established when there is objective evidence that the Scheme will not be able to collect amounts in full. (p) Payables Payables include liabilities and accrued expenses owing by the Scheme which are unpaid as at the end of the reporting period. The distribution amount payable to unitholders as at the end of each reporting period is recognised separately on the statement of financial position when unitholders are presently entitled to the distributable income as declared under the Scheme s Constitution. (q) Applications and redemptions Applications received for units in the Scheme are recorded net of any entry fees payable prior to the issue of units in the Scheme. Redemptions from the Scheme are recorded gross of any exit fees payable after the cancelation of units redeemed. (r) Goods and Services Tax (GST) The GST incurred on the costs of various services provided to the Scheme by third parties such as investment management fees have been passed onto the Scheme. The Scheme qualifies for Reduced Input Tax Credits (RITC) hence investment management 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). Payables are stated with the amount of GST included. 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 in the statement of cash flows on a gross basis. (s) Use of estimates The Scheme 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. For the majority of the Scheme s financial instruments, quoted market prices are readily available. For certain other financial instruments, including amounts receivable/payable for securities sold and purchased, accounts payable and accrued expenses, the carrying amounts approximate fair value due to the immediate or short-term nature of these financial instruments. (t) New accounting standards and interpretations Certain new accounting standards and interpretations have been published that are not mandatory for the 30 June 2016 reporting period and have not been early adopted by the Scheme. The directors assessment of the impact of these new standards (to the extent relevant to the Scheme) and interpretations is set out below: -15-

17 2 Summary of significant accounting policies (t) New accounting standards and interpretations (i) AASB 9 Financial Instruments (and applicable amendments), (effective from 1 January 2018) AASB 9 Financial Instruments addresses the classification, measurement and derecognition of financial assets and financial liabilities. It has now also introduced revised rules around hedge accounting and impairment. The standard is not applicable until 1 January 2018 but is available for early adoption. The directors do not expect this to have a significant impact on the recognition and measurement of the Scheme s financial instruments as they are carried at fair value through profit or loss. The derecognition rules have not been changed from the previous requirements, and the Scheme does not apply hedge accounting. AASB 9 introduces a new impairment model. However, as the Scheme s investments are all held at fair value through profit or loss, the change in impairment rules will not impact the Scheme. The Scheme has not yet decided when to adopt AASB 9. (ii) AASB 15 Revenue from Contracts with Customers, (effective from 1 January 2018) The AASB has issued a new standard for the recognition of revenue. This will replace AASB 118 which covers contracts for goods and services and AASB 111 which covers construction contracts. The new standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer so the notion of control replaces the existing notion of risks and rewards. The Scheme s main sources of income are interest, distributions and dividends and gains on financial instruments held at fair value. All of these are outside the scope of the new revenue standard. As a consequence, the directors do not expect the adoption of the new revenue recognition rules to have a significant impact on the Scheme s accounting policies or the amounts recognised in the financial statements. There are no other standards that are not yet effective and that are expected to have a material impact on the Scheme in the current or future reporting periods and on foreseeable future transactions. (u) Rounding of amounts The Scheme is an entity of a kind referred to in ASIC Corporations (Rounding in Financial/Directors Reports) Instrument 2016/191 issued by the Australian Securities and Investments Commission (ASIC) relating to the rounding off of amounts in the financial statements. Amounts in the financial statements have been rounded to the nearest dollar in accordance with that ASIC Corporations Instrument, unless otherwise indicated. 3 Financial risk management The Scheme s activities expose it to a variety of financial risks: market risk (including price risk, currency risk and interest rate risk), credit risk, liquidity risk and operational risk. The Scheme s overall risk management programme focuses on ensuring compliance with the Scheme s Product Disclosure Statement (PDS) and seeks to maximise the returns derived for the level of risk to which the Scheme is exposed. Compliance with the Scheme s PDS requirements is monitored, and results are reported periodically to senior management and the Scheme s Compliance Committee. The Scheme uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of price risk and currency risk. -16-

18 3 Financial risk management (a) Market risk Market risk is the risk that losses may result from adverse movements in interest rates, foreign currency exchange rates, equity prices, commodity prices and other market metrics. The Scheme s level of market risk is predominantly defined by potential changes in the values of financial instruments in response to movements in the markets. A typical transaction may be exposed to a number of different market risks. (i) Price risk Price risk is the risk that the fair value or future cash flows of a financial instrument will change because of movements in market prices. The Scheme s investments are primarily in listed international equities with the result that the Scheme is exposed to direct price risk from market movements in international equities that may result in changes in the Scheme s investments. The Investment Manager mitigates price risk through diversification and a careful selection of securities and other financial instruments within specified limits. Between 90% and 100% of the net assets attributable to unitholders are invested in International equity securities. The table in Note 3(b) summarises the impact of an increase/decrease of the MSCI All Countries World Accumulation Index (ex Australia) ( MSCI Index) on the Scheme s net assets attributable to unitholders at 30 June The analysis is based on the assumptions that the index increased/decreased by 15% (2015: 15%) with all other variables held constant and that the fair value of the Scheme s portfolio of listed equity securities and derivatives moved according to the historical correlation with the index. The impact mainly arises from the possible change in the fair value of listed equities. (ii) Currency risk Currency risk is the change to the value of the Australian dollar, relative to other currencies. Primarily the Scheme s investments are listed international equities denominated in local currencies. As a result, the Scheme is directly exposed to movements in foreign exchange rates. Currency hedging of the Scheme s may vary between 0-50%. The table below summarises the Scheme s main assets and liabilities that are denominated in a currency other than the Australian dollar. 30 June 2016 US Dollars GBP JPY A$ A$ A$ Cash and cash equivalents 326, , ,609 Receivables 587, , ,076 Balances due from brokers - 84,269 Financial assets held at fair value through profit or loss 383,261, ,484,735 79,587,437 Financial liabilities held at fair value through profit or loss - - (1,101) 384,175, ,469,530 80,250,021 Foreign currency contracts exposure ,508 Total Net Exposure 384,175, ,469,530 79,910,

19 3 Financial risk management 30 June 2015 US Dollars GBP JPY A$ A$ A$ Cash and cash equivalents 161,099 92,648 - Receivables 941, , ,322 Balance due from brokers - 259,408 - Financial assets held at fair value through profit or loss 455,667, ,048,258 80,747, ,769, ,045,075 81,005,622 Net increase/(decrease) in exposure from foreign currency forward contracts - sell foreign currency The Scheme also holds $220,010,746 in other currencies (30 June 2015: $324,047,125). These currencies are individually less than 10% of the net asset attributable to unitholders (2015: 15%). The table in Note 3(b) summarises the impact of an increase/decrease of movements in the foreign exchange rates direct exposure by 10% on the Scheme s net assets attributable to unitholders and profit/(loss) from operating activities at 30 June 2016 (30 June 2015: 10%). (iii) Interest rate risk Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Scheme invests mainly in listed international shares denominated in currencies other than Australian dollars which are non-interest bearing and as such the Scheme is not exposed to significant levels of interest rate risk. However, the Scheme does hold cash for liquidity and transactional purposes and this cash is held at floating interest rates. As a result, the Scheme is subject to a limited exposure to interest rate risks due to fluctuations in the levels of market interest rates. -18-

20 3 Financial risk management (iii) Interest rate risk The Scheme s exposure to interest rate risk is set out in the following table: 30 June 2016 Floating interest rate Fixed interest rate Non-interest bearing Total $ $ $ $ Financial assets Cash and cash equivalents 8,391, ,391,958 Receivables - - 5,257,101 5,257,101 Applications receivable , ,195 Balance due from brokers ,270 84,270 Financial assets held at fair value through profit or loss ,008, ,008,163 Total assets 8,391, ,524, ,916,687 Financial liabilities Payables , ,222 Redemption payable - - 2,544,658 2,544,658 Distributions payable ,184,328 17,184,328 Financial liabilities held at fair value through profit or loss , ,692 Total liabilities (excluding net assets attributable to unitholders) ,722,900 20,722,900 Net exposure 8,391, ,801, ,193, June 2015 Floating interest rate Fixed interest rate Non-interest bearing Total $ $ $ $ Financial assets Cash and cash equivalents 17,837, ,837,873 Receivables - - 5,158,239 5,158,239 Applications receivable , ,058 Balance due from brokers , ,408 Financial assets held at fair value through profit or loss - - 1,004,727,641 1,004,727,641 Total assets 17,837,873-1,011,091,346 1,028,929,219 Financial liabilities Payables , ,383 Redemption payable - - 1,257,124 1,257,124 Distributions payable ,955,646 14,955,646 Total liabilities (excluding net assets attributable to unitholders) ,036,153 17,036,153 Net exposure 17,837, ,055,193 1,011,893,

21 3 Financial risk management (b) Summarised sensitivity analysis The following table summarises the sensitivity of the Scheme s operating profit and net assets attributable to unitholders to currency risk and other price risk. The Scheme has little to no sensitivities to interest rate risk. The reasonably possible movements in the risk variables have been determined based on management s best estimate, having regard to a number of factors, including historical levels of changes in price and interest rates, historical correlation of the Scheme s investments with the relevant benchmark and market volatility. However, actual movements in the risk variables may be greater or less than anticipated due to a number of factors, including unusually large market shocks resulting from changes in the performance of the economies, markets and securities in which the Scheme invests. As a result, historic variations in risk variables are not a definitive indicator of future variations in the risk variables. Price risk Impact on operating profit/net assets attributable to unitholders +15% -15% (MSCI Index) (MSCI Index) $ $ 30 June ,245,486 (117,245,486) 30 June ,709,105 (150,709,105) Currency risk Impact on operating profit/net assets attributable to unitholders +10% -10% +10% -10% +10% -10% USD USD GBP GBP JPY JPY $ $ $ $ $ $ 30 June 2016 (34,925,021) 42,686,137 (9,406,321) 11,496,614 (7,295,456) 8,916, June 2015 (40,615,403) 49,641,049 (14,458,643) 17,671, (c) Credit risk Credit risk is the possibility of loss being incurred as the result of a borrower or counterparty failing to meet its financial obligations. In the event of default, an investor generally incurs a loss equal to the amount owed by the debtor, less any recoveries resulting from foreclosure, liquidation of the collateral or restructuring of the obligation. Credit risk primarily arises from cash and cash equivalents, deposits with banks and other financial institutions. None of these assets are impaired nor past due but not impaired. The exposure to credit risk for cash and cash equivalents is low as all counterparties have a rating of AA (as determined by Standard & Poor s) or higher. The Scheme usually enters into derivative transactions with counterparties with whom the Scheme has signed either ISDA agreements or Financial Markets Agreements. Agreements of this type provide for the net settlement of contracts with the same counterparty in the event of default. Under these circumstances, the credit risk associated with derivative financial instruments is reduced to the extent that financial liabilities due to the same counterparty will be settled after the assets are realised. All counterparties are included on the Approved Counterparty list and have at least an A rating. The maximum exposure to credit risk at the end of the reporting period is the carrying amount of the financial assets. There are no other significant credit risk exposures. Compliance with the relevant policies is reported to senior management and the Compliance Committee on a regular basis. -20-

22 3 Financial risk management (d) Liquidity risk The Scheme is exposed to daily cash redemptions of redeemable units. Therefore, it primarily holds equity securities that can be readily disposed. It invests only a limited proportion of its assets in investments not actively traded on major international stock exchanges. To support this activity, the Scheme may, from time to time, invest in exchange traded derivative contracts. As a result, the Scheme is normally able to quickly liquidate its investments in these instruments at an amount close to their fair value to meet its liquidity requirements or to respond to specific events such as deterioration in the creditworthiness of any particular issuer. The relevant policies are to hold up to 10% of the net assets attributable to unitholders in cash. Compliance with the relevant policies is monitored and reported to senior management and the Compliance Committee on a regular basis. The table below analyses the Scheme s financial liabilities into relevant maturity buckets based on the remaining period to the earliest possible contractual maturity date at the end of the reporting period. The amounts in the table are contractual undiscounted cash flows. At 30 June 2016 Less than 1 month 1-6 months 6-12 months Over 12 months No stated maturity $ $ $ $ $ Payables 621, Redemptions payable 2,544, Distributions payable 17,184, Financial liabilities at fair value through profit or loss 372, Net assets attributable to unitholders 775,193, Total liabilities 795,916, At 30 June 2015 Less than 1 month 1-6 months 6-12 months Over 12 months No stated maturity $ $ $ $ $ Payables 823, Redemptions payable 1,257, Distributions payable 14,955, Net assets attributable to unitholders 1,011,893, Total liabilities 1,028,929, (e) Operational risk Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Responsible Entity s processes, personal, technology and infrastructure, and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour. Operational risks arise from all of the Scheme s operations. The objective of the Responsible Entity of the Scheme is to manage operational risk so as to balance the avoidance of financial losses and damage to its reputation with overall cost effectiveness and to avoid control procedures that restrict initiative and creativity. -21-

23 4 Offsetting financial assets and financial liabilities Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. The gross and net positions of financial assets and liabilities that have been offset in the statement of financial position are disclosed in the first three columns of the tables below. Financial assets Effects of offsetting on the statement of financial position Gross amounts of financial assets Gross amounts set off in the statement of financial position Net amount of financial assets presented in the statement of financial position Amounts subject to master netting arrangements Related amount not offset Collateral pledged/ received Net amount $ $ $ $ $ $ 30 June 2016 Derivative financial instruments (i) 371, ,601 (371,601) - - Total 371, ,601 (371,601) June 2015 Derivative financial instruments (i) Total Financial liabilities Effects of offsetting on the statement of financial position Gross amounts of financial liabilities Gross amounts set off in the statement of financial position Net amount of financial liabilities presented in the statement of financial position Amounts subject to master netting arrangements Related amounts not offset Collateral pledged/ received Net amount $ $ $ $ $ $ 30 June 2016 Derivative financial instruments (i) 372, ,692 (371,601) - 1,091 Total 372, ,692 (371,601) - 1, June 2015 Derivative financial instruments (i) Total

24 4 Offsetting financial assets and financial liabilities (i) Master netting arrangement not currently enforceable Agreements with derivative counterparties are based on the ISDA Master Agreement. Under the terms of these arrangements, only where certain credit events occur (such as default), the net position owing/receivable to a single counterparty in the same currency will be taken as owing and all the relevant arrangements terminated. The Scheme does not presently have a legally enforceable right of set-off because no credit event occurred. Accordingly, these amounts have not been offset in the statement of financial position, but have been presented separately in the above table. 5 Fair value measurement The Scheme measures and recognises the following financial assets and liabilities at fair value on a recurring basis: Financial assets / liabilities designated at fair value through profit or loss (FVTPL) (see Note 7 and Note 8); Financial assets / liabilities held for trading (see Note 7 and Note 8); and Derivative financial instruments (see Note 9). The Scheme has no assets or liabilities measured at fair value on a non-recurring basis in the current reporting period. AASB 13 requires disclosure of fair value measurements by level of the following fair value hierarchy: quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1); inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly (level 2); and inputs for the asset or liability that are not based on observable market data (unobservable inputs) (level 3) (i) Fair value in an active market (level 1) The fair value of financial assets and liabilities traded in active markets are based on quoted market prices at the close of trading at the end of the reporting period without any deduction for estimated future selling costs. For the majority of its investments, the Scheme relies on information provided by independent pricing services for the valuation of its investments. The quoted market price used for financial assets held by the Scheme is the current bid price; the quoted market price for financial liabilities is the current ask price. Where the last sale price does not fall within the bid-ask spread, an assessment is performed by management to determine the appropriate valuation price to use that is most representative of fair value. A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm s length basis. An active market is a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. (ii) Fair value in an inactive or unquoted market (level 2 and level 3) The fair value of financial assets and 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. The Scheme utilises bid and ask prices for its financial assets and liabilities, whenever applicable. Where discounted cash flow techniques are used, estimated future cash flows are based on management s best estimates and the discount rate used is a market rate at the end of the reporting period applicable for an instrument with similar terms and conditions. -23-

25 5 Fair value measurement (ii) Fair value in an inactive or unquoted market (level 2 and level 3) For other pricing models, inputs are based on market data at the end of the reporting period. Fair values for unquoted equity investments are estimated, if possible, using applicable price/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 as the amount that the Scheme would receive or pay to terminate the contract at the end of the reporting period taking into account the current market conditions (volatility and appropriate yield curve) and the current creditworthiness of the counterparties. The fair value of a forward contract is determined as a net present value of estimated future cash flows, discounted at appropriate market rates as at the valuation date. Some of the inputs to these models may not be market observable and are therefore estimated based on assumptions. The output of a model is always an estimate or approximation of a value that cannot be determined with certainty, and valuation techniques employed may not fully reflect all factors relevant to the positions the Scheme holds. Valuations are therefore adjusted, where appropriate, to allow for additional factors including liquidity risk and counterparty risk. Recognised fair value measurement The following table presents the Scheme s financial assets and liabilities measured and recognised at fair value as at 30 June 2016 and 30 June Level 1 Level 2 Level 3 Total As at 30 June 2016 $ $ $ $ Financial assets Financial assets held for trading: Derivatives - 371, ,601 Financial assets designated at fair value through profit or loss at inception: International listed equity securities 781,636, ,636,562 Total 781,636, , ,008,163 Financial liabilities Financial liabilities held for trading: Derivatives - 372, ,692 Total - 372, ,692 Level 1 Level 2 Level 3 Total As at 30 June 2015 $ $ $ $ Financial assets Financial assets held for trading: Derivatives Financial assets designated at fair value through profit or loss at inception: International listed equity securities 1,004,727, ,004,727,365 Total 1,004,727, ,004,727,641 (i) Transfers between levels The Scheme s policy is to recognise transfers into and transfers out of fair value hierarchy levels as at the end of the reporting period. -24-

26 5 Fair value measurement Recognised fair value measurement (i) Transfers between levels There were no transfers between the levels for the year ended 30 June 2016 and 30 June There were also no changes made to any of the valuation techniques applied as of 30 June (ii) Fair value measurements using significant unobservable inputs (level 3) The Scheme did not hold any financial instruments with fair value measurements using significant unobservable inputs during the year ended 30 June 2016 or year ended 30 June (iii) Valuation processes Portfolio reviews are undertaken regularly by management to identify securities that potentially may not be actively traded or have stale security pricing. This process identifies securities which possibly could be regarded as being level 3 securities. Further analysis, should it be required, is undertaken to determine the accounting significance of the identification. For certain security types, in selecting the most appropriate valuation model, management performs back testing and considers actual market transactions. Changes in allocation to or from level 3 are analysed at the end of each reporting period. (iv) Financial instruments not measured at fair value The carrying value less impairment provision of other receivables and payables are assumed to approximate their fair values due to their short term nature. 6 Net gains/(losses) on financial instruments held at fair value through profit or loss Net gains/(losses) recognised in relation to financial instruments held at fair value through profit or loss: Year ended 30 June 30 June $ $ Financial assets Net gain/(loss) on financial assets held for trading 1,029, ,722 Net gain/(loss) on financial assets designated at fair value through profit or loss (40,043,362) 94,588,554 Net gain/(loss) on financial assets held at fair value through profit or loss (39,013,569) 94,907,276 Financial liabilities Net gain/(loss) on financial liabilities held for trading (449,705) (1,016,981) Net gain/(loss) on financial liabilities held at fair value through profit or loss (449,705) (1,016,981) Total net gains/(losses) on financial instruments held at fair value through profit or loss (39,463,274) 93,890,