Sanlam Collective Investments (RF) (Pty) Ltd

Transcription

1 Sanlam Collective Investments (RF) (Pty) Ltd Annual Report I

2 Sanlam Collective Investment Scheme AUDITED ANNUAL FINANCIAL STATEMENTS 31 DECEMBER 2015

3 CONTENTS Page REPORT OF THE TRUSTEE FOR THE SANLAM COLLECTIVE INVESTMENT SCHEME 3 STATEMENT OF DIRECTORS' RESPONSIBILITY 5 CEO'S REPORT 6 INDEPENDENT AUDITORS' REPORT 10 NOTES TO THE ANNUAL FINANCIAL STATEMENTS OF THE SANLAM COLLECTIVE INVESTMENT FUNDS 11 FINANCIAL STATEMENTS AND NOTES Brackenham SCI Managed Fund 32 First Avenue SCI Equity Fund 34 Graviton SCI Balanced Fund 36 Graviton SCI Capital Growth Fund 38 Graviton SCI Flexible Income Fund 40 Graviton SCI Low Equity Fund 42 Lynx SCI Balanced Fund of Funds 44 Lynx SCI Cautious Fund of Funds 46 Lynx SCI Global Diversified Fund of Funds 48 Lynx SCI Opportunities Fund of Funds 50 Megafin SCI Balanced Fund of Funds 52 Megafin SCI Growth Fund of Funds 54 Megafin SCI Stable Fund of Funds 56 Obsidian SCI Balanced Fund 58 Obsidian SCI Equity Fund 60 Sanlam African Frontier Markets Feeder Fund 62 Sanlam Alternative Income Fund 64 Sanlam Asia Pacific Fund of Funds 66 Sanlam Diversified Income Fund of funds 68 Sanlam Global Balanced Fund of Funds 70 Sanlam Global Cautious Fund of Funds 72 Sanlam Global Equity Fund 74 Sanlam Global Index Fund of Funds 76 Sanlam Growth Institutional Fund 78 Sanlam India Opportunities Feeder Fund 80 Sanlam Institutional Special Opportunities Fund 82 Sanlam Market Allocator Fund 84 Sanlam Multi Managed Absolute Solution 5 Fund of Funds 86 Sanlam Multi Managed Aggressive Fund of Funds 88 Sanlam Multi Managed Balanced Fund of Funds 90 Sanlam Multi Managed Cautious Fund of Funds 92 Sanlam Multi Managed Conservative Fund of Funds 94 Sanlam Multi Managed Defensive Fund Of Funds 96 Sanlam Multi Managed Equity Fund 98 Sanlam Multi Managed Equity Fund of Funds 100 Sanlam Multi Managed Equity Index Fund 102 Sanlam Multi Managed Flexible Equity Fund 104 Sanlam Multi Managed Inflation Linked Bond Fund 106 Sanlam Multi Managed Institutional Aggressive Equity Fund One 108 Sanlam Multi Managed Institutional General Equity Fund Two 110 Sanlam Multi Managed Long Term Growth Solution 7 Fund Of Funds 112 Sanlam Multi Managed Institutional Positive Return Fund Four 114 Sanlam Multi Managed Institutional Positive Return Fund Three 116 Sanlam Multi Managed Institutional Positive Return Fund Two 118 Sanlam Multi Managed Institutional Prudential Balanced Fund One 120 Sanlam Multi Managed Institutional Prudential Income Provider Fund Two 122 Sanlam Multi Managed Institutional Yield Plus Fund Two 124 Sanlam Multi Managed Moderate Aggressive Fund of Funds 126 Sanlam Multi Managed Moderate Fund of Funds 128 Sanlam Multi Managed Property Fund 130 Sanlam Multi Managed Protection Solution 3 Fund of Funds 132 Sanlam Optimised Income Fund 134 Sanlam Pan-Europe Fund 136 Sanlam Select Absolute Fund 138 Sanlam Select Bond Plus Fund 140 Sanlam Select Defensive Balanced Fund 142 Sanlam Select Flexible Equity Fund 144 Sanlam Select Managed Fund 146 Sanlam Select Optimised Equity Fund 148 Sanlam Select Strategic Income Fund 150 1

4 CONTENTS (continued) Page Sanlam Select Thematic Equity Fund 152 Sanlam Stable Growth Fund 154 Sanlam Value Institutional Fund 156 Sesfikile SCI Property Fund 158 SIM Absolute Return Income Fund 160 SIM Active Income Fund 162 SIM Balanced Fund 164 SIM Bond Plus Fund 166 SIM Enhanced Yield Fund 168 SIM Financial Fund 170 SIM General Equity Fund 172 SIM Global Best Ideas Feeder Fund 174 SIM Global Equity Income Feeder Fund 176 SIM Global Financial Feeder Fund 178 SIM Index Fund 180 SIM Industrial Fund 182 SIM Inflation Plus Fund 184 SIM Low Equity Fund 186 SIM Managed Aggressive Fund of Funds 188 SIM Managed Cautious Fund of Funds 190 SIM Managed Conservative Fund of Funds 192 SIM Managed Moderate Aggressive Fund of Funds 194 SIM Managed Moderate Fund of Funds 196 SIM Money Market Fund 198 SIM Property Fund 200 SIM Resources Fund 202 SIM Small Cap Fund 204 SIM Top Choice Equity Fund 206 SIM Value Fund 208 SMMI Bond Fund 210 SPI Equity Fund 212 Tresor SCI Balanced Fund 214 Tresor SCI Flexible Fund 216 Tresor SCI Income Fund 218 Tresor SCI Stable Fund 220 STATUTORY INFORMATION 2

5 Corporate and Investment Banking The Manager Sanlam Collective Investments (RF) Proprietary Limited 55 Willie Van Schoor Avenue Bellville 7530 REPORT OF THE TRUSTEE FOR THE SANLAM COLLECTIVE INVESTMENT SCHEME We, the Standard Bank of South Africa Limited, in our capacity as Trustee of the Sanlam Collective Investments Scheme ( the Scheme ) have prepared a report in terms of Section 70(1)(f) of the Collective Investment Schemes Control Act, 45 of 2002, as amended ( the Act ), for the financial year ended 31 December In support of our report we have adopted certain processes and procedures that allow us to form a reasonable conclusion on whether the Manager has administered the Scheme in accordance with the Act and the Scheme Deed. As Trustees of the Scheme we are also obliged to in terms of Section 70(3) of the Act to satisfy ourselves that every statement of comprehensive income, statement of financial position or other return prepared by the Manager of the Scheme as required by Section 90 of the Act fairly represents the assets and liabilities, as well as the income and distribution of income, of every portfolio of the Scheme. The Manager is responsible for maintaining the accounting records and preparing the annual financial statements of the Scheme in conformity with International Financial Reporting Standards. This responsibility also includes appointing an external auditor to the Scheme to ensure that the financial statements are properly drawn up so as to fairly represent the financial position of every portfolio of its collective investment scheme are in accordance with International Financial Reporting Standards and in the manner required by the Act. Our enquiry into the administration of the Scheme by the Manager does not cover a review of the annual financial statements and hence we do not provide an opinion thereon. Based on our records, internal processes and procedures we report that nothing has come to our attention that causes us to believe that the accompanying financial statements do not fairly represent the assets and liabilities, as well as the income and distribution of income, of every portfolio of the Scheme administered by the Manager. We confirm that according to the records available to us, no losses were suffered in the portfolios and no investor was prejudiced as a result thereof. Corporate and Investment Banking 20 th Floor Main Tower Standardbank Centre Heerengracht Cape Town 8001 PO Box 54 Cape Town 8000 South Africa Tel. Switchboard: +27 (0) Direct: +27 (0) Fax: +27 (0) seggie.moodley@standardbank.co.za The Standard Bank of South Africa Limited (Reg.No. 1962/000738/06) Authorised financial services provider and registered credit provider (NCRCP15) Directors: TS Gcabashe (Chairman) SK Tshabalala* (Chief Executive) RMW Dunne# BJ Kruger* Adv. KD Moroka Dr. ML Oduor-Otieno## AC Parker ANA Peterside CON### SP Ridley* MJD Ruck PD Sullivan#### BS Tshabalala EM Woods Company Secretary: Z Stephen 01/01/2016 *Executive Director #British ##Kenyan ###Nigerian ####Australian 3

6 We conclude our report by stating that we reasonably believe that the Manager has administered the Scheme in accordance with: (i) (ii) the limitations imposed on the investment and borrowing powers of the manager by this Act; and the provisions of this Act and the deed; Melinda Mostert Head: Trustee Services Standard Bank of South Africa Limited Seggie Moodley Head: Risk and Legal (Trustee Services) Standard Bank of South Africa Limited 22 March 2016 Corporate and Investment Banking 20 th Floor Main Tower Standardbank Centre Heerengracht Cape Town 8001 PO Box 54 Cape Town 8000 South Africa Tel. Switchboard: +27 (0) Direct: +27 (0) Fax: +27 (0) The Standard Bank of South Africa Limited (Reg.No. 1962/000738/06) Authorised financial services provider and registered credit provider (NCRCP15) Directors: TS Gcabashe (Chairman) SK Tshabalala* (Chief Executive) RMW Dunne# BJ Kruger* Adv. KD Moroka Dr. ML Oduor-Otieno## AC Parker ANA Peterside CON### SP Ridley* MJD Ruck PD Sullivan#### BS Tshabalala EM Woods Company Secretary: Z Stephen 01/01/2016 *Executive Director #British ##Kenyan ###Nigerian ####Australian 4

7 STATEMENT OF DIRECTORS' RESPONSIBILITY FOR THE YEAR ENDED 31 DECEMBER 2015 The board of the management company takes responsibility for the integrity, objectivity and reliability of the annual financial statements in accordance with International Financial Reporting Standards and the Companies Act of South Africa. Adequate accounting records have been maintained. The board endorses the principle of transparency in financial reporting. The responsibility for the preparation and presentation of the annual financial statements has been delegated to management. The responsibility of the external auditors is to express an independent opinion on the fair presentation of the annual financial statements based on their audit of the schemes. The Audit, Actuarial and Finance Committee of Sanlam Ltd has satisfied itself that the external auditors were independent of the company during the period under review. The board has confirmed that effective systems of internal control and risk management are being maintained. There were no breakdowns in the functioning of the internal financial control systems during the year. The board is satisfied that the annual financial statements fairly present the financial position, the results of operations and cash flows in accordance with International Financial Reporting Standards and the Companies Act of South Africa and supported by reasonable and prudent judgements consistently applied. The board is of the opinion that the Collective Investment Schemes are financially sound and operate as going concerns. The annual financial statements have accordingly been prepared on this basis. The audited annual financial statements on pages 11 to 307 were approved by the board of directors and are signed on its behalf: 5

8 A brief overview of proved to be an especially hard year for emerging markets. South Africa was no exception, with local economic headwinds adding to an already unfriendly global environment. ceo s report Dear investor I am pleased to share some of Sanlam Collective Investments 2015 highlights with you. We remain focused on offering our clients an extensive range of funds designed to help them and their advisers construct portfolios that suit their needs and help them meet their long-term investment goals. Fund performance highlights A snapshot of some our top-performing funds for 2015 includes: *SIM Global Equity Income FF A % Sanlam Global Balanced FoF 32.05% Like several other commodity-exporting emerging market countries, South Africa and its currency have been hit by continued commodity price weakness. The US Federal Reserve raised its interest rate for the first time since 2006 and this, together with China s slowdown, further contributed to the weakening of the rand. Despite some encouraging signs of economic resilience in the US and Europe, concerns regarding the slowdown in China continued to impact world economic growth. As the world s largest consumer of natural resources, the slowdown in China is expected to have a more pronounced impact on resource-dependent emerging economies. Stalling economic growth has resulted in a slowdown in foreign flows into emerging economies, worsening an already difficult situation. In light of the uncertain environment, global growth expectations have been revised downward, adding to disinflationary pressures in developed markets. Locally, a persistent drought and rand weakness are among the inflationary pressures contributing to a rising interest rate cycle. President Zuma s unexpected sacking of Finance Minister Nene in December and the resulting loss of investor confidence had far-reaching consequences for the bond market, the equity market and the rand. With the South African sovereign rating only one notch above non-investment grade and bond yields appearing to be pricing in a further downgrade, rand volatility is expected to continue for some time. Sanlam Global Cautious FoF 31.41% Sanlam India Opportunities FF A 31.21% Sanlam Asia Pacific FoF A 28.25% Source: Morningstar 1-year annualised return to 31 December 2015 Past performance is not an indication of future performance. The return is calculated on a NAV-NAV basis, with income reinvested on a lump sum invested at the start of the measurement period. *SIM is the abbreviation for Sanlam Investment Management. 6

9 Asset class returns After four exceptional years in which all asset classes delivered positive returns for SA investors, 2015 brought the first underdog in a while: SA bonds, which tumbled by 3.93% over the calendar year. The topperforming asset class for 2015 was Foreign Equity (32.7%), with Foreign Bonds trailing only slightly behind at 30.4%. The superior return of foreign asset classes was largely fuelled by the rand s depreciation over this period, with the rand depreciating by 25.31% against the US dollar and 16.81% against the euro. In dollar terms, Foreign Equity ended the year slightly down at 0.87% for the year. Total returns for South African asset classes for 2015 were as follows: Listed property 7.99% Equities 5.13% Bonds -3.93% Cash 6.46% Index 2015 Asset Class Returns 12 Months (R) 12 Months (US$) MSCI Global Equities 32.78% -0.87% MSCI Emerging Market Equities 13.96% % JPM Global Bonds 30.45% -2.61% JPM Emerging Market Bonds Barclays Global Inflation-Linked Bonds BarCap Global Corporate Bond Index 35.59% 1.23% 27.28% -4.97% 29.17% -3.56% SA JSE All Share Index 5.13% % SA Beassa All Bond Index SA Barclay s Inflation- Linked Bond Index SBK SA Corporate Credit Index -3.93% % 3.68% % % % STeFI Composite Index 6.46% % Source: Morningstar and I-Net 1-year return to 31 December 2015 Past performance is not an indication of future performance. Not surprisingly then, portfolios that included a substantial offshore component fared best, again underlining the need for a carefully diversified portfolio. 7

10 What lies ahead in 2016? 2016 is expected to be a riskier year for investors, and a greater degree of portfolio diversification will be key. The year certainly got off to a volatile start, with the Dow Jones Industrial Average having its weakest calendar-year start since 1897, falling by more than 5% in its first four days of trading. The investment outlook is likely to be dominated by the pace of US interest rate hikes, yuan devaluation, the economic and political costs of integrating immigrants into the Eurozone economy, and the prospects of a recovery in oil and commodity prices. The possibility of further dollar appreciation cannot be ruled out, and will partly depend on the extent of the European Central Bank and Bank of Japan s actions in terms of further quantitative easing. With the Eurozone running large current account surpluses along with expected capital inflows, the balance of payments will be supportive of the euro. The risk to the Eurozone from the surge in immigration will be both political and economic as anti-eurozone and anti-immigrant political parties gain in upcoming elections. A political shift to the left or the right could be the catalyst for a break-up of the Eurozone, while a British vote to exit the Eurozone could accelerate the timing of a break-up in the event of a yes vote. The further devaluation of the yuan poses a material headwind for emerging market currencies as competitive currency devaluations intensify among China s trading partners, further fuelling capital flight. South Africa s macroeconomic fundamentals and fiscal policy will be in the spotlight in 2016 as the potential downgrade to sub-investment status looms. Economic growth is unlikely to exceed 2% in 2016 (it may possibly not even exceed 1.5%), and interest rates are likely to rise by basis points as inflation pressures build. In addition, South Africa s debt-to-gdp ratio will be watched closely as it approaches 50% by While the slump in the oil price has dampened the inflationary effects of the collapse of the rand, the severity of the drought may put upward pressure on food prices. Inflation could rise to around 6% in 2016, compared to the approximate 2015 figure of 4.5%. This does not bode well for South Africa s already muted economic growth prospects. 8

11 Regulatory changes During 2015 we saw some important changes in the regulatory environment. Hedge funds are now regulated under the Collective Investment Schemes Control Act (CISCA) and Sanlam Collective Investments is looking forward to offering investors access to a selection of hedge funds later this year. Board Notice 92 of 2014 came into effect during the latter part of the year, aiming to further enhance investor protection and the standardisation of disclosure requirements. As part of this process, fund fact sheets were replaced by Minimum Disclosure Documents, which are regulated by the Financial Services Board. These are available on our website at Developments at Sanlam Collective Investments Sanlam Collective Investments made the transition to its new administrator, Silica, on 23 October As a result, we are now able to offer clients access to an improved online portfolio viewing and transactional capabilities, and faster turnaround times on payouts. The transfer also saw the introduction of new business rules and processes aimed at standardising the investor experience. We are actively working to improve the current experience and have earmarked a number of focus areas to ensure continued improvements in 2016 and beyond. In line with our philosophy of ensuring we offer our investors a relevant fund range, we made changes to a number of funds during the year: The Sanlam Investment Management Index Fund merged with the Sanlam Investment Management General Equity Fund. The Sanlam Global Index Fund of Funds merged with the Sanlam Global Balanced Fund of Funds. In line with changes to the business unit s name, the Sanlam Private Equity Fund was renamed the Sanlam Private Wealth Equity Fund. The Sanlam African Frontier Markets Feeder Fund was closed on 28 August The Sanlam Investment Management Property Fund was capped to retail investors in December In addition, we introduced a tax-free savings product that offers South African investors the opportunity to save without incurring taxes on the growth in their investment portfolio, in line with the legislated limits. We will persist in our endeavours to further enhance your client experience and hope your investment outcome will meet your expectations in Thank you for your continued support. Yours sincerely Liezl Myburgh Chief Executive Officer 9

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13 SANLAM COLLECTIVE INVESTMENT SCHEME (for the year ended 31 December 2015) SANLAM COLLECTIVE INVESTMENT FUNDS Notes to the Annual Financial Statements at 31 December ACCOUNTING POLICIES 1.1 Significant accounting policies The Collective Investment Funds ( Funds ) are open-ended investment funds created in terms of the Collective Investment Schemes Control Act No. 45 of 2002 ( Act ). The Funds operate as individual entities in South Africa. 1.2 Basis of preparation The annual financial statements are prepared in accordance with the going concern principal (for Funds that are still in existence) on the historical cost basis, except for investments that are reflected at either fair value or amortized cost as detailed below, and are in accordance with International Financial Reporting Standards (IFRS) and the SAICA Financial Reporting Guides as issued by the Financial Reporting Standards Council in South Africa. 1.3 Accounting standards adopted The Collective Investment Funds adopted all new and revised Standards and Interpretations issued by the International Accounting Standards Board (the IASB) and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB that are relevant to its operations and effective for accounting periods ended 31 December These standards and interpretations had no impact on the financial statements for the financial year ended 31 December Except for otherwise stated, the accounting policies are therefore consistent with those applied in the prior year. All accounting policies also comply with the Trust Deeds (where applicable). Standards, interpretations and amendments to published standards that are effective There are no new or revised IFRS statements and interpretations that have effective dates applicable to the Funds 2015 financial year. Standards, interpretations and amendments to published standards that are not yet effective Certain new standards, interpretations and amendments to existing standards have been published that are mandatory for the Funds future accounting periods, but which the Funds have not early adopted, as detailed below. Effective dates refer to financial years starting on or after the specified date. IFRS 9 - Financial Instruments (effective date is 1 January 2018) IFRS 15 Revenue from Contracts with Customers (effective date is 1 January 2018) The application of the revised IFRS 9 may have an impact on the classification of financial instruments at initial recognition, which will impact the subsequent measurement and accounting of gains and losses. The application of IFRS 15 in future financial reporting periods is not expected to have an impact on the Funds reported results, financial position and cash flows. 1.4 Use of estimates, assumptions and judgments The preparation of the annual financial statements necessitates the use of judgments, estimates and assumptions that affect the application of policies and the reported amounts of assets, liabilities and contingent liabilities at the statement of financial position date, as well as affecting the reported income and expenses for the year. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. Major items subject to the application of judgments include: The classification of financial instruments and valuation methods adopted are disclosed in notes 1.10 and 4. The functional currency which is denoted in South African Rand. Judgment was applied in determining the functional currency of a Fund that holds investments that are denominated in foreign currencies. This judgment was reached because all funds are raised and distributed in South African Rand and performance evaluated in South African Rand. There are no significant assumptions or sources of estimation certainty included in the financial statements for the current or comparative year. 1.5 Foreign currency translation The financial statements are presented in South African Rand which is the Portfolios functional and presentation currency. Foreign currency purchase and sale transactions are recorded at the closing exchange rate ruling at the date of the transaction. Dividend income is translated at the rate ruling on the last day to register and interest income at the weighted average exchange rate for the period. Monetary items, such as foreign accrued income and debtors and creditors denominated in foreign currencies are translated at the closing exchange rates ruling at the financial year-end and realised and unrealised differences on translation are recognised in profit or loss in the statement of comprehensive income in the period in which they arise. 11

14 SANLAM COLLECTIVE INVESTMENT SCHEME (for the year ended 31 December 2015) 1.5 Foreign currency translation (continued) Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. Unrealised translation differences on non-monetary items, such as investments classified as at fair value through profit or loss are included with the fair value movement in profit or loss in the statement of comprehensive income. 1.6 Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Fund and that the amount can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised: Dividend income Dividend income comprises dividends received from and accrued on investments, including scrip dividends where there is a cash option, for which the last date to register falls within the accounting period. Foreign dividend income is accrued gross of withholding taxes, where applicable. Interest income Interest income is recognised in profit or loss as it accrues, using the effective interest method. Interest income is recognised on a gross basis. Premiums or discounts arising on acquisition of fixed interest securities are included in the effective interest rate. Gains on cash and cash equivalents arise through the amortisation process and when items are derecognised. Distribution income Funds recognise income distributions on the accrual basis. Distribution income is recognised as either interest revenue, dividend revenue or both based on the nature of the underlying instrument. 1.7 Net income adjustment on creation and cancellation of units An adjustment to income arises on the creation and cancellation of units since the price of a unit includes accrued income and expenses. The income adjustment on creation or cancellation of units is recognised when units on which it arises are either purchased or sold. 1.8 Expenses The nature of operating and administration expenses carried by the Funds is determined by regulation and is accrued for on a daily basis. The following applies in respect of the significant items of expenditure: Performance fees Performance fees are calculated and accrued for on a daily basis with reference to the Funds out - performance of the relevant benchmark (and high water mark, where applicable). The payment to the management company is made monthly based on a rolling calculation. Management charges The Funds pay the management company a monthly management charge based on the daily market value of the Fund at an agreed annual rate which is payable in arrears. 1.9 Distributions paid Distributions paid represent net income paid to unit holders at each distribution date, which is determined in accordance with each Fund s Supplemental Trust Deed. Distributable profits are determined by deducting operating expenses incurred from the income earned by the Fund since the last distribution. Any undistributed income is intended to be distributed at the next distribution date. In cases where distributions are reinvested, the Fund recognises the reinvested portion as an increase in net assets attributable to unit holders Financial instruments Recognition Financial instruments are recognised when the Fund becomes a party to a contractual arrangement that constitutes a financial asset or financial liability for the Fund that is not subject to suspensive conditions. Purchase or sales of financial assets are recognised on the trade date, i.e. the date that the Fund commits to purchase or sell the asset. Measurement The classification of financial instruments is determined at initial recognition based on the purpose for which the financial assets are acquired or liabilities assumed. Financial instruments at fair value through profit or loss are initially recognised at fair value. Costs directly attributable to the acquisition of financial assets classified as at fair value through profit or loss are recognised in the statement of comprehensive income as transaction costs. Other financial instruments are recognised at the fair value of the consideration given or received in exchange for the instrument plus transaction costs that are directly attributable to their acquisition. Subsequent to initial recognition, these instruments are measured as set out below. Investments The Funds invest in equities, bonds, derivatives and other collective investment schemes, which are publically tradable in the open market, as well 12

15 SANLAM COLLECTIVE INVESTMENT SCHEME (for the year ended 31 December 2015) 1.10 Financial Instruments (continued) as money market instruments. These are generally settled in cash within seven days. These assets, except for those instruments held by Sanlam Alternative Income Fund, Sanlam Diversified Income Fund of Funds and SIM Money Market Fund are designated as financial instruments at fair value through profit or loss, as they are managed and their performance is evaluated on a fair value basis. Information on these assets is presented to the asset managers of the Funds on a fair value basis. The investments held by Sanlam Alternative Income Fund, Sanlam Diversified Income Fund of Funds and SIM Money Market Fund are classified as loans and receivables. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following bases are used to determine fair value, for those instruments that are classified at fair value through profit or loss: The fair value of publicly traded equities, derivatives and bonds and investments in other collective investment schemes is determined by reference to the quoted open market price per unit prevailing at the reporting date, in an organised financial market. Gilts, longer-term Negotiable Certificates of Deposit, Promissory Notes and Treasury Bills (money market instruments) are valued by discounting the expected future cash flows using current interest rates. Financial futures and option contracts are valued daily at fair value at listed SAFEX closing prices. Any fair value gain or loss is recognised directly in profit or loss. Gains or losses on derecognition are also included in profit or loss. Money market instruments held by Sanlam Alternative Income Fund, Sanlam Diversified Income Fund of Funds and SIM Money Market Fund are classified as loans and receivables and are subsequently measured at amortised cost using the effective interest method. Gains and losses are recognised in income when loans and receivables are derecognised or impaired, as well as through the amortisation process. Net gains for these Funds consist of interest income less impairment losses. Accrued income and debtors Accrued income and debtors are classified as loans and receivables and include debtors resulting from asset sales as well as accrued interest on cash and cash equivalents and dividend receivables. Settlement terms of debtors relating to asset sales are generally less than 7 days and are recognised and carried at original invoice amount due to their short-term nature. Receivables relating to accrued income are current and receivable in cash. No interest is charged on amounts due beyond normal credit terms. Subsequent to initial recognition, accrued income and debtors are carried at amortised cost using the effective interest method. Gains and losses are recognised in income when loans and receivables are derecognised or impaired, as well as through the amortisation process using the effective interest method. Cash and bank balances Cash and bank balances in the statement of financial position comprise current accounts, deposits held on call with banks that is highly liquid and readily convertible to cash and margin deposits. These current accounts, cash on call and deposits are net of outstanding bank overdrafts where the Fund currently has a legally enforceable right to set off the recognised amounts and intends to settle on a net basis. Margin accounts represent the exchange traded future contracts margin deposit amounts held with brokers and are pledged as collateral. Current accounts, cash on call, deposits and margin deposits are classified as loans and receivables and are measured at amortised cost, based on the relevant closing exchange rates at the statement of financial position date, where applicable. Creditors (including trade and other payables and related party payables) Creditors include payables resulting from the purchase of assets as well as accrued expenses and are classified as other financial liabilities at amortised cost. Settlement terms of payables relating to asset purchases are generally less than 7 days and are recognised and carried at original invoice amount due to their short-term nature. Accrued expenses payable are due within 30 days. No interest is charged on amounts due beyond normal credit terms. Subsequent to initial recognition, creditors are carried at amortised cost using the effective interest method. Creditors are categorised as financial liabilities at amortised cost. Gains and losses are recognised in profit or loss when creditors are derecognised as well as through the amortisation process. Distributions payable Distributions are determined as per note 1.9 and are classified as financial liabilities at amortised cost, using the effective interest method. Amounts are paid within 30 days of their declaration date. Distributions are categorised as financial liabilities at amortised cost. Net assets attributable to unit holders Net assets attributable to unit holders are carried at fair value, being the redemption amount representing the unit holders right to a residual interest in the Funds assets, and gains or losses are recognised through profit or loss. The change in net assets attributable to unit holders is the profit or loss movement on the financial liabilities at fair value through profit or loss. 13

16 SANLAM COLLECTIVE INVESTMENT SCHEME (for the year ended 31 December 2015) 1.10 Financial Instruments (continued) Offsetting financial instruments Where a legally enforceable right of offset exists for recognised financial assets and liabilities and there is an intention to settle the liability and realise the asset simultaneously or to settle on a net basis, all related financial effects are offset. Derecognition of financial assets and liabilities A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when: The rights to receive cash flows from the asset have expired. The Fund has transferred its rights to receive cash flows from the asset and either (a) the Fund has transferred substantially all the risks and rewards of the asset, or (b) the Fund has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in profit or loss. Impairment of financial assets The carrying amounts of the Funds financial assets classified as loans and receivables carried at amortised cost are assessed at each statement of financial position date to determine whether there is any indication of impairment. If there is evidence of impairment such as the probability of insolvency, changes in the current economic condition that correlate with defaults or significant financial difficulties of the counter party, that an impairment loss on a financial asset carried at amortised cost has been incurred, the amount of such loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows discounted at the financial asset s original effective interest rate. The carrying amount of the asset is reduced and the loss is recognised in profit or loss. If, in a subsequent period, the amount of the estimated impairment loss increases or decreases due to event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced through profit or loss to the extent that the carrying value of the asset does not exceed its amortised cost, measured as if the financial asset was not impaired previously, at the reversal date based on the original effective interest rate Taxation Under the current system of taxation in South Africa the Funds are exempt from paying taxes provided the net income, excluding realised capital gains, is distributed to unit holders. Income is taxed in the hands of the unit holders, while capital gains realised by the Funds are exempt. Withholding taxes are measured at the amount expected to be paid to the relevant tax authorities in the country from which dividend income originates. The tax rates and tax laws used to compute the amount are those that are enacted when the income was earned. Withholding taxes on distributions made are included in trade and other payables Fund mergers Fund mergers are accounted for at fair value. In a fund merger the acquiring Fund will issue units to the fair value of assets acquired. The change in net assets attributable to unit holders in the acquirer Fund includes the combined income and expenses of the merged Funds from the effective date of the merger. Directly attributable costs incurred in the fund merger are expensed when incurred. 2. SIGNIFICANT EVENTS 2.1 During the current year: The following Funds merged during the current financial year: SIM Index Fund into SIM General Equity Fund Sanlam Global Index Fund of Funds into Sanlam Global Balanced Fund of Funds The Sanlam African Frontier Feeder Fund was closed during the current financial year. During the course of 2015 Sanlam Collective Investments (RF) (Pty) Ltd ceased to be the management company for the following Fund as it moved to different management company: Sesfikile SCI Property Fund The financial statements for the financial year ended 31 December 2015 of this fund has been prepared until the effective transfer date. Subsequent to this date transactions have been recorded by the new administration company. The move was effected and accounted for by closing the respective Fund managed by Sanlam Collective Investments RF (Pty) Ltd. 2.2 Financial year 2016: It is anticipated that the following Funds will be merged during the 2016 financial year: SIM Absolute Return Fund into SIM Active Income Fund SIM Low Equity Fund into SIM Inflation Plus Fund 2.2 Financial year 2016 (continued) 14

17 SANLAM COLLECTIVE INVESTMENT SCHEME (for the year ended 31 December 2015) There may be a cessation of the Sanlam Optimized Income Fund in We are currently still awaiting the cessation deed before the closure of this fund can be finalised. During the course of 2016 Sanlam Collective Investments (RF) (Pty) Ltd will cease to be the management company for the following Funds due to regulatory changes and corporate structure changes in the industry and the Sanlam Group: Lynx SCI Balanced Fund of Funds Lync SCI Cautious Fund of Funds Lynx SCI Global Diversified Fund of Funds Lynx SCI Opportunities Fund of Funds 3. RELATED PARTY TRANSACTIONS All transactions with related parties are conducted at arm s length and are made at normal market terms. Outstanding balances at year end are unsecured and interest free. Manager Sanlam Collective Investments (RF) (Pty) Limited (the "Manager") earns a management and performance fee for managing and administering the Funds. Management fees are charged as a percentage of the assets under management, as disclosed in note 2 of the Funds financial statements, and the performance fee is determined either on a fixed or on a performance basis. As a consequence of the performance fee orientation, performance fees will typically be higher following periods where the Funds total investment performance (income plus capital appreciation) have outperformed their respective benchmarks and lower in the case of underperformance. This ensures that the Manager s interests are aligned with those of investors. During the year, the Funds collectively paid and accrued management and performance fees of R642.4m, excluding VAT (2014: R603.7m) to Sanlam Collective Investments (RF) (Pty) Limited. The management and performance fees per individual Fund are disclosed on the face of the statement of comprehensive income and any outstanding balances in respect of these fees are disclosed on the face of the statement of financial position of each Fund. The following information (in respect of all Funds) is reported in the financial report of Sanlam Collective Investments (RF) (Pty) Limited. Total seed capital held - refer to note 4.1 of the Manager s Financial Statements. Total unit trading stock refer to note 4.2 of the Manager s Financial Statements. Sales and repurchases refer to note 23 of the Manager s Financial Statements. Key management of the Manager (including directors) or any of their close family members did not hold any significant units in managed or administered funds. 15

18 SANLAM COLLECTIVE INVESTMENT SCHEME (for the year ended 31 December 2015) 3. RELATED PARTY TRANSACTIONS (continued) Sanlam Life Insurance Ltd: Sanlam Life Insurance Ltd held the following controlling interest in Funds as at 31 December: Company Name % interest held by Sanlam Life Insurance Ltd in company First Avenue Sanlam Collective Investments Equity Fund 76% 80% Graviton SCI Balanced Fund 82% 73% Graviton SCI Capital Growth Fund 30% 42% Graviton SCI Flexible Income Fund 93% 89% Graviton SCI Low Equity Fund 94% 78% Sanlam African Frontier Markets Feeder Fund 0% 94% Sanlam Diversified Income Fund of Funds 0% 58% Sanlam Global Balanced Fund of Funds 38% 44% Sanlam Global Cautious Fund of Funds 26% 38% Sanlam Global Index Fund of Funds 0% 87% Sanlam Growth Institutional Fund 97% 97% Sanlam Institutional Special Opportunities Fund 93% 90% Sanlam Market Allocator Fund 73% 84% Sanlam Multi Managed Aggressive Fund of Funds 70% 71% Sanlam Multi Managed Balanced Fund of Funds 47% 42% Sanlam Multi Managed Bond Fund 91% 93% Sanlam Multi Managed Cautious Fund of Funds 65% 68% Sanlam Multi Managed Conservative Fund of Funds 55% 55% Sanlam Multi Managed Defensive Fund of Funds 45% 0% Sanlam Multi Managed Equity Fund 100% 94% Sanlam Multi Managed Equity Index Fund 59% 94% Sanlam Multi Managed Flexible Equity Fund 53% 64% Sanlam Multi Managed Inflation Linked Bond Fund 86% 93% Sanlam Multi Managed Absolute Solution 5 Fund of Funds 0% 24% Sanlam Multi Managed Institutional Aggressive Equity Fund One 95% 0% Sanlam Multi Managed Institutional All Bond Fund One 0% 100% Sanlam Multi Managed Institutional All Bond Fund Three 0% 98% Sanlam Multi Managed Institutional Balanced Fund of Funds 0% 42% Sanlam Multi Managed Institutional Bond Fund 0% 93% Sanlam Multi Managed Institutional Equity Fund of Funds 0% 24% Sanlam Multi Managed Institutional General Equity Fund One 0% 100% Sanlam Multi Managed Institutional General Equity Fund Two 83% 81% Sanlam Multi Managed Institutional Long-Term Growth Solution 7 Fund of Funds 0% 20% Sanlam Multi Managed Institutional Positive Return Fund One 0% 64% Sanlam Multi Managed Institutional Positive Return Fund Two 65% 81% Sanlam Multi Managed Institutional Positive Return Fund Three 53% 66% Sanlam Multi Managed Institutional Positive Return Fund Four 54% 64% Sanlam Multi Managed Institutional Protection Solution 3 Fund of Funds 0% 31% 16

19 SANLAM COLLECTIVE INVESTMENT SCHEME (for the year ended 31 December 2015) 3. RELATED PARTY TRANSACTIONS (continued) Sanlam Life Insurance (Continued) Company Name % interest held by Sanlam Life Insurance Ltd in company Sanlam Multi Managed Institutional Prudential Balanced Fund One 72% 64% Sanlam Multi Managed Institutional Prudential Income Provider Fund One 0% 100% Sanlam Multi Managed Institutional Prudential Income Provider Fund Two 67% 84% Sanlam Multi Managed Institutional Prudential Low Equity One 0% 72% Sanlam Multi Managed Moderate Aggressive Fund of Funds 59% 59% Sanlam Multi Managed Moderate Fund of Funds 75% 77% Sanlam Multi Managed Property Fund 79% 87% Sanlam Multi Managed Protection Solution 3 Fund of Funds 37% 0% Sanlam Multi Managed Yield Plus Fund 99% 98% Sanlam Optimised Income Fund 0% 91% Sanlam Select Absolute Fund 51% 100% Sanlam Select Bond Plus Fund 100% 98% Sanlam Select Defensive Balanced Fund 92% 72% Sanlam Select Flexible Equity Fund 54% 100% Sanlam Select Managed Fund 100% 100% Sanlam Select Optimised Equity Fund 92% 100% Sanlam Select Strategic Income Fund 21% 100% Sanlam Select Thematic Equity Fund 98% 100% Sanlam Stable Growth Fund 100% 100% Sanlam Value Institutional Fund 100% 100% SIM Absolute Return Income Fund 71% 72% SIM Active Income Fund 44% 46% SIM Balanced Fund 64% 64% SIM Bond Plus Fund 94% 93% SIM Enhanced Yield Fund 59% 67% SIM Equally Weighted Top40 Index Fund 0% 22% SIM Financial Fund 21% 22% SIM General Equity Fund 44% 56% SIM Global Best Ideas Feeder Fund 29% 28% SIM Global Equity Income Feeder Fund 36% 38% SIM Inflation Plus Fund 45% 46% SIM Low Equity Fund 36% 37% SIM Managed Aggressive Fund of Funds 80% 78% SIM Managed Cautious Fund of Funds 70% 72% SIM Managed Conservative Fund of Funds 59% 57% SIM Managed Moderate Aggressive Fund of Funds 78% 78% SIM Managed Moderate Fund of Funds 82% 82% SIM Property Fund 88% 86% SIM Small Cap Fund 27% 30% SIM Top Choice Equity Fund 83% 82% SIM Value Fund 49% 45% SPI Equity Fund 38% 32% Key management of Sanlam Life Insurance Ltd (including directors) or any of their close family members did not hold any significant units in terms of Funds controlled, (i.e. greater than 50% ownership) by Sanlam Life Insurance Ltd. 17

20 SANLAM COLLECTIVE INVESTMENT SCHEME (for the year ended 31 December 2015) 4. RISK MANAGEMENT The Fund s objective in managing risk is the protection of unit holder value. Risk is inherent in the Fund s activities resulting mainly from the type of instrument in which it invests. The financial risk is limited firstly by the regulatory environment of the Collective Investment Schemes Control Act which has strict and specific regulations as to what instruments may or may not be held. Secondly, each Fund is governed by a Trust Deed which commits to a specific investment objective. The objective is then translated into an investment mandate which governs the manner in which the investment manager manages the Fund. The investment manager limits the loss potential by reviewing the portfolio on a daily basis, and based on current and future predicted events, structures the portfolio in such a manner so as to limit loss and maximise gains, within the parameters of the risks identified. NON-FINANCIAL RISK MANAGEMENT 4.1 General risks Operational risk is the risk that there is a loss as a result of inadequate or failed internal processes, people, systems or external events. The Funds mitigate these risks through the outsourcing of the fund administration to Curo Fund Services, which has comprehensive systems of internal controls, internal audit, forensic and compliance functions and other measures such as back-up facilities, contingency planning and insurance. With effect from 23 October 2015, the client data on the SUTUWA system migrated to the new Silica system. The initiation of transactions and their administration is conducted on the basis of the segregation of duties, designed to ensure the correctness, completeness and validity of all transactions. Control is further strengthened by the settlement of transactions through the trustee and custodian who is Standard Bank of South Africa Limited. The custodian is also responsible for the safe custody of the Funds securities. To ensure validity, all transactions are confirmed with counterparties independently from the initial executors. The Sanlam group has a risk-based internal audit approach, in terms of which priority is given to the audit of higher risk areas, as identified in the planning phase of the audit process. The internal control systems and procedures are subject to regular internal audit reviews. Legal risk: This is the risk that the Funds will be exposed to contractual obligations which have not been provided. For material transactions entered into by the Funds, the legal resources of Sanlam Investments monitor the drafting of the contract documents to ensure that rights and obligations of all parties are clearly set out. Compliance risk: This is the risk of not complying with laws and regulations. The Funds consider compliance with 4.1 General risks (continued) applicable laws, industry regulations and codes, an integral part of doing business. The compliance function of Sanlam Collective Investments facilitates the management of compliance through the analysis of statutory and regulatory requirements, and monitoring the implementation and execution thereof. Fraud risk: This is the risk of financial crime and unlawful conduct occurring within the Funds. The Manager recognises that financial crime and unlawful conduct are in conflict with the principles of ethical behaviour and that it undermines organisational integrity. The financial crime combating policy for the Manager is designed to counter the threat of financial crime and unlawful conduct. A zero-tolerance approach is applied in combating financial crime and all offenders will be prosecuted. The forensic services function at the Sanlam group level oversees the prevention, detection and investigation of incidents of unlawful conduct that could impact the Funds. The Sanlam Group Forensic Services is also responsible for the formulation of Group standards in respect of the combating of unlawful conduct and the implementation of measures to monitor compliance with these standards. Legislation risk: The risk that unanticipated new Acts or Regulations will result in the need to change business practices that may lead to potential financial loss. The Funds draw on the expertise of Sanlam Investments, which monitors and influences events to the extent possible by participation in discussions with legislators, directly and through industry organisations. Operational risks include: Information and technology risk: This is the risk of obsolescence of infrastructure, deficiency in integration, failures/inadequacies in systems/networks and the loss of accuracy, confidentiality, availability and integrity of data. This risk is mitigated by virtue of the outsourcing of the administration. 18