TOP 40 ETF Financial Statements

Transcription

1 TOP 40 ETF Financial Statements for the year ended 31 December 2012

2 02-03 Chairman s message to unitholders 04 Director s responsibility and approval Report of the independent auditors 07 Statement of comprehensive income and statement of financial position 08 Statement of changes in net assets attributable to unitholders and statement of cashflows Notes to the financial statements Report of the trustees 24 TER s

3 Chairman s message to unitholders 2012 review and market outlook 2012 provided a myriad of events that will be written into the history books, including the somewhat controversial listing of Facebook, the diamond jubilee of Queen Elizabeth II, the London Olympics, Felix Baumgartner s remarkable space jump and the world s survival of the end of the Mayan calendar. Globally, growth was fairly subdued during 2012, with very poor performance in the mature economies. The US managed to maintain a tepid recovery throughout the year, but the Euro-Area slipped back into recession and Japan was dragged lower by the slowdown in China. The major global risks remain the US fiscal cliff and the evolution of the Euro-Area crisis, especially the need for further financial assistance in Greece and Spain. Improved US domestic data and higher Chinese growth supported positive investor sentiment and the different economic and government bodies are beginning the slow process of rebuilding their economies. At the end of 2012 South Africa had experienced 13 consecutive quarters of positive growth, following the recession in 2008/2009. Worsening socioeconomic conditions and the growing current account deficit weakened our currency and this together with declining bond yields and strong equity markets assisted our investment markets. The past year has been a good year for local equities, with the ALSI delivering 26.7%. The majority of the return was achieved after the announcement by the US Federal Reserve of the quantitative easing (QE3) plan. Since this announcement was made (14 September 2012), the ALSI has delivered a total return of 10.1%. Industrials (44.5%) and Financials (37.8%) significantly outperformed Resources (3.1%) over the past year. The wildcat strikes that hit the Resources sector, together together with the slowdown in global economies like China and India, contributed to the poor return experienced in this sector. Listed property (35.9%) and bonds (16.0%) also delivered healthy returns over the past year. Global and local markets have now returned to the pre global crisis levels of five years ago. Industry overview The local unit trust industry saw net flows of R120 billion during 2012 and ended the year with R1.2 trillion in assets under management. The bulk of these flows were seen in the second half of the year after interest rates were cut by 0.5% to 5.0% and investors began looking for investment opportunities that were offering potential returns above inflation. Assets continued to move out of money market funds (down R9.3 billion) while the biggest recipients were the Domestic Asset Allocation category (R76 billion) and the Fixed Interest Varied Specialist funds (R27.6 billion). Investors clearly remained cautious of the equity market but were aware of the low returns offered by cash. There is growing competition from banks for retail deposits and this will put money market funds under pressure over the next few years. STANLIB Two industry developments prompted the winding up of the STANLIB Dividend Income Fund at the end of September These were the implementation of Withholding Tax on Dividends and the revised amendments to the Income Tax Act that would have a negative impact on the Fund s returns. Prior to these developments the fund had reached an impressive R8 billion in size. With the implementation of a much tighter investment process in 2008/9 we have continued to see improvement in STANLIB s overall performance and our aim to provide solid long-term growth for our investors. It was also pleasing to see the strong long-term improvement in the performance of our key asset allocation balanced funds and equity mandates. Three of our funds were named winners of five categories at this year s Raging Bull Awards. The STANLIB Multi-Manager Flexible Property Fund was awarded the best Domestic Real Estate General Fund, the STANLIB Global Bond Fund was awarded in two categories: Best Offshore Global Fixed Interest Fund and Best Offshore Global Fixed Interest Bond Fund on a risk-adjusted basis, and finally the STANLIB Bond Fund was also awarded in two categories: Best Domestic Fixed Interest Bond Fund and Raging Bull Award for Domestic Fixed Interest Fund. STANLIB Collective Investments remains focused on offering investment performance and service excellence. A strategic decision was made in 2011 to review our long term strategy with our offshore funds. We felt it essential to partner with a leading global asset manager that fitted our views and philosophy on investing. Following a detailed search we signed an agreement and from 31 October 2012 Threadneedle Investments was appointed as our offshore investment partner and the new portfolio manager to manage the STANLIB Funds Limited High Alpha Equity Fund. 2

4 Chairman s message to unitholders (contd) The STANLIB Global Equity Fund (USD) under the STANLIB Offshore Unit Trust Scheme established in Jersey and the STANLIB Global Equity Feeder Fund under the STANLIB Collective Investment Scheme established in South Africa are both feeder fund portfolios investing in the STANLIB Funds Limited High Alpha Equity Fund. Both these feeder fund portfolios will as a result benefit from our partnership with Threadneedle Investments. We saw strong inflows into our Fixed Income, Property and Asset Allocation franchises and as a whole STANLIB ended the 2012 year with assets under management up at R185 billion, and a 14% market share. We remain the largest collective investment manager in South Africa. I would like to take this opportunity to thank the board, management team, trustees, investment managers and staff for their support in M Rabe Johannesburg 28 March

5 Directors Responsibilities and Approval The directors are responsible for the preparation of the annual financial statements which conform with International Financial Reporting Standards (IFRS) and which,in accordance with those statements,fairly present the state of affairs of the Scheme as at the end of the financial year, and the net income and cash flows for that period. It is the responsibility of the independent auditors to report on the fair presentation of the financial statements. The directors are ultimately responsible for the internal controls. Management enables the directors to meet these responsibilities. Standards and systems of internal control are designed and implemented by management to provide reasonable assurance as to the integrity and reliability of the financial statements in terms of IFRS and to adequately safeguard, verify and maintain accountability for Scheme s assets. Accounting policies supported by judgements, estimates, and assumptions which comply with IFRS, are applied on a consistent and going concern basis. Systems and controls include the proper delegation of responsibilities within a clearly defined framework, effective accounting procedures and adequate segregation of duties. Based on the information and explanations given by management and the internal auditors, the directors are of the opinion that the accounting controls are adequate and that the financial records may be relied upon for preparing the financial statements in accordance with IFRS and maintaining accountability for the Scheme s assets and liabilities. Nothing has come to the attention of the directors to indicate that any breakdown in the functioning of these controls, resulting in material loss to the Scheme, has occurred during the year and up to the date of this report. The directors have a reasonable expectation that the Scheme has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements. The financial statements prepared in accordance with IFRS which appear on pages 7 to 20, were approved by the board of directors on 28 March 2013 and signed on its behalf by: A. Katakuzinos I. Bennie Johannesburg 28 March

6 Report of the independent auditors 5

7 Report of the independent auditors 6

8 Statement of comprehensive income Note 2012 Net income/(deficit) 118,886 2,740 Investment income 2 19,998 17,142 Income adjustments on creation and cancellation of units 12 (89) (90) Sundry income Fair value gains/(losses) on financial instruments 3 98,977 (14,319) Operating expenses 4 (1,359) (1,227) Net Income/(deficit) for the year before finance costs 117,52 7 1,513 Finance costs (18,632) (15,831) Distributions 14 (18,497) (15,831) Withholding tax expense (135) - Total comprehensive income/(deficit) for the year 98,895 (14,318) Statement of financial position Assets Financial instruments at fair value through profit and loss 5 429, ,750 Trade and other receivables 6 2, Cash and cash equivalents 7 1,957 2,845 Total assets 433, ,605 Liabilities Net assets attributable to unitholders 428, ,818 Trade and other payables 8 3, Distributions payable 1,692 2,402 Total liabilities 433, ,605 7

9 Statement of changes in net assets attributable to unitholders Note Income attributable to unitholders Income attributable to unitholders Total Balance at 01 January , ,900 Total comprehensive income/(deficit) for the year - (14,318) (14,318) Transfer of fair value gains/(losses) not distributable 3 (14,319) 14,319 - Net capital creation/(cancellation) of units , ,236 Balance at 01 January , ,818 Total comprehensive income/(deficit) for the year - 98,895 98,895 Transfer of fair value gains/(losses) not distributable 3 98,977 (98,977) - Net capital creation/(cancellation) of units 12 (279,723) - (279,723) Balance at 31 December ,070 (80) 428,990 * * Payable on demand Statement of cash flows 2012 Net cash inflows from investing activities 18,502 16,175 Cash generated from/(utilised in) operations 9 (1,500) (960) Interest received Dividends received 19,574 16,703 Net cash flow from operating activities 279,629 (355,114) Net sales/(purchases) of financial instruments 279,629 (355,114) Net cash outflow from financing activities (299,019) 341,007 Net creation/(cancellation) of units 12 (279,812) 355,146 Distributions paid 11 (19,207) (14,139) Net (decrease)/increase in cash and cash equivalents (888) 2,068 Cash and cash equivalents at the beginning of the year 2, Cash and cash equivalents at the end of the year 1,957 2,845 8

10 Notes to the Annual Financial Statements General Information The STANLIB Collective Investment Scheme ( the Scheme ) is registered in terms of Collective Investment Schemes Control Act (CISCA) as set out in the supplement Portfolio Trust Deed. 1.1 Basis of preparation Statement of compliance The financial statements have been prepared in accordance with the requirements of the respective Trust Deeds and in accordance with the International Financial Reporting Standards, the AC500 standards as issued by the Accounting Practices Board or its successor, and in the manner required by the Collective Investment Schemes Control Act of South Africa. IFRS comprises International Financial Reporting Standards, International Accounting Standards, and Interpretations originated by the International Financial Reporting Interpretations Committee (IFRIC) or the former Standing Interpretations Committee (SIC). The standards referred to are issued by the International Accounting Standards Board (IASB). The following amendments to IFRSs have been applied in the current year and have affected the amounts reported in these financial statements. Amendments to IFRSs affecting presentation and disclosure only Amendments to IFRS 7 Disclosures Transfers of financial assets The Scheme has applied the amendments to IFRS 7 Disclosures Transfers of Financial Assets in the current year. The amendments increase the disclosure requirements for transactions involving the transfer of financial assets in order to provide greater transparency around risk exposures when financial assets are transferred. In accordance with the transitional provisions set out in the amendments to IFRS 7, the Scheme has not provided comparative information for the disclosures required by the amendments. Amendments to IAS 1 Presentation of financial statements (as part of the Annual Improvements to IFRSs Cycle issued in May 2012) The Scheme has applied the amendments to IAS 1 as part of the Annual Improvements to IFRSs Cycle in advance of the effective date (annual periods beginning on or after 1 January 2013). IAS 1 requires an entity that changes accounting policies retrospectively, or makes a retrospective restatement or reclassification to present a statement of financial position as at the beginning of the preceding period (third statement of financial position). The amendments to IAS 1 clarify that an entity is required to present a third statement of financial position only when the retrospective application, restatement or reclassification has a material effect on the information in the third statement of financial position and that related notes are not required to accompany the third statement of financial position. New and revised IFRS s in issue but not yet effective The following new and revised IFRSs were in issue by not effective for the financial period. The Scheme has not applied these to date as they are not effective. 9

11 1. IFRS 9 Financial Instruments 2. IFRS 10 Consolidated Financial Statements 3. IFRS 11 Joint Arrangements 4. IFRS 12 Disclosure of Interests in Other Entities 5. IFRS 13 Fair Value Measurement 6. Amendments to IFRS 7 Disclosures Offsetting Financial Assets and Financial Liabilities 7. Amendments to IFRS 10, IFRS 11 Mandatory Effective Date of IFRS 9 and Transition Disclosures 8. Amendments to IFRS 10, IFRS 11 and IFRS 12 Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities: Transition Guidance 9. IAS 19 (as revised in 2011) Employee Benefits 10. IAS 27 (as revised in 2011) Separate Financial Statements 11. IAS 28 (as revised in 2011) Investments in Associates and Joint Ventures Amendments to IAS 32 Offsetting Financial Assets and Financial Liabilities 13. IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine 1. Effective for annual periods beginning on or after 1 January This will be applicable to the scheme. 2. Effective for annual periods beginning on or after 1 January This will not be applicable to the scheme. 3. Effective for annual periods beginning on or after 1 January This will not be applicable to the scheme. 4. Effective for annual periods beginning on or after 1 January This will not be applicable to the scheme. 5. Effective for annual periods beginning on or after 1 January This will be applicable to the scheme 6. Effective for annual periods beginning on or after 1 January This will be applicable to the scheme 7. Effective for annual periods beginning on or after 1 January This will not be applicable to the scheme 8. Effective for annual periods beginning on or after 1 January This will not be applicable to the scheme 9. Effective for annual periods beginning on or after 1 January This will not be applicable to the scheme 10. Effective for annual periods beginning on or after 1 January This will be applicable to the scheme 11. Effective for annual periods beginning on or after 1 January This will not be applicable to the scheme 12. Effective for annual periods beginning on or after 1 January This will be applicable to the scheme 13. Effective for annual periods beginning on or after 1 January This will not be applicable to the scheme Functional and presentation currency These financial statements are presented in South African Rand, which is the Scheme s functional currency. 1.2 Accounting policies elections The Scheme has made the following accounting election in terms of IFRS. Financial assets are designated at fair value through profit or loss. 1.3 Financial instruments Classification The Scheme designates all its investments upon initial recognition as financial assets carried at fair value through profit or loss. Financial assets classified as held for trading which are those that the Schemes acquired or incurred principally for the purposes of selling or repurchasing in the near term, or are part of a portfolio or identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking. Derivative instruments are classified as financial assets at fair value through profit or loss. Derivative instruments, including option and futures, are used to hedge against market and currency movements in the value of assets and liabilities. Hedge accounting is not applied. Financial instruments designated at fair value through profit and loss upon initial recognition. These include financial assets that are not held for trading purposes and which may be sold. These are investments in exchange traded debt and equity instruments, unlisted open ended investment funds, unlisted debt equity instruments and commercial paper. The financial instruments are managed and performance is evaluated on a fair and value basis in accordance with the Scheme s investment mandate and are managed accordingly by the nominated asset manager. 10

12 Financial assets that are classified as loans and receivables include balances due from brokers, accrued interest income and accounts receivable. Financial liabilities that are not at fair value through profit and loss include balances due to broker, accounts payable, accrued expenses and financial liabilities arising on redeemable units. Recognition Financial instruments are recognised on statement of financial position when, and only when, the Scheme becomes a party to the contractual provisions of the particular instrument. The Scheme recognises a financial asset when and only when: The contractual rights to the cash flows arising from the financial assets have expired or been forfeited by the Scheme, or It transfers the financial asset including substantially all the risks and rewards of ownership of the asset. The difference between the carrying amount of a financial instrument (or the party thereof) extinguished or transferred to another party and consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in the statement if comprehensive income. All purchases and sales of financial assets carried at fair value through profit or loss that require delivery within the time frame established by regulation or market convention ( regular way purchases and sales) are recognised at trade date, which is the date that the Scheme commits to purchase or sell the asset. Measurement At initial recognition financial assets and liabilities are measured at fair value. Transaction costs on financial assets and liabilities at fair value through profit or loss are expensed as incurred in the statement of comprehensive income. Subsequent to initial recognition, financial assets and liabilities at affair value through profit or loss are measured at fair value. Gains and losses arising from the changes in their fair value are included in statement of comprehensive income for the period in which they arise. Dividend or interests earned on financial assets are included in statement of comprehensive income for the period in which they arise. Financial assets classified as loans and receivables are carried at amortised cost using the effective interest rate method, less impairment losses, if any. Financial liabilities, other than those designated as at fair value through profit or loss, are measured at amortised cost using effective interest rate method. Fair value gains and losses are taken to profit or loss but are not distributable to unitholders. Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm s length transaction. The fair value of quoted market investments is based on their quoted bid market prices at reporting date without deduction for their estimated future selling costs Since actual market prices are available in determining fair values, no significant estimate or valuation models are applied in determining the fair value of quoted financial instruments. Derecognition Financial assets are derecognised when the contractual rights to the cash flows from the investments have expired or the Scheme has transferred substantially at risks and rewards of ownership. A financial liability is derecognised when and only when the liability is extinguished, that is, when the obligated specified in the contract is discharged cancelled or has expired. Offsetting The Scheme only offsets financial assets and financial liabilities at affair value through profit or loss if the Portfolio has a legally enforceable right to set off the recognized amounts and either intends to settle on a net basis, or realize the asset and settle the liability simultaneously. 11

13 1.4 Cash and cash equivalents Cash and cash equivalents are short-term highly liquid instruments that are readily convertible to known amounts of cash, are subject to an insignificant risk of changes in value and that are not held for investing purposes. Cash and Cash equivalents comprises of margin deposits, call and current deposits with banks, net of overdrafts. Cash and cash equivalents are measured at amortised cost. 1.5 Other financial liabilities Other financial liabilities, including borrowings, are initialy measured at fair value. 1.6 Investment Income Investment Income comprises: Interest on fixed interest, money market investments, mutual funds and cash and cash equivalents; and Dividends from listed and unlisted equities designated as at fair value gains/(losses) on financial instruments. 1.7 Interest income Interest on fixed capital and money market investments at fair value through profit or loss is accrued on a time proportionate basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated futures cash receipts through the expected life of the financial asset to that asset s net carrying amount on initial recognition. 1.8 Securities lending fee income. The fees earned for the administration of securities lending activities for the Stanlib Top 40 ETF fund are accounted for an accrual basis in the year in which the service is rendered. Assets subject to securities lending are not derecognised. 1.9 Dividend income Dividend income is recognised when the Scheme s right to receive the payment has been established, normally being the exdividend date Taxation Under the current system of taxation in South Africa, the Scheme is exempt from paying tax on income or capital gains that are distributed to investors to the extent that income is distributed to the investors. Residual taxable income may be taxed in the portfolios. Both income and capital gains are taxed in the hands of the investor. Witholdings Tax (section 64D to 64N of the Income Tax Act) became applicable from 1 April It is imposed on unitholders at a maximum rate of 15% on the receipt of dividends. The scheme pays the gross dividends on distribution to the Management Company who is the regulated intermediary, who in turn withold this tax based on the tax status of the unitholders. Where the fund is invested in instruments which incur foreign witholdings tax, the net dividend is received and the witholdings tax is witheld by the relevant foreign jurisdiction Expenses Expenses are recognised in the statement of comprehensive income as incurred Impairment Financial assets that are measured at amortised cost are reviewed at each reporting date to determine whether there is objective evidence of impairment. An impairment loss is recognised in the statement of comprehensive income as the difference between the asset s carrying amount and the present value of estimated future cash flows discounted at the financial asset s original effective interest rate. If in a subsequent period the amount of an impairment loss recognised on a financial asset carried at amortised cost decreases and the decrease can be linked objectively to an event occurring after the write down, the decrease in impairment loss is reversed through the statement of comprehensive income. 12

14 1.13 Creations and cancellations Investors can acquire Stanlib securities by trading on the Johannesburg Stock Exchange ( JSE ). These purchases will be made at the current market price of the securities plus a brokerage fee that is negotiable with the broker and any other additional transaction costs applicable to such a trade Increase/decrease in net assets attributable to unitholders Income not distributed is included in net assets attributed to unitholders Critical accounting judgments and key sources of estimated uncertainty In the application of the Scheme s accounting policies, management is required to make judgments, estimates and assumptions about carrying amounts of assets and liabilities that are not readily available from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. 13

15 Notes to the Annual Financial Statements 2. Investment income Financial assets designated at fair value through profit and loss Total investment income 19,998 17,142 Dividends 19,574 16,703 Interest Fair value gains/(losses) on financial instruments designated at fair value through profit and loss Total investment gains 98,977 (14,319) Realised gains 25,477 1,183 Unrealised gains/(losses) 73,500 (15,502) 4. Operating expenses Total operating expenses (1,359) (1,227) Audit fees (83) (40) Bank charges (4) (3) Custody charges (64) (50) Sundry expenses (1,195) (1,121) Trustee fees (13) (13) 5. Financial instruments 5.1 Financial instruments comprise: Financial assets designated at fair value through profit and loss: 429, ,750 Listed equities 429, , Trade and other receivables Loans and receivables Trade and other receivables comprise of: 2, Investment debtors 2,712 - Interest accrued 6 10 The directors consider the carrying amount of the trade and other receivables to approximate their fair value. Trade and other receivables are not considered to be impaired at the end of the reporting period. Trade and other receivables have not been discounted as the impact of discounting is not considered material. 7. Cash and cash equivalents Loans and receivables Cash and cash equivalents comprise of: 1,957 2,845 Current accounts - local 1,957 2,845 14

16 Notes to the Annual Financial Statements 8. Trade and other payables* Liabilities at amortised cost Trade and other payables comprise of: , Investment creditors 2,741 - Provision audit fees Provision other * Payable on demand 9. Cash flows from operating activities Total comprehensive income/(deficit) for the year 98,895 (14,318) Adjustments for: (1,412) (1,221) Dividend income (19,574) (16,703) Interest received (424) (439) Distributions 18,497 15,831 Income adjustments on creation/cancellation Adjustments for non-cash items: Fair value gains/(losses) on financial instruments (98,977) 14,319 (1,494) (1,220) Working capital changes: (6) 260 (Increase)/decrease in trade and other receivables (2,712) - Increase/(decrease) in trade and other payables 2, Cash generated from/(utilised in) operations (1,500) (960) 10. Interest received Opening balance 10 3 Per the statement of comprehensive income Less: closing balance Distributions paid Total distributions paid 19,207 14,139 Distributions payable at beginning of year 2, Per the statement of comprehensive income 18,497 15,831 Less: Unitholder s distribution payable at year end 1,692 2,402 15

17 Notes to the Annual Financial Statements 12. Net creation and cancellation of units Amount Unit Movement Units in issue 2012 R000 s 2011 R000 s 2012 R000 s 2011 R000 s 2012 R000 s A (279,812) 355,146 (9,020) 12,000 12,372 21,392 Net creation/(cancellation) of units (279,812) 355,146 Income adjustments on creation and cancellation of units Net capital creation/(cancellation) of units (279,723) 355, Unit Prices The following table indicates the fluctuations in the price of the scheme s units during the year under review: Repurchase price (cents 2012 Minimum 2012 Maximum 2012 last price 2011 Minimum 2011 Maximum A Income Distributions to unitholders bi-annually Distributions (cents) June 31 December A Recovery of expenses from capital 2011 R000 s 2011 last price Where the expenses of the Scheme exceed the income, in the event that the Management Company considers it unlikely that the expenses will be recovered from future income earned, the shortfall is funded from the capital account, as provided for in the Trust Deeds. 16. Financial instruments and risk management The Stanlib Collective Investment Scheme invests in a wide spread of financial instruments in terms of the unit portfolios investment mandate and based on the Collective Investment Schemes Control Act of South Africa. The main financial risks that investors in the collective investment scheme are exposed to are: credit risk, currency risk, interest rate risk, liquidity risk, market risk and operational risk. Nature of portfolios The nature of the unit portfolios are determined by the trust deed. Unit portfolios are firstly classified in terms of their geographical location and secondly, by their underlying investments. Geographically, unit portfolios are classified as follows: Domestic - these unit portfolios invest at least 80% of their assets in South African markets; and Foreign - these unit portfolios invest at least 85% of their assets outside South Africa. In terms of the underlying investments, unit portfolios are classified as equity, fixed interest, real estate and asset allocation. This second tier is further sub-classified into specific sectors of the market. The definitions below have been sourced from the Association of Savings and Investment South Africa (ASISA). 16

18 Domestic Portfolios Equity Portfolios Equity portfolios are collective investment portfolios that invest predominantly in shares listed on the Johannesburg Stock Exchange. These portfolios invest a minimum of 75% of the market value of the portfolios in equities at all times and generally seek maximum capital appreciation as their primary goal. All equity and derivative instruments must conform 100% to the defined investment requirement of each category. However: a minimum of 80% of the equity portfolio must, at all times, be invested in the JSE Security Exchange South Africa sector/s as defined by the category, and amaximum of 20% of the equity portfolio may be invested outside the defined JSE Securities Exchange South Africa sector/s provided that these investments comply fully with the categoy definition. Equity Large cap portfolios These portfolios seek long-term growth as their primary objective through investment in large market capitalisation shares which fall within the top 40 JSE Securities Exchange South Africa listed shares ranked by market capitalisation, i.e. included in the FTSE/JSE Top 40 Index. The Stanlib Collective Investment Scheme is categorized as follows: Fund Geographical Asset class Sector STANLIB Top 40 ETF Domestic Equity Large Capital Risk Analysis Exposure to credit, index, investment, liquidity, market, operational and secondary trading risks arise in the normal course of investment activities in securities. The scheme s acceptance of risk is directly attributable to the risks associated with any investment in equities. The objectives for managing the risks associated with financial instruments held for investment purposes as well as a brief description of the relevant risks and methods adopted to mitigate these risks are outlined in more detail below. The scheme has exposure to the following risks from its use of financial instruments: Credit risk Currency risk Interest rate risk Liquidity risk Market risk Operational risk The abovementioned risks have been addressed below in more detail. Credit risk The Scheme s exposure to credit risk could be as a result of counterparty to a transaction failing to meet its contractual obligations. This could arise primarily from the Scheme s investment and security lending activities. Management monitors the scheme s exposure to credit risk on an ongoing basis through its credit risk committee and its internal compliance structures. The credit risk committee assigns an internal rating to each institution which may not be higher than the lowest rating from Fitch Rating, Standard and Poor s and Moody s Investor Services. This ensures compliance with the Collective Investment Schemes Control Act of South Africa and the investment mandate. In terms of the Main Trust deed, the Management Company may engage in securities lending under section 85 of CISCA subject to the following limits and conditions: 17

19 The securities lending must be beneficial to all investors; The management company may lend or offer to lend securities with value not exceeding 50% of the market value of securities included in the Scheme; The securities that may be lend to one borrower are limited in accordance with the limits determined by the Registrar for the inclusion of money market instruments in the Scheme; Collateral security for the securities loaned must have an aggregate value that exceeds the market value of the securities loaned by not less than five percent at all times and may only consist of Cash; or Other securities; or A combination of cash and other securities. Securities may not be lend for a period of more than 12 months; and Securities may not be lent unless subject to a right of recall. In terms of the securities lending agreements, it is the duty of the Management Company to take delivery of the collateral assets, any appropriate instruments of transfer or instruments of title in respect of these agreements. Collateral assets and instruments of transfer or title are held on behalf of, and for the benefit of, the principal as represented by the Stanlib Collective Investment The Scheme could be exposed to credit risk to the extent that inadequate collateral is held on the underlying assets. If a borrower fails to perform its obligations, the Scheme may be unable to recover the loaned securities. However, the Management Company only engages in securities lending with at least A-rated financial institutions. The maximum credit exposure, comprising of debtors and accrued income, bank balances, deposits and interest bearing securities and amounts to: 2012 STANLIB Top 40 ETF 4,675 2,855 Currency Risk 2011 Currency risk is the risk that the value of a financial instrument will fluctuate due to change in the foreign exchange rates. Currency risk is not specifically managed. Management ensures that exposures are in accordance with investment objectives and the trust deed. Interest rate risk Interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in the market interest rates. Fluctuations in the interest rates affect the market value of these financial instruments. Management ensures that exposures are in accordance with investment objectives and the trust deed. Liquidity risk Liquidity risk is the risk that the Scheme will not be able to meet its financial obligations towards investors when they fall due. This is applicable to all unit portfolios, especially as unitholders cancel units on a daily basis. Market risk Market risk exists where significant changes in equity prices will affect the value of the Scheme s financial instruments. Certain unit portfolios are exposed to market risk as a result of investing in financial instruments in different sectors in the economy. The value of the underlying investment fluctuates due to changing economic factors and market 18

20 expectations. Management ensures that exposures are in accordance with investment objectives and the trust deed. The investment policy of the exchanged traded funds Stanlib Top 40 ETF is to track the FTSE/JSE Top 40 Index as closely as possible, by buying only the index securities in the same weightings in which they are included in the indices and selling only securities which are excluded from the Index from time to time as a result of Quarterly Index Reviews or corporate actions or which are required to be sold to ensure that the Scheme holds index securities in the same weightings as they are in the indices. However the Scheme shall also be entitled at its discretion and only on a temporary basis: to employ such other investment techniques and instruments as will most effectively give effort to the object or investment policies of the Scheme. The Scheme will not be managed according to traditional methods of analysis and investing judgement. The scheme does not buy or sell securites for trading purposes or for any purpose other than to track the indices as closely as possible. As a further objective, the securities held by the Scheme shall be managed to generate income for the benefit of the investors, i.e. income is generated from scrip lending activities which is applied to reduce expenses and the related tracking error. The Scheme will be adjusted as determined by the stipulations of the JSE s Index calculation methodology to conform to changes in the basket of securites comprising the relevant Stanlib Scheme so as to substantially reflect the composition and weighting of the securites comprising the Index at all times. It is recorded that the Scheme s ability to replicate the price and yield performance of the FTSE/ JSE Top 40 Index will be affected by the costs and expenses incurred by the Scheme. Costs and expenses may result in the Index not being replicated perfectly by the Scheme. In terms of CISCA, the Management company may, subject to the requirements of section 85, lend or offer to lend the assets included in a Scheme within the limits or on the conditons determined by the Scheme s Trust Deed. The Trustee of the Scheme give authority to the Management Company to lend or offer to lend securities with a value not exceeding 50% of the market value of all securities included in the Scheme. The Management Company has engaged in securities lending in respect of the securities held by the Scheme on this basis. Index risk There is no assurance that the Index will continue to be calculated and published on the same or similar basis indefinitely. The index was created by the JSE as a measure of market performance and not for the purposes of trading Scheme s Index securities. The past performance of the index is not necessarily a guide to its future performance. The index may be adjusted from time to time as a result of mergers, re-organisations, schemes of arrangement or other corporate activity involving constituent companies. Any adjustments to the index will be implemented as determined from time to time in terms of the relevant Index stipulations, for example, if a constituent company pays a special dividend. The adjustments may require the removal of a constituent company from the index and the substitution thereof with a new constituent company while at the same time, if necessary, adjusting the base level. The adjustments to the Schemes will be made in such a way that the Schemes will remain substantially aligned with the Index level at all times. Investment risk There can be no assurance that the Schemes will achieve its objectives of replicating the price and yield performance of the following factors could impact negatively on the investment performance of the Schemes: Certain costs and expenses incurred by the Schemes could cause the underlying Portfolios to miss-track against the Temporary unavailability of securities in the secondary market or other extraordinary circumstances could cause deviations from the exact weightings of the indices; The Schemes could also be exposed to liquidity risk in cases where insufficient liquidity on certain securities is available to effect the necessary changes in index constituents. The need to employ alternative investment techniques would only arise in the event of a liquidity problem, for example, it is not possible to acquire certain securities comprising the index due to there being no sellers of such securities. 19

21 Stanlib Index securities are listed instruments, they are bought and sold on the JSE through the JSE member. The participatoryinterest can be sold to the Management Company, which is obliged to buy them from the investor. Market makers will attempt to maintain a high degree of liquidity through continuously offering to buy and sell Stanlib participatory interests at prices around NAV of the participatory interest, thereby ensuring tight buy and sell spreads. Under normal circumstances and conditions, the investor will be able to buy or sell Stanlib securities from the market makers. Fair value information Financial assets at fair value through profit or loss are recognised at fair value, which is therefore equal to their carrying amounts. Fair value hierarchy of financial assets at fair value through profit or loss For financial assets recognised at fair value, disclosure is required of a fair value hierarchy which reflects the significance of the inputs used to make the measurements. The fair value of financial assets and liabilities traded in active markets (such as publicly traded derivatives and securities) are based on quoted market prices at the close of trading on the year end date. Level 1: fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2: fair value measurement are those derived from inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and Level 3: fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). 17. Related Parties Management Company The Schemes have appointed Stanlib Collective Investments Limited to implement strategy as specified in the various trust deeds and to provide administrative services. In terms of the Investment Management agreement, the Management Company receives a management fee, monthly in arrears, Management fees paid to the Management Company are disclosed in the statement of comprehensive income of the scheme and the balance outstanding form part of the accrued expenses line item in the statement of financial position of the Scheme. Controlled entity The Scheme is deemed to be controlled by parties holding more than 50% of the units of the Scheme at reporting date. As at 31 December 2012, the Scheme was controlled by Liberty due to a 79% (2011:83%) interest held. 20

22 Trustee report 21

23 Trustee report 22

24 Trustee report 23

25 Total Expense Ratio s (TER s) TER Ratio s A

26 Disclaimer and statutory disclosure Collective investment schemes in securities are generally medium to long-term investments. The value of participatory interests may go down as well as up and investors may get back less cash than originally invested. Past performance is not necessarily a guide to the future. An investment in the participations of a collective investment scheme in securities is not the same as a deposit with a banking institution. Fluctuations or movements in exchange rates may cause the value of underlying international investments to go up or down. Participatory interest prices are calculated on a net asset value basis, which is the total value of all assets less liabilities in the portfolio including any provisions made for any purchase, fiscal or other charges that would have been incurred had all the assets of the relevant class fund been bought or sold at that time, divided by the number of participatory interests in issue. Please refer to the prospectus for more details on the fees and charges that may be recovered from the Portfolios. The participatory interests of STANLIB Funds Ltd priced daily using the forward pricing method. The Portfolios of STANLIB Funds Ltd may borrow up to 5% of the market value of the Portfolio to bridge insufficient liquidity as a result of the redemption of participatory interests or to defray operating expenses, and may also engage in scrip lending. A schedule of fees and charges and maximum commissions is available on request from Standard Bank Fund Management Jersey Limited, ( the Manager ), or STANLIB Collective Investments Limited, ( STANLIB ). Commission and incentives may be paid and if so, are included in the overall costs. Figures quoted are from Micropal for the period ending 31 December 2010 for a lump sum investment using NAV-NAV prices. The Portfolios of the STANLIB Funds Ltd may declare dividends if there is sufficient net income available in the relevant Class Fund. Performance is quoted in South African Rand and US Dollar terms. Please refer to the prospectus of this scheme for more details, a copy of which is available on request from STANLIB Collective Investments Limited, the address of which is 17 Melrose Boulevard, Melrose Arch, 2196, South Africa. Standard Bank Fund Managers Jersey Limited is a is a wholly owned subsidiary of Standard Bank Offshore Group Limited, whose registered office is La Motte Street, St Helier, Jersey, JE2 4SZ. The registered office of the Manager is also La Motte Street, St Helier, Jersey, JE2 4SZ. Both the Manager and STANLIB Funds Limited are regulated by the Jersey Financial Services Commission. The Custodian is Citibank, N.A., Jersey Branch, 38 Esplanade, St. Helier, Jersey, JE4 8QB. Liberty is a member of the Association of Savings and Investment of South Africa. STANLIB is a member of the Liberty group of companies. 24

27 17 Melrose Boulevard Melrose Arch 2196 PO Box 203 Melrose Arch 2076 T (SA only) T +27 (0) E contact@stanlib.com W stanlib.com STANLIB Asset Management Limited Reg. No. 1969/002753/06 Authorised FSP in terms of the FAIS Act, 2002 (Licence No. 26/10/719)