THE TRUST COMPANY INVESTMENT FUNDS Annual Financial Report 30 June Perpetual Investment Management Limited ABN AFSL

Transcription

1 THE TRUST COMPANY INVESTMENT FUNDS Annual Financial Report 30 June 2016 Perpetual Investment Management Limited ABN AFSL

2 Investment Funds Annual Financial Report 30 June 2016 Contents Page Directors' report 2 Lead auditor's independence declaration 7 Statements of comprehensive income 8 Balance sheets 10 Statements of changes in equity 12 Cash flow statements Directors' declaration 63 Independent auditor's report to the unitholders

3 Investment Funds Directors' report Directors' report The directors of Perpetual Investment Management Limited (a wholly owned subsidiary of Perpetual Limited), the Responsible Entity of Investment Funds, present their report together with the annual financial report of Investment Funds (''the Schemes'') for the year ended 30 June 2016 and the auditor's report thereon. Statutory name ARSN Australian Share Fund Bond Fund Diversified Property Fund Income Fund Philanthropy Fund Share Imputation Fund Responsible Entity The Responsible Entity of Investment Funds is Perpetual Investment Management Limited (ABN ). The Responsible Entity's registered office and principal place of business is Level 18, 123 Pitt Street, Sydney, NSW Directors The following persons held office as directors of Perpetual Investment Management Limited during the year or since the end of the year and up to the date of this report: G Foster (appointed 25 January 2013, Alternate for G Larkins) M Gordon (appointed 28 March 2013, resigned 24 February 2016) J Hawkins (appointed 6 July 2012) D Kiddie (appointed 24 February 2016) G Larkins (appointed 7 January 2013) P Lynch (appointed 6 July 2012, Alternate for J Hawkins) P Statham (appointed 24 February 2016, Alternate for D Kiddie) P Statham (appointed 9 September 2013, resigned 24 February 2016, Alternate for M Gordon) D Winterton (appointed 24 February 2016, Alternate for D Kiddie) D Winterton (appointed 20 April 2015, resigned 24 February 2016, Alternate for M Gordon) - 2 -

4 Investment Funds Directors' report Directors' report Principal activities The Schemes generally invest in (but not limited to) Australian shares, property and fixed income securities. The objective and investment strategy for each Scheme are disclosed in Investment Funds Product Disclosure Statement. The Schemes did not have any employees during the year. There were no significant changes in the nature of the Schemes' activities during the year. Review and results of operations During the year, the Schemes continued to invest in accordance with target asset allocations as set out in the governing documents of the Schemes and in accordance with the provisions of the Schemes' Constitutions. The performance of the Schemes, as represented by the results of their operations, was as follows: Australian Share Fund Bond Fund Diversified Property Fund 30 June June June June June June 2015 Operating profit/(loss) before finance costs attributable to unitholders ($'000) 282 2,667 5,274 9,818 12,969 13,726 Distribution paid and payable ($'000) 6,110 26,388 5,744 16,104 9,276 9,177 Distribution (cents per unit)

5 Investment Funds Directors' report Directors' report Review and results of operations The performance of the Schemes, as represented by the results of their operations, was as follows: Income Fund Philanthropy Fund Share Imputation Fund 30 June June June June June June 2015 Operating profit/(loss) before finance costs attributable to unitholders ($'000) 1,509 5,991 10,532 10,598 (24) 2,338 Distribution paid and payable ($'000) 4,279 8,772 8,794 24,513 6,244 31,084 Distribution (cents per unit) Interest in the Schemes The movement in on issue in the Schemes during the year is disclosed in note 6 to the financial statements. The value of the Schemes' assets and liabilities is disclosed on the balance sheets and derived using the basis set out in note 2 to the financial statements. The Schemes are generally closed to new unitholders from 18 June However, the Responsible Entity may make the Schemes available to new unitholders at its discretion. Significant changes in state of affairs In the opinion of the directors, there were no significant changes in the state of affairs of the Schemes that occurred during the financial year under review. Likely developments and expected results of operations The Schemes will continue to be managed in accordance with the investment objectives and guidelines as set out in the governing documents of the Schemes and in accordance with the provisions of the Schemes' Constitutions

6 Investment Funds Directors' report Directors' report Matters subsequent to the end of the financial year From 22 August 2016, Income Fund is legally known as Perpetual Income Share Fund and is offered as Perpetual Wholesale Income Share Fund in the Perpetual Wholesale Funds Product Disclosure Statement. The Scheme will no longer be offered in Investment Funds Product Disclosure Statement. No other matter or circumstance has arisen since 30 June 2016 that has significantly affected, or may significantly affect: (i) the operations of the Schemes in future financial years; or (ii) the results of those operations in future financial years; or (iii) the state of affairs of the Schemes in future financial years. Environmental regulation The operations of the Schemes are not subject to any particular or significant environmental regulations under a Commonwealth, State or Territory law. Fees paid to and interests held in the Schemes by the Responsible Entity or its associates Fees paid to the Responsible Entity and its related parties out of Schemes properties during the year are disclosed in note 11 to the financial statements. No fees were paid out of Schemes properties to the directors of the Responsible Entity during the year. The number of interests in the Schemes held by the Responsible Entity or its associates as at the end of the financial year are disclosed in note 11 to the financial statements. Indemnification and insurance of officers and auditors No insurance premiums are paid for out of the assets of the Schemes in regards to insurance cover provided to either the officers of Perpetual Investment Management Limited or the auditor of the Schemes. So long as the officers of Perpetual Investment Management Limited act in accordance with the Schemes' Constitutions and the law, the officers remain indemnified out of the assets of the Schemes against losses incurred while acting on behalf of the Schemes. The auditor of the Schemes is in no way indemnified out of the assets of the Schemes

7 Investment Funds Directors' report Directors' report Rounding of amounts to the nearest thousand dollars The Schemes are entities of the kind referred to in ASIC Corporations (Rounding in Financial/Directors' Reports) Instrument 2016/191. Amounts in the directors report and financial report have been rounded to the nearest thousand dollars in accordance with the legislative instrument, unless otherwise indicated. Lead auditor's independence declaration A copy of the Lead auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 7. This report is made in accordance with a resolution of the directors. Director Sydney 20 September

8 ABCD Lead Auditor s Independence Declaration under Section 307C of the Corporations Act 2001 To: the directors of Perpetual Investment Management Limited I declare that, to the best of my knowledge and belief, in relation to the audit for the financial year ended 30 June 2016 there have been: (i) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and (ii) no contraventions of any applicable code of professional conduct in relation to the audit. KPMG Michael O Connell Partner Sydney 20 September KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. Liability limited by a scheme approved under Professional Standards Legislation.

9 Investment Funds Statements of comprehensive income Statements of comprehensive income Australian Share Fund Bond Fund Diversified Property Fund 30 June June June June June June 2015 Notes $'000 $'000 $'000 $'000 $'000 $'000 Investment income Dividend/distribution income 5,545 6,463 7,913 10,474 3,542 4,133 Interest income , Net gains/(losses) on financial instruments held at fair value through profit or loss 3 (3,848) (1,945) (1,934) (905) 10,127 10,380 Net foreign exchange gains/(losses) Other operating income Total net investment income/(loss) 1,806 4,623 6,046 10,936 13,687 14,530 Expenses Responsible Entity's fees 11 1,116 1, , Other expenses Total operating expenses 1,524 1, , Operating profit/(loss) 282 2,667 5,274 9,818 12,969 13,726 Finance costs attributable to unitholders Distributions to unitholders 5 6,110 26,388 5,744 16,104 9,276 9,177 Interest expense Changes in net assets attributable to unitholders (total comprehensive income) 6 (5,828) (23,721) (470) (6,290) 3,693 4,548 The above statements of comprehensive income should be read in conjunction with the accompanying notes

10 Investment Funds Statements of comprehensive income Statements of comprehensive income Income Fund Philanthropy Fund Share Imputation Fund 30 June June June June June June 2015 Notes $'000 $'000 $'000 $'000 $'000 $'000 Investment income Dividend/distribution income 2,302 1,752 13,127 22,876 3,166 5,241 Interest income Net gains/(losses) on financial instruments held at fair value through profit or loss 3 (127) 4,873 (2,395) (12,065) (2,240) (1,253) Net foreign exchange gains/(losses) (3) - Other operating income Total net investment income/(loss) 2,266 6,656 11,157 10, ,070 Expenses Responsible Entity's fees ,325 Other expenses Total operating expenses ,005 1,732 Operating profit/(loss) 1,509 5,991 10,532 10,598 (24) 2,338 Finance costs attributable to unitholders Distributions to unitholders 5 4,279 8,772 8,794 24,513 6,244 31,084 Interest expense Changes in net assets attributable to unitholders (total comprehensive income) 6 (2,770) (2,781) 1,708 (13,915) (6,273) (28,746) The above statements of comprehensive income should be read in conjunction with the accompanying notes

11 Investment Funds Balance sheets As at 30 June 2016 Balance sheets Australian Share Fund Bond Fund Diversified Property Fund 30 June June June June June June 2015 Notes $'000 $'000 $'000 $'000 $'000 $'000 Assets Cash and cash equivalents 14(b) 2,546 1, ,728 1, Financial assets held at fair value through profit or loss 7 47, , , ,143 51,591 83,224 Due from brokers - receivable for securities sold ,000 1,500-2,708 Receivables ,026 3,296 1, ,356 Total assets 50, , , ,349 53,554 87,998 Liabilities Financial liabilities held at fair value through profit or loss Distributions payable to unitholders of the Scheme 5 1,153 21,623 4,181 4,064 7,902 7,030 Due to brokers - payable for securities purchased - 1, Payables ,699 Total liabilities (excluding net assets attributable to unitholders) 1,228 23,048 4,263 4,347 7,982 9,729 Net assets attributable to unitholders - liability 6 48, , , ,002 45,572 78,269 The above balance sheets should be read in conjunction with the accompanying notes

12 Investment Funds Balance sheets As at 30 June 2016 Balance sheets Income Fund Philanthropy Fund Share Imputation Fund 30 June June June June June June 2015 Notes $'000 $'000 $'000 $'000 $'000 $'000 Assets Cash and cash equivalents 14(b) 12, ,255 4,548 3,415 2,846 Financial assets held at fair value through profit or loss 7 133,661 41, , ,948 50, ,106 Due from brokers - receivable for securities sold ,584 Receivables ,329 16, Total assets 147,591 42, , ,497 54, ,344 Liabilities Financial liabilities held at fair value through profit or loss Distributions payable to unitholders of the Scheme 5 3,041 7,572 4,594 17,819 3,397 27,055 Due to brokers - payable for securities purchased 4, ,356 Payables ,927 Total liabilities (excluding net assets attributable to unitholders) 8,117 8,474 4,726 17,871 3,495 44,575 Net assets attributable to unitholders - liability 6 139,474 33, , ,626 51,256 76,769 The above balance sheets should be read in conjunction with the accompanying notes

13 Investment Funds Statements of changes in equity Statements of changes in equity The Schemes' net assets attributable to unitholders are classified as a liability under AASB 132 Financial Instruments: Presentation. As such the Schemes have no equity and no items of changes in equity have been presented for the current or comparative period

14 Investment Funds Cash flow statements Cash flow statements Australian Share Fund Bond Fund Diversified Property Fund 30 June June June June June June 2015 Notes $'000 $'000 $'000 $'000 $'000 $'000 Cash flows from operating activities Dividends/distributions received 6,248 6,911 6,516 8,593 4,122 4,608 Interest received , Other income received Responsible Entity's fees paid (1,296) (1,632) (787) (1,162) (628) (746) Other expenses paid (431) (463) (63) (119) (163) (121) Net cash inflow/(outflow) from operating activities 14(a) 4,759 5,072 5,818 11,159 3,398 3,817 Cash flows from investing activities Proceeds from sale of investments 162, ,487 73, ,533 62,270 12,328 Payments for purchase of investments (105,798) (129,895) (20,317) (382,665) (17,802) (8,764) Net cash inflow/(outflow) from investing activities 57,127 4,592 53,598 13,868 44,468 3,564 Cash flows from financing activities Proceeds from applications by unitholders 1,349 98,489 18, ,217 3,447 53,428 Payments for redemptions by unitholders (50,299) (98,415) (75,035) (190,845) (46,752) (58,345) Interest expense paid (4) - (1) Distributions paid (12,315) (15,136) (3,985) (14,014) (4,046) (2,784) Net cash inflow/(outflow) from financing activities (61,265) (15,062) (60,363) (39,646) (47,351) (7,702) Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year 621 (5,398) (947) (14,619) 515 (321) 1,925 7,323 1,728 16, ,031 14(b) 2,546 1, ,728 1, The above cash flow statements should be read in conjunction with the accompanying notes

15 Investment Funds Cash flow statements Cash flow statements Income Fund Philanthropy Fund Share Imputation Fund 30 June June June June June June 2015 Notes $'000 $'000 $'000 $'000 $'000 $'000 Cash flows from operating activities Dividends/distributions received 1,781 2,418 21,816 13,987 3,641 5,747 Interest received Other income received Responsible Entity's fees paid (417) (426) (531) (262) (815) (1,443) Other expenses paid (329) (263) (57) (93) (323) (427) Net cash inflow/(outflow) from operating activities 14(a) 1,144 1,808 21,680 13,770 2,652 4,095 Cash flows from investing activities Proceeds from sale of investments 54,390 71, ,304 42, , ,084 Payments for purchase of investments (99,349) (65,461) (148,768) (56,419) (64,627) (99,478) Net cash inflow/(outflow) from investing activities (44,959) 6,417 (45,464) (14,323) 60,951 23,606 Cash flows from financing activities Proceeds from applications by unitholders 70,091 45,014 63, ,954 8, ,085 Payments for redemptions by unitholders (6,019) (51,991) (5,027) (211,265) (42,492) (130,195) Interest expense paid - - (30) - (5) - Distributions paid (8,680) (1,654) (22,019) (10,101) (29,076) (18,042) Net cash inflow/(outflow) from financing activities 55,392 (8,631) 36, (63,034) (31,152) Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year 11,577 (406) 12, (3,451) ,548 4,513 2,846 6,297 14(b) 12, ,255 4,548 3,415 2,846 The above cash flow statements should be read in conjunction with the accompanying notes

16 Investment Funds 1 General information This annual financial report covers Investment Funds ("the Schemes"). The Schemes are registered managed investment schemes under the Corporations Act The Schemes are domiciled in Australia. The Schemes are offered in Investment Funds Product Disclosure Statement and are generally closed to new unitholders from 18 June However, the Responsible Entity may make the Schemes available to new unitholders at its discretion. From 22 August 2016, Income Fund is offered to new unitholders and is known as Perpetual Wholesale Income Share Fund in the Perpetual Wholesale Funds Product Disclosure Statement. The Responsible Entity of Investment Funds is Perpetual Investment Management Limited (ABN ). The Responsible Entity's registered office and principal place of business is Level 18, 123 Pitt Street, Sydney, NSW The annual financial report was authorised for issue by the directors of the Responsible Entity on 20 September The directors of the Responsible Entity have the power to amend and reissue the annual financial report. 2 Summary of significant accounting policies The principal accounting policies applied in the preparation of this annual financial report are set out below. These policies have been consistently applied to all years presented, unless otherwise stated in the following text. (a) Basis of preparation This general purpose annual financial report has been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ("AASB'') and the Corporations Act 2001 in Australia. The annual financial report is prepared on the basis of fair value measurement of assets and liabilities except where otherwise stated. Compliance with International Financial Reporting Standards The annual financial report of the Schemes also complies with International Financial Reporting Standards ("IFRS") and Interpretations as issued by the International Accounting Standards Board ("IASB"). Functional and presentation currency The annual financial report is presented in Australian dollars, which is the Schemes' functional currency

17 Investment Funds 2 Summary of significant accounting policies (a) Basis of preparation Use of estimates and judgement The preparation of the annual financial report requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. These 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. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to the accounting estimates are recognised prospectively. (b) New accounting standards and interpretations Certain new accounting standards and interpretations have been published that are not mandatory for the 30 June 2016 reporting period and have not been early adopted by the Schemes. The assessment of the impact of these new standards (to the extent relevant to the Schemes) and interpretations is set out below: (i) AASB 9 Financial Instruments (and applicable amendments) (effective from 1 January 2018) AASB 9 addresses the classification, measurement and derecognition of financial assets and financial liabilities. It has also introduced revised rules around hedge accounting and impairment. The standard is available for early adoption. Management does not expect the adoption of AASB 9 to have a significant impact on the recognition and measurement of the Schemes' financial instruments because they are carried at fair value through profit or loss. The derecognition rules have not been changed from the previous requirements, and the Schemes do not apply hedge accounting. AASB 9 introduces a new impairment model. However, as the Schemes' investments are all held at fair value through profit or loss, the change in impairment rules will not impact the Schemes. (ii) AASB 15 Revenue from Contracts with Customers (effective from 1 January 2018) The AASB has issued a new standard for the recognition of revenue. This will replace AASB 118 which covers contracts for goods and services and AASB 111 which covers construction contracts. The new standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer - so the notion of control replaces the existing notion of risks and rewards. The Schemes' main sources of income are interest, dividends/distributions and gains on financial instruments held at fair value. All of these are outside the scope of the new revenue standard. As a consequence, management does not expect the adoption of the new revenue recognition rules to have a significant impact on the Schemes' accounting policies or the amounts recognised in the financial statements

18 Investment Funds 2 Summary of significant accounting policies (c) Financial instruments (i) Classification The Schemes' investments are classified at fair value through profit or loss. They comprise: Financial instruments held for trading Derivative financial instruments such as futures, forward contracts, options and swaps are included under this classification. The Schemes do not designate any derivatives as hedges in a hedging relationship. Financial instruments designated at fair value through profit or loss upon initial recognition These include financial assets that are not held for trading purposes and which may be sold. These are investments in exchange traded debt, equity instruments, unlisted unit trusts and commercial papers. Financial assets designated at fair value through profit or loss at inception are those that are managed and their performance evaluated on a fair value basis in accordance with the Schemes' documented investment strategies. The Schemes' policy is for the Responsible Entity to evaluate the information about these financial instruments on a fair value basis together with other related financial information. (ii) Recognition/derecognition The Schemes recognise financial assets and financial liabilities on the date they become party to the purchase contractual agreement (trade date) and recognise changes in fair value of the financial assets or financial liabilities from this date. Investments are derecognised on the date the Schemes become party to the sale contractual agreement (trade date)

19 Investment Funds 2 Summary of significant accounting policies (c) Financial instruments (iii) Measurement Financial assets and liabilities held at fair value through profit or loss At initial recognition, the Schemes measure financial assets and financial liabilities at fair value. Transaction costs are expensed in profit or loss as incurred. Subsequently, all financial assets and financial liabilities are measured at fair value without any deduction for estimated future selling cost. Gains and losses arising from changes in the fair value measurement are included in profit or loss. 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. Further details of fair value measurement are disclosed in note 15(d) to the financial statements. (iv) Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the balance sheets when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. (d) Net assets attributable to unitholders Units are redeemable at unitholders' option, however applications and redemptions may be suspended by the Responsible Entity if it is in the best interest of the unitholders. The are classified as financial liabilities as the Schemes are required to distribute their distributable income in accordance with the Schemes' Constitution. The can be put back to the Schemes at any time for cash based on the redemption price. The are measured at the redemption amount that is payable at the balance sheet date if unitholders exercise their right to redeem in the Schemes. (e) Cash and cash equivalents For the purpose of presentation in the cash flow statements, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short term and highly liquid financial assets with a maturity period of three months or less from the date of acquisition that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are shown as a liability on the balance sheets

20 Investment Funds 2 Summary of significant accounting policies (f) Receivables Receivables include accrued income, application monies receivable and Reduced Input Tax Credits ("RITC") refund. Receivables are measured at their nominal amounts. Amounts are generally received within 30 days of being accrued for. Given the short term nature of most receivables, the nominal amount approximates fair value. (g) Payables Payables include accrued expenses and redemption monies owing by the Scheme which are unpaid at the end of the reporting date. Amounts are generally paid within 30 days of being accrued for. Given the short term nature of most payables, the nominal amount approximates fair value. (h) Investment income Interest income is recognised in profit or loss as it accrues using the nominated interest rates available on the bank accounts held. Dividend income is recognised on the ex-dividend date. Trust distributions (including distributions from cash management trusts) are recognised on a present entitlements basis. Other income is brought to account on an accruals basis. (i) Expenses All expenses, including Responsible Entity's fees, are recognised in profit or loss on an accruals basis. (j) Income tax Under current legislation, the Schemes are not subject to income tax as unitholders are presently entitled to the income of the Schemes, provided the taxable income of the Schemes is fully distributed either by way of cash or reinvestment. The benefits of franking credits and foreign tax credits are passed on to unitholders, providing certain conditions are met

21 Investment Funds 2 Summary of significant accounting policies (k) Distributions In accordance with the Schemes' Constitutions, the Schemes distribute their distributable income to unitholders by cash or reinvestment. The distributions are recognised in profit or loss as finance costs attributable to unitholders. (l) Changes in net assets attributable to unitholders Income not distributed is included in net assets attributable to unitholders. Movements in net assets attributable to unitholders are recognised in profit or loss as finance costs attributable to unitholders. (m) Goods and Services Tax ("GST") The GST incurred on the cost of various services provided to the Schemes by third parties such as Responsible Entity's fees, has been passed onto the Schemes. The Schemes qualify for RITC; hence Responsible Entity's fees and other expenses have been recognised in profit or loss net of the amount of GST recoverable from the Australian Taxation Office ("ATO"). Accounts payable are inclusive of GST. The net amount of GST recoverable from the ATO is included in receivables in the balance sheets. Cash flows relating to GST are included in the cash flow statements on a gross basis. (n) Foreign currency translation Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the date of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translations at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when fair value was determined. Translation differences on assets and liabilities carried at fair value are reported in profit or loss on a net basis within net gains/(losses) on financial instruments held at fair value through profit or loss

22 Investment Funds 3 Net gains/(losses) on financial instruments held at fair value through profit or loss Net gains/(losses) arising from changes in the fair value measurement comprise: Australian Share Fund Bond Fund Diversified Property Fund 30 June June June June June June 2015 $'000 $'000 $'000 $'000 $'000 $'000 Net unrealised gains/(losses) on financial instruments held for trading Net unrealised gains/(losses) on financial instruments designated at fair value through profit or loss Net realised gains/(losses) on financial instruments held for trading Net realised gains/(losses) on financial instruments designated at fair value through profit or loss Net gains/(losses) on financial instruments held at fair value through profit or loss (103) - - (19,347) (21,092) 247 (2,054) (3,342) 6, (2,237) ,485 19,147 (51) ,469 3,688 (3,848) (1,945) (1,934) (905) 10,127 10,380 Income Fund Philanthropy Fund Share Imputation Fund 30 June June June June June June 2015 $'000 $'000 $'000 $'000 $'000 $'000 Net unrealised gains/(losses) on financial instruments held for trading Net unrealised gains/(losses) on financial instruments designated at fair value through profit or loss Net realised gains/(losses) on financial instruments held for trading Net realised gains/(losses) on financial instruments designated at fair value through profit or loss Net gains/(losses) on financial instruments held at fair value through profit or loss (237) (3,173) (1,826) 8,079 (13,356) (11,971) (23,555) (49) - 2,614 6,699 (10,474) 1,291 9,543 22,539 (127) 4,873 (2,395) (12,065) (2,240) (1,253)

23 Investment Funds 4 Other expenses Australian Share Fund Bond Fund Diversified Property Fund 30 June June June June June June 2015 $'000 $'000 $'000 $'000 $'000 $'000 Transaction costs Sundry expenses Total Income Fund Philanthropy Fund Share Imputation Fund 30 June June June June June June 2015 $'000 $'000 $'000 $'000 $'000 $'000 Transaction costs Sundry expenses Total Sundry expenses include audit fees, custody fees, printing fees and other expenses incurred in the operation of the Schemes

24 Investment Funds 5 Distributions to unitholders The distributions for the year were as follows: Australian Share Fund Bond Fund 30 June June June June June June June June 2015 $'000 CPU $'000 CPU $'000 CPU $'000 CPU Distributions paid - September Distributions paid - December Distributions paid - March Distributions paid - April Distributions payable - June Total distributions , , , , , , , , , , , , ,110 26,388 5,744 16,104 Diversified Property Fund Income Fund 30 June June June June June June June June 2015 $'000 CPU $'000 CPU $'000 CPU $'000 CPU Distributions paid - September Distributions paid - December Distributions paid - March Distributions payable - June Total distributions , , , , , ,276 9,177 4,279 8,772 Philanthropy Fund Share Imputation Fund 30 June June June June June June June June 2015 $'000 CPU $'000 CPU $'000 CPU $'000 CPU Distributions paid - September Distributions paid - December Distributions paid - March Distributions paid - April Distributions payable - June Total distributions , , , , , , , , , , , ,794 24,513 6,244 31,

25 Investment Funds 6 Net assets attributable to unitholders Movements in the number of and net assets attributable to unitholders during the year were as follows: Net assets attributable to unitholders Opening balance Applications Redemptions Units issued upon reinvestment of distributions Changes in net assets attributable to unitholders Closing balance Net assets attributable to unitholders Opening balance Applications Redemptions Units issued upon reinvestment of distributions Changes in net assets attributable to unitholders Closing balance Australian Share Fund Bond Fund 30 June June June June June June June June 2015 Units '000 Units '000 $'000 $'000 Units '000 Units '000 $'000 $'000 65,774 64, , , , , , , ,729 1,349 98,489 18, ,318 18, ,117 (47,845) (38,563) (94,537) (98,415) (74,662) (185,630) (74,958) (190,929) 7, ,265 1,563 1,639 1,388 1,642 1, (5,828) (23,721) - - (470) (6,290) 25,682 65,774 48, , , , , ,002 Diversified Property Fund Income Fund 30 June June June June June June June June 2015 Units '000 Units '000 $'000 $'000 Units '000 Units '000 $'000 $'000 63,945 68,334 78,269 80,249 28,264 32,961 33,805 43,555 2,628 39,771 3,407 53,468 95,175 28, ,328 45,014 (32,785) (44,903) (44,155) (60,956) (5,019) (33,436) (6,019) (51,991) 3, , ,693 4, (2,770) (2,781) 37,325 63,945 45,572 78, ,530 28, ,474 33,

26 Investment Funds 6 Net assets attributable to unitholders Movements in the number of and net assets attributable to unitholders during the year were as follows: Net assets attributable to unitholders Opening balance Applications Redemptions Units issued upon reinvestment of distributions Changes in net assets attributable to unitholders Closing balance Philanthropy Fund Share Imputation Fund 30 June June June June June June June June 2015 Units '000 Units '000 $'000 $'000 Units '000 Units '000 $'000 $' , , , ,873 37,491 46,785 76, ,141 80, ,194 63, ,934 4,256 38,803 8, ,086 (6,412) (236,879) (5,026) (211,266) (14,425) (48,191) (28,724) (143,978) ,708 (13,915) - - (6,273) (28,746) 313, , , ,626 27,727 37,491 51,256 76,769 As stipulated within the Schemes' Constitutions, each unit represents a right to an individual share in the Schemes and does not extend to a right to the underlying assets of the Schemes. There are no separate classes of and each unit has the same right attaching to it as all other of the Schemes. Capital risk management The Schemes consider their net assets attributable to unitholders as capital, notwithstanding net assets attributable to unitholders are classified as a liability. The amount of net assets attributable to unitholders can change significantly on a daily basis as the Schemes are subject to daily applications and daily redemptions at the discretion of unitholders. Applications and redemptions are reviewed relative to the liquidity of the Schemes' underlying assets on a daily basis by the Responsible Entity. Under the terms of the Schemes' Constitutions, the Responsible Entity has the discretion to reject an application and to defer or adjust a redemption if the exercise of such discretion is in the best interest of unitholders

27 Investment Funds 7 Financial assets held at fair value through profit or loss Held for trading Futures Australian Share Fund Bond Fund Diversified Property Fund Fair value Fair value Fair value Fair value Fair value Fair value 30 June June June June June June 2015 $'000 $'000 $'000 $'000 $'000 $' Designated at fair value through profit or loss Equities 47, , ,756 52,543 Unlisted unit trusts - 7, , ,143 15,835 30,681 Term deposits , , , , ,143 51,591 83,224 Total financial assets held at fair value through profit or loss Held for trading Futures 47, , , ,143 51,591 83,224 Income Fund Philanthropy Fund Share Imputation Fund Fair value Fair value Fair value Fair value Fair value Fair value 30 June June June June June June 2015 $'000 $'000 $'000 $'000 $'000 $' Designated at fair value through profit or loss Equities 133,618 38, , ,081 Unlisted unit trusts - 2, , ,948-2, ,618 41, , ,948 50, ,106 Total financial assets held at fair value through profit or loss 133,661 41, , ,948 50, ,

28 Investment Funds 8 Financial liabilities held at fair value through profit or loss Held for trading Futures Total financial liabilities held at fair value through profit or loss Bond Fund Share Imputation Fund Fair value Fair value Fair value Fair value 30 June June June June 2015 $'000 $'000 $'000 $' Receivables Australian Share Fund Bond Fund Diversified Property Fund 30 June June June June June June 2015 $'000 $'000 $'000 $'000 $'000 $'000 Dividends/distributions receivable Interest receivable Applications receivable Other receivables Total receivables ,278 1, , ,026 3,296 1, ,356 Income Fund Philanthropy Fund Share Imputation Fund 30 June June June June June June 2015 $'000 $'000 $'000 $'000 $'000 $'000 Dividends/distributions receivable Interest receivable Applications receivable Other receivables Total receivables ,281 15, ,329 16,

29 Investment Funds 10 Payables Australian Share Fund Bond Fund Diversified Property Fund 30 June June June June June June 2015 $'000 $'000 $'000 $'000 $'000 $'000 Responsible Entity's fees payable Other fees payable Redemptions payable Total payables , ,699 Income Fund Philanthropy Fund Share Imputation Fund 30 June June June June June June 2015 $'000 $'000 $'000 $'000 $'000 $'000 Responsible Entity's fees payable Other fees payable Redemptions payable Total payables , , Related party transactions Responsible Entity The Responsible Entity of Investment Funds is Perpetual Investment Management Limited (ABN ), a wholly owned subsidiary of Perpetual Limited (ACN ). The Schemes do not employ personnel in their own right. However, they are required to have an incorporated Responsible Entity to manage the activities of the Schemes and this is considered the key management personnel

30 Investment Funds 11 Related party transactions Key management personnel (a) Directors The directors of Perpetual Investment Management Limited during the financial year or since the end of the year and up to the date of this report are as follows: G Foster (appointed 25 January 2013, Alternate for G Larkins) M Gordon (appointed 28 March 2013, resigned 24 February 2016) J Hawkins (appointed 6 July 2012) D Kiddie (appointed 24 February 2016) G Larkins (appointed 7 January 2013) P Lynch (appointed 6 July 2012, Alternate for J Hawkins) P Statham (appointed 24 February 2016, Alternate for D Kiddie) P Statham (appointed 9 September 2013, resigned 24 February 2016, Alternate for M Gordon) D Winterton (appointed 24 February 2016, Alternate for D Kiddie) D Winterton (appointed 20 April 2015, resigned 24 February 2016, Alternate for M Gordon) (b) Other key management personnel There were no other persons with responsibility for planning, directing and controlling the activities of the Schemes, directly or indirectly, during or since the end of the financial year. Key management personnel unitholdings From time to time directors of the Responsible Entity, or their related entities, may invest in or withdraw from the Schemes. These investments or withdrawals are on the same terms and conditions as those entered into by other unitholders of the Schemes. No key management personnel of the Responsible Entity held in the Schemes as at 30 June 2016 (2015: nil). Transactions with key management personnel Key management personnel services are provided by Perpetual Investment Management Limited and included in the Responsible Entity's fees. There is no separate charge for these services. There was no compensation paid directly by the Schemes to any of the key management personnel during the year. The Schemes have not made, guaranteed or secured, directly or indirectly, any loans to the key management personnel or their related entities at any time during the reporting period

31 Investment Funds 11 Related party transactions Responsible Entity's fees and other transactions The Responsible Entity s fees are calculated in accordance with the Schemes' Constitutions (as amended). The Responsible Entity's fees are expressed as a percentage of the net asset value of the Schemes. Responsible Entity's fees Schemes % p.a. Australian Share Fund Bond Fund Diversified Property Fund Income Fund Philanthropy Fund Share Imputation Fund All related party transactions are conducted on normal commercial terms and conditions. The transactions during the year and amounts payable at year end between the Schemes and the Responsible Entity were as follows: Australian Share Fund Bond Fund Diversified Property Fund 30 June June June June June June 2015 $ $ $ $ $ $ Responsible Entity's fees paid and payable directly by the Scheme Fees payable to the Responsible Entity as at reporting date 1,115,827 1,516, ,296 1,003, , ,426 42, ,811 53,539 73,964 36,823 62,573 Income Fund Philanthropy Fund Share Imputation Fund 30 June June June June June June 2015 $ $ $ $ $ $ Responsible Entity's fees paid and payable directly by the Scheme Fees payable to the Responsible Entity as at reporting date 459, , , , ,634 1,324, ,198 35, ,648 31,860 50, ,

32 Investment Funds 11 Related party transactions Related party unitholdings Parties related to the Schemes (including the Responsible Entity, its related parties and other schemes managed by the Responsible Entity) held in the Schemes as follows: Australian Share Fund 30 June 2016 held Interest held acquired disposed Distributions paid/payable by the Scheme '000 % '000 '000 $'000 Managed Investment Scheme Philanthropy Fund - - 6,974 41,095 2, June 2015 held Interest held acquired disposed Distributions paid/payable by the Scheme '000 % '000 '000 $'000 Managed Investment Scheme Philanthropy Fund 34, ,638-13,

33 Investment Funds 11 Related party transactions Related party unitholdings Parties related to the Schemes (including the Responsible Entity, its related parties and other schemes managed by the Responsible Entity) held in the Schemes as follows: Bond Fund 30 June 2016 held Interest held acquired disposed Distributions paid/payable by the Scheme '000 % '000 '000 $'000 Managed Investment Scheme Philanthropy Fund 33, ,621 28,925 1, June 2015 held Interest held acquired disposed Distributions paid/payable by the Scheme '000 % '000 '000 $'000 Managed Investment Scheme Philanthropy Fund 60, ,306 14,683 4,

34 Investment Funds 11 Related party transactions Related party unitholdings Parties related to the Schemes (including the Responsible Entity, its related parties and other schemes managed by the Responsible Entity) held in the Schemes as follows: Diversified Property Fund 30 June 2016 held Interest held acquired disposed Distributions paid/payable by the Scheme '000 % '000 '000 $'000 Managed Investment Scheme Philanthropy Fund 18, ,530 17,217 4, June 2015 held Interest held acquired disposed Distributions paid/payable by the Scheme '000 % '000 '000 $'000 Managed Investment Scheme Philanthropy Fund 32, ,643 5,181 4,622 Income Fund 30 June 2016 held Interest held acquired disposed Distributions paid/payable by the Scheme '000 % '000 '000 $'000 Managed Investment Scheme Philanthropy Fund 92, ,649-2,419 At 30 June 2015, there were no related party unitholdings in Income Fund

35 Investment Funds 11 Related party transactions Related party unitholdings Parties related to the Schemes (including the Responsible Entity, its related parties and other schemes managed by the Responsible Entity) held in the Schemes as follows: Philanthropy Fund 30 June 2016 held Interest held acquired disposed Distributions paid/payable by the Scheme '000 % '000 '000 $'000 Managed Investment Scheme Perpetual Foundation , June 2015 held Interest held acquired disposed Distributions paid/payable by the Scheme '000 % '000 '000 $'000 Managed Investment Scheme Perpetual Foundation 2, ,

36 Investment Funds 11 Related party transactions Investments The Schemes held investments in the following schemes which are also managed by the Responsible Entity or its related parties: Australian Share Fund 30 June 2016 held Fair value of investment Interest held acquired disposed Distributions received/ receivable by the Scheme '000 $'000 % '000 '000 $'000 Managed Investment Scheme Perpetual Institutional Cash Management Trust ,336 22, June 2015 held Fair value of investment Interest held acquired disposed Distributions received/ receivable by the Scheme '000 $'000 % '000 '000 $'000 Managed Investment Schemes Perpetual Institutional Cash Management Trust 7,748 7, ,748 23, Cash Fund ,

37 Investment Funds 11 Related party transactions Investments The Schemes held investments in the following schemes which are also managed by the Responsible Entity or its related parties: Bond Fund 30 June 2016 held Fair value of investment Interest held acquired disposed Distributions received/ receivable by the Scheme '000 $'000 % '000 '000 $'000 Managed Investment Schemes Perpetual Active Fixed Interest Fund 58,925 60, ,495 39,510 4,950 Perpetual Credit Income Fund 86,854 89, ,010 33,518 2, June 2015 held Fair value of investment Interest held acquired disposed Distributions received/ receivable by the Scheme '000 $'000 % '000 '000 $'000 Managed Investment Schemes Perpetual Active Fixed Interest Fund 94,940 96, ,042 22,102 6,965 Perpetual Credit Income Fund 104, , ,975 11,613 3,509 Cash Fund ,

38 Investment Funds 11 Related party transactions Investments The Schemes held investments in the following schemes which are also managed by the Responsible Entity or its related parties: Diversified Property Fund At 30 June 2016, Diversified Property Fund did not hold in schemes which are also managed by the Responsible Entity or its related parties. 30 June 2015 held Fair value of investment Interest held acquired disposed Distributions received/ receivable by the Scheme '000 $'000 % '000 '000 $'000 Managed Investment Scheme Cash Fund ,030 - Income Fund 30 June 2016 held Fair value of investment Interest held acquired disposed Distributions received/ receivable by the Scheme '000 $'000 % '000 '000 $'000 Managed Investment Scheme Perpetual Institutional Cash Management Trust ,917 4, June 2015 held Fair value of investment Interest held acquired disposed Distributions received/ receivable by the Scheme '000 $'000 % '000 '000 $'000 Managed Investment Schemes Perpetual Institutional Cash Management Trust 2,415 2, ,815 10, Cash Fund

39 Investment Funds 11 Related party transactions Investments The Schemes held investments in the following schemes which are also managed by the Responsible Entity or its related parties: Philanthropy Fund 30 June 2016 held Fair value of investment Interest held acquired disposed Distributions received/ receivable by the Scheme '000 $'000 % '000 '000 $'000 Managed Investment Schemes Perpetual Credit Income Fund 2,923 3, , Perpetual Defensive Alternative Pool Fund 32,632 29, , Perpetual Growth Alternative Pool Fund 19,489 25, ,489-1,386 Perpetual Institutional Cash Management Trust 1,556 1, , Australian Share Fund ,974 41,095 2,866 Bond Fund 33,130 33, ,621 28,925 1,346 Diversified Property Fund 18,614 22, ,530 17,217 4,738 Income Fund 92, , ,649-2, June 2015 held Fair value of investment Interest held acquired disposed Distributions received/ receivable by the Scheme '000 $'000 % '000 '000 $'000 Managed Investment Schemes Perpetual Institutional Cash Management Trust 15,000 15, , Australian Share Fund 34,121 69, ,638-13,396 Bond Fund 60,434 60, ,306 14,683 4,750 Diversified Property Fund 32,301 39, ,643 5,181 4,622 Cash Fund ,096 23,

40 Investment Funds 11 Related party transactions Investments The Schemes held investments in the following schemes which are also managed by the Responsible Entity or its related parties: Share Imputation Fund 30 June 2016 held Fair value of investment Interest held acquired disposed Distributions received/ receivable by the Scheme '000 $'000 % '000 '000 $'000 Managed Investment Scheme Perpetual Institutional Cash Management Trust ,621 9, June 2015 held Fair value of investment Interest held acquired disposed Distributions received/ receivable by the Scheme '000 $'000 % '000 '000 $'000 Managed Investment Schemes Perpetual Institutional Cash Management Trust 2,025 2, ,225 21, Cash Fund ,

41 Investment Funds 12 Structured entities A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding control, and the relevant activities are directed by means of contractual arrangements. The Schemes consider all investments in unlisted unit trusts to be structured entities. The Schemes invest in unlisted unit trusts for the purpose of capital appreciation and earning investment income. The unlisted unit trusts are managed in accordance with the investment strategy with the respective investment managers. The investment decisions are based on the analysis conducted by the managers. The return of the unlisted unit trusts is exposed to the variability of the performance of the investment strategies. The unlisted unit trusts finance their operations by issuing redeemable shares which are puttable at the holder's option and entitle the holder to a proportional stake in the respective trusts' net assets and distributions. The Schemes' interests to unconsolidated structured entities from investing in unlisted unit trusts are disclosed in note 7 to the financial statements. The fair value of these entities is included in financial assets held at fair value through profit or loss in the balance sheets. The Schemes' maximum exposure to loss is equal to the total fair value of their investments in these entities as there are no off balance sheet exposures relating to them. The Schemes' exposure to any risk from the structured entities will cease when these investments are disposed of. Unconsolidated subsidiaries The Schemes have determined that they are investment entities under the definition in AASB 10 as they meet the following criteria: (a) (b) (c) The Schemes have obtained funds for the purpose of providing unitholders with investment management services; The Schemes' business purpose, which is communicated directly to unitholders, is investing solely for returns from capital appreciation and investment income; and The performance of investments made through the Schemes are measured and evaluated on a fair value basis. The Schemes also meet all of the typical characteristic of an investment entity. Consequently the Schemes applied the investment entity exception to consolidation and measured its subsidiaries at fair value through profit or loss

42 Investment Funds 12 Structured entities With the exception of Philanthropy Fund, no other Schemes are considered to have control in the structured entities. Philanthropy Fund The following table provides information in relation to unconsolidated subsidiaries of the Scheme at the reporting date: Fair value Ownership interest 30 June June June June 2015 $'000 $'000 % % Unconsolidated subsidiaries Australian Share Fund - 69, Diversified Property Fund 22,808 39, Income Fund 108, Each of the above subsidiaries is domiciled in Australia. The Schemes do not have current commitments or intentions and contractual obligations to provide financial or other support to the unconsolidated structured entities. There are no loans or advances currently made to these entities. There are no significant restrictions on the ability of an unconsolidated structured entity to transfer funds to the Schemes in the form of cash distributions

43 Investment Funds 13 Auditor's remuneration During the year the following fees were paid or payable by the Schemes for services provided by the auditor of the Schemes: Audit and audit related services KPMG Total remuneration for audit and audit related services Audit and audit related services KPMG Total remuneration for audit and audit related services Australian Share Fund Bond Fund Diversified Property Fund 30 June June June June June June 2015 $ $ $ $ $ $ 16,244 31,049 10,700 24,095 16,244 31,049 16,244 31,049 10,700 24,095 16,244 31,049 Income Fund Philanthropy Fund Share Imputation Fund 30 June June June June June June 2015 $ $ $ $ $ $ 16,244 31,049 10,700 21,985 21,197 31,049 16,244 31,049 10,700 21,985 21,197 31,

44 Investment Funds 14 Reconciliation of operating profit/(loss) to net cash inflow/(outflow) from operating activities Australian Share Fund Bond Fund Diversified Property Fund 30 June June June June June June 2015 $'000 $'000 $'000 $'000 $'000 $'000 (a) Reconciliation of operating profit/(loss) to net cash inflow/(outflow) from operating activities Operating profit/(loss) 282 2,667 5,274 9,818 12,969 13,726 (Increase)/decrease in dividends/distributions receivable (1,397) (1,881) (Increase)/decrease in interest receivable ,376 (1) 1 (Increase)/decrease in other receivables (1) - Increase/(decrease) in payables (93) 3 (22) (82) (22) (5) Net (gains)/losses on financial instruments held at fair value through profit or loss 3,848 1,945 1, (10,127) (10,380) Net foreign exchange (gains)/losses (1) Net cash inflow/(outflow) from operating activities 4,759 5,072 5,818 11,159 3,398 3,817 (b) Components of cash and cash equivalents Cash at the end of the year as shown in the cash flow statements is reconciled to the balance sheets as follows: Cash on hand 2,546 1, , Future deposits , Total cash and cash equivalents 2,546 1, ,728 1, (c) Non-cash financing activities During the year Australian Share Fund paid redemptions of $44.2 million in the form of transfers out of assets with equivalent values

45 Investment Funds 14 Reconciliation of operating profit/(loss) to net cash inflow/(outflow) from operating activities Income Fund Philanthropy Fund Share Imputation Fund 30 June June June June June June 2015 $'000 $'000 $'000 $'000 $'000 $'000 (a) Reconciliation of operating profit/(loss) to net cash inflow/(outflow) from operating activities Operating profit/(loss) 1,509 5,991 10,532 10,598 (24) 2,338 (Increase)/decrease in dividends/distributions receivable (521) 666 8,689 (8,889) (Increase)/decrease in interest receivable (19) 1 3 (17) (1) 2 (Increase)/decrease in other receivables (18) (1) (20) Increase/(decrease) in payables (61) (12) Net (gains)/losses on financial instruments held at fair value through profit or loss 127 (4,873) 2,395 12,065 2,240 1,253 Net foreign exchange (gains)/losses Net cash inflow/(outflow) from operating activities 1,144 1,808 21,680 13,770 2,652 4,095 (b) Components of cash and cash equivalents Cash at the end of the year as shown in the cash flow statements is reconciled to the balance sheets as follows: Cash on hand 11, ,255 4,548 3,415 1,925 Future deposits Total cash and cash equivalents 12, ,255 4,548 3,415 2,846 (c) Non-cash financing activities During the year Income Fund received applications of $44.2 million in the form of transfers in of assets with equivalent values. (d) Non-cash investing activities During the year Philanthropy Fund bought in Income Funds and sold in Australian Share Fund for the same amount which were satisfied by asset transfers from the Trust Company Australian Share Fund to the Trust Company Income Fund. The asset transfers of $44.2 million were valued using the quoted market prices on the date of transfers

46 Investment Funds 15 Financial risk management The Schemes' investing activities are exposed to a variety of financial risks. These risks include market risk (including currency risk, interest rate risk and price risk), credit risk and liquidity risk. A risk management framework has been established by the Responsible Entity of the Schemes to monitor the Schemes' compliance with their governing documents and to minimise risks in their investment activities. This framework incorporates a regular assessment process to ensure procedures and controls adequately manage investment activities. The investment activities of the Schemes are carried out by the asset managers in accordance with the investment strategy specifically tailored for the Schemes' objectives. The strategy is approved by the Board of Directors of the Responsible Entity, and must comply with any authorised investments and management restrictions specified in the Schemes' Constitutions. The Schemes are permitted to use derivative products. The use of derivatives is considered to be part of the investment management process and is not managed in isolation. This note presents information about the Schemes' exposure to each of the above risks. The Schemes use different methods to measure different types of risks to which they are exposed. These methods include sensitivity analysis in the case of interest rate risk, currency risk and price risk; and credit ratings analysis for credit risk. (a) Market risk Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market price such as foreign exchange rates, interest rates, equity prices and credit spreads. The Schemes may use derivative instruments to manage their exposure to market risks. However, the use of derivatives is limited to the investment strategy and restrictions specified in the Schemes' governing documents. The Schemes held futures contracts as at 30 June 2016 (30 June 2015: the Schemes held futures contracts). (i) Currency risk The Schemes that invest in financial instruments denominated in currencies other than the Australian dollar are exposed to currency risk. Currency risk arises as fair value or future cash flows of monetary securities denominated in foreign currency will fluctuate due to changes in exchange rates. The currency risk relating to non-monetary assets and liabilities is a component of price risk not currency risk. However, management monitors the exposures on all foreign currency denominated assets and liabilities. The Schemes may enter into derivative contracts to protect the valuation of financial assets and liabilities against variations in the exchange rates. The Schemes do not designate any derivatives as hedges, and hence these derivative financial instruments are classified at fair value through profit or loss. The Schemes did not have significant exposure to currency risk at the reporting date

47 Investment Funds 15 Financial risk management (a) Market risk (ii) Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Schemes are exposed to cash flow interest rate risk on financial instruments with floating interest rates. Financial instruments with fixed interest rates expose the Schemes to fair value interest rate risk. The Schemes' exposure to interest rate risk is limited to their cash and cash equivalents which earn/charge a floating rate of interest. (iii) Price risk The Schemes are exposed to market price risk predominantly through their investment in equities, unlisted unit trusts and derivatives for which prices in the future are uncertain (other than arising from currency risk or interest rate risk). The Schemes' asset managers aim to manage the impact of market price risk through the use of consistent and carefully considered investment guidelines. Risk management techniques are used in the selection of investments. Investments (including derivatives) are only purchased that meet investment criteria. Risk can be reduced by diversifying investments across several asset managers, markets, regions and different asset classes. At the reporting date, the fair value of the Schemes' investments exposed to price risk was as follows: Australian Share Fund Bond Fund Diversified Property Fund 30 June June June June June June 2015 $'000 $'000 $'000 $'000 $'000 $'000 Fair value of investments exposed to price risk 47, , , ,143 51,591 83,224 Income Fund Philanthropy Fund Share Imputation Fund 30 June June June June June June 2015 $'000 $'000 $'000 $'000 $'000 $'000 Fair value of investments exposed to price risk 133,661 41, , ,948 50, ,

48 Investment Funds 15 Financial risk management (a) Market risk (iii) Price risk Sensitivity analysis The sensitivity analysis estimates the sensitivity of the Schemes' operating profit and net assets attributable to unitholders to market price risk. The sensitivity rate is based on management s best estimate of a reasonably possible movement in the market price, having regard to historical correlation of the Schemes' investments with the relevant benchmark and market volatility. An increase of 15% at the reporting date of the market prices would have increased the Schemes' operating profit and net assets attributable to unitholders by the amounts disclosed in the following tables. A decrease of 15% would have an equal, but opposite effect to the amounts shown below, on the basis that all other variables remain constant. Australian Share Fund Bond Fund Diversified Property Fund 30 June June June June June June 2015 $'000 $'000 $'000 $'000 $'000 $'000 Impact on operating profit and net assets attributable to unitholders 7,081 22,997 22,501 30,772 7,739 12,484 Income Fund Philanthropy Fund Share Imputation Fund 30 June June June June June June 2015 $'000 $'000 $'000 $'000 $'000 $'000 Impact on operating profit and net assets attributable to unitholders 20,049 6,157 34,053 27,592 7,635 15,280 (b) Credit risk Credit risk is the risk that a counterparty will be unable to pay amounts when they fall due. The Schemes are predominantly exposed to credit risk on derivative financial instruments, cash and cash equivalents and amounts due from brokers

49 Investment Funds 15 Financial risk management (b) Credit risk (i) Derivative financial instruments The use of derivatives is limited to the investment strategy specifically tailored for the Schemes. Asset managers are only permitted to use derivative financial instruments meet certain investment criteria. The counterparty risk arising from entering into derivative contracts is minimised by predominantly using exchange traded derivatives (except for currency hedging, contracts for differences, and occasionally, other approved over the counter instruments). The exchange traded derivatives are only executed and cleared through approved members of the exchanges. For over the counter derivatives, minimum credit ratings apply for counterparties at the time of entering into a contract and ISDA agreements. (ii) Cash and cash equivalents The exposure to credit risk for cash and cash equivalents is low as all counterparties have a rating of A or higher (as determined by Standard & Poor's). (iii) Amount due from brokers All transactions in listed securities are settled/paid for upon delivery using approved brokers. The risk of default is considered low, as delivery of securities sold is only made once the broker has received payment from the counterparty. Payments on securities acquired are only made after the broker has received the securities. The trade will fail if either party fails to meet its obligations. All transactions in unlisted unit trusts are settled/unitised when unit prices are issued. The risk of default is considered low except when the unlisted unit trusts are suspended. (c) Liquidity risk Liquidity risk is the risk that the Schemes will not be able to meet their financial obligations as they fall due. The Schemes are exposed to daily cash redemptions of redeemable and daily margin call on derivatives. The Schemes' investments are considered to be readily realisable. The Schemes primarily hold investments in an active market and can be readily disposed. Only a limited proportion of their assets are held in investments not actively traded on a stock exchange. The Schemes' investments in unlisted unit trusts expose the Schemes to the risk that the Responsible Entity or the manager of those trusts may be unwilling or unable to fulfil the redemption requests within the timeframe requested by the Schemes. However, these investments are considered readily realisable unless the unlisted unit trusts are declared illiquid. In order to manage the Schemes' overall liquidity, asset managers will only purchase securities (including derivatives) which meet the Schemes' investment criteria, including the assessment of saleability in different market conditions. The Schemes' investment strategies generally define a minimum liquidity level for the Schemes which is monitored regularly

50 Investment Funds 15 Financial risk management (c) Liquidity risk The following tables summarise the contractual maturities of financial liabilities, including interest payments where applicable: Australian Share Fund Non-derivative financial liabilities Distributions payable to unitholders of the Scheme Due to brokers - payable for securities purchased Payables Net assets attributable to unitholders Total 30 June June 2015 Contractual cash flows Contractual cash flows Carrying Less than 6 Carrying Less than 6 amount At call months amount At call months $'000 $'000 $'000 $'000 $'000 $'000 1,153-1,153 21,623-21, ,257-1, ,831 48, , ,582-50,059 48,831 1, , ,582 23,048 Bond Fund Non-derivative financial liabilities Distributions payable to unitholders of the Scheme Payables Net assets attributable to unitholders Total 30 June June 2015 Contractual cash flows Contractual cash flows Carrying Less than 6 Carrying Less than 6 amount At call months amount At call months $'000 $'000 $'000 $'000 $'000 $'000 4,181-4,181 4,064-4, , , , , , ,823 4, , ,002 4,245 Derivative financial liabilities Futures Total

51 Investment Funds 15 Financial risk management (c) Liquidity risk The following tables summarise the contractual maturities of financial liabilities, including interest payments where applicable: Diversified Property Fund Non-derivative financial liabilities Distributions payable to unitholders of the Scheme Payables Net assets attributable to unitholders Total 30 June June 2015 Contractual cash flows Contractual cash flows Carrying Less than 6 Carrying Less than 6 amount At call months amount At call months $'000 $'000 $'000 $'000 $'000 $'000 7,902-7,902 7,030-7, ,699-2,699 45,572 45,572-78,269 78,269-53,554 45,572 7,982 87,998 78,269 9,729 Income Fund Non-derivative financial liabilities Distributions payable to unitholders of the Scheme Due to brokers - payable for securities purchased Payables Net assets attributable to unitholders Total 30 June June 2015 Contractual cash flows Contractual cash flows Carrying Less than 6 Carrying Less than 6 amount At call months amount At call months $'000 $'000 $'000 $'000 $'000 $'000 3,041-3,041 7,572-7,572 4,932-4, , ,474-33,805 33, , ,474 8,117 42,279 33,805 8,

52 Investment Funds 15 Financial risk management (c) Liquidity risk The following tables summarise the contractual maturities of financial liabilities, including interest payments where applicable: Philanthropy Fund Non-derivative financial liabilities Distributions payable to unitholders of the Scheme Payables Net assets attributable to unitholders Total 30 June June 2015 Contractual cash flows Contractual cash flows Carrying Less than 6 Carrying Less than 6 amount At call months amount At call months $'000 $'000 $'000 $'000 $'000 $'000 4,594-4,594 17,819-17, , , , , , ,875 4, , ,626 17,871 Share Imputation Fund Non-derivative financial liabilities Distributions payable to unitholders of the Scheme Due to brokers - payable for securities purchased Payables Net assets attributable to unitholders Total 30 June June 2015 Contractual cash flows Contractual cash flows Carrying Less than 6 Carrying Less than 6 amount At call months amount At call months $'000 $'000 $'000 $'000 $'000 $'000 3,397-3,397 27,055-27, ,356-3, ,927-13,927 51,256 51,256-76,769 76,769-54,751 51,256 3, ,107 76,769 44,338 Derivative financial liabilities Futures Total

53 Investment Funds 15 Financial risk management (d) Fair value measurement The Schemes classify fair value measurement of their financial assets and liabilities using a fair value hierarchy model that reflects the subjectivity of the inputs used in making the measurements. The fair value hierarchy has the following levels: Inputs that are quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1); Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2); and Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3). (i) Fair value in an active market (level 1) The fair value of financial assets and liabilities traded in active markets (such as publicly traded derivatives and listed securities) is based on quoted market prices at the end of the reporting period without any deduction for estimated future selling costs. For the majority of financial assets and liabilities, information provided by the quoted market independent pricing services is relied upon for valuation. A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm's length basis. An active market is a market in which transactions for the financial asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. Listed securities and exchange traded derivatives are valued at the last traded price. Investments in unlisted unit trusts are recorded at the redemption value per unit as reported by the investment managers of such trusts

54 Investment Funds 15 Financial risk management (d) Fair value measurement (ii) Fair value in an inactive or unquoted market (level 2 and level 3) The fair value of financial assets and liabilities that are not traded in an active market is determined by using valuation techniques. These include the use of recent arm's length transactions, reference to current fair value of a substantially similar other instrument, discounted cash flow techniques, option pricing models or any other valuation technique that provides a reliable estimate of prices obtained in actual market transactions. Where discounted cash flow techniques are used, estimated future cash flows are based on management's best estimates and the discount rate used is a market rate at the end of the reporting period applicable for an instrument with similar terms and conditions. For other pricing models, inputs are based on market data at the end of the reporting period. Some of the inputs to these models may not be market observable and are therefore estimated based on assumptions. The output of a model is always an estimate or approximation of a value that cannot be determined with certainty, and valuation techniques employed may not fully reflect all factors relevant to the positions held. Investments in unlisted unit trusts are recorded at the redemption value per unit as reported by the investment managers of such trusts. Diversified Property Fund held investments in unlisted unit trusts that are classified as level 3. The unlisted unit trusts have exposure to direct property which may use significant unobservable inputs in their valuations. The Scheme obtained the fair value prices from the relevant investment managers without significant adjustments and did not calculate any unobservable inputs itself. No other Schemes held financial instruments with fair value measurements using significant unobservable inputs (level 3) as at 30 June 2016 and 30 June The following tables present the Schemes' financial assets and liabilities (by class) measured at fair value according to the fair value hierarchy at the reporting date: Australian Share Fund 30 June June 2015 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 Financial assets Financial assets designated at fair value through profit or loss: Equities 47, , , ,565 Unlisted unit trusts , ,748 Total 47, , , ,

55 Investment Funds 15 Financial risk management (d) Fair value measurement The following tables present the Schemes' financial assets and liabilities (by class) measured at fair value according to the fair value hierarchy at the reporting date: Bond Fund 30 June June 2015 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 Financial assets Financial assets held for trading: Futures Financial assets designated at fair value through profit or loss: Term deposits ,000-1,000 Unlisted unit trusts - 150, , , ,143 Total 4 150, , , ,143 Financial liabilities Financial liabilities held for trading: Futures Total Diversified Property Fund 30 June June 2015 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 Financial assets Financial assets designated at fair value through profit or loss: Equities 35, ,756 52, ,543 Unlisted unit trusts ,835 15, ,681 30,681 Total 35,756-15,835 51,591 52,543-30,681 83,

56 Investment Funds 15 Financial risk management (d) Fair value measurement The following tables present the Schemes' financial assets and liabilities (by class) measured at fair value according to the fair value hierarchy at the reporting date: Income Fund 30 June June 2015 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 Financial assets Financial assets held for trading: Futures Financial assets designated at fair value through profit or loss: Equities 132, ,618 38, ,635 Unlisted unit trusts , ,415 Total 132, ,661 41, ,050 Philanthropy Fund 30 June June 2015 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 Financial assets Financial assets designated at fair value through profit or loss: Unlisted unit trusts 1, , ,017 15, , ,948 Total 1, , ,017 15, , ,

57 Investment Funds 15 Financial risk management (d) Fair value measurement The following tables present the Schemes' financial assets and liabilities (by class) measured at fair value according to the fair value hierarchy at the reporting date: Share Imputation Fund 30 June June 2015 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 Financial assets Financial assets designated at fair value through profit or loss: Equities 50, , , ,081 Unlisted unit trusts , ,025 Total 50, , , ,106 Financial liabilities Financial liabilities held for trading: Futures Total Transfers between levels The Schemes' policy is to recognise transfers into and transfers out of the fair value hierarchy levels at the end of each reporting period. There were no transfers between levels for the years ended 30 June 2016 and 30 June

58 Investment Funds 15 Financial risk management (d) Fair value measurement Fair value measurements using significant unobservable inputs (level 3) The following table presents the movement in level 3 instruments for the years ended 30 June 2016 and 30 June 2015 by class of financial instrument: Diversified Property Fund 30 June June 2015 Unlisted unit trusts Total Unlisted unit trusts Total $'000 $'000 $'000 $'000 Opening balance 30,681 30,681 28,664 28,664 Purchases (16,935) (16,935) Gains/(losses) recognised in profit or loss 2,089 2,089 1,469 1,469 Closing balance 15,835 15,835 30,681 30,681 Total unrealised gains/(losses) for the year included in the statements of comprehensive income for financial assets and liabilities held at the end of the year ,469 1, Offsetting financial assets and financial liabilities Financial assets and liabilities are offset and the net amount is reported in the balance sheets when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. The gross and net positions of financial assets and liabilities that have been offset in the balance sheets are disclosed in the first three columns of the tables below. Apart from the Schemes mentioned in this note, no other Schemes held financial assets or liabilities subject to offsetting arrangements at the reporting date

59 Investment Funds 16 Offsetting financial assets and financial liabilities Bond Fund Effects of offsetting on the balance sheets Related amounts not offset 30 June 2016 Gross amounts Gross amounts set off in the balance sheets Net amounts presented in the balance sheets Amounts subject to master netting arrangements Net amounts $'000 $'000 $'000 $'000 $'000 Financial assets Derivative financial instruments Total Financial liabilities Derivative financial instruments Total Effects of offsetting on the balance sheets Related amounts not offset 30 June 2015 Gross amounts Gross amounts set off in the balance sheets Net amounts presented in the balance sheets Amounts subject to master netting arrangements Net amounts $'000 $'000 $'000 $'000 $'000 Financial assets Margin accounts 1,355-1,355 (102) 1,253 Total 1,355-1,355 (102) 1,253 Financial liabilities Derivative financial instruments (102) - (102) Total (102) - (102)

60 Investment Funds 16 Offsetting financial assets and financial liabilities Income Fund Effects of offsetting on the balance sheets Related amounts not offset 30 June 2016 Gross amounts Gross amounts set off in the balance sheets Net amounts presented in the balance sheets Amounts subject to master netting arrangements Net amounts $'000 $'000 $'000 $'000 $'000 Financial assets Margin accounts Derivative financial instruments Total At 30 June 2015, the Scheme did not hold any financial assets or liabilities subject to offsetting arrangements

61 Investment Funds 16 Offsetting financial assets and financial liabilities Share Imputation Fund At 30 June 2016, the Scheme did not hold any financial assets or liabilities subject to offsetting arrangements. Effects of offsetting on the balance sheets Related amounts not offset 30 June 2015 Gross amounts Gross amounts set off in the balance sheets Net amounts presented in the balance sheets Amounts subject to master netting arrangements Net amounts $'000 $'000 $'000 $'000 $'000 Financial assets Margin accounts (237) 684 Total (237) 684 Financial liabilities Derivative financial instruments (237) - (237) Total (237) - (237) Master netting arrangement Agreements with derivative counterparties are based on the ISDA Master Agreement. Under the terms of these arrangements, only where certain events occur (such as default), the net position owing/receivable to a single counterparty in the same currency will be taken as owing and all the relevant arrangements terminated. As the Schemes do not presently have a legally enforceable right of set-off, these amounts have not been offset in the balance sheets, but have been presented separately in this note

62 Investment Funds 17 Derivative financial instruments A derivative is a financial instrument or other contract which is settled at a future date and whose value changes in response to the change in a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index or other variable. Derivative financial instruments require no initial net investment or an initial net investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors. Derivative transactions include many different instruments, such as foreign exchange forward contracts, futures and options. Derivatives are considered to be part of the investment process and the use of derivatives is an essential part of the Schemes' portfolio management. Derivatives are not managed in isolation. Consequently, the use of derivatives is multifaceted and includes: hedging to protect an asset or liability of the Schemes against a fluctuation in market values or to reduce volatility; a substitution for trading of physical securities; and adjusting asset exposures within the parameters set in the investment strategy, and adjusting the duration of fixed interest portfolios or the weighted average maturity of cash portfolios. While derivatives are used for trading purposes, they are not used to gear (leverage) a portfolio. Gearing a portfolio would occur if the level of exposure to the markets exceeds the underlying value of the Schemes. The Schemes held the following derivative financial instruments during the year: Futures Futures are contractual obligations to buy or sell financial instruments on a future date at a specified price established in an organised market. The futures contracts are collateralised by cash or marketable securities. Changes in futures contracts' values are usually settled net daily with the exchange. Risk exposures and fair value measurements Information about the Schemes' exposure to financial risks and the methods and assumptions used in determining fair values is provided in note 15 to the financial statements. The maximum exposure to credit risk at the end of the reporting period is the carrying amount of the derivative financial instruments

63 Investment Funds 18 Events occurring after the reporting period From 22 August 2016, Income Fund is legally known as Perpetual Income Share Fund and is offered as Perpetual Wholesale Income Share Fund in the Perpetual Wholesale Funds Product Disclosure Statement. The Scheme will no longer be offered in Investment Funds Product Disclosure Statement. No other significant events have occurred since the reporting date which would impact on the financial position of the Schemes disclosed in the balance sheets as at 30 June 2016 or on the results and cash flows of the Schemes for the year ended on that date. 19 Contingent assets, liabilities and commitments There were no outstanding contingent assets, liabilities or commitments as at 30 June 2016 and 30 June

64 Investment Funds Directors' declaration Directors' declaration In the opinion of the directors of Perpetual Investment Management Limited, the Responsible Entity of Investment Funds: (a) the annual financial statements and notes, set out on pages 8 to 62, are in accordance with the Corporations Act 2001, including: (i) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001 ; and (ii) giving a true and fair view of the Schemes' financial positions as at 30 June 2016 and of their performance for the financial year ended on that date; (b) there are reasonable grounds to believe that the Schemes will be able to pay their debts as and when they become due and payable; and (c) the financial report also complies with International Financial Reporting Standards as discussed in note 2(a). This declaration is made in accordance with a resolution of the directors. Director Sydney 20 September

65 ABCD Independent auditor s report to the unitholders of Investment Funds Report on the financial report We have audited the accompanying financial report of Investment Funds (the Schemes), which comprises the balance sheets as at 30 June 2016, and the statements of comprehensive income, statements of changes in equity and cash flow statements for the year ended on that date, notes 1 to 19 comprising a summary of significant accounting policies and other explanatory information and the directors declaration. Directors responsibility for the financial report The directors of Perpetual Investment Management Limited (the Responsible Entity) are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In note 2(a), the directors also state, in accordance with Australian Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. Auditor s responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We performed the procedures to assess whether in all material respects the financial report presents fairly, in accordance with the Corporations Act 2001 and Australian Accounting Standards, a true and fair view which is consistent with our understanding of the Schemes financial positions and of their performance. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. Liability limited by a scheme approved under Professional Standards Legislation.

66 ABCD Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act Auditor s opinion In our opinion: (a) the financial report of Investment Funds is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Schemes financial positions as at 30 June 2016 and of their performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations (b) the financial report also complies with International Financial Reporting Standards as disclosed in note 2(a). KPMG Michael O Connell Partner Sydney 20 September

67 NEW SOUTH WALES Angel Place Level Pitt Street Sydney NSW 2000 AUSTRALIAN CAPITAL TERRITORY Level 4 10 Rudd Street Canberra ACT 2601 VICTORIA Rialto South Tower Level Collins Street Melbourne VIC 3000 SOUTH AUSTRALIA Level Grenfell Street Adelaide SA 5000 WESTERN AUSTRALIA Exchange Plaza Level 29 2 The Esplanade Perth WA 6000 QUEENSLAND Central Plaza 1 Level Queen Street Brisbane QLD