Vanguard Wholesale Funds

Transcription

1 Annual Report Wholesale Funds Diversified Funds Investments Australia Ltd ABN AFSL

2 funds covered in this annual report Conservative ARSN ABN Balanced ARSN ABN Growth ARSN ABN High Growth ARSN ABN Diversified Bond ARSN ABN Responsible Entity Investments Australia Ltd ABN AFSL Level 34 Freshwater Place 2 Southbank Boulevard Southbank Vic 3006 Telephone: (03) Facsimile: vanguard.com.au 2 Annual Report

3 Contents About 4 Directors Report 5 Auditor s Independence Declaration 10 Statement of comprehensive income 11 Balance sheet 12 Statement of changes in equity 13 Statement of cash flows 14 Notes to the financial statements 15 Directors Declaration 43 Independent Auditor s Report 44 Wholesale Funds 3

4 About About Since our establishment in 1975, has strived to be the world s highest-value provider of investment products and services. We have an unwavering focus on our clients with a commitment to champion what s best for investors by offering outstanding service, while keeping costs low. Over the years has built a reputation as a global leader in client advocacy and earned the trust of millions of investors along the way. Our sole purpose has been to align our interest with those of our investors to ensure they have the best chance for investment success. With more than AUD $5.7 trillion in assets under management as of, including more than AUD $1 trillion in exchange traded funds, is one of the world s largest global investment management companies. In Australia, has been helping investors meet their long-term financial goals with low-cost investment solutions for over 20 years. Our unique structure putting investors interests first What sets apart and lets put investors first around the world is the ownership structure of The Group, Inc., in the United States. Rather than being publicly traded or owned by a small group of individuals, The Group is owned by s USdomiciled funds and ETFs. Those funds, in turn, are owned by their investors. This mutual structure aligns our interests with those of our investors and drives the culture, philosophy and policies throughout the organisation worldwide. As a result, Australian investors benefit from s stability and experience, low costs and client focus. Our investment expertise When you invest with, you have more than 40 years of investing experience behind you. So no matter which investment products suit your needs, you can feel confident that investments are built on a rigorous investment philosophy that stands the test of time. Low-cost investing We know we can t control the markets, but we can control the costs of investing. To that end, providing low-cost investments isn t a pricing strategy for us. It s how we do business. We can keep costs low because of our unique ownership structure in the United States, which allows us to return profits to investors through lower costs. 4 Annual Report

5 Directors' Report Directors Report The Responsible Entity of Wholesale (Diversified) Funds (the Funds ) for the year ended was Investments Australia Ltd (the Responsible Entity ). The directors of Investments Australia Ltd present their report together with the financial statements for the year ended. Principal activities The Funds invest in accordance with the investment policy of the Funds as set out in their respective Product Disclosure Statements (PDSs) and in accordance with the Fund Constitutions. The Funds predominantly invest in the Wholesale Funds, a group of unlisted unit trusts which are also managed by the Responsible Entity. The Funds seek to track the weighted average return of the various indices of the underlying Wholesale Funds in which they invest, in proportion to their strategic asset allocation, before taking into account fees, expenses and tax. The weights used are the strategic asset allocations to each asset class, for each individual Fund. The Funds did not have any employees during the year. There were no significant changes in the nature of the activities of the Funds during the year. Directors The following persons held office as directors of the Responsible Entity during the year or since the end of the year and up to the date of this report: J M Norris G W Reed (Resigned 31 July ) C R Comegys (Resigned 31 August ) C Kelton M Lovett (Resigned 6 December ) L Carr (Appointed 6 December ) C Lui (Appointed 31 August ) Review and results of operations The Funds invest in unlisted unit trusts and cash and cash equivalents. The investment policy of the Funds continues to be in accordance with the provisions of the Fund Constitutions. Wholesale Funds 5

6 Directors' Report Directors Report (continued) Review and results of operations (continued) Results The results of the operations of the Funds were as follows: Conservative Balanced Growth High Growth Diversified Bond Operating profit/(loss) before finance costs attributable to unitholders ($'000) 39,383 78, , , ,661 74,048 99,839 21, ,713 Distributions Distribution paid and payable ($'000) 67,552 94, , , , ,662 92,160 66,244 8,600 36,703 Distribution (cents per unit) Performance The table below details the performance of the Funds as represented by the total return, net of fees, which is calculated as the aggregation of the percentage capital growth and percentage distribution of income. The total return is shown for the past five years to. These are calculated in accordance with FSC Standard 6.0 Product Performance - calculation and presentation of returns. The directors assess the performance of the Funds by comparing each Fund s total return with the corresponding Index (the Benchmark) gross of fees. Conservative % % % % % Capital growth (2.03) (3.24) Distribution of income Total return Benchmark Conservative Composite Index - Wholesale (1) (1) Conservative Composite Index - Wholesale comprises of (weight/index): 13% S&P/ASX 300 Index, 10% MSCI World ex-australia Index (with net dividends reinvested) in Australian dollars, 2% S&P/ASX 300 A-REIT Index, 2% FTSE EPRA/NAREIT developed ex Australia rental index, Australian Dollar Hedged, 1.5% MSCI World ex-australia Small Cap Index (with net dividends reinvested) in Australian dollars, 1.5% MSCI Emerging Markets Index (with net dividends reinvested) in Australian dollars, 24% Bloomberg AusBond Composite 0+ Yr Index, 23% Bloomberg Barclays Global Treasury Index hedged into Australian dollars, 13% Bloomberg Barclays Global Aggregate Government-Related and Corporate Index hedged into Australian dollars, 10% Bloomberg AusBond Bank Bill Index % % % % % Balanced Capital growth (1.30) (3.56) Distribution of income Total return Benchmark Balanced Composite Index - Wholesale (2) (2) Balanced Composite Index - Wholesale comprises of (weight/index): 22% S&P/ASX 300 Index, 17% MSCI World ex-australia Index (with net dividends reinvested) in Australian dollars, 3% S&P/ASX 300 A-REIT Index, 3% FTSE EPRA/NAREIT developed ex Australia rental index, Australian Dollar Hedged, 2.5% MSCI World ex-australia Small Cap Index (with net dividends reinvested) in Australian dollars, 2.5% MSCI Emerging Markets Index (with net dividends reinvested) in Australian dollars, 20% Bloomberg AusBond Composite 0+ Yr Index, 19% Bloomberg Barclays Global Treasury Index hedged into Australian dollars, 11% Bloomberg Barclays Global Aggregate Government-Related and Corporate Index hedged into Australian dollars. 6 Annual Report

7 Directors' Report Directors Report (continued) Review and results of operations (continued) Performance (continued) % % % % % Growth Capital growth (0.31) (5.08) Distribution of income Total return Benchmark Growth Composite Index - Wholesale (3) (3) Growth Composite Index - Wholesale comprises of (weight/index): 31% S&P/ASX 300 Index, 24% MSCI World ex-australia Index (with net dividends reinvested) in Australian dollars, 4% S&P/ASX 300 A-REIT Index, 4% FTSE EPRA/NAREIT developed ex Australia rental index, Australian Dollar Hedged, 3.5% MSCI World ex-australia Small Cap Index (with net dividends reinvested) in Australian dollars, 3.5% MSCI Emerging Markets Index (with net dividends reinvested) in Australian dollars, 12% Bloomberg AusBond Composite 0+ Yr Index, 12% Bloomberg Barclays Global Treasury Index hedged into Australian dollars, 6% Bloomberg Barclays Global Aggregate Government-Related and Corporate Index hedged into Australian dollars % % % % % High Growth Capital growth 2.09 (3.56) Distribution of income Total return Benchmark High Growth Composite Index - Wholesale (4) (4) High Growth Composite Index Wholesale comprises of (weight/index): 40% S&P/ASX 300 Index, 31% MSCI World ex Australia Index (with net dividends reinvested) in Australian dollars, 5% S&P/ASX 300 A REIT Index, 5% FTSE EPRA/NAREIT developed ex Australia rental index, Australian Dollar Hedged, 4.5% MSCI World ex Australia Small Cap Index (with net dividends reinvested) in Australian dollars, 4.5% MSCI Emerging Markets Index (with net dividends reinvested) in Australian dollars, 4% Bloomberg AusBond Composite 0+ Yr Index, 4% Bloomberg Barclays Global Treasury Index hedged into Australian dollars, 2% Bloomberg Barclays Global Aggregate Government Related and Corporate Index hedged into Australian dollars % % % % % Diversified Bond Capital growth (5.66) (8.75) (0.93) Distribution of income Total return Benchmark Diversified Bond Composite Index - Wholesale (5) (5) Diversified Bond Composite Index - Wholesale comprises of (weight/index): 40% Bloomberg AusBond Composite 0+ Yr Index, 60% Bloomberg Barclays Global Aggregate ex Securitised Index (hedged to AUD) Investors should be aware that past performance is not necessarily an indicator of future performance. Wholesale Funds 7

8 Directors' Report Directors Report (continued) Review and results of operations (continued) Unit redemption prices Unit redemption prices (quoted including distribution) are shown as follows: At Period high Period low $ $ $ $ $ $ Conservative Balanced Growth High Growth Diversified Bond Significant changes in state of affairs In the opinion of the directors, there were no significant changes in the state of affairs of the Funds that occurred during the financial year. Matters subsequent to the end of the financial year Glenn Reed resigned as a Director of Investments Australia Ltd on 31 July. Rodney Comegys resigned as a Director of Investments Australia Ltd on 31 August. Cynthia Lui was appointed as a Director of Investments Australia Ltd on 31 August. No other matter or circumstance has arisen since that has significantly affected, or may significantly affect: (i) the operations of the Funds in future financial years; or (ii) the results of those operations in future financial years; or (iii) the state of affairs of the Funds in future financial years. Likely developments and expected results of operations The Funds will continue to be managed in accordance with the investment objectives and guidelines as set out in the governing documents of the Funds and in accordance with the provisions of the Fund Constitutions. The results of the Funds operations will be affected by a number of factors, including the performance of investment markets in which the Funds invest. Investment performance is not guaranteed and future returns may differ from past returns. As investment conditions change over time, past returns should not be used to predict future returns. Indemnity and insurance of officers and auditors No insurance premiums were paid for out of the assets of the Funds in regards to insurance cover provided to either the officers of Investments Australia Ltd or the auditors of the Funds. So long as the officers of Investments Australia Ltd act in accordance with the Fund Constitutions and the Law, the officers remain indemnified out of the assets of the Funds against losses incurred while acting on behalf of the Funds. The auditors of the Funds are in no way indemnified out of the assets of the Funds. 8 Annual Report

9 Directors' Report Directors Report (continued) Review and results of operations (continued) Fees paid to and interests held in the Funds by the Responsible Entity or its associates Fees paid to the Responsible Entity and its associates out of the Funds property during the year are disclosed in note 12 of the financial statements. No fees were paid out of the Funds property to the directors of the Responsible Entity during the year. The number of interests in the Funds held by the Responsible Entity or its associates as at the end of the financial year are disclosed in note 12 of the financial statements. Interests in the Fund The movement in units on issue in the Funds during the year is disclosed in note 7 of the financial statements. The value of the Funds assets and liabilities are disclosed on the balance sheet and derived using the basis set out in note 2 of the financial statements. Environmental regulation The operations of the Funds are not subject to any particular or significant environmental regulations under either Commonwealth, State or Territory law. Rounding of amounts to the nearest thousand dollars Amounts in the directors report have been rounded to the nearest thousand dollars in accordance with ASIC Corporations (Rounding in Financial/Directors Report) Instrument /191, unless otherwise indicated. Auditor s independence declaration A copy of the auditor s independence declaration as required under Section 307C of the Corporations Act 2001 is set out on page 10. This report is made in accordance with a resolution of the directors. Colin Kelton Managing Director Melbourne 31 August Wholesale Funds 9

10 Auditor's Independence Declaration 10 Annual Report

11 Statement of comprehensive income Statement of comprehensive income For the year ended Conservative Balanced Growth High Growth Diversified Bond Investment income Notes $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 Distribution income 60,524 44, ,992 96, ,024 82,921 66,372 47,986 7,622 5,554 Net gains/(losses) on financial instruments held at fair value through profit or loss 5 (20,438) 34,753 (11,181) 37,350 25,730 (6,372) 34,775 (25,143) (7,320) 12,312 Other operating income Total net investment income/(loss) 40,127 79, , , ,821 76, ,187 22, ,876 Expenses Responsible Entity's fees ,046 1,779 2,646 2,159 2,571 1,348 1, Other operating expenses Total operating expenses 744 1,049 1,786 2,646 2,160 2,571 1,348 1, Operating profit/(loss) 39,383 78, , , ,661 74,048 99,839 21, ,713 Finance costs attributable to unitholders Distributions to unitholders 8 (67,552) (94,826) (157,385) (179,842) (176,397) (162,662) (92,160) (66,244) (8,600) (36,703) (Increase)/decrease in net assets attributable to unitholders 7 28,169 16,377 45,285 48,776 31,736 88,614 (7,679) 44,891 8,395 18,990 Profit/(loss) for the year Other comprehensive income Total comprehensive income for the year The above statement of comprehensive income should be read in conjunction with the accompanying notes. Wholesale Funds 11

12 Balance sheet Balance sheet As at Conservative Balanced Growth High Growth Diversified Bond Assets Notes $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 Cash and cash equivalents 9 8 (1) 1,635 (17) 1,037 (1) Receivables 3, ,029 1,961 5,962 2,062 4,977 1, Accrued income 24,531 17,601 60,794 36,068 68,190 34,058 41,527 20,081 2,032 2,521 Financial assets held at fair value through profit or loss 6 1,197, ,668 2,259,732 1,648,733 2,121,254 1,603,944 1,107, , , ,608 Total assets 1,225, ,222 2,328,190 1,686,745 2,196,443 1,640,063 1,154, , , ,401 Liabilities Distribution payable 8 32,466 62,602 94, , , ,201 68,257 38,684 3,076 4,857 Payables , , Due to brokers payables for securities purchased 3, ,345 1,534 6,039 1,684 4, Total liabilities (excluding net assets attributable to unitholders) 36,007 63, , , , ,389 73,450 39,947 3,532 4,905 Net assets attributable to unitholders (liability) 7 1,189, ,631 2,226,351 1,573,391 2,064,246 1,526,674 1,081, , , ,496 The above balance sheet should be read in conjunction with the accompanying notes. 12 Annual Report

13 Statement of changes in equity Statement of changes in equity For the year ended Conservative Balanced Growth High Growth Diversified Bond Total equity at the beginning of the financial year Notes $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 Profit/(loss) for the year Other comprehensive income for the year Total comprehensive income Transactions with owners in their capacity as owners Total equity at the end of the financial year Under Australian Accounting Standards, net assets attributable to unitholders are classified as a liability rather than equity. As a result there was no equity at the start or end of the year. The above statements of changes in equity should be read in conjunction with the accompanying notes. Wholesale Funds 13

14 Statement of cash flows Statement of cash flows For the year ended Conservative Balanced Growth High Growth Diversified Bond Cash flows from operating activities Notes $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 Proceeds from sale of financial instruments held at fair value through profit or loss 84,556 1,022, ,473 1,901, , , , ,401 15, ,849 Purchases of financial instruments held at fair value through profit or loss (381,389) (300,872) (749,584) (500,242) (693,202) (325,424) (376,381) (167,798) (59,085) (59,491) Other income received Responsible Entity's fees paid (741) (1,081) (1,741) (2,736) (2,114) (2,624) (1,338) (1,533) (99) (171) Operating expenses paid (4) Net cash inflow/(outflow) from operating activities 10(a) (297,507) 720,356 (518,753) 1,399,014 (402,375) 617,090 (51,642) 112,100 (43,978) 188,196 Cash flows from financing activities Proceeds from applications by unitholders 519, , , , , , , ,317 74,824 75,257 Payments for redemptions by unitholders (142,221) (1,124,688) (324,494) (2,044,803) (371,427) (1,090,333) (387,530) (354,071) (24,458) (256,002) Distributions paid from operating activities (79,547) (16,308) (139,403) (35,424) (122,182) (41,048) (41,313) (22,356) (6,266) (7,223) Net cash inflow/(outflow) from financing activities 297,516 (720,360) 520,405 (1,399,191) 403,413 (617,094) 52,618 (112,110) 44,100 (187,968) Net increase/(decrease) in cash and cash equivalents 9 (4) 1,652 (177) 1,038 (4) 976 (10) Cash and cash equivalents at the beginning of the year (1) 3 (17) 160 (1) Cash and cash equivalents at the end of the year 9 8 (1) 1,635 (17) 1,037 (1) Non-cash financing activities 10(b) 18,141 30,526 35,062 70,433 40,380 50,159 21,274 28,538 4,116 28,206 The above statements of cash flows should be read in conjunction with the accompanying notes. 14 Annual Report

15 Notes to the financial statements For the year ended 1. General information These financial statements cover the Wholesale (Diversified) Funds (the Funds ) as registered managed investment schemes. The respective constitution dates are as follows: Conservative 30 July 2002 Balanced 30 July 2002 Growth 30 July 2002 High Growth 30 July 2002 Diversified Bond 17 December 2010 The Responsible Entity of the Wholesale (Diversified) Funds is Investments Australia Ltd (the Responsible Entity ). The Responsible Entity s registered office is Level 34, Freshwater Place, 2 Southbank Boulevard, Southbank Vic The Funds invest in accordance with the investment policy of the Funds as set out in their respective Product Disclosure Statements (PDSs) and in accordance with the Fund Constitutions. The Funds seek to track the weighted average return of the various indices of the underlying Wholesale Funds in which they invest, in proportion to their strategic asset allocation, before taking into account fees, expenses and tax. The weights used are the strategic asset allocations to each asset class, for each individual Fund. The financial statements were authorised for issue by the directors on 31 August. The directors of the Responsible Entity have the power to amend and reissue the financial statements. Wholesale Funds 15

16 Notes to the financial statements For the year ended 2. Summary of significant accounting policies The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all periods presented, unless otherwise stated in the following text. (a) Basis of preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Accounting Standards Board and the Corporations Act 2001 in Australia. The Funds are for profit unit trusts for the purpose of preparing the financial statements. The financial statements are prepared on the basis of fair value measurement of assets and liabilities except where otherwise stated. The balance sheet is presented on a liquidity basis. Assets and liabilities are presented in decreasing order of liquidity and do not distinguish between current and non current. All material balances are expected to be recovered or settled within twelve months, except for investments in financial assets and net assets attributable to unitholders. The amount expected to be recovered or settled within twelve months after the end of each reporting period cannot be reliably determined. The Funds manage financial assets at fair value through profit or loss based on the economic circumstances at any given point in time, as well as to meet any liquidity requirements. As such it is expected that a portion of the portfolio will be realised within 12 months, however, an estimate of that amount cannot be determined as at balance date. In the case of net assets attributable to unitholders, the units are redeemed on demand at the unitholder s option. However, holders of these instruments typically retain them for the medium to long term. As such, the amount expected to be settled within 12 months cannot be reliably determined. (i) Compliance with International Financial Reporting Standards The financial statements of the Funds also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. (ii) New and amended standards adopted by the Funds There are no standards, interpretations or amendments to existing standards that are effective for the first time for the financial year beginning 1 July that have a material impact on the Funds. 16 Annual Report

17 Notes to the financial statements (continued) For the year ended 2. Summary of significant accounting policies (continued) (b) Financial instruments (i) Classification The Funds investments are classified as at fair value through profit or loss. They comprise: 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 unlisted trusts. Financial assets and financial liabilities designated at fair value through profit or loss upon initial recognition are those that are managed and their performance evaluated on a fair value basis in accordance with the Funds documented investment strategy. The Funds 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 Funds recognise financial assets and financial liabilities on the date they become party to the contractual agreement (trade date) and recognise changes in fair value of the financial assets or financial liabilities from this date. Investments are derecognised when the right to receive cash flows from the investments has expired or the Funds have transferred substantially all risks and rewards of ownership. (iii) Measurement Financial assets and liabilities held at fair value through profit or loss At initial recognition, the Funds measure a financial asset at its fair value. Transaction costs of financial assets carried at fair value through profit and loss are expensed in the statement of comprehensive income. Subsequent to initial recognition, all financial assets and financial liabilities at fair value through profit or loss are measured at fair value. Gains and losses arising from changes in the fair value of the financial assets or financial liabilities at fair value through profit or loss category are presented in the statement of comprehensive income within net gains/(losses) on financial instruments held at fair value through profit or loss in the period in which they arise. For further details on how the fair value of the financial instruments is determined are disclosed in note 4. (iv) Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the balance sheet 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. (c) Net assets attributable to unitholders Units are redeemable at the unitholders option, however, applications and redemptions may be suspended by the Responsible Entity if it is in the best interests of the unitholders. The units are classified as financial liabilities as the Funds are required to distribute their distributable income, in accordance with the Fund Constitutions. The units can be put back to the Funds at any time for cash based on the redemption price, which is equal to a proportionate share of the Funds net asset value attributable to the unitholders. The units are carried at the redemption amount that is payable at balance sheet date if the holder exercises the right to put the unit back to the Funds. Wholesale Funds 17

18 Notes to the financial statements (continued) For the year ended 2. Summary of significant accounting policies (continued) (d) Cash and cash equivalents For the purpose of presentation in the statement of cash flows, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short term, highly liquid investments with original maturities of three months or less from the date of acquisition that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. Payments and receipts relating to the purchase and sale of investment securities are classified as cash flows from operating activities, as movements in the fair value of these securities represent the Funds main income generating activity. (e) Investment income Trust distributions are recognised on an entitlements basis as the Funds are presently entitled to the distributable income of their investee trusts. (f) Expenses All expenses, including Responsible Entity s fees, are recognised in the statement of comprehensive income on an accruals basis. (g) Income tax Under current legislation, the Funds are not subject to income tax as unitholders are presently entitled to the income of the Funds. The benefits of imputation credits and foreign tax paid are passed on to unitholders. (h) Distributions In accordance with the Fund Constitutions, the Funds distribute income adjusted for amounts determined by the Responsible Entity, to unitholders by cash or reinvestment. The distributions are recognised in the statement of comprehensive income as finance costs attributable to unitholders. (i) Increase/decrease 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 the statement of comprehensive income as finance costs. (j) Functional and presentation currency Items included in the Funds financial statements are measured using the currency of the primary economic environment in which it operates (the functional currency ). This is the Australian dollar, which reflects the currency of the economy in which the Funds compete for funds and is regulated. The Australian dollar is also the Funds presentation currency. 18 Annual Report

19 Notes to the financial statements (continued) For the year ended 2. Summary of significant accounting policies (continued) (k) Receivables and accrued income Receivables may include amounts for trust distributions. Trust distributions are accrued when the right to receive payment is established. Amounts are generally received within 30 days of being recorded as receivables. (l) Payables Payables include liabilities and accrued expenses owing by the Funds which are unpaid as at the end of the reporting period. As the Funds have a contractual obligation to distribute their distributable income, a separate distribution payable is recognised in the balance sheet as at the end of each reporting period where this amount remains unpaid as at the end of the reporting period. (m) Applications and redemptions Applications received for units in the Funds are recorded net of any entry fees payable prior to the issue of units in the Funds. Redemptions from the Funds are recorded gross of any exit fees payable after the cancellation of units redeemed. (n) Goods and Services Tax (GST) The GST incurred on the costs of various services provided to the Responsible Entity by third parties have been passed onto the Funds. The Funds qualify for Reduced Input Tax Credit recovery rate of between 55% and 75%, hence Responsible Entity s fees, custodial fees and other expenses have been recognised in the statement of comprehensive income net of the amount of GST recoverable from the Australian Taxation Office (ATO). Accounts payable are inclusive of GST. The net amount of GST recoverable from the ATO is included in receivables in the balance sheet. Cash flows relating to GST are included in the statement of cash flows on a gross basis. (o) Comparative revisions Comparative information has been revised where appropriate to enhance comparability. Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current year. (p) Use of estimates The Funds make estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates are continually evaluated and based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. For the majority of the Funds financial instruments, quoted market prices are readily available. However, certain financial instruments, for example, over the counter derivatives or unquoted securities, are fair valued using valuation techniques. Where valuation techniques (for example, pricing models) are used to determine fair values, they are validated and periodically reviewed by experienced personnel of the Responsible Entity, independent of the area that created them. Models use observable data, to the extent practicable. However, areas such as credit risk (both own and counterparty), volatilities and correlations require management to make estimates. Changes in assumptions about these factors could affect the reported fair value of financial instruments. For certain other financial instruments, including amounts due from/to brokers and payables, the carrying amounts approximate fair value due to the immediate or short term nature of these financial instruments. Wholesale Funds 19

20 Notes to the financial statements (continued) For the year ended 2. Summary of significant accounting policies (continued) (q) New accounting standards and interpretations Certain new accounting standards and interpretations have been published that are not mandatory for the reporting period and have not been adopted early by the Funds. The directors assessment of the impact of these new standards (to the extent relevant to the Funds) and interpretations is set out below: (i) AASB 9 Financial Instruments (and applicable amendments), (effective from 1 January 2018) AASB 9 Financial Instruments addresses the classification, measurement and derecognition of financial assets and financial liabilities. It has now also introduced revised rules around hedge accounting. The standard is not applicable until 1 January 2018 but is available for early adoption. The directors do not expect this to have a significant impact on the recognition and measurement of the Funds financial instruments as they are carried at fair value through profit or loss. The derecognition rules have not been changed from the previous requirements, and the Funds do not apply hedge accounting. AASB 9 introduces a new impairment model. However, as the Funds investments are all held at fair value through profit or loss, the change in impairment rules will not impact the Funds. The Funds have not yet decided when to adopt AASB 9. (ii) AASB 15 Revenue from Contracts with Customers (effective from 1 January 2018) The AASB has issued a new standard for the recognition of revenue. This will replace AASB 118 which covers contracts for goods and services and AASB 111 which covers construction contracts. The new standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer so the notion of control replaces the existing notion of risks and rewards. The Funds main sources of income are interest, dividends and gains on financial instruments held at fair value. All of these are outside the scope of the new revenue standard. As a consequence, the directors do not expect the adoption of the new revenue recognition rules to have a significant impact on the Funds accounting policies or the amounts recognised in the financial statements. (r) Rounding of amounts The Funds are registered schemes of the kind referred to in ASIC Corporations (Rounding in Financial/Directors Reports) Instrument /191, relating to the rounding off amounts in the financial statements. Amounts in the financial statements have been rounded off to the nearest thousand dollars unless otherwise indicated. 20 Annual Report

21 Notes to the financial statements (continued) For the year ended 3. Financial risk management The Funds activities expose them to a variety of financial risks: market risk (including price risk, foreign exchange risk and interest rate risk), credit risk and liquidity risk. The Funds overall risk management programme focuses on ensuring compliance with the Funds Product Disclosure Statement and seeks to maximise the returns derived for the level of risk to which the Funds are exposed. Financial risk management is carried out by the investment management department of the Responsible Entity under policies approved by the Board of Directors of the Responsible Entity (the Board ). The Funds use different methods to measure different types of risks to which they are exposed. These methods are explained below. (a) Market risk (i) Price risk The Funds are exposed to price risk whereby the future prices of the Funds securities are uncertain. Where non monetary financial instruments are denominated in currencies other than the Australian dollar, the price in the future will also fluctuate because of changes in foreign exchange rates. Paragraph (ii) Foreign exchange risk below sets out how this component of price risk is managed and measured. In any asset sector the returns of individual securities are a combination of the market return and returns specific to each security. By diversifying their holdings across the market, index Funds are generally well protected from the specific risk of individual securities. employs an indexing investment strategy in all asset classes in which the Funds invest. At, the fair value of equities exposed to price risk were as follows: Conservative Balanced Growth High Growth Diversified Bond $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 Unlisted unit trusts designated at fair value through profit or loss 1,197, ,668 2,259,732 1,648,733 2,121,254 1,603,944 1,107, , , ,608 Total exposure to price risk from equities 1,197, ,668 2,259,732 1,648,733 2,121,254 1,603,944 1,107, , , ,608 The table presented in note 3(b) summarises the impact on operating profit before finance costs attributable to unitholders and liabilities attributable to unitholders from possible changes in market prices that were reasonably based on the risk that the Funds were exposed to at reporting date. Wholesale Funds 21

22 Notes to the financial statements (continued) For the year ended 3. Financial risk management (continued) (a) Market risk (continued) (ii) Foreign exchange risk The Wholesale International Funds are exposed to foreign exchange risk as a result of investments in financial instruments denominated in foreign currencies. Fluctuations in the value of the Australian dollar and foreign currencies can affect the returns from overseas investments. This is because losses or gains must be converted back to Australian dollars. The Funds have no significant direct exposure to foreign exchange risk. However, the Funds are indirectly exposed to foreign exchange risk via their investment strategy of investing in the Wholesale Funds where those Funds may have a direct foreign exchange exposure. Of the Wholesale Funds, the International Shares, Emerging Markets Shares Index Fund, and the International Small Companies do not hedge any of their exposure to foreign currencies. Accordingly, these Funds are affected by currency fluctuations. The International Fixed Interest (Hedged), International Credit Securities (Hedged) and International Property Securities (Hedged) invest on a fully hedged basis (to Australian dollars), reducing their exposure to currency risk. Foreign currency exposure is accounted for by marking to market in a manner consistent with the valuation of the underlying securities. (iii) Cash flow and fair value interest rate risk Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Funds have insufficient direct exposure to interest rate risk to be material. The Funds are indirectly exposed to interest rate risk via their investment strategy of investing in the Wholesale Funds. All financial liabilities are non interest bearing. 22 Annual Report

23 Notes to the financial statements (continued) For the year ended 3. Financial risk management (continued) (b) Summarised sensitivity analysis The following tables summarise the sensitivity of the Funds operating profit and net assets attributable to unitholders to interest rate risk, foreign exchange risk and price risk. The reasonably possible movements in the risk variables have been determined based on management s best estimate, having regard to a number of factors, including historical levels of changes in interest rates and foreign exchange rates as well as the indices that the individual Funds are designed to track. However, actual movements in the risk variables may be greater or less than anticipated due to a number of factors, including unusually large market shocks resulting from changes in the performance of the economies, markets and securities in which the Funds invest. As a result, historic variations in risk variables are not a definitive indicator of future variations in the risk variables. Price risk movement represents the range of historical index returns from the average return minus one standard deviation to the average return plus one standard deviation. For a normal distribution approximately two thirds of the outcomes are expected to fall within plus or minus one standard deviation of the mean. Outcomes are expected to occur outside these ranges, approximately one third of the time. The Funds have a limited direct exposure to interest rate risk which is considered to be immaterial. The Funds do not have direct exposure to foreign exchange risk. However, the Funds have an indirect exposure to interest rate risk and foreign exchange rate risk via their investments in Wholesale Funds. No sensitivity analysis tables for interest rate risk and foreign exchange risk have been prepared on look through basis. Conservative Impact on operating profit/(loss) and net assets attributable to unitholders Balanced Growth High Growth Diversified Bond Price Risk Price Risk Price Risk Price Risk Price Risk $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 0% +2% 1% +2% 2% +3% 2% +4% 0% +1% 23,945 (22,597) 45,195 (42,425) 63,638 (22,144) 44,287 1,536 0% +2% 1% +2% 2% +3% 2% +3% 2% +4% 17,293 (16,487) 32,975 (32,079) 48,118 (19,475) 29,212 (2,172) 4,344 (c) Credit risk Credit risk is the risk that the Funds trading counterparties become insolvent or cannot otherwise meet their obligations of the Funds in full when they fall due. For Funds which invest in fixed interest and debt securities there is a credit risk. This is the risk that an issuer of a fixed interest or debt security may not meet its payment obligations to the Funds. The Responsible Entity seeks to minimise this risk by diversifying a Fund s holdings across issuers. There are no financial assets that are passed due or impaired. For Funds which invest in forward exchange contracts there is risk associated with unrealised profits. Credit risk is most applicable to the Funds with significant exposure to fixed interest and debt securities such as the Conservative, Balanced and Diversified Bond. The maximum exposure to credit risk at the reporting date is the carrying amount of the financial assets. There were no significant concentrations of credit risk to counterparties at or. Wholesale Funds 23

24 Notes to the financial statements (continued) For the year ended 3. Financial risk management (continued) (d) Liquidity risk Liquidity risk is the risk that the Funds may not be able to generate sufficient cash resources to settle its obligations in full as they fall due or can only do so on terms that are materially disadvantageous. The Funds financial instruments are predominantly investments in the Wholesale Funds, a group of unlisted unit trusts which are also managed by the Responsible Entity. The Wholesale Funds financial instruments include investments in equity investments, fixed interest securities and derivative contracts traded over the counter. The Wholesale Funds listed securities are considered to be readily realisable as they are all listed on major stock exchanges. The Wholesale Funds may use futures to gain market exposure without investing directly in the securities. This allows the Wholesale Funds to maintain liquidity without being under invested in their respective investment policies. The derivatives are not used to leverage the Wholesale Funds portfolios. The table below analyses the Funds financial liabilities into relevant maturity groupings based on the remaining period at the end of the reporting period. The amounts in the table are contractual undiscounted cash flows. Less than 1 month 1 6 months Conservative As at As at 6 12 months 1 2 years Total Less than 1 month 1 6 months 6 12 months 1 2 years $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 Distribution payable 32,466 32,466 62,602 62,602 Payables Due to brokers payables for securities purchased 3,088 3, Net assets attributable to unitholders 1,189,249 1,189, , ,631 Total liabilities 1,225,256 1,225, , ,222 Total Less than 1 month 1 6 months Balanced As at As at 6 12 months 1 2 years Total Less than 1 month 1 6 months 6 12 months 1 2 years $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 Distribution payable 94,380 94, , ,462 Payables 1,114 1, Due to brokers payables for securities purchased 6,345 6,345 1,534 1,534 Net assets attributable to unitholders 2,226,351 2,226,351 1,573,391 1,573,391 Total liabilities 2,328,190 2,328,190 1,686,745 1,686,745 Total 24 Annual Report

25 Notes to the financial statements (continued) For the year ended 3. Financial risk management (continued) (d) Liquidity risk (continued) Less than 1 month 1 6 months Growth As at As at 6 12 months 1 2 years Total Less than 1 month 1 6 months 6 12 months 1 2 years $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 Distribution payable 125, , , ,201 Payables 1,122 1, Due to brokers payables for securities purchased 6,039 6,039 1,684 1,684 Net assets attributable to unitholders 2,064,246 2,064,246 1,526,674 1,526,674 Total liabilities 2,196,443 2,196,443 1,640,063 1,640,063 Total Less than 1 month 1 6 months High Growth As at As at 6 12 months 1 2 years Total Less than 1 month 1 6 months 6 12 months 1 2 years $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 Distribution payable 68,257 68,257 38,684 38,684 Payables Due to brokers - payables for securities purchased 4,195 4, Net assets attributable to unitholders 1,081,205 1,081, , ,045 Total liabilities 1,154,655 1,154, , ,992 Total Less than 1 month 1 6 months Diversified Bond As at As at 6 12 months 1 2 years Total Less than 1 month 1 6 months 6 12 months 1 2 years $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 Distribution payable 3,076 3,076 4,857 4,857 Payables Due to brokers - payables for securities purchased Net assets attributable to unitholders 152, , , ,496 Total liabilities 156, , , ,401 Total Wholesale Funds 25

26 Notes to the financial statements (continued) For the year ended 4. Fair value measurement The Funds measure and recognise the following assets and liabilities at fair value on a recurring basis: Financial assets / liabilities designated at fair value through profit or loss (FVTPL) (see note 6) The Funds have no assets or liabilities at fair value on a non recurring basis in the current reporting period. AASB 13 requires disclosure of fair value measurements by level of the following fair value hierarchy; (a) quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1) (b) inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly (level 2); and (c) inputs for the asset or liability that are not based on observable market data (unobservable inputs) (level 3) (i) Fair value in an active market (level 1) The fair value of financial assets and liabilities traded in active markets is based on their quoted market prices at the end of the reporting period without any deduction for estimated future selling costs. The Funds value their investments in accordance with the accounting policies set out in note 2(b) to the financial statements. For the majority of investments, the Funds rely on information provided by independent pricing services for the valuation of investments. The quoted market price used for financial assets held by the Funds is the current bid price; the appropriate quoted market price for financial liabilities is the current asking price. When the Funds hold derivatives with offsetting market risks, they use mid market prices as a basis for establishing fair values for the offsetting risk positions and applies this bid or asking price to the net open position, as appropriate. 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. 26 Annual Report

27 Notes to the financial statements (continued) For the year ended 4. Fair value measurement (continued) (ii) Fair value in an inactive or unquoted market (level 2 and level 3) The fair value of financial assets and liabilities that are not traded in an active market is determined using valuation techniques. These include the use of recent arm s length market transactions, reference to the current fair value of a substantially similar other instrument, discounted cash flow techniques, option pricing models or any other valuation technique that provides a reliable estimate of prices obtained in actual market transactions. 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 balance sheet date applicable for an instrument with similar terms and conditions. For other pricing models, inputs are based on market data at the balance sheet date. Fair values for unquoted equity investments are estimated, if possible, using applicable price/earnings ratios for similar listed companies adjusted to reflect the specific circumstances of the issuer. The fair value of derivatives that are not exchange traded is estimated at the amount that the Funds would receive or pay to terminate the contract at the balance sheet date taking into account current market conditions (volatility and appropriate yield curve) and the current creditworthiness of the counterparties. The fair value of a forward contract is determined as a net present value of estimated future cash flows, discounted at appropriate market rates as at the valuation date. The fair value of an option contract is determined by applying the Black Scholes option valuation model. Investments in other unlisted unit trusts are recorded at the redemption value per unit as reported by the investment managers of such funds. Wholesale Funds 27

28 Notes to the financial statements (continued) For the year ended 4. Fair value measurement (continued) Recognised fair value measurements The following tables present the Funds financial assets and liabilities (by class) measured at fair value according to the fair value hierarchy at and. Conservative Balanced Growth Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 Financial assets Financial assets designated at fair value through profit or loss: Unlisted unit trusts 1,197,240 1,197,240 2,259,732 2,259,732 2,121,254 2,121,254 Total 1,197,240 1,197,240 2,259,732 2,259,732 2,121,254 2,121,254 Financial assets Financial assets designated at fair value through profit or loss: Unlisted unit trusts 864, ,668 1,648,733 1,648,733 1,603,944 1,603,944 Total 864, ,668 1,648,733 1,648,733 1,603,944 1,603,944 High Growth Diversified Bond 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 - 1,107,175-1,107, , ,622 Total - 1,107,175-1,107, , ,622 Financial assets Financial assets designated at fair value through profit or loss: Unlisted unit trusts - 973, , , ,608 Total - 973, , , ,608 The Funds policy is to recognise transfers into and transfers out of fair value hierarchy levels as at the end of the reporting period. Transfers between levels There were no transfers between levels during the reporting period. 28 Annual Report

29 Notes to the financial statements (continued) For the year ended 5. Net gains/(losses) on financial instruments held at fair value through profit or loss Net gains/(losses) recognised in relation to financial assets and financial liabilities held at fair value through profit or loss: Conservative Balanced Growth High Growth Diversified Bond $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 Net unrealised gain/(loss) on financial instruments designated at fair value through profit or loss (26,469) (49,517) (36,497) (182,607) (14,405) (137,426) (16,987) (62,296) (8,192) (9,422) Net realised gain/(loss) on financial instruments designated at fair value through profit or loss 6,031 84,270 25, ,957 40, ,054 51,762 37, ,734 Total net gains/(losses) on financial instruments held at fair value through profit or loss (20,438) 34,753 (11,181) 37,350 25,730 (6,372) 34,775 (25,143) (7,320) 12,312 Wholesale Funds 29

30 Notes to the financial statements (continued) For the year ended 6. Financial assets held at fair value through profit or loss Conservative Balanced Growth High Growth Diversified Bond Designated at fair value through profit or loss $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 Unlisted unit trusts 1,197, ,668 2,259,732 1,648,733 2,121,254 1,603,944 1,107, , , ,608 Total designated at fair value through profit or loss 1,197, ,668 2,259,732 1,648,733 2,121,254 1,603,944 1,107, , , ,608 Total financial assets held at fair value through profit or loss 1,197, ,668 2,259,732 1,648,733 2,121,254 1,603,944 1,107, , , ,608 Comprising: Unlisted unit trusts Units in Cash trusts 122,445 87,471 Units in Fixed interest trusts 724, ,738 1,149, , , , ,214 97, , ,608 Units in Australian shares trusts 156, , , , , , , ,936 Units in International shares trusts 156, , , , , , , ,084 Units in Property securities trusts 37,600 33, ,639 98, , ,643 86,121 98,018 Total unlisted unit trusts 1,197, ,668 2,259,732 1,648,733 2,121,254 1,603,944 1,107, , , ,608 Total financial assets held at fair value through profit or loss 1,197, ,668 2,259,732 1,648,733 2,121,254 1,603,944 1,107, , , ,608 An overview of the risk exposures relating to financial assets at fair value through profit or loss is included in note Annual Report

31 Notes to the financial statements (continued) For the year ended 7. Net assets attributable to unitholders Movement in number of units and net assets attributable to unitholders during the year were as follows: Conservative Balanced Growth No. '000 No. '000 $'000 $'000 No. '000 No. '000 $'000 $'000 No. '000 No. '000 $'000 $'000 Opening balance 699,693 1,246, ,631 1,509,030 1,187,510 2,121,445 1,573,391 2,913,811 1,151,216 1,531,798 1,526,674 2,139,496 Applications 441, , , , , , , , , , , ,302 Redemptions (120,418) (915,761) (142,169) (1,125,121) (240,126) (1,478,300) (325,205) (2,045,029) (271,506) (786,130) (371,998) (1,090,669) Units issued upon reinvestment of distributions 15,480 25,142 18,141 30,526 26,307 51,401 35,062 70,433 30,140 36,192 40,380 50,159 Increase/(decrease) in net assets attributable to unitholders (28,169) (16,377) (45,285) (48,776) (31,736) (88,614) Closing balance 1,036, ,693 1,189, ,631 1,702,459 1,187,510 2,226,351 1,573,391 1,561,608 1,151,216 2,064,246 1,526,674 High Growth Diversified Bond No. '000 No. '000 $'000 $'000 No. '000 No. '000 $'000 $'000 Opening balance 640, , ,045 1,060, , , , ,984 Applications 305, , , ,454 76,486 69,018 74,880 75,257 Redemptions (249,996) (237,593) (388,063) (354,407) (25,253) (244,184) (24,528) (255,961) Units issued upon reinvestment of distributions 14,080 18,710 21,274 28,538 4,215 27,415 4,116 28,206 Increase/(decrease) in net assets attributable to unitholders 7,679 (44,891) (8,395) (18,990) Closing balance 710, ,324 1,081, , , , , ,496 Each unit represents a right to an individual share in the Funds and does not extend to a right to the underlying assets of the Funds. There are no separate classes of units and each unit has the same rights attaching to it as all other units of the Funds. Capital risk management The Funds 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 Funds are subject to daily applications and redemptions at the discretion of unitholders. Daily applications and redemptions are reviewed relative to the liquidity of the Funds underlying assets on a daily basis by the Responsible Entity. Under the terms of the Fund Constitutions, the Responsible Entity has the discretion to reject an application for units and to defer or adjust a redemption of units if the exercise of such discretion is in the best interests of unitholders. Wholesale Funds 31

32 Notes to the financial statements (continued) For the year ended 8. Distributions to unitholders paid and payable Distributions paid Conservative Balanced Growth $'000 CPU $'000 CPU $'000 CPU $'000 CPU $'000 CPU $'000 CPU - 30 September 4, , , , , , December 5, , , , , , March 25, , , , , , Distributions payable - 32, , , , , , , , , , , , Distributions paid High Growth Diversified Bond $'000 CPU $'000 CPU $'000 CPU $'000 CPU 30 September 6, , , December 7, , , March 9, , , , Distributions payable 68, , , , Cash and cash equivalents Conservative Balanced 92, , , , Growth High Growth Diversified Bond $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 Domestic cash at bank 8 (1) 1,635 (17) 1,037 (1) (1) 1,635 (17) 1,037 (1) Annual Report

33 Notes to the financial statements (continued) For the year ended 10. Reconciliation of profit/(loss) to net cash inflow/(outflow) from operating activities (a) Reconciliation of profit/(loss) to net cash inflow/(outflow) from operating activities Conservative Balanced Growth High Growth Diversified Bond $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 Profit/(loss) for the year Increase/(decrease) in net assets attributable to unitholders (28,169) (16,377) (45,285) (48,776) (31,736) (88,614) 7,679 (44,891) (8,395) (18,990) Distribution to unitholders 67,552 94, , , , ,662 92,160 66,244 8,600 36,703 Proceeds from sale of financial instruments held at fair value through profit or loss 84,556 1,022, ,473 1,901, , , , ,401 15, ,849 Purchases of financial instruments held at fair value through profit or loss (381,389) (300,872) (749,584) (500,242) (693,202) (325,424) (376,381) (167,798) (59,085) (59,491) Net (gains)/losses on financial instruments held at fair value through profit or loss 20,438 (34,753) 11,181 (37,350) (25,730) 6,372 (34,775) 25,143 7,320 (12,312) Net change in receivables (6,922) 1,292 (24,708) 8,774 (34,128) 3,525 (21,446) Net change in payables 19 (40) 45 (102) 47 (62) 9 (13) 3 (10) Non-cash items (53,592) (45,979) (100,260) (105,047) (86,888) (86,442) (44,924) (48,631) (8,110) (6,046) Net cash inflow/(outflow) from operating activities (297,507) 720,356 (518,753) 1,399,014 (402,375) 617,090 (51,642) 112,100 (43,978) 188,196 (b) Non-cash financing activities During the year, the following distribution payments were satisfied by the issue of units under the distribution reinvestment plan 18,141 30,526 35,062 70,433 40,380 50,159 21,274 28,538 4,116 28,206 Wholesale Funds 33

34 Notes to the financial statements (continued) For the year ended 11. Remuneration of auditors The auditor s remuneration is borne by the Responsible Entity. During the year, the following fees were paid or payable for services provided by the auditor of the Funds. Conservative Balanced Growth High Growth Diversified Bond PricewaterhouseCoopers Audit and other assurance services $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 Audit and review of financial statements 11,500 11,500 11,500 11,500 11,500 11,500 11,500 11,500 11,500 13,500 Audit of compliance plan 1,933 1,933 1,933 1,933 1,933 1,933 1,933 1,933 1,933 1,933 Total remuneration for audit and other assurance services 13,433 13,433 13,433 13,433 13,433 13,433 13,433 13,433 13,433 15,433 Taxation services Tax compliance services 8,335 5,745 8,335 5,745 8,335 5,745 8,335 5,745 8,335 5,745 Total remuneration for taxation services 8,335 5,745 8,335 5,745 8,335 5,745 8,335 5,745 8,335 5,745 Total remuneration of PricewaterhouseCoopers 21,768 19,178 21,768 19,178 21,768 19,178 21,768 19,178 21,768 21, Annual Report

35 Notes to the financial statements (continued) For the year ended 12. Related party transactions Responsible Entity The Responsible Entity of the Wholesale (Diversified) Funds is Investments Australia Ltd (ABN AFSL ), which is a wholly owned subsidiary of The Group, Inc. Key management personnel Key management personnel includes persons who were directors of Responsible Entity at any time during the financial year as follows: J M Norris G W Reed (Resigned 31 July ) C R Comegys (Resigned 31 August ) C Kelton M Lovett (Resigned 6 December ) L Carr (Appointed 6 December ) No other person had authority and responsibility for planning, directing and controlling the activities of the Funds, directly or indirectly during the financial year. Transactions with key management personnel Key management personnel services are provided by Investments Australia Ltd and included in the management fees. There is no separate charge for these services. There was no compensation paid directly by the Funds to any of the key management personnel. Key management personnel unitholdings The key management personnel of Investments Australia Ltd (VIA) did not hold any units in the Funds during the period. Key management personnel remuneration Key management personnel are paid by the Responsible Entity. Payments made from the Funds do not include any amounts directly attributable to key management personnel remuneration. Key management personnel loan disclosures The Funds have not made, guaranteed or secured, directly or indirectly, any loans to the key management personnel or their personally related entities at any time during the reporting period. Wholesale Funds 35

36 Notes to the financial statements (continued) For the year ended 12. Related party transactions (continued) Responsible Entity s fees and other transactions During the year ended, the Responsible Entity received an all inclusive management fee (inclusive of GST, net of RITC available to the Funds) over the Funds average net assets attributable to unitholders for the year as follows: Management costs Management cost deducted directly from the Fund Management cost deducted from underlying Funds % per annum % per annum % per annum % per annum % per annum % per annum Conservative Balanced Growth High Growth Diversified Bond 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 Funds and the Responsible Entity are as follows: Conservative Balanced Growth High Growth Diversified Bond $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 Responsible Entity s fees for the year 741 1,046 1,779 2,646 2,159 2,571 1,348 1, Fees earned by the Responsible Entity in respect of investments by the Funds in other schemes managed by the Responsible Entity * 2,648 3,856 4,727 7,181 4,253 5,131 2,220 2, Total fees payable to the Responsible Entity at year end * Where monies are invested into other Funds managed by the Responsible Entity, the Responsible Entity fee is calculated taking into account the fees charged in the underlying Funds. Related party unitholdings Investments Australia Ltd did not hold any units in the Funds during the year. Parties related to the Funds including the Responsible Entity, its affiliates or other funds managed by the Responsible Entity did not held units in the Funds during the year. 36 Annual Report

37 Notes to the financial statements (continued) For the year ended 12. Related party transactions (continued) Investments The Funds held investments in the following schemes which were also managed by Responsible Entity or its related parties: Fair value of investment Interest held Conservative Distribution received/ receivable Number of units acquired Number of units disposed Distribution receivable unpaid $ % $ Units Units $ Cash Plus Fund 122,445, ,189,038 35,741,211 1,456, ,535 Australian Fixed Interest 292,278, ,752,493 98,586,097 18,263,189 2,127,464 International Fixed Interest (Hedged) 277,810, ,987,557 90,525,481 12,480,279 3,673,689 International Credit Securities (Hedged) 154,043, ,837,116 50,647,930 9,205,936 3,753,236 Australian Property Securities 17,753, ,426 8,316,331 6,315, ,260 International Property Securities (Hedged) 19,846, ,845,943 9,213, ,273 4,084,316 International Small Companies 20,477, ,409,631 6,691,165 1,672,084 1,241,074 Australian Shares 156,967, ,343,832 24,797,761 8,128,474 2,748,975 International Shares 117,098, ,554,488 17,312,191 5,023,304 6,000,073 Emerging Markets Shares 18,518, ,135 2,164, ,493 1,197,240,017 60,524, ,995,747 63,153,043 24,531,115 Fair value of investment Interest held Conservative Distribution received/ receivable Number of units acquired Number of units disposed Distribution receivable unpaid $ % $ Units Units $ Cash Plus Fund 87,470, ,259,909 28,725,478 91,709, ,862 Australian Fixed Interest 208,391, ,024,195 64,442, ,468,963 3,908,608 International Fixed Interest (Hedged) 200,658, ,437,418 44,427, ,743,086 3,437,418 International Credit Securities (Hedged) 109,686, ,688,965 29,315, ,898,469 4,688,965 Australian Property Securities 17,596, ,383,230 5,547,200 23,361, ,992 International Property Securities (Hedged) 16,308, ,066,863 7,872,423 24,537,954 1,066,863 International Small Companies 11,770, ,079 4,113,721 9,391, ,730 Australian Shares 113,596, ,088,266 45,407,378 83,794,552 1,101,433 International Shares 86,661, ,026,465 21,805,377 51,731,194 1,724,970 Emerging Markets Shares 12,526, ,052 5,680,706 10,496, , ,667,522 44,688, ,337, ,133,690 17,598,083 Wholesale Funds 37

38 Notes to the financial statements (continued) For the year ended 12. Related party transactions (continued) Investments The Funds held investments in the following schemes which were also managed by Responsible Entity or its related parties: Fair value of investment Interest held Balanced Distribution received/ receivable Number of units acquired Number of units disposed Distribution receivable unpaid $ % $ Units Units $ Australian Fixed Interest 460,552, ,003, ,708,547 33,572,515 3,352,312 International Fixed Interest (Hedged) 444,142, ,043, ,049,911 29,318,257 5,873,218 International Credit Securities (Hedged) 245,279, ,291,749 85,630,699 19,244,016 5,976,199 Australian Property Securities 53,795, ,581,099 32,046,042 23,372, ,359 International Property Securities (Hedged) 55,842, ,567,313 27,769,269 5,547,657 11,492,318 International Small Companies 56,824, ,937,274 10,731,444 1,443,165 3,443,890 Australian Shares 502,415, ,932,193 83,296,743 30,856,054 8,798,793 International Shares 385,018, ,531,893 62,328,329 19,338,716 19,728,223 Emerging Markets Shares 55,859, ,103,438 7,371,308 2,606,946 1,467,473 2,259,731, ,992, ,932, ,299,678 60,793,785 Fair value of investment Interest held Balanced Distribution received/ receivable Number of units acquired Number of units disposed Distribution receivable unpaid $ % $ Units Units $ Australian Fixed Interest 331,170, ,311, ,887, ,125,584 6,211,460 International Fixed Interest (Hedged) 319,556, ,474,223 65,674, ,230,842 5,474,223 International Credit Securities (Hedged) 174,162, ,445,200 23,965, ,747,090 7,445,200 Australian Property Securities 50,643, ,958,375 15,845,644 65,209, ,312 International Property Securities (Hedged) 47,842, ,129,738 17,445,845 61,877,347 3,129,738 International Small Companies 39,017, ,834,361 13,186,188 31,644,110 2,190,207 Australian Shares 365,339, ,255,104 94,568, ,292,982 3,542,338 International Shares 280,270, ,169,156 68,963, ,081,437 5,578,716 Emerging Markets Shares 40,730, ,700,364 12,217,340 26,039,650 1,600,477 1,648,732,695 96,278, ,754,835 1,365,248,269 36,061, Annual Report

39 Notes to the financial statements (continued) For the year ended 12. Related party transactions (continued) Investments The Funds held investments in the following schemes which were also managed by Responsible Entity or its related parties: Fair value of investment Interest held Growth Distribution received/ receivable Number of units acquired Number of units disposed Distribution receivable unpaid $ % $ Units Units $ Australian Fixed Interest 263,391, ,660,091 97,499,147 30,359,506 1,917,199 International Fixed Interest (Hedged) 249,745, ,550,364 89,014,784 23,208,461 3,302,560 International Credit Securities (Hedged) 139,365, ,510,800 46,886,518 12,840,255 3,395,612 Australian Property Securities 62,002, ,069,511 37,009,524 34,047, ,256 International Property Securities (Hedged) 68,627, ,627,322 35,188,405 11,206,992 14,123,390 International Small Companies 73,151, ,062,392 12,090,084 1,761,804 4,433,419 Australian Shares 673,413, ,077, ,188,056 46,322,329 11,793,479 International Shares 517,506, ,669,561 88,690,962 36,625,322 26,516,863 Emerging Markets Shares 74,050, ,797,499 9,459,637 2,802,219 1,945,348 2,121,254, ,024, ,027, ,174,016 68,190,126 Fair value of investment Interest held Growth Distribution received/ receivable Number of units acquired Number of units disposed Distribution receivable unpaid $ % $ Units Units $ Australian Fixed Interest 193,838, ,329,462 46,062, ,959,018 3,635,655 International Fixed Interest (Hedged) 186,023, ,186,716 20,443,812 84,055,480 3,186,716 International Credit Securities (Hedged) 103,462, ,422,877 15,437,122 56,038,428 4,422,877 Australian Property Securities 65,580, ,015,648 12,478,193 46,265,600 1,151,600 International Property Securities (Hedged) 62,063, ,060,006 11,855,835 40,992,168 4,060,006 International Small Companies 52,459, ,609,592 4,409,935 18,849,435 2,944,760 Australian Shares 500,042, ,897,083 93,751, ,223,493 4,848,430 International Shares 387,049, ,215,385 50,639, ,651,609 7,704,131 Emerging Markets Shares 53,423, ,184,401 9,073,401 16,039,693 2,099,280 1,603,944,214 82,921, ,152, ,074,924 34,053,455 Wholesale Funds 39

40 Notes to the financial statements (continued) For the year ended 12. Related party transactions (continued) Investments The Funds held investments in the following schemes which were also managed by Responsible Entity or its related parties: Fair value of investment Interest held High Growth Distribution received/ receivable Number of units acquired Number of units disposed Distribution receivable unpaid $ % $ Units Units $ Australian Fixed Interest 43,739, ,157,191 19,995,293 14,855, ,375 International Fixed Interest (Hedged) 47,188, ,929,269 21,830,564 11,463, ,005 International Credit Securities (Hedged) 27,286, ,605,182 13,262,509 7,011, ,826 Australian Property Securities 41,275, ,008,662 24,705,218 29,776, ,435 International Property Securities (Hedged) 44,846, ,844,808 26,846,968 17,882,020 9,229,209 International Small Companies 48,933, ,388,486 10,710,940 8,490,231 2,965,673 Australian Shares 453,974, ,404,208 78,710,149 63,165,198 7,950,451 International Shares 350,862, ,171,018 61,168,495 48,092,088 17,978,090 Emerging Markets Shares 49,068, ,863,519 5,547,517 5,678,673 1,289,064 1,107,174,991 66,372, ,777, ,416,100 41,527,128 Fair value of investment Interest held High Growth Distribution received/ receivable Number of units acquired Number of units disposed Distribution receivable unpaid $ % $ Units Units $ Australian Fixed Interest 39,114, ,023,307 16,992,006 21,779, ,636 International Fixed Interest (Hedged) 37,823, ,943 9,738,213 16,335, ,943 International Credit Securities (Hedged) 20,766, ,718 3,889,345 7,690, ,718 Australian Property Securities 50,876, ,697,638 4,584,739 15,894, ,403 International Property Securities (Hedged) 47,140, ,083,837 3,180,172 14,519,673 3,083,837 International Small Companies 41,513, ,745,705 8,524,338 10,978,432 2,330,350 Australian Shares 390,937, ,606,491 43,858,232 51,631,981 3,790,538 International Shares 302,592, ,903,482 35,455,058 43,545,621 6,023,035 Emerging Markets Shares 42,977, ,390,362 7,136,964 6,173,415 1,688, ,742,839 47,986, ,359, ,549,369 20,079, Annual Report

41 Notes to the financial statements (continued) For the year ended 12. Related party transactions (continued) Investments The Funds held investments in the following schemes which were also managed by Responsible Entity or its related parties: Fair value of investment Interest held Diversified Bond Distribution received/ receivable Number of units acquired Number of units disposed Distribution receivable unpaid $ % $ Units Units $ Australian Fixed Interest 61,624, ,665,780 24,533,453 7,289, ,555 International Fixed Interest (Hedged) 59,091, ,855,385 20,361,595 3,256, ,406 International Credit Securities (Hedged) 32,906, ,100,116 11,581,444 2,374, , ,622,166 7,621,281 56,476,492 12,921,373 2,031,730 Fair value of investment Interest held Diversified Bond Distribution received/ receivable Number of units acquired Number of units disposed Distribution receivable unpaid $ % $ Units Units $ Australian Fixed Interest 43,581, ,850,630 25,182,273 85,973, ,425 International Fixed Interest (Hedged) 42,028, ,970 20,992,606 76,476, ,970 International Credit Securities (Hedged) 22,997, ,111 8,924,544 42,692, , ,607,422 5,553,711 55,099, ,141,960 2,520,506 The fair value of financial assets held in the investee fund is included in financial assets at fair value through profit or loss in the balance sheet. Interest held represents the entity s average percentage interest in the Wholesale class of the investee funds. The Funds maximum exposure to loss from its interest in investee funds is equal to the total fair value of its investments in the investee funds as there are no off balance sheet exposure relating to any of the investee funds. Once the Fund has disposed of its shares in an investee fund, it ceases to be exposed to any risk from that investee fund. The proportion of ownership interest is equal to the proportion of the voting power held. The Funds did not hold any investments in Investments Australia Ltd during the year. Other transactions within the Funds Apart from those details disclosed in this note, no directors have entered into a material contract with the Funds during the financial year and there were no material contracts involving directors interests subsisting at year end. Wholesale Funds 41

42 Notes to the financial statements (continued) For the year ended 13. Events occurring after the reporting period There are no significant events that have occurred since balance date which would impact on the financial position of the Funds as disclosed in the balance sheet as at or on the results and cash flows of the Funds for the year ended on that date. 14. Contingent assets, contingent liabilities and commitments There are no outstanding contingent assets, liabilities or commitments as at (: Nil). 42 Annual Report

43 Directors Declaration Directors Declaration In the opinion of the directors of the Responsible Entity: (a) the financial statements and notes set out on pages 11 to 42 are in accordance with the Corporations Act 2001, including: (i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and (ii) giving a true and fair view of each Funds financial position as at and of its performance for the financial year ended on that date; and (b) there are reasonable grounds to believe that the Funds will be able to pay their debts as and when they become due and payable. (c) Note 2(a) confirms that the financial statements comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. This declaration is made in accordance with a resolution of the directors. C Kelton Managing Director Melbourne 31 August Wholesale Funds 43

44 Independent Auditor's Report 44 Annual Report

45 Independent Auditor's Report Wholesale Funds 45

46 Independent Auditor's Report 46 Annual Report