30 JUNE Financial Report. For the year ended 30 June 2017 TRUSTEE: COMMONWEALTH BANK OFFICERS SUPERANNUATION CORPORATION PTY LIMITED

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1 ABN Registrable Superannuation Entity Registration No. R Financial Report For the year ended 30 June 2017 TRUSTEE: COMMONWEALTH BANK OFFICERS SUPERANNUATION CORPORATION PTY LIMITED (ABN ) Australian Financial Services Licence No Registrable Superannuation Entity Licence No. L JUNE 2017

2 INCOME STATEMENT Notes $'000 $'000 Superannuation Activities Interest 104, ,036 Dividends 106, ,017 Distributions from Unit Trusts 110,195 45,667 Property Income 52,364 53,067 Changes in Fair Value of Investments 3 477, ,169 Total Revenue 851, ,956 Investment Expenses (57,811) (51,977) Administration Expenses (11,659) (10,943) Other Operating Expenses 6 (5,036) (6,042) Total Expenses (74,506) (68,962) Operating Result before Income Tax 776, ,994 Income Tax Expense/(Benefit) 7 35,881 (212) Operating Result after Income Tax 740, ,206 Net Benefits Allocated to Defined Contribution (DC) (603,262) (240,880) Member Accounts Net Change in Defined Benefit (DB) Member Benefits (82,357) (302,999) Net Operating Result after Income Tax 55,015 (172,673) Page 1

3 STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE Notes $'000 $'000 $'000 $'000 Assets Cash and Cash Equivalents , ,484 Receivables Investment Debtors 80,781 33,613 Interest Accrued 27,036 16,681 Dividends Outstanding 12,313 17,329 Sundry Debtors 13, ,363 10,754 78,377 Investments 2 (e) / 4 Equities - Listed 4,075,541 3,516,738 Fixed Income Securities - Government 3,167,383 2,705,170 Fixed Income Securities - Corporate 1,333,468 1,224,738 Unit Trusts 950,674 1,390,339 Derivative Assets 18 (c) 174, ,661 Equities - Unlisted 322, ,634 Property 8 576, ,545 Pledged Investments 18 (c) 17,919 10,618,225 19,788 9,912,613 Total Assets 11,061,176 10,207,474 Liabilities Payables Benefits Outstanding (9,959) (11,491) Investment Creditors (87,994) (33,913) Sundry Creditors (12,321) (110,274) (11,509) (56,913) Derivative Liabilities 18 (c) (133,585) (136,629) Tax Liabilities Current Tax Liabilities (25,605) (30,770) Deferred Tax Liabilities 7 (124,513) (150,118) (127,527) (158,297) Total Liabilities excluding (393,977) (351,839) Member Benefits Net Assets Available for Member Benefits 10,667,199 9,855,635 Member Benefits Defined Contribution Member Liabilities 14 (7,370,576) (6,529,278) Defined Benefit Member Liabilities 15 (2,760,850) (2,852,047) Total Net Assets 535, ,310 Equity Operational Risk Financial Reserve 20 26,996 24,878 Unallocated Surplus/(Deficiency) 15 (a) 508, ,432 Total Equity 535, ,310 Page 2

4 STATEMENT OF CHANGES IN MEMBER BENEFITS DC Member DB Member Benefits Benefits Total $'000 $'000 $'000 Opening Balance as at 1 July ,529,278 2,852,047 9,381,325 Employer Contributions 359, ,304 Member Contributions 93,529 6, ,146 Transfers from other Superannuation Entities 200, ,300 Transfers to other Superannuation Entities (223,149) (6,962) (230,111) Income Tax on Contributions (54,310) (144) (54,454) Net After Tax Contributions 375, ,185 Benefits to Members (140,931) (154,330) (295,261) Insurance Premiums charged to Members' (30,642) - (30,642) Accounts Death and Disability Benefits credited to 20,648-20,648 Members' Accounts Transfer of Funds to DC Member Benefits - (23,028) (23,028) Transfer of Funds from DB Member Benefits 23,028-23,028 Equity Transfers to/(from) Members: Unallocated Surplus (4,935) - (4,935) Reserve Transfers to/(from) Members: Operational Risk Financial Reserve (4,805) 3,292 (1,513) Net Benefits Allocated to DC Members, comprising: Net Investment Income 636, ,845 Investment Fees (20,673) - (20,673) Administration Fees (12,527) - (12,527) Adviser Service Fees (383) - (383) Net Change in DB Member Benefits - 82,357 82,357 Closing Balance as at 30 June ,370,576 2,760,850 10,131,426 Page 3

5 STATEMENT OF CHANGES IN MEMBER BENEFITS FOR THE YEAR ENDED 30 JUNE 2016 DC Member DB Member Benefits Benefits Total $'000 $'000 $'000 Opening Balance as at 1 July ,037,309 2,727,379 8,764,688 Employer Contributions 319,104 26, ,484 Member Contributions 48,898 7,019 55,917 Transfers from other Superannuation Entities 199, ,461 Transfers to other Superannuation Entities (195,244) (13,207) (208,451) Income Tax on Contributions (48,187) (3,957) (52,144) Net After Tax Contributions 324,013 16, ,267 Benefits to Members (105,524) (155,096) (260,620) Insurance Premiums charged to Members' (27,605) - (27,605) Accounts Death and Disability Benefits credited to 18,014-18,014 Members' Accounts Transfer of Funds to DC Member Benefits - (34,933) (34,933) Transfer of Funds from DB Member Benefits 34,933-34,933 Equity Transfers to/(from) Members: Unallocated Surplus 12,229-12,229 Reserve Transfers to/(from) Members: Operational Risk Financial Reserve (4,971) (4,556) (9,527) Net Benefits Allocated to DC Members, comprising: Net Investment Income 271, ,069 Investment Fees (18,654) - (18,654) Administration Fees (11,169) - (11,169) Adviser Service Fees (366) - (366) Net Change in DB Member Benefits - 302, ,999 Closing Balance as at 30 June ,529,278 2,852,047 9,381,325 Page 4

6 STATEMENT OF CHANGES IN RESERVES Operational Unallocated Risk Financial Surplus/ Total Reserve (Deficiency) Equity $'000 $'000 $'000 Opening Balance as at 1 July , , ,310 Transfer (to)/from DC Member Accounts 4,805 4,935 9,740 Transfer (to)/from DB Member Accounts (3,292) - (3,292) Operating Result ,410 55,015 Closing Balance as at 30 June , , ,773 Operational Unallocated Risk Financial Surplus/ Total Reserve (Deficiency) Equity $'000 $'000 $'000 Opening Balance as at 1 July , , ,685 Transfer (to)/from DC Member Accounts 4,971 (12,229) (7,258) Transfer (to)/from DB Member Accounts 4,556-4,556 Operating Result 470 (173,143) (172,673) Closing Balance as at 30 June , , ,310 Page 5

7 STATEMENT OF CASH FLOWS Notes $'000 $'000 Cash Flows from Operating Activities Interest Received 94, ,254 Dividends and Distributions from Unit Trusts 221, ,980 Property Income 53,177 56,159 Investment Expenses (57,445) (56,483) Administration Expenses (11,842) (10,229) Other Operating Expenses (4,399) (4,201) Death and Disability Insurance Benefits 20,648 18,014 Insurance Premiums (30,642) (27,605) Income Tax Paid (44,196) (23,650) Net Cash Inflows/(Outflows) from Operating , ,239 Activities Cash Flows from Investing Activities Proceeds from the sale of Investments 9,026,545 6,552,410 Purchases of Investments (9,253,214) (6,830,517) Net Cash Inflows/(Outflows) from Investing (226,669) (278,107) Activities Cash Flows from Financing Activities Employer Contributions 360, ,310 Member Contributions 99,694 55,686 Transfers from other Superannuation Entities 200, ,983 Transfers to other Superannuation Entities (233,313) (208,828) Benefits Paid to Members (293,495) (259,831) Tax on Contributions Paid (54,320) (51,013) Net Cash Inflows/(Outflows) from Financing 79,591 81,307 Activities Net Increase/(Decrease) in Cash 93,364 7,439 Effects of Exchange Rate changes on Cash (260) (251) Cash at the beginning of the Financial Year 216, ,296 Cash at the end of the Financial Year 309, ,484 Page 6

8 1. OPERATION OF THE FUND COMMONWEALTH BANK GROUP SUPER Commonwealth Bank Group Super ("the Fund") is a statutory superannuation fund established under the Commonwealth Banks Act With effect on and from 19 July 1996, the Fund became governed by a Trust Deed made on 11 July 1996, with all the rights and liabilities of members and beneficiaries of the Fund that existed immediately before 19 July 1996 continuing, subject to the Trust Deed. The trustee of the Fund is Commonwealth Bank Officers Superannuation Corporation Pty Limited (ABN ) ("the Trustee"). It is an Australian Financial Services Licensee, holding licence number and a Registrable Superannuation Entity, holding licence number L The Fund is a regulated superannuation fund under the Superannuation Industry (Supervision) Act The purpose of the Fund is to provide superannuation benefits to its members and pensioners. The Fund provides both defined benefits and accumulation benefits in accordance with its Trust Deed and Rules. The Fund has fifteen divisions. Fourteen divisions provide predominantly defined benefits and are closed to new members. Accumulate Plus and Retirement Access are issued by the Trustee as an interest under Division F of the Fund s Trust Deed. Accumulate Plus provides accumulation benefits and Retirement Access provides account-based pension benefits and transition to retirement benefits. Both are open to new members. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of Preparation This financial report is a general purpose financial report, which has been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board, the Superannuation Industry (Supervision) Act 1993 (SIS Act) and the provisions of the Fund s Trust Deed and Rules. The financial statements are presented in Australian Dollars and are prepared on the basis of fair value measurement of assets and liabilities except where otherwise stated. All amounts have been rounded to the nearest thousand dollars. The Fund is a not-for-profit entity for the purpose of preparing the financial statements. The financial statements were authorised for issue by the directors of the Trustee on 25 September The Statement of Financial Position is presented on a liquidity basis. Assets and liabilities are presented in decreasing order of liquidity and are not distinguished between current and non-current. All balances in Receivables and Payables are expected to be recovered or settled within twelve months unless otherwise stated. The Fund manages 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 twelve months, however, an estimate of that amount cannot be determined as at balance date. In the case of net assets available for member benefits, these benefits are payable on demand at the member's discretion. However, members typically retain them for the medium to long term. As such, the amount expected to be settled within twelve months cannot be reliably determined. Refer to Note 18 (d) for further information. The significant accounting policies adopted by the Fund in the preparation of the financial statements are set out in Notes 2 (b) to (q) of this financial report. Page 7

9 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (b) Statement of Compliance This financial report complies with Australian Accounting Standards which include the Australian equivalents of International Financial Reporting Standards ("IFRS"). Since AASB 1056 "Superannuation Entities" ("AASB 1056") is the principal standard that applies to the financial statements, other standards, including IFRS, are also applied except to the extent that they differ from AASB (c) Application of Accounting Standards (i) New and Amended Standards Adopted by the Fund Adoption of AASB 1056 The Fund has changed some of its accounting policies as the result of the new accounting standard AASB 1056, which became effective for the annual reporting period commencing 1 July AASB 1056 replaces AAS 25 "Financial Reporting by Superannuation Plans". The adoption of AASB 1056 has resulted in a number of changes to the financial statements of the Fund, including: Changes to the presentation and format of the financial statements, including the introduction of three new primary financial statements being: i. Statement of Changes in Member Benefits (on Pages 3 and 4); ii. Statement of Changes in Reserves (on Page 5); and iii. Statement of Cash Flows (on Page 6). Member benefits are now recognised as liabilities, rather than equity in the Statement of Financial Position. Contributions, rollovers, and other inward transfers made to member accounts are no longer recognised as income to the Fund, and are now presented in the Statement of Changes in Member Benefits. Benefits paid to members (including pensions paid), are no longer recognised as an expense to the Fund, and are now presented in the Statement of Changes in Member Benefits. The measurement of financial assets and liabilities has changed from net market value to fair value in accordance with AASB 13 "Fair Value Measurement". Additional disclosures in relation to defined benefit member liabilities: i. All previous disclosures relating to actuarial valuations, accrued and vested benefits have now been consolidated in a new note (Note 15: Defined Benefit Member Liabilities); and ii. A new note has been added to describe accumulation and pension (Defined Contribution (DC)) member liabilities (Note 14: Defined Contribution Member Liabilities). In accordance with the transitional provisions of AASB 1056, the Fund has applied the new accounting standard prospectively from the start of the comparative period (i.e. from 1 July 2015). Page 8

10 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (c) Application of Accounting Standards (continued) (i) New and Amended Standards Adopted by the Fund (continued) The adoption of AASB 1056 had the following impact on the Statement of Financial Position at the transition date of 1 July 2016 for the year ended 30 June 2016: As previously Restated reported as at Transition balance as at 30 June adjustment 30 June 2016 $'000 $'000 $'000 Financial Instruments Change in measurement from net market value to fair value: Equities - Listed 3,507,217 9,521 3,516,738 Equities - Unlisted 393,253 1, ,634 Total 3,900,470 10,902 3,911,372 Member Benefits Member benefits recognised as liabilities rather than equity: Defined Contribution Member Liabilities - (6,529,278) (6,529,278) Defined Benefit Member Liabilities - (2,852,047) (2,852,047) Total - (9,381,325) (9,381,325) Equity Member benefits recognised as liabilities rather than equity: Member Benefits 9,381,325 (9,381,325) - Total 9,381,325 (9,381,325) - 1 Under the previous accounting standard, AAS 25. Page 9

11 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (c) Application of Accounting Standards (continued) (i) New and Amended Standards Adopted by the Fund (continued) The adoption of AASB 1056 had the following impact on the Income Statement for the year ended 30 June 2016: As previously Restated reported as at Transition total as at 30 June adjustment 30 June 2016 $'000 $'000 $'000 Operating Result before Income Tax 493, ,001 previously reported Change in measurement from net market value to fair value: Changes in Fair Value of Investments Contributions, rollovers and other inward transfers and benefits paid to members transferred to the Statement of Changes in Member Benefits: Employer Contributions (345,484) (345,484) Member Contributions (55,917) (55,917) Transfers from other Super Entities (199,461) (199,461) Death and Disability Benefits credited to (18,014) (18,014) Members' Accounts Transfers to other Super Entities 208, ,451 Insurance Premiums 27,605 27,605 Benefits to Members 260, ,620 Superannuation Contribution Surcharge 2 2 Operating Result before Income Tax 493,001 (122,007) 370,994 Income Tax Expense/(Benefit) 51,932 51,932 Tax effect of change in measurement from - - net market value to fair value at 15% Income tax on contributions transferred to the (52,144) (52,144) Statement of Changes in Member Benefits Operating Result after Income Tax 441,069 (69,863) 371,206 Benefits allocated to Member accounts (543,879) (543,879) Net Operating Result after Income Tax 441,069 (613,742) (172,673) There are no other standards, interpretations or amendments to existing standards that are effective for the first time for the financial year beginning 1 July 2016 that have a material impact on the Fund. 1 Under the previous accounting standard, AAS 25. Page 10

12 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (c) Application of Accounting Standards (continued) (ii) New Accounting Standards and Interpretations Certain new accounting standards and interpretations have been published that are not mandatory for the 30 June 2017 reporting period and have not been early adopted by the Fund. The Trustee's assessment of the impact of these new standards (to the extent relevant to the Fund) and interpretations is set out below: 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 introduced revised rules around hedge accounting and impairment. The standard is not applicable until 1 January 2018 but is available for early adoption. The derecognition rules have not been changed from the previous requirements, and the Fund does not apply hedge accounting. AASB 9 introduces a new impairment model. However, as the Fund's investments are all held at fair value through profit or loss, the change in impairment rules will not impact the Fund. The Fund does not intend to adopt the new standard before its operative date, which means that it would be first applied in the annual reporting period ending 30 June The Trustee does not expect this to have a significant impact on the Fund as AASB 1056, the principal accounting standard applied by the Fund, requires assets and liabilities to be recorded at fair value. AASB 16 "Leases" (effective from 1 January 2019). AASB 16 "Leases" will primarily affect the accounting by lessees and will result in the recognition of almost all leases on the Statement of Financial Position. The standard removes the current distinction between operating and financing leases and requires recognition of an asset (the right to use the leased item) and a financial liability to pay rentals for virtually all lease contracts. The accounting by lessors will not significantly change. Some differences may arise as a result of the new guidance on the definition of a lease. The standard is not applicable until 1 January 2019 but is available for early adoption. The Trustee does not expect this to have a significant impact on the Fund as the Fund acts as a lessor. The Fund does not intend to adopt the new standard before its operative date, which means that it would be first applied in the annual reporting period ending 30 June (d) Significant Accounting Judgements, Estimates and Assumptions (i) Significant Accounting Judgements Operating Lease Commitments: The Fund has entered into commercial property leases on its investment properties. It has been determined that since all the significant risks and rewards of ownership are retained, the leases are to be classified as operating leases. Page 11

13 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (d) Significant Accounting Judgements, Estimates and Assumptions (continued) (ii) Significant Accounting Estimates and Assumptions The preparation of the financial report requires making estimates and assumptions that affect the recognised amounts of assets, liabilities, revenues, expenses, and the disclosure of contingent liabilities. The estimates and associated assumptions are based on experience and various other factors that are believed to be reasonable in the circumstances, the results of which form the basis of making judgments about the carrying values of assets and liabilities where they are not available from independent sources. The key estimates and assumptions that have a significant risk of causing a material adjustment to the values of assets and liabilities are: The valuation of defined benefit member liabilities reported in the Statement of Financial Position. The amount of the liabilities have been determined actuarially. The key assumptions are set out in Note 15. The valuation of direct infrastructure and direct property investments. The key assumptions are set out in Note 2 (e) (iii) and Note 2 (e) (iv) respectively. (e) Investments including Derivatives Both the functional and presentation currency of the Fund is Australian dollars. All investments are reported in Australian dollars, as are the related income and expenses. Investments including derivatives of the Fund are initially recognised at cost, being the fair value of the consideration given. Subsequent to initial recognition, all financial assets and liabilities at fair value through profit or loss are measured at fair value. Transactions in foreign currencies are initially recorded in the functional currency at the exchange rates ruling at the date of the transaction. Assets denominated in foreign currencies are converted into Australian dollars at the exchange rates ruling at the reporting date, while foreign currency income and expense transactions are converted at the exchange rates prevailing at the transaction dates. Gains and losses on assets and liabilities denominated in foreign currencies, due to changes in exchange rates, are recognised in investment revenue as changes in fair value in the reporting period in which the exchange rates change. Realised gains and losses on sales of investments are calculated on the carrying values of the investments concerned and are recognised in investment revenue as changes in fair value in the reporting period in which the sales occur or contracts are closed out. At reporting date, investments are revalued to fair value and the unrealised gains and losses arising from movements in fair value are recognised in investment revenue as changes in fair value. Derivative financial instruments are reported separately to the underlying investments in the Statement of Financial Position. The Fund invests for the primary purpose of obtaining a return on its investments. The investments are held for the long-term purpose of providing benefits to members of the Fund on their retirement, reaching a specified age, death, or total and permanent disablement. With the exception of cash, purchases and sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place are recognised on the trade dates, i.e. the dates that the Fund commits to purchase or sell the assets. Page 12

14 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (e) Investments including Derivatives (continued) The fair value of investments have been determined as follows: (i) Cash and Cash Equivalents Cash is recognised when it is received by the Fund. It ceases to be recognised when cash is released by the Fund. Short term deposits are recognised when cash is invested and cease to be recognised when cash is withdrawn by the Fund. Overseas cash is recognised at the value obtained by converting the overseas currencies into Australian dollars using the exchange rates current on the day the cash is received or released overseas by the Fund. Pledged cash at bank represents cash held as collateral for derivative transactions. The cash is held by the broker or counterparty and is only available to meet margin calls or the collateral requirements for unrealised derivative positions. (ii) Fixed Income Securities These securities include government bonds, corporate bonds, discount securities and other interest bearing securities. At reporting date, they are valued at the mid of representative quoted bid and ask prices for the securities or, if such prices are not available, at prices for securities of comparable maturity, quality and type. At reporting date, the unrealised gains and losses on the securities are recognised in the Income Statement. Interest income on the securities is accrued using the effective interest rate method, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument and is recognised in interest revenue. At reporting date the differences between the changes in fair value of interest bearing securities and their accrued income are recognised in the Income Statement. (iii) Equities and Unit Trusts Listed equities are valued at the 'Last' traded prices on the relevant exchanges at the reporting date. Unlisted equities are valued on the basis of valuations determined by external valuers engaged by the relevant investment manager at the reporting date. In respect of Infrastructure, fair value is commonly derived by applying one or more of the following valuation methodologies: discounted cash flow, capitalised earnings (using comparable companies and/ or transactions), and net assets. Typically, discounted cash flow is utilised. The cost of equity is used as the discount rate to value future net cash flows. The valuation of these investments will generally require an assessment of their specific cash flows and investment terms, the financial performance of the investment, comparable market sales and purchases and an assessment of the relevant risk adjusted discount rates. For material infrastructure investments, independent accredited valuers undertake this process and provide an estimate of the fair value for these investments on an annual or more frequent basis. The independent valuer will provide a valuation range (including low and high point) and a point estimate across a variety of reasonable assumptions. Infrastructure managers have defined Valuation Policies in place and the valuation process is regularly reviewed by the Trustee. Unit trusts are valued on the basis of the exit prices determined by the managers of the trusts at the reporting date. Page 13

15 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (e) Investments including Derivatives (continued) (iv) Property Investment properties are initially recognised at cost plus associated costs of acquisition, including stamp duty. Subsequent to initial recognition, investment properties are measured at fair value. Gains and losses arising from changes in the fair value of investment properties are recognised in the Income Statement as changes in fair value. Fair value is defined as the estimated amount for which an asset could be exchanged on the date of valuation between suitable market participants in an arm's length transaction, wherein the parties had each acted knowledgeably, prudently and without compulsion. The fair value for each investment property is determined primarily by reference to independent valuations undertaken by registered valuers at intervals of not more than six months. For properties not independently valued in the last quarter, a desktop review is undertaken to determine whether there is an indication that carrying value does not materially reflect fair value, and whether a new independent valuation should be commissioned. Fair value is equal to the most recent independent valuation, adjusted for capital works in progress. Each property valuation typically utilises the following techniques, capitalisation of net income, discounted cash flow, direct comparison and residual value methodologies. These are based upon assumptions and judgement in relation to future rental income, anticipated maintenance cost and appropriate discount rates, and make reference to market evidence of transaction prices for similar properties. Refer to Note 4 (c) (ii) for the key assumptions used in determining the fair value of investment properties. (v) Derivative Financial Instruments Derivative financial instruments are contracts or agreements the values of which depend on, or derive from, the values of the underlying instruments, reference rates or indices. The Fund utilises derivative financial instruments such as futures, options, forward foreign exchange contracts, cross currency swaps, credit default swaps and interest rate swaps to assist in controlling risk and to gain access to and allow flexibility in the financial markets in order to manage and structure the Fund's investment portfolio. Derivatives are not used for speculation in the portfolio. Ownership of the derivatives is recognised on the dates of the opening positions of the contracts. Futures contracts are obligations to make or take delivery of specified quantities and qualities of underlying assets at particular times and at agreed prices. When such contracts are closed out, either through disposal or expiry, realised gains or losses are recognised in investment revenue. At reporting date, futures contracts listed on recognised exchanges are valued at the settlement prices provided by the exchanges and the unrealised gains or losses are recognised in investment revenue. Call and put options give the right to the holder to buy or sell specified securities at agreed prices within agreed periods of time. If options lapse, or if closing sale transactions are entered into, realised gains or losses are recognised in investment revenue. At reporting date, domestic exchange traded options are valued using the Australian Stock Exchange settlement prices at close of trading. International options on futures are valued using the settlement prices as per the brokers statements and international options on indices are valued using the official exchange closing prices. Over the Counter Options are valued by determining the theoretical prices based on option valuation formulae with those prices being used to calculate the fair value of the options. Unrealised gains or losses arising on valuation are recognised in investment revenue. When a call option is exercised, the option holder buys the underlying securities from the counterparty at the exercise price. The option premium is added to the cost of the underlying security. No gain or loss is recognised at the time of exercise of the option. Page 14

16 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (e) Investments including Derivatives (continued) (v) Derivative Financial Instruments (continued) When a put option is exercised, the option holder sells the underlying securities to the counterparty at the exercise price. The proceeds of sale of those securities will be the exercise price of the option minus the transaction costs. The option premium paid is included in the cost of the securities sold and the resulting gain or loss is recognised at the time of exercise. Forward foreign exchange contracts are agreements between banks and their customers under which the banks agree to buy from, or sell to, the customers fixed amounts of foreign currencies on future dates, or during periods expiring on future dates, at the rates of exchange quoted in the agreements. The agreements may cover exchanges between foreign currencies and Australian dollars or between foreign currencies. The fair value of the contracts fluctuate with changes in the relevant exchange rates. When the contracts are closed out, either through disposal or expiry, realised gains or losses are recognised in investment revenue. At reporting date, the outstanding contracts are marked-to-market and the unrealised gains and losses are recognised in investment revenue. Credit default swaps are agreements under which the buyer makes a series of payments to the seller and in exchange receives a payoff if a particular credit event occurs. The credit event can be a credit instrument, typically a bond or loan, that goes into default or a company undergoing restructuring, bankruptcy or having its credit rating downgraded. At reporting date, the credit default swaps are valued at fair value which is based on the estimated amount the Fund would pay or receive to terminate these derivatives, taking into account current interest rates, volatility and credit risk. Unrealised gains and losses are recognised in investment revenue. Interest rate swap contracts are agreements under which the parties exchange one stream of interest for another. They are used to hedge cash flows against unfavourable movements in interest rates. The contracts are for interest rates on notional principal amounts and can cover, for example, fixed rate to floating rate, fixed rate to fixed rate and floating rate to fixed rate. The party with the higher interest obligation pays the net amount to the other party. The amount received is considered an offset to the interest on the investment or debt hedged. At reporting date, the differences expected to be paid or received on the maturity of the contracts are marked-to-market with the unrealised gains and losses being recognised in investment revenue. (vi) Offsetting Financial Instruments Financial assets and liabilities are offset and the net amount reported in the Statement of Financial Position when there is a currently legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. Refer to Note 19 for further information. (f) Revenue Recognition Revenue is recognised at the fair value of the consideration received or receivable to the extent that it is probable that the economic benefits will flow to the Fund and the revenue can be reliably measured. The following specific recognition criteria are applied before revenue is recognised: Interest: Revenue is recognised as interest accrues using the effective interest rate method. Dividends and Distributions: Revenue is recognised when the right to receive payment is established. Page 15

17 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (f) Revenue Recognition (continued) Property Income: Rental income from property investments is recognised to the extent that it is probable that the economic benefits will flow to the Fund and the amount can be reliably measured. Fixed rental increases are recognised on a straight-line basis over the term of the lease. Rent not received at reporting date is reflected in the Income Statement as a receivable. Contingent rental income is recognised as income in the reporting period in which it is earned. The costs of lease incentives provided to tenants are recognised over the lease term, on a straight-line basis, as a reduction in rental income. Lease incentives may take the form of cash, rent-free periods, contributions to certain lessee s costs, relocation costs and lessee or lessor owned fit-outs and improvements. These incentives are capitalised as part of the carrying value of the investment properties and amortised on a straight-line basis over the term of the lease as a reduction of rental income. Changes in fair value of investments: Changes in the fair value of investments including derivatives are calculated as the differences between the fair value on sale, or at the reporting date, and the fair value at the previous valuation point and are recognised in the Income Statement. (g) Expense Recognition Expenses are decreases in economic benefits in the form of reductions of assets or increases in liabilities that result in decreases in the net assets of the Fund. Expenses are recognised when expenditures will produce no future economic benefits and when, and to the extent that, future economic benefits do not qualify, or cease to qualify, for recognition as assets. (h) Income Tax The Fund is a complying superannuation fund within the provisions of the Income Tax Assessment Act Accordingly, the concessional tax rate of 15% has been applied. Income tax in the Income Statement for the year comprises current and deferred tax. Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance date. Deferred income tax is provided on all temporary differences at the balance date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences except where the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss. Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilised, except where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor the taxable profit or loss. The carrying amount of deferred income tax assets is reviewed at each balance date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Page 16

18 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (h) Income Tax (continued) Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance date. (i) Goods and Services Tax (GST) Revenues, expenses and assets, with the exception of receivables and payables, are recognised net of the amount of GST to the extent that the GST is recoverable from the taxation authority. Where GST is not recoverable, it is recognised as part of the cost of acquisition of the asset or as an expense, as appropriate. Receivables and payables are stated inclusive of GST. The net amount of GST recoverable from, or payable to, the ATO is included in receivables or payables, as appropriate, in the Statement of Financial Position. (j) Derecognition of Financial Assets and Liabilities A financial asset is derecognised when: the right to receive cash flows from the asset have expired; or the Fund transfers substantially all the risks and rewards of ownership of the asset. A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expires. (k) Jointly Owned Property The Fund s share of the assets, liabilities, revenue and expenses of jointly owned property are included in the appropriate items of the Income Statement and Statement of Financial Position. (l) Benefits Outstanding Benefits outstanding comprise pensions accrued at balance date and lump sum benefits due to members who have elected to withdraw their benefits from the Fund but had not been paid at balance date. The benefits are carried at the nominal amounts due which approximate their fair value. (m) Receivables and Payables Receivables are carried at the nominal amounts due which approximate their fair value. Receivables are normally settled within 30 days. An allowance for uncollectible amounts is only made where there is objective evidence that the debt will not be collected. Payables are recognised for amounts to be paid in the future for goods and services received, whether or not billed to the Fund and are carried at the nominal amounts which approximate their fair value. They are normally settled within 30 day terms. Investment Debtors and Creditors are reported for the disposals, purchases and maturities that are outstanding at the reporting date. It is the Fund s policy to either deliver or receive securities against payment, i.e. the Fund will not deliver securities unless the proceeds are received simultaneously and vice versa for purchases. Consequently, the risk of default or failed settlement is minimal, as the Fund will always maintain possession of either the cash or security. Page 17

19 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (n) Operational Risk Financial Requirement Superannuation Prudential Standard 114 "Operational Risk Financial Requirement" (SPS 114) which became effective 1 July 2013, requires Registered Superannuation Entity (RSE) licensees to maintain adequate financial resources to address losses arising from operational risks that may affect such entities within their business operations. The Fund s Operational Risk Financial Reserve ("ORFR") has been established for this purpose. As a minimum the Fund aims to hold an ORFR Target Amount equal to 25 basis points of funds under management (at a specified point in time), subject to a predetermined tolerance limit. The tolerance limit is set by the Trustee to reduce the need for small transfers to or from the ORFR for immaterial fluctuations in the ORFR s value. The ORFR may only be used to make a payment to address an operational risk event as defined by SPS 114. When the balance of the ORFR falls below the tolerance limit, additional funds are transferred into the ORFR. Any transfers to the ORFR must be approved by the Board. (o) Comparative Figures Where necessary, comparative figures have been restated, reclassified and/or re-positioned for consistency with current year disclosures and as required by the IFRS accounting standards. (p) Member Liabilities Member liabilities are measured as the amount of accrued benefits: Defined benefit member liabilities are measured as the amount of a portfolio of investments that would be needed as at the reporting date to yield future net cash inflows that would be sufficient to meet accrued benefits as at that date when they are expected to fall due. Refer to Note 15 for further information including the key assumptions used in valuing defined benefit member liabilities. Defined contribution member liabilities are measured as the amount of member account balances as at the reporting date. Refer to Note 14 for further information. (q) Consolidated Financial Statements (Investment Entity Exception) The Fund has determined that it is an investment entity under the definition in AASB 10 "Consolidated Financial Statements" as it meets the following criteria: the Fund has obtained funds on behalf of members for the purpose of providing them with investment management services; the Fund's business purpose, which it communicated directly to members, is investing solely for returns from capital appreciation and investment income; and the performance of investments made by the Fund are measured and evaluated on a fair value basis. The Fund also meets all of the typical characteristics of an investment entity. As a consequence, the Fund does not consolidate these investments, but accounts for them through the Income Statement. Page 18

20 3. CHANGES IN FAIR VALUE OF INVESTMENTS COMMONWEALTH BANK GROUP SUPER (a) Changes in Fair Value of Investments held at Reporting Date $'000 $'000 Equities - Listed 336,893 26,718 Fixed Income Securities - Government (114,186) 155,779 Fixed Income Securities - Corporate (11,327) (28,419) Unit Trusts (10,713) (10,945) Derivatives 64,691 (33,119) Equities - Unlisted 25,746 33,881 Property 700 4,135 Changes due to Currency Fluctuations (258) (349) Total Unrealised Gains/(Losses) 291, ,681 (b) Changes in Fair Value of Investments Realised during the year Equities - Listed 145,920 (45,935) Fixed Income Securities - Government 18,759 20,300 Fixed Income Securities - Corporate (2,288) (4,611) Unit Trusts (5,251) 694 Derivatives (19,392) (40,764) Equities - Unlisted 45,718 - Property - - Other Investments 1, Changes due to Currency Fluctuations 1,627 56,885 Total Realised Gains/(Losses) 186,296 (12,512) Changes in Fair Value of Investments 477, ,169 Page 19

21 4. INVESTMENTS INCLUDING DERIVATIVES COMMONWEALTH BANK GROUP SUPER The table below presents the Fund's assets and liabilities measured and recognised at fair value on a recurring basis, analysed between those whose fair value is based on quoted market prices (Level 1), those involving valuation techniques where all the model inputs are observable in the market (Level 2) and those where the valuation technique involves the use of unobservable inputs (Level 3). Level 1 Level 2 Level 3 Total 2017 $'000 $'000 $'000 $'000 Assets Investments Equities - Listed 3,898, ,581-4,075,541 Fixed Income Securities - Government - 3,167,383-3,167,383 Fixed Income Securities - Corporate - 1,333,468-1,333,468 Unit Trusts - 885,090 65, ,674 Equities - Unlisted , ,032 Property , ,912 Pledged Investments - 17,919-17,919 Derivatives Futures 10, ,299 Options - 25,889-25,889 Foreign Exchange Contracts - 81,804-81,804 Swaps - 55,304-55,304 Total Investments including Derivative Assets 3,909,646 5,744, ,528 10,618,225 Liabilities Derivatives Futures (10,597) (1,051) - (11,648) Options - (11,214) - (11,214) Foreign Exchange Contracts - (47,412) - (47,412) Swaps - (63,311) - (63,311) Total Derivative Liabilities (10,597) (122,988) - (133,585) Total Investments including Derivatives 3,899,049 5,621, ,528 10,484,640 Page 20

22 4. INVESTMENTS INCLUDING DERIVATIVES (CONTINUED) Level 1 Level 2 Level 3 Total 2016 $'000 $'000 $'000 $'000 Assets Investments Equities - Listed 3,498,169 18,569-3,516,738 Fixed Income Securities - Government - 2,705,170-2,705,170 Fixed Income Securities - Corporate - 1,224, ,224,738 Unit Trusts - 1,324,965 65,374 1,390,339 Equities - Unlisted , ,634 Property , ,545 Pledged Investments - 19,788-19,788 Derivatives Futures 2, ,688 Options 528 6,159-6,687 Foreign Exchange Contracts - 26,055-26,055 Swaps - 67,231-67,231 Total Investments including Derivative Assets 3,501,312 5,392,485 1,018,816 9,912,613 Liabilities Derivatives Futures (2,925) (22) - (2,947) Options (338) (202) - (540) Foreign Exchange Contracts - (40,924) - (40,924) Swaps - (92,218) - (92,218) Total Derivative Liabilities (3,263) (133,366) - (136,629) Total Investments including Derivatives 3,498,049 5,259,119 1,018,816 9,775,984 Page 21

23 4. INVESTMENTS INCLUDING DERIVATIVES (CONTINUED) (a) Fair Value Measurement, Valuation Techniques and Inputs The Fund has no assets or liabilities measured at fair value on a non-recurring basis in the current reporting period. The level in which assets and liabilities are classified in the hierarchy is based on the lowest level input that is significant to the fair value measurement in its entirety. Assessment of the significance of an input requires judgement after considering factors specific to the instrument. The fair value of financial instruments traded in active markets (such as shares in listed companies and publicly traded derivatives) is based on quoted market prices at the end of the reporting period. The quoted market price used for financial assets held by the Fund is the last traded price. These instruments are included in Level 1. The fair value of financial instruments that trade in markets that are not considered to be active but are valued based on quoted market prices or alternative pricing sources supported by observable inputs (such as over-the-counter derivatives) are classified within Level 2. Investments classified within Level 3 have significant unobservable inputs, as they are infrequently traded. For unlisted equities, units in unlisted trusts, corporate fixed income securities and property classified as Level 3, the Trustee relies on valuations conducted by independent valuers to derive the fair value for all but an immaterial minority of these assets (by value). The valuation model technique for these unlisted assets is generally the net present value of estimated future cash flows, cross checked against listed market and recent transaction comparable data. The valuers also consider other liquidity, credit (both own and counterparty) and market risk factors on behalf of the Trustee and adjusted discount rate during the financial year. If any of the unobservable inputs used in the valuation models were on average increased/decreased by 1%, this would have resulted in an immaterial change to the net asset value of the Fund. The various methods adopted in determining the fair value of the Fund's financial instruments are further explained in Note 2 (e). The fair value measurements using significant unobservable inputs are further explained below. (b) Transfers between Levels The Fund s policy is to recognise transfers into and transfers out of fair value hierarchy levels as at the end of the reporting period. There were no transfers between levels for the Fund during the current and previous reporting periods. Page 22

24 4. INVESTMENTS INCLUDING DERIVATIVES (CONTINUED) (c) Fair Value Measurements using Significant Unobservable Inputs (Level 3) The following table presents the movement in Level 3 instruments by class of financial instrument: Fixed Income Equities Unit Corporate Unlisted Trusts Property Total 2017 $'000 $'000 $'000 $'000 $'000 Opening balance as at 1 July ,634 65, ,545 1,018,816 Transfers into or out of Level Gains and losses recognised in profit or loss 78 71,464 2, ,805 Purchases ,667 18,048 Sales (341) (144,066) (2,734) - (147,141) Closing balance as at 30 June ,032 65, , ,528 Fixed Income Equities Unit Corporate Unlisted Trusts Property Total 2016 $'000 $'000 $'000 $'000 $'000 Opening balance as at 1 July , ,633 65, , ,560 Transfers into or out of Level Gains and losses recognised in profit or loss - 33, ,135 38,764 Purchases - - 3,018 15,366 18,384 Sales (2,154) (1,880) (3,858) - (7,892) Closing balance as at 30 June ,634 65, ,545 1,018,816 Page 23