ANNUAL FINANCIAL REPORT Russell Inflation Linked Bond Fund For the year ending Russell Investment Management Ltd ABN 53 068 338 974 AFSL 247185
ARSN 092 808 609 Special purpose financial report For the year ended
ARSN 092 808 609 Special purpose financial report For the year ended Contents Page Directors report 2 Auditor s independence declaration 5 Statement of comprehensive income 6 Statement of financial position 7 Statement of changes in equity 8 Statement of cash flows 9 Notes to the financial statements 10 Directors declaration 21 Independent audit report to the unitholders of Russell Inflation Linked Bond Fund 22-1-
Directors report Directors report The directors of Russell Investment Management Ltd (ABN 53 068 338 974 AFSL No. 247185), the Responsible Entity of Russell Inflation Linked Bond Fund, present their report together with the financial statements of Russell Inflation Linked Bond Fund (the Fund ), for the year ended. Principal activities The Fund invests predominantly in government, semi-government and corporate inflation linked bonds issued in Australia as set out in the Fund s offer documents and in accordance with the provisions of the Fund s Constitution. The Fund utilises a Multi Style, Multi Manager investment approach which combines the individual strengths of multiple investment managers. The Fund did not have any employees during the year. The Fund terminated operations on 28 August and the final redemption was paid on 02 September. Directors The following persons held office as directors of Russell Investment Management Ltd during the year or since the end of the year and up to the date of this report: Alan N Schoenheimer Glenn T Smith Symon J Parish Kenneth W Willman Bronwyn J Yates Peter J Gunning Review and results of operations The Fund is no longer being managed on a going concern basis as it is wound up. Results The performance of the Fund, as represented by the results of its operations, was as follows: Year ended Operating profit/(loss) before finance costs attributable to unitholders () 2,618 16,580 Distributions - Class A Distributions paid and payable () - 11,477 Distribution (cents per unit - CPU) - 5.51 Distributions - Class D Distributions paid and payable () - 677 Distribution (cents per unit - CPU) - 2.84-2-
Directors report (continued) Directors report (continued) The key differences between net assets for unit pricing purposes and net assets as reported in the financial statements prepared under Australian Accounting Standards have been outlined below: Year ended Net assets for unit pricing purposes - 154,016 Difference between net market value (for unit pricing) and fair value (for financial statements) of financial assets held at fair value through profit or loss - (146) Effect of classification of net assets attributable to unitholders as liabilities - (153,870) Net assets under Australian Accounting Standards - - Distribution Distributions of income generally occur quarterly with a final annual distribution as at each year. Realised capital gains are distributed only at each year. A detailed summary of the Distributions to unitholders for the year can be found in note 6 of the financial statements. Options There were no options over interests in the Fund at any time during the year. Significant changes in state of affairs The Fund terminated operations on 28 August and the final redemption was paid on 02 September. These financial statements for the year ended are prepared on a liquidation basis. The directors considered the Fund is not going concern as they resolved on 21 July to wind up the Fund. These are the final set of financial statements for the Fund. Matters subsequent to the end of the financial year No matter or circumstance has arisen since that has significantly affected, or may significantly affect: (i) (ii) (iii) the operations of the Fund in future financial years, or the results of those operations in future financial years, or the state of affairs of the Fund in future financial years. Indemnity and insurance of officers and auditors No insurance premiums are paid for out of the assets of the Fund in regards to insurance cover provided to either the officers of Russell Investment Management Ltd or the auditors of the Fund. So long as the officers of Russell Investment Management Ltd act in accordance with the Fund s Constitution and the Law, the officers remain indemnified out of the assets of the Fund against losses incurred while acting on behalf of the Fund. The auditors of the Fund are in no way indemnified out of the assets of the Fund. Fees paid to and interests held in the Fund by the Responsible Entity or its associates No fees were paid out of Fund property to the directors of the Responsible Entity during the year. Interests in the Fund The movement in units on issue in the Fund during the year is disclosed in note 5 of the financial statements. The value of the Fund s assets and liabilities is disclosed in the Statement of financial position and derived using the basis set out in note 2 of the financial statements. -3-
Directors report (continued) Directors report (continued) Environmental regulation The operations of the Fund are not subject to any particular or significant environmental regulations under Commonwealth, State or Territory law. Rounding of amounts to the nearest thousand dollars The Fund is an entity of the kind referred to in Class Order 98/100 (as amended) issued by the Australian Securities and Investments Commission (ASIC) relating to the rounding off of amounts in the directors report. Amounts in the directors report have been rounded to the nearest thousand dollars in accordance with that Class Order, unless otherwise indicated. Due to rounding, rounded components presented throughout the financial statements may not add up precisely to the rounded sum. 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 5. This report is made in accordance with a resolution of the directors. Director Sydney 22 September -4-
Auditor s Independence Declaration As lead auditor for the audit of Russell Inflation Linked Bond Fund for the year ended, I declare that to the best of my knowledge and belief, there have been: a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b) no contraventions of any applicable code of professional conduct in relation to the audit. Darren Ross Sydney Partner 22 September PricewaterhouseCoopers PricewaterhouseCoopers, ABN 52 780 433 757 Darling Park Tower 2, 201 Sussex Street, GPO BOX 2650, SYDNEY NSW 1171 T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation.
Statement of comprehensive income For the year ended Statement of comprehensive income Notes Year ended Investment income Interest income from financial assets not held at fair value through profit or loss 10 10 8,558 Distributions income 10 113 Net gains/(losses) on financial instruments held at fair value through profit or loss 3 2,650 9,962 Other operating income 141 - Total investment income/(loss) 2,811 18,633 Expenses Management fees 172 1,899 Responsible Entity s fees - 40 Custody fees - 69 Auditor s remuneration 9 19 29 Transaction costs 2 10 Other operating expenses - 6 Total operating expenses 193 2,053 Operating profit/(loss) for the year 2,618 16,580 Finance costs attributable to unitholders Distributions to unitholders 6 - (12,154) (Increase)/decrease in net assets attributable to unitholders 5 (2,618) (4,426) Profit/(loss) for the year - - Other comprehensive income for the year - - Total comprehensive income for the year - - The above Statement of comprehensive income should be read in conjunction with the accompanying notes. -6-
Statement of financial position As at Statement of financial position Notes As at Assets Cash and cash equivalents 7-5,032 Receivables - 406 Financial assets held at fair value through profit or loss 4-152,925 Total assets - 158,363 Liabilities Payables - 232 Distributions payable to unitholders 6-4,261 Total liabilities (excluding net assets attributable to unitholders) - 4,493 Net assets attributable to unitholders - liability 5-153,870 The above Statement of financial position should be read in conjunction with the accompanying notes. -7-
Statement of changes in equity For the year ended Statement of changes in equity Year ended Total equity at the beginning of the financial year - - Profit/(loss) for the year - - Other comprehensive income - - 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 Statement of changes in equity should be read in conjunction with the accompanying notes. -8-
Statement of cash flows For the year ended Statement of cash flows Notes Year ended Cash flows from operating activities Proceeds from sale of financial instruments held at fair value through profit or loss 7,899 491,643 Purchase of financial instruments held at fair value through profit or loss - (298,590) Distributions received 10 113 Interest received/(paid) 790 10,183 Proceeds from receivables 156 14 Management fees paid (255) (1,987) Responsible Entity fees paid (48) (49) Payment of other expenses (122) (123) Net cash inflow/(outflow) from operating activities 8(a) 8,430 201,204 Cash flows from financing activities Proceeds from applications by unitholders - 225,066 Payments for redemptions by unitholders (9,201) (426,379) Distributions paid (4,261) (13) Net cash inflow/(outflow) from financing activities (13,462) (201,326) Net increase/(decrease) in cash and cash equivalents (5,032) (122) Cash and cash equivalents at the beginning of the year 5,032 5,154 Cash and cash equivalents at the end of the year 7-5,032 Non-cash financing activities 8(b) The above Statement of cash flows should be read in conjunction with the accompanying notes. -9-
Notes to the financial statements For the year ended Contents of the notes to the financial statements Page 1 General information 11 2 Summary of significant accounting policies 11 3 Net gains/(losses) on financial instruments held at fair value through profit or loss 16 4 Financial assets held at fair value through profit or loss 17 5 Net assets attributable to unitholders 17 6 Distributions to unitholders 18 7 Cash and cash equivalents 18 8 Reconciliation of profit/(loss) to net cash inflow/(outflow) from operating activities 19 9 Auditor s remuneration 19 10 Interest income from financial assets not held at fair value through profit or loss 20 11 Events occurring after the reporting period 20 12 Contingent assets and liabilities and commitments 20-10-
Notes to the financial statements For the year ended (continued) 1 General information These special purpose financial statements cover Russell Inflation Linked Bond Fund (the Fund ) as an individual entity. The Fund was constituted on 1 June 1998. The Fund terminated operations on 28 August and the final redemption was paid on 02 September. The Responsible Entity of the Fund is Russell Investment Management Ltd (the Responsible Entity ). The Responsible Entity s registered office is Level 29, 135 King Street, Sydney, NSW 2000. The financial statements are presented in the Australian currency. The Fund invests in government, semi-government, and corporate inflation linked bonds issued in Australia as set out in the Fund s offer documents and in accordance with the provisions of the Fund s Constitution. The financial statements were authorised for issue by the directors of the Responsible Entity on 22 September. The directors of the Responsible Entity have the power to amend and reissue the financial statements. 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 years presented, unless otherwise stated in the following text. By the resolution of the Board of the Responsible Entity and in accordance with the Fund s Constitution, the Fund terminated operations on 28 August and the final redemption was paid on 02 September. The financial statements have been prepared on liquidating basis and not on a going concern basis. The adoption of liquidation basis has no impact on the financial statements. (a) Basis of preparation These special purpose financial statements that have been prepared for the sole purpose of distributing financial statements to the members and must not be used for any other purpose. The directors have determined that the accounting policies adopted are appropriate to meet the needs of the members. These special purpose financial statements have been prepared in accordance with the Fund sconstitution, Australian Accounting Standards and Interpretations issued by the Australian Accounting Standard Board and the Corporation Act 2001 in Australia with the exception of the disclosure requirements in the following IFRS equivalents Australian Accounting Standards: AASB 7 Financial Instrument: Disclosure AASB 124 Related Party Disclosure The special purpose financial statements have been prepared as required by the Fund s constitutions and for the purpose of complying with Australian securities and Investments Commission (ASIC) deregistration requirement and must not be used for any other purposes. The directors have determined that the accounting policies adopted are appropriate for this purpose. 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 are expected to be recovered or settled within twelve months, except for investments in financial assets and liabilities and net assets attributable to unitholders. 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 12 months, however, an estimate of that amount cannot be determined as at reporting date. In the case of net assets attributable to unit holders, the units are redeemable on demand at the unit holder 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. -11-
Notes to the financial statements For the year ended (continued) 2 Summary of significant accounting policies (continued) (a) Basis of preparation (continued) Compliance with International Financial Reporting Standards The financial statements of the Fund also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board with the exception of the disclosure requirements in the following IFRS equivalent Australian Accounting Standards: AASB 7 Financial Instrument: Disclosure AASB 124 Related Party Disclosure New and amended standards adopted by the Fund The Fund has applied the following new and revised accounting standards which became effective for the annual reporting period commencing on 1 July : AASB 2013-5 Amendments to Australian Accounting Standards Investment Entities AASB 2013-4 Amendments to Australian Accounting Standards Novation of Derivatives and Continuation of Hedge Accounting The amendments made by AASB 2013-5 introduce an exception from the consolidation requirements for investment entities. The amendment provides relief from the requirement to consolidate any investments in subsidiaries. The Fund meets the definition of an investment entity under the standard. Therefore any investment in subsidiaries (other than those subsidiaries that provide investment related services) must be measured as fair value through profit and loss. The adoption of the amendment does not have any impact as the Fund does not have investments in subsidiaries. The adoption of AASB 2013-4 did not have any impact on the current period or any prior period and is not likely to affect future periods. 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 that have a material impact on the Fund. (b) Financial instruments (i) Classification The Fund s investments are classified as at fair value through profit or loss, which comprise: Financial instruments held for trading Derivative financial instruments such as futures and interest rate swaps are included under this classification. The Fund does not designate any derivatives as hedges in a hedging relationship. Financial instruments designated at fair value through profit or loss upon initial recognition These include financial assets and financial liabilities that are not held for trading purposes and which may be sold. These are investments in fixed interest securities and cash management trust. Financial assets and financial liabilities designated at fair value through profit or loss at inception are those that are managed and their performance evaluated on a fair value basis in accordance with the Fund s documented investment strategy. The Fund s 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 Fund recognises financial assets and financial liabilities on the date it becomes party to the contractual agreement (trade date) and recognises changes in fair value of the financial assets or financial liabilities from this date. -12-
Notes to the financial statements For the year ended (continued) 2 Summary of significant accounting policies (continued) (b) Financial instruments (continued) (ii) Recognition/derecognition (continued) Investments are derecognised when the right to receive cash flows from the investments have expired or the Fund has 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 Fund measures a financial asset at its fair value. Transaction costs of financial assets carried at fair value through profit or 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. This also includes dividend expense on short sales of securities, which have been classified at fair value through profit or loss. 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 quoted market price used for financial assets held by the Fund is the current bid price and the quoted market price for financial liabilities is the current asking price. The fair value of financial assets and liabilities that are not traded in an active market are determined using valuation techniques. Accordingly, there may be a difference between the fair value at initial recognition and amounts determined using a valuation technique. If such a difference exists, the Fund recognised the difference in the statement of comprehensive income to reflect a change in factors, including time, that market participants would consider in setting a price. (iv) Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the Statement of financial position 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 Fund is required to distribute its distributable income. The units can be put back to the Fund at any time for cash or in specie based on the redemption price. The fair value of redeemable units is measured at the redemption amount that is payable (based on the redemption unit price) at the end of the reporting period if unitholders exercised their right to redeem units in the Fund. (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. Bank overdrafts, if any, are shown within borrowings in the Statement of financial position. 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 Fund s main income generating activity. -13-
Notes to the financial statements For the year ended (continued) 2 Summary of significant accounting policies (continued) (e) Investment income Interest income is recognised in the Statement of comprehensive income for all financial instruments that are not held at fair value through profit or loss using the effective interest method. Interest income on assets held at fair value through profit or loss is included in the net gains/(losses) on financial instruments. Other changes in fair value for such instruments are recorded in accordance with the policies described in note 2(b). The effective interest method is a method of calculating the amortised cost of a financial asset or financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts throughout the expected life of the financial instrument, or a shorter period where appropriate, to the net carrying amount of the financial asset or liability. When calculating the effective interest rate, the Fund estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment options) but does not consider future credit losses. The calculation includes all fees paid or received between the parties to the contract that are an integral part of the effective interest rate, including transaction costs and all other premiums or discounts. In the event that the Fund currently incurs withholding tax imposed by certain countries on investment income, such income is recorded gross of withholding tax in the Statement of comprehensive income. Dividend income is recognised on the ex-dividend date with any related foreign withholding tax recorded as an expense. The Fund currently incurs withholding tax imposed by certain countries on investment income. Such income is recorded gross of withholding tax in the Statement of comprehensive income. Trust distributions are recognised on an entitlements basis as at the date the unit value is quoted ex-distribution. (f) Expenses All expenses, including Responsible Entity s fees, management fees and custodian fees, are recognised in the Statement of comprehensive income on an accruals basis. The Responsible Entity is entitled under the Fund s Constitution to be reimbursed for certain expenses incurred in administering the Fund. (g) Income tax Under current legislation, the Fund is not subject to income tax as unitholders are presently entitled to the income of the Fund. Financial instruments held at fair value may include unrealised capital gains. Should such a gain be realised, that portion of the gain that is subject to capital gains tax will be distributed so that the Fund is not subject to capital gains tax. Realised capital losses are not distributed to unitholders but are retained in the Fund to be offset against any realised capital gains. If realised capital gains exceed realised capital losses, the excess is distributed to unitholders. The benefit of imputation credits and foreign tax paid are passed on to unitholders. (h) Distribution to unitholders In accordance with the Fund s Constitution, the Fund fully distributes its distributable (taxable) 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. The distributions are generally payable at the end of September, December, March and June each year. (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. -14-
Notes to the financial statements For the year ended (continued) 2 Summary of significant accounting policies (continued) (j) Foreign currency translation (i) Functional and presentation currency Items included in the Fund s 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 Fund competes for funds and is regulated. The Australian Dollar is also the Fund s presentation currency. (ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translations at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Statement of comprehensive income in other operating income. Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when fair value was determined. Translation differences on assets and liabilities carried at fair value are reported in the Statement of comprehensive income on a net basis within net gains/(losses) on financial instruments held at fair value through profit or loss. (k) Due from/to brokers Amounts due from/to brokers represent receivables for securities sold and payables for securities purchased that have been contracted for but not yet delivered by the end of the year. Trades are recorded on trade date, and for equities normally settled within three business days. A provision for impairment of amounts due from brokers is established when there is objective evidence that the Fund will not be able to collect all amounts due from the relevant broker. Indicators that the amount due from brokers is impaired include significant financial difficulties of the broker, probability that the broker will enter bankruptcy or financial reorganisation and default in payments. (l) Receivables Receivables may include amounts for interest and trust distributions. Dividends and trust distributions are accrued when the right to receive payment is established. Interest is accrued at the end of each reporting period from the time of last payment in accordance with the policy set out in note 2(f) above. Amounts are generally received within 30 days of being recorded as receivables. Collectibility of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off by reducing the carrying amount directly. An allowance account (provision for impairment of trade receivables) is used when there is objective evidence that the Fund will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than 30 days overdue) are considered indicators that the trade receivable is impaired. The amount of the impairment allowance is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short term receivables are not discounted if the effect of discounting is immaterial. The amount of the impairment loss is recognised in the Statement of comprehensive income within other expenses. When a trade receivable for which an impairment allowance had been recognised becomes uncollectible in a subsequent period, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against other expenses in the Statement of comprehensive income. (m) Payables Payables include liabilities and accrued expenses owing by the Fund which are unpaid as at the end of the reporting period. -15-
Notes to the financial statements For the year ended (continued) 2 Summary of significant accounting policies (continued) (m) Payables (continued) The distribution amount payable to unitholders as at the end of each reporting period is recognised separately in the Statement of financial position when unitholders are presently entitled to the distributable income under the Fund s Constitution. (n) Applications and redemptions Applications received for units in the Fund are recorded net of any entry fees payable prior to the issue of units in the Fund. Redemptions from the Fund are recorded gross of any exit fees payable after the cancellation of units redeemed. (o) Goods and Services Tax (GST) The GST incurred on the costs of various services provided to the Fund by third parties such as custodial services and investment management fees have been passed onto the Fund. The Fund qualifies for Reduced Input Tax Credits (RlTC) at a rate of at least 55% or 75%; hence investment management 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 Statement of financial position. Cash flows relating to GST are included in the Statement of cash flows on a gross basis. (p) Rounding of amounts The Fund is an entity of the kind referred to in Class Order 98/100 (as amended), issued by ASIC, relating to the rounding off of amounts in the financial statements. Amounts in the financial statements have been rounded to the nearest thousand dollars in accordance with that Class Order, unless otherwise indicated. Due to rounding, rounded components presented throughout the financial statements may not add up precisely to the rounded sum. (q) New accounting standards and interpretations Certain new accounting standards and interpretations have been published that are not mandatory for the reporting period. In the directors assessment, all new and revised accounting standards that have been issued but are not yet effective will not impact the Fund as it was terminated. 3 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: Year ended Financial assets Net gain/(loss) on financial assets designated at fair value through profit or loss 2,650 9,962 Net gains/(losses) on financial assets held at fair value through profit or loss 2,650 9,962 Total net gains/(losses) on financial instruments held at fair value through profit or loss 2,650 9,962-16-
Notes to the financial statements For the year ended (continued) 4 Financial assets held at fair value through profit or loss Fair value As at Fair value Designated at fair value through profit or loss Debt securities - 152,925 Total designated at fair value through profit or loss - 152,925 Total financial assets held at fair value through profit or loss - 152,925 Comprising: Debt securities Government securities Corporate bonds Total debt securities - 149,708-3,217-152,925 Total financial assets held at fair value through profit or loss - 152,925 An overview of the risk exposures and fair value measurements relating to financial assets held at fair value through profit or loss is included in note and note to the financial statements. 5 Net assets attributable to unitholders Movements in the number of units and net assets attributable to unitholders during the year were as follows: No. 000 No. 000 Year ended Class A Opening balance 161,856 348,993 153,870 324,627 Applications - 234,993-221,979 Redemptions (161,856) (429,892) (156,488) (403,950) Units issued upon reinvestment of distributions - 7,762-7,210 Increase/(decrease) in net assets attributable to unitholders - - 2,618 4,004 Closing balance - 161,856-153,870 Class D Opening balance - 20,751-18,243 Applications - 3,500-3,087 Redemptions - (25,020) - (22,429) Units issued upon reinvestment of distributions - 769-677 Increase/(decrease) in net assets attributable to unitholders - - - 422 Closing balance - - - - Total net assets attributable to unitholders - liability - 161,856-153,870-17-
Notes to the financial statements For the year ended (continued) 5 Net assets attributable to unitholders (continued) The redemptions above include redeeming unitholders proportionate share of the income of the Fund as of each redemption date. As stipulated within the Fund s Constitution, each unit represents a right to an individual share in the Fund and does not extend to a right to the underlying assets of the Fund. There are two separate classes of units. Each unit within the same class has the same rights as all other units within that class. Except for different management fee rates, the two different classes have the same preferences and restrictions. Capital risk management The Fund considers its 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 Fund is subject to daily applications and redemptions at the discretion of unitholders. Daily applications and redemptions are reviewed relative to the liquidity of the Fund s underlying assets on a daily basis by the Responsible Entity. Under the terms of the Fund s Constitution, 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. 6 Distributions to unitholders The distributions for the year were as follows: CPU Year ended CPU Class A Distributions for the year - - 11,477 5.51 Class D Distributions for the year - - 677 2.84 Total distributions for the year - 12,154 At, the above distributions for class A and class D includes a distribution payable amount of $0 (: $4,260,537) and $0 (: $0) respectively. 7 Cash and cash equivalents As at Cash at bank Cash equivalents Cash trusts - 2,181-998 - 1,853-5,032-18-
Notes to the financial statements For the year ended (continued) 8 Reconciliation of profit/(loss) to net cash inflow/(outflow) from operating activities Year ended (a) Reconciliation of profit/(loss) to net cash inflow/(outflow) from operating activities Increase/(decrease) in net assets attributable to unitholders 2,618 4,426 Distributions to unitholders - 12,154 Purchase of financial instruments held at fair value through profit or loss - (298,590) Proceeds from sale of financial instruments held at fair value through profit or loss 7,899 491,643 Net (gains)/losses on financial instruments held at fair value through profit or loss (2,650) (9,962) Market amortisation - (50) Net interest bought/(sold) 389 934 Net change in receivables 406 755 Net change in payables (232) (106) Net cash inflow/(outflow) from operating activities 8,430 201,204 (b) Non-cash financing activities During the year, the following distribution payments were satisfied by the issue of units under the distribution reinvestment plan - 7,887 During the year, the following redemptions were satisfied by in specie asset transfers of assets 147,287 - As described in note 2(j), income not distributed is included in net assets attributable to unitholders. The change in this amount each period (as reported in (a) above) represents a non-cash financing cost as it is not settled in cash until such time as it becomes distributable. 9 Auditor s remuneration During the year the following fees were paid or payable for services provided by the auditor of the Fund: $ Year ended $ PricewaterhouseCoopers Australian firm Audit and other assurance services Audit of financial statement and compliance plan audit 10,000 18,079 Total remuneration for audit and other assurance services 10,000 18,079 Taxation services Tax compliance services 8,682 11,362 Total remuneration for taxation services 8,682 11,362 Total remuneration of PricewaterhouseCoopers 18,682 29,441 The auditor s remunerations are agreed based on the fixed fees per the Fund for services rendered. These fees were allocated by the Responsible Entity based on the net asset values of the Fund for which Russell Investment Management Ltd act as the Responsible Entity. -19-
Notes to the financial statements For the year ended (continued) 10 Interest income from financial assets not held at fair value through profit or loss Year ended Interest income from cash and cash equivalents 10 8,558 10 8,558 11 Events occurring after the reporting period No significant events have occurred since the end of the reporting period which would impact on the financial position of the Fund disclosed in the Statement of financial position as at or on the results and cash flows of the Fund for the year ended on that date. 12 Contingent assets and liabilities and commitments There are no outstanding contingent assets, liabilities or commitments as at and. -20-
Directors declaration Directors declaration In the opinion of the directors of the Responsible Entity: (a) the financial statements and notes set out on pages 6 to 20 are in accordance with the Corporations Act 2001, including: (i) (ii) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; giving a true and fair view of the Fund s financial position as at and of its performance for the financial year ended on that date; and (b) (c) there are reasonable grounds to believe that the Fund will be able to pay its debts as and when they become due and payable; and Note 2(a) confirms that the financial statements also 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. Director Sydney 22 September -21-
Independent auditor s report to the unithoders of Russell Inflation Linked Bond Fund Report on the financial report We have audited the accompanying financial report, being a special purpose financial report, of Russell Inflation Linked Bond Fund (the registered scheme), which comprises the statement of financial position as at, the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors declaration. Directors responsibility for the financial report The directors of the registered scheme are responsible for the preparation of the financial report that gives a true and fair view and have determined that the basis of preparation described in Note 2 to the financial report is appropriate to meet the requirements of the Corporations Act 2001 and is appropriate to meet the needs of the unithoders. The directors responsibility also includes such internal control as the directors determine is necessary to enable the preparation of a financial report that is free from material misstatement, whether due to fraud or error. Auditor s responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. PricewaterhouseCoopers, ABN 52 780 433 757 Darling Park Tower 2, 201 Sussex Street, GPO BOX 2650, SYDNEY NSW 1171 T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au Liability limited by a scheme approved under Professional Standards Legislation.
Auditor s opinion In our opinion, the financial report of Russell Inflation Linked Bond Fund is in accordance with the Corporations Act 2001, including: (a) (b) giving a true and fair view of the registered scheme's financial position as at and of its performance for the year ended on that date; and complying with Australian Accounting Standards to the extent described in Note 2 and complying with the Corporations Regulations 2001. Emphasis of matter going concern no longer appropriate Without qualifying our opinion, we draw attention to the following matter. As indicated in Note 1 and Note 2 to the financial statements, the registered scheme was resolved to be terminated on 28 August. As a result the financial report has been prepared on a liquidation basis and not on a going concern basis. Basis of accounting and restriction on distribution and use Without modifying our opinion, we draw attention to Note 2 to the financial report, which describes the basis of accounting. The financial report has been prepared for the purpose of fulfilling the directors financial reporting responsibilities under the Corporations Act 2001. As a result, the financial report may not be suitable for another purpose. Our report is intended solely for the unithoders of Russell Inflation Linked Bond Fund. PricewaterhouseCoopers Darren Ross Sydney Partner 22 September