ARSN 147 222 535 Annual report
ARSN 147 222 535 Annual report Contents Directors' report Auditor's independence declaration Statement of comprehensive income Statement of financial position Statement of changes in equity Statement of cash flows Directors' declaration Independent auditor's report to the unit holders of Orbis Global Equity Fund (Australia Registered) This annual report covers Orbis Global Equity Fund (Australia Registered) as an individual entity. The Responsible Entity of Orbis Global Equity Fund (Australia Registered) is Equity Trustees Limited (ABN 46 004 031 298) (AFSL 240975). The Responsible Entity's registered office is: Level 1, 575 Bourke Street Melbourne VIC 3000. - 1 -
Directors report 30 June 2017 Directors' report The directors of Equity Trustees Limited, the Responsible Entity of the Orbis Global Equity Fund (Australia Registered) (the "Fund"), present their report together with the financial statements of the Fund for the year ended 30 June 2017. Principal activities The Fund invests in global equity securities, equity linked securities and currency contracts in accordance with the Fund s Offer Documents and provisions of the Fund s Constitution. The Fund did not have any employees during the year. There were no significant changes in the nature of the Fund's activities during the year. The various service providers for the Fund are detailed below: Service Responsible Entity Investment Manager Administrator Custodian Statutory Auditor Unit Registry Provider Equity Trustees Limited Orbis Investment Management Limited Citigroup Pty Limited Citibank N.A. Sydney and Hong Kong Branches Ernst & Young OneVue Fund Services Pty Limited Directors The following persons held office as directors of Equity Trustees Limited during the financial year and up to the date of this report: Philip D Gentry Chairman Harvey H Kalman Martin G Walsh (resigned 9 June 2017) Geoffory R Rimmer (resigned 4 October 2016) Ian C Westley (appointed 12 December 2016) Review of results and operations During the year, the Fund continued to invest funds in accordance with its investment objectives and approach as set out in the Fund s Offer Documents and the provisions of the Fund s Constitution. Results Gross return for the year ended 30 June 2017 Fund gross return MSCI World Index (Benchmark) 25.6% 14.7% The performance of the Fund, as represented by the results of its operations, was as follows: Year ended 30 June 30 June 2017 2016 Operating profit/(loss) before finance costs attributable to unit holders ($'000) 1,386,483 173,581 Retail Class Distributions paid and payable ($'000) 13,350 5,294 Distributions (cents per unit) 1,337.1498 717.6987 Redemption price per unit ($) 137.6585 123.8759-2 -
Directors report 30 June 2017 Directors' report Year ended 30 June 30 June 2017 2016 Refundable Reserve Fee Class A3 Distributions paid and payable ($'000) 292,734 173,991 Distributions (cents per unit) 1,395.1151 889.6579 Redemption price per unit ($) 135.2616 121.7908 Refundable Reserve Fee Class A12 Distributions paid and payable ($'000) 4,924 33,726 Distributions (cents per unit) 122.2217 897.6877 Redemption price per unit ($) - 123.8626 Refundable Reserve Fee Class C9 Distributions paid and payable ($'000) 99,364 56,634 Distributions (cents per unit) 1,351.9157 902.0684 Redemption price per unit ($) - 123.4078 Refundable Reserve Fee Class N3 Distributions paid and payable ($'000) - 18,480 Distributions (cents per unit) - 900.6073 Redemption price per unit ($) - 125.2590 Refundable Reserve Fee Class B2 Distributions paid and payable ($'000) 16,916 12,249 Distributions (cents per unit) 1,249.6344 876.8638 Redemption price per unit ($) 137.1471 122.2501 Refundable Reserve Fee Class F3 Distributions paid and payable ($'000) 15,260 8,601 Distributions (cents per unit) 1,481.0789 894.3396 Redemption price per unit ($) 138.1420 124.9610 Refundable Reserve Fee Class H3 Distributions paid and payable ($'000) 75,620 45,601 Distributions (cents per unit) 1,392.4248 900.6564 Redemption price per unit ($) 137.7180 123.7931 Refundable Reserve Fee Class M7 Distributions paid and payable ($'000) 36,409 14,116 Distributions (cents per unit) 2,523.6133 1,011.5192 Redemption price per unit ($) - 140.7263 Refundable Reserve Fee Class M8 Distributions paid and payable ($'000) 56,644 19,370 Distributions (cents per unit) 2,218.3063 877.7618 Redemption price per unit ($) - 121.4624 Refundable Reserve Fee Class M10 Distributions paid and payable ($'000) 6,602 1,473 Distributions (cents per unit) 2,302.5647 915.3256 Redemption price per unit ($) - 124.4362 Refundable Reserve Fee Class M11 Distributions paid and payable ($'000) 4,066 1,059 Distributions (cents per unit) 2,315.5108 906.3936 Redemption price per unit ($) - 124.5983-3 -
Directors report 30 June 2017 Directors' report Year ended 30 June 30 June 2017 2016 Refundable Reserve Fee Class S4 Distributions paid and payable ($'000) 2,014 1,316 Distributions (cents per unit) 1,389.3024 908.0284 Redemption price per unit ($) 146.0679 130.6949 Refundable Reserve Fee Class U3 Distributions paid and payable ($'000) 1,286 2,507 Distributions (cents per unit) 771.9861 881.7640 Redemption price per unit ($) 143.0871 123.2251 Refundable Reserve Fee Class A17 Distributions paid and payable ($'000) 4,944 3,844 Distributions (cents per unit) 1,268.4409 890.4718 Redemption price per unit ($) 137.2250 122.4835 Refundable Reserve Fee Class BV4 Distributions paid and payable ($'000) 703 324 Distributions (cents per unit) 1,528.3635 746.1280 Redemption price per unit ($) 136.0264 123.7609 Refundable Reserve Fee Class A20 Distributions paid and payable ($'000) 10,284 5,715 Distributions (cents per unit) 1,389.4660 903.0294 Redemption price per unit ($) 134.6033 121.3281 Refundable Reserve Fee Class M14 Distributions paid and payable ($'000) 8,150 4,246 Distributions (cents per unit) 1,608.0889 930.9585 Redemption price per unit ($) 133.1767 121.8435 Refundable Reserve Fee Class M15 Distributions paid and payable ($'000) 18,326 9,564 Distributions (cents per unit) 1,608.0712 930.9585 Redemption price per unit ($) 133.1768 121.8435 Refundable Reserve Fee Class M16 Distributions paid and payable ($'000) 10,944 2,080 Distributions (cents per unit) 1,639.6118 930.9585 Redemption price per unit ($) 132.8620 121.8435 Refundable Reserve Fee Class M17 Distributions paid and payable ($'000) 19,151 5,870 Distributions (cents per unit) 1,629.9289 930.9585 Redemption price per unit ($) 132.9587 121.8435 Refundable Reserve Fee Class M18 Distributions paid and payable ($'000) 15,078 5,216 Distributions (cents per unit) 1,626.5158 930.9585 Redemption price per unit ($) 132.9928 121.8435 Refundable Reserve Fee Class M19 Distributions paid and payable ($'000) 2,842 1,136 Distributions (cents per unit) 1,621.9158 930.9587 Redemption price per unit ($) 133.0387 121.8435-4 -
Directors report 30 June 2017 Directors' report Year ended 30 June 30 June 2017 2016 Refundable Reserve Fee Class M20 Distributions paid and payable ($'000) 5,750 3,340 Distributions (cents per unit) 1,605.6668 932.5838 Redemption price per unit ($) 133.1565 121.8072 Refundable Reserve Fee Class M21 Distributions paid and payable ($'000) 2,574 1,495 Distributions (cents per unit) 1,605.6667 932.5838 Redemption price per unit ($) 133.1565 121.8072 Refundable Reserve Fee Class W6 Distributions paid and payable ($'000) 3,112 - Distributions (cents per unit) 1,641.0989 - Redemption price per unit ($) 135.1368 - Fee Reserve Class Distributions paid and payable ($'000) 26,490 7,491 Distributions (cents per unit) 119,872.8477 36,491.7175 Redemption price per unit ($) 6,977.6736 4,761.5267 Indirect Cost Ratio (ICR) 2017 2016 % % Retail Class 2.94 1.91 Refundable Reserve Fee Class A3 2.46 1.00 Refundable Reserve Fee Class A12* - 0.47 Refundable Reserve Fee Class C9* - 1.11 Refundable Reserve Fee Class N3* - 1.07 Refundable Reserve Fee Class B2 2.61 1.09 Refundable Reserve Fee Class F3 2.55 1.09 Refundable Reserve Fee Class H3 2.47 1.02 Refundable Reserve Fee Class M7* - 0.94 Refundable Reserve Fee Class M8* - 1.03 Refundable Reserve Fee Class M10* - 0.46 Refundable Reserve Fee Class M11* - 0.46 Refundable Reserve Fee Class S4 2.56 1.10 Refundable Reserve Fee Class U3 2.94 1.10 Refundable Reserve Fee Class A17 2.74 1.93 Refundable Reserve Fee Class BV4 2.67 1.48 Refundable Reserve Fee Class A20 2.34 2.11 Refundable Reserve Fee Class M14 2.46 0.17 Refundable Reserve Fee Class M15 2.46 0.17 Refundable Reserve Fee Class M16 2.20 0.17 Refundable Reserve Fee Class M17 2.26 0.17 Refundable Reserve Fee Class M18 2.26 0.17 Refundable Reserve Fee Class M19 2.25 0.17 Refundable Reserve Fee Class M20 2.47 0.20 Refundable Reserve Fee Class M21 2.47 0.20 Refundable Reserve Fee Class W6 0.90 - *The ICR for 2017 for these classes is shown as nil as the classes redeemed in full during the year. - 5 -
Directors report 30 June 2017 Directors' report Indirect Cost Ratio (ICR) The ICR calculation includes fees charged to the Fund during the financial year, including those charged by the Responsible Entity for providing services to the Fund, plus investment management fees (including performance fees if any), custody fees and administration costs. Expenses excluded from the ICR calculation are those that would have ordinarily been incurred by a direct investment in the underlying assets of the Fund, such as brokerage, transaction costs and government taxes. To determine the ICR the fees are expressed as a percentage of the average net assets of the respective class during the financial year under review. The ICR may be negative due to the refund mechanism of the Investment Manager's fees. Significant changes in state of affairs Geoffory R Rimmer resigned as a director of Equity Trustees Limited on 4 October 2016. Ian C Westley was appointed as a director of Equity Trustees Limited on 12 December 2016. Martin G Walsh resigned as a director of Equity Trustees Limited on 9 June 2017. In the opinion of the directors, there were no other significant changes in the state of affairs of the Fund that occurred during the financial year. Matters subsequent to the end of the financial year No matter or circumstances has arisen since 30 June 2017 that has significantly affected, or may have a significant effect on: (i) the operations of the Fund in future financial years; (ii) the results of those operations in future financial years; or (iii) the state of affairs of the Fund in future financial years. Likely developments and expected results of operations The Fund will continue to be managed in accordance with the investment objectives and guidelines as set out in the Fund s Offer Documents and the provisions of the Fund s Constitution. The results of the Fund's operations will be affected by a number of factors, including the performance of investment markets in which the Fund invests. Investment performance is not guaranteed and future returns may differ from past returns. As investment conditions change over time, past returns should not be used to predict future returns. Indemnification and insurance of officers No insurance premiums were paid out of the assets of the Fund in regards to insurance cover provided to the officers of Equity Trustees Limited. As long as the officers of Equity Trustees Limited act in accordance with the Fund s Constitution and the Law, the officers remain fully indemnified out of the assets of the Fund against losses incurred while acting on behalf of the Fund. Indemnification of auditor The auditor of the Fund is 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 Fees paid to the Responsible Entity and its associates out of the Fund s property during the year are disclosed in Note 16 to the financial statements. No fees were paid out of Fund property to the directors of the Responsible Entity during the year. The number of interests in the Fund held by the Responsible Entity or its associates as at the end of the financial year are disclosed in Note 16 to the financial statements. Interests in the Fund The movement in units on issue in the Fund during the year is disclosed in Note 11 to the financial statements. The value of the Fund's assets and liabilities is disclosed on the statement of financial position and derived using the basis set out in Note 2 to the financial statements. - 6 -
Directors report 30 June 2017 Directors' report Environmental regulation The operations of the Fund are not subject to any particular or significant environmental regulations under a Commonwealth, State or Territory law. Rounding of amounts to the nearest thousand dollars Amounts in the Directors report have been rounded to the nearest thousand dollars in accordance with ASIC Corporations (Rounding in Financial/Directors Reports) Instrument 2016/191, unless otherwise indicated. Auditor's independence declaration A copy of the Auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 8. This report is made in accordance with a resolution of the directors of Equity Trustees Limited. Philip D Gentry Chairman Melbourne 26 September 2017-7 -
Ernst & Young 8 Exhibition Street Melbourne VIC 3000 Australia GPO Box 67 Melbourne VIC 3001 Tel: +61 3 9288 8000 Fax: +61 3 8650 7777 ey.com/au Auditor s Independence Declaration to the Directors of Equity Trustees Limited as Responsible Entity of Orbis Global Equity Fund As lead auditor for the audit of Orbis Global Equity Fund for the financial year ended 30 June 2017, I declare 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. Ernst & Young Luke Slater Partner Melbourne 26 September 2017 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation ACN 004 860 860
Statement of comprehensive income Statement of comprehensive income Year ended 30 June 30 June 2017 2016 Notes $'000 $'000 Investment income Dividend and trust distribution income 102,811 115,887 Interest income 638 493 Net gains/(losses) on financial instruments held at fair value through profit or loss 6 1,383,383 109,933 Other income 444 - Total investment income 1,487,276 226,313 Expenses Management fees 16 75,719 23,467 Custody and administration fees 1,058 818 Transaction costs 10,959 4,151 Dividend withholding taxes 12,257 22,741 Other expenses 800 1,555 Total expenses 100,793 52,732. Operating profit/(loss) 1,386,483 173,581 Finance costs attributable to unit holders Distributions to unit holders 12 (753,537) (444,738) (Increase)/decrease in net assets attributable to unit holders 11 (632,946) 271,157 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. - 9 -
Statement of financial position As at 30 June 2017 Statement of financial position As at 30 June 30 June 2017 2016 Notes $'000 $'000 Assets Cash and cash equivalents 13 80,766 18,878 Due from brokers - receivable for securities sold 64,581 42,141 Dividends receivable 9,880 8,409 Receivable for unit holder applications 221 - Other receivables 11 28 Treasury bills 8 22,059 209,264 Financial assets held at fair value through profit or loss 7 5,579,364 6,335,883 Total assets 5,756,882 6,614,603 Liabilities Distributions payable 538,830 444,736 Due to brokers - payable for securities purchased 83,820 40,241 Management fees payable 16 5,528 795 Other payables 1,149 1,960 Financial liabilities held at fair value through profit or loss 9 1,726 9,627 Total liabilities (excluding net assets attributable to unit holders) 631,053 497,359 liability 11 5,125,829 6,117,244 The above statement of financial position should be read in conjunction with the accompanying notes. - 10 -
Statement of changes in equity Statement of changes in equity Year ended 30 June 30 June 2017 2016 $'000 $'000 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 unit holders are classified as a liability rather than equity. As a result, there was no equity at the start or end of the financial year. The above statement of changes in equity should be read in conjunction with the accompanying notes. - 11 -
Statement of cash flows Statement of cash flows Year ended 30 June 30 June 2017 2016 Notes $'000 $'000 Cash flows from operating activities Proceeds from sale of financial instruments held at fair value through profit or loss 4,904,830 2,888,617 Payments for purchase of financial instruments held at fair value through profit or loss (4,709,582) (3,691,822) Dividend and trust distribution received 87,780 91,526 Other income received 448 72 Interest income received 638 493 Management fees paid (70,986) (24,001) Custody and administration fees paid (1,057) (804) Transaction costs paid (10,959) (4,152) Other expenses paid (1,610) (1,110) Net cash inflow/(outflow) from operating activities 14(a) 199,502 (741,181) Cash flows from financing activities Proceeds from applications by unit holders 441,265 829,589 Payments for redemptions by unit holders (327,146) (89,605) Distributions paid to unit holders (251,445) (5,575) Net cash inflow/(outflow) from financing activities (137,326) 734,409 Net increase/(decrease) in cash and cash equivalents 62,176 (6,772) Cash and cash equivalents at the beginning of the year 18,878 25,793 Effect of foreign currency exchange rate changes on cash and cash equivalents (288) (143) Cash and cash equivalents at the end of the year 13 80,766 18,878 Non-cash financing and operating activities 14(b) 2,558,538 675,976 The above statement of cash flows should be read in conjunction with the accompanying notes. - 12 -
Contents 1 General information 2 Summary of significant accounting policies 3 Financial risk management 4 Offsetting financial assets and financial liabilities 5 Fair value measurement 6 Net gains/(losses) on financial instruments held at fair value through profit or loss 7 Financial assets held at fair value through profit or loss 8 Treasury bills 9 Financial liabilities held at fair value through profit or loss 10 Derivative financial instruments 11 Net assets attributable to unit holders 12 Distributions to unit holders 13 Cash and cash equivalents 14 Reconciliation of profit/(loss) to net cash inflow/(outflow) from operating activities 15 Remuneration of auditor 16 Related party transactions 17 Events occurring after the reporting period 18 Contingent assets and liabilities and commitments - 13 -
1 General information These financial statements cover Orbis Global Equity Fund (Australia Registered) (the "Fund") as an individual entity. The Fund is an Australian registered managed investment scheme and was constituted on 27 June 2005 and will terminate on 26 June 2085 unless otherwise terminated earlier in accordance with the provisions of the Fund s Constitution. The Responsible Entity of the Fund is Equity Trustees Limited (ABN 46 004 031 298) (AFSL 240975) (the Responsible Entity ). The Responsible Entity's registered office is Level 1, 575 Bourke Street, Melbourne VIC 3000. The financial statements are presented in the Australian currency unless otherwise noted. The Fund invests in global equity securities, equity linked securities and currency contracts in accordance with the Fund s Offer Documents and the provisions of the Fund s Constitution. The financial statements were authorised for issue by the directors on the date the Directors' declaration was signed. 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. (a) Basis of preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001 in Australia. The Fund is a for-profit entity for the purpose of preparing the financial statements. The financial statements are prepared on the basis of fair value measurement of assets and liabilities except where otherwise stated. The 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 12 months, except for investments in financial assets and liabilities and net assets attributable to unit holders. The amount expected to be recovered or settled within twelve months after the end of each reporting period cannot be reliably determined. 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. (i) Compliance with International Financial Reporting Standards (IFRS) The financial statements of the Fund also comply with IFRS as issued by the International Accounting Standards Board (IASB). (ii) New and amended standards adopted by the Fund The amendments to AASB 107 Statement of Cash Flows have been early adopted. The Fund has elected to adopt the amendments made by AASB 2016-2 Amendments to Australian Accounting Standards Disclosure Initiative: Amendments to AASB 107 early. This amendment requires disclosure of changes in liabilities arising from financing activities. The relevant information is provided in Note 11. There are no other new 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. (iii) New standards and interpretations not yet adopted 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 directors 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 addresses the classification, measurement and derecognition of financial assets and financial liabilities. It has now also introduced revised rules around hedge accounting and impairment. The standard is not applicable until 1 January 2018 but is available for early adoption. The directors do not expect this to have a significant impact on the recognition, classification and measurement of the Fund s financial instruments as they are carried at fair value through profit or loss. The derecognition rules have not been changed from the previous requirements, and the 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 has not yet decided when to adopt AASB 9. - 14 -
2 Summary of significant accounting policies (a) Basis of preparation (iii) New standards and interpretations not yet adopted AASB 15 Revenue from Contracts with Customers (effective from 1 January 2018) AASB 15 will replace AASB 118 Revenue which covers contracts for goods and services and AASB 111 Construction Contracts which covers construction contracts. AASB 15 is based on the principle that revenue is recognised when control of a good or service transfers to a customer so the notion of control replaces the existing notion of risks and rewards. The Fund s main sources of income are interest, dividends and distributions, and gains on financial instruments held at fair value. All of these are outside the scope of the new revenue standard. As a consequence, the directors do not expect the adoption of AASB 15 to have a significant impact on the Fund s accounting policies or the amounts recognised in the financial statements. The Fund has not yet decided when to adopt AASB 15. There are no other standards that are not yet effective and that are expected to have a material impact on the Fund in the current or future reporting periods and on foreseeable future transactions. (b) Financial instruments (i) Classification The Fund's investments are classified as held at fair value through profit and loss. They comprise of: Financial instruments held for trading These are investments in derivative financial instruments such as forward currency contracts and warrants. 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 liabilities that are not held for trading purposes and which may be sold. These are investments in exchange traded equity securities. Financial assets and 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 as outlined in the Offer Documents. The Fund s policy is for the Investment Manager to evaluate information about these financial instruments on a fair value basis together with other related financial information. Treasury bills Treasury bills are classified as loans and receivables and are initially recognised at fair value and then carried at amortised cost using the effective interest rate method. (ii) Recognition and 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. Financial assets are derecognised when the right to receive cash flows from the financial assets has expired or the Fund has transferred substantially all risks and rewards of ownership. Financial liabilities are derecognised when the obligation under the liabilities are discharged. (iii) Measurement Financial instruments 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 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 liabilities at fair value through profit or loss category are presented in the statement of comprehensive income in the period in which they arise. For further details on how the fair value of financial instruments is determined please see Note 5 to the financial statements. (iv) Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the statement of financial position when the Fund has 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. Financial assets and liabilities that have been offset are disclosed in Note 4. - 15 -
2 Summary of significant accounting policies (c) Net assets attributable to unit holders Units are redeemable at the unit holders' option, however, applications and redemptions may be suspended by the Responsible Entity if it is in the best interests of the unit holders. The units are classified as financial liabilities as the Fund is required to distribute its distributable income in accordance with the Fund s Constitution. The units can be put back to the Fund at any time for cash equal to a proportionate share of the Fund's net asset value less the buy/sell spread. 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 unit holders exercised their right to put the units back to the Fund. Changes in the value of this financial liability are recognised in the statement of comprehensive income as they arise. (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 and other short term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. 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. (e) Investment income (i) Interest income Interest income earned on cash and cash equivalents is recognised in the statement of comprehensive income on an accruals basis. Changes in fair value of financial instruments are recorded in accordance with the policies described in Note 2(b). Interest income is recognised in the statement of comprehensive income for financial instruments that are not at fair value through profit or loss using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial asset or liability and of allocating the interest income or 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 instruments (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. (ii) Dividends 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. (iii) Distribution income Trust distribution income are recognised on an entitlement basis. (f) Expenses All expenses are recognised in the statement of comprehensive income on an accruals basis. (g) Income tax The Fund elected into the Attribution Managed Investment Trust regime for the income year ended 30 June 2017. Under current legislation, the Fund is not subject to income tax on the basis that the trustee has attributed the determined trust components to the members on a fair and reasonable basis in accordance with the constituent documents of the trust. The benefits of any imputation credits and foreign tax paid are passed on to unit holders. (h) Distributions In accordance with the Fund s Constitution, the Fund distributes income adjusted for amounts determined by the Responsible Entity, to unit holders by cash or reinvestment. Distributions are recognised in the statement of comprehensive income as finance costs attributable to unit holders. (i) Increase/decrease in net assets attributable to unit holders Income not distributed is included in net assets attributable to unit holders. Movements in net assets attributable to unit holders are recognised in the statement of comprehensive income as finance costs. - 16 -
2 Summary of significant accounting policies (j) Foreign currency translation (i) Functional and presentation currency Balances 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. The Fund does not isolate that portion of unrealised gains or losses on securities and derivative financial instruments that are measured at fair value through profit or loss and which is due to changes in foreign exchange rates from that which is due to changes in the market price of securities. Such fluctuations are included with the net gains or 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 year end. Trades are recorded on trade date, and normally settled within two 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, and the probability that the broker will enter bankruptcy or financial reorganisation and default in payments. (l) Receivables Receivables may include amounts for dividends, interest and trust distributions. Dividends and trust distributions are accrued when the right to receive payment is established. Where applicable, interest is accrued on a daily basis. Amounts are generally received within 30 days of being recorded as receivables. Collectability of receivables is reviewed on an ongoing basis. Receivables which are known to be uncollectable are written off by reducing the carrying amount directly. The amount of the impairment loss is recognised in the statement of comprehensive income within other expenses. 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. Distributions payable relates to distributions that have been declared at the year end date and have not been paid to unit holders. Distributions declared effective 30 June in relation to unit holders who have previously elected to reinvest distributions are recognised as reinvested effective 1 July of the following financial year. (n) Applications and redemptions The application price of each unit is based on the net asset value plus an allowance for transaction costs (the buy/sell spread) required for acquiring investments. The redemption price of each unit is based on the net asset value less the buy/sell spread required for selling investments. The buy/sell spread is paid to the Fund and is currently set at 0.25% for the retail class and 0.20% for all other classes. (o) Goods and services tax (GST) The GST incurred on the costs of various services provided to the Fund by third parties such as management, administration and custodian services where applicable, have been passed onto the Fund. The Fund qualifies for Reduced Input Tax Credits (RITC) at a rate of at least 55%. Hence fees for these services and any other expenses have been recognised in the statement of comprehensive income net of the amount of GST recoverable from the Australian Taxation Office (ATO). Amounts 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. - 17 -
2 Summary of significant accounting policies (p) Use of estimates The Fund makes estimates and assumptions that affect the reported amounts of assets and liabilities within the current and next financial year. Estimates are continually evaluated and based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. For the majority of the Fund s financial instruments, quoted market prices are readily available. However, certain financial instruments, for example over-the-counter derivatives or unquoted securities, are fair valued using valuation techniques. Where valuation techniques (for example, pricing models) are used to determine fair values, they are validated and periodically reviewed by experienced personnel of the Investment Manager, independent of the area that created them. Models use observable data, to the extent practicable. However, areas such as credit risk (both own and counterparty), volatilities and correlations require management to make estimates. Changes in assumptions about these factors could affect the reported fair value of financial instruments. For more information on how fair value is calculated refer to Note 5 to the financial statements. (q) Rounding of amounts The Fund is an entity of a kind referred to in ASIC Corporations (Rounding in Financial/Directors Reports) Instrument 2016/191 relating to the rounding off of amounts in the financial statements. Amounts in the financial statements have been rounded to the nearest thousand dollars unless otherwise indicated. (r) Comparative revisions Comparative information has been revised where appropriate to enhance comparability. Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current year. 3 Financial risk management The Fund's activities expose it to a variety of financial risks: market risk (including price risk, foreign exchange risk and interest rate risk), credit risk and liquidity risk. The Fund s overall risk management programme focuses on ensuring compliance with the Fund s Constitution, the Offer Documents and the investment guidelines of the Fund. The investments of the Fund are managed by a specialist Investment Manager under an Investment Management Agreement ('IMA') that contains the investment strategy and investment guidelines of the Fund consistent with those stated in the Offer Documents. By remaining continuously invested in, and exposed to, all the risks and rewards of selected global equities, the Fund seeks higher returns than the average of the world s equity markets, without greater risk. The Fund uses different methods to measure different types of risk to which it is exposed. These methods are explained below. (a) Market risk (i) Price risk The Fund's investment portfolio consists of global equity securities and derivatives, the fair value of which will fluctuate as a result of changes in market prices. Global equity securities are classified in the statement of financial position as held at fair value through profit or loss. All securities held present a risk of loss of capital. The maximum risk resulting from financial instruments is determined by the fair value of the financial instruments. Where financial instruments are denominated in currencies other than the Australian Dollar, the price in the future will also fluctuate because of changes in foreign exchange rates. The Investment Manager attempts to mitigate price risk through the use of a consistent and carefully considered investment approach based on extensive proprietary investment research, appropriate diversification of investment and equity selection in accordance with the investment guidelines of the Fund. In constructing the portfolio, the Investment Manager assesses not only each equity's perceived risk and reward but also, in order to manage risk further by appropriate diversification, its correlation with the rest of the portfolio. The Investment Manager also takes into account the composition of the Fund s performance benchmark, the MSCI World Index (with net dividends reinvested) and monitors the Fund s risk of underperforming its benchmark by comparing the Fund's weighting in each industry, stock market and currency with that in the benchmark and ensuring that deviations in such weightings, which are prompted by detailed "bottom up" research, are not inconsistent with the Investment Manager's "top down" macroeconomic views. In assessing the impact of anticipated changes in market prices, the Investment Manager considers a price movement of +/-15% (2016: +/-15%) in the MSCI World Index to be reasonably possible. The impact of such a price movement on the Fund s operating profit/(loss) and net assets attributable to unit holders at 30 June is set out in Note 3(b). The impact mainly arises from the possible change in the fair value of listed equities. - 18 -
3 Financial risk management (a) Market risk (ii) Foreign exchange risk The Fund holds equity securities denominated in a foreign currency, and receives foreign dividend income from these securities. Foreign exchange risk arises as the value of equity securities denominated in other currencies will fluctuate due to changes in exchange rates. The Fund's currency exposure is not hedged into Australian dollars. For this reason, part of the Investment Manager s research effort is devoted to forecasting currency trends. Taking into account these expected trends, the Investment Manager actively reviews the Fund s currency exposure. Those currencies held but considered vulnerable may to some extent be sold in favour of those considered more attractive, generally using forward currency contracts. The Fund's currency deployment therefore frequently differs significantly from the geographic deployment of its selected equities. The Fund does not designate any forward currency contracts as hedges in a hedging relationship and hence these derivative financial instruments are classified as held at fair value through profit or loss. The Fund s main currency exposures at the end of the reporting period are to British Pound (GBP), Japanese Yen (JPY) and United States Dollar (USD). The table below summarises the Fund s assets and liabilities which are denominated in these main foreign currencies. As at 30 June 2017 GBP JPY USD A$'000 A$'000 A$'000 Cash and cash equivalents 15,092 10,605 11,290 Due from brokers - receivable for securities sold 3,189-45,838 Receivables 1,104 253 5,465 Financial assets held at fair value through profit or loss 454,558 491,451 3,555,502 Due to brokers - payable for securities purchased (12,055) (10,604) (16,866) Payables - - (826) Financial liabilities held at fair value through profit or loss - - - liability 461,888 491,705 3,600,403 Net increase(decrease) in exposure from foreign currency contracts - Buy foreign currency 48,146 26,264 966,348 - Sell foreign currency (172,006) (49,813) (1,093,795) 338,028 468,156 3,472,956 As at 30 June 2016 Cash and cash equivalents 3,181 6,222 6,481 Due from brokers - receivable for securities sold 1,566 3,118 28,216 Receivables 2,222 387 4,401 Financial assets held at fair value through profit or loss 467,902 452,286 4,499,483 Due to brokers - payable for securities purchased (5,718) (9,304) (16,221) Payables - - (1,551) Financial liabilities held at fair value through profit or loss - - - liability 469,153 452,709 4,520,809 Net increase(decrease) in exposure from foreign currency contracts - Buy foreign currency 168,483 198,422 1,482,241 - Sell foreign currency (188,767) (136,872) (1,502,513) 448,869 514,259 4,500,537 The summarised sensitivity analysis in Note 3(b) shows the impact of a +/-10% (2016: +/-10%) change in the value of the Australian dollar relative to the main foreign currencies on the Fund s operating profit and net assets attributable to unit holders at the end of the reporting period. (iii) Interest rate risk Interest rate risk management is undertaken by maintaining as close to a fully invested position as possible thus limiting the exposure of the Fund to interest rate risk. - 19 -
3 Financial risk management (b) Summarised sensitivity analysis The following table summarises the sensitivity of the Fund s operating profit and net assets attributable to unit holders to price risk and foreign exchange risk. The reasonably possible movements in the risk variables have been determined based on the Investment Manager s best estimate, having regard to a number of factors, including historical levels of changes in price risk, historical correlation of the Fund s investments with the MSCI World Index and market volatility. However, actual movements in the risk variables may be greater or lower than anticipated due to a number of factors, including unusually large market shocks resulting from changes in the performance of and/or correlation between the performances of the economies, markets and securities in which the Fund invests. As a result, historic variations in risk variables should not be used to predict future variances in the risk variables. Price risk Impact on operating profit/net assets attributable to unit holders -15% +15% $ 000 $ 000 As at 30 June 2017 (835,842) 835,842 As at 30 June 2016 (950,118) 950,118 Foreign exchange risk Impact on operating profit/net assets attributable to unit holders -10% +10% -10% +10% -10% +10% GBP GBP JPY JPY USD USD $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 As at 30 June 2017 11,653 (11,653) 2,330 (2,330) 8,255 (8,255) As at 30 June 2016 1,903 (1,903) (6,197) 6,197 (105) 105 (c) Credit risk The Fund is exposed to credit risk, which is the risk that a counterparty will be unable to pay its obligations in full when they fall due, causing financial loss to the Fund. Credit risk arises from trading derivative products. Other credit risk arises from cash and cash equivalents, deposits with banks and other financial institutions and amounts due from brokers. The Investment Manager will seek to reduce the Fund s contractual risk to the extent practicable, for example, by the selection of derivatives and derivatives dealers and instructing the Custodian to arrange for equity transactions to be settled delivery versus payment whenever possible. The maximum exposure to credit risk at the reporting date is the carrying amount of the financial assets. None of these assets are impaired. (d) Liquidity risk Liquidity risk is the risk that the Fund may not be able to generate sufficient cash resources to settle its obligations in full as they fall due or can only do so on terms that are materially disadvantageous. Exposure to liquidity risk for the Fund may arise from the requirement to meet daily unit holder redemption requests or to fund foreign exchange related cash flow requirements. The Fund manages its liquidity risk by investing the majority of its assets in investments that are traded in an active market and can be readily disposed of. It invests only a limited proportion of its assets in investments not actively traded on a stock exchange. The Fund may, from time to time, invest in derivative contracts traded over the counter, which are not traded in an organised market and may be illiquid. As a result, the Fund may not be able to liquidate quickly its investments in these instruments at an amount close to their fair value to meet its liquidity requirements or to respond to specific events such as deterioration in the creditworthiness of any particular issuer. In order to manage the Fund s overall liquidity, the Responsible Entity has the discretion to reject an application for units and to defer or adjust redemption of units if the exercise of such discretion is in the best interests of unit holders. The Fund did not reject or withhold any redemptions during 2017 and 2016. - 20 -
3 Financial risk management (d) Liquidity risk (i) Maturities of non-derivative financial liabilities The table below analyses the Fund's non-derivative financial liabilities into relevant maturity groupings based on the remaining period at the end of the reporting period to the contractual maturity date. The amounts in the table are contractual undiscounted cash flows. Net assets attributable to unit holders represent the value of units which are redeemed on demand at the unit holder s option. However, the Responsible Entity does not envisage that the contractual maturity disclosed in the table below will be representative of the actual cash outflows, as holders of these instruments typically retain them for the medium to long term. Less than 1 month 1-6 months 6-12 months Over 12 months Total $'000 $'000 $'000 $'000 $'000 As at 30 June 2017 Distributions payable 538,830 - - - 538,830 Due to brokers - payable for securities purchased 83,820 - - - 83,820 Management fees payable 5,528 - - - 5,528 Other payables 1,149 - - - 1,149 liability 5,125,829 - - - 5,125,829 Contractual cashflows (excluding derivatives) 5,755,156 - - - 5,755,156 As at 30 June 2016 Distributions payable 444,736 - - - 444,736 Due to brokers - payable for securities purchased 40,241 - - - 40,241 Management fees payable 795 - - - 795 Other payables 1,960 - - - 1,960 liability 6,117,244 - - - 6,117,244 Contractual cashflows (excluding derivatives) 6,604,976 - - - 6,604,976 (ii) Maturities of net settled derivative financial instruments The table below analyses the Fund's net settled derivative financial instruments. It is expected that the Fund will settle these derivatives net. The amounts disclosed in the table represent the undiscounted cash flows. Balances due within 12 months equal their carrying balances, as the impact of discounting is not significant. Less than 1 month 1-6 months 6-12 months Over 12 months Total $'000 $'000 $'000 $'000 $'000 As at 30 June 2017 Net settled derivatives Forward currency contracts - 5,359 - - 5,359 As at 30 June 2016 Net settled derivatives Forward currency contracts - (7,955) - - (7,955) Warrants - - - 89 89-21 -