Financial reports for the year ended
Contents Page Directors' report 3 Auditor's independence declaration 7 Statement of comprehensive income 8 Statement of financial position 9 Statement of changes in net assets attributable to unitholders 10 Statement of cash flows 11 12 Directors' declaration 52 Independent auditor's report to the unitholders 53-1 -
Financial reports The Responsible Entity of the Schemes listed below is Treasury Group Investment Services Limited (ABN 38 099 932 920). The Responsible Entity's registered office is: Treasury Group Investment Services Limited Level 14 39 Martin Place Sydney, NSW 2000 The financial reports consists of 4 separate schemes: RARE Infrastructure Value Fund Hedged ARSN 121 027 709 RARE Yield Fund ARSN 132 182 631 RARE Emerging Markets Fund ARSN 132 182 462 RARE Infrastructure Value Fund - Unhedged ARSN 150 677 017-2 -
Directors' report Directors' report The directors of Treasury Group Investment Services Limited, the Responsible Entity of the following Schemes: Statutory name RARE Infrastructure Value Fund Hedged RARE Yield Fund RARE Emerging Markets Fund RARE Infrastructure Value Fund - Unhedged Referred to in this document as Infrastructure Value Fund Hedged Yield Fund Emerging Markets Fund Infrastructure Value Fund - Unhedged present their report together with the financial reports of the Schemes for the year ended and the audit report thereon. Responsible entity The Responsible Entity of the above Schemes is Treasury Group Investment Services Limited (ABN 38 099 932 920). The Responsible Entity's registered office is: Treasury Group Investment Services Limited Level 14 39 Martin Place Sydney, NSW 2000 Principal activities During the year, the Schemes continued to invest in accordance with target asset allocations as set out in the governing documents of the Schemes and in accordance with the provisions of the Schemes' Constitutions. The Schemes did not have any employees during the year. There were no significant changes in the nature of the Schemes' activities during the year. Directors The following persons held office as directors of Treasury Group Investment Services Limited during the year or since the end of the year and up to the date of this report: Joseph Ferragina Peter Kennedy Andrew McGill (resigned 20 May 2015) David Griswold (appointed 20 May 2015) - 3 -
Directors' report Directors' report (continued) Review and results of operations The performance of the Schemes, as represented by the results of their operations, were as follows: Infrastructure Value Fund Hedged Yield Fund Emerging Markets Fund Infrastructure Value Fund - Unhedged 30 June 30 June 30 June 30 June 30 June 30 June 30 June 30 June 2015 2014 2015 2014 2015 2014 2015 2014 $'000 $'000 $* $* $'000 $'000 $'000 $'000 Net operating profit/(loss) 145,187 185,500 299,924 930,761 26,354 11,974 107,591 53,291 Distributions Distribution paid and payable ($) 183,151 62,568 845,091 546,077 8,416 1,624 64,694 25,486 Distribution (cents per unit) 17.07 6.72 14.45 15.83 12.38 2.36 12.13 7.63 Significant changes in the state of affairs In the opinion of the directors, there were no significant changes in the state of affairs of the Schemes that occurred during the financial year under review. Matters subsequent to the end of the financial year On 29 July 2015, the shareholders of RARE Infrastructure Ltd (RARE) including Aurora Trust, which is the Parent entity of Treasury Group Investment Services Limited (TIS), have entered into a binding agreement to sell the majority interest in RARE to Legg Mason. As part of the deal, Legg Mason will take over the Responsible Entity function of the RARE Schemes. On 16 October 2015, a unitholders s meeting will be held to vote to approve the replacement of TIS by Legg Mason as the Responsible Entity of the Schemes. Except as noted above, no matter or circumstance has arisen since that has significantly affected, or may significantly affect: (i) the operations of the Schemes in future financial years, or (ii) the results of those operations in future financial years, or (iii) the state of affairs of the Schemes in future financial years. *Stated to the neareast whole dollar as the Scheme does not meet the criteria set out in ASIC class order 98/100. - 4 -
Directors' report Directors' report (continued) Likely developments and expected results of operations The Schemes will continue to be managed in accordance with the investment objectives and guidelines as set out in the governing documents of the Schemes and in accordance with the provisions of the Schemes' Constitutions. The results of the Schemes' operations will be affected by a number of factors, including the performance of investment markets in which the Schemes invest. Investment performance is not guaranteed and future returns may differ from past returns. As investment conditions change over time, past returns should not be used to predict future returns. Further information on likely developments in the operation of the Schemes and the expected results of those operations have not been included in this report because the Responsible Entity believes it would be likely to result in unreasonable prejudice to the Schemes. Indemnification and insurance of officers and auditors No insurance premiums are paid for out of the assets of the Schemes in regards to insurance cover provided to either the officers of Treasury Group Investment Services Limited or the auditors of the Schemes. So long as the officers of Treasury Group Investment Services Limited act in accordance with the Schemes' Constitutions and the Law, the officers remain indemnified out of the assets of the Schemes against losses incurred while acting on behalf of the Schemes. The auditors of the Schemes are in no way indemnified out of the assets of the Schemes. Fees paid to and interests held in the Schemes by the Responsible Entity or its associates Fees paid to the Responsible Entity and its associates out of the Schemes' property during the year are disclosed in note 10 of the financial reports. No fees were paid out of the Schemes' property to the directors of the Responsible Entity during the year. The number of interests in the Schemes held by the Responsible Entity or its associates as at the end of the financial year are disclosed in note 10 of the financial reports. Interests in the Schemes The movement in units on issue in the Schemes during the year is disclosed in note 4 of the financial reports. The value of the Schemes assets and liabilities is disclosed on the statement of financial position and derived using the basis set out in note 2 of the financial reports. Environmental regulation The operations of the Schemes are not subject to any particular or significant environmental regulations under a Commonwealth, State or Territory law. - 5 -
Ernst & Young 680 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: +61 2 9248 5555 Fax: +61 2 9248 5959 ey.com/au Auditor s Independence Declaration to the Directors of Treasury Group Investment Services Limited, as Responsible Entity for RARE Infrastructure Value Fund - Hedged, RARE Yield Fund, RARE Emerging Markets Fund and RARE Infrastructure Value Fund Unhedged (the Schemes ) In relation to our audit of the financial report of the Schemes for the financial year ended 30 June 2015, to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of professional conduct. Ernst & Young Darren J Handley-Greaves Partner 23 September 2015 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation
Statement of comprehensive income For the year ended Statement of comprehensive income Infrastructure Value Fund Hedged Yield Fund Emerging Markets Fund Infrastructure Value Fund - Unhedged 30 June 30 June 30 June 30 June 30 June 30 June 30 June 30 June 2015 2014 2015 2014 2015 2014 2015 2014 Notes $'000 $'000 $* $* $'000 $'000 $'000 $'000 Investment income Interest income 3 1,103 997 11,472 9,891 175 245 638 427 Dividend/distribution income 31,619 28,791 268,029 197,625 3,528 3,032 15,855 10,133 Changes in the fair value of investments held for trading Other operating income 121,764 181,840 113,136 757,083 25,132 10,641 98,261 50,366 229 4 352 81 - - 111 - Net foreign exchange (losses) (2,864) (2,354) (12,340) (9,108) (30) (328) (1,573) (823) Total net investment income 151,851 209,278 380,649 955,572 28,805 13,590 113,292 60,103 Expenses Responsible Entity's fees 10 14,054 10,602 62,938 44,757 1,872 1,414 6,637 3,479 Performance fees (9,468) 11,581 - (30,936) 450 - (2,029) 2,683 Transaction costs 2,075 1,577 17,689 10,949 129 195 1,093 647 Other operating expenses 3 18 98 41-7 - 3 Total operating expenses 6,664 23,778 80,725 24,811 2,451 1,616 5,701 6,812 Operating profit 145,187 185,500 299,924 930,761 26,354 11,974 107,591 53,291 Finance costs attributable to unitholders Distributions to unitholders 5 183,151 62,568 845,091 546,077 8,416 1,624 64,694 25,486 Changes in net assets attributable to unitholders 4 (37,964) 122,932 (545,167) 384,684 17,938 10,350 42,897 27,805 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. *Stated to the nearest whole dollar as the Scheme does not meet the criteria set out in ASIC class order 98/100. - 8 -
Statement of financial position As at Statement of financial position Infrastructure Value Fund Hedged Yield Fund Emerging Markets Fund Infrastructure Value Fund - Unhedged 30 June 30 June 30 June 30 June 30 June 30 June 30 June 30 June 2015 2014 2015 2014 2015 2014 2015 2014 Notes $'000 $'000 $* $* $'000 $'000 $'000 $'000 Assets Cash and cash equivalents 6 29,763 57,261 137,525 237,611 12,111 9,971 40,309 25,397 Investments in financial assets held for trading 7 1,110,831 1,187,637 9,267,484 4,714,411 153,607 128,914 778,611 463,129 Other receivables 1,111 1,886 3,023 2,575 83 40 504 573 Due from brokers - receivable for securities sold 1,273 15,936 13,638 70,498 377 602-6,314 Applications receivable 1,898 1,196-2 - 1,514 778 Dividends/distributions receivable 2,841 4,559 40,333 35,329 685 425 1,874 1,789 Interest receivable 43 85 382 151 18 21 53 41 Total assets 1,147,760 1,268,560 9,462,385 5,060,575 166,883 139,973 822,865 498,021 Liabilities Distributions payable 5 31,211 26,864 535,706 393,969 6,652 931 41,274 15,345 Redemptions payable 807 469 7,931-19 1 477 371 Due to brokers - payable for securities purchased 1,898 21,733 28,433 108,885 - - 12,610 9,925 Payables 5,488 18,908 9,252 4,492 676 157 2,890 5,869 Investments in financial liabilities held for trading 8 8,551 4,060 98,456 41,284 1-3 13 Total liabilities (excluding net assets attributable to unitholders) 47,955 72,034 679,778 548,630 7,348 1,089 57,254 31,523 Net assets attributable to unitholders - liability 4 1,099,805 1,196,526 8,782,607 4,511,945 159,535 138,884 765,611 466,498 The above statement of financial position should be read in conjunction with the accompanying notes. *Stated to the nearest whole dollar as the Scheme does not meet the criteria set out in ASIC class order 98/100. - 9 -
Statement of changes in net assets attributable to unitholders For the year ended Statement of changes in net assets attributable to unitholders Infrastructure Value Fund Hedged Yield Fund Emerging Markets Fund Infrastructure Value Fund - Unhedged 30 June 30 June 30 June 30 June 30 June 30 June 30 June 30 June 2015 2014 2015 2014 2015 2014 2015 2014 $'000 $'000 $* $* $'000 $'000 $'000 $'000 Net assets attributable to unitholders at the beginning of the financial year 1,196,526 794,197 4,511,945 3,699,318 138,884 81,868 466,498 226,939 Operating profit attibutable to unitholders 145,187 185,500 299,924 930,761 26,354 11,974 107,591 53,291 Distributions to unitholders (183,151) (62,568) (845,091) (546,077) (8,416) (1,624) (64,694) (25,486) Applications for units 428,075 430,776 5,265,148 668,750 18,871 50,567 339,279 231,568 Redemption of units (486,832) (151,379) (449,319) (240,807) (16,158) (3,901) (83,063) (19,814) Net assets attributable to unitholders at the end of the financial year 1,099,805 1,196,526 8,782,607 4,511,945 159,535 138,884 765,611 466,498 The above statement of changes in net assets attributable to unitholders should be read in conjunction with the accompanying notes. *Stated to the nearest whole dollar as the Scheme does not meet the criteria set out in ASIC class order 98/100. - 10 -
Statement of cash flows For the year ended Statement of cash flows Infrastructure Value Fund Hedged Yield Fund Emerging Markets Fund Infrastructure Value Fund - Unhedged 30 June 30 June 30 June 30 June 30 June 30 June 30 June 30 June 2015 2014 2015 2014 2015 2014 2015 2014 Notes $'000 $'000 $* $* $'000 $'000 $'000 $'000 Cash flows from operating activities Proceeds from sale of investments held for trading 1,060,042 387,440 3,291,262 2,160,105 29,428 31,934 289,406 113,913 Purchase of investments held for trading (865,053) (586,080) (7,709,988) (2,316,690) (28,806) (76,085) (499,232) (293,708) Transaction costs (2,075) (1,577) (17,689) (10,949) (129) (195) (1,093) (647) Dividends/distributions received Interest received 33,285 27,536 263,317 196,692 3,280 3,029 15,714 9,206 1,145 966 11,241 9,904 177 236 626 403 Responsible Entity's fees paid (14,027) (10,308) (59,152) (43,893) (1,845) (1,363) (6,393) (3,315) Other income received 1,081 5 352 2,979 - - 111 - Performance fees paid (3,980) (2,128) - (13,614) - - (1,053) (488) Payment of other expenses (3) (18) (98) (41) - (7) - (3) Net cash inflow/(outflow) from operating activities 14(a) 210,415 (184,164) (4,220,755) (15,507) 2,105 (42,451) (201,914) (174,639) Cash flows from financing activities Proceeds from applications by unitholders 345,384 400,291 5,200,119 636,867 16,294 48,491 328,391 224,535 Payments for redemptions by unitholders (486,495) (151,533) (441,387) (240,807) (16,139) (3,901) (82,957) (19,585) Distributions paid (96,814) (27,609) (638,327) (308,160) (121) (100) (28,613) (12,793) Net cash inflow/(outflow) from financing activities (237,925) 221,149 4,120,405 87,900 34 44,490 216,821 192,157 Net increase/(decrease) in cash and cash equivalents (27,510) 36,985 (100,350) 72,393 2,139 2,039 14,907 17,518 Cash and cash equivalents at the beginning of the financial year 57,261 20,280 237,611 167,034 9,971 7,933 25,397 7,885 Effects of foreign currency exchange rates changes on cash and cash equivalents 12 (4) 264 (1,816) 1 (1) 5 (6) Cash and cash equivalents at the end of the year 14(b),6 29,763 57,261 137,525 237,611 12,111 9,971 40,309 25,397 The above statement of cash flows should be read in conjunction with the accompanying notes. *Stated to the nearest whole dollar as the Scheme does not meet the criteria set out in ASIC class order 98/100. - 11 -
1 General information These financial reports cover the following Schemes (the "Schemes") which are Australian registered managed investment schemes. The Schemes were constituted on the dates set out below, and will terminate on the dates set out below unless terminated earlier in accordance with the provisions of the Schemes' Constitutions. Constituted Date Termination Date RARE Infrastructure Value Fund Hedged RARE Yield Fund RARE Emerging Markets Fund RARE Infrastructure Value Fund - Unhedged 1 August 2006 31 July 2086 9 July 2008 8 July 2088 9 July 2008 8 July 2088 2 May 2011 1 May 2091 The Responsible Entity of the Schemes is Treasury Group Investment Services Limited (the "Responsible Entity") which is incorporated and domiciled in Australia. The Responsible Entity's registered office is: Treasury Group Investment Services Limited Level 14 39 Martin Place Sydney, NSW 2000 The financial reports were authorised for issue by the directors on 23 September 2015. The directors of the Responsible Entity have the power to amend and reissue the financial report. 2 Summary of significant accounting policies The principal accounting policies applied in the preparation of these financial reports 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 reports hve been prepared in accordance with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board, Accounting Interpretations, Corporations Act 2001 in Australia and the Schemes' Constitutions. The financial reports are prepared on a historical cost basis except for investments in financial assets held for trading, which have been measured at fair value. 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 at fair value through profit or loss and net assets attributable to unitholders. The amount expected to be recovered or settled within twelve months in relation to these balances cannot be reliably determined. The financial reports are presented in Australian dollars. Compliance with International Financial Reporting Standards The financial reports have been prepared in accordance with the Australian Accounting Standards as issued by the Australian Accounting Standards Board and International Financial Reporting Standards as issued by the International Accounting Standards Board. - 12 -
2 Summary of significant accounting policies (continued) (a) Basis of preparation (continued) New and amended standards adopted by the Schemes The Schemes have applied the following new and revised accounting standards which became effective for the annual reporting period commencing on 1 July 2014: AASB 2013-5 Amendments to Australian Accounting Standards - Investment Entities AASB 2013-4 Amendments to Australian Accounting Standards - Novation of Derivatives and Continuation 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 Schemes meet 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 Schemes do 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 2014 that have a material impact on the Schemes. (b) New accounting standards and interpretations Certain new accounting standards and interpretations have been published that are not mandatory for reporting periods and have not been early adopted by the Schemes The directors' assessment of the impact of these new standards (to the extent relevant to the Schemes and interpretations is set out below: (i) AASB 9 Financial Instruments (and applicable amendments), (effective from 1 January 2018) AASB 9 Financial Instruments addresses the classification, measurement and derecognition of financial assets and financial liabilities. It has now also introduced revised rules around hedge accounting. The standard is not applicable until 1 January 2018 but is available for early adoption. The directors do not expect this to have a significant impact on the recognition and measurement of the Schemes' 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 Schemes' do not apply hedge accounting. AASB 9 introduces a new impairment model. However, as the Schemes' investments are all held at fair value through profit or loss, the change in impairment rules will not impact the Fund. The Schemes have not yet decided when to adopt AASB 9. (ii) AASB 15 Revenue from Contracts with Customers, (effective from 1 January 2017) The AASB has issued a new standard for the recognition of revenue. This will replace AASB 118 which covers contracts for goods and services and AASB 111 which covers construction contracts. The new standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer - so the notion of control replaces the existing notion of risks and rewards. The Fund's main source of income are interest, dividends and gains on financial instruments held at fair value. All of these are outside the scope of the new revenue standard. As consequence, the directors do not expect the adoption of the new revenue recognition rules to have a significant impact on the Fund's accounting policies or the amounts recognised in the financial reports. The Schemes have not yet decided if they will early adopt AASB 15. (iii) AASB 2012-3 Amendments to Australian Accounting Standards - Offsetting Financial Assets and Financial Liabilities AASB 2012-3 contains amendments to AASB132 which addresses inconsistencies in the application of the offsetting criteria by adding application guidance to clarify the meaning of currently has a legally enforceable right of set-off and clarifying that some gross settlement systems would be considered to be equivalent to net settlement. 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. - 13 -
2 Summary of significant accounting policies (continued) (c) Structured entities A structured entity is an entity in which voting or similar rights are not the dominant factor in deciding control. Structured entities are generally created to achieve a narrow and well defined objective with restrictions around their ongoing activities. Depending on the Schemes' power over the activities of the entity and their exposure to and ability to influence its own returns, they may control the entity. In other cases they may have exposure to such an entity but not control it. An interest in a structured entity is any form of contractual or non-contractual involvement which creates variability in returns arising from the performance of the entity for the Schemes. Such interests include holdings of units in unlisted trusts. The nature and extent of the Schemes' interests in structured entities are titled unlisted unit trusts and are summarised in notes 4 and 14. The Schemes typically have no other involvement with the structured entity other than the securities they hold as part of trading activities and its maximum exposure to loss is restricted to the carrying value of the asset. Exposure to trading assets are managed in accordance with financial risk management practices as set out in note 11, which includes an indication of changes in risk measures compared to prior year. (d) Investments in financial assets Purchases and sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place are recognised on the trade date, i.e. the date that the Scheme commits to puschase or sell the assets. Held for trading All investments are initially recognised at fair value, being the fair value of the consideration paid excluding transaction costs. After initial recognition, the financial assets held for trading are revalued to fair value at each reporting date. For investments that are actively traded in organised financial markets, fair value is determined by reference to exchange quoted market bid prices at the close of business on the reporting date. For investments with no active market, fair values are determined using valuation techniques. Such techniques include: using recent arm's length market transactions; reference to the current market value of another instrument that is substantially the same; discounted cash flows analysis and option pricing models making as much use of available and supportable market data as possible and keeping judgemental inputs to a minimum. The fair value of units in a managed investment scheme is determined by reference to published bid prices at the close of business on the reporting date being the redemption prices as established by the underlying Scheme's Responsible Entity. Changes in fair value of investments held for trading are recognised in the statement of comprehensive income. Investments of the Schemes which are considered to be held for trading are equity securities, units in managed investment schemes, derivatives and some interest bearing securities which have been acquired principally for the purpose of selling in the near term. Financial liabilities The Schemes' financial liabilities are categorised as financial instruments held for trading. These include investments in listed and unlisted equities, listed and unlisted trusts, convertible notes and derivative financial instruments including forward contracts and options. The Schemes do not designate any derivatives as hedges in a hedging relationship. (i) 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. - 14 -
2 Summary of significant accounting policies (continued) (e) Net assets attributable to unitholders Units are redeemable at the unitholders' option and are therefore classified as financial liabilities. The units can be put back to the Schemes at any time for cash equal to a proportionate share of the Schemes' net asset value. The fair value of redeemable units is measured at the redemption amount that is payable (based on the redemption unit price) at the reporting date if the unitholders exercise their right to redeem units back to the Schemes. Because the Schemes' redemption unit price is based on different valuation principles to that in financial reporting, a valuation difference exists which has been treated as a separate component of net assets attributable to unitholders. (f) Cash and cash equivalents For statement of cash flow presentation purposes, 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 are shown within borrowings on 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 Schemes' main income generating activity. (g) 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. Other changes in fair value for such instruments are recorded in accordance with the policies described in note 2(d). 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 Schemes estimate 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. Dividend income is recognised on the ex-dividend date with any related foreign withholding tax recorded as an expense. Dividends declared on securities sold short are recorded as a dividend expense on the ex-dividend date. Trust distributions are recognised on an entitlement basis. (h) Expenses All expenses, including Responsible Entity s fees and reimbursable expenses, are recognised in the statement of comprehensive income on an accruals basis. - 15 -
2 Summary of significant accounting policies (continued) (i) Income tax Under current legislation, the Schemes are not subject to income tax provided the taxable income of the Schemes is fully distributed either by way of cash or reinvestment (i.e. unitholders are presently entitled to the income of the Schemes). 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 Schemes are not subject to capital gains tax. Realised capital losses are not distributed to unitholders but are retained in the Schemes to be offset against any realised capital gains. If realised capital gains exceed realised capital losses, the excess is distributed to unitholders. The benefits of imputation credits and foreign tax paid are passed on to unitholders. The Schemes currently incur withholding tax imposed by certain countries on investment income. Such income is recorded net of withholding tax in the statement of comprehensive income. (j) Distributions In accordance with the Schemes' Constitutions, the Schemes fully distribute income adjusted for amounts determined by the Responsible Entity, to unitholders by cash or reinvestment. The distributions are recognised in the statement of comprehensive income as finance costs attributable to unitholders. (k) Changes in net assets attributable to unitholders Income not distributed is included in net assets attributable to unitholders. Movements in net assets attributable to unitholders are recognised in the statement of comprehensive income as finance costs. (l) Unit price The unit price is based on unit price accounting outlined in the Schemes' Constitutions and Product Disclosure Statement. (m) Foreign currency translation i) Functional and presentation currency Items included in the Schemes financial reports 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 Schemes compete for funds and is regulated. The Australian dollar is also the Schemes 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. (n) 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 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, and the probability that the broker will enter bankruptcy or financial reorganisation and default in payments. - 16 -
2 Summary of significant accounting policies (continued) (o) 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. Interest is accrued at the reporting date from the time of last payment in accordance with the policy set out in note 2(h) above. Amounts are generally received within 30 days of being recorded as receivables. (p) Payables Payables includes liabilities and accrued expenses owing by the Schemes which are unpaid as at reporting date. Trades are recorded on trade date, and normally settled within three business days. Purchases of financial instruments that are unsettled at reporting date are included in payables. The distribution amount payable to unitholders as at the reporting date is recognised separately on the statement of financial position when unitholders are presently entitled to the distributable income under the Schemes' Constitutions. (q) Applications and redemptions Applications received for units in the Schemes are recorded net of any entry fees payable prior to the issue of units in the Schemes. Redemptions from the Schemes are recorded gross of any exit fees payable after the cancellation of units redeemed. (r) Goods and Services Tax (GST) The GST incurred on the costs of various services provided to the Schemes by third parties such as custodial services and investment management fees have been passed onto the Schemes. The Schemes qualify for Reduced Input Tax Credits (RITC s) at a rate of at least 55%; 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. (s) Use of estimates The Schemes make estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates are continually evaluated and based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. For the majority of the Schemes financial instruments, quoted market prices are readily available. However, certain financial instruments, for example, over-the-counter derivatives or unquoted securities are fair valued using valuation techniques. Where valuation techniques (for example, pricing models) are used to determine fair values, they are validated and periodically reviewed by experienced personnel of the Responsible Entity, independent of the area that created them. Models use observable data, to the extent practicable. However, areas such as credit risk (both own and counterparty), volatilities and correlations require management to make estimates. Changes in assumptions about these factors could affect the reported fair value of financial instruments. (t) Rounding of amounts The Schemes (except Rare Yield Fund) are entities of the kind referred to in Class Order 98/100 (as amended) issued by the Australian Securities and Investments Commission relating to the "rounding off" of amounts in the directors' report and financial reports. Amounts in the directors' report and financial reports have been rounded to the neareast thousand dollars within the Class Order, unless otherwise indicated. - 17 -
3 Interest income Infrastructure Value Fund Hedged Cash and cash equivalents Yield Fund Cash and cash equivalents Fixed Interest Securities 30 June 30 June 2015 2014 Average balance Interest Average rate Average balance Interest Average rate $'000 $'000 % $'000 $'000 % 51,346 1,103 2.15 42,377 997 2.35 51,346 1,103 42,377 997 30 June 30 June 2015 2014 Average balance Interest Average rate Average balance Interest Average rate $* $* % $* $* % 334,993 4,306 1.29 182,875 1,760 0.96 193,111 7,165 3.71 146,772 8,131 5.54 528,103 11,472 329,647 9,891 Emerging Markets Fund Cash and cash equivalents 30 June 30 June 2015 2014 Average balance Interest Average rate Average balance Interest Average rate $'000 $'000 % $'000 $'000 % 8,080 175 2.16 12,940 245 1.89 8,080 175 12,940 245 Infrastructure Value Fund - Unhedged Cash and cash equivalents 30 June 30 June 2015 2014 Average balance Interest Average rate Average balance Interest Average rate $'000 $'000 % $'000 $'000 % 31,344 638 2.03 19,408 427 2.20 31,344 638 19,408 427 *Stated to the neareast whole dollar as the Scheme does not meet the criteria set out in ASIC class order 98/100. - 18 -
4 Net assets attributable to unitholders Movements in number of units and net assets attributable to unitholders during the year were as follows: 30 June 30 June 30 June 30 June 2015 2014 2015 2014 Infrastructure Value Fund Hedged No. '000 No. '000 $'000 $'000 Opening balance Applications Redemptions Units issued upon reinvestment of distributions Change in net assets attributable to unitholders Closing balance 988,963 745,687 1,196,526 794,197 271,417 347,568 346,086 400,400 (385,415) (131,254) (486,832) (151,379) 65,085 26,962 81,989 30,376 - (37,964) 122,932 940,050 988,963 1,099,805 1,196,526 Yield Fund Opening balance Applications Redemptions Units issued upon reinvestment of distributions Change in net assets attributable to unitholders Closing balance 30 June 30 June 30 June 30 June 2015 2014 2015 2014 No. No. $* $* 3,477,439 3,141,561 4,511,945 3,699,318 3,763,113 494,187 5,200,119 636,867 (335,482) (184,084) (449,319) (240,807) 49,474 25,775 65,030 31,883 - (545,167) 384,684 6,954,543 3,477,439 8,782,607 4,511,945 Emerging Markets Fund Opening balance Applications Redemptions Units issued upon reinvestment of distributions Change in net assets attributable to unitholders Closing balance 30 June 30 June 30 June 30 June 2015 2014 2015 2014 No. '000 No. '000 $'000 $'000 68,506 43,979 138,884 81,868 6,850 25,440 16,296 48,487 (7,463) (2,010) (16,158) (3,901) 1,188 1,097 2,575 2,080-17,938 10,350 69,081 68,506 159,535 138,884 *Stated to the neareast whole dollar as the Scheme does not meet the criteria set out in ASIC class order 98/100. - 19 -
4 Net assets attributable to unitholders (continued) Infrastructure Value Fund - Unhedged Opening balance Applications Redemptions Units issued upon reinvestment of distributions Change in net assets attributable to unitholders Closing balance 30 June 30 June 30 June 30 June 2015 2014 2015 2014 No. '000 No. '000 $'000 $'000 371,876 200,303 466,498 226,939 237,873 181,894 329,127 224,877 (57,993) (15,954) (83,063) (19,814) 7,560 5,633 10,152 6,691 - - 42,897 27,805 559,316 371,876 765,611 466,498 As stipulated within the Schemes' Constitutions, each unit represents a right to an individual share in the Schemes and does not extend to a right to the underlying assets of the Schemes. There are no separate classes of units and each unit has the same rights attaching to it as all other units of the Schemes. Capital risk management The Schemes consider 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 Schemes are subject to daily applications and redemptions at the discretion of unitholders. (a) Capital gains/(losses) At the reporting date, the Schemes had the following net unrealised taxable capital gains/(losses), and realised capital losses available to offset against future assessable capital gains. Infrastructure Value Fund Hedged Yield Fund Emerging Markets Fund Infrastructure Value Fund - Unhedged 30 June 30 June 30 June 30 June 30 June 30 June 30 June 30 June 2015 2014 2015 2014 2015 2014 2015 2014 $'000 $'000 $* $* $'000 $'000 $'000 $'000 Unrealised capital gains 87,734 83,240 116,350 380,059 20,492 15,577 58,027 29,082 *Stated to the neareast whole dollar as the Scheme does not meet the criteria set out in ASIC class order 98/100. - 20 -
5 Distributions to unitholders The distributions for the year were as follows: Infrastructure Value Fund Hedged Distributions Distributions paid - September Distributions paid - December Distributions paid - March Distributions paid - May Distributions payable - June 30 June 30 June 30 June 30 June 2015 2015 2014 2014 $'000 CPU $'000 CPU 13,132 1.25 7,895 1.00 13,310 1.25 8,991 1.00 21,834 2.00 18,818 2.00 103,664 9.25 31,211 3.32 26,864 2.72 183,151 62,568 Yield Fund Distributions Distributions paid - September Distributions paid - December Distributions paid - March Distributions payable - June 30 June 30 June 30 June 30 June 2015 2015 2014 2014 $* CPU $* CPU 63,432 1.75 32,666 1.00 70,955 2.00 50,702 1.50 174,998 3.00 68,740 2.00 535,706 7.70 393,969 11.33 845,091 546,077 Emerging Markets Fund Distributions Distributions paid - December Distributions payable - June 30 June 30 June 30 June 30 June 2015 2015 2014 2014 $'000 CPU $'000 CPU 1,764 2.75 693 1.00 6,652 9.63 931 1.36 8,416 1,624 *Stated to the nearest whole dollar as the Scheme does not meet the criteria set out in ASIC class order 98/100. - 21 -
5 Distributions to unitholders (continued) Infrastructure Value Fund - Unhedged Distributions Distributions paid - September Distributions paid - December Distributions paid - March Distributions payable - June 30 June 30 June 30 June 30 June 2015 2015 2014 2014 $'000 CPU $'000 CPU 4,407 1.00 2,420 1.00 6,171 1.25 2,868 1.00 12,842 2.50 4,853 1.50 41,274 7.38 15,345 4.13 64,694 25,486 6 Cash and cash equivalents Infrastructure Value Fund Hedged Yield Fund Emerging Markets Fund Infrastructure Value Fund - Unhedged 30 June 30 June 30 June 30 June 30 June 30 June 30 June 30 June 2015 2014 2015 2014 2015 2014 2015 2014 $'000 $'000 $* $* $'000 $'000 $'000 $'000 Cash at bank Deposits at call 7 Investments in financial assets held for trading 29,763 57,261 127,424 129,680 12,111 9,971 40,309 25,397 - - 10,101 107,931 - - - - 29,763 57,261 137,525 237,611 12,111 9,971 40,309 25,397 ` Infrastructure Value Fund Hedged Yield Fund Emerging Markets Fund Infrastructure Value Fund - Unhedged Held for trading Listed equities Listed Convertible notes Forward foreign exchange contracts Listed unit trusts Floating rate notes Total held for trading 30 June 30 June 30 June 30 June 30 June 30 June 30 June 30 June 2015 2014 2015 2014 2015 2014 2015 2014 Fair value Fair value Fair value Fair value Fair value Fair value Fair value Fair value $'000 $'000 $* $* $'000 $'000 $'000 $'000 1,031,541 1,042,484 7,659,794 3,485,842 153,607 128,913 735,824 418,444 - - 156,195 124,828 - - - - 19,291 33,936 36,309 47,842-1 5 11 59,999 111,217 1,415,186 989,222 - - 42,782 44,674 - - - 66,677 - - - - 1,110,831 1,187,637 9,267,484 4,714,411 153,607 128,914 778,611 463,129 *Stated to the nearest whole dollar as the Scheme does not meet the criteria set out in ASIC class order 98/100. - 22 -
8 Investments in financial liabilities held for trading ` RARE Infrastructure Limited Infrastructure Value Fund Hedged Yield Fund Emerging Markets Fund Infrastructure Value Fund - Unhedged Held for trading Options Forward foreign exchange contracts Total held for trading 30 June 30 June 30 June 30 June 30 June 30 June 30 June 30 June 2015 2014 2015 2014 2015 2014 2015 2014 Fair value Fair value Fair value Fair value Fair value Fair value Fair value Fair value $'000 $'000 $* $* $'000 $'000 $'000 $'000 - - 156 25,331 - - - - 8,551 4,060 98,300 15,953 1-3 13 8,551 4,060 98,456 41,284 1-3 13 9 Derivative financial instruments In the normal course of business, the Schemes enter into transactions in various derivative financial instruments which have certain risks. A derivative is a financial instrument or other contract which is settled at a future date and whose value changes in response to the change in a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index or other variable. Derivative financial instruments require no initial net investment or an initial net investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors. Derivative transactions include many different instruments, such as forwards, futures and options. Derivatives are considered to be part of the investment process and the use of derivatives is an essential part of the Schemes' portfolio management. Derivatives are not managed in isolation. Consequently, the use of derivatives is multifaceted and includes: n hedging to protect an asset or liability of the Schemes against a fluctuation in market values or to reduce volatility n a substitution for trading of physical securities n adjusting asset exposures within the parameters set in the investment strategy, and adjusting the duration of fixed interest portfolios or the weighted average maturity of cash portfolios While derivatives are used for trading purposes, they are not used to gear (leverage) a portfolio. Gearing a portfolio would occur if the level of exposure to the markets exceeds the underlying value of the Schemes. The Schemes hold the following derivative instruments: (a) Options An option is a contractual arrangement under which the seller (writer) grants the purchaser (holder) the right, but not the obligation, either to buy (a call option) or sell (a put option) at or by a set date or during a set period, a specific amount of securities or a financial instrument at a predetermined price. The seller receives a premium from the purchaser in consideration for the assumption of future securities price risk. Options held by the Scheme are exchange-traded. The Scheme is exposed to credit risk on purchased options to the extent of their carrying amount, which is their fair value. Options are settled on a gross basis. (b) Forward foreign currency contracts Forward foreign currency contracts are primarily used by the Schemes to hedge against foreign currency exchange rate risks on its non Australia dollar denominated trading securities. The Schemes agree to receive or deliver a fixed quantity of foreign currency for an agreed upon price on an agreed future date. Forward foreign currency contracts are valued at the prevailing bid price at the reporting date. The Schemes recognise a gain or loss equal to the change in fair value at the reporting date. *Stated to the nearest whole dollar as the Scheme does not meet the criteria set out in ASIC class order 98/100. - 23 -
9 Derivative financial instruments (continued) RARE Infrastructure Limited (b) Forward foreign currency contracts (continued) Infrastructure Value Fund Hedged Fair values Assets Liabilities $'000 $'000 Forward foreign exchange contracts - notional amount 19,291 8,551 Fair values 30 June 2014 Assets Liabilities $'000 $'000 Forward foreign exchange contracts - notional amount 33,936 4,060 Yield Fund Fair values Assets Liabilities $* $* Forward foreign exchange contracts - notional amount Options - notional amount 36,309 98,300-156 36,309 98,456 Fair values 30 June 2014 Assets Liabilities $* $* Forward foreign exchange contracts - notional amount Options - notional amount 47,842 15,953-25,331 47,842 41,284 Emerging Markets Fund Fair values Assets Liabilities $'000 $'000 Forward foreign exchange contracts - notional amount - 1 Fair values 30 June 2014 Assets Liabilities $'000 $'000 Forward foreign exchange contracts - notional amount 1 - *Stated to the nearest whole dollar as the Scheme does not meet the criteria set out in ASIC class order 98/100. - 24 -
9 Derivative financial instruments (continued) (b) Forward foreign currency contracts (continued) Infrastructure Value Fund - Unhedged Fair values Assets Liabilities $'000 $'000 Forward foreign exchange contracts - notional amount 5 3 Fair values 30 June 2014 Assets Liabilities $'000 $'000 Forward foreign exchange contracts - notional amount 11 13 An overview of the risk exposures relating to derivatives is included in note 11. 10 Related party transactions Responsible entity The Responsible Entity of the following Schemes is Treasury Group Investment Services Limited, whose immediate and ultimate holding company is Treasury Group Limited. n n n n Infrastructure Value Fund Hedged Yield Fund Emerging Markets Fund Infrastructure Value Fund - Unhedged Key management personnel (a) Directors Key management personnel includes persons who were directors of Treasury Group Investment Services Limited at any time during the financial year as follows: Joseph Ferragina Peter Kennedy Andrew McGill (resigned 20 May 2015) David Griswold (appointed 20 May 2015) (b) Other key management personnel In addition to the directors noted above, Treasury Group Investment Services Limited, the Responsible Entity of the Schemes is considered to be key management personnel with the authority for the strategic direction and management of the Schemes. - 25 -
10 Related party transactions (continued) Related party unitholdings Parties related to the Schemes (including Treasury Group Investment Services Limited, its related parties and other schemes managed by Treasury Group Investment Services Limited), held units in the Schemes as follows: Infrastructure Value Fund Hedged Number of units held opening Number of units held closing Interest held Number of units acquired Number of units disposed Distributions paid/payable by the Scheme 2015 (Units) (Units) % (Units) (Units) $ Unitholder Treasury Group Investment Services Limited 173 197 0.00002 24-32 Total 173 197 24-32 2014 Unitholder Treasury Group Investment Services Limited 163 173 0.00002 10-11 Total 163 173 10-11 Yield Fund Number of units held opening Number of units held closing Interest held Number of units acquired Number of units disposed Distributions paid/payable by the Scheme 2015 (Units) (Units) % (Units) (Units) $ Unitholder Treasury Group Investment Services Limited 106 121 0.00170 15-17 Total 106 121 15-17 2014 Unitholder Treasury Group Investment Services Limited 97 106 0.00305 9-17 Total 97 106 9-17 - 26 -