Wingate Global Equity Fund ARSN 132 393 705 Annual financial statements for the reporting period ended 30 June 2012
ARSN 132 393 705 Annual financial statements for the reporting period ended 30 June 2012 Contents Page Directors' report 2 Auditor's independence declaration 5 Statement of comprehensive income 6 Statement of financial position 7 Statement of changes in net assets attributable to unitholders 8 Statement of cash flows 9 10 Directors' declaration 33 Independent auditor's report to the unitholders of Wingate Global Equity Fund 34 These financial statements cover Wingate Global Equity Fund as an individual entity. The Responsible Entity of Wingate Global Equity Fund is Funds Management Limited (ABN 60 071 497 115). The Responsible Entity's registered office is Level 14, 114 Albert Road, South Melbourne, VIC 3205. -1-
Directors' report Directors' report The directors of Funds Management Limited (ABN 60 071 497 115), the Responsible Entity of Wingate Global Equity Fund, present their report together with the financial statements of Australian Unity Wingate Global Equity Fund (''the Scheme'') for the year ended 30 June 2012 ("the reporting period"). Directors The following persons held office as directors of the Responsible Entity during the reporting period or since the end of the reporting period and up to the date of this report: Glenn Barnes (Appointed Chairman effective 1 June 2012) David Bryant (Chief Executive Officer and Chief Investment Officer) Rohan Mead (Group Managing Director) Ian Ferres (Non-Executive Director) Stephen Maitland (Non-Executive Director) Warren Stretton (Non-Executive Director) Anthony Connon (Chief Financial Officer ) Alan Castleman (Resigned as Chairman and Director effective 31 May 2012) Principal activities The Scheme aims to deliver strong returns over the medium term to longer term, regardless of the performance of the broader international sharemarket. The Scheme adopts a "high conviction" approach meaning it invests in fewer stocks, with a large proportion of assets invested into each stock. The Scheme primarily invests in global equities, either directly or via derivatives, to generate income from dividends and option premiums, and capital growth. The Scheme's assets are managed by Wingate Asset Management Pty Ltd. Funds Management Limited owns 45% of Wingate Assets Management Pty Ltd. The remaining ownership interest is held by key investment personnel and associates of Wingate Asset Management Pty Ltd. The Scheme provides for two separate classes of units, Foundation units and Wholesale units. Review and results of operations the Scheme s Foundation units posted a total return of 7.67% (split between a distribution return of 5.16% and a growth return of 2.51%).* The Wholesale units posted a total return of 6.39% (split between a distribution return of 3.96% and a growth return of 2.43%).* Unit prices (ex distribution) as at 30 June 2012 (2011) are as follows: Foundation units $0.8444 ($0.8235)* Wholesale units $0.7921 ($0.7732)* * The reported performance numbers and reported unit prices (which are not audited) have been derived based on the declared unit prices calculated in accordance with the Responsible Entity s unit pricing policy, and are not based on the net assets of these IFRS compliant financial statements. -2-
Directors' report Directors' report The performance of the Scheme, as represented by the results of its operations, was as follows: For the reporting period ended 30 June 30 June 2012 2011 $'000 $'000 Profit before finance costs attributable to unitholders 3,108 584 Distributions Foundation units Distribution paid and payable 342 - Distributions Wholesale units Distribution paid and payable 1,807 - Significant changes in state of affairs In the opinion of the directors, there were no significant changes in the state of affairs of the Scheme that occurred during the reporting period. Events occurring after the reporting period Except as disclosed in note 13 in the financial statements, no other matter or circumstance has arisen since 30 June 2012 that has significantly affected, or may significantly affect: (i) (ii) (iii) the operations of the Scheme in future reporting periods, or the results of those operations in future reporting periods, or the state of affairs of the Scheme in future reporting periods. Likely developments and expected results of operations The Scheme will continue to be managed in accordance with the investment objectives and guidelines as set out in the governing documents of the Scheme and in accordance with the provisions of the Scheme's Constitution. Further information on likely developments in the operations of the Scheme 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 Scheme. Indemnification and insurance of officers and auditors No insurance premiums are paid for out of the assets of the Scheme in regards to insurance cover provided to either the officers of Funds Management Limited or the auditors of the Scheme. So long as the officers of Funds Management Limited act in accordance with the Scheme's Constitution and the Corporations Act 2001, the officers remain indemnified out of the assets of the Scheme against losses incurred while acting on behalf of the Scheme. The auditors of the Scheme are in no way indemnified out of the assets of the Scheme. Fees paid to and interests held in the Scheme by the Responsible Entity or its associates Fees paid to the Responsible Entity and its associates out of Scheme property during the reporting period are disclosed in note 11 of the financial statements. No fees were paid out of Scheme property to the directors of the Responsible Entity during the reporting period. The number of interests in the Scheme held by the Responsible Entity or its associates as at the end of the reporting period are disclosed in note 11 of the financial statements. -3-
Statement of comprehensive income Statement of comprehensive income For the reporting period ended 30 June 30 June 2012 2011 Notes $'000 $'000 Investment income Interest income 140 74 Dividends income 854 648 Net gains on financial instruments held at fair value through profit or loss 3 2,340 4,427 Net gains/(losses) on foreign exchange transactions 397 (4,032) Other income 1 - Total investment income 3,732 1,117 Expenses Management fees 11 480 398 Performance fees 26 - Transaction costs 111 121 Other expenses 7 14 Total expenses 624 533 Profit before finance costs attributable to unitholders 3,108 584 Finance costs attributable to unitholders Distributions to unitholders 6 2,149 - Increase in net assets attributable to unitholders 5 959 584 Other comprehensive income for the reporting period attributable to unitholders - - Total comprehensive income for the reporting period attributable to unitholders - - The above statement of comprehensive income should be read in conjunction with the accompanying notes. -6-
Statement of financial position As at 30 June 2012 Statement of financial position As at 30 June 30 June 2012 2011 Notes $'000 $'000 Assets Cash and cash equivalents 14,557 12,234 Receivables 255 203 Financial assets held at fair value through profit or loss 7 41,402 31,570 Total assets 56,214 44,007 Liabilities Distributions payable 6 2,149 - Payables 54 141 Financial liabilities held at fair value through profit or loss 8 570 210 Total liabilities (excluding net assets attributable to unitholders) 2,773 351 Net assets attributable to unitholders 5 53,441 43,656 The above statement of financial position should be read in conjunction with the accompanying notes. -7-
Statement of changes in net assets attributable to unitholders Statement of changes in net assets attributable to unitholders For the reporting period ended 30 June 30 June 2012 2011 $'000 $'000 Net assets attributable to unitholders at the beginning of the reporting period 43,656 39,217 Profit before finance costs attributable to unitholders 3,108 584 Distributions to unitholders (2,149) - Application for units 13,751 19,808 Redemption of units (4,925) (15,953) Net assets attributable to unitholders at the end of the reporting period 53,441 43,656 The above statement of changes in net assets attributable to unitholders should be read in conjunction with the accompanying notes. -8-
Statement of cash flows Statement of cash flows For the reporting period ended 30 June 30 June 2012 2011 Notes $'000 $'000 Cash flows from operating activities Proceeds from sale of financial instruments held at fair value through profit or loss 19,999 19,792 Purchase of financial instruments held at fair value through profit or loss (26,699) (19,335) Transaction costs on financial instruments held at fair value through profit or loss (111) (123) Dividends received 861 594 Interest received 140 74 Other income received 1 6 Responsible Entity's fees paid (530) (422) Other expenses paid (7) (14) RITC received 32 30 Net cash inflow/(outflow) from operating activities 12(a) (6,314) 602 Cash flows from financing activities Proceeds from applications by unitholders 13,696 19,708 Payments for redemptions by unitholders (5,025) (15,853) Distributions paid - - Net cash inflow from financing activities 8,671 3,855 Net increase in cash and cash equivalents 2,357 4,457 Cash and cash equivalents at the beginning of the reporting period 12,234 8,573 Effects of foreign currency exchange rate changes on cash and cash equivalents (34) (796) Cash and cash equivalents at the end of the reporting period 12(b) 14,557 12,234 The above statement of cash flows should be read in conjunction with the accompanying notes. -9-
Contents Page 1 General information 11 2 Summary of significant accounting policies 11 3 Net gains/(losses) on financial instruments held at fair value through profit or loss 17 4 Auditor's remuneration 17 5 Net assets attributable to unitholders 18 6 Distributions to unitholders 19 7 Financial assets held at fair value through profit or loss 19 8 Financial liabilities held at fair value through profit or loss 19 9 Derivative financial instruments 20 10 Financial risk management 21 11 Related party transactions 28 12 Reconciliation of profit/(loss) to net cash inflow/(outflow) from operating activities 32 13 Events occurring after the reporting period 32 14 Contingent assets and liabilities and commitments 32-10-
1 General information These financial statements cover Wingate Global Equity Fund ("the Scheme") as an individual entity. The Scheme was constituted on 1 January 2005, and will terminate on the 80th anniversary or earlier in accordance with the Scheme's Constitution. The Responsible Entity of the Scheme is Funds Management Limited (ABN 60 071 497 115) ("the Responsible Entity"), a wholly owned subsidiary of Limited (ABN 23 087 648 888). The Responsible Entity's registered office is Level 14, 114 Albert Road, South Melbourne, VIC 3205. The Responsible Entity is incorporated and domiciled in Australia. The financial statements are for the period from 1 July 2011 to 30 June 2012 (''the reporting period''). The financial statements were authorised for issue by the directors on 18 September 2012. 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 reporting periods presented, unless otherwise stated. (a) Basis of preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001 in Australia. The Scheme is a for profit entity for the purposes 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 generally expected to be recovered or settled within 12 months, except for investments in financial assets and net assets attributable to unitholders where the amount expected to be recovered or settled within 12 months after the end of the reporting period cannot be reliably determined. Compliance with Australian Accounting Standards and International Financial Reporting Standards The financial statements of the Scheme comply with Australian Accounting Standards as issued by the Australian Accounting Standards Board and also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. The financial statements are prepared in the local reporting currency being Australian dollars. New and amended standards adopted by the Scheme None of the new standards and amendments to standards that are mandatory for the first time for the reporting period affected any of the amounts recognised in the current or past reporting periods and is not likely to affect future periods. -11-
2 Summary of significant accounting policies (b) Financial instruments (i) Classification Financial assets and liabilities held at fair value through profit or loss The Scheme's investments are categorised as held at fair value through profit or loss. They comprise: Financial instruments held for trading These may include derivative financial instruments including futures, forward contracts, options and interest rate swaps. The Scheme does not designate any derivatives as hedges in a hedging relationship. Financial instruments designated at fair value through profit or loss upon initial recognition These include financial assets and financial liabilities that are not held for trading purposes and which may be sold. These may include investments in exchange traded debt and equity instruments, unlisted trusts, unlisted equity instruments and commercial paper. Financial assets and financial liabilities designated at fair value through profit or loss at inception are those that are managed and their performance evaluated on a fair value basis in accordance with the Scheme s documented investment strategy. The Scheme s policy is for the Responsible Entity to evaluate the information about these financial instruments on a fair value basis together with other related financial information. The information on the fair value basis is provided internally to the Scheme's key management personnel. In addition, the designation of financial assets and financial liabilities at fair value through profit or loss will reduce any measurement or recognition inconsistencies and any accounting mismatch that would otherwise arise. Loans and receivables/payables Loans and receivables/payables are non-derivative financial assets/liabilities with fixed or determinable payments that are not quoted in an active market. This category includes short-term receivables/payables. (ii) Recognition/derecognition The Scheme 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. A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised where: the rights to receive cash flows from the asset have expired; the Scheme retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a 'pass through' agreement; or the Scheme has transferred its rights to receive cash flows from the asset and either: (a) (b) has transferred substantially all the risks and rewards of the asset; or has neither transferred nor retained substantially all the risks and rewards of the asset but has transferred control of the asset. A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expires. Any gains or losses arising on derecognition of the asset (calculated as the difference between the disposal proceeds and the carrying amount of the asset) are included in the statement of comprehensive income in the reporting period the asset is derecognised as realised gains or losses on financial instruments. (iii) Measurement Financial assets and liabilities held at fair value through profit or loss Financial assets and liabilities held at fair value through profit or loss are measured initially at fair value excluding any transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability. Transaction costs on financial assets and financial liabilities at fair value through profit or loss are expensed immediately. Subsequent to initial recognition, all instruments held at fair value through profit or loss are measured at fair value with changes in their fair value recognised in the statement of comprehensive income. -12-
2 Summary of significant accounting policies (b) Financial instruments Fair value in an active market The fair value of financial assets and liabilities traded in active markets is based on their quoted market prices at the end of the reporting period without any deduction for estimated future selling costs. Financial assets are priced at current bid prices, while financial liabilities are priced at current asking prices. Investments in other unlisted unit trusts are recorded at the redemption value per unit as reported by the managers of such trusts. (iv ) Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. (c) Net assets attributable to unitholders Units are redeemable at the unitholders' option and are classified as financial liabilities due to mandatory distributions. The units can be put back to the Scheme at any time for cash based on the redemption price. The fair value of redeemable units is measured at the redemption amount that is payable (based on the redemption unit price) at the end of the reporting period if unitholders exercised their right to put the units back to the Scheme. Because the Scheme's redemption unit price is based on different valuation principles to that applied in financial reporting, a valuation difference exists, which has been treated as a separate component of net assets attributable to unitholders. 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, other short term, highly liquid investments with original maturities of three months or less from the date of acquisition that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts, if any, are shown within borrowings in the statement of financial position. Payments and receipts relating to the purchase and sale of investment securities are classified as cash flows from operating activities, as movements in the fair value of these securities represent the Scheme's main income generating activity. (e) Investment income Interest income and interest expenses are recognised in the statement of comprehensive income for all financial instruments on an accrual basis. Other changes in fair value for such instruments are recorded in accordance with the policies described in note 2(b). Dividend income is recognised on the ex-dividend date. Trust distributions (including distributions from cash management trusts) are recognised on an entitlements basis. Net gains/(losses) on financial assets and financial liabilities held at fair value through profit or loss arising on a change in fair value are calculated as the difference between the fair value at the end of the reporting period and the fair value at the previous valuation point. Net gains/(losses) do not include interest or dividend/distribution income. Realised and unrealised gains/(losses) are shown in the notes to the financial statements. (f) Expenses All expenses, including Responsible Entity's fees, are recognised in the statement of comprehensive income on an accruals basis. -13-
2 Summary of significant accounting policies (g) Income tax Under current legislation, the Scheme is not subject to income tax as unitholders are presently entitled to the income of the Scheme. 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 Scheme is not subject to capital gains tax. Realised capital losses are not distributed to unitholders but are retained in the Scheme to be offset against any realised capital gains. If realised capital gains exceed realised capital losses, the excess is distributed to unitholders. The benefit of imputation credits and foreign tax paid are passed on to unitholders. (h) Distributions In accordance with the Scheme's Constitution, the Scheme distributes income adjusted for amounts determined by the Responsible Entity, to unitholders by cash or reinvestment. The distributions are recognised in the statement of comprehensive income as finance costs attributable to unitholders. (i) Increase/(decrease) in net assets attributable to unitholders Income not distributed is included in net assets attributable to unitholders. Movements in net assets attributable to unitholders are recognised in the statement of comprehensive income as finance costs. (j) Foreign currency translation (i) Functional and presentation currency Items included in the Scheme'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 Scheme competes for funds and is regulated. The Australian dollar is also the Scheme'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 reporting period end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of comprehensive income. The Scheme does not isolate that portion of 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 at fair value through profit or loss. (k) Receivables Receivables may include amounts for dividends, interest and securities sold where settlement has not yet occurred. Dividends and trust distributions are accrued when the right to receive payment is established. Interest is accrued at the end of each reporting period from the time of last payment in accordance with the policy set out in note 2(e) above. Amounts are generally received within 30 days of being recorded as receivables. Receivables include such items as Reduced Input Tax Credits (RITC) and application monies receivable from unitholders. -14-
2 Summary of significant accounting policies (l) Payables Payables include liabilities and accrued expenses owing by the Scheme which are unpaid as at the end of the reporting period. Trades are recorded on trade date, and normally settled within three business days. Purchases of financial instruments that are unsettled at the end of each reporting period are included in payables. The distribution amount payable to unitholders as at the end of each reporting period is recognised separately in the statement of financial position when unitholders are presently entitled to the distributable income under the Scheme's Constitution. (m) Applications and redemptions Applications received for units in the Scheme are recorded net of any entry fees payable prior to the issue of units in the Scheme. Redemptions from the Scheme are recorded gross of any exit fees payable after the cancellation of units redeemed. Unit redemption prices are determined in accordance with the Scheme s Constitution by reference to the net assets of the Scheme divided by the number of units on issue. (n) Goods and Services Tax (GST) The GST incurred on the costs of various services provided to the Scheme by third parties such as Responsible Entity's fees, have been passed onto the Scheme. The Scheme qualifies for Reduced Input Tax Credits (RITC) at a rate of 75% hence Responsible Entity's fees and other expenses have been recognised in the 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. (o) Use of estimates The Scheme makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next reporting period. 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. 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. (p) New accounting standards and interpretations Certain new accounting standards and interpretations have been published that are not mandatory for the 30 June 2012 reporting period and have not yet been applied in the financial statements. The directors' assessment of the impact of these new standards (to the extent relevant to the Scheme) and interpretations is set out below: (i) AASB 9 Financial Instruments and AASB 2009-11 Amendments to Australian Accounting Standards arising from AASB 9 and AASB 2010-7 Amendments to Australian Accounting Standards arising from AASB 9 (effective from 1 January 2013) AASB 9 Financial Instruments addresses the classification, measurement, recognition and derecognition of financial assets and financial liabilities. The Standard is not applicable until 1 January 2013. AASB 9 only permits the recognition of fair value gains/(losses) in other comprehensive income if they relate to equity investments that are not traded. Fair value gains/(losses) on debt investments are recognised directly in profit or loss. The Scheme does not expect any significant impact on the Scheme's financial statements arising from an adoption of the Standard. -15-
2 Summary of significant accounting policies (p) New accounting standards and interpretations (ii) Amendments to IFRS 9 (2009), IFRS 9 (2010) and IFRS 7 Mandatory Effective Date of IFRS 9 and Transition Disclosures (effective 1 January 2015) In December 2011, the IASB issued the above amendments which require reporting entities to disclose on transition to IFRS 9 the impact of reclassification of financial instruments, rather than restating comparatives (subject to specific rules according to transition date). The amendments also change the mandatory effective date of IFRS 9 to 1 January 2015 (from 1 January 2013). The AASB is expected to issue the corresponding amendments to AASBs 9 and 7 in the near future. No significant impact is expected upon adoption of the amendments. (iii) AASB 2011-4 Amendments to Australian Accounting Standards to Remove Individual Key Management Personnel Disclosure Requirements (effective from 1 July 2013) In July 2011 the AASB decided to remove the individual key management personnel (KMP) disclosure requirements from AASB 124 Related Party Disclosures, to achieve consistency with the international equivalent standard and remove a duplication of the requirements with the Corporations Act 2001. While this will reduce the disclosures that are currently required in the notes to the financial statements, it will not affect any of the amounts recognised in the financial statements. The amendments apply from 1 July 2013 and cannot be adopted early. The relevant Corporations Act 2001 requirements will remain unchanged for now, but these requirements are currently subject to review and may also be revised in the near future. (iv) AASB 13 Fair Value Measurement and AASB 2011-8 Amendments to Australian Accounting Standards arising from AASB 13 (effective 1 January 2013) AASB 13 was released in September 2011. AASB 13 explains how to measure fair value and aims to enhance fair value disclosures. The Scheme has yet to determine the impact, if any, of the new rules on any of the amounts recognised in the financial statements. However, application of the new standard will impact the type of information disclosed in the notes to the financial statements. The Scheme does not intend to adopt the new standard before its operative date, which means that it would be first applied in the annual reporting period ending 30 June 2014. (v) AASB 2012-3 Amendments to Australian Accounting Standard Offsetting Financial Assets and Financial Liabilities and AASB 2012-2 Disclosures Offsetting Financial Assets and Financial Liabilities (effective 1 January 2014 and 1 January 2013, respectively) In June 2012, the AASB approved amendments to the application guidance in AASB 132 Financial Instruments: Presentation, to clarify some of the requirements for offsetting financial assets and financial liabilities in the statement of financial position. These amendments are effective from 1 January 2014. However, the AASB has also introduced more extensive disclosure requirements into AASB 7 which will apply from 1 January 2013. The entity is in the process of assessing the impact of the amendments. At this stage, no significant impact is expected. (vi) AASB 2012-5 Amendments to Australian Accounting Standards arising from Annual Improvements 2009-2011 Cycle (effective 1 January 2013) In June 2012, the AASB approved a number of amendments to Australian Accounting Standards as a result of the 2009-2011 annual improvements project. No adjustments will be necessary as the result of applying the revised rules. (q) Rounding of amounts The Scheme is an entity of the kind referred to in Class Order 98/0100 (as amended), issued by the Australian Securities and Investments Commission, relating to the ''rounding off'' of amounts in the financial statements. Amounts in the financial statements have been rounded off in accordance with that Class Order to the nearest thousand dollars, where indicated. -16-
3 Net gains/(losses) on financial instruments held at fair value through profit or loss For the reporting period ended 30 June 30 June 2012 2011 $'000 $'000 Net unrealised gains/(losses) on financial instruments held for trading 151 68 Net unrealised gains/(losses) on financial instruments designated as at fair value through profit or loss (1,176) (625) Net realised gains/(losses) on financial instruments held for trading 2,265 2,010 Net realised gains/(losses) on financial instruments designated as at fair value through profit or loss 1,100 2,974 Total net gains/(losses) on financial instruments held at fair value through profit or loss 2,340 4,427 4 Auditor's remuneration The auditor's remuneration is paid directly by the Responsible Entity. During the reporting period the following fees were paid or payable for services provided by the auditor of the Scheme: For the reporting period ended 30 June 30 June 2012 2011 $ $ (a) Audit services Audit services Audit and review of financial statements 14,875 14,875 Total remuneration for audit services 14,875 14,875 (b) Non-audit services Taxation services Tax fees 4,087 2,900 Total remuneration for taxation services 4,087 2,900-17-
5 Net assets attributable to unitholders As stipulated within the Scheme's Constitution, each unit represents a right to an individual share in the Scheme and does not extend to a right to the underlying assets of the Scheme. There are two classes of unitholders in the Scheme being Foundation and Wholesale. Movements in number of units and net assets attributable to unitholders during the reporting period were as follows: For the reporting period ended 30 June 30 June 30 June 30 June 2012 2011 2012 2011 No. '000 No. '000 $'000 $'000 Opening balance 55,907 50,819 43,656 39,217 Net assets attributable to unitholders - Foundation units Redemptions (503) (1,936) (442) (1,559) (503) (1,936) (442) (1,559) Net assets attributable to unitholders - Wholesale units Applications 17,145 25,549 13,751 19,808 Redemptions (5,609) (18,525) (4,483) (14,394) 11,536 7,024 9,268 5,414 Increase in net assets attributable to unitholders - - 959 584 Closing balance 66,940 55,907 53,441 43,656 Capital risk management The Scheme considers its net assets attributable to unitholders as capital, notwithstanding net assets attributable to unitholders are classified as a financial liability. The amount of net assets attributable to unitholders can change significantly on a daily basis as the Scheme is subject to daily applications and redemptions at the discretion of unitholders. Daily applications and redemptions are reviewed relative to the liquidity of the Scheme's underlying assets on a daily basis by the Responsible Entity. Under the terms of the Scheme's Constitution, the Responsible Entity has the discretion to reject an application for units and to defer or adjust a redemption of units if the exercise of such discretion is in the best interests of unitholders. -18-
6 Distributions to unitholders Timing of distributions The distributions for the reporting period were as follows: For the reporting period ended 30 June 30 June 30 June 30 June 2012 2012 2011 2011 $'000 CPU $'000 CPU Distributions - Foundation units 30 June (payable) 342 4.2489 - - 342 - Distributions - Wholesale units 30 June (payable) 1,807 3.0689 - - 1,807 - Total distributions 2,149 As unitholders are presently entitled to the distributable income of the Scheme, no income tax is payable by the Responsible Entity. 7 Financial assets held at fair value through profit or loss As at 30 June 30 June 2012 2011 $'000 $'000 Designated at fair value through profit or loss Listed equities 41,402 31,570 Total financial assets held at fair value through profit or loss 41,402 31,570 An overview of the risk exposures relating to financial assets at fair value through profit or loss is included in note 10. 8 Financial liabilities held at fair value through profit or loss As at 30 June 30 June 2012 2011 $'000 $'000 Held for trading Derivatives 570 210 Total financial liabilities held at fair value through profit or loss 570 210 An overview of the risk exposures relating to financial liabilities at fair value through profit or loss is included in note 10. -19-
9 Derivative financial instruments In the normal course of business the Scheme may enter into transactions in various derivative financial instruments with 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 Scheme's portfolio management. Derivatives are not managed in isolation. Consequently, the use of derivatives is multifaceted and includes: hedging to protect an asset or liability of the Scheme against a fluctuation in market values or to reduce volatility a substitution for trading of physical securities 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 Scheme. The Scheme holds 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) Warrants Warrants are an option to purchase additional securities from the issuer at a specified price during a specified period. Warrants are valued at the prevailing market price at the end of each reporting period. The Scheme recognises a gain or loss equal to the change in fair value at the end of each reporting period. The Scheme's derivative financial instruments at reporting period-end are detailed below: 30 June 2012 Contract/ notional Assets Liabilities $'000 $'000 $'000 Sell Options 22,160-544 Warrants 1,683-26 - 570 30 June 2011 Contract/ notional Assets Liabilities $'000 $'000 $'000 Sell Options 12,208-210 - 210-20-
10 Financial risk management (a) Objectives, strategies, policies and processes The Scheme's activities may 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 Scheme's overall risk management program focuses on ensuring compliance with the Scheme's disclosure documents and seeks to maximise the returns derived for the level of risk to which the Scheme is exposed. Financial risk management is carried out by an Investment Manager ("the Investment Manager") under policies approved by the Board of Directors of the Responsible Entity (''the Board''). The Scheme uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate, foreign exchange and other price risks, and ratings analysis for credit risk. As part of its risk management strategy, the Scheme may use derivatives and other investments, including share price and bond futures, interest rate swaps and forward currency contracts, to manage exposures resulting from changes in interest rates, foreign currencies, equity price risks, and exposures arising from forecast transactions. (b) Market risk Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: price risk, foreign currency risk and interest rate risk. Market risk is managed and monitored using sensitivity analysis, and minimised through ensuring that all investment activities are undertaken in accordance with established mandates and investment strategies. The market risk disclosures are prepared on the basis of the Scheme's direct investments and not on a look-through basis for investments held in the Scheme. The sensitivity of the Scheme's net assets attributable to unitholders (and profit/(loss)) before finance costs attributable to unitholders to price risk, foreign exchange risk and interest rate risk is measured by the reasonably possible movements approach. This approach is determined based on management's best estimate, having regard to a number of factors, including historical levels of changes in interest rates and foreign exchange rates, historical correlation of the Scheme's investments with the relevant benchmarks and market volatility. However, actual movements in the risk variables may be greater or less than anticipated due to a number of factors, including unusually large market shocks resulting from changes in the performance of the economies, markets and securities in which the Scheme invests. As a result, historic variations in the risk variables are not a definitive indicator of future variations in the risk variables. At 30 June 2012, the overall market exposures were as follows: As at 30 June 30 June 2012 2011 $'000 $'000 Derivative liabilities held for trading (570) (210) Securities designated at fair value through profit or loss 41,402 31,570 (i) Price risk Price risk is the risk that the fair value of equities will fluctuate because of changes in market prices, whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market. Price risk exposure arises from the Scheme's investment portfolio. The investments are classified on the statement of financial position as at fair value through profit or loss. All securities investments present a risk of loss of capital. Except for equities sold short, the maximum risk resulting from financial instruments is determined by the fair value of the financial instruments. Possible losses from equities sold short can be unlimited. The Investment Manager mitigates this price risk through diversification and a careful selection of securities and other financial instruments within specified limits set by the Board. -21-
10 Financial risk management The Scheme's overall market positions are monitored on a regular basis by the Scheme's Investment Manager. This information and the compliance with the Scheme's disclosure documents are reported to the relevant parties on a regular basis as deemed appropriate such as the compliance manager, other key management personnel, compliance committees and ultimately the Board. At 30 June 2012, if the equity prices had increased/(decreased) by the percentage indicated below, with all other variables held constant, the net assets attributable to unitholders (and profit/(loss) before finance costs attributable to unitholders) would have changed by the following amounts, approximately and respectively: As at 30 June 2012 As at 30 June 2011 Decreased by Increased by 10% 15% $ 000 $ 000 Increased by 10% $ 000 Decreased by 15% $ 000 Increase/(decrease) in net assets attributable to unitholders (and profit/(loss) before finance costs attributable to unitholders) 2,000 (494) 4,767 (4,767) These changes are calculated on an undiscounted basis. The analysis is performed on the same basis for 2012 and 2011. (ii) Foreign exchange risk The foreign exchange risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Scheme holds assets denominated in currencies other than the Australian dollar, the functional currency. It is therefore exposed to foreign exchange risk, as the value of the future cash flows of the securities denominated in other currencies will fluctuate due to changes in exchange rates. The risk is measured using sensitivity analysis. As stated in section (a) above, as part of its risk management strategy, the Scheme uses forward currency contracts to manage exposures resulting from changes in foreign currencies. On this basis, the Scheme's overall exposure to foreign exchange risk is considered minimal after taking into account the options. In accordance with the Scheme's policy, the Investment Manager monitors the Scheme's currency position on a regular basis. This information and the compliance with the Scheme's policy are reported to the relevant parties on a regular basis as deemed appropriate such as the compliance manager, other key management personnel, compliance committees and ultimately the Board. The foreign exchange risk disclosures have been prepared on the basis of the Scheme's direct investment and not on a look-through basis for investments held indirectly through unit trusts. Consequently the disclosure of currency risk in the note may not represent the true currency risk profile of the Scheme where the Scheme has significant investments in indirect trusts which also have exposure to the currency markets. When the Investment Manager formulates a view on the future direction of foreign exchange rates and the potential impact on the Scheme, the Investment Manager factors that into its portfolio allocation decisions. While the Scheme has direct exposure to foreign exchange rate changes on the price of non-australian dollar-denominated securities, it may also be indirectly affected for example, by the impact of foreign exchange rate changes on the earnings of certain entities in which the Scheme invests, even if those entities' securities are denominated in Australian dollars. For that reason, the sensitivity analysis may not necessarily indicate the total effect on the Scheme's net assets attributable to unitholders of future movements in foreign exchange rates. -22-
10 Financial risk management The table below summarises the Scheme's assets and liabilities which are denominated in Australian and non-australian currencies: 30 June 2012 Australian British Other Dollars US Dollars Euro Pounds currencies Total A$'000 A$'000 A$'000 A$'000 A$'000 A$'000 Assets Cash and cash equivalents 964 10,288 2,058 822 425 14,557 Receivables 170 29 9-47 255 Financial assets held at fair value through profit or loss Designated at fair value through profit or loss Listed equities - 30,828 3,544 1,912 5,118 41,402 Total assets 1,134 41,145 5,611 2,734 5,590 56,214 Liabilities Distributions payable 2,149 - - - - 2,149 Payables 54 - - - - 54 Financial liabilities held at fair value through profit or loss Held for trading Options - 492 30 5 17 544 Warrants - 26 - - - 26 Total liabilities (excluding net assets attributable to unitholders) 2,203 518 30 5 17 2,773 Net assets attributable to unitholders (1,069) 40,627 5,581 2,729 5,573 53,441 30 June 2011 Australian British Other Dollars US Dollars Euro Pounds currencies Total A$'000 A$'000 A$'000 A$'000 A$'000 A$'000 Assets Cash and cash equivalents 1,455 8,217 2,238 321 3 12,234 Receivables 110 31 10 20 32 203 Financial assets held at fair value through profit or loss Designated at fair value through profit or loss Listed equities - 21,413 5,185 1,215 3,757 31,570 Total assets 1,565 29,661 7,433 1,556 3,792 44,007 Liabilities Payables 141 - - - - 141 Financial liabilities held at fair value through profit or loss Held for trading Options - 184 3 23-210 Total liabilities (excluding net assets attributable to unitholders) 141 184 3 23-351 Net assets attributable to unitholders 1,424 29,477 7,430 1,533 3,792 43,656-23-
10 Financial risk management At 30 June 2012, had the Australian dollar weakened/strengthened as illustrated below against the various currencies to which the Scheme is exposed, with all other variables held constant, the net assets attributable to unitholders (and profit/(loss) before finance costs attributable to unitholders) would have changed by the following amounts, approximately and respectively: AUD Weakened AUD Strengthened Increase/(decrease) in net assets attributable to unitholders (and profit/(loss) before finance costs attributable to unitholders) 30 June 2012 30 June 2011 30 June 2012 30 June 2011 $ 000 $ 000 $ 000 $ 000 AUD/USD 2012 5% (2011: 10%) 2,138 3,275 (1,935) (2,680) AUD/Euro 2012 10% (2011: 10%) 620 826 (507) (675) AUD/GBP 2012 10% (2011: 5%) 303 81 (248) (73) AUD/CHF 2012 10% (2011: 5%) 619 200 (507) (181) The possible impact against other currencies is considered immaterial individually and therefore has not been included in the above table. The analysis is performed on the same basis for 2012 and 2011. (iii) Interest rate risk There was no significant direct interest rate risk in the Scheme as at 30 June 2012 (2011: Nil). (c) Credit risk Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. Credit risk primarily arises from cash and cash equivalents, and deposits with banks and other financial institutions. With respect to credit risk arising from the financial assets of the Scheme, other than derivatives, the Scheme's exposure to credit risk arises from default of the counterparty, with the current exposure equal to the fair value of these investments as disclosed in the statement of financial position. This does not represent the maximum risk exposure that could arise in the future as a result of changes in values, but best represents the current maximum exposure at the end of the reporting period. Credit risk arising from derivative financial instruments is, at any time, limited to those with positive fair values. All transactions in listed securities are settled/paid for upon delivery using approved brokers. The risk of default is considered low, as delivery of securities sold is only made once the broker has received payment. Payment is made once purchase of the securities has been received by the broker. The trade will fail if either party fails to meet its obligations. The Scheme holds no collateral as security or any other credit enhancements. There are no financial assets that are past due or impaired, or would otherwise be past due or impaired. Counterparty credit limits and the list of authorised brokers are reviewed by the relevant parties within the Responsible Entity on a regular basis as deemed appropriate. In accordance with the Scheme's policy, the Investment Manager monitors the Scheme's credit position on a regular basis. This information and the compliance with the Scheme's policy are reported to the relevant parties on a regular basis as deemed appropriate such as compliance manager, other key management personnel, compliance committees and ultimately the Board. -24-