ARSN 091 486 707 Annual report -
ARSN 091 486 707 Annual report - Contents Directors' report Auditor's independence declaration Income statements Balance sheets Statements of changes in equity Cash flow statements Directors' declaration Independent auditor's report to the unitholders of Macquarie Global Equities Fund Page 2 5 6 7 8 9 10 34 35 This financial report covers Macquarie Global Equities Fund as an individual entity and the consolidated entity consisting of Macquarie Global Equities Fund and its subsidiaries. The Responsible Entity of Macquarie Global Equities Fund is Macquarie Investment Management Limited (ABN 66 002 867 003). The Responsible Entity's registered offce is Mezzanine Level, No.1 Martin Place, Sydney, NSW 2000. -1-
Directors' report Directors' report The directors of Macquarie Investment Management Limited (a wholly owned subsidiary of Macquarie Group Limited), the Responsible Entity of Macquarie Global Equities Fund present their report together with the consolidated financial report of Macquarie Global Equities Fund ("the Trust" ) and its controlled entities (collectively, "the consolidated entity") for the year ended. Principal activities The consolidated entity invests in equities instruments, unlisted unit trusts and derivatives in accordance with the provisions of the Trust Constitution. The consolidated entity did not have any employees during the year. There were no significant changes in the nature of the consolidated entity's activities during the year. Directors The following persons held offce as directors of Macquarie Investment Management Limited during the year or since the end of the year and up to the date of this report: B N Terry B Bruck (resigned 18/08/2008) N Roderick P Maher (resigned 05/05/2009) R Cartright V Malley C Vignes (appointed 18/08/2008) M Rady (appointed 13/10/2008) Review and results of operations During the year, the Trust continued to invest funds in accordance with its investment strategy and in accordance with the provisions of the Trust Constitution. Results The performance of the Trust, as represented by the results of its operations, was as follows: Year ended Operating profiu(loss) before finance costs attributable to unitholders ($'000) Distributions Distribution paid and payable ($'000) Distribution (cents per unit) Year ended 5,795 (35,911) 6,328 (35,774) 8,886 6.15 2,098 1.55 8,461 5.86 2,070 1.55 Significant changes in state of affairs In the opinion of the directors, there were no significant changes in the state of affairs of the Trust that occurred during the financial year under review. Matters subsequent to the end of the financial year No matter or circumstance has arisen since that has significantly affected, or may significantly affect: (i) the operations of the Trust in future financial years, or (ii) the results of those operations in future financial years, or (iii) the state of affairs of the Trust in future financial years. -2-
Directors' report Directors' report Likely developments and expected results of operations The Trust will continue to be managed in accordance with its investment strategy and in accordance with the provisions of the Trust Constitution. The results of the Trust's operations will be affected by a number of factors, including the performance of investment markets in which the Trust invests. Investment performance is not guaranteed and future returns may differ from past returns. As investment conditions change over time, past returns should not be used to predict future returns. Further information on likely developments in the operations of the Trust 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 Trust. Indemnification and insurance of officers and auditors No insurance premiums are paid for out of the assets of the Trust in regards to insurance cover provided to either the offcers of Macquarie Investment Management Limited or the auditors of the Trust. So long as the offcers of Macquarie Investment Management Limited act in accordance with the Trust Constitution and the Law, the offcers remain indemnified out of the assets of the Trust against losses incurred while acting on behalf of the Trust. The auditors of the Trust are in no way indemnified out of the assets of the Trust. Fees paid to and interests held in the Trust by the Responsible Entity or its associates Fees paid to the Responsible Entity and its associates out of Trust property during the year are disclosed in note 11 on page 30 of the financial statements. No fees were paid out of Trust property to the directors of the Responsible Entity during the year. The number of interests in the Trust held by the Responsible Entity or its associates as at the end of the financial year are disclosed in note 11 on page 30 of the financial statements. Interests in the Trust The movement in units on issue in the Trust during the year is disclosed in note 6 of the financial statements. The value of the Trust's assets and liabilities is disclosed on the balance sheets and derived using the basis set out in note 2 of the financial statements. Environmental regulation The operations of the Trust are not subject to any particular or significant environmental regulations under a Commonwealth, State or Territory law. Rounding of amounts to the nearest thousand dollars The Trust 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 directors' report. Amounts in the directors' report have been rounded to the nearest thousand dollars in accordance with that Class Order, unless otherwise indicated. Auditor's independence declaration A copy of the Auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 5. This report is made in accordance with a resolution of the directors. -3-
Directors' report Directors' report N Roderick Director Sydney 21 September 2009-4-
fjcew1erhousf(oopers I PricewaterhouseCoopers ABN 52 780 433 757 Auditor's Independence Declaration As lead auditor for the audit of Macquarie Global Equities Fund for the year ended, I declare that to the best of my knowledge and belief, there have been: Darling Park Tower 2 201 Sussex Street GPO BOX 2650 SYDNEY NSW 1171 DX 77 Sydney Australia Telephone +61282660000 Facsimile +61 2 8266 9999 ww.pwc.com/au a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Macquarie Global Equities Fund and the entities it controlled during the year. ~E A Barron Partner PricewaterhouseCoopers Sydney 21 September 2009 Liability limited by a scheme approved under Professional Standards Legislation
Income statements For the year ended Income statements Notes Investment income Interest income from financial assets not held at fair value through profi or loss 43 58 6 Dividend income 4,469 4,512 Distribution income 2,542 1,026 Other operating income 1,678 1,894 1,677 1,888 Net gains/(losses) on financial instruments held at fair value through profi or loss 5 1,509 (39,878) 2,109 (38,693) Total net investment income/(ioss) 7,699 (33.414) 6,328 (35,773) Expenses Responsible Entity's fees 11 1,472 1,930 Withholding tax expense 432 555 Other operating expenses 12 Total operating expenses 1,904 2.497 Operating profit/(ioss) 5,795 (35,911 ) 6,328 (35,774) Finance costs attributable to unitholders Distributions to unitholders of the parent entity (8,461) (2,070) (8,461) (2,070) Distributions to minority interests (425) (28) (Increase)/decrease in net assets attributable to unitholders of the parent entity 6 2,133 37,844 2,133 37,844 (Increase)/decrease in net assets attributable to minority interests 958 165 Profit/(Ioss) for the year The above income statements should be read in conjunction with the accompanying notes. -6-
Balance sheets As at Balance sheets Notes Assets Cash and cash equivalents 7 30,629 1,985 717 Due from brokers - receivable for securities sold 187 8,879 Receivables 407 3 Financial assets held at fair value through profi or loss 8 419,560 286,724 254,374 173,943 Total assets 450,376 297,995 255,091 173,946 Liabilties Bank overdraft 7(a) 2,639 2,639 Due to brokers - payable for securities purchased 29,172 3,364 Responsible Entity fees payable 155 138 Other payables 45 72 23 72 Distributions payable 21 29 2 1 Financial liabilities held at fair value through profi or loss 9 244,824 169,819 120,146 52,625 Net assets attributable to minority interests (redemption price of units) 3,325 Total liabilities (excluding net assets attributable to unitholders of the parent entity) 274,217 179,386 120,171 55,337 Net assets attributable to minority interests (redemption price of units) 41,239 Net assets attributable to unitholders of the parent entity - liability 6 134,920 118,609 134,920 118,609 The above balance sheets should be read in conjunction with the accompanying notes. -7-
Statements of changes in equity For the year ended Statements of changes in equity Total equity at the beginning of the financial year Profit/(Ioss) for the year Total recognised income and expense for the financial year Transactions with equity holders in their capacity as equity holders Distributions to equity holders Total equity at the end of the financial year Under AIFRS, net assets attributable to unitholders are classified as a liabilty rather than equity. As a result there was no equity at the start or end of the year. The above statements of changes in equity should be read in conjunction with the accompanying notes. -8-
Cash flow statements For the year ended Cash flow statements Notes Cash flows from operating activities Proceeds from sale of financial 315,715 1,316,224 47,343 11,691 instruments held at fair value through profit or loss Purchase of financial instruments held (340,565) (1,330,901 ) (58,142) (15,771) at fair value through profit or loss Dividends received 4,265 4,117 2,439 1,026 Interest received 42 58 6 Fee rebates received 1,596 2,090 1,596 2,090 Other income received 340 136 Responsible Entity's fees paid (1,560) (1,918) Payment of other expenses (540) Net cash inflow/(outflow) from 12(a) (20,167) (10,870) /6,628) (958) operating activities Cash flows from financing activities Proceeds from applications by unitholders 86,125 23,334 42,830 23,673 Payments for redemptions by unitholders (35,814) (28,594) (32,846) (28,145) Distributions paid (70) (11 ) (11 ) Net cash inflow/(outflow) from financing activities 50,241 (5,271 ) 9,984 (4.483) Net increase/(decrease) in cash and cash equivalents 30,074 (16,141) 3,356 (5,441 ) Cash and cash equivalents at the beginning of the year (654) 15,496 (2,639) 2,802 Effects of foreign currency exchange rate changes on cash and cash equivalents 1,209 (9) Cash and cash equivalents at the end of the year 7(a) 30,629 (654) 717 (2,639) Non-cash financing activities 12(b) 8,460 2,069 8,460 2,069 The above cash flow statements should be read in conjunction with the accompanying notes. -9-
1 General information This financial report includes separate financial statements for Macquarie Global Equities Fund ("he Trust" as an individual entity and the consolidated entity consisting of Macquarie Global Equities Fund and its subsidiaries. The Trust was constituted on 2 March 2000. The Responsible Entity of the Trust is Macquarie Investment Management Limited (the "Responsible Entity"). The Responsible Entity's registered offce is Mezzanine Level, NO.1 Martin Place, Sydney, NSW 2000. The financial report is presented in Australian currency. During the year, the Trust continued to invest funds in accordance with its investment strategy and in accordance with the provisions of the Trust Constitution. The financial statements were authorised for issue by the directors on 21 September 2009. 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 statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated in the following text. (a) Basis of preparation This general purpose financial report has been prepared in accordance with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board, Urgent Issues Group Interpretations and the Corporations Act 2001 in Australia. The financial report is prepared on the basis of fair value measurement of assets and liabilities except where otherwise stated. Compliance with Intemational Financial Reporting Standards (IFRS) Australian Accounting Standards include Australian equivalents to International Financial Reporting Standards (AIFRS). Compliance with AIFRS ensures that the financial report of the Trust, comprising the financial statements and notes thereto, complies with International Financial Reporting Standards. (b) Principles of consolidation (i) Subsidiaries The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Macquarie Global Equities Fund ("he parent entity") as at and the results of all subsidiaries for the year then ended. Macquarie Global Equities Fund and its subsidiaries together are referred to in this financial report as the consolidated entity. Subsidiaries are all those entities (including special purpose entities) over which the Trust has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one-half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Trust controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Trust. They are deconsolidated from the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries by the Trust. All transactions (including gains and losses) and balances between entities in the consolidated group are eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Trust. Minority interests in the results and net assets of subsidiaries are shown separately in the consolidated income statements and balance sheets respectively. -10-
2 Summary of significant accounting policies (c) Financial instruments (i) Classification The Trust's investments are categorised as at fair value through profi or loss. They comprise:. Financial instruments held for trading These include derivative financial instruments including forward contracts. The Trust does not designate any derivatives as hedges in a hedging relationship.. Financial instruments designated at fair value through profi or loss upon initial recognition These include financial assets that are not held for trading purposes and which may be sold, such as investments in exchange traded equity instruments and unlisted trusts. Financial assets and financial liabilities may be designated at fair value through profi or loss at inception if they are those that are managed and their performance evaluated on a fair value basis in accordance with the Trust's documented investment strategy. The Trust's policy is for the Responsible Entity to evaluate the information about these financial assets on a fair value basis together with other related financial information. Loans and receivableslpayables comprise amounts due to or from the Trust. (ii) Recognition/derecognition The Trust recognises financial assets and financial agreement (trade date) and recognises changes in fair value of the financial assets or financial date. liabilities on the date it becomes party to the contractual liabilities from this Investments are derecognised when the right to receive cashflows from the investments has expired or the Trust has transferred substantially all risks and rewards of ownership. (iii) Measurement (a) Financial assets and liabiliies 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 profi 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 income statements.. 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 balance sheets date 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.. Fair value in an inactive or unquoted market Scholes option valuation model. Investments in unlisted unit trusts are recorded at the redemption value per unit as reported by the managers of such trusts, provided redemptions could be effected at such value at balance date. The fair value of derivatives that are not exchange-traded is estimated at the amount that the Trust would receive or pay to terminate the contract at the balance sheets date taking into account current market conditions (volatility and appropriate yield curve) and the current creditworthiness of the counterparties. The fair value of a forward contract is determined as a net present value of estimated future cash flows, discounted at appropriate market rates as at the valuation date. The fair value of an option contract is determined by applying the Black- -11-
2 Summary of significant accounting policies (c) Financial instruments (b) Loans and receivables Loan assets are measured initially at fair value plus transaction costs and subsequently amortised using the effective interest rate method, less impairment losses if any. Such assets are reviewed at each balance sheet date to determine whether there is objective evidence of impairment, such as a significant or prolonged decline in the fair value below carrying amount. If any such indication of impairment exists, an impairment calculation is undertaken and any impairment loss is recognised in the income statement as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at the original effective interest rate. If in a subsequent period the amount of an impairment loss recognised on a financial asset carried at amortised cost decreases and the decrease can be linked objectively to an event occurring after the write-down, the writedown is reversed through the income statements. (d) Investments in subsidiaries Investments in subsidiaries are measured in accordance with note 2(c). (e) Business combinations Business combinations relate to the acquisition by the Trust of controlling interests in other entities. The purchase method of accounting is used to account for all business combinations, including business combinations involving entities or businesses under common control, regardless of whether equity instruments or other assets are acquired. Cost is measured as the fair value of the consideration given plus costs directly attributable to the acquisition. (f) Net assets attributable to unitholders liabilities. The units can be Units are redeemable at the unitholders' option and are therefore classified as financial put back to the Trust 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 balance sheets date if unitholders exercised their right to put the units back to the Trust. (g) Cash and cash equivalents For cash flow statements presentation purposes, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions and bank overdrafts. Bank overdrafts are shown separately on the balance sheets. 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 Trust's main income generating activity. (h) Investment income Interest income and expenses are recognised in the income statements for all financial instruments that are not held at fair value through profi or loss using the effective interest method. Interest income on assets held at fair value through profit or loss is included in the net gains/(losses) on financial instruments. Other changes in fair value for such instruments are recorded in accordance with the policies described in note 2(c). -12-
2 Summary of significant accounting policies (h) Investment income 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 Trust estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment options) but does not consider future credit losses. The calculation includes all fees paid or received between the parties to the contract that are an integral part of the effective interest rate, including transaction costs and all other premiums or discounts. Dividend income is recognised on the ex-dividend date with any related foreign withholding tax recorded as an expense. Trust distributions are recognised on an entitlements basis. (i) Expenses Responsible Entity's fees, are recognised in the income statement on an accruals basis. All other expenses are recognised when incurred. ü) Income tax Under current legislation, the Trust is not subject to income tax provided the taxable income of the Trust is fully distributed either by way of cash or reinvestment (ie unitholders are presently entitled to the income of the Trust). 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 Trust is not subject to capital gains tax. Realised capital losses are not distributed to unitholders but are retained in the Trust to be offset against any realised capital gains. If realised capital gains exceed realised capital losses, the excess is distributed to unitholders. The benefis of imputation credits and foreign tax paid are passed on to unitholders. The Trust currently incurs withholding tax imposed by certain countries on investment income. Such income is recorded gross of withholding tax in the income statements. (k) Distributions In accordance with the Trust Constitution, the Trust distributes its distributable (taxable) income, and any other amounts determined by the Responsible Entity, to unitholders by cash or reinvestment. The distributions are recognised in the income statements 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 income statements as finance costs. -13-
2 Summary of significant accounting policies (m) Foreign currency translation i) Functional and presentation currency Items included in the Trust'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 Trust competes for funds and is regulated. The Australian dollar is also the Trust's presentation currency. ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translations at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statements. The Trust does not isolate that portion of gains or losses on securities and derivative financial instruments that are measured at fair value through profi 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. (n) Due from/to brokers Amounts due from/to brokers represent payables for securities purchased and receivables for securities sold that have been contracted for but not yet delivered by the end of the year. A provision for impairment of amounts due from brokers is established when there is objective evidence that the Trust will not be able to collect all amounts due from the relevant broker. Significant financial diffculties of the broker, probability that the broker will enter bankruptcy or financial reorganisation, and default in payments are considered indicators that the amount due from brokers is impaired. (0) 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. Receivables include such items as RITC and application monies receivable from unitholders. (p) Payables Payables includes liabilities and accrued expenses owing by the Trust which are unpaid as at balance date. The distribution amount payable to unitholders as at the reporting date is recognised separately on the balance sheets when unitholders are presently entitled to the distributable income under the Trust's Constitution. (q) Applications and redemptions Applications received for units in the Trust are recorded net of any entry fees payable prior to the issue of units in the Trust. Redemptions from the Trust are recorded gross of any exit fees payable after the cancellation of units redeemed. -14-
2 Summary of significant accounting policies (r) Goods and Services Tax (GST) The GST incurred on the costs of various services provided to the Trust by third parties such as custodial services and investment management fees have been passed onto the Trust. The Trust qualifies for Reduced Input Tax Credits (RITC) at a rate of 75% hence investment management fees, custodial fees and other expenses have been recognised in the income statements net of the amount of GST recoverable from the Australian Taxation Offce (ATO). Accounts payable are inclusive of GST. The net amount of GST recoverable from the ATO is included in receivables in the balance sheets. Cash flows relating to GST are included in the cash flow statements on a gross basis. (s) Use of estimates The Trust makes 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 Trust's financial instruments, quoted market prices are readily available. However, certain financial instruments such as 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 are calibrated by back-testing to actual transactions to ensure that outputs are reliable. 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) New accounting standards and interpretations Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2009 reporting periods. The directors' assessment of the impact of these new standards (to the extent relevant to the Trust) and interpretations is set out below: (i) Revised AASB 101 Presentation of Financial Statements and AASB 2007-8 Amendments to Australian Accounting Standards arising from AASB 101 (effective from 1 January 2009) The revised AASB 101 requires the presentation of a statement of comprehensive income and makes changes to the statement of changes in equity, but will not affect any of the amounts recognised in the financial statements. If a Trust has made a prior period adjustment or has reclassified items in the financial statements, it will need to disclose a third balance sheet (statement of financial position), this one being as at the beginning of the comparative period. The Trust will apply the revised standard from 1 July 2009. (ii) AASB 132 Financial Standards - Puttable Financial from 1 January 2009) Instruments: Presentation and AASB 2008-2 Amendments to Australian Accounting Instruments and Obligations Arising on Liquidation (Revised AASB 132) (effective Revised AASB 132 is applicable for reporting periods beginning on or after 1 January 2009. The Trust has not adopted this standard early. Application of this standard will not affect any of the amounts recognised in the financial statements as the Trust is obligated to distribute all of its taxable income in accordance with the Trust's Constitution. Accordingly, there will be no change to classification of' funds as a liability and therefore no impact on profit or loss and equity. (iii) AASB 2009-2 Amendments to Australian Accounting Standards - Improving Disclosures about Financial Instruments (effective from 1 January 2009) -15-
2 Summary of significant accounting policies (t) New accounting standards and interpretations In April 2009, the AASB published amendments to AASB 7 Financial Instruments: Disclosures to improve the information that entities report about their liquidity risk and the fair value of their financial instruments. The amendments require fair value measurement disclosures to be classified into a new three-level hierarchy and additional disclosures for items whose fair value is determined by valuation techniques rather than observable market values. The AASB also clarified and enhanced the existing requirements for the disclosure of liquidity risk of derivatives. The Trust will apply the amendments from 1 July 2009. They will not affect any of the amounts recognised in the financial statements. (u) Early adoption of standards The Trust has early adopted AASB 8 Operating Segments in the year ended. The application of AASB 8 will not impact the Trust as the Trust is outside the scope of AASB 8 because it does not have debt or equity instruments traded in a public market, or file its financial statements with a securities commission or other regulatory organisation for the purpose of issuing any class of instruments in a public market. Following the early adoption of AASB 8, the Trust has omitted the segment disclosure previously required under AASB 114 Segment Reporting. (v) Rounding of amounts The Trust 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 report. Amounts in the financial report have been rounded off to the nearest thousand dollars in accordance with that Class Order, unless otherwise indicated. 3 Financial risk management (a) Strategy in using financial instruments The consolidated entity and Trust's activities expose it to a variety of financial risks: market risk (including price risk), credit risk and liquidity risk. Entity The consolidated entity's financial risk is managed by the Investment Manager of the individual unit trusts within the consolidated entity. Entity The Trust's overall risk management programme focuses on seeking to ensure compliance with the Trust's governing documents and the law and seeks to maximise the returns derived for the level of risk to which the Trust is exposed. Financial risk management is carried out by the Responsible Entity's investment management team under policies approved by MIML's senior managers or by the board of directors of the Responsible Entity (the Board). (b) Market risk (i) Price risk In accordance with the underlying Trust's policy, the Responsible Entity's risk management team monitors the Trust's overall market price sensitivity on a daily basis. This is done by: - ensuring the Trust is invested in underlying trusts as per the Trust's investment strategy - not permitting leverage to limit exposure to market risk -16-
3 Financial risk management (b) Market risk - seeking to ensure the portfolio is fully invested to minimise cash drag The consolidated entity and underlying Trust's investments are susceptible to market price risk arising from uncertainties about future prices of securities. At, the underlying Trust's market risk is affected by changes in market prices. If the MSCI World Ex Australia Hedged at had increased by 15% with all other variables held constant, this would have increased net assets attributable to unitholders by approximately AUD $19,679,716 (2008: AUD $18,051,900). Conversely, if the MSCI World Ex Australia Hedged at had decreased by 15% with all other variable held constant, this would have decreased net assets attributable to unitholders by approximately AUD $19,679,716 (2008: AUD $18,051,900). At, the consolidated entity's market risk is affected by changes in market prices. If the MSCI World Ex Australia Hedged at had increased by 15% with all other variables held constant, this would have increased net assets attributable to unitholders by approximately AUD $25,808,100 (2008: AUD $17,363,550). Conversely, if the MSCI World Ex Australia Hedged at had decreased by 15% with all other variable held constant, this would have decreased net assets attributable to unitholders by approximately AUD $25,808,100 (2008: AUD $17,363,550). (ii) Foreign exchange risk The Trust has exposure to both monetary and non-monetary assets denominated in currencies other than the Australian dollar. The foreign exchange risk relating to non-monetary assets and liabilities is a component of price risk. Foreign exchange risk arises as the value of monetary securities denominated in other currencies will fluctuate due to changes in exchange rates. The risk is measured using sensitivity analysis. To reduce risk due to movements in foreign currency prices for investors who do not wish to be exposed to this risk, the fund hedge foreign exchange risks back to Australian Dollars. The Compliance Committee of the Responsible Entity reviews any identified exceptions to internal risk policies and procedures on a quarterly basis. The Trust exposure to foreign exchange risk is detailed in note 3(f) and sensitivity to foreign exchange risk is summarised in note 3(c). (iii) Interest rate risk The majority of the Trust's financial assets and liabilities are non-interest bearing. As a result, the Trust is not subject to significant amounts of risk due to fluctuations in the prevailing levels of market interest rates. Any excess cash and cash equivalents are invested at short-term market interest rates. -17-
3 Financial risk management (c) Foreign Exchange sensitivity analysis The following table summarises the sensitivity of the Trust's operating profi and net assets attributable to unitholders to foreign exchange risk. The reasonably possible movements in the risk variables have been determined based on management's best estimate, having regard to historical levels of changes in foreign exchange rates 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 fund invests. As a result, historic variations in risk variables are not a definitive indicator of future variations in the risk variables. Foreign exchange risk Impact on operating profit/net assets attributable to unitholders -15% +15% 30 June 2008 30 June 2008 $'000 (7,839) (11,558) $'000 7,839 11,558 Foreign exchange risk Impact on operating profit/net assets attributable to unitholders -15% +15% 18,022 6,514 (18,022) (6,514) (d) Credit risk Credit risk (other than that incorporated into price risk) arises from cash and cash equivalents, trading in derivatives, deposits with banks, counterparties to derivatives and other financial institutions and amounts due from brokers. None of these assets are impaired nor past due but not impaired. The Trust restricts its exposure to credit losses on cash and cash equivalents by ensuring the find only deals with highly rated counterparies and managing exposure with FX counterparties. In accordance with the Trust's policy, the Responsible Entity's risk management team monitors the Trust's credit position on a daily basis. The Compliance Committee of the Responsible Entity reviews any identified exceptions to internal risk policies and procedures on a quarterly basis. (e) Liquidity risk The Trust is exposed to daily cash redemptions of redeemable units. It therefore invests the majority of its assets in unlisted trusts that have a daily unit price and can be readily disposed of. In accordance with the Trust's policy, the Responsible Entity's risk management team monitors the Trust's liquidity position on a daily basis. This is managed by ensuring provisions are in place to manage liquidity obligations for all unitholders. The Compliance Committee of the Responsible Entity reviews any identified exceptions to internal risk policies and procedures on a quarterly basis. -18-
3 Financial risk management (e) Liquidity risk The table below analyses the Trust's financial liabilities excluding gross settled derivative financial liabilities into relevant maturity groupings based on the remaining period to the earliest possible contractual maturity date at the year end date. The amounts in the table are contractual undiscounted cash flows. Less than 1 month $'000 1-6 months $'000 6-12 months $'000 At Net settled derivatives Total financial liabilities At 30 June 2008 Net settled derivatives Total financial liabilities 117,194 117,194 52,625 52,625-19-
3 Financial risk management (f) Foreign exchange risk The table below summarises the Trust's exposure to foreign exchange risk. Australian Japanese British Other Dollars US Dollars Euro Yen Pounds currencies Total A$'OOO A$'OOO A$'OOO A$'OOO A$'OOO A$'OOO A$'OOO Assets Cash and cash equivalents 10,373 20,577 91 71 27 (510) 30,629 Due from brokers - receivable for securities sold 95 59 33 187 Financial assets held at fair value through profi or loss 123,336 139,947 33,394 23,952 33,035 65,896 419,560 Total assets 133,709 160,524 33,580 24,082 33,062 65,419 450,376 Liabilties Distributions payable 21 21 Due to brokers - payable for securities purchased 18,229 2,252 973 2,797 4,921 29,172 Other payables 45 45 Responsible Entity fees payable 155 155 Financial liabilities held at fair value through profit or loss 9,586 129,235 38,271 19,908 21,480 26,344 244,824 Net assets attributable to minority interests (redemption price of units) 41,239 41,239 Total liabilities (excluding net assets attributable to unitholders) 51,046 147,464 40,523 20,881 24,277 31,265 315,456 Net assets attributable to unitholders - liabilty 82,663 13,060 (6,943) 3,201 8,785 34,154 134,920-20-
3 Financial risk management (f) Foreign exchange risk Australian Japanese British Other Dollars US Dollars Euro Yen Pounds currencies Total A$'OOO A$'OOO A$'OOO A$'OOO A$'OOO A$'OOO A$'OOO Assets Cash and cash equivalents 717 717 Financial assets held at fair value through profi or loss 254.374 254.374 Total assets 255.091 255,091 Liabilties Distributions payable 2 2 Other payables 23 23 Financial liabilities held at fair value through profi or loss 72,613 22.754 14,033 10,746 120,146 Total liabilities (excluding net assets attributable to unitholders) 25 72,613 22,754 14.033 10.746 120,171 Net assets attributable to unitholders - liability 255.066 (72,613) (22,754) (14,033) (10.746) 134,920-21-
3 Financial risk management (f) Foreign exchange risk Australian Japanese British Other 30 June 2008 Dollars US Dollars Euro Yen Pounds currencies Total A$'OOO A$'OOO A$'OOO A$'OOO A$'OOO A$'OOO A$'OOO Assets Cash and cash equivalents 108 1,825 3 4 4 41 1,985 Due from brokers - receivable for securities sold 6,411 1,217 735 36 480 8,879 Receivables 407 407 Financial assets held at fair value through profit or loss 51,963 119,917 31,122 22,661 11,621 49,440 286,724 Total assets 52,478 128,153 32,342 23,400 11,661 49,961 297,995 Liabilities Distributions payable 29 29 Due to brokers - payable for securities purchased 2,864 66 434 3,364 Other payables 72 72 Responsible Entity fees payable 138 138 Financial liabilities held at fair value through profit or loss 4,717 87,665 23,406 11,520 15,825 26,686 169,819 Bank overdraft 2,639 2,639 Net assets attributable to minority interests (redemption price of units) 3,325 3,325 Total liabilities (excluding net assets attributable to unitholder) 10,920 90,529 23,406 11,520 15,891 27,120 179,386 Net assets attributable to unitholders - liability 41,558 37,624 8,936 11,880 (4,230) 22,841 118,609-22-
3 Financial risk management (f) Foreign exchange risk Australian Japanese British Other 30 June 2008 Dollars US Dollars Euro Yen Pounds currencies Total A$'OOO A$'OOO A$'OOO A$'OOO A$'OOO A$'OOO A$'OOO Assets Receivables 3 3 Financial assets held at fair value through profi or loss 169,376 2.299 1,324 418 526 173,943 Total assets 169,379 2,299 1,324 418 526 173,946 Liabilties Bank overdraft 2,639 2,639 Distributions payable 1 1 Other payables 72 72 Financial liabilities held at fair value through profi or loss Total liabilties 4,630 27,827 10,434 5,251 4.483 52,625 (excluding net assets attributable to unitholders) 7,342 27,827 10,434 5,251 4,483 55,337 Net assets attributable to unitholders - liability 162,037 (25,528) (9,110) (4,833) (3,957) 118,609 4 Auditor's remuneration During the year the following fees were paid or payable for services provided by the auditor of the Trust: Audit services PricewaterhouseCoopers Australian firm Audit and review of financial reports Other audit work under the Corporations Act 2001 Total remuneration for audit services $ $ 11,762 2,800 14,562 15,763 3,430 19,193 $ $ 3,174 1,400 4,574 6,959 1,715 8,674 Audit fees are paid out of the Responsible Entity's own resources. -23-
5 Net gains/(iosses) on financial instruments held at fair value through profit or loss Net gains/(iosses) recognised in relation to financial assets and financial loss: liabilities held at fair value through profit or Net gains/(iosses) on financial instruments designated as at fair value through profi or loss Net gains/(iosses) on financial instruments held for trading Net gains/(iosses) on financial assets held at fair value through profi or loss (20,786) 22,295 1,509 (26,255) (13,623) (39,878) (12,030) 14,139 2,109 (35,092) (3,601 ) (38,693) 6 Net assets attributable to unitholders of the parent Movements in number of units and net assets attributable to unitholders of the parent during the year were as follows: As stipulated within the Trust Constitution, each unit represents an undivided share in the Trust and does not extend to a right to the underlying assets of the Trust. There are no separate classes of units and each unit has the same rights attaching to it as all other units of the Trust. Opening balance Applications Redemptions Units issued upon reinvestment of distributions Increase/(decrease) in net assets attributable to unitholders Closing balance 30 June 2009 No. '000 130,761 45,758 (36,364) 9,344 149,499 2008 2009 No. '000 $'000 132,955 118,609 20,166 42,830 (24,460) 2,100 (32,846) 8,460 (2,133) 130,761 134,920 30 June 2008 $'000 158,857 23,672 (28,145) 2,069 (37,844) 118,609 Capital risk management The Trust manages 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 Trust is subject to daily applications and redemptions at the discretion of unitholders. The Trust monitors the level of daily applications and redemptions relative to the liquid assets in the Trust. 7 Cash and cash equivalents Cash at bank 30,629 1,985 717-24-
7 Cash and cash equivalents (a) Reconcilation to cash at the end of the year The above figures are reconciled to cash at the end of the financial year as shown in the cash flow statement as follows: Balances as above Bank overdrafts Balances per cash flow statement 30,629 30,629 1,985 (2,639) (654) 717 717 (2,639) (2,639) 8 Financial assets held at fair value through profit or loss Notes Fair value Fair value Fair value Fair value Held for trading Derivatives (note 10) Total held for trading 10 247,506 247,506 170,967 170,967 123,176 123,176 53,597 53,597 Notes Fair value Fair value Fair value Fair value Designated at fair value through profit or loss Equity securities Unlisted unit trusts Total financial assets held at fair value through profit or loss 172,054 115,757 419,560 286,724 131,198 254,374 120,346 173,943 Notes Fair value Fair value Fair value Fair value Equity securities International equity securities listed on a prescribed stock exchange Total equity securities 172,054 172,054 115,757 115,757-25-
8 Financial assets held at fair value through profit or loss Notes Fair value Fair value Fair value Fair value Derivatives Foreign currency forward contracts Total derivatives 247,506 247,506 170,967 170,967 123,176 123,176 53,597 53,597 Notes Fair value Fair value Fair value Fair value Unlisted unit trusts Units in Australian equity trusts Total unlisted unit trusts 131,198 131,198 120,346 120,346 Total financial assets held at fair value through profit or loss 419,560 286,724 254,374 173,943 An overview of the risk exposures relating to financial assets at fair value through profi or loss is included in note 3. 9 Financial liabilities held at fair value through profit or loss Fair value Fair value Fair value Fair value Held for trading Derivatives (note 10) Total held for trading 244,824 244,824 169,819 169,819 120,146 120,146 52,625 52,625 Total financial liabilities held at fair value through profit or loss 244,824 169,819 120,146 52,625 Fair value Fair value Fair value Fair value Derivatives Foreign currency forward contracts Total derivatives 244,824 244,824 169,819 169,819 120,146 120,146 52,625 52,625 Total financial liabilities held at fair value through profit or loss 244,824 169,819 120,146 52,625-26-
9 Financial liabilities held at fair value through profit or loss An overview of the risk exposures relating to financial liabilities at fair value through profit or loss is included in note 3. 10 Derivative financial instruments In the normal course of business the Trust enters into transactions in various derivative financial instruments with certain risks. A derivative is a financial instrument or other contract which is setted 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 a wide assortment of instruments, such as forwards, futures and options. Derivatives are considered to be part of the investment process. The use of derivatives is an essential part of the Trust's portolio 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 Trust 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 portolios or the weighted average maturity of cash portfolios. The Trust holds the following derivative instruments: Forward currency contracts Forward currency contracts are primarily used by the Trust to hedge against foreign currency exchange rate risks on its non-australian dollar denominated trading securities. The Trust agrees to receive or deliver a fixed quantity of foreign currency for an agreed upon price on an agreed future date. Forward currency contracts are valued at the prevailing bid price at the reporting date. The Trust recognises a gain or loss equal to the change in fair value at the reporting date. -27-