FirstChoice Wholesale Investments - Colonial First State

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COLONIAL FIRST STATE - FIRSTCHOICE WHOLESALE INVESTMENT FUNDS9. SEGMENT INFORMATIONNOTES TO THE FINANCIAL STATEMENTSFOR THE PERIOD ENDED 30 JUNE 2011The Funds operate in one business segment, being investment management. The Funds operate from one geographiclocation being Australia, from where their investing activities are managed. Revenue is derived from distributions, interest,gains on the sale of investments, and unrealised changes in the value of investments.10. FINANCIAL RISK MANAGEMENTThe Funds' activities expose it to a variety of financial risks: market risk (including price risk, foreign exchange risk andinterest rate risk), credit risk and liquidity risk.The Funds' overall risk management programme focuses on ensuring compliance with the Fund's Product DisclosureStatement/Information Memorandum and seeks to maximise the returns derived for the level of risk to which the Fundsare exposed. Certain Funds use derivative financial instruments to alter certain risk exposures. Financial riskmanagement is carried out by the respective investment management departments (Investment Managers) and regularlymonitored by the Compliance Department of the Responsible Entity.The Funds use different methods to measure different types of risk to which it is exposed. These methods includesensitivity analysis in the case of interest rate, foreign exchange and other price risks and ratings analysis for credit risk.(a)(i)Market RiskPrice riskThe Funds' financial assets are either directly or indirectly exposed to price risk. This arises from investments held by theFunds for which prices in the future are uncertain. They are classified on the balance sheet at fair value through profit orloss. All securities investments present a risk of loss of capital.Where non-monetary financial instruments are denominated in currencies other than the Australian dollar, the price in thefuture will also fluctuate because of changes in foreign exchange rates. Paragraph (ii) below sets out how this componentof price risk is managed and measured.The Investment Managers mitigate price risk through diversification and a careful selection of securities and other financialinstruments within specified limits and guidelines in accordance with the Product Disclosure Statement/InformationMemorandum or Constitutions and are regularly monitored by the Compliance Department of the Responsible Entity.The table in Note 10 (b) summarises the impact of an increase/decrease of the Australian and global indexes on theFunds' net assets attributable to unitholders at 30 June 2011 and 30 June 2010. The analysis is based on theassumptions that the relevant indexes increased or decreased as tabled in Note 10 (b) with all other variables heldconstant and that the fair value of the Funds' which have indirect exposures to equity securities and derivatives movedaccording to the historical correlation with the indexes. Funds that invest in various asset classes, such as multi-sectorFunds, will have a weighted average movement calculated based on the proportion of their investments in the thoseclasses.Page 107
COLONIAL FIRST STATE - FIRSTCHOICE WHOLESALE INVESTMENT FUNDS10. FINANCIAL RISK MANAGEMENT (continued)NOTES TO THE FINANCIAL STATEMENTSFOR THE PERIOD ENDED 30 JUNE 2011(a)(ii)Market Risk (continued)Foreign exchange riskCertain Funds hold 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 not foreign exchangerisk. Foreign exchange risk arises as the value of monetary securities denominated in other currencies will fluctuate dueto changes in exchange rates. The risk is measured using sensitivity analysis.Certain Funds manage this risk by entering into foreign exchange forward contracts to hedge the risks. The terms andconditions of these contracts rarely exceed twelve months and are contracted in accordance with the investmentguidelines. However, for accounting purposes, with the exception of FirstChoice Wholesale Global Share - Hedged, theseFunds do not designate any derivatives as hedges in a hedging relationship, and hence these derivative financialinstruments are classified as at fair value through profit or loss.The Compliance Department of the Responsible Entity regularly monitors these hedging activities.The table below summarises the Funds' assets and liabilities, monetary and non-monetary, that are denominated in acurrency other than the Australian dollar.FirstChoice Wholesale Global Share - HedgedUnited States European Uk Pound Japanese OthersDollar Euro Sterling Yen30/06/2011 AUD AUD AUD AUD AUD$'000 $'000 $'000 $'000 $'000Net increase/decrease in exposurefrom:- foreign currency contract ( 553,019) ( 162,782) ( 104,514) ( 98,886) ( 127,006)Net exposure ( 553,019) ( 162,782) ( 104,514) ( 98,886) ( 127,006)FirstChoice Wholesale Global Share - HedgedUnited States European Japanese Uk Pound OthersDollar Euro Yen Sterling30/06/2010 AUD AUD AUD AUD AUD$'000 $'000 $'000 $'000 $'000Net increase/decrease in exposurefrom:- foreign currency contract ( 542,358) ( 150,151) ( 109,739) ( 101,399) ( 120,972)Net exposure ( 542,358) ( 150,151) ( 109,739) ( 101,399) ( 120,972)Colonial First State Wholesale BalancedUnited States European Uk Pound Japanese OthersDollar Euro Sterling Yen30/06/2011 AUD AUD AUD AUD AUD$'000 $'000 $'000 $'000 $'000Cash and cash equivalents - - 5 1 1Bank overdraft ( 46) ( 11) - - -Net exposure ( 46) ( 11) 5 1 1Page 108
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FirstChoice Wholesale Investments - Colonial First State

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