FirstChoice Wholesale Investments - Colonial First State

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COLONIAL FIRST STATE - FIRSTCHOICE WHOLESALE INVESTMENT FUNDS13. EVENTS AFTER BALANCE SHEET DATENOTES TO THE FINANCIAL STATEMENTSFOR THE PERIOD ENDED 30 JUNE 2011Since the balance date Australian and international share markets have experienced a period of significant falls,impacting on the valuation of the Funds' investment portfolio.Certain Funds, directly or through their investment in other related managed investment schemes, hold investmentpositions, including derivatives, that expose it to Australian and international listed equities. As the investments aremeasured at their 30 June 2011 fair values in the financial report, these subsequent falls in value are not reflected in theStatement of Comprehensive Income and the Balance Sheet. As the Fund allocates all of its investment income tounitholders, the fall in value of investments have been reflected in the current unit price, resulting in a correspondingreduction in net assets attributable to unitholders. The impact of the falls in value are as follows:Unit prices Unit prices Movementas at as at30/06/2011 25/08/2011$ $ %FirstChoice Wholesale Defensive 0.948 0.9318 (1.71)FirstChoice Wholesale Balanced 1.1562 1.0815 (6.46)FirstChoice Wholesale Growth 0.8888 0.8204 (7.70)FirstChoice Wholesale High Growth 0.8221 0.7343 (10.68)FirstChoice Wholesale Geared Growth Plus 0.6723 0.5612 (16.53)FirstChoice Wholesale Global Share - Hedged 0.8533 0.7355 (13.81)FirstChoice Wholesale Geared Boutique Australian Share 0.3873 0.2964 (23.47)FirstChoice Wholesale Multi-Index Conservative 0.8436 0.8304 (1.56)FirstChoice Wholesale Multi-Index Balanced 0.8684 0.8116 (6.54)Colonial First State Wholesale Balanced 0.9943 0.9410 (5.36)Perpetual Wholesale Diversified Growth 0.9171 0.8873 (3.25)Colonial First State Wholesale High Growth 0.9432 0.8570 (9.14)Perpetual Wholesale Split Growth 0.756 0.6926 (8.39)Colonial First State Wholesale Index Property Securities 0.3922 0.3598 (8.26)Colonial First State Wholesale Index Australian Share 0.8839 0.8150 (7.79)Realindex Wholesale Australian Share 1.2125 1.1220 (7.46)Colonial First State Wholesale Future Leaders 0.8967 0.8468 (5.56)Realindex Wholesale Australian Small Companies 1.2408 1.1680 (5.87)Colonial First State Wholesale Index Global Share 0.8125 0.7239 (10.90)Realindex Wholesale Global Share 1.0454 0.9072 (13.22)Realindex Wholesale Global Share Hedged 1.2719 1.0794 (15.13)Perpetual Wholesale Conservative Growth 0.9666 0.9525 (1.46)No other matters or circumstances have arisen since 30 June 2011 that have significantly affected, or may significantlyaffect the Funds (2010 - None).Page 145
COLONIAL FIRST STATE - FIRSTCHOICE WHOLESALE INVESTMENT FUNDS14. HEDGE ACCOUNTINGNOTES TO THE FINANCIAL STATEMENTSFOR THE PERIOD ENDED 30 JUNE 2011(a)Financial Risk ManagementFirstChoice Wholesale Global Share - Hedged is referred to as the Fund in this note. Its investments, being the units heldin other global direct holding share funds, indirectly expose it to a variety of financial risks: market risk (including foreignexchange risk, interest rate risk and price risk), credit risk and liquidity risk. The Fund's overall risk management programfocuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financialperformance of the Fund. The Fund uses derivative financial instruments such as Forward Currency Contracts to hedgeforeign exchange risk exposures. The Fund may construct a basket of the most liquid currencies available within theportfolio to act as a proxy for the less liquid currency exposures. These contracts are exclusively used for hedgingpurposes, for example, not as speculative instruments.Risk management is carried out by the Compliance and Risk Management Department of the Responsible Entity underpolicies approved by the board of directors. The Compliance and Risk Management Department identifies, evaluates andhedges indirect foreign exchange risks in close co-operation with the Investment manager. The board provideswritten principles for overall risk management, as well as policies covering specific areas, such as foreign exchange riskand use of derivative financial instruments.Market Risk - Foreign Exchange RiskThe Fund indirectly holds both monetary and non-monetary assets denominated in currencies other than the Australiandollar. The foreign exchange risk relating to non-monetary assets and liabilities is a component of price risk. Foreignexchange risk arises as the value of monetary securities denominated in other currencies will fluctuate due tochanges in exchange rates. The risk is measured using sensitivity analysis, see Note 10.The Compliance and Risk Management Department of the Responsible Entity has set up an investment policy requiringthe Fund to manage its foreign exchange risk against its functional currency. The fund is required to hedge its indirectforeign exchange risk exposure arising from recognised investments using hedging instruments such as ForwardCurrency Contracts. The Fund's investment risk management policy is to hedge between 99 and 101 per cent of theforeign exchange exposures.(b)Derivative Financial InstrumentsInstruments used by the FundThe Fund is party to derivative financial instruments in the normal course of business in order to hedge exposure tofluctuations in foreign exchange rates in accordance with the Fund's investment risk management policy stated above.i) Derivatives Held for Fair Value HedgeForward Currency ContractsIn order to protect against exchange rate movements, the Fund has entered into Forward Currency Contracts, the termsand conditions of these contracts are usually short term three months and are contracted in accordance with theinvestment guidelines. These contracts are a hedging instrument held by the Fund and are classified as FinancialAssets or Liabilities Held for Trading.Page 146
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