MQ Multi-Strategy Fund - Capital Protected ARSN Annual report - 30 June 2009

Transcription

1 ARSN Annual report -

2 MQ Portolio Management Limited ACN (Responsible Entity of the Entity ("the Entity") ARSN ) is a wholly owned subsidiary of Macquarie Bank Limited ACN who in turn is a wholly owned subsidiary of Macquarie Group Limited ACN Other than Macquarie Bank Limited ABN ("MBL"), any Macquarie Group entity noted on this page is not an authorised deposit-taking institution for the purposes of the Banking Act 1959 (Commonwealth of Australia). That entity's obligations do not represent deposits or other liabilities of MBL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of that entity, unless noted otherwise. This report is not an offer or invitation for subscription or purchase, or a recommendation of securities. It does not take into account the investment objectives, financial situation and particular needs of the investor. Before making an investment in MQ Multi-Strategy Fund - Capital Protected, the investor or prospective investor should consider whether such an investment is appropriate to their particular investment needs, objectives and financial circumstances and consult an investment adviser if necessary. MQ Portfolio Management Limited, as Responsible Entity of the Trust, is entitled to fees for so acting. Macquarie Bank Limited and its related corporations, together with their officers and Directors, may hold units in MQ Multi-Strategy Fund - Capital Protected from time to time.

3 ARSN 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 MQ Multi-Strategy Fund - Capital Protected Page This financial report covers MQ Multi-Strategy Fund - Capital Protected as an individual entity and the consolidated entity consisting of MQ Multi-Strategy Fund - Capital Protected and its subsidiaries. The Responsible Entity of MQ Multi-Strategy Fund - Capital Protected is MQ Portfolio Management Limited (ACN ). The Responsible Entity's registered office is Mezzanine Level, No.1 Martin Place, Sydney, NSW

4 Directors' report Directors' report In respect of the year ended, the Directors of MQ Portfolio Management Limited ("Responsible Entity") submit the following report together with the consolidated financial report of MQ Multi-Strategy Fund - Capital Protected ("Trust" and its controlled entity (" Entity") made out in accordance with a resolution of the Directors. Principal activities The principal activity of the Trust in the past has been to achieve long-term absolute returns with low to moderate levels of risk by providing exposure to a portfolio of absolute return strategies and specialist equity strategies. During the year the fall in the value of the underlying fund was sufficient to trigger a full allocation to Fixed Interest Investments in accordance with the capital protection provisions outlined in the Trust's Product Disclosure Statement. Consequently, the holding in the underlying fund was fully redeemed and replaced with a fixed interest zero coupon bond which aims to protect the capital value of the portolio so that the value of the Fund on Capital Protection Date is at least equal to the aggregate capital protected amount (being the total Capital Protected Amount for all Unitholders). This means that the Fund will no longer trade in or provide exposure to absolute return or equity strategies. The principal activity of the Fund will be to hold the fixed interest zero coupon bond until it matures on the Capital Protection Date. The consolidated entity did not have any employees during the year. Directors The following persons held office as directors of MQ Portfolio Management Limited during the year or since the end of the year and up to the date of this report: Ottmar Weiss (resigned 23/06/2009) Gregory John Mackay (resigned 19/09/2008) Bruce Neil Terry Gervaise Robert John Heddle Scot Thompson (appointed 03/02/2009) Review and results of operations During the year, the Trust continued to invest funds in accordance with its investment strategy as set out in the governing documents of the Trust 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: Total net investment income/(loss) Operating profiu(loss) before finance costs attributable to unitholders Year ended (892,050) (6,723,458) (2,966,643) (17,359,138) Distributions Distribution paid and payable 1,803,370 1,803,370 Year ended (884,192) (11,485,760) (1,663,906) (13,249,603) Significant changes in state of affairs During the year the threshold management provisions under the Trust's Product Disclosure Statement required the investment in the MQ Multi-Strategy Fund be replaced with a fixed interest zero coupon bond. As a result the Trust is required to remain invested in this security until the Capital Protection Date. -2-

5 Directors' report Directors' report 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. Likely developments and expected results of operations The Trust will continue to be managed in accordance with the investment objectives and guidelines as set out in the governing documents of the Trust and in accordance with the provisions of the Trust Constitution. The results of the Trust's operations wil only be affected by movements in interest rates as the fund is now fully invested in zero coupon bonds. 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. Indemnification and insurance of offcers 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 MQ Portolio Management Limited or the auditors of the Trust. So long as the officers of MQ Portfolio 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 Fund 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 out of Trust property during the year are disclosed in note 10 on page 28 of the f 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 10 on page 28 of the financial statements. Interests in the Trust The movement in units on issue in the Trust during the year is disclosed in note 5 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. -3-

6 Directors' report Directors' report 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. Gervaise Robert John Heddle Director Sydney 29 September

7 PRCEW1ERHOUSEßPERS I PricewaterhouseCoopers ABN Auditor's Independence Declaration As lead auditor for the audit of MQ Multi-Strategy Fund - Capital Protected for the year ended, I declare that to the best of my knowledge and belief, there have been: Darling Park Tower Sussex Street GPO BOX 2650 SYDNEY NSW 1171 OX 77 Sydney Australia Telephone Facsimile 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 MQ Multi-Strategy Fund - Capital Protected and the entities it controlled during the year. *E A Barron Partner PricewaterhouseCoopers Sydney 29 September 2009 Liability limited by a scheme approved under Professional Standards Legislation

8 Income statements For the year ended Income statements Notes Investment income Interest income from financial assets not held at fair value through profit or loss 736,790 3,047,592 95, ,330 Dividend income 814,963 4,702,672 Distribution income Net gains/(losses) on financial instruments held at fair value through profit or loss 4 (2,458,030) (14,971,998) (987,541) (11,736,188) Other operating income 14, ,431 8, Total net investment income/(loss) (892,050) (6,723,458) (884,192) (11, ) Expenses Management fees ,602 2,872, , ,516 Performance fees 10 3,208 Interest expense 667,655 4,358,454 Transaction costs 156,646 1,379,477 Dividends paid on short equity positions 211,692 1,087,405 Placement incentive recovery fees , , ,812 Operational costs 10 67,212 95,515 67,212 95,515 Total operating expenses 2,074, , ,714 1, Operating profit/(ioss) (2,966,643) (17,359, 138) (1,663,906) (13, ) Finance costs attributable to unitholders Distributions to unitholders of the parent entity (1,803,370) (1,803,370) (Increase)/decrease in net assets attributable to unitholders of the parent entity 5 3,467,276 13,249,603 3,467,276 13,249,603 (Increase)/decrease in net assets attributable to minority interests 1,302,737 4,109,535 Profit/(Ioss) for the year The above income statements should be read in conjunction with the accompanying notes. -6-

9 MQ Multi-Strategy Fund. Capital Protected Balance sheets As at Balance sheets Notes Assets Cash and cash equivalents 6 211,730 2,315, , ,389 Due from brokers - receivable for securities sold 5,785,104 Receivables 6,472 9,774,650 6,472 1,260,134 Financial assets held at fair value through profit or loss 7 48,678,826 92,176,270 48,678,826 59,511,007 Total assets 48,897, ,051,971 48,897,028 60,927,530 Liabilities Distributions payable 1,803,370 1,803,370 Due to brokers - payable for securities purchased 33,841 Responsible Entity fees payable 10 33, ,510 33, ,510 Other payables 2,022,620 6,273,710 2,022,620 20,246 Financial liabilities held at fair value through profi or loss 8 29,652,074 Net assets attributable to minority interests (redemption price of units) Total liabilties (excluding net assets 13,185,062 attributable to unitholders of the parent entity) 3,859,252 49,529,197 3,859, ,756 Net assets attributable to unitholders of the parent entity - liabilty 5 45,037,776 60,522,774 45,037,776 60,522)74 The above balance sheets should be read in conjunction with the accompanying notes. -7-

10 Statements of changes in equity For the year ended Statements of changes in equity Total equity at the beginning of the financial year ProfiU(loss) 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 liability rather than equity. As a result there was no equity at the start or end of the year. The above statement of changes in equity should be read in conjunction with the accompanying notes. -8-

11 Cash flow statements For the year ended Cash flow statements Notes Cash flows from operating activities Proceeds from sale of financial 155,206,247 1,514,222,148 44,049,433 72,225,000 instruments held at fair value through profit or loss Purchase of financial instruments held (151,628,724) (1,426,670,733; (32,983,839) (48,037,000) at fair value through profi or loss Dividends received 903,546 5,161,471 Interest received 764,972 3,063, , ,649 Trust distributions received 4,366,807 3,630,577 Other income received 45, ,645 8, ,744 Responsible Entity's fees (6,041,041 ) (1,048,301) (2,080,962) received/(paid) (1,029,358) Interest paid (801,283) (4,256,123) Other expenses paid (257,327) (1,396,927) (99,003) Decrease in consolidated cash balance (954,132) Dividends paid on short equity positions Due tolfrom brokers (190,089) (2,329,843) (1,100,821 ) (27,127,982) on loss of control of subsidiary Net cash inflow/(outflow) from 11 (a) (269,994) 60,793,173 10,054,348 26,132,008 operating activities Cash flows from financing activities Proceeds from applications by unitholders 11,059,971 Payments for redemptions by unitholders (17,839,901) (58,625,511 ) (9,999,007) (24,718,358) Distributions paid (6,915,139) (1,509,682) Application monies received in advance (6A29,377) Net cash inflow/(outflow) from financing activities (17,839,901) (60,910,056) (9,999,007) (26,228,040) Net increase/(decrease) in cash and cash equivalents (18,109,895) (116,883) 55,341 (96,032) Cash and cash equivalents at the beginning of the year 2,315,947 6,265, , ,421 Effects of foreign currency exchange rate changes on cash and cash equivalents 16,005,678 (3,832,900) Cash and cash equivalents at the end of the year 6 211,730 2,315, , ,389 The above cash flow statements should be read in conjunction with the accompanying notes. -9-

12 1 General information This financial report includes separate financial statements for MQ Multi-Strategy Fund - Capital Protected ("the Trust" as an individual entity and the consolidated entity consisting of MQ Multi-Strategy Fund - Capital Protected and its subsidiaries. The Trust was constituted on 2 September The Responsible Entity of the Trust is MQ Portfolio Management Limited (MQPML), a wholly owned subsidiary of Macquarie Bank Limited (UMBL") which in turn is a wholly owned subsidiary of Macquarie Group Limited. The registered office of the Responsible Entity is Mezzanine Level, NO.1 Martin Place, Sydney, NSW The financial report is presented in the Australian currency. On 26 November 2008, the Trust ceased to control the MQ Multi-Strategy Fund ("Controlled Entity") as the unit holding reduced to zero as at that date. For the year ended, the consolidated profit and loss includes a net operating loss of $6,736,815 attributable to the Controlled Entity for the period from 1 July 2008 to the date of cessation of control. The principal activity of the Trust since inception had been to provide exposure to the Controlled Entity. During the year the fall in the value of the Controlled Entity was sufficient to trigger a full allocation into Fixed Interest Investments in accordance with the capital protection provisions outlined in the Trust's Product Disclosure Statement. Consequently the Trust is now solely invested in a fixed interest zero coupon bond. The Trust wil no longer trade in or provide exposure to the Controlled Entity. The principal activity of the Trust will be to hold the fixed interest zero coupon bond until it matures on the Capital Protection Date, in accordance with the capital protection provision outlined in the Trusts product Disclosure Statement. The financial statements were authorised for issue by the directors on 29 September 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 International Financial Reporting Standards (IFRS) Australian Accounting Standards include Australian equivalents to International Financial Reporting Standards (AI FRS). 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 MQ Multi-Strategy Fund - Capital Protected ("the parent entity") as at and the results of all subsidiaries for the year then ended. MQ Multi-Strategy Fund - Capital Protected 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. -10-

13 2 Summary of significant accounting policies (b) Principles of consolidation 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 entiies in the consolidated group are eliminated. Minority interests in the results and net assets of subsidiaries are shown separately in the consolidated income statements and balance sheets respectively. Investments in subsidiaries are accounted for at fair value in the individual financial statements of MQ Multi- Strategy Fund - Capital Protected. (c) Financial instruments (i) Classification The Trust's investments are categorised as at fair value through profit or loss. They comprise:. Financial instruments held for trading These include derivative financial instruments including futures, forward contracts, options and interest rate swaps. 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, 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 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. The Trust makes short sales in which a borrowed security is sold in anticipation of a decline in the market value of that security, or it may use short sales for various arbitrage transactions. Short sales are classified as financial liabilities at fair value through profit or loss. (ii) Recognition/derecogniton The Trust 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. Investments are derecognised when the right to receive cashflows from the investments have expired or the Trust has transferred substantially all risks and rewards of ownership. (iii) Measurement Financial assets and liabilities held at fair value through profi 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 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. -11-

14 MQ Multi-8trategy Fund - Capital Protected 2 Summary of significant accounting policies (c) Financial instruments. Fair value in an inactive or unquoted market The fair value of financial assets and liabilities that are not traded in an active market is determined using valuation techniques. These include the use of recent arm's length market transactions, reference to the current fair value of a substantially similar other instrument, discounted cash flow techniques, option pricing models or any other valuation technique that provides a reliable estimate of prices obtained in actual market transactions. For other pricing models, inputs are based on market data at the balance sheets date. Fair values for unquoted equity investments are estimated, if possible, using applicable pricinglearnings ratios for similar listed companies adjusted to reflect the specific circumstances of the issuer. (a) 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. (iv) Offsettng financial instruments Financial assets and liabilities are offset and the net amount reported in the balance sheets when there is a legally enforceable right to offset the recognised amounts and there is an intention to sette on a net basis, or realise the asset and settle the liability simultaneously. (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 Units are redeemable at the unitholders' option and are therefore classified as financial liabilities. The units can be 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 statement 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 sheet. -12-

15 2 Summary of significant accounting policies (g) Cash and cash equivalents 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 profit 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). 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 liabilty. 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. Dividends declared on securities sold short are recorded as a dividend expense on the ex-dividend date. 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 benefits 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. -13-

16 2 Summary of significant accounting policies (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. (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 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 profi or loss. (n) Due from/to brokers Amounts due fromlto 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 difficulties 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 and interest. Dividends are accrued when the right to receive payment is established. Interest is accrued at the reporting date from the time of last payment in accordance with the policy set out in note 2(h) above. Amounts are generally received within 30 days of being recorded as receivables. (p) Payables Payables includes liabilities and accrued expenses owing by the 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-

17 MQ Multi-5trategy Fund - Capital Protected 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 audit fees, custodial services and investment management fees have been passed onto the Trust. The Fund 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 Office (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, for example, over-the-counter derivatives or unquoted securities are fair valued using valuation techniques. Where valuation techniques (for example, pricing models) are used to determine fair values, they are validated and periodically reviewed by experienced personnel of the Responsible Entity, independent of the area that created them. Models 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. For certain other financial instruments, including amounts due fromlto brokers, accounts payable and the carrying amounts approximate fair value due to the immediate or short-term nature of these 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 MSB 101 Presentation of Financial Statements and MSB Amendments to Australian Accounting Standards arising from AASB 101 (effective from 1 January 2009) The revised MSB 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 (ii) MSB 132 Financial Standards - Puttable Financial from 1 January 2009) Instruments: Presentation and MSB Amendments to Australian Accounting Instruments and Obligations Arising on Liquidation (Revised MSB 132) (effective Revised MSB 132 is applicable for reporting periods beginning on or after 1 January 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 unitholders' funds as a liability and therefore no impact on profit or loss and equity. (iii) MSB Amendments to Australian Accounting Standards - Improving Disclosures about Financial Instruments (effective from 1 January 2009) -15-

18 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 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) Margin accounts Margin accounts comprise cash held as collateral for derivative transactions and short sales. The cash is held by the broker and is only available to meet margin calls. 3 Financial risk management The Trust's activities 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 Trust's overall risk management programme focuses on ensuring compliance with the Trust's Product Disclosure Statement, and (to the extent permitted by the Trust's Product Disclosure Statement) seeks to maximise the returns derived for the level of risk to which the Trust is exposed. The Trust uses derivative financial instruments to alter certain risk exposures. The Trust is now required under the terms of the Trusts Product Disclosure Statement to remain fully invested in a zero coupon bond until the Capital Protection Date. The Trust is not permitted to maintain or manage any other exposures until that date, and this will be reflected in the Trust's risk management programme going forward. Financial risk management is carried out by the Responsible Entiy's risk department under policies approved by MQPML's senior managers or by the board of directors of the Responsible Entity (the Board). The Trust uses different methods to measure different types of risk to which it is exposed. These methods may include sensitivity analysis in the case of foreign exchange and other price risks and ratings analysis for credit risk. Investment objectives The Trust's investment objective is to achieve long term returns, while protecting investors against a loss of their application amount. The Trust has previously sought to achieve its investment objective through investing in the Controlled Entity. The fund now invests solely in a zero coupon bond, and is therefore primarily exposed to credit risk, interest rate risk and other liquidity risk. The Trust trades in regulated financial markets. The laws and regulations that govern these markets may change in a way that adversely affects the ability of the Trust to meet its investment objective. -16-

19 3 Financial risk management Investment policies The primary objective of the Trust has previously been to provide exposure to a portfolio of absolute return strategies in order to achieve capital appreciation with moderate volatility and low correlation to traditional asset classes. In accordance with the terms of the Trust's Product Disclosure Statement, its primary objective going forward is to hold certain zero coupon bonds until they mature, with the objective of preserving the value of the Trust's assets to meet the Aggregate Capital Protected Amount at the relevant Capital Protection Date. Derivatives are generally used for hedging purposes but may be used to gain market exposure. Exchange traded and over the counter derivatives, including (but not limited to) futures and options may be used by the Trust. The relatively small margin required to establish a position in these instruments permits a high degree of leverage. As a result, these instruments can be highly volatile. Basis risk (ie the risk that the derivative position will not move in line with the underlying position) is taken into account by the investment managers as part of the investment process. Daily monitoring of the use of derivatives is undertaken by the divisional risk team. Any breaches are reported to compliance and management. Investment processes The Trust aims to achieve its objective by providing exposure to various investment strategies employed by the investment manager. The Trust wil apply one of the investment strategies directly to a component of the Trust. Prior to the move into bonds the investment manager would usually leverage the Trust's exposure to the underlying investment strategies. The level of leverage utilised by the investment manager may be significant. Whilst the use of leverage may increase the potential return on the investment in the Trust, it also increases the level of risk and may also result in substantial losses. The Trust may also trade futures contracts for hedging the overall risk and return profile of the Trust. The Trust may provide exposure to the investment strategies described below. In addition to the investment strategies discussed below, other investment strategies may be used from time to time as determined by the directors.. MQ Asia Long Short Strategy. MQ Australian Absolute Return Strategy. MQ Global Futures Strategy. MQ Income Timing Strategy. MQ Japan Market Neutral Strategy. MQ Special Events Strategy. MQ Buy Write Strategy The Trust is now required under the Trusts's Product Disclosure Statement to invest in a zero coupon bond, and must remain solely invested in it unti it matures on the Capital Protection Date. The risks and the respective risk management policies employed by the Trust are discussed below. Refer to note 10 for further information on derivative financial instruments. (a) Market risk (i) Other price risk Market price risk comprises of three components; other price risk, foreign exchange risk and interest rate risk. Other price risk is the risk that the value of the Entity's investments will fluctuate as a result of changes in market prices. The Entity's other price risk is monitored by the Investment Manager on an ongoing basis and is managed through diversification of the investment portfolio, hedging of various positions through the use of futures contracts, swaps, forward contracts and other appropriate instruments. -17-

20 3 Financial risk management (a) Market risk Short sales made by the Entity involve certain risks and special considerations. Possible losses from short sales differ from losses that could be incurred from a purchase of a security, because losses from short sales may be unlimited, whereas losses from purchases cannot exceed the total amount invested. The Entity's equity securities held long and short, whether cash positions or through derivative instruments, were substantially all publicly traded. The table below summarises the impact of increasesldecreases of the key indices to which the Entity was exposed on the value of the investment. The analysis is based on the assumption that the indices had increased/decreased by the respective percentage and the Entity's investments moved according to the historical correlation with the relevant index, and taking into account any other price risk hedging positions, such as index futures, held at the year end. Entity: Australia (ASX 200) Japan (Topix) Hong Kong (Hang Seng) Singapore (FSSTI) 30 June 200a 30 June 200a Change in Change in market index Impact on Fund market index Impact on Fund % $ % $ , , , ,630 Australia (ASX 200) Japan (Topix) Hong Kong (Hang Seng) Singapore (FSSTI) 30-Jun Jun Jun-Oa 30-Jun-Oa Change in Change in market index Impact on Fund market index Impact on Fund % $ % $ (5) (5) (284,896) (5) (5) (237,117) (5) (5) (136,648) (5) (5) (184,740) Entiy: Australia (ASX 200) Japan (Topix) Hong Kong (Hang Seng) Singapore (FSSTI) 30-Jun Jun Jun-oa 30-Jun-oa Change in Change in market index Impact on Fund market index Impact on Fund % $ % $ , , ,486 Australia (ASX 200) Japan (Topix) Hong Kong (Hang Seng) Singapore (FSSTI) 30-Jun Jun Jun-Oa 30.Jun-oa Change in Change in market index Impact on Fund market index Impact on Fund % $ % $ (5) (5) (220,367) (5) (5) (183,410) (5) (5) (105,697) (5) (5) (142,896) -18-

21 3 Financial risk management (a) Market risk The Entity was exposed to other price risk on its investment in its subsidiary. Other price risk for the subsidiary is monitored by the Investment Manager on an ongoing basis and is managed through diversification of the investment portfolio, hedging of various positions through the use of futures contracts, swaps, forward contracts and other appropriate instruments. (ii) Interest rate risk The Trust is exposed to interest rate risk on its bank and broker balances and its zero coupon bonds. The Trust holds close to 100% of the net assets attributable to unitholders in fixed interest securities. The Compliance Committee of the Responsible Entity reviews any identified exceptions to internal risk policies and procedures on a quarterly basis. Interest income and expense may fluctuate in amount, in particular due to changes in interest rates. The table below summarises the impact of an increaseldecrease of interest rates on the Trust's net assets attributable to unitholders through changes in fair value or changes in future cash flows: Impact on operating profit/net assets attributable to unitholders +/-50bps $ 30 June , ,676 (b) Credit risk Credit risk is the risk that one party to a financial instrument will fail to discharge its obligation and cause the other party to incur a financial loss The Trust takes on exposure to credit risk with both Macquarie Bank Limited ("MBL") and with third parties through its investment in its subsidiary. The Trust is exposed to the risk that MBL wil default on its contractual obligations to deliver the capital protected amount on the capital protection date. The obligations of MBL are not deposit liabilities of MBL and they are not guaranteed by any party. The obligations are unsecured, and will rank behind claims of secured creditors and mandatory creditors under the law. Collateral pledged under prime brokerage agreements The Trust limits its exposure to credit risk by transacting the majority of its securities and contractual commitment activities with broker-dealers, banks and regulated exchanges with high credit ratings and that the Trust considers to be well established. The maximum exposure to credit risk at the reporting date is the carrying amount of the financial assets excluding those assets not subject to credit risk (i.e. equity securities as disclosed in note 9). In accordance with the Trust's policy, the Investment Manager monitors the Trust's credit position on a daily basis. (c) Liquidity risk Liquidity risk is the risk that the Trust will encounter difficulty in meeting obligations associated with financial liabilities. The Trust is exposed to daily cash redemptions of redeemable units and as a result it primarily holds investments that are traded in an active market and can be readily disposed. The Trust's listed securities are considered readily realisable. The Trust may invest in derivative contracts traded over the counter, which are not traded in an organised market and may be illiquid. As a result, the Trust may not be able to quickly liquidate its investments in these instruments at an amount close to their fair value to meet its liquidity requirements or to respond to specific events such as deterioration in the creditworthiness of any particular issuer or counterparty. -19-

22 3 Financial risk management (c) Liquidity risk As of, the Investment Manager believes that all of its positions are in liquid instruments that can be liquidated without any significant market impact. The table below analyses the Trust's financial liabilities, includes gross setted derivative financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the earliest possible contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying amounts, as the impact of discounting is not significant. At Distribution payable Other payables Net assets attributable to unitholders Total financial liabilities No stated month 1-6 months maturity Total Less than 1 1,803,370 1, ,022,620 33,262 2,055,882 45,037, ,775 47,060,395 1, ,897,027 At 30 June 2008 Financial liabilities at fair value through profit or loss Amount due to broker Dividend payable on short position Payable for investment purchased Other payables Net assets attributable to unitholders Total financial liabilities 466,481 31,381 5,758, , , ,386 33,841 12, ,891 28,633,207 1A54, ,207 29,652,074 33,841 43,956 5,758, ,891 73, At Distribution payable Other payables Net assets attributable to unitholders Total financial liabilities Less than 1 month 1-6 months No stated maturity Total 2,022,620 45,037,775 47,060,395 1,803,370 33,262 1,836,632 1,803,370 2,055,882 45,037J75 48,897,027 At 30 June 2008 Other payables Net assets attributable to unitholders Total financial liabilities 404,755 60,522,774 60,522, , ,755 60,522,774 60, In accordance with the Trust's policy, theresponsible Entity's risk management team monitors the Trust's liquidity position on a continual basis to enable them to close out of positions at any point in time. Further, prior to any derivative position being entered into, the relationship between the likely liquidity and the size of the position taken is considered. -20-