MQ Multi-Strategy Fund ARSN Annual report - For the period from 1 July 2008 to 27 May 2009

Transcription

1 ARSN Annual report - For the period from 1 July 2008 to

2 MQ Portfolio Management Limited ACN (Responsible Entity of MQ Multi-Strategy Fund ("he Fund") ARSN ) is a wholly owned subsidiary of Macquarie Bank Limited ACN which 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, 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 Fund, is entitled to fees for so acting. Macquarie Bank Limited and its related corporations, together with their offcers and Directors, may hold units in MQ Multi-Strategy Fund from time to time.

3 ARSN Annual report - For the period from 1 July 2008 to Contents Directors' report Auditor's independence declaration Income statement Balance sheet Statement of changes in equity Cash flow statement Directors' declaration Independent auditor's report to the unitholders of MQ Multi-Strategy Fund Page This financial report covers MQ Multi-Strategy Fund as an individual entity. The Responsible Entity of MQ Multi-Strategy Fund is MQ Portfolio Management Limited (ACN ). The Responsible Entity's registered offce is Mezzanine Level, NO.1 Martin Place, Sydney, NSW

4 Directors' report For the period from 1 July 2008 to Directors' report In respect of the period ended, the Directors of MQ Portfolio Management Limited ("the Responsible Entity") submit the following report on the financial report of MQ Multi-Strategy Fund ("he Fund") made out in accordance with a resolution of the Directors. Principal activities The principal activity of the Fund was 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 managed by the Investment Manager and in accordance with the provisions of the Fund's Constitution, until it was wound up on 27 May The Fund did not have any employees during the period. There were no significant changes in the nature of. the Fund's activities during the period, until it was wound up on Directors The following persons held offce as directors of MQ Portfolio Management Limited during the period or since the end of the period and up to the date of this report: Ottmar Weiss (resigned 23 June 2009) Gregory John Mackay (resigned 19 September 2008) Bruce Neil Terry Gervaise Robert John Heddle Scot Thompson (appointed 3 February 2009) Units held by Directors or their director related entities are disclosed in the relevant note to the financial report. Review and results of operations The financial report for the financial period ended, and the results herein, are prepared in accordance with Australian Equivalents to International Financial Reporting Standards ("AI FRS"). Results The performance of the Fund, as represented by the results of its operations, was as follows: For the period 1 July 2008 to 30 June 2008 Operating loss before finance costs attributable to unitholders Distributions Distribution paid and payable Distribution (cents per unit) (6,779,405) (16,061,020) Significant changes in state of affairs The Fund was wound up on. In the opinion of the directors, there were no other significant changes in the state of affairs of the Fund that occurred during the financial period which are not otherwise disclosed in this report. -2-

5 Directors' report For the period from 1 July 2008 to Directors' report Events subsequent to balance sheet date On 23 June 2009, Ottmar Weiss resigned as a director of MQ Portfolio Management Limited. As at the date of this report the Directors are not aware of any other matters or circumstances which have arisen since the end of the financial period which may significantly affect the future state of affairs of the Fund. Indemnification and insurance of officers and auditors No insurance premiums are paid for out of the assets of the Fund in regard to insurance cover provided to either to the offcers of the Responsible Entity or the auditors of the Fund. So long as the offcers of the Responsible Entity act in accordance with the Fund Constitution and the Corporations Act 2001, the offcers remain indemnified out of the assets of the Fund against any losses incurred while acting on behalf of the Fund. The auditors of the Fund are in no way indemnified out of the assets of the Fund. Fees paid to and interests held in the Fund by the Responsible Entity or its associates Fees paid to the Responsible Entity and its associates out of Trust property during the period are disclosed in note 13 on page 26 of the financial statements. No fees were paid out of Fund property to the directors of the Responsible Entity during the period. 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 13 on page 26 of the financial statements. Interests in the Fund The movement in units on issue in the Trust during the period is disclosed in note 6 of the financial statements. The value of the Trust's assets and liabilities is disclosed on the balance sheet and derived using the basis set out in note 2 of the financial statements. Environmental regulation The Fund's operations are not regulated by any significant environmental regulations under a Commonwealth, State or Territory law. 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 4. This report is made in accordance with a resolution of the Directors: gt, id/ ~--./ ' V' Gervaise Robert John Heddle Director Sydney 29 September

6 PRCEW1ERHousE(PERS I PricewaterhouseCoopers ABN Auditor's Independence Declaration As lead auditor for the audit of MQ Multi-Strategy Fund the period ended 27 May 2009, 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 DX 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. ~ E A Barron Partner PricewaterhouseCoopers Sydney 29 September 2009 Liability limited by a scheme approved under Professional Standards Legislation

7 Income statement For the period ended Income statement For the period 1 July 2008 to Notes 30 June 2008 Investment income Interest income from financial assets not held at fair value through profit or loss Dividend income Distribution income Net gains/(losses) on financial instruments held at fair value through profi or loss Other operating income Total net investment income/(ioss) 687,795 2,917, ,578 4,702, ,845 5 (7,008,580) (15,187,295) 163,333 (5,475,207) (7,189,183) Expenses Management fees Performance fees I nterest expense Transaction costs Dividends paid on short equity positions Total operating expenses Operating loss ,777 2,043, , ,208 4,358, ,172 1,379, ,041 1,087,405 1,304,198 8,871,837 (6,779,405) (16,061,020) Finance costs attributable to unitholders Decrease in net assets attributable to unitholders Profit/(Ioss) for the period 6 6,779,405 16,061,020 The above income statement should be read in conjunction with the accompanying notes. -5-

8 Balance sheet As at Balance sheet Assets Cash and cash equivalents Due from brokers - receivable for securities sold Receivables Financial assets held at fair value through profit or loss Total assets Liabilties Due to brokers - payable for securities purchased Payables Financial liabilities held at fair value through profi or loss Total liabilities (excluding net assets attributable to unitholders) Net assets attributable to unitholders - liability Notes May June ,159,558 5,785,104 8,514,516 76,444,773 92,903,951 33,841 6,253,464 29,652,074 35,939,379 56,964,572 The above balance sheet should be read in conjunction with the accompanying notes. -6-

9 Statement of changes in equity For the period ended Statement of changes in equity Total equity at the beginning of the financial period Profit/(loss) for the period Net income/(expense) recognised directly in equity Total recognised income and expense for the financial period Transactions with equity holders in their capacity as equity holders Total equity at the end of the financial period For the period 1 July 2008 to 30 June 2008 Under AI FRS, 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 period. The above statement of changes in equity should be read in conjunction with note

10 Cash flow statement For the year ended 30 June 2009 Cash flow statement Cash flows from operating activities Proceeds from sale of financial instruments held at fair value through profit or loss Purchase of financial instruments held at fair value through profit or loss Dividends received i nterest received Trust distributions received Other income received Management fees paid Performance fees paid Interest paid Other expenses paid Dividends paid on short equity positions Due from/to brokers Net cash inflow/(outflow) from operating activities Cash flows from financing activities Proceeds from applications by unitholders Payments for redemptions by unitholders Distributions paid Application monies received in advance Net cash inflow/(outflow) from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the period Effects of foreign currency exchange rate changes on cash and cash equivalents Cash and cash equivalents at the end of the period For the period 1 July 2008 to 30 June 2008 Notes 149,153,935 1,508,555,411 (123,020,642) 1,050,335 (1,397,187,520) 5,161, ,957 2,963, ,230 44, ,901 (578,944) (2,618,409) (1,341,670) (802,997) (4,256,123) (167,922) (1,396,927) (256,814) 5,751,263 (1,100,821) (27,127,982) 14(a) 31,876,384 82,665,641 29,613,758 (50,185,167) (100,465,416) (5,405,457) (6,429,377) (50,185,167) (82,686,492) (18,308,783) (20,851) 2,159,558 6,013,309 16,149,225 (3,832,900) 7 2,159,558 The above cash flow statement should be read in conjunction with the accompanying notes. -8-

11 1 General information The financial report covers MQ Multi-Strategy Fund ("the Trust") as an individual entity. The Trust was registered as a managed investment scheme on 2 September 2005 and was wound up on. The Responsible Entity of the Fund is MQ Portolio Management Limited, a wholly owned subsidiary of Macquarie Bank Limited ("MBL") which in turn is a wholly owned subsidiary of Macquarie Group Ltd. The registered offce of the Responsible Entity is Mezzanine Level, NO.1 Martin Place, Sydney, NSW The financial report is presented in the Australian currency. The principal activity of the Fund was to achieve long-term absolute returns with low to moderate levels of risk by providing exposure to a portolio of absolute return strategies and specialist equity strategies managed by the Investment Manager and as per the objectives stated in the Product Disclosure Statement, until it was wound up on The financial report was 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 adopted in the preparation of these financial report are set out below. These policies have been consistently applied to all years presented, unless otherwise stated. (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 and the Fund constitution. As at 26 November 2008, the directors decided to liquidate the Trust upon the giving of 30 days notice that it is closed in an orderly manner. Consequently, the directors have determined that the going concern basis of preparation is no longer appropriate. The financial report has been prepared on a liquidation basis, whereby assets have been written down to the lower of their carrying amounts and their net realisable values and additional liabilities have been recognised as a result of the decision to liquidate the Trust. The Trust has realised and setted all assets and liabilities on or before when the Fund has completed the wind up process. 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 (AIFRS). Compliance with AIFRS ensures that the financial report of the Fund, comprising the financial statements and notes thereto, complies with International Financial Reporting Standards. (b) Financial instruments (i) Classification The Fund's investments are classified as at fair value through profi or loss. They comprise:. Financial instruments held for trading These include derivative financial instruments including futures, options, interest rate swaps, forward contracts and contracts for difference. The Fund does not designate any derivatives as hedges in a hedging relationship.. Financial instruments designated at fair value through profit or loss upon initial recognition These include financial assets that are not held for trading purposes and which may be sold. These are investments in exchange traded debt and equity instruments, unlisted trusts, unlisted equity instruments and commercial paper. -9-

12 2 Summary of significant accounting policies (b) Financial instruments Financial assets and financial liabilities designated at fair value through profi or loss at inception are those that are managed and their performance evaluated on a fair value basis in accordance with the Fund's documented investment strategy. The Fund'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 Fund 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/derecognition The Fund 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 has expired or the Fund has transferred substantially all risks and rewards of ownership. (iii) Measurement (a) Financial assets and liabilties held at fair value through profit or loss Financial assets and liabilities held at fair value through profit or loss are measured initially at fair value excluding any transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability. Transaction costs on financial assets and financial liabilities at fair value through profit or loss are expensed immediately. Subsequent to initial recognition, all instruments held at fair value through profi or loss are measured at fair value with changes in their fair value recognised in the income statement.. 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 sheet 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 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 sheet date. Fair values for unquoted equity investments are estimated, if possible, using applicable pricing/earnings ratios for similar listed companies adjusted to reflect the specific circumstances of the issuer. 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 values at balance sheet date. (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 for example when there has been a significant or prolonged decline in the fair value below cost. If any such indication of impairment exists, an 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 statement. -10-

13 2 Summary of significant accounting policies (iv) Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. (c) Net assets attributable to unitholders Units are redeemable at the unitholders' option and are therefore classified as financial liabilities. The units can be put back to the Fund 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 sheet date if unitholders exercised their right to put the units back to the Fund. (d) 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. 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 Fund's main income generating activity. (e) Investment income Investment income represents dividend income, interest income, changes in the fair value of, and realised gains on investments and interest bearing financial instruments. Interest income and expenses are recognised in the income statement for all financial instruments that are not held at fair value through profit or loss on an accrual basis. Interest income on assets held at fair value through profit or loss is included in the net gains/(iosses) on financial instruments. Other changes in fair value for such instruments are recorded in accordance with the policies described in note 2(b). Dividend income is recognised on the ex-dividend date with any related foreign withholding tax recorded as an expense. 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. (f) Expenses All expenses, including Responsible Entity's fees and custodian fees, are recognised in the income statement on an accruals basis. (g) 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 Fund). Financial instruments held at fair value may include unrealised gains. Should such a gain be realised, that portion of the gain that is subject to tax will be distributed so that the Trust is not subject to taxation. Realised losses are not distributed to unitholders but are retained in the Trust to be offset against any realised gains. If realised gains exceed realised losses, the excess is distributed to unitholders. The benefits of imputation credits and foreign tax paid are passed on to unitholders. The Trust may incur withholding tax imposed by certain countries on investment income. Such income is recorded net of withholding tax in the income statement. -11-

14 2 Summary of significant accounting policies (h) Distributions In accordance with the Fund Constitution, the Trust fully 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 statement 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 statement as finance costs. ü) Foreign currency translation i) Functional and presentation currency Items included in the Fund'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 Fund competes for funds and is regulated. The Australian dollar is also the Fund'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 period end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. The Fund 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. (k) 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 Fund will not be able to collect all amounts due from the relevant broker. Indicators that the amount due from brokers is imparied include significant financial diffculties of the broker, probability that the broker will enter bankruptcy or financial reorganisation and default in payments. (i) Receivables Receivables may include amounts for dividends, interest and fund distributions. Dividends and trust distribution 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(e) above. Amounts are generally received within 30 days of being recorded as receivables. (m) Payables Payables includes liabilities and accrued expenses owing by the Fund which are unpaid as at balance date. The distribution amount payable to unitholders as at the reporting date is recognised separately on the balance sheet when unitholders are presently entitled to the distributable income under the Fund's Constitution. -12-

15 2 Summary of significant accounting policies (n) Applications and redemptions Applications received for units in the Fund are recorded net of any entry fees payable prior to the issue of units in the Fund. Redemptions from the Fund are recorded gross of any exit fees payable after the cancellation of units redeemed. (0) Goods and Services Tax (GST) The amount of GST incurred by the Fund that is not recoverable from the Australian Taxation Offce ("ATO") is recognised as an expense or as part of the cost of acquisition of an asset. The Fund qualifies for Reduced Input Tax Credits at the rate of 75% on various services such as Manager's fees and Trustee's fees. These expenses have been recognised in the Income Statement net of the amount of GST recoverable from the ATO. The net amount of GST recoverable/payable from/to the ATO is included in the balance sheet. Cash flows relating to GST are included in the cash flow statement on a gross basis. (p) Use of estimates The Trust makes estimates and assumptions that effect the reported amounts of assets and liabilities within the next financial year. Estimates are continually evaluated and are based on historical experience and other factors, including reasonable expectations of future events that are believed 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. For certain other financial instruments, including amounts due from/to brokers and accounts payable, the carrying amounts approximate fair value due to the immediate or short-term nature of these financial instruments. (q) 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 Fund) and interpretations is set out below: (i) Revised AASB 101 Presentation of Financial Statements and AASB 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 an entity 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. (ii) AASB 132 Financial Standards - Puttable Financial from 1 January 2009) Instruments: Presentation and AASB 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 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. -13-

16 2 Summary of significant accounting policies (q) New accounting standards and interpretations (iii) AASB Amendments to Australian Accounting Standards - Improving Disclosures about Financial Instruments (effective from 1 January 2009). In April 2009, the AASB published amendments to AASB 7 Financial Instruments: Disclosure 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 has not early adopted the amendments. The amendments wil not affect any of the amounts recognised in the financial statements but may affect certain disclosures. (r) Early adoption of standards The Trust has early adopted AASB 8 Operating Segments in the Period 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 files 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. 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 seeks to maximise the returns derived for the level of risk to which the Fund is exposed. The Trust uses derivative financial instruments to alter certain risk exposures. Financial risk management is carried out by the investment management department under policies approved by senior management or 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. The Investment Manager adopted the following investment objectives, policies and processes for managing the Fund's capital: Investment objectives The Trust's investment objective was capital appreciation. The Trust seeks to achieve its investment objective through investing primarily in equity securities, and therefore is exposed to foreign exchange risk, credit risk, interest rate risk, other price risk and liquidity risk. The Trust aims 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 managed by the investment manager, MQ Specialist Investment Management Limited ("the investment manager"). 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 Fund to meet its investment objective. -14-

17 3 Financial risk management Investment policies The primary objective of the Trust was to enhance capital appreciation, so preservation of capital is very important. As share price volatilities increase with changing global market conditions, the Trust's positions are monitored for both long and short positions as a primary measure. These limits are identified and calculated by the divisional risk management team in conjunction with the Risk Management Division of the investment manager. Further, these limits are monitored on a daily basis and their adequacy is reviewed on an ongoing basis. There are self imposed parameters such as country, section and stock exposure limits currently applying to the Trust as a secondary measure, and these are subject to ongoing review. 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, forwards, swaps, contracts for differences (CFD) 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 wil 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 will apply one of the following investment strategies directly to a component of the Trust. Alternatively, the Trust may invest directly in the single strategy funds managed by the investment manager. MQ Asia Long Short Strategy MQ Japan Market Neutral Strategy MQ Special Events Strategy MQ Buy Write Strategy MQ Australian Market Neutral Strategy MQ Event Behaviour Strategy The risks and the respective risk management policies employed by the Trust are discussed below. Refer to note 13 for further information on derivative financial instruments. (a) Market risk Market price risks comprises of three components; other price risk, foreign exchange risk and interest rate risk. (i) Other price risk Other price risk is the risk that the value of the Trust's investment portfolio will fluctuate as a result of changes in market prices (other than those arising from interest rate risk or foreign currency risk). MQ Multi-Strategy Fund is exposed to other price risk on all of the investments held by the Trust. The Trust's other price risk is monitored by the Investment Manager on an ongoing basis and is managed by adopting the following policies to minimise exposure to other price risk.. Overall portfolio exposure - managed by ensuring that the overall exposure of the portfolio is within acceptable limits. Stock limits - manage exposure to any single stock and ensure diversification. Sector limits - manage exposure to any single sector to ensure diversification. Market capitalisation limit - manage exposure to any significant holdings in a single security. Foreign exchange hedging policy - ensure impact of foreign exchange fluctuations are minimised in the portolio through hedging by the investment manager. Country limits - manage exposure to any single country and ensure diversification across allowable countries -15-

18 3 Financial risk management (a) Market risk Short sales made by the Trust 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 Trust's equity securities held long and short, whether cash positions or through derivative instruments, are substantially all publicly traded. The table below summarises the impact of increases/decreases of the key indices to which the Fund is exposed. The reasonably possible movements in the risk variables have been determined based on management's best estimate, having regard to a number of factors, including historical levels of changes in interest rates and foreign exchange rates, historical correlation of the Fund's investments with the relevant benchmark 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. As at the Trust does not have any exposure as it is wound up and all investments are sold. 30 June June 2008 Impact on operating Impact on operating profit/net assets profit/net assets Change in attributable to Change in attributable to market index unitholders market index unitholders % % Australia (ASX 200) ,376 Japan (Topix) ,001 Hong Kong (Hang Seng) ,312 Singapore (FSSTI) ,630 (ii) Foreign exchange risk The Trust holds 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 Trust's foreign currency exchange risk is monitored by the Investment Manager on an ongoing basis and is managed by adopting the following policies to minimise exposure to foreign currency exchange risk.. Foreign exchange hedging policy - ensure impact of foreign exchange fluctuations are minimised in the portfolio through hedging by the investment manager using currency forward exchange contracts. Country limits - manage exposure to any single country and ensure diversification across allowable countries As the majority of the foreign exchange risk is hedged by the Investment Manager there will be little to no sensitivities to foreign currency movements. However, for accounting purposes, the Trust does not designate any derivatives as hedges in a hedging relationship, and hence these derivative financial instruments are classified as at fair value through profit or loss. As the Trust hedges significant foreign exchange risk and had minimal exposures to foreign exchange risk, sensitivity analysis is not presented, as management consider the risk immaterial. In accordance with the Trust's policy, an independent risk management function monitors the Fund's currency position on a daily basis. -16-

19 3 Financial risk management (a) Market risk The exposure as at 30 June 2009 does not represent the exposure during the period as the Trust is wound up and all its investments are sold. (iii) Interest rate risk The Trust is exposed to interest rate risk on its bank and broker balances. However, 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. The Manager believes there is insignificant interest rate risk in the Trust as the relevant cash balances are due on demand. Any excess cash and cash equivalents are invested at short term market interest rates. Interest income and expense may fluctuate in amount, in particular due to changes in interest rates. (b) Credit risk Credit risk is the risk that one party to a financial instrument wil fail to discharge its obligation and cause the other party to incur a financial loss. The Trust takes on exposure to credit risk, which is the risk that an issuer or counterparty will be unable or unwillng to meet a commitment (including payment of amounts arising from derivative contracts) in full when due, that it has entered into with the Trust. All investment transactions are settled/paid for upon delivery using approved brokers. The risk of default is considered minimal since delivery of securities sold is only made once the broker has received payment. On a purchase, payment is made once the broker has received the securities. If either party fails to meet their obligation, the trade will fail. The Trust is exposed to credit risk on its cash and cash equivalents held and on the derivative contracts held through approved brokers. This risk is monitored on an ongoing basis. Further, the risk of default is considered minimal, as delivery of securities sold is only made once the broker has received payment. Payment is made on a purchase once the securities have been received by the broker. The trade wil fail if either party fails to meet its obligation. Financial assets which potentially subject the Trust to concentrations of credit risk consist principally of bank deposits and balances, assets held with Goldman Sachs International (the "Prime Broker"), and derivatives where the Prime Broker is the counterparty. The Prime Broker also provides the clearing and depository operations for the Trust's security transactions. The Prime Broker provides loans and finance to the Trust and, as continuing security for the payment and discharge of all liabilities of the Trust, assets held by the Prime Broker will be charged in favour of the Prime Broker. As at 30 June 2009 the net assets of the Trust, which amount to nil (2008:56,964,572), are held with the Prime Broker whose credit ratings issued by the Moody's/S&P at the year end were: 27 May June 2008 Goldman Sachs A1 Aa3 Collateral pledged under prime brokerage agreements The Trust has entered into a prime brokerage agreement with Goldman Sachs, the Trust's prime broker. All of the assets of the Trust are pledged as cross-collateral for all amounts owed to the prime broker including amounts due to brokers for securities purchases and securities sold short. 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. In accordance with the Trust's policy, the Investment Manager monitors the Fund's credit position on a daily basis. -17-

20 3 Financial risk management (c) Liquidity Risk Liquidity risk is the risk that the Trust will encounter diffculty in meeting obligations associated with financial liabilities. The Trust is exposed to monthly 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. As of, all of the Trusts positions in liquid instruments have been liquidated. The table below analyses the Trust's financial liabilities, includes gross settled 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 30 June 2008 Financial liabilities at fair value through profit or loss Dividends payable on short positions Payable for investment purchased Amount due to broker Other payables Net assets attributable to unitholders Total financial liabilities Less than 1 month 466,481 31,381 5,758, months 552,386 12,575 33, ,136 No stated maturity 56,964,572 63,220,806 1,049,938 28,633,207 Total 28,633,207 29,652,074 43,956 5,758,372 33, ,136 56,964,572 92,903,951 The table below analyses the Trust's derivative financial instruments that will be settled on a gross basis into relevant maturity groupings based on the remaining period to the contractual maturity date at the balance sheet date. The amounts disclosed in the table are the contractual undiscounted cash flows. In accordance with the Trust's policy, the Investment Manager 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. At Foreign currency forward contracts Inflows (Outflows) Less than 1 month 1-6 months 6-12 months 1-2 years Total At 30 June 2008 Foreign currency forward contracts Inflows (Outflows) 34,279,691 (33,899,878) 34,279,691 (33,899,878) -18-

21 3 Financial risk management (d) Fair value estimation The carrying amount of all the Trust's financial assets and liabilities included in the balance sheet are a reasonable estimate of their fair value and of the credit risk of these assets and liabilities. Details on how the fair value of financial instruments is determined are disclosed in note 2(b). The Trust's operations may result in exposure to fluctuations in commodity prices. Management monitors commodity prices and initiates instruments to manage exposure to these risks when it deems appropriate. Currently, the Trust has not initiated any such instruments. 4 Auditor's remuneration During the year the following fees were paid or payable for services provided by the auditor of the Fund: For the period 1 July 2008 to 30 June 2008 (a) Audit services PricewaterhouseCoopers Australian firm Audit and review of financial reports Other audit work under the Corporations Act 2001 Total remuneration for audit services 7,611 1,400 9,011 10,166 5,500 15,666 (b) Non-audit services Tax compliance services Other Total remuneration for non-audit services 5,221 3,960 9,181 The above costs are paid by the Responsible Entity on behalf of the Fund and recouped through the operating expenses of the Fund. -19-

22 5 Net gains/(iosses) on financial instruments held at fair value through profit or loss Financial assets Net gains/(iosses) on financial assets held for trading Net gains/(iosses) on financial assests designated as at fair value through profit or loss Net gains/(iosses) on financial assets held at fair value through profi or loss For the period 1 July 2008 to (16,199,077) (9,173,808) (25,372,885) 30 June ,422,450 (31,472,461 ) (23,050,011) Financial liabilties Net gains/(losses) on financial liabilities held for trading Net gains/(losses) on financial liabilities designated as at fair value through profi or loss Net gains/(iosses) on financial liabilities held at fair value through profit or loss 512,956 2,006,291 2,519,247 5,443,297 6,252,319 11,695,616 Foreign currency Net realised gains/(losses) on foreign currency at fair value through profit or loss Net unrealised gains/(losses) on foreign currency at fair value through profit or loss Net gains/(losses) on foreign currency at fair value through profit or loss Total net gains/(iosses) on financial instruments held at fair value through profit or loss 15,962,059 (117,001) 15,845,058 (7,008,580) (3,688,282) (144,618) (3,832,900) (15,187,295) -20-

23 MQ Multi-8trategy Fund 6 Net assets attributable to unitholders Movements in number of units and net assets attributable to unitholders during the period were as follows: Capital 2009 Direct Indirect Institutional Protected Employee class class class Class Class Total units units units units units units Opening balanæ at 1 July 3,531,318 1,963,085 48,833,100 8,807,924 63,135,427 Redemption (3,531,318) (1,963,085) (48,833,100) (8,807,924) (63,135,427) Closing balance at 27 May Capital Direct Indirect Institutional Protected Employee class class class class Class Total Opening balanæ at 1 July 3,276,079 1,807,715 43,945,686 7,935,092 56,964,572 Redemption (2,626,641 ) (1,443,521) (38,445,692) (7,669,313) (50,185,167) Increase/(decrease) in net assets attributable to unitholders (649,438) (364,194) (5,499,994) (265,779) (6,779,405) Closing balance at 27 May Capital 2008 Direct Indirect Institutional Protected Employee class class class Class Class Total units units units units units units Opening balanæ at 1 July 4,848,548 2,101,795 38,355,328 95,751, ,057,175 Application 231, ,063 1,554,453 20,163,988 8,807,924 31,332,450 Redemption (1,548,252) (713,773) (39,909,781) (67,082,392) (109,254,198) Closing balance at 30 June 3,531,318 1,963,085 48,833,100 8,807,924 63,135,