Rio Tinto Staff Superannuation Fund. Financial Statements for the year ended 30 June 2010

Transcription

1 Rio Tinto Staff Superannuation Fund Financial Statements for the year ended 30 June 2010

2 Contents Statement of Changes in Net Assets...2 Statement of Net Assets...3 Notes to the Financial Statements Statement by Trustee Auditor s Report Actuarial Report Issued by Rio Tinto Staff Fund Pty Limited (ABN ), Australian Financial Services (AFS) Licence No , as Trustee of the Rio Tinto Staff Superannuation Fund (ABN ). February 2011

3 STATEMENT OF CHANGES IN NET ASSETS Notes INVESTMENT REVENUE Interest 4,043 3,127 Dividends 36,675 40,929 Trust distributions 54,137 33,198 Changes in net market value 7 199,166 (412,955) Management fee rebates 2,656 3,037 Direct investment expenses 8 (7,945) (6,932) 288,732 (339,596) CONTRIBUTION REVENUE Employer contributions 304, ,598 Member contributions 7,339 8,511 Government co-contribution Transfers in 49,956 42,532 Transfers in - Alcan Gove Superannuation Plan - 136, , ,199 OTHER REVENUE Insurance proceeds TOTAL REVENUE 651, ,688 EXPENSES General administration expenses 9 5,720 5,368 Contribution surcharge Benefits paid 142, ,824 Pensions paid 12,149 17,732 TOTAL EXPENSES 160, ,988 CHANGES IN NET ASSETS BEFORE TAX 490,870 (25,300) INCOME TAX EXPENSE/(BENEFIT) 10(a)(b) 66,564 (2,411) CHANGES IN NET ASSETS AFTER TAX 424,306 (22,889) NET ASSETS AVAILABLE TO PAY BENEFITS at the beginning of the period 2,358,550 2,381,439 NET ASSETS AVAILABLE TO PAY BENEFITS at the end of the period 2,782,856 2,358,550 This Statement should be read in conjunction with the accompanying notes. Page 2

4 STATEMENT OF NET ASSETS AS AT 30 JUNE 2010 ASSETS Notes Cash Assets Cash and cash equivalents 64,685 51,731 Receivables Distributions receivable 10,905 16,587 Accrued income GST receivable Investments Insurance policies 11 78,175 75,010 Securities and other equities 12 1,403,715 1,025,300 Units in unit trusts 13 1,225,159 1,124,582 Pooled Superannuation Trusts 14-14,637 Derivatives 19(a) 9,802 14,462 Other Assets Prepayments Deferred tax assets 10(e) 32,921 50,677 TOTAL ASSETS 2,826,039 2,373,804 LIABILITIES Payables Creditors and accruals 15 3,739 4,235 Derivative liabilities 19(a) 22,041 10,422 Current tax liabilities 10(c) 16, Deferred tax liabilities 10(d) TOTAL LIABILITIES 43,183 15,254 NET ASSETS AVAILABLE TO PAY BENEFITS 2,782,856 2,358,550 This Statement should be read in conjunction with the accompanying notes. Page 3

5 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Statement of Compliance The financial report of Rio Tinto Staff Superannuation Fund ("the Fund") is a general purpose financial report which has been drawn up in accordance with Australian accounting standards including AAS 25 "Financial Reporting Superannuation Plans" ("AAS25") as amended by AASB (December 2005), other applicable Accounting Standards and the requirements of the Superannuation Industry (Supervision) Act 1993 and Regulations ("SIS") and the provisions of the Trust Deed. The Fund is a superannuation fund domiciled in Australia. The financial statements are presented in Australian dollars, which is the functional currency of the Fund. The financial statements were approved by the Board of the Trustee, Rio Tinto Staff Fund Pty Limited, on 20 nf vcroa Eg, (b) Basis of Preparation International Financial Reporting Standards ("IFRS") form the basis of Australian Accounting Standards adopted by the Australian Accounting Standards Board ("AASB"), being the Australian equivalent to IFRS ("AIFRS") to distinguish from previous Australian generally accepted accounting principles ("GAAP"). Since AAS25 is the principal standard that applies to the financial statements, other standards, including AIFRS, are also applied where necessary except to the extent that they differ from AAS25. At the date of authorisation of the financial statements, the following standards, amendments to standards and interpretations have been identified as those which may impact the entity in the period of initial application. They are available for early adoption at 30 June 2010, but have not been applied in preparing this financial report. AASB Further amendments to the Australian Accounting Standards arising from the Annual Improvements Process affect various AASBs resulting in minor changes for presentation, disclosure, recognition and measurement purposes. The amendments, which will become mandatory for the Fund's 30 June 2011 financial statements, are not expected to have a significant impact on the financial statements. AASB 9 Financial Instruments includes requirements for the classification and measurement of financial assets resulting from the first part of Phase 1 of the project to replace AASB 139 Financial Instruments: Recognition and Measurement. AASB 9 will become mandatory for the Fund's June 2014 financial statements. Retrospective application is generally required, although there are exceptions, particularly if the entity adopts the standard for the year ended 30 June 2012 or earlier. The Fund has not determined the potential effect of the standard. The financial statements have been prepared in accordance with the historical cost convention, except for the valuation of investments, which are measured at net market value. (c) Use of Estimates and Judgements The preparation of financial statements in conformity with AIFRS requires the use of certain critical accounting estimates. It also requires the Trustee to exercise its judgement in the process of applying the entity's accounting policies. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. There are no critical accounting estimates and judgements contained in these financial statements other than those used to determine the liability for accrued benefits, which are not brought to account but disclosed by way of note. The following significant accounting policies have been adopted in the preparation and presentation of the financial report. Page 4

6 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (d) Investments Investments of the Fund are initially recognised at cost, being the fair value of the consideration given. After initial recognition, assets of the Fund are recorded at net market value, after allowing for costs of realisation, as at the reporting date and changes in the net market value of assets are recognised in the Statement of Changes in Net Assets in the periods in which they occur. Net Market Values have been determined as follows: Insurance Policies The surrender value of insurance policies at balance date as advised by the Insurer. Unit Trusts Based on the redemption price of the units as notified by the investment managers. Securities and Other Equities The value is determined using external market price data published by the appropriate information vendors. Unlisted investments are stated at the Trustee's valuation based on the advice of the Fund's investment managers. Derivative Financial Instruments Derivative financial instruments including financial futures and forward exchange contracts, interest rate swaps, exchange traded and other options and forward rate agreements are recorded on a mark to market basis at balance date using the most recent verifiable sources of market prices or generally accepted valuation principles. Where material, estimated costs of realisation have been deducted. (e) Revenue Revenue is recognised to the extent that it is probable that the economic benefits will flow to the entity and can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised. Chanqes in net market value of investments Changes in net market value of investments are recognised as income in the Statement of Changes in Net Assets in the periods in which they occur. Changes in net market values are determined as the difference between the net market value at balance date or consideration received (if sold during the year) and the net market value at the previous balance date or the cost (if the investment was acquired during the year). Interest Interest revenue is recognised when the Fund has established that it has a right to receive the interest. Dividends and distributions Dividend and trust distribution revenue is recognised when the Fund has established that it has a right to receive the distribution. Contribution Revenue Member and employer contributions and transfers in are recognised when the control of the asset has been attained and are recorded in the period to which they are received. Superannuation co-contributions from the Australian government are recognised on a cash basis as this is the only point at which measurement is reliable. (f) Income Tax Current tax Current tax is calculated by reference to the amount of income tax payable or recoverable in respect of the taxable benefits accrued for the period. It is calculated using tax rates and tax laws that have been enacted or substantively enacted by reporting date. Current tax for current and prior periods is recognised as a liability (or asset) to the extent that it is unpaid (or refundable). Page 5

7 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (f) Income Tax (continued) Deferred tax Deferred tax is accounted for using the balance sheet liability method of providing for temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax base of those items. In principle, deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised to the extent that it is probable that sufficient taxable amounts will be available against which deductible temporary differences or unused tax losses and tax offsets can be utilised. However, deferred tax assets and liabilities are not recognised if the temporary differences giving rise to them arise from the initial recognition of assets and liabilities which affect neither taxable income nor accounting profit. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period(s) when the asset and liability giving rise to them are realised or settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by reporting date. The measurement of deferred tax liabilities and assets reflect the tax consequences that would follow from the manner in which the Fund expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Fund intends to settle its current tax assets and liabilities on a net basis. (g) Benefits Payable The Fund does not bring to account any benefit payable where a member ceased employment prior to year end. The member remains a member of the Fund until the benefit is paid. (h) Receivables and Other Payables Receivables are carried at nominal amounts due which approximate fair value. Other payables are recognised when the Fund is obligated to make future payments for services received and are carried at the net market value of the amount payable. (i) Financial Instruments (a) Recognition The Fund recognises financial assets and financial liabilities on the date it becomes a party to the contractual provisions of the instrument. Financial assets are recognised using trade date accounting. From this date, any gains and losses arising from changes in fair value of the financial assets or liabilities are recorded. Financial liabilities are not recognised unless one of the parties has performed or the contract is a derivative contract not exempt from the scope of AASB139. (b) Measurement Financial instruments are initially measured at cost, being the fair value of the consideration given. Subsequent to initial recognition all financial instruments are valued at net market value. (c) Derecognition of Financial Assets and Liabilities A financial asset is derecognised when the rights to receive cash flows from the asset have expired or the Fund transfers substantially all the risks and rewards of ownership of the asset. A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expires. (j) Contribution Surcharge The contribution surcharge is recorded as an expense in the Statement of Changes in Net Assets if an amount has been paid or an assessment has been received during the period irrespective of the period to which the surcharge related. A liability for future payments is only recognised if an assessment has been issued by the Australian Taxation Office (ATO) and was unpaid at balance date. The Superannuation Laws Amendment (Abolition of Surcharge) Act 2005 abolishes both the superannuation contributions surcharge and the termination payments surcharge in respect of superannuation contributions and certain termination payments made or received on or after 1 July Assessments for surcharge in respect of contributions and payments for the year ended 30 June 2005 and prior years will continue to be issued and remain payable. Page 6

8 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (k) Goods and Services Tax GST incurred that is not recoverable from the ATO has been recognised as part of the cost of acquisition of the asset or as part of the expense to which it relates. Receivables and payables are stated with the amount of GST included in the value. The amount of GST recoverable from, or payable to, the ATO is included as an asset or liability in the Statement of Net Assets. (I) Cash and Cash Equivalents Cash and cash equivalents comprise cash at bank, demand deposits and short term, highly liquid investments that are readily converted to known amounts of cash. (m) Excess Contributions Tax The Australian Taxation Office ("ATO") may issue release authorities to members of the Fund relating to the relevant member's excess contributions tax that is payable in respect of the member's concessional and/or nonconcessional contributions for a particular year. The liability for excess contributions tax will be recognised when the relevant release authorities are received from members, as the Trustee considers this is when it can be reliably measured. The excess contributions tax liability recognised by the Fund will be charged to the relevant members' accounts. (n) No-TFN Contributions Tax Where a member does not provide their tax file number to a fund, the fund may be required to pay no-tfn contributions tax at a rate of 31.5% which is in addition to the concessional tax rate of 15% which applies to the Fund's assessable income. The no-tfn contributions tax liability recognised by the Fund will be charged to the relevant members' accounts. Where a tax offset is obtained by the Fund in relation to members' no-tfn contributions tax, the tax will be included in the relevant members' accounts. (o) Rounding The amounts shown in the financial statements have, unless otherwise indicated, been rounded to the nearest thousand dollars. (p) Foreign Currency Transactions in foreign currencies are converted to local currency at the rate of exchange ruling at the date of the transaction. Investments at balance date denominated in foreign currencies have been converted to local currency using rates of exchange ruling at that date. 2. OPERATION OF THE FUND The Fund was established under a trust deed dated 14 December 1979, as amended. The Fund is a defined benefit fund and the objective of the Trustee is to ensure that the benefit entitlements of members and other beneficiaries are fully funded by the time they become payable. Page 7

9 3. FUNDING ARRANGEMENTS The funding policy adopted in respect of the Fund is directed at ensuring that benefits accruing to members and beneficiaries are fully funded as the benefits fall due. As such, in framing Company contribution rates, the Actuary has considered long-term trends in such factors as membership, salary growth and average market value of investments of the Fund. Thus, any difference between the Net Assets Available to Pay Benefits and the Accrued Benefits has been anticipated. Company contributions are made at the rate recommended by the Actuary. Following actuarial advice, the Trustee adopted a Contribution Management Strategy in August 2003, which requires a review of the financial position every 6 months and a revised employer contribution rate in respect of defined benefit members. Some members of the Fund are not required to pay contributions. Members may also make additional voluntary contributions. Also as a result of an agreement by the Company and the Trustee, certain members have had additional Company contributions credited to their accounts to recognise for superannuation purposes amounts received under a performance incentive scheme. Contributions to the Fund were made at the following rates: % % Employer contributions Defined benefit members Accumulation members Queensland Alumina Members - Defined benefit members Accumulation members Member contributions Defined benefit members Accumulation members Queensland Alumina Members - Defined benefit members Accumulation members The opinion of the Actuary as to the financial state of the Fund is contained in the actuarial summary attached to these financial statements. 4. LIABILITY FOR ACCRUED BENEFITS The liability for accrued benefits has been determined on the basis of the present value of the expected future payments that arise from membership of the Fund up to the measurement date. The liability reported has been determined by reference to the expected future salary levels and by application of the market-based, riskadjusted discount rate and relevant actuarial assumptions. The valuation of accrued benefits was undertaken by the actuary as part of a comprehensive actuarial review as at 30 June Accrued benefits were previously valued as part of a comprehensive review undertaken effective 30 June Jun Jun 05 Liability for accrued benefits 2,414,327 1,651,318 The main assumptions used to determine the actuarial value of accrued benefits at the last review date were: The future rate of investment return earned on the Fund's investments would be 7.0 % per annum The future rate of salary increases would be 5.0% per annum Page 8

10 5. VESTED BENEFITS Vested benefits are benefits that are not conditional upon continued membership of the Fund (or any factor other than resignation from the Fund) and include benefits which members were entitled to receive had they terminated their Fund membership as at the reporting date Vested Benefits 2,869,385 2,467,833 Net Assets available to pay benefits 2,782,856 2,358,550 Surplus/(Deficit) of Net Assets to pay benefits (86,529) (109,283) The net assets of the Fund at 30 June 2010 were $2,782,856,000. Consequently, when compared to vested benefits at that date, the Fund had a net deficiency of $86,529,000 and was in an "unsatisfactory financial position" as defined by Superannuation Industry (Supervision) Regulation An "unsatisfactory financial position" for a defined benefit fund is defined as existing when "the value of the assets of the Fund is inadequate to cover the value of the liabilities of the Fund in respect of benefits vested in the members of the Fund." The actuary and the Trustee have followed the procedure required by Section 130 of the Superannuation Industry (Supervision) Act. The Trustee and employer are following Contribution Management Strategy adopted in August 2003 which aims to address the deficiency over three years. 6. GUARANTEED BENEFITS No guarantees have been made in respect of any part of the liability for accrued benefits. 7. CHANGES IN NET MARKET VALUE OF INVESTMENTS Investments realised during the period Insurance policies 13 (3) Managed portfolios 80,060 (139,352)

11 8. DIRECT INVESTMENT EXPENSES Custodian fees 709 1,029 Investment consultancy fees Investment manager fees 6,520 5,329 TOTAL DIRECT INVESTMENT EXPENSES 7,945 6, GENERAL ADMINISTRATION EXPENSES Actuarial and consulting fees Administration fees 3,203 2,992 APRA fees Audit fees Legal fees Management expenses Sundry expenses Tax agent fees Trustee expenses TOTAL GENERAL ADMINISTRATION EXPENSES 5,720 5, TAXATION (a) Recognised in the statement of changes in net assets Current tax expense - Current year 48,287 29,585 - Adjustment to current tax for prior period (209) (998) Deferred tax expense - Relating to the origination and reversal of temporary differences 18,486 (30,998) Total income tax in the statement of changes in net assets 66,564 (2,411) Page 10

12 10. TAXATION (CONTINUED) (b) Numerical reconciliation between tax expense and net change for the year before income tax Net change for the year before income tax 490,870 (25,300) Tax applicable at the rate of 15% ( %) 73,630 (3,795) Tax effect of income that is not assessable in determining taxable income - Changes in net market value of investments (29,874) 30,967 - Member contributions (1,123) (1,296) - Changes in capital gains/losses 18, Transfers In (6,996) (25,967) - Insurance proceeds (130) (13) Tax effect of expenses that are not deductible in determining taxable income - Benefits paid 23,269 20,283 - Contribution surcharge 6 10 Tax effect of other adjustments - Imputation & foreign tax credits (9,264) (10,727) - Income from investments 1,697 (9,340) - Anti-detriment deduction (495) (350) - Deduction for self-insurance (1,800) (1,050) - Exempt pension income (1,050) (135) - Over provision prior period (209) (998) Income tax expense 66,564 (2,411) (c) Current tax liability Provision for current income tax Balance at beginning of year ,554 Income tax paid current period (31,629) (29,261) Income tax paid prior period (137) (18,556) Current year income tax provision 48,287 29,585 Alcan Gove Superannuation Plan (235) 257 Over provision prior period (209) (998) (d) Deferred tax liabilities The amount of deferred tax liabilities recognised in the Statement of Net Assets: 16, Accrued Income Page 11

13 10. TAXATION (CONTINUED) (e) Deferred tax assets The amount of deferred tax assets recognised in the Statement of Net Assets: Net unrealised capital losses (discounted) 3,437 27,028 Unrealised FX losses 1,004 - Realised capital losses 28,417 23,586 Accrued expenses ,921 50, INSURANCE POLICIES AMP Australian Core Property Portfolio 78,175 75,010 TOTAL INSURANCE POLICIES 78,175 75, SECURITIES AND OTHER EQUITIES Represented by managed portfolios: Alliance Bernstein International Equities 110,331 85,350 Baillie Gifford International Equities 111,038 86,686 BEM Australian Equities 252, ,212 Capital International Inc 165, ,367 Challenger Listed Property Trusts 62,940 38,808 Fidelity Australian Equities 167,178 - Integrity Australian Equities 167,251 - Lazard Australian Equities ,280 Paradice Australian Equities 191, ,248 Renaissance Australian Equities 104,604 83,876 SSGA Tactical Asset Allocation - Passive 65,058 51,397 SSGA Tactical Asset Allocation - Currency 4,648 4,086 Wallara Australian Equities - 108,990 Sundry balances TOTAL SECURTIES AND OTHER EQUITIES 1,403,715 1,025,300 Represented by Asset Classes: Cash 113,202 87,669 Australian Equities 832, ,321 International Equities 376, ,688 Property and Other Distributing Trusts 82,084 54,622 TOTAL SECURITIES AND OTHER EQUITIES 1,403,715 1,025,300 Page 12

14 13. UNITS IN UNIT TRUSTS AMP Property Income Fund 20,166 23,939 Aberdeen Cash Trust 291, ,840 Aberdeen Fixed Interest Trusts - 191,553 Benthan Asset Management 52,455 - Eley Griffiths Group Small Companies Fund - 4,078 Genesis Emerging Markets Trust 78,987 62,415 GMO Global Equity Trust 111,665 83,783 Hastings Utilities Australia Fund 63,549 58,726 Lazard Global Listed Infrastructure Fund 33,498 29,340 Lend Lease Asian Retail Fund 10,688 7,485 Macquarie Global Infrastructure Trust 35,533 36,717 Macquarie Enhanced Australian Fixed Interest Fund 286,243 - Mellon Australian Equity Trust - 57,093 Partners Group Secondary 2008 SICAR 16,603 - PGI Global Strategy Trust 54,855 53,657 PIMCO Fixed Interest Trust 169, ,921 Russell Australian Bond Fund - Class A - 13,842 Russell Australian Cash Fund - Class A - 2,660 Russell Australian Shares Fund - Class A - 35,097 Russell Inflation Linked Bond Fund - Class A - 10,849 Russell International Property Securities $A Hedged - Class A - 12,897 Russell International Shares Fund - Class A - 13,043 Russell International Shares Fund $A Hedged - Class A - 19,647 TOTAL UNITS IN UNIT TRUSTS 1,225,159 1,124, POOLED SUPERANNUATION TRUSTS Russell Australian Cash Unit - 8,162 Russell Conservative Unit Russell Diversified 50 Unit Russell Emerging Markets Unit - 3,230 Russell High Growth Unit - 1,984-14,637 Page 13

15 15. CREDITORS AND ACCRUALS Actuarial and consulting fees Administration fees APRA fees Audit fees Custodian fees Investment managers fees 2,817 2,903 Legal fees PAYG tax Tax agent fees Other amounts payable - 33 TOTAL CREDITORS AND ACCRUALS 3,739 4, SEGMENT INFORMATION The Fund operates solely in the business of provision of benefits to members and operates in Australia only. 17. AUDITOR'S REMUNERATION Amounts paid or due and payable to: Auditors of the Fund - KPMG : Audit and review of the financial reports TOTAL AUDITOR'S REMUNERATION RELATED PARTIES (a) Trustee The Trustee of the Fund is Rio Tinto Staff Fund Pty Limited. The following people were directors of the Trustee during the financial year: Member Representative Wayne Kennedy (resigned 14/10/09) lan Appleton Mervyn Skeggs Tony Makaryn Paul Butcher (resigned 31/10/09) Daniel Ow (appointed 01/11/09) Lee Wilks (appointed 01/11/09) Emplover Representative Sir Gustav Nossal Ross Lyons Alan Davies Douglas Ritchie (resigned 31/12/09) Justine Hickey David Peever (appointed 01/01/10) The Directors of the trustee company who are members of the Fund contribute on the same terms and conditions as other members. Page 14

16 18. RELATED PARTIES (CONTINUED) (b) Key Management Personnel Remuneration Key management personnel compensation in relation to services to the Fund are as follows: Short-term employee benefits Other long-term employer benefits 10 8 Post employment benefits (c) Employer Sponsors The major sponsoring employers of the Fund are: Argyle Diamond Mines Pty Limited Boyne Smelters Limited Coal & Allied Industries Limited Comalco Aluminium (Bell Bay) Comalco Aluminium Limited Queensland Alumina Limited Alcan Gove Pty Limited Dampier Salt Limited Energy Resources of Australia Hamersley Iron Pty Limited Rio Tinto Coal Australia Pty Limited Technological Resources Pty Limited Robe River Iron Associates Contributions to the Fund by the above entities are disclosed in the Statement of Changes in Net Assets. (d) Other Related Party Transactions Rio Tinto Services Limited has charged an amount of $1,195,150 (2009: $803,425) for administration services on behalf of the Fund. The Fund held $33.8 million (2009: $8.3 million) of shares in Rio Tinto Limited. This represents 1.22% (2009: 0.37%) of the net market value of the Fund's investments at year end. Transfers in by key management personnel into the Fund totalled $Nil (2009: $NiI), benefits paid from the Fund to key management personnel totalled $Nil (2009: $63,882) and vested benefits for those key management personnel who are members of the Fund totalled $10.2 million (2009: $5.6 million). 19. FINANCIAL INSTRUMENTS The following Fund managers expose the Fund to derivatives as part of the investment portfolios managed: Fund Manager Aberdeen Investment Asset Management Limited Alliance Bernstein Investment Management Australia Limited Baillie Gifford Overseas Limited Balanced Equity Management Pty Ltd Capital International Inc Challenger Investment Services Limited FIL Limited Integrity Investment Management Limited Paradice Investment Management Limited Renaissance Asset Management State Street Global Advisors Limited Custodian National Asset Servicing Pty Limited holds the assets as the custodian for the Fund. Page 15

17 19. FINANCIAL INSTRUMENTS (CONTINUED) Each investment manager is required to invest the assets managed by it in accordance with the terms of a written investment mandate. The Trustee has determined that the appointment of these managers is appropriate for the Fund and is in accordance with the Fund's investment strategy. The Trustee obtains regular reports from each investment manager and from the appointed asset consultant on the nature of the investments made on its behalf and the associated risks. Such reports include receipt of formal Derivative Risk Statements as required by the Australian Prudential Regulation Authority from each manager. The Fund's assets principally consist of financial instruments which comprise, insurance policies and units in unlisted trusts, listed and unlisted securities and derivative financial instruments. It holds these investment assets in accordance with the Trustee's published investment policy statement. The allocation of assets between the various types of financial instruments is determined by the Trustee who manages the Fund's portfolio of assets to achieve the Fund's investment objectives. Divergence from target asset allocations and the composition of the portfolio is monitored by the Fund on at least a quarterly basis. The Fund's investing activities expose it to the following risks from its use of financial instruments: market risk credit risk liquidity risk The nature and extent of the financial instruments employed by the Fund are discussed below. This note presents information about the Fund's exposure to each of the above risks, the Fund's objectives, policies and processes for measuring and managing risk. The Trustee of the Fund has overall responsibility for the establishment and oversight of the Fund's risk management framework. The Trustee is responsible for developing and monitoring the Fund's risk management policies, including those related to its investment activities. The Fund's risk management policies are established to identify and analyse the risks faced by the Fund, including those risks managed by the Fund's investment managers, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Fund's activities. The Trustee receives quarterly reports from the Fund's Investment Consultant and management to monitor compliance with the Fund's investment policy statement. The Trustee's Audit & Compliance Committee oversees how management monitors compliance with the Fund's risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Fund. Categories of financial instruments The assets and liabilities of the Fund are recognised at net market value as at reporting date. Net market value, being the carrying amount of financial instruments, approximates fair value less costs of realisation for investments (the cost of realisation is minimal). Changes in net market value are recognised through the Statement of Changes in Net Assets. Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Fund's income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters. Page 16

18 19. FINANCIAL INSTRUMENTS (CONTINUED) Market Risk Currencv Risk Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Fund is exposed to currency risk on financial instruments, receivables and liabilities that are denominated in a currency other than the respective functional currency (Australian Dollars) of the Fund. The Fund also invests in Australian domiciled unit trusts where the underlying investments are in overseas equities. The Fund's strategy on the management of currency risk is driven by the Fund's investment objectives. The Fund's currency risk is managed on a regular basis by the Fund's investment manager and appointed currency manager, State Street Global Advisers Limited. 50% of the international equities exposure and up to 100% of international fixed interest currency exposure is hedged into Australian dollars to reduce the Fund's currency risk. The Fund may invest in financial instruments and enter into transactions denominated in currencies other than its functional currency. Consequently, the Fund is exposed to risks that the exchange rate of its currency relative to other foreign currencies may change in a manner that has an adverse affect on the value of that portion of the Fund's assets or liabilities denominated in currencies other than the Australian Dollar. The Fund's major exposure to fluctuations in foreign currency exchange rates through its monetary assets at the balance date was as follows: Fair Value 2010 Fair Value 2009 Assets USD 64,122 46,038 EUR 21,664 14,604 JPY 14,287 7,930 GBP 13,254 8,126 Liabilities USD 153, ,288 EUR 48,020 34,280 JPY 35,062 22,369 GBP 31,191 20,611 Sensitivity analysis The Trustee has determined that for the coming year the reasonably possible change for all currencies is 5% (2009: 15% JPY and other currencies 5%). A rate increase would decrease the assets of the Fund by $6.00 million (2009: $4.31million) and a rate decrease would increase the assets of the Fund by $6.63 million (2009: $5.02million). A rate increase would increase the liabilities of the Fund by $14.91 million (2009: $10.55million) and a rate decrease would decrease the liabilities of the Fund by $16.47 million (2009: $12.38million). This analysis assumes that all other variables, in particular interest rates, remain constant. The comparative analysis was performed on the same basis as Page 17

19 19. FINANCIAL INSTRUMENTS (CONTINUED) Market Risk (Continued) Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The majority of the Fund's financial assets comprise non-interest-bearing and interest rate financial instruments. Interest-bearing financial assets and interest-bearing financial liabilities mature or re-price due to market changes. As a result, the Fund is subject to exposure to fair value interest rate risk due to fluctuations in the prevailing levels of market interest rates. The Fund has some direct interest rate risk through its investments in bond and bank bill futures contracts. The Fund also invests in Australian domiciled unit trusts where the underlying investments are in fixed interest securities. The Fund's major exposure to fluctuations in interest rates at balance date was as follows: Fair Value Fair Value Day Futures (138) 154 Convertible Notes 195 Bond Futures (320) (327) Sensitivity analysis The Trustee has determined that a reasonable possible change in interest rates for the coming year is 25 basis points (2009:25 basis points). An increase or decrease of 25 basis points in interest rates would have an insignificant affect on the net assets attributable to members and the change in net assets. This is consistent with the position in the previous year ended 30 June As the interest rate on the Fund's bank account is a floating rate and varies with market interest rates, any change in interest rates will have no impact on the valuation of the account. The amount of interest the Fund receives after interest rate changes is dependent on the Fund's bank balance in the future. As any increase or decrease in interest likely to be received is immaterial, a sensitivity analysis was not performed in relation to changes in bank account interest. Other market price risk Other market price risk is the risk that the value of the instrument will fluctuate as a result of changes in market prices, whether caused by factors specific to an individual investment, its issuer or all factors affecting all instruments traded in the market. As the Fund's financial instruments are valued at net market value (fair value) with changes in net market value recognised in the Statement of Changes in Net Assets, all changes in market conditions will directly affect investment revenue. Sensitivity analysis The Trustee has determined that one standard deviation of the rate of return for each asset class will provide a reasonably possible change in the prices of the investments that comprise each asset class. The five year average standard deviation of rates of return for each of the benchmark for the asset class were provided by the Fund's investment manager and independent reporting investment service providers. The following table illustrates the effect on change in net assets after tax and net assets available to pay benefits from possible changes in market price risk. Page 18

20 19. FINANCIAL INSTRUMENTS (CONTINUED) Market Risk (Continued) Other market price risk (Continued) 2010 Asset Class Sensitivity variable Standard Deviation Change in net assets after tax Increase/(dec rease in net assets available to pay benefits Australian Shares S&P/ASX 300 Accumulation 16.30% ±143,320 ±143,320 Overseas Shares MSCI Hedged and Unhedged 13.56% ±80,637 ±80,637 Listed Property S&P/ASX 300 Property Trust 23.75% ±14,948 ±14,948 Direct property S&P/ASX 300 Property Trust and Mercer Unlisted 8.17% ±8,913 ±8,913 Infrastructure Sector actual standard deviation 8.05% ±10,671 ±10,671 Fixed Interest UBS Composite & Lehman Global Bond 2.45% ±13,806 ±13,806 Cash UBS Bank Bill 0.43% ±1,260 ±1,260 Overlay UBS Bank Bill 0.43% ±263 ±263 Total ±273,818 ±273, Asset Class Sensitivity variable Standard Deviation Change in net assets after tax Australian Shares S&P/ASX 300 Accumulation 14.98% ±110,654 Overseas Shares MSCI Hedged and Unhedged 12.83% ±61,774 Listed Property S&P/ASX 300 Property Trust 21.85% ±8,479 Direct property S&P/ASX 300 Property Trust and Mercer Unlisted 7.92% ±9,454 Infrastructure Sector actual standard deviation 8.64% ±10,786 Fixed Interest UBS Composite & Lehman Global Bond 2.40% ±11,981 Cash UBS Bank Bill 0.34% ±653 Overlay UBS Bank Bill 0.34% ±177 Total ±213,958 A positive or negative rate of return equal to the standard deviations above would have an equal but opposite effect on the Fund's change in net assets after tax and net assets available to pay benefits, on the basis that all other variables remain constant. Standard deviation is a useful historical measure of the variability of return earned by an investment portfolio. The standard deviations above provide a reasonable sensitivity variable to estimate each asset classes' expected return in future years. Actual movements in returns 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 underlying trusts invest. As a result, historic variations in rates of return are not a definitive indicator of future variations in rates of return. Page 19

21 19. FINANCIAL INSTRUMENTS (CONTINUED) Credit Risk Credit risk is the risk that a counter party to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Fund. The net market value of financial assets, included in the Statement of Net Assets represents the Fund's maximum exposure to credit risk in relation to those assets. The Fund does not have any significant exposure to any individual counter party or industry. The credit risk is monitored by the Trustee by quarterly reporting from its investment Consultant. The Fund does not have any assets which are past due or impaired. Liquidity Risk Liquidity risk is the risk that the Fund wih not be able to meet its financial obligations as they fall due. The Fund's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its payment of benefits to members and liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Fund's reputation. The Fund's liquidity position is monitored on a daily basis. The Fund's cash and liquidity policy is to have sufficient cash balances to meet anticipated weekly benefit payments, Fund expenses plus investing activities. The following tables summarise the expected maturity profile of the Fund's financial liabilities based on the earliest date on which the Fund can be required to pay. The table includes gross settled derivative financial liabilities (i.e. foreign exchange contracts) into relevant maturity groupings based on the remaining period to the contractual maturity date at balance date. The amounts in the table are the contractual undiscounted cash flows. 30 June 2010 Less than 3 months 3 Months to 1 year Total Contractual Cash Flows Carrying Amount (Asset)/Liabilities Foreign exchange contracts (Inflow) (403,917) - (403,917) Outflow 410, ,657 6,740 Creditors & accruals 3,739-3,739 3,739 Vested benefits 2,869,385-2,869,385 2,869,385 Total 2,879,864-2,879,864 2,879, June 2009 Less than 3 months 3 Months to 1 year Total Contractual Cash Flows Foreign exchange contracts (Inflow) (275,187) - (275,187) Outflow 271, ,234 Creditors & accruals 4,235-4,235 Vested benefits 2,467,833-2,467,833 Vested benefits have been included in the less than 3 months column, as this is the amount that members could call upon as at year-end. This is the earliest date on which the Fund can be required to pay members' vested benefits, however, members may not necessarily call upon amounts vested to them during this time. Page 20

22 19. FINANCIAL INSTRUMENTS (CONTINUED) Fair Value Estimation The carrying amounts of all the Fund's financial instruments at the balance date approximated their fair values. (a) Use of derivative financial instruments The Fund's investment managers may use derivative financial instruments to reduce risks in the share, bond and currency markets and to increase or decrease the Fund's exposure to particular investment classes or markets. In relation to the derivatives held by the Fund, fair value approximates net market value. At period end the notional principal amounts and net fair value of derivatives held by the Fund was as follows: 30 June 2010 Expiration Date Fair Value Assets Fair Value Liabilities Australian fixed interest futures By September 10 - (139) Australian fixed interest futures By December 10 - (68) Australian share price index futures By December 10 - (3,194) Australian exchange traded options By September 10 - (332) Australian exchange traded options By September 10 1,092 - Australian exchange traded options By December 10 1,915 - International share price index futures By September 10 - (225) International share price index futures By December 10 (5,870) International fixed interest futures By December 10 (217) International fixed interest futures More than 1 year (35) International Warrants By September International Warrants By December International Warrants More than 1 year 1,195 - Forward foreign exchange contracts By September 10 5,221 (11,961) Total 9,802 (22,041) Expiration Fair Value Fair Value 30 June 2009 Date Assets Liabilities Australian fixed interest futures By September 09 - (81) Australian fixed interest futures By December Australian share price index futures By December Australian exchange traded options By September 09 1,852 - Australian exchange traded options By September 09 - (1,633) International share price index futures By September International share price index futures By September 09 (23) Australian exchange traded options By December 09 3,067 - Australian exchange traded options By December 09 - (59) International share price index futures By December International share price index futures By December 09 - (2,612) International fixed interest futures By September 09 - (244) International fixed interest futures By December International fixed interest futures By December 09 - (2) Page 21

23 19. FINANCIAL INSTRUMENTS (CONTINUED) Fair Value of Financial Instruments The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows: Level 1: quoted prices (unadjusted) in active markets for identical assets and liabilities Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (i.e. derived from prices) Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). 30 June 2010 Level 1 Level 2 Level 3 Total Financial assets at fair value through profit or loss (i) Listed equities and units in unit trusts - Listed equity securities 1,290, ,290,513 - Units in unit trusts - 1,197,868 27,291 1,225,159 - Insurance policies (ii) Derivatives 78,175-78,175 - Exchange traded call options - domestic 3, ,007 - Call warrants foreign 1, ,574 - Forward currency contracts - 5,221-5,221 1,295,094 1,281,264 27,291 2,603,649 Financial liabilities at fair value through profit or loss (i) Derivatives - Share price index futures - domestic 3, ,194 - Share price index futures - foreign 6, ,095 - Exchange traded call options domestic Bond futures - domestic Bond futures - foreign Day futures foreign Forward currency contracts - 11,961-11,961 10,080 11,961-22,041 Page 22

24 19. FINANCIAL INSTRUMENTS (CONTINUED) Fair Value of Financial Instruments (Continued) The following table shows a reconciliation of the movement in the fair value of financial instruments categorised within Level 3 between the beginning and the end of the reporting period. 30 June 2010 Lend Lease Partners Group Asian Retail Secondary SEC Fund 2008 SICAR Total Opening balance 7,485 7,485 Total gains and losses - In profit of loss 2,953 (2,645) 308 Purchases ,248 19,498 Sales - Closing balance 10,688 16,603 27,291 Total gains included in profit or loss for the period for assets held at the end of the reporting period (1,043) 20. SUBSEQUENT EVENTS There have been no events subsequent to balance date which would have a material effect on the Fund's financial statements at 30 June Page 23

25 STATEMENT BY TRUSTEE In the opinion of the Trustee (a) (b) (c) the financial statements set out on pages 2 to 23 are drawn up so as to present fairly the net assets of the Fund as at 30 June 2010 and the changes in net assets for the year then ended; the financial statements have been prepared in accordance with the full provisions of Australian Accounting Standard AAS 25, Financial Reporting by Superannuation Plans, other applicable Australian Equivalents to International Financial Reporting Standards, the provisions of the Trust Deed, and relevant legislative requirements; and the Fund has operated in accordance with the provisions of the Trust Deed and in compliance with the requirements of the Superannuation Industry (Supervision) Act 1993, and Regulations, the Corporations Act 2001, Regulations and Guidelines and Financial Sector (Collection of Data) Act 2001 during the year ended 30 June Signed in accordance with a resolution of the Trustee Signed at.... this ott) day of October Rio Tinto Staff Superannuation Fund 30 June 2010 Page 24

26 Independent auditor's report to the trustee and rnembers of Rio Tinto Staff Superannuation Fund ABN: Financial staternents I have audited the fmancial statements of Rio Tinto Staff Superannuation Fund (the Fund) for the year ended 30 June 2010, comprising the statement of net assets, statement of changes in net assets and accornpanying notes 1 to 20 as set out on pages 2 to 23. Trustee's responsibility for thelinancial statements The superannuation entity's trustee is responsible for the preparation and fair presentation of the financial statements in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the requirements of the SIS Act and the Superannuation Industry (Supervision) Re gulations 1994 (SIS Regulations). The trustee's responsibility includes establishing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error, and making accounting estimates that are reasonable in the circumstances. Auditor 's Responsibility My responsibility is to express an opinion on the fmancial statements based on my audit. I have conducted an independent audit of the fmancial statements in order to express an opinion on them to the trustee and members of Rio Tinto Staff Superannuation Fund. My audit has been conducted in accordance with Australian Auditing Standards. These Auditing Standards require that I cornply with relevant ethical requirements relating to audit engagernents and plan and perform the audit to obtain reasonable assurance as to whether the financial statements are free of material rnisstatement. An audit involves performing procedures to obtain audit evidence about the arnounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgement, including the assessment of the risks of rnaterial rnisstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the trustee's preparation and fair presentation of the financial staternents in order to design audit procedures that are appropriate in the circurnstances, but not for the purpose of expressing an opinion on the effectiveness of the trustee's internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estirnates made by the trustee, as well as evaluating the overall presentation of the financial statements. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion. KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative.