hhy 2007 annual report - aspectfinancial.com.au

ASX Announcement Hastings High Yield Fund (HHY) Total pages: 58

27 September 2007

HHY 2007 Annual Report

Attached is the 2007 HHY Annual Report which has been sent to unitholders today.

For further enquiries, please contact:

George Batsakis Chief Operating Officer Hastings High Yield Fund Tel: +61 3 9654 4477 Fax: +61 3 9650 6555 Email: [email protected] Website: www.hfm.com.au

Simon Ondaatje Head of Investor Relations Hastings Funds Management Tel: +61 3 9654 4477 Fax: +61 3 9650 6555 Email: [email protected] Website: www.hfm.com.au

Claire Filson Company Secretary Hastings Funds Management Limited

Unless otherwise stated, the information contained in this document is for informational purposes only. It does not constitute an offer of securities and should not be relied upon as financial advice. The information has been prepared without taking into account the investment objectives, financial situation or particular needs of any particular person or entity. Before making an investment decision you should consider, with or without the assistance of a financial adviser, whether any investments are appropriate in light of your particular investment needs, objectives and financial circumstances. Neither Hastings, nor any of its related parties, guarantees the repayment of capital or performance of any of the entities referred to in this document and past performance is no guarantee of future performance. Hastings, as the Manager or Trustee of various funds, is entitled to receive management and performance fees.

M:\Marketing - Reporting\HHYF\ASX Announcements\Final ASX Announcements\2007\September\HHY - Annual Report.doc www.hfm.com.au

035371_00O7TB

Dear Investor,

Hastings High Yield Fund - 2007 Annual Report

Hastings Funds Management Limited (Hastings), as responsible entity for the Hastings High Yield Fund (HHY) ispleased to announce the release of the HHY Annual Report for the year ended 30 June 2007. A copy of the AnnualReport is enclosed unless you have requested not to receive a printed copy. The report is available on Hastings'website at www.hfm.com.au/2007hhyannualreport

If you have any questions about the Annual Report or any other matters relating to your investment, please contactComputershare Investor Services on 1300 131 164 or email [email protected].

Yours faithfully,

Claire Filson, Company SecretaryHastings Funds Management Limited

Unless otherwise stated, the information contained in this document is for informational purposes only. It does not constitute an offer of securities andshould not be relied upon as financial advice. The information has been prepared without taking into account the investment objectives, financialsituation or particular needs of any particular person or entity. Before making an investment decision you should consider, with or without the assistanceof a financial adviser, whether any investments are appropriate in light of your particular investment needs, objectives and financial circumstances.Neither Hastings, nor any of its related parties, guarantees the repayment of capital or performance of any of the entities referred to in this document andpast performance is no guarantee of future performance. Hastings, as the Manager or Trustee of various funds, is entitled to receive management andperformance fees.

www.hfm.com.au

Hastings Funds Management LimitedABN 27 058 693 388AFSL No. 238309

Level 1590 Collins StreetMelbourne VIC 3000 AustraliaTelephone +61 3 9654 4477Facsimile +61 3 9650 6555

Other officesLondon, New York

Hastings Funds Management LimitedABN 27 058 693 388AFSL No. 238309

27 September 2007

HastingsHigh YieldFundAnnual Report

www.hfm.com.au

Contents 02 Investment Philosophy 03 Highlights 04 Manager’s Report 07 Key Performance Indicators 08 Investments 20 Hastings Funds Management Limited Board 23 Corporate Governance 26 Directors’ Report 28 Financial Statements 51 Investor Details 52 Investor Information IBC Corporate Directory

Hastings High Yield FundThe Hastings High Yield Fund (the Fund) seeksto provide an attractive yield on units by makingquarterly cash distributions funded from interestreceived on investments in high yield securities,receipt of participation fees and realised gainsas well as annual distribution of associated tax credits.

About the ManagerHastings Funds Management Limited (Hastings) isthe Responsible Entity for the Fund. Established in 1994, Hastings specialises in managed fundsthat provide the investment community withaccess to infrastructure and alternative assets. Hastings’ suite of portfolios includes infrastructureinvestments, private equity, timberland and highyield securities. Hastings is presently managingapproximately $4.7 billion in investment funds.Hastings is a wholly owned subsidiary of Westpac Banking Corporation (Westpac).

About this reportHastings aims to make this Annual Report an accurate and easy-to-read document forunitholders and other key stakeholders. Thereport provides information about the Fund’sactivities and performance during the year. Your feedback and suggestions for improvementare welcomed. If you have any comments on the report, please contact the CompanySecretary of Hastings on +61 3 9654 4477 or [email protected].

Corporate Directory

Responsible EntityHastings Funds Management LimitedABN 27 058 693 388Holder of Australian Finance Services Licence No. 238309

Registered OfficeLevel 1590 Collins StreetMelbourne VIC 3000 AustraliaTelephone +61 3 9654 4477Facsimile +61 3 9650 6555Email [email protected] www.hfm.com.au

LondonLevel 163 St Mary AxeLondon EC3A 8LETelephone +44 20 7337 6720Facsimile +44 20 7929 2502

New York575 Fifth Avenue39th FloorNew York NY 10017-2422Telephone +1 212 551 1976Fax +1 212 551 1997

Hastings Board of DirectorsLiam Forde, ChairmanSteve Boulton, Chief Executive OfficerAlan FreerMike HutchinsonJim McDonaldSean McElduffJim Tate

Company SecretariesClaire FilsonKim Rowe

Disclaimer This report has been prepared by Hastings FundsManagement Limited, holder of Australian FinancialServices Licence number 238309, as responsibleentity for the Hastings High Yield Fund (the Fund).Hastings is a subsidiary of Westpac BankingCorporation (Westpac).

The information contained in this report is forinformational purposes only and does not constitutean offer to issue or arrange to issue, financialproducts. The information contained in this report is not financial product advice. This report has beenprepared without taking into account the investmentobjectives, financial situation or particular needs ofany particular person. Before making an investmentdecision, you should read the publicly availableinformation carefully and consider, with or without

the assistance of a financial adviser, whether aninvestment is appropriate in light of your particularinvestment needs, objectives and financialcircumstances. Past performance is no guarantee of future performance.

Neither Hastings, Westpac nor any other memberof the Westpac Group gives any guarantee orassurance as to the performance of the Fund or the repayment of capital. Investments in the Fundare not investments, deposits or other liabilities of Hastings, Westpac or other members of theWestpac Group. Members of the Westpac Groupmay invest in or lend or provide other services tothe Fund and may be paid fees and expenses inrelation to Hastings’ role as responsible entity.

Cert no. SCS-COC-00858

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The Fund provides unitholders with exposureto high yield securities in the form of loansand hybrid securities. Whilst high yieldsecurities may be riskier than other forms offixed interest investment (such as governmentbonds and rated corporate debt), they offeryields typically superior to these other forms offixed interest investment. High yield securitiesalso offer the potential to earn participation feeincome and gains on realisation.The Fund is diversified in such a way thatexposure to a single underlying security will not exceed 20 percent of the Fund, andthe aggregate exposure to listed securitieswill not exceed 50 percent of the Fund.

InvestmentPhilosophy

The Fund has assembledan investment portfolio ofhigh yield securities withthe objective of providingunitholders with a regularsource of income.Investment strategyThe key elements of the Fund’s investmentstrategy are as follows:•target investment in unrated and

sub-investment grade high yield securitiesnot otherwise accessible to AustralianSecurities Exchange (ASX) investors;

• invest in high yield securities that providefor potential gains flowing from re-rating,early repayment and equity participation;

•target early involvement to generateparticipation fee income and positivelyinfluence the terms of investment; and

•hold investments for the medium to long term.

Generation of returnsReturns to unitholders are comprised ofquarterly cash distributions, annual taxcredits and capital growth via movements in the net asset value of units.

Cash distributions are derived from:•periodic income in the form of interest

and dividends generated from high yield securities;

•participation fee income associated withinvestment; and

•realised gains in the form of gains on sale, early repayment penalties and equity participation.

Movements in the net asset value of unitsreflect the valuation of investments held bythe Fund, including any unrealised gains or losses on investments.Unitholders should be aware that the netasset value of units may differ from thetraded price of units on the ASX.

Transaction sourcesThe Fund invests in high yield securitiessourced from transactions associated with:• infrastructure and privatisation;•private equity;•acquisitions and financial restructures; and•other leveraged finance transactions.The Fund invests in high yield securities issuedby Australian entities and international entitiesfrom member countries in the European Unionor Organisations for Economic Co-operationand Development (OECD).

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HighlightsKey events since 1 July 2006 include:•Investment activity in high yield securities

– new investments in BAA, Eircom, AB Ports, DCA Group, Thames Water,EnviroWaste and Cory Environmentalincreasing the total number of high yieldinvestments to 12 as at 30 June 2007;

– new investments in Arqiva/National GridWireless (NGW) and Maher Terminalssubsequent to 30 June 2007 haveincreased the total number of high yield investments to 14;

– further investment in Mid Kent Water;– repayment in full of the investment in

Arqiva prior to reinvestment in thecombined Arqiva/NGW; and

– all investments continue to perform in line with expectations.

•Capital position– Second Instalment of $1.00 per unit

cancelled following resolution ofunitholders;

– net proceeds from initial fundraising fully invested;

– activation of the Distribution ReinvestmentPlan (DRP);

– successful placement of new units toprofessional and sophisticated investorsraising $21.2 million;

– successful issue of new units to existinginvestors via the Security Purchase Planraising $5.0 million; and

– increase in the debt facility limit to $87.5 million to provide additional fundingcapacity for current investments.

• Investment team– appointment of George Batsakis as

Chief Operating Officer for the Fund.

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Manager’sReport

Hastings is pleased to report a strong year of investment activity and solid performancefor the Fund. Hastings’ offices in Melbourne,London and New York are providing the Fundwith access to attractive high yield investmentopportunities that have significantly increasedportfolio diversity. This is evidenced by theaddition of seven new high yield securitiesduring the year, as well as two additional highyield securities subsequent to 30 June 2007,which brings the total number of investmentsto 14.The proceeds raised from the initial fundraisingwere fully invested during October 2006 atwhich time the DRP was activated whichallows eligible unitholders to reinvest theirdistributions by purchasing additional units in the Fund (free from brokerage). The DRPcurrently offers a discount of 2.50 percent to the prevailing market price.In March 2007, the Fund completed a placement of new units to professional and sophisticated investors which raised $21.2 million. In addition, a Security PurchasePlan offered to existing unitholders raised afurther $5.0 million. Both capital raisings werewell supported.The Fund completed investments in high yieldsecurities during the year to part fund thefollowing acquisitions:•AB Ports, the largest port operator in the

United Kingdom;•BAA, one of the world’s leading international

airport operators, and owner of London’sHeathrow, Gatwick and Stansted airports;

•Cory Environmental, a major provider ofwaste collection and disposal services in the United Kingdom;

•DCA Group, the world’s largest diagnosticimaging provider and the largest for profitaged care provider in Australia and New Zealand;

•Eircom, the incumbent telecommunicationsoperator in Ireland;

•EnviroWaste, New Zealand’s second largestsolid waste management company; and

•Thames Water, the largest water andwastewater company in the United Kingdom.

During the year the Fund also increased itsinvestment in Mid Kent Water.The Fund received repayment in full of itsinvestment in Arqiva in April 2007 prior toreinvestment in the combined Arqiva/NGWsubsequent to 30 June 2007.Subsequent to 30 June 2007, two furtherinvestments were completed to part fund the following acquisitions:•Maher Terminals, the largest terminal

operator within the Port of New York and New Jersey in the United States and operatorof a new terminal located on the west coast of Canada; and

•Arqiva/NGW, the leading broadcast and wireless infrastructure provider inthe United Kingdom.

All investments have been made inaccordance with the Fund’s strict investmentstrategy and philosophy and continue toperform in line with expectations.In July 2007, the Fund’s debt facility limit was increased from $75.0 million to $87.5 million to provide additional fundingcapacity for the current investments. The debt facility is utilised to secure attractiveinvestments on a timely basis. There is nointention to operate the Fund with a materialamount of permanent debt.

Operating profit for the periodThe Fund reported a net profit attributable to unitholders of $11,687,000 for the yearended 30 June 2007. The result representsearnings attributable to unitholders of 14.72 cents per unit.

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George BatsakisChief Operating Officer

DistributionsDuring the year ended 30 June 2007 the directors declared the following cash distributions:•$2,625,000 for the quarter ended

30 September 2006, equating to 3.50 centsper unit, paid on 3 November 2006;

•$3,003,000 for the quarter ended 31 December 2006, equating to 4.00 centsper unit, paid on 7 February 2007;

•$3,750,000 for the quarter ended 31 March 2007, equating to 4.20 cents per unit, paid on 7 May 2007; and

•$3,761,000 for the quarter ended 30 June 2007, equating to 4.20 cents per unit, paid on 17 August 2007.

The cash distributions declared for the year ended 30 June 2007 totalled 15.90 cents per unit.In addition to the cash distributions, imputation credits of 0.47 cents per unit and withholding tax credits of 0.48 cents per unit were generated for the year ended 30 June 2007. With the inclusion of tax credits, gross distributions for the year were16.85 cents per unit. The tax-deferred element of the distributionswas 3.19 cents per unit, representing 20.1 percent of the cash distributions declared.

Interest rate and foreign currency exposureAs at 30 June 2007, approximately 84 percent of the Fund’s investment portfolio was investedin high yield securities which generate a floatingrate of interest, that is, interest earnings are reseteach quarter or half year based on prevailingAustralian bank bill rates. This is attractive in a rising interest rate environment. All foreigncurrency investments are hedged to Australiandollars to minimise exposure to movements inforeign currency and interest rates.

Summary and outlookThe attractive high yield securities announcedsubsequent to 30 June 2007 further add to theFund’s portfolio diversity and increases the totalnumber of investments to 14. All investmentscontinue to perform in line with expectations.The Fund has no exposure to the sub-primemortgage sector in the United States nor toany collateralised credit products. The Fund is well positioned to continue to buildthe investment portfolio on a selective basis inline with the Fund’s strict investment criteria.Hastings is currently assessing fundingoptions for the Fund, including repayment/partial divestment of existing investments,distribution reinvestment and a capital raising.Hastings greatly appreciates the continuedsupport of unitholders and their advisers overthe 2007 financial year.

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Manager’sReport continued

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Investment portfolioThe Fund invests in high yield securities with the objective of providing unitholders with a regular source of interest and dividend income.Investments are made in high yield securities sourced from transactions associated with:• infrastructure and privatisation;•private equity;•acquisitions and financial restructures; and•other leveraged finance transactions.At 30 June 2007, the Fund was invested in 12 high yield securities, the details of each investment are set out below:

Investment at Investment Investment Transaction 30 June 2007

Date source instrument ($’000)

AB Ports October 2006 Infrastructure Junior Floating Rate Loan 12,494

BAA August 2006 Infrastructure Toggle Facility 20,996

Babcock & Brown Infrastructure June 2005 Infrastructure Subordinated Prime Adjusting 19,557Reset Convertible Securities

Cory Environmental (1) June 2007 Infrastructure Junior Floating Rate Loan 9,480

DCA Group January 2007 Private equity Junior Floating Rate Loan 20,416

Eircom September 2006 Private equity Senior Term Loans 11,594

EnviroWaste June 2007 Private equity Junior Floating Rate Loan 13,477

European Directories September 2005 Private equity Second Lien Loan 15,506

Hyne Timber April 2005 Financial restructure High Yield Non-cumulative 13,246Exchangeable Securities

Manildra Group September 2005 Financial restructure Reset Secured Notes 19,444

Mid Kent Water (1) June 2005 Infrastructure Convertible Floating Rate Loan 19,551

Thames Water February 2007 Infrastructure Junior Floating Rate Loan 23,898

Total 199,659

(1) Excludes undrawn commitments of $10,262,000 as at 30 June 2007. Cory Environmental outstanding commitment was subsequently funded on 3 August 2007 which reducedundrawn commitments to $2,907,000

Year ended Year ended 30 June 2007 30 June 2006

Weighted average earnings per unit cents 14.72 12.91

Cash distribution per unit cents 15.90 17.01

Distribution per unit (inclusive of tax credits) cents 16.85 17.76

Distribution yield (1) % p.a. 8.43 8.89

Net asset value per unit (2) $ 1.86 1.88

Market value per unit (3) $ 2.14 1.75

Market capitalisation (trading value of the Fund) (3) $ million 191.6 131.3

Cash/(Net Debt) $ million (27.9) 37.4

Gearing (debt/gross asset value) % 15.5 –

Management and performance fees, and administrative costs on market capitalisation (MER) (inclusive of GST) % p.a. 1.67 0.70

Number of unitholders 3,086 1,974

Note: All dollar amounts are denoted in Australian dollars.(1) Distribution yield includes cash distributions together with tax credits. The yield is based on the Initial Public Offering (IPO) price $2.00 per unit. (2) After taking into account taxation on realised and unrealised gains where applicable, and after provision for the distributions. The value also excludes the Second Instalment of

$1.00 per unit, which has been cancelled by special resolution of the unitholders.(3) Market value per unit and market capitalisation are based on the closing price at the end of each period, i.e. $1.75 on 30 June 2006 and $2.14 on 30 June 2007. The Fund’s

market capitalisation has increased as a result of an increased unit price together with the issuance of new units throughout the year.

Key PerformanceIndicators

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Investments AB PortsJunior Floating Rate Loan

Asset descriptionAdmiral Acquisitions UK Limited wasestablished by a consortium principallycomprising Borealis Infrastructure, GIC,Goldman Sachs and Infracapital to acquireAssociated British Ports Holding plc (AB Ports)in August 2006 for a total consideration of £3.4 billion.AB Ports is the largest port operator in theUnited Kingdom providing port facilities andservices to shippers and cargo owners throughits freehold ownership of 21 strategicallylocated ports in England, Scotland and Wales. A £350 million Junior Floating Rate Loan was arranged to part fund the acquisition of AB Ports.

Period in review•Financial performance has exceeded the

acquisition forecasts for the year ended 31 December 2006. The two principal portsof Immingham and Southampton reportedtonnage and container increases for theperiod with Immingham reporting 57 milliontonnes handled, an increase of 3.6 percent,and Southampton handled 1.5 millioncontainers, an increase of 9.1 percent on the prior corresponding period.

•AB Ports has made a number of smallinvestments across its port portfolio. In April 2007 AB Ports announced a £9 million investment in upgrading the City Cruise Terminal in Southampton toaccommodate larger cruise ships.

OutlookThe outlook for AB Ports is stable given the majority of revenue is underpinned bylong-term contracts with existing customers.

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Summary terms

Instrument Junior Floating Rate Loan

Issue size £350 million

Fund investment £5 million

Maturity August 2014

Interest rate 3.50% per annum over LIBOR

BAAToggle Facility

Asset description Airport Development and Investment Limited(ADI) was established by a consortiumconsisting of Spanish construction andinfrastructure group, Ferrovial, Canadianfinancial institution, CDP and the SingaporeanGovernment’s private equity investment arm,GIC to acquire the United Kingdom listed BAAplc (BAA) in June 2006 for a total considerationof £16.6 billion.BAA is one of the world’s leading internationalairport operators, and owner of seven UnitedKingdom airports, including the three Londonprice regulated airports of Heathrow, Gatwick and Stansted. A £600 million Toggle Facility was arranged to part fund the acquisition of BAA.

Period in review •For the year ended 30 June 2007 the

number of passengers passing throughBAA’s United Kingdom airports was 148.0 million, an increase of 1.1 percent on the prior corresponding period.

•BAA reported results for the nine months to 31 December 2006. Results relating toBudapest Airport were excluded to enablecomparison with the prior correspondingperiod. BAA revenue increased by 6.4 percent to £1,833 million and BAAoperating profit increased by 0.5 percent to £577 million.

• In May 2007 BAA reached an agreement to sell its stake in Budapest Airport to aconsortium led by Hochtief for £1.3 billion,with the proceeds used to retire a portion of its outstanding senior debt.

•The United Kingdom Competition Commissionis currently reviewing whether any factorsrelating to the supply of airport services in the southeast of the United Kingdom affectcompetition in the United Kingdom.

•The Civil Aviation Authority will publish its firm price proposal for the next five year pricecap period in November 2007. The initialprice proposal published in December 2006proposed a lower cost of capital than thecurrent price cap period. The next price capperiod will apply at Heathrow and Gatwickairports from 1 April 2008.

Outlook The outlook for BAA is stable given itsownership of the three London price regulatedairports of Heathrow, Gatwick and Stansted.

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Summary terms

Instrument Toggle Facility


Fund investment £7.5 million

Maturity/Step-up Perpetual, interest rate steps up in July 2026


Investmentscontinued

Babcock & Brown Infrastructure Subordinated Prime Adjusting RateConvertible Securities

Asset description Babcock & Brown Infrastructure (BBI) is anASX listed diversified infrastructure investorwith investments in energy transmission anddistribution through Powerco, InternationalEnergy Group, Cross Sound Cable and Alinta;and transport infrastructure through DalrympleBay Coal Terminal, PD Ports, WestNet Rail anda portfolio of European port assets.In November 2004 BBI acquired 100 percentof New Zealand-based gas and electricitydistributor Powerco. Powerco is the secondlargest energy distribution business in New Zealand, owning and operatingapproximately 25,000 kilometres of electricitylines and 5,240 kilometres of gas pipelines. To part fund the acquisition of Powerco, BBI completed two issues of securities totalling NZ$236 million.

Period in review•In August 2006 NorthWestern Energy

shareholders voted in favour of the proposedacquisition by BBI. NorthWestern Energy is an electricity and gas transmission anddistribution utility in the United States. In March 2007 BBI raised $422.1 million via a placement with the funds intended to be applied towards the acquisition ofNorthWestern Energy. However, in July 2007BBI announced regulator, Montana PublicService Commission, voted to decline theacquisition. Given the failed bid BBI hasavailable cash for further acquisitions.

• In February and May 2007 BBI announcedthe conversion of Subordinated PrimeAdjusting Rate Convertible Securities totalling NZ$90 million to BBI StapledSecurities. Subordinated Prime AdjustingRate Convertible Securities totallingapproximately NZ$146 million remain on issue.

•BBI acquired Alinta’s energy transmissionand distribution assets following shareholderapproval in August 2007 as well as interestsin a number of European port operators.

•For the year ended 30 June 2007 BBIreported EBITDA of $513.0 million onrevenues of $1,239.3 million, whichrepresents an increase of 43.5 percent and 55.3 percent respectively.

OutlookThe outlook for BBI is stable with cash flow underpinned by a solid portfolio ofinfrastructure assets.

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Summary terms

Instrument Subordinated Prime Adjusting Rate Convertible Securities

Issue size NZ$146 million

Fund investment NZ$20 million

Maturity November 2009

Interest rate 8.50% per annum

Conversion BBI ordinary securities (upside above $1.78)

Cory EnvironmentalJunior Floating Rate Loan

Asset descriptionViking Consortium Finance Ltd (Viking) wasestablished by a consortium consisting of ABN AMRO Infrastructure, Finpro andSantander Private Equity to acquire CoryEnvironmental Holdings Limited (CoryEnvironmental) in March 2007 for a totalconsideration of £588 million.Cory Environmental operates multiple landfillsites, provides municipal waste collection andrecycling services in the UK, with a focus inLondon and Essex. Cory Environmental alsohas planning approval to build and operate a new energy-from-waste facility in London.A £40 million Junior Floating Rate Loan was arranged to part fund the acquisition of Cory Environmental.

Period in review•Cory Environmental has progressed with the

financing of the energy-from-waste facility inLondon by appointing in mid-August Bank of Ireland and Barclays Capital as jointMandated Lead Arrangers.

OutlookThe outlook for Cory Environmental is stablegiven the majority of revenue is underpinnedby public sector contracts.

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Summary terms




Maturity December 2014



DCA GroupJunior Floating Rate Loan

Asset descriptionCAID Pty Limited was established by fundsadvised by CVC Asia Pacific Limited and CVCCapital Partners to acquire DCA Group Limited(DCA Group) in December 2006 for a totalconsideration of $2.7 billion.DCA Group is the world’s leading provider of diagnostic imaging, operating 225 clinics inAustralia and 20 clinics in the United Kingdom.DCA Group is also the largest for profit agedcare provider in Australia with 39 facilities and 3,474 beds, and in New Zealand with 38 facilities and 2,905 beds. A $300 million Junior Floating Rate Loan was arranged to part fund the acquisition of DCA Group.

Period in review •For the year ended 30 June 2007 DCA

Group reported revenue and EBITDA in line with the acquisition base case.

•The Federal Government in the 2007/08Budget announced the increase in theMedicare Benefits Schedule which providesa set of reimbursement rates for all medicalprocedures, including diagnostic imaging.

OutlookThe outlook for DCA Group is stable given the favourable industry dynamics of an ageingpopulation and the essential services nature of DCA Group’s operations.

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Summary terms


Issue size $300 million

Fund investment $20 million

Maturity June 2013

Interest rate 6.50% per annum over BBSW

EircomSenior Term Loans

Asset descriptionBCM Ireland Holdings Limited was establishedby a Babcock & Brown Capital led consortiumto acquire Eircom Group plc (Eircom) inAugust 2006 for a total consideration of €4.8 billion.Eircom is the incumbent telecommunicationsoperator and owner of the only national fixedline telecommunications network in Ireland.Eircom has a dominant position in all fixed line business areas and owns Meteor, a growing mobile business. It is also thelargest broadband provider in Ireland.€2.7 billion of Senior Term Loans were arrangedto part fund the acquisition of Eircom.

Period in review•For the year ended 30 June 2007 revenue

increased 11.5 percent on the priorcorresponding period to €1,982 million.Adjusted EBITDA for the same period was€655 million, an increase of 6.7 percent.

•For the year ended 30 June 2007 Eircom’sfixed line business saw revenue growth of 1 percent on the prior corresponding periodto €1,655 million, as a result of new housingbuilds and a strong increase in the numberof broadband customers which offsetreductions in voice and dial-up internet traffic revenue.

•For the year ended 30 June 2007 Eircom’smobile revenue increased 132.3 percent to €388 million and EBITDA increased from€17 million in 2006 to €65 million as a resultof increased market share and higherrevenue per user.

• In May 2007, Eircom successfullyrenegotiated the interest margins applicableto the senior debt facilities.

OutlookThe outlook for Eircom is stable given itsdominant fixed line business and consistentgrowth from its mobile business.

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Summary terms

Instrument Senior Term Loans

Issue size €2,700 million

Fund investment €6.7 million (1)

Maturity 2014/15

Interest rate 2.64% (2) per annum over EURIBOR

(1) Senior Term Loans comprise €2.4 million of Tranche B, €2.4 million of Tranche C and €1.9 million of Tranche D

(2) Weighted average interest rate


EnviroWasteJunior Floating Rate Loan

Asset descriptionIn December 2006 EnviroWaste was acquired by Ironbridge Capital for a totalconsideration of NZ$379 million. In April 2007the New Zealand Overseas Investment Officeapproved the sale and the transaction reachedfinancial close.EnviroWaste is New Zealand’s second largestsolid waste management company withoperations in the waste collection and disposalsegments and a market share of approximately22 percent. EnviroWaste conducts operationson New Zealand’s North and South Islandswith the business significantly weightedtowards landfill assets which have high barriersto entry and strong pricing dynamics. A NZ$50 million Junior Floating Rate Loan was arranged to part fund the acquisition of EnviroWaste.

Period in review•During the sale process Ironbridge Capital

entered into a back-to-back contract to sellEnviroWaste’s South Island assets to ASXlisted Transpacific Industries. In June 2007the New Zealand Commerce Commissionallowed approximately half of the proposedasset sales to proceed.

•Under the New Zealand CommerceCommission decision Ironbridge Capital willsell its 50 percent ownership in CanterburyWaste Services and its Dunedin landfill andtransfer station operations to TranspacificIndustries.

•Under the agreement with TranspacificIndustries the sale of these South Islandassets will provide approximately NZ$63 million of cash which will be used to partially repay outstanding debt and equity.

OutlookThe outlook for the solid waste market isstrong with both waste volume and pricinggrowth expected over the coming years.

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Summary terms


Issue size NZ$50 million

Fund investment NZ$15 million

Maturity October 2013

Interest rate 6.50% per annum over BKBM

European Directories Second Lien Loan

Asset descriptionEuropean Directories was established by a Macquarie Capital Alliance Group-ledconsortium to acquire Yellow Brick Road andsubsequently TDC Directories in July 2005 for a total consideration of €2,475 million.European Directories is a leading Europeanwhite pages and yellow pages directoriespublisher with a number one market position in each of the Netherlands, Denmark, Finland,Austria, the Czech Republic and Slovakia. In addition to white pages and yellow pagesdirectories, European Directories providesdirectory assistance services, electronic dataservices and online directories services.A Second Lien Loan of €125 million wasarranged to part fund the acquisition ofEuropean Directories and TDC.

Period in review•European Directories has a December year

end. Revenue for the six months to 30 June2007 increased by 2.2 percent on the priorcorresponding period to €283.1 million (after excluding the French Call centrerevenue from the prior period). EBITDA for the same period was €91.5 million, an increase of 6.9 percent due to revenuegrowth and one-off expenses incurred in the prior period.

•French Call centre was disposed of inDecember 2006. The business was non-coreand low margin.

•DTG (Netherlands) and Fonecta (Finland)continue to produce strong results with gainsin market share and the realisation of furtherefficiency gains.

• In June 2007 European Directories acquired50 percent of Yellow Pages provider pkt(Poland), which holds a strong number two market position in Poland.

OutlookThe outlook for European Directories’ printbusiness remains stable with low growthexpected in core print products. The onlinebusiness continues to produce strong growth.

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Summary terms

Instrument Second Lien Loan

Issue size €125 million

Fund investment €9.75 million

Reset date December 2014

Interest rate 4.50% per annum over EURIBOR


Hyne TimberHigh Yield Non-cumulative Exchangeable Securities

Asset description Hyne Timber is a Queensland-based privatecompany established in 1882. Hyne Timber is a fully integrated forestry company withextensive interests in timber processing,wholesaling and exporting. Principal activitiesinclude softwood sawmills, hardwoodsawmills, timber manufacturing plants,wholesale and distribution outlets and theexport of plantation woodchip. A $60 million issue of exchangeable securitieswas completed in April 2005 to fund capitalexpenditure, including a substantial upgrade of the Tumbarumba and Mary Valley mills,wholesale and manufacturing operations, and the completion of a number of strategic acquisitions.

Period in review•Hyne Timber’s two primary mills,

Tumbarumba in New South Wales (NSW)and Tuan in South Queensland are nowoperating in line with expectations. Thepreviously identified operational issues at Tumbarumba have been overcome.

•The North Queensland and Western Australianhousing markets remain strong. South EastQueensland has seen reduced demand and is expected to remain relatively flat during2008. The NSW market remains depressed;however, Victoria was stronger thananticipated as a result of increased demand.

• Introduction of price rises during the 2007 calendar year has had a direct andpositive impact on Hyne Timber’s operatingcash flow.

OutlookHyne Timber’s financial position improvedduring the 2007 financial year and the marketoutlook remains stable in light of recent price rises.

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Summary terms

Instrument High Yield Non-cumulative Exchangeable Securities



Maturity October 2010

Dividend rate 7.50% per annum fully franked

Premium 5.00% upon redemption

Manildra GroupReset Secured Note

Asset description Manildra Group is a large privately ownedcompany, established in 1952, and is thelargest user of wheat for industrial purposes inAustralia, processing over one million tonnesof wheat per annum. Manildra Group is anintegrated producer of processed wheatproduct, with its principal activities comprisingflour milling, starch and glucose production,gluten production, ethanol production andconsumer retail products.In September 2005, Manildra Group raised $75 million through an issue of a ResetSecured Note.

Period in review•For the year ended 30 June 2007 both

revenues and EBITDA were ahead ofmanagement forecasts. The stronger resultsstem from increased flour and gluten pricingin Australia and the performance of theUnited States milling business.

•Manildra Group has performed solidly in light of the drought where increased cost of goods sold were more than offset byincreases in selling prices for both baggeddomestic flour and starch.

• In June 2007 the NSW Governmentannounced that from October 2007 petrolsold in NSW must contain at least 2 percentethanol of total volume. Manildra Group isthe largest producer of ethanol in Australia,which places it in a favourable position totake advantage of the legislated changes in NSW.

OutlookManildra Group is operated by an experiencedmanagement team. The outlook remainsstable with the expansion of ethanol productionproviding growth opportunities.

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Summary terms

Instrument Reset Secured Note



Reset date August 2010

Interest rate 10.00% per annum

Exchange discount 5.00%


Mid Kent WaterConvertible Floating Rate Loan

Asset description In February 2005 Mid Kent Water was acquiredby the ASX listed Hastings Diversified UtilitiesFund and the unlisted Utilities Trust of Australia,both of which are managed by Hastings. Mid Kent Water is a regulated water utility in the south east of England, servicingapproximately 580,000 residential andcommercial customers. Mid Kent Water isregulated by the Water Services RegulationAuthority. The most recent five year regulatoryreview was completed in December 2004. A Convertible Floating Rate Loan facility of £24 million was arranged to part fund the acquisition of Mid Kent Water.

Period in review•In October 2006 the Hastings’ managed

fund owners of Mid Kent Water, purchasedSouth East Water, a regulated water onlyutility that operates in the south east ofEngland servicing a population of 1.4 million. It is intended that the two neighbouring water utilities be merged having beengranted conditional approval from the UK Competition Commission.

•For the year ended 31 March 2007 revenuedecreased 2.0 percent to £47.1 million and EBITDA decreased 0.4 percent to£26.7 million. These reductions were largelyas a consequence of the drought and itsimpact on income from metered customers.The lower revenue was offset by solid costmanagement, with operating expendituredecreasing by £0.4 million to £31.1 million.

•The drought has subsequently broken withwater reservoirs and aquifers generally backat, or close to, long-term averages.

OutlookThe outlook is stable given Mid Kent Wateroperates under a regulatory regime with the current regulatory determination secureuntil 2010.

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Summary terms

Instrument Convertible Floating Rate Loan


Fund investment £9.25 million

Maturity March 2011


Thames WaterJunior Floating Rate Loan

Asset descriptionIn December 2006 a consortium led byMacquarie Bank managed funds acquiredThames Water for a total consideration of £8 billion. Thames Water is the largest water andwastewater services company in the UnitedKingdom, providing drinking water to 8 millionpeople and sewage services to 13 millioncustomers. The company’s supply area covers8,000 square kilometres across London andThames Valley, from Kent in the east toGloucestershire in the west. A £835 million Junior Floating Rate Loan was arranged to part fund the acquisition.

Period in review•For the year ended 31 March 2007 Thames

Water reported an increase in turnover of 2.7 percent on the prior correspondingperiod of £1,431 million. EBITDA decreasedby £13.7 million to £768.6 million due tohigher operating expenditure, principally as a result of the drought, rising power costs and an increased charge for renewal of infrastructure.

•Leakage fell to around 790 million mega litresper day (mld) for the year ended 31 March2007 compared with 862 mld for the priorcorresponding period (leakage target for2006/07 was 810 mld). The company hasattributed the lower figure to its leakageaction plan combined with a mild winter.

OutlookThe outlook is stable given Thames Wateroperates under a regulatory regime with the current regulatory determination secureuntil 2010.

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Summary terms




Maturity December 2013


Hastings FundsManagementLimited Board

External directorships:Current: Director of Westpac FundsManagement Limited, Rosecorp Pty LtdAdvisory Board and Crescendo PartnersAdvisory Board.Previous: Director of Baulderstone Hornibrook Pty Ltd.

Skills, experience and expertise:Liam brings to Hastings a wealth of experienceand knowledge developed over a careerspanning more than 30 years. He has heldsenior executive positions in a variety ofindustries, including Ford Motor Company in the UK, Simpson Holdings Limited andBaulderstone Hornibrook in Australia. Hisindustry experience covers retailing, domesticappliance manufacture and distribution,electronics, automotive, and the development,financing and construction of majorinfrastructure. He is an experienced executivewho has operated as Chief Executive Officer(CEO) and in cross-functional roles across adiverse range of industries operating in bothdomestic and international markets, includingEurope, Indonesia, China, India, Vietnam,Panama and Thailand. He was formerly Chief Executive of Baulderstone Hornibrook,one of Australia’s leading construction andengineering companies.

HFML Board committee membership: Liam is a member of the Audit andCompliance Committee. He was Chairmanfrom January 2006 to July 2007.

External directorships:Current: Director of several Hastings managed companies.Previous: Steve was previously a director of a number of Babcock & Brown related entities.

Skills, experience and expertise:Steve commenced the role of CEO of Hastings in September 2007. Prior to this Steve held the position of CEO of Babcock & BrownInfrastructure, a top 100 ASX infrastructure,and utility entity with assets spread globallyacross three continents. He has also held CEO roles with Powerco, a New Zealand Exchange Limited (NZX) listed energy utility, and with Allgas based inQueensland. With these roles Steve grew thebusiness ownership, operations and assetsunder management by leading numeroustransactions in the infrastructure and utilitysectors, including mergers and acquisitions,and both equity and debt capital markets. He has held a range of executive levelpositions in the infrastructure and utility sectorswith experience in listed, unlisted and publicutilities for more than 30 years.

HFML Board committee membership: No.

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Liam FordeBSc (Econ), MAICD CFTPTerm of office: Chairman since 26 October2006, Director since January 2006Non-executive and Independent: Yes

Steve BoultonBBus, MTM, GAICD, FAIM, CMAHRITerm of Office: Director since September 2007Non-executive and Independent: No

External directorships:Current: Director of Electranet Pty Ltd andAustralian Pipeline Industry Association Ltd.Previous: Director of Epic Energy Holdings Pty Ltd, Ausdoc Group Ltd, Electricity ServicesVictoria and Treasury Corporation of Victoria.

Skills, experience and expertise:Alan has had a career spanning nearly 35 years in both the public and private sectors.He has a broad background with extensiveexperience in the energy and logistics industriesand expertise in managing multi-divisional andgeographically dispersed businesses.Most recently Alan was Managing Director of the Hastings’ managed Epic Energy fromJuly 2004 to July 2007 and made a valuablecontribution by transforming Epic Energy intoone of Australia’s best performing gas pipelineorganisations. Alan has also held executivepositions at Ausdoc Group Ltd, Email Limitedand the State Electricity Commission of Victoria.


External directorships:Current: Director of Westpac InstitutionalHoldings Pty Ltd, Westpac Private Equity Pty Ltd and other Westpac companies.Previous: Director of a number of Westpacrelated entities and Epic Energy East Pipelines Pty Ltd.

Skills, experience and expertise:Sean joined Westpac in 1977 and WestpacInstitutional Bank in 1984. In 1990, hetransferred to New York for three years and on return to Australia established Westpac’sSecuritisation Business Unit. He is currentlyresponsible for Westpac’s Specialised Capital Group. Since 1993 Sean has run business units inthe wholesale bank unit, including securitisation,corporate finance, equities and advisory, andsales and marketing. In 1999 he was appointedGeneral Manager and became a member ofboth the bank’s Management Council andWestpac Institutional Bank’s Executive Team.

HFML Board committee membership:Sean was a member of the Audit andCompliance Committee from 2003 until July 2007.

External directorships:Current: Director of Australian InfrastructureFund Limited.Previous: Director of Pacific Hydro Ltd, OTCLtd, the Australian Postal Corporation and theAustralian Graduate School of ManagementLtd. Chairman of HiTech Group Australia Ltd.

Skills, experience and expertise:Mike is a qualified civil engineer, educated at the University of Newcastle upon Tyne, UK, and Harvard Business School. He wasformerly an international transport engineeringconsultant with experience in the UK, France,Australia, Africa, South East Asia and thePacific. From 1980 to 1999 he was a seniorofficial with the Australian Government, mainlyworking in the transport and communicationssectors. He worked closely on reform of the Australian Government’s state-ownedenterprise sector from 1987 to 1996 and wasacting Managing Director of the former OTCLtd in 1989. He led the government’s majorprivatisation program over the period 1996 to 1999, including Telstra, ANL Ltd, AustralianNational and most of Australia’s airports, and he worked closely on the regulation of privatised infrastructure. Since 2000, he has practised as a private consultant andcompany director. He has been a trustee of the Australian Government’s superannuationschemes and a consultant to a globalinvestment bank.

HFML Board committee membership:Mike has been a member of the Audit andCompliance Committee since 2003 and wasappointed Chairman on 23 July 2007.

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Alan FreerBEc, CPA, GAICDTerm of office: Director since September 2007Non-executive: YesIndependent: No

Sean McElduffBBus (Accounting/Law), GAICDTerm of office: Director since October 2002,Chairman from June 2004 to October 2006and continues as DirectorNon-executive: YesIndependent: No

Mike HutchinsonBSc (Hons), CPEngTerm of office: Director since March 2000Non-executive and Independent: Yes

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Hastings FundsManagementLimited Boardcontinued

External directorships:Current: Chairman of Walter DiversifiedServices Limited and Shieldliner Ltd and non-executive director of Pearlstreet Ltd. Previous: Director of East Australian PipelinePty Limited and Australian Pipeline Limited.

Skills, experience and expertise:Jim brings to Hastings significant expertiseand knowledge, with over 20 years’ experiencein industry. Jim was Managing Director andCEO of Australian Pipeline Trust from 2000 to2005. Prior to that, he was General ManagerPipeline Division of Australian Gas LightCompany from 1996 to 2000. Jim’s previousexperience also includes 15 years with ESSOAustralia Ltd in oil and gas production in Bass Strait.

HFML Board committee membership:Jim is a member of the Audit and Compliance Committee.

External directorships:Current: Director of Westpac InstitutionalHoldings Pty Ltd, Westpac Custodian NomineesPty Ltd and other Westpac companies.Previous: Director of a number of GE related entities.

Skills, experience and expertise:Jim has over 28 years’ experience in thefinancial services sector, 18 with WestpacBanking Corporation. Through the late 1980s and early 1990s, he held a number of managerial roles in Westpac’s AustralianFinancial Markets Group, mainly in fixedincome and derivatives. After six years headingthe bank’s operations in New York and London,he returned to Australia in 1999 where he hasundertaken a number of General Manager roleswithin Westpac Institutional Bank, includingCorporate Banking and, since April 2003 Chief Financial Officer. From 2000 to 2003 hemanaged the integration, and later, sale ofAustralian Guarantee Corporation (AGC) to GE Capital.


Jim McDonaldFAICDTerm of office: Director since July 2007Non-executive and Independent: Yes

Jim TateBCom, MCom, FAICDTerm of office: Director since June 2004Non-executive: YesIndependent: No

Hastings has adopted and operates undereach of the ASX Corporate Governance CouncilPrinciples of Good Corporate Governance andBest Practice Recommendations. To the extentthat Hastings does not fully comply with aparticular recommendation, it is disclosed and explained in this Corporate Governance Statement.

1. Board of Directors1.1 Board’s role and responsibilitiesHastings is the Responsible Entity, Trustee andManager of a number of funds. The Board of Hastings has the responsibility to manageand administer the Fund for the benefit of the unitholders and is accountable to theunitholders for the performance of the Fund.The Board also has the following responsibilitiesand functions:•reviewing and approving corporate strategies,

budgets, plans and policies;•evaluating the performance of the Fund

against strategies and business plans inorder to assess the suitability of the Fund’soverall strategies, business plans andresource allocations;

•monitoring the Fund’s financial position and business results (including the auditprocess), to understand at all times thefinancial health of the Fund;

•ensuring that there is continuing education andinformation provided to directors regarding:– the Fund’s business; and– the role of the Board and its functions

and obligations;•ensuring regulatory compliance and

adequate risk management processes;•reviewing and approving policies in relation

to the management of business risks, legalrisks, corporate governance, privacy,environmental risks and other issues; and

•ensuring a high level of transparency inreporting to unitholders and compliance with the highest ethical standards andbusiness practices.

Hastings has adopted a formal delegation of authority in favour of the Chief ExecutiveOfficer (CEO), Company Secretary and senior members of management to allowmanagement to carry on the business of the Fund.

1.2 Composition of the Board andindependenceThe Board of Hastings comprises sevendirectors, three of whom are independent. •Liam Forde, Chairman: Following the

retirement of Hastings’ Managing Director on 15 June 2007, the Chairman of the Board was appointed Executive Chairman of Hastings on an interim basis until Steve Boulton commenced. The Board hasassessed that whilst the Executive Chairmanwas not independent between 15 June and 3 September, owing to the short-term interimnature of the arrangement, he resumed hisindependent status from 3 September 2007following Steve Boulton’s commencement as CEO on that date.

•Steve Boulton, CEO: Steve was appointedwith effect from 3 September and is anexecutive of Hastings.

•Mike Hutchinson: Mike is also a director ofAustralian Infrastructure Fund Limited (AIFL),which is a major client of Hastings. TheBoard has reassessed the independencestatus of Mike and resolved that he isindependent for the following reasons:– he is only one of several directors on the

Board of Hastings, is a non-executivedirector and as such cannot undulyinfluence the Board’s decision-makingprocess;

– he is a non-executive director of AIFL, onlyone of a number of directors on the AIFLBoard and is remunerated by way of a fixed fee and not incentive arrangements;

– he has disclosed his interest as a director ofAIFL and always declines to vote on thosematters where a potential conflict of interestarises between Hastings and AIFL; and

– he has demonstrated personal integrity andindependence in all his dealings with bothHastings and AIFL.

•Jim McDonald: Jim was appointed on 18 June 2007 and is an independent director.

•Jim Tate and Sean McElduff: Jim and Seanare employees of Westpac BankingCorporation, the owner of Hastings andneither is independent.

•Alan Freer: Alan was appointed to the Boardwith effect from 1 September 2007. He is aconsultant to Hastings and is not independent.

The Board reviewed its composition to ensurethat it achieves a balance of skills, experienceand knowledge to allow the directors todischarge their duties and responsibilities andto position the Company for future growth.Individual directors’ details, are set out onpages 20 to 22.

1.3 Nomination and remuneration of directorsHastings has not established a nominationcommittee as the appointment andremuneration of its directors is determined by Westpac Banking Corporation on therecommendation of the Hastings’ Board.Westpac’s Nomination Committee approvesthe appointment of the external directors andthe remuneration of the external directors isdetermined by the Remuneration Committee of Westpac. Hastings’ non-executive directorsare not remunerated out of the property of the Fund.

1.4 Independent professional adviceAfter consultation with the Chairman, directorsmay seek independent professional advice atthe expense of Hastings. Following its receipt,such advice would normally be made availableto all directors.

1.5 Conflicts of interestThe directors are required to disclose anyactual or potential conflicts of interest and toabstain from participating in any discussion or voting on any matter in which they have a material personal interest, except with theprior approval of the Board. Directors are also required to inform the Chairman of anyproposed Board or executive appointmentsthey are considering undertaking to determinewhether there is any actual or perceivedconflict with the director’s duties to the Fund or Hastings.All related party transactions or potentialconflicts of interest involving any director or any related parties of either the directors or Hastings, such as Westpac BankingCorporation, are disclosed. Hastings hasestablished a related party subcommitteewhich considers all related party transactions.The subcommittee is comprised of any two ofthe CEO and any of the independent directors.

1.6 Review of Board performanceFollowing the review of the Board’scomposition, the Board has agreed that aperformance review will be conducted oncethe recent appointees have settled into theirnew roles.

1.7 Operation of the BoardThe Board meets regularly and is providedwith all necessary information to participate in an informed discussion of all agenda items. The Board also meets informally in the absence of management to discuss the operations of the Board and a range of other matters.The Board has an induction process for new directors and directors are entitled toundertake ongoing education to enable themto fulfil their responsibilities.The Board is also responsible for theappointment and removal of the CompanySecretary, the directors have unfettered accessto the Company Secretary, who is accountableto the Board on all governance matters.

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CorporateGovernance

2. Audit & Compliance CommitteeThe Board has established an Audit &Compliance Committee with a formal chartersetting out its roles and responsibilities. The Charter is available for inspection on the Hastings website at www.hfm.com.au.The duties of the Audit & ComplianceCommittee include reviewing the financialmanagement and internal controls,compliance and internal audit function, externalaudit, including the selection and appointmentof the external auditor of the funds managedby Hastings, risk management, managedinvestment scheme compliance, reviewing thefinancial statements and the adequacy of thescope and quality of the annual and half yearstatutory audits.The Audit & Compliance Committeecomprises three members, all non-executiveand independent. Since 23 July 2007, theChairman of the committee is Mike Hutchinson;Liam Forde and Jim McDonald are members. Following the review of the composition of the Audit & Compliance Committee, the Audit& Compliance Committee has agreed that aperformance review will be conducted oncemembers have settled into their new roles.All directors of the Board are entitled to attend the Committee meetings. The externalauditor, CEO, Chief Financial Officer, CompanySecretary and Head of Compliance attend by invitation.

3. Risk managementThe Audit & Compliance Committee monitorsrisk and compliance processes. As part of its role, the Audit & Compliance Committeereviews the processes in place for theidentification, management and reporting ofbusiness and financial risk, and reviews thereported findings. As part of this process, each year Hastings prepares and provides a representation letter to the Board. Thisrepresentation letter addresses the compliance,legal and accounting requirements; risks (both financial and business); the nature, extent and effectiveness of risk managementprocesses, internal compliance, accountingand internal control systems; and corporateconduct generally.

The Fund Chief Operating Officer, acting in thecapacity of the CEO of the Fund, and the ChiefFinancial Officer of Hastings have made thefollowing certifications to the Board of Hastings:•that the Fund’s financial report presents a true

and fair view, in all material respects, of theFund’s financial condition and operationalresults and are in accordance with relevantaccounting standards;

•that this response to the above statement is founded on a sound system of riskmanagement and internal compliance and control, which implements the policiesadopted by the Board; and

•that Hastings’ risk management and internal compliance and control system is operating efficiently and effectively in all material respects.

4. Disclosure and transparency4.1 Communication with unitholdersThe Board is committed to effectivelycommunicating with unitholders to ensure that they are kept fully informed of allinformation necessary to assess theperformance of the Fund.Information is communicated via:(a) the Annual Report;(b) ASX announcements; and(c) the Hastings’ website at www.hfm.com.au.

4.2 Continuous DisclosureThe Board has adopted a ContinuousDisclosure Policy in order for Hastings to meetits Listing Rules obligations and to ensure themarket remains fully informed. A copy of theContinuous Disclosure Policy is available atwww.hfm.com.au.

4.3 Insider TradingThe Board has adopted a policy on trading in securities. The policy specifies the periodsduring which directors and employees ofHastings can purchase and sell units in theFund, and the authorisation procedure.

4.4 Code of ConductHastings is committed to the higheststandards of ethical conduct and has adopteda Code of Conduct setting out acceptablestandards of behaviour. The Code of Conductis designed to promote the responsibility andaccountability of individuals for reporting andinvestigating unethical practices, and to guidecompliance with legal and other obligations. A copy of the Code of Conduct is available at www.hfm.com.au.

5. Auditor independencePricewaterhouseCoopers was appointed the external auditor of the Fund during the year. The Audit Partner is invited to attend Audit & Compliance Committee meetings. The Board has adopted a policy in relation to the provision of non-audit services by itsauditor that might detract from the auditor’sindependence and impartiality or be perceived as doing so. Specifically, it has been determined that the auditor should not provide the following services to the Fund:• independent valuations of assets for the

purpose of determining the value of assetsowned by the Fund;

•taxation services related to development of a new product for the Fund where fees are success based; and

•bookkeeping or other services related toaccounting records or financial statements of the Fund.

6. Remuneration frameworkDetails of amounts paid to Hastings asResponsible Entity of the Fund are disclosed in the related party note contained in thefinancial reports included in this Annual Reporton page 44. Hastings is paid a managementfee in accordance with the terms of the Fund’s constitution. Hastings’ directors andemployees are not remunerated out of theproperty of the Fund.

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CorporateGovernancecontinued

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FinancialInformationHastings High Yield FundARSN 112 579 129

FinancialStatements

Directors’ ReportH

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The directors of Hastings Funds ManagementLimited (Hastings) as Responsible Entity forthe Hastings High Yield Fund (the Scheme)submit their report for the year ended 30 June 2007.

DirectorsThe names of the directors of the ResponsibleEntity of the Scheme in office during the yearand until the date of this report are:•Sean McElduff

Resigned as Chairman on 26 October 2006and continues as director

•William FordeDirector since 30 January 2006 andappointed Chairman on 26 October 2006

•Mike Hutchinson•Tim Poole

Resigned on 15 June 2007•Guy Strapp

Resigned on 26 October 2006•Jim Tate•Jim McDonald

Appointed on 1 July 2007All directors were in office from the beginningof the year until the date of this report unlessotherwise stated.

Interests in the units of the schemeThe interests in the units issued by theScheme held by the Responsible Entity,directors of the Responsible Entity and their director related entities at 30 June 2007are detailed in Notes 19 and 20 to the financial statements.

Company SecretariesThe Company Secretaries of the ResponsibleEntity in office during the year and until thedate of this report are Kim Rowe and Claire Filson.

Principal ActivitiesThe principal activity of the Scheme is to investfunds in accordance with its investmentobjectives and guidelines as set out in thecurrent Product Disclosure Statement and in accordance with the provisions of theConstitution. There have been no changes in the principal activity of the Scheme duringthe year.

Scheme informationThe Hastings High Yield Fund is an Australianregistered scheme and is incorporated anddomiciled in Australia. The registered office ofthe Responsible Entity is located at Level 15,90 Collins Street, Melbourne, Victoria 3000.At 30 June 2007, the Scheme had noemployees (2006 – nil).

Review and results of operationsDuring the year, the Scheme has continued to invest in high yielding securities.

ResultsThe operating profit of the Scheme for the year ended 30 June 2007 was $11,687,000 (2006 – $9,686,000).

DistributionsDuring the year ended 30 June 2007, fourdistributions were declared by the Scheme. A distribution of 3.50 cents per unit was paidon 3 November 2006 for the quarter ended 30 September 2006 (30 September 2005 –4.54 cents per unit), a distribution of 4.00 centsper unit was paid on 7 February 2007 for the quarter ended 31 December 2006 (31 December 2005 – 4.54 cents per unit), a distribution of 4.20 cents per unit was paid on 7 May 2007 for the quarter ended 31 March 2007 (31 March 2006 – 4.43 centsper unit) and a distribution of 4.20 cents per unit was paid on 17 August 2007 for thequarter ended 30 June 2007 (30 June 2006 –3.50 cents per unit).

Units on issue89,541,064 units of the Scheme were on issueat 30 June 2007 (2006 – 75,000,000 units).

Scheme assetsAt 30 June 2007, the Scheme held assets to a total value of $203,482,000 (2006 –$218,818,000). The basis for valuation of theassets is disclosed in Note 1 to the financialstatements.

Fees paid to the Responsible EntityHastings was entitled to receive fees of$1,955,000 from the Scheme for the yearended 30 June 2007 (2006 – $551,000).Hastings was also reimbursed $62,000 (2006 – $72,000) for costs incurred on behalfof the Scheme. These fees were paid by theScheme with the payment of the performancefee to be satisfied with the issuance of newunits in the Scheme consistent with the current Product Disclosure Statement.

Significant changes in the state of affairsDuring the year, there was no significantchange in the state of affairs of the Schemeother than that referred to in the financialstatements or notes thereto.

Subsequent eventsSteve Boulton was appointed as ChiefExecutive Officer of the Responsible Entity and as a director of the Responsible Entity’sBoard on 18 June 2007 with effect from 3 September 2007. Alan Freer was appointed as a director of theResponsible Entity on 23 August 2007 witheffect from 1 September 2007.On 31 July 2007, the Scheme invested£11,000,000 face value in the junior termfacility issued by Arqiva/NGW. Arqiva/NGW isthe leading provider of broadcast infrastructureand independent wireless site infrastructure inthe United Kingdom.

On 31 July 2007, the Scheme investedUS$20,000,000 face value in the subordinatedterm facility of Maher Terminals. MaherTerminals is the largest terminal operator withinthe Port of New York and New Jersey in theUnited States and operator of a new terminallocated on the western coast of Canada. On 31 July 2007, the multi-option facility limit was increased from $75,000,000 to$87,500,000. On 3 August 2007, the Schemeinvested a further £3,028,563 in the junior termfacility of Cory Environmental.

Likely developments and expected resultsIn the opinion of the directors of theResponsible Entity, the inclusion of informationrelating to likely developments in theoperations of the Scheme is likely to prejudicethe interests of the Scheme and thereforethis information has not been included in this report.

Indemnification and insurance of directorsand officers No insurance premiums are paid for out of theassets of the Scheme in regards to insurancecover provided to the Responsible Entity, orauditor of the Scheme. So long as the officersof the Responsible Entity act in accordancewith the Constitution and the Corporations Act2001, both parties remain fully indemnified out of the assets of the Scheme against any losses incurred while acting on behalf of the Scheme. The auditor of the Scheme is in no way indemnified out of the assets of the Scheme.

Auditor’s independence declarationThe auditor’s independence declaration isincluded on page 27 of the financial report.

RoundingThe amounts contained in this report and the financial report have been rounded to the nearest thousand where rounding isapplicable, under the option available to theScheme under ASIC Class Order 98/0100. The Scheme is an entity to which this ClassOrder applies.Signed in accordance with a resolution of the directors of Hastings Funds ManagementLimited as Responsible Entity of the Scheme.

William FordeChairman24 August 2007

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Auditor’s Independence Declaration

Income StatementFor the year ended 30 June 2007

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2007 2006Note $’000 $’000

IncomeGain/(loss) – non-derivative securities – unrealised 2 (2,870) 123Gain/(loss) – derivative securities – unrealised 2 2,168 (332)Gain/(loss) – other – unrealised 2 (134) 66Gain/(loss) – non-derivative securities – realised 3 (1,446) (7)Gain/(loss) – derivative securities – realised 3 2,877 (3)Net gain/(loss) on financial instruments held at fair value through the Income Statement 595 (153)Interest 4 14,032 10,663Other 519 213Total income 15,146 10,723

ExpensesResponsible Entity fees 1,955 551Investment costs 169 232Unitholder communication expenses 260 131Audit and taxation fees 126 82ASX listing fees 84 37Finance costs 5 865 4Total expenses 3,459 1,037

Operating profit/(loss) 11,687 9,686

Other finance costsDistributions to unitholders* 6 13,138 12,758Change in net assets attributable to unitholders (1,451) (3,072)Net profit/(loss) for the year 0 0

* Refer to Note 1(p).

The above Income Statement should be read in conjunction with the accompanying notes.

2007 2006Note $’000 $’000

AssetsCash and cash equivalents 9(b) 3,662 37,431Trade and other receivables 10 161 75,023Securities 11 199,659 106,364Total assets 203,482 218,818

LiabilitiesTrade and other payables 12 4,559 2,764Interest bearing loans and borrowings 13 31,542 0Provisions 14 861 1,688Total liabilities (excluding net assets attributable to unitholders) 36,962 4,452Net assets attributable to unitholders (liability) 15 166,520 214,366

Comprising:Issued units 15(b) 171,320 217,715Undistributed profit/(loss) attributable to unitholders 15(c) (4,800) (3,349)Total unitholders’ interests 166,520 214,366

The above Balance Sheet should be read in conjunction with the accompanying notes.

Balance SheetAs at 30 June 2007

In accordance with AASB 132 Financial Instruments: Disclosure and Presentation, net assets attributable to unitholders represents the residualinterest in the assets of the Scheme after deducting its liabilities, and is not classified as equity due to the following factor:• the Scheme is required to distribute all its taxable incomeAs a result there are no equity movements for the years ended 30 June 2007 and 30 June 2006. Operating profit/(loss) for the year is $11,687,000(2006 – $9,686,000) which was derived from total income of $15,146,000 (2006 – $10,723,000) and total expenses excluding distributions tounitholders of $3,459,000 (2006 – $1,037,000). Refer to Note 15 for details of net assets attributable to unitholders.

Statement of Changes in EquityFor the year ended 30 June 2007

2007 2006Inflows/ Inflows/

(outflows) (outflows)Note $’000 $’000

Cash flows from operating activitiesInterest received 13,469 9,579Other income received 459 76Finance costs paid (899) (4)Operating expenses paid (1,362) (795)Net cash flows from/(used in) operating activities 9(a) 11,667 8,856

Cash flows from investing activitiesPurchase of unlisted securities (114,566) (40,209)Proceeds on unlisted derivative security termination 22,822 0Net cash flows from/(used in) investing activities (91,744) (40,209)

Cash flows from financing activitiesDistributions paid (10,977) (13,351)Drawdown of debt facilities 79,500 0Repayment of debt facilities (48,000) 0Payment of unit issue costs (381) (8)Proceeds from issue of units 26,300 0Net cash flows from/(used in) financing activities 46,442 (13,359)

Net increase/(decrease) in cash and cash equivalents (33,635) (44,712)

Cash and cash equivalents at the beginning of the year 37,431 82,077Effects of foreign exchange rate movements on cash and cash equivalents (134) 66Cash and cash equivalents at the end of the year 9(b) 3,662 37,431

The above Cash Flow Statement should be read in conjunction with the accompanying notes.

Cash Flow StatementFor the year ended 30 June 2007

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Notes to the Financial StatementsFor the year ended 30 June 2007

(a) ConstitutionThe Hastings High Yield Fund (the Scheme)was established in Australia under aConstitution dated 19 January 2005, withHastings Funds Management Limited(Hastings) as the Responsible Entity.

(b) Basis of preparation The financial report is a general purposefinancial report, which has been prepared inaccordance with the Scheme’s Constitution,the requirements of the Corporations Act 2001and Australian Accounting Standards. Thefinancial report has also been prepared on ahistorical cost basis, except for derivative andnon-derivative securities that have beenmeasured at fair value.The Balance Sheet is presented on a liquiditybasis. Assets and liabilities are presented indecreasing order of liquidity and are notdistinguished between current and non-current.Additional information regarding this is includedin the relevant notes.The functional and presentation currency of theScheme is Australian dollars.The financial report of the Scheme for the yearended 30 June 2007 was authorised for issuein accordance with a resolution of the directorsof the Responsible Entity on 23 August 2007.

(c) Statement of complianceThe financial report complies with AustralianAccounting Standards, which includeAustralian equivalents to International FinancialReporting Standards (AIFRS). Compliance with AIFRS ensures that the financial report,comprising the financial statements and notesthereto, complies with International FinancialReporting Standards (IFRS).Certain Australian Accounting Standards haverecently been issued or amended, but are notyet effective and have not been adopted by theScheme for the full year reporting period ended30 June 2007. The assessment of the impact ofthese new standards and interpretations (to theextent relevant) is set out as follows:

AASB 7 Financial Instruments: Disclosuresand AASB 2005-10 Amendments to AustralianAccounting Standards (AASB 132, AASB 101,AASB 114, AASB 117, AASB 133, AASB 139,AASB 1, AASB 4, AASB 1023 & AASB 1038)AASB 7 and AASB 2005-10 are applicable to reporting periods commencing on or after 1 January 2007. AASB 7 introduces newdisclosures to improve the information aboutfinancial instruments. It requires the disclosureof qualitative and quantitative informationabout exposure to risks arising from financialinstruments, including specified minimumdisclosures about credit risk, liquidity risk andmarket risk, including sensitivity analysis tomarket risk. It replaces AASB 130 Disclosuresin the Financial Statements of Banks andSimilar Financial Institutions and the disclosurerequirements in AASB 132 FinancialInstruments: Disclosure and Presentation. It is applicable to all reporting entities. The amendment to AASB 101 introducesdisclosures about the level of an entity’s capitaland how it manages capital. The Scheme hasnot adopted the standards early. Application of the standards will not affect any of theamounts recognised in the financialstatements, but will impact the type ofinformation disclosed in relation to theScheme’s financial instruments.

Revised AASB 101 Presentation of FinancialStatements A revised AASB 101 was issued in October2006 and is applicable to annual reportingperiods beginning on or after 1 January 2007.The Scheme has not adopted the standardearly. Application of the revised standard willnot affect any of the amounts recognised inthe financial statements, but will impact thetype of information disclosed.

AASB 8 Operating Segments and AASB2207-3 Amendments to Australian AccountingStandards arising from AASB 8AASB 8 and AASB 2007-3 are effective for annual reporting periods commencing on or after 1 January 2009. AASB 8 requiresadoption of a ‘management approach’ toreporting on the financial performance. Theinformation being reported will be based onwhat key decision-makers use internally forevaluating segment performance and decidinghow to allocate resources to operatingsegments. Application of AASB 8 may result in different segments, segment results anddifferent type of information being reported in the segment note. However, it will not affect any of the amounts recognised in the statements.

AASB 2007-4 Amendments to AustralianAccounting Standards arising from ED 151and Other AmendmentsAASB 2007-4 is applicable to annual reportingperiods beginning on or after 1 July 2007. Theamendments introduce a number of optionsthat existed under IFRS, but had not beenincluded in the original AIFRS and removemany of the additional Australian disclosurerequirements. In particular, Australian entitiesare now permitted to use the proportionateconsolidation method for interests in jointventure entities and the indirect method forpresenting cash flow statements, to recognisegovernment grants of non-monetary assets atnominal amounts and to present assets andexpenses net of related government grants.Furthermore, some intermediate parent entitiesmay no longer have to prepare consolidatedfinancial reports. The Scheme will adopt theamendments arising from AASB 2007-4 for thefinancial year ended 30 June 2008. Applicationof the revised standards will not affect any of the amounts recognised in the financialstatements, but it may remove some of thedisclosures that are currently required.

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1. Summary of Significant Accounting Policies

(d) Significant accounting judgements,estimates and assumptionsIn applying the Scheme’s accounting policies,management and directors continuallyevaluates judgements, estimates andassumptions based on experience and otherfactors, including expectations of future eventsthat may have an impact on the entity. Alljudgements, estimates and assumptions madeare believed to be reasonable based on themost current set of circumstances available to management. Actual results may differ fromthe judgements, estimates, and assumptions.Significant judgements, estimates andassumptions are outlined as follows:

Valuation of unlisted securitiesFair values of unlisted securities aredetermined by estimating the future cash flowsand then discounting these cash flows back to their present value using a post-tax, riskadjusted discount rate. Where applicable,foreign currency discounted cash flows aretranslated back to the Scheme’s functionalcurrency using the spot foreign exchange rate.The carrying amount of unlisted securities held by the Scheme at 30 June 2007 was$180,102,000 (2006 – $87,287,000). Furtherdetails are provided in Note 1(g).

Valuation of derivative securitiesThe fair value of derivative securities isdetermined by reference to the fair value asadvised by the counterparty to the derivativecontract on balance sheet date. In assessingfair value, the projected future cash flowsunder the derivative contract are discounted to their present value using a post-tax, riskadjusted discount rate. Where applicable,foreign currency discounted cash flows aretranslated back to the Scheme’s functionalcurrency using the spot foreign exchange rate.The carrying amount of the derivative securitiesheld by the Scheme at 30 June 2007 was$4,289,000 (2006 – $576,000). Further detailsare provided in Note 1(g).

Responsible Entity bonus provisionThe Responsible Entity may be entitled to aperformance fee in situations where the TotalUnit Holder Return exceeds the BenchmarkReturn and is calculated in accordance withthe Scheme’s Product Disclosure Statementdated 14 February 2005.

(e) Cash and cash equivalentsCash and cash equivalents in the BalanceSheet comprise cash at bank and short-termdeposits with an original maturity of threemonths or less. For the purpose of the CashFlow Statement, cash includes cash and cashequivalents as defined above, net ofoutstanding bank overdrafts.

(f) Trade and other receivablesTrade and other receivables are recognisedand carried at original invoice amounts less a provision for any uncollectible amounts. An allowance for doubtful debts is made whenthere is objective evidence that the Schemewill not be able to collect the debts. Bad debtsare written off as identified.

(g) Securities Investments in securities comprise listedsecurities, unlisted securities and derivativesecurities. All such securities are initially recognised at fair value, being the amount of theconsideration given between parties in an arm’s length transaction. After initialrecognition, securities are measured at fairvalue consistent with the Scheme’s investmentstrategy. Gains or losses arising frommovements in the fair value of securities arerecognised through the Income Statement.Listed securities: For listed securities that areactively traded in organised financial markets,fair value is determined by reference to stockexchange quoted market bid prices at theclose of business on the balance sheet date,unless Hastings determines there is no marketin respect of the relevant security or the marketvalue does not represent the fair value of thesecurity. Where Hastings so determines,Hastings must at the same time determine amethod of valuation other than market valuefor the security.

Unlisted securities: For unlisted securitieswhere there is no quoted market bid price, fairvalue is determined by projecting future cashflows and then discounting these cash flowsback to their present value using a post-tax,risk adjusted discount rate. Where applicable,foreign currency discounted cash flows aretranslated back to the Scheme’s functionalcurrency using a liquidity adjusted spot foreignexchange rate. Unlisted securities includehigh-yield debt securities and accrued interest.Derivative securities: The Scheme usesderivative securities to protect its risksassociated with foreign currency fluctuations.For derivative securities, fair value isdetermined by reference to the fair value asadvised by the counterparty to the derivativecontract on balance sheet date. In assessingfair value, the projected future cash flowsunder the derivative contract are discounted to their present value using a post-tax, riskadjusted discount rate. Where applicable,foreign currency discounted cash flows aretranslated back to the Scheme’s functionalcurrency using a spot foreign exchange rate.Derivative securities include cross currencyswap contracts and forward foreign exchange contracts.Purchases and sales of securities that require delivery within the time frame generallyestablished by regulation or convention in themarket place are recognised on the trade date,i.e. the date that the Scheme commits topurchase or sell the securities.

(h) Trade and other payables Trade and other payables are carried atamortised cost and represent liabilities forgoods and services provided to the Schemeprior to the end of the period that are unpaidand arise when the Scheme becomes obligedto make future payments in respect of thepurchase of these goods and services.

Distribution payableThe distribution payable is recognised whendeclared by the Scheme.

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1. Summary of Significant Accounting Policies continued


(i) ProvisionsProvisions are recognised when the Schemehas a present obligation (legal or constructive)as a result of a past event, it is probable thatan outflow of resources embodying economicbenefits will be required to settle the obligationand a reliable estimate can be made of theamount of the obligation. If the effect of the time value of money is material, provisions are determined bydiscounting the expected future cash flows at a pre-tax rate that reflects current marketassessments of the time value of money and,where appropriate, the risks specific to theliability. Where discounting is used, theincrease in the provision due to the passage of time is recognised as a finance cost.

Responsible Entity bonus provisionThe Responsible Entity may be entitled to aperformance fee in situations where the TotalUnit Holder Return exceeds the BenchmarkReturn and is calculated in accordance withthe Scheme’s Product Disclosure Statementdated 14 February 2005.

(j) Interest bearing loans and borrowingsAll loans and borrowings are initially recognisedat fair value of the consideration received lessdirectly attributable transactions costs.After initial recognition, interest bearing loansand borrowings are subsequently measured atamortised cost using the effective interest ratemethod. Amortised cost is calculated by takinginto account any issue costs, and any discountor premium on settlement. Gains and lossesare recognised in the Income Statement whenthe liabilities are derecognised as well asthrough the amortisation process.

(k) Income taxUnder current legislation, the Scheme is notsubject to income tax provided the unitholdersare presently entitled to the income of the Scheme.

(l) Other taxesGoods and Services Tax (GST)Income, expenses and assets are recognisednet of the amount of GST except:•where the GST incurred on a purchase of

goods and services is not recoverable fromthe taxation authority, in which case the GSTis recognised as part of the cost ofacquisition of the asset or as part of theexpense item as applicable; and

•receivables and payables are stated with the amount of GST included.

The net amount of GST recoverable from, or payable to, the taxation authority is included as part of the receivables or payables in theBalance Sheet. Reduced income tax creditsrecoverable by the Scheme from the AustralianTaxation Office are recognised as receivablesin the Balance Sheet.Cash flows are included in the Cash FlowStatement on a gross basis and the GSTcomponents of cash flows arising frominvesting and financing activities, which isrecoverable from, or payable to, the taxationauthority are classified as operating cash flows.Commitments and contingencies are disclosednet of the amount of GST recoverable from, orpayable to, the taxation authority.

(m) Income and expense recognitionIncome is recognised to the extent that it isprobable that the economic benefits will flow to the Scheme and the income can be reliablymeasured. The following specific recognitioncriteria must also be met before income andexpenses are recognised:

Interest incomeInterest income is recognised as the interestaccrues (using the effective interest ratemethod, which is the rate that exactly discountsestimated future cash receipts through theexpected life of the financial instrument) to the net carrying amount of the financial asset.

Gain/(loss) on securities – unrealised Unrealised gains or losses arising fromchanges in the fair value of securities arecalculated as the difference between the fairvalue at year end and the fair value at theprevious valuation point.

Gain/(loss) on securities – realisedRealised gains or losses are recognised uponsale of securities and are calculated as thedifference between the sale price or settlementamount and the fair value at the previousvaluation point.

Other expensesExpenses are recognised in the IncomeStatement when the Scheme has a presentobligation (legal or constructive) as a result ofa past event that can be reliably measured.Expenses are recognised in the IncomeStatement if expenditure does not producefuture economic benefits that qualify forrecognition in the Balance Sheet.

Responsible Entity feeFor the year ended 30 June 2007, inaccordance with the Constitution, theResponsible Entity received a total fee of 0.75 percent of the market capitalisation of the Scheme from September 2006 in arrears,previously 0.40 percent (2006 – 0.40 percent). The Responsible Entity is entitled under the Constitution to be reimbursed for certainexpenses incurred in administering theScheme. The basis on which the expenses are reimbursed is defined in the Scheme’sConstitution.

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1. Summary of Significant Accounting Policies continued

(n) DistributionsThe Scheme’s Constitution requires that theResponsible Entity distribute to each unitholderan amount representing the distributableincome entitlement of each unitholder inrespect of a distribution period.The Scheme will distribute as a minimum its entire taxable income for each tax period in accordance with the Product DisclosureStatement (PDS), dated 14 February 2005.Distributions are paid quarterly.Where distributable income is determinedby reference to the taxable income of theScheme, distributable income includes capitalgains arising from the disposal of securities.Unrealised gains or losses on securities aretransferred to net assets attributable tounitholders and are not distributable andassessable until realised. Capital losses arenot distributed to unitholders, but are retainedto be offset against any realised capital gains.

(o) Foreign currency translationThe functional and presentation currency of theScheme is Australian dollars.Transactions in foreign currencies are initiallyrecorded in the functional currency at theexchange rates ruling at the date of thetransaction. Monetary assets and liabilitiesdenominated in foreign currencies areretranslated at the rate of exchange ruling at the balance sheet date.All exchange differences in the financial reportare taken to the Income Statement.Non-monetary items that are measured interms of historical cost in a foreign currencyare translated using the exchange rate as atthe date of the initial transaction.Non-monetary items measured at fair value in a foreign currency are translated using theexchange rate at the date when the fair valuewas determined.

(p) Net assets attributable to unitholdersNet assets attributable to unitholders comprisethe residual interest in the assets of the Schemeafter deducting its liabilities. It is represented by issued units and undistributed profit/(loss)attributable to unitholders. As units issued by the Scheme are classifiedas financial liabilities, any amounts paid orpayable as well as net asset movementsattributable to unitholders are recorded as an expense and presented in the IncomeStatement as ‘other finance costs’.

(q) Financial instruments issued by the SchemeDebt and equity instruments are classified aseither liabilities or as equity in accordance withthe substance of the contractual arrangement.Any transaction costs arising on the issue ofsuch financial instruments are recognised as a reduction of the proceeds received.

(r) ComparativesWhere necessary, comparatives have beenreclassified and repositioned for consistencywith current year disclosures.

(s) RoundingThe amounts contained in the financial reporthave been rounded to the nearest thousandwhere rounding is applicable, under the optionavailable to the Scheme under ASIC ClassOrder 98/0100. The Scheme is an entity towhich the Class Order applies.

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Notes to the Financial StatementsFor the year ended 30 June 2007 continued

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2. Unrealised gain/(loss)Non-derivative securities Derivative securities Total

Unrealised Unrealised Unrealised Unrealised Unrealised Unrealisednon-foreign foreign Total non-foreign foreign Total non-foreign foreign Total

exchange exchange unrealised exchange exchange unrealised exchange exchange unrealisedgain/(loss) gain/(loss) gain/(loss) gain/(loss) gain/(loss) gain/(loss) gain/(loss) gain/(loss) gain/(loss)

$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

2007Listed securitiesBabcock & Brown Infrastructure 130 1,661 1,791 0 (1,322) (1,322) 130 339 469

130 1,661 1,791 0 (1,322) (1,322) 130 339 469

Unlisted securitiesAB Ports 0 (566) (566) 0 666 666 0 100 100Arqiva 0 0 0 0 0 0 0 0 0BAA 0 (1,026) (1,026) 0 1,139 1,139 0 113 113Eircom 0 (526) (526) 0 762 762 0 236 236EnviroWaste 0 215 215 0 (230) (230) 0 (15) (15)European Directories 0 (1,254) (1,254) 0 30 30 0 (1,224) (1,224)Hyne Timber (212) 0 (212) 0 0 0 (212) 0 (212)Manildra Group (227) 0 (227) 0 0 0 (227) 0 (227)Mid Kent Water 0 (713) (713) 0 801 801 0 88 88Thames Water 0 (352) (352) 0 322 322 0 (30) (30)

(439) (4,222) (4,661) 0 3,490 3,490 (439) (732) (1,171)

OtherCash and cash equivalents 0 (134) (134) 0 0 0 0 (134) (134)

0 (134) (134) 0 0 0 0 (134) (134)(309) (2,695) (3,004) 0 2,168 2,168 (309) (527) (836)

2006Listed securitiesBabcock & Brown Infrastructure 186 (1,857) (1,671) 0 2,274 2,274 186 417 603

186 (1,857) (1,671) 0 2,274 2,274 186 417 603

Unlisted securitiesArqiva 0 970 970 0 (966) (966) 0 4 4European Directories 0 934 934 0 (959) (959) 0 (25) (25)Hyne Timber (333) 0 (333) 0 0 0 (333) 0 (333)Manildra Group (427) 0 (427) 0 0 0 (427) 0 (427)Mid Kent Water 0 650 650 0 (681) (681) 0 (31) (31)

(760) 2,554 1,794 0 (2,606) (2,606) (760) (52) (812)

OtherCash and cash equivalents 0 66 66 0 0 0 0 66 66

0 66 66 0 0 0 0 66 66(574) 763 189 0 (332) (332) (574) 431 (143)

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3. Realised gain/(loss)Non-derivative securities Derivative securities Total

Realised Realised Realised Realised Realised Realisednon-foreign foreign Total non-foreign foreign Total non-foreign foreign Total

exchange exchange Realised exchange exchange Realised exchange exchange Realisedgain/(loss) gain/(loss) gain/(loss) gain/(loss) gain/(loss) gain/(loss) gain/(loss) gain/(loss) gain/(loss)

$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

2007Listed securitiesBabcock & Brown Infrastructure 0 (5) (5) 0 0 0 0 (5) (5)

0 (5) (5) 0 0 0 0 (5) (5)

Unlisted securitiesAB Ports 0 0 0 0 0 0 0 0 0Arqiva 0 (690) (690) 0 880 880 0 190 190BAA 0 92 92 0 0 0 0 92 92Eircom 0 (192) (192) 0 0 0 0 (192) (192)European Directories 0 0 0 0 1,308 1,308 0 1,308 1,308Hyne Timber 0 0 0 0 0 0 0 0 0Manildra Group 0 0 0 0 0 0 0 0 0Mid Kent Water 0 32 32 0 0 0 0 32 32Thames Water 0 (683) (683) 0 689 689 0 6 6

0 (1,441) (1,441) 0 2,877 2,877 0 1,436 1,4360 (1,446) (1,446) 0 2,877 2,877 0 1,431 1,431

2006Listed securitiesBabcock & Brown Infrastructure 0 (5) (5) 0 0 0 0 (5) (5)

0 (5) (5) 0 0 0 0 (5) (5)

Unlisted securitiesArqiva 0 (2) (2) 0 0 0 0 (2) (2)European Directories 0 0 0 0 (3) (3) 0 (3) (3)Hyne Timber 0 0 0 0 0 0 0 0 0Manildra Group 0 0 0 0 0 0 0 0 0Mid Kent Water 0 0 0 0 0 0 0 0 0

0 (2) (2) 0 (3) (3) 0 (5) (5)0 (7) (7) 0 (3) (3) 0 (10) (10)

4. Interest income2007 2006

Non-derivative Derivative Non-derivative Derivativesecurities securities Total securities securities Total

$’000 $’000 $’000 $’000 $’000 $’000

Listed securitiesBabcock & Brown Infrastructure 1,467 68 1,535 1,451 (139) 1,312

1,467 68 1,535 1,451 (139) 1,312

Unlisted securitiesAB Ports 561 122 683 0 0 0Arqiva 953 120 1,073 1,582 253 1,835BAA 1,497 0 1,497 0 0 0Cory Environmental 6 0 6 0 0 0DCA Group 1,076 0 1,076 0 0 0Eircom 593 254 847 0 0 0EnviroWaste 60 (8) 52 0 0 0European Directories 1,292 449 1,741 826 342 1,168Hyne Timber 975 0 975 975 0 975Manildra Group 2,000 0 2,000 1,545 0 1,545Mid Kent Water 1,409 172 1,581 926 133 1,059Thames Water 429 0 429 0 0 0

10,851 1,109 11,960 5,854 728 6,582

OtherCash and cash equivalents 537 0 537 2,769 0 2,769

537 0 537 2,769 0 2,76912,855 1,177 14,032 10,074 589 10,663

2007 2006$’000 $’000

5. Finance costsBank interest expense 690 1Borrowing costs 160 0Bank fees 15 3

865 4

2007 2006$’000 $’000

6. Distributions Interim distributions declared and paid 9,377 10,133Final distribution declared and payable 3,761 2,625

13,138 12,758

During the year ended 30 June 2007, four distributions were declared by the Scheme. A distribution of 3.50 cents per unit was paid on 3 November 2006 for the quarter ended 30 September 2006 (30 September 2005 – 4.54 cents per unit), a distribution of 4.00 cents per unit waspaid on 7 February 2007 for the quarter ended 31 December 2006 (31 December 2005 – 4.54 cents per unit), a distribution of 4.20 cents per unitwas paid on 7 May 2007 for the quarter ended 31 March 2007 (31 March 2006 – 4.43 cents per unit) and a distribution of 4.20 cents per unit waspaid on 17 August 2007 for the quarter ended 30 June 2007 (30 June 2006 – 3.50 cents per unit).

2007 2006$’000 $’000

7. Franking credit availabilityFranking credits available for distribution at the beginning of the year 0 0Add: franking credits received during the year 418 398Less: franking credits distributed/distributable to unitholders (418) (398)Franking credits available for distribution at the end of the year 0 0

2007 2006$ $

8. Auditor’s remunerationAmounts received or due and receivable by the current auditor, PricewaterhouseCoopers for:•an audit or review of the financial report 47,300 0•other services

– Compliance plan audit and risk management report review 5,500 052,800 0

Amounts received or due and receivable by the predecessor auditor, Ernst & Young for:•an audit or review of the financial report 0 45,320•other services

– Compliance plan audit and risk management report review 6,322 6,323– Taxation compliance 20,121 16,588– Asset acquisition advisory services 32,516 18,667– Fund establishment 0 6,380– Other advisory services 11,888 0

70,847 93,278

The Scheme changed its auditor during the current financial year from Ernst & Young to PricewaterhouseCoopers.


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2007 2006$’000 $’000

9. Cash and cash equivalents(a) Reconciliation of operating profit/(loss) to net cash flows from operating activitiesOperating profit/(loss) 11,687 9,686Adjustments for non-cash items:Amortisation of discount on acquisition of non-derivative securities (59) (125)(Gain)/loss – non-derivative securities – unrealised 2,870 (123)(Gain)/loss – derivative securities – unrealised (2,168) 332(Gain)/loss – other – unrealised 134 (66)(Gain)/loss – non-derivative securities – realised 1,446 0(Gain)/loss – derivative securities – realised (2,877) 0Changes in operating related assets and liabilities:•(Increase)/decrease in trade and other receivables (138) 409•(Increase)/decrease in accrued income receivable (761) (1,198)• Increase/(decrease) in trade and other payables 475 (59)• Increase/(decrease) in provisions 1,058 0Net cash flows from/(used in) operating activities 11,667 8,856

(b) Reconciliation of cash and cash equivalentsShort-term deposits 435 31,859Cash at bank 3,227 5,572

3,662 37,431

Cash at bank earns interest at floating rates based on daily bank deposit rates.Short-term deposits are made for varying periods of between one day and three months depending on the immediate cash requirements of theScheme and earns interest at the respective short term deposit rates.

2007 2006$’000 $’000

10. Trade and other receivablesOther receivables 161 23Partly paid units – second instalment receivable* 0 75,000

161 75,023

* On 27 July 2006, a resolution was passed by unitholders to cancel the second instalment payable on partly paid units in the Scheme. Partly paid issued units were automatically converted to fully paid units on 4 August 2006. Consequently, the second instalment of $1.00 per unit was no longer receivable by the Scheme and the provision for second instalment costs was no longer required.

Terms and conditionsTrade and other receivables are non-interest bearing and normally settled within 30 days.

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11. Securities Fair value

Capital movement Movement Fair value Acquisition reductions upon capital Movement in fair Fair value

at 30 June at fair and reductions in accrued value upon at 30 JuneHigh yield 2006 value disposals and disposal income revaluation 2007security name Description $’000 $’000 $’000 $’000 $’000 $’000 $’000

Non-derivative securities 105,787 113,454 (22,763) 0 1,762 (2,870) 195,370Derivative securities 576 0 0 1,433 112 2,168 4,289

106,363 113,454 (22,763) 1,433 1,874 (702) 199,659

Comprising:Listed SecuritiesBabcock & Brown Subordinated Prime 19,077 0 0 0 11 469 19,557Infrastructure Adjusting Reset

Convertible Securities19,077 0 0 0 11 469 19,557

Unlisted SecuritiesAB Ports Junior Floating Rate Loan 0 12,367 0 0 28 99 12,494Arqiva Junior Floating Rate Loan 23,134 0 (22,822) 476 (788) 0 0BAA Toggle Facility 0 19,178 (65) 0 1,770 113 20,996Cory Environmental Junior Floating Rate Loan 0 9,474 0 0 6 0 9,480DCA Group Junior Floating Rate Loan 0 20,000 0 0 416 0 20,416Eircom Senior Term Loan 0 11,089 0 0 269 236 11,594EnviroWaste Junior Floating Rate Loan 0 13,475 0 0 16 (14) 13,477European Directories Second Lien Loan 15,769 0 0 957 4 (1,224) 15,506Hyne Timber High Yield Non-cumulative 13,332 0 125 0 0 (211) 13,246

Exchangeable SecuritiesManildra Group Reset Secured Notes 19,671 0 0 0 0 (227) 19,444Mid Kent Water Convertible Floating 15,380 3,947 0 0 137 87 19,551

Rate LoanThames Water Junior Floating Rate Loan 0 23,924 (1) 0 5 (30) 23,898

87,286 113,454 (22,763) 1,433 1,863 (1,171) 180,102

2007 2006$’000 $’000

12. Trade and other payablesPayable – the Responsible Entity 601 139Distribution payable 3,761 2,625Other payables 197 0

4,559 2,764

Trade and other payables are non-interest bearing and are normally settled on 30 day terms. For information regarding the distribution payable refer to Note 6.

2007 2006$’000 $’000

13. Interest bearing loans and borrowingsMulti-option facility – cash advance 31,542 0

31,542 0

On 24 July 2006, the Scheme entered into an unsecured $50,000,000 multi-option facility agreement with Westpac Banking Corporation whichexpires on 24 July 2009. On 24 May 2007, the facility limit was increased to $75,000,000. Interest is charged under this facility at the base rate(BBSY) plus a margin.


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2007 2006$’000 $’000

14. ProvisionsPartly paid units – second instalment costs* 0 1,688Manager performance fee provision 861 0

861 1,688

Movement in provisionsBalance at the beginning of the year 1,688 1,688Provisions raised during the year 861 0Provisions reversed during the year (1,688) 0Balance at the end of the year 861 1,688

* On 27 July 2006, a resolution was passed by unitholders to cancel the second instalment payable on partly paid units in the Scheme. Partly paid issued units were automatically converted to fully paid units on 4 August 2006. Consequently, the second instalment of $1.00 per unit was no longer receivable by the Scheme and the provision for second instalment costs was no longer required.

2007 2006$’000 $’000

15. Net assets attributable to unitholdersNet assets attributable to unitholders comprises:Issued units 171,320 217,715Undistributed profit/(loss) attributable to unitholders (4,800) (3,349)

166,520 214,366

No. ’000 No. ’000

(a) Issued units (number)Issued units at the beginning of the year 75,000 75,000Units issued during the year•pursuant to distribution reinvestment plan 552 0•pursuant to professional and sophisticated investors placement 11,294 0•pursuant to security purchase plan 2,695 0Issued units at the end of the year 89,541 75,000

$’000 $’000

(b) Issued units (dollars)Issued units at the beginning of the year 217,715 217,723Units issued during the year•pursuant to distribution reinvestment plan 1,025 0•pursuant to professional and sophisticated investors placement 21,232 0•pursuant to security purchase plan 5,068 0Cancellation of second instalment (73,339) 0Less: unit issue costs during the year (381) (8)Issued units at the end of the year 171,320 217,715

(c) Undistributed profit/(loss) attributable to unitholdersBalance at the beginning of the year (3,349) (277)Operating profit/(loss) 11,687 9,686Distributions to unitholders (13,138) (12,758)Balance at the end of the year (4,800) (3,349)

(d) Terms and conditions Unitholders have various rights under the Constitution and the Corporations Act 2001, including the right to:• receive income distributions;•attend and vote at meetings of unitholders; and•participate in the termination and winding up of the Scheme.The rights, obligations and restrictions attached to each unit are identical in all respects.

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16. Segment reportingPrimary business segmentThe Scheme operates in one business segment, being the investment in listed and unlisted high-yield securities. The income, results, assets andliabilities are presented in the Income Statement, Balance Sheet and notes to the financial statements.

Secondary geographic segmentThe Scheme operates from one geographic location, being Australia where its investing activities are managed. The Scheme holds securities located in four geographic locations, being Australia, United Kingdom, other European Union Countries and New Zealand. Details of the geographic location, fair value and income associated with securities, as well as the acquisition of securities duringthe year, are detailed below. Income is derived from interest, realised and unrealised gains and losses on securities.

Acquisition of segmentSegment securities Segment income securities during the year

2007 2006 2007 2006 2007 2006$’000 $’000 $’000 $’000 $’000 $’000

Australia 53,106 33,005 4,603 4,708 20,000 20,000New Zealand 33,033 19,077 2,038 1,920 13,475 0United Kingdom 86,418 38,513 5,842 2,868 70,001 4,415Other European Union Countries 27,102 15,769 2,664 1,162 11,090 15,794

199,659 106,364 15,147 10,658 114,566 40,209

17. Earnings per unitSince net assets attributable to unitholders are liabilities in the Scheme’s Balance Sheet, the earnings per unit calculation that is performed in accordance with AASB 133 Earnings per Share results in earnings per unit of nil cents.The directors believe it is useful to calculate and disclose earnings per unit based on ‘operating profit/(loss)’ and ‘number of issued units’. Basic earnings per unit is calculated as ‘operating profit/(loss)’, divided by the weighted average number of ordinary units on issue, adjusted for any bonus element.

2007 2006

Basic earnings per unit (cents per unit) 14.72 12.91Diluted earnings per unit (cents per unit) 14.72 12.91Earnings used in calculating basic earnings per unit ($’000) 11,687 9,686Weighted number of units (’000) 79,378 75,000


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18. Financial instruments(a) Financial risk management objectivesand policiesThe Scheme’s principal financial instruments,other than derivatives, comprise cash and short-term deposits and investments in listed andunlisted high-yield securities. The main purposeof these financial instruments is to generate areturn on the investment made by unitholders.The Scheme has various other financialinstruments, such as receivables and payables,which arise directly from its operations.The Scheme does not enter into or tradefinancial instruments for speculative purposes. The main risks arising from the Scheme’sfinancial instruments are interest rate risk,foreign currency risk and credit risk. TheResponsible Entity reviews and agrees policiesfor managing each of these risks.The Scheme uses derivative securities such as cross currency swaps and forward foreignexchange contracts to hedge certain riskexposures.

(b) Fair valuesThe carrying values of the Scheme’s financialassets and liabilities recognised in the BalanceSheet and notes to the financial statementsapproximate their fair values. The following methods and assumptions areused to determine the fair values of assets and liabilities:

Cash, cash equivalents and short-terminvestmentsCarrying amounts approximate fair valuesbecause of their short term to maturity.

Receivables and payablesCarrying amounts approximate fair valuesbecause of their short term to cash receipt or payment.

Listed securities For listed securities that are actively traded in organised financial markets, fair value isdetermined by reference to stock exchangequoted market bid prices at the close ofbusiness on the balance sheet date, unlessHastings determines there is no market inrespect of the relevant security or the marketvalue does not represent the fair value of the security. Where Hastings so determines,Hastings must at the same time determine a method of valuation other than market valuefor the security.

Unlisted securitiesFor unlisted securities where there is no quotedmarket bid price, fair value is determined by projecting future cash flows and thendiscounting these cash flows back to theirpresent value using a post-tax discount ratethat reflects a risk adjusted discount rate.Where applicable, foreign currency discountedcash flows are translated back to the Scheme’sfunctional currency using a liquidity adjustedspot foreign exchange rate.

Derivative securitiesFor derivative securities, fair value is determinedby reference to the fair value as advised by thecounterparty to the derivative contract on thebalance sheet date. In assessing fair value, theprojected future cash flows under the derivativecontract are discounted to their present valueusing a post-tax discount rate that reflects amarket determined risk adjusted discount rate.Where applicable, foreign currency discountedcash flows are translated back to the Scheme’sfunctional currency using a liquidity adjustedspot foreign exchange rate.

Interest bearing loans and borrowings All loans and borrowings are initially recognisedat fair value of the consideration received lessdirectly attributable transactions costs. Afterinitial recognition, interest bearing loans andborrowings are subsequently measured atamortised cost using the effective interest ratemethod. Amortised cost is calculated by takinginto account any issue costs, and any discountor premium on settlement.

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18. Financial instruments continued

(c) Interest rate riskThe Scheme’s exposure to interest rate risk is the risk that a financial instrument’s value may fluctuate as a result of changes in market interest rateson those financial assets and liabilities. The Scheme’s exposure to market risk for changes in interest rates relates primarily to investments held inlisted and unlisted high yield securities. The Scheme’s policy is to manage this risk by entering into derivative contracts as described in Note 18(g).The following table sets out the Scheme’s exposure to interest rate risk, including the maturity dates and the effective weighted average interest rateby category of financial instrument.

WeightedFixed interest rate maturing in average

Floating Non- effectiveinterest >1-<2 >2-<3 >3-<4 >4-<5 More than interest interest

rate <1 year years years years years 5 years bearing Total rate p.a.$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 %

2007Financial assetsCash and cash equivalents 3,662 0 0 0 0 0 0 0 3,662 5.1%Trade and other receivables 0 0 0 0 0 0 0 161 161 n/aSecurities 144,850 0 0 18,587 33,000 0 0 3,222 199,659 9.8%Cross currency swap – Principal receivable 74,823 0 0 0 0 0 0 0 74,823 9.0%Total financial assets 223,335 0 0 18,587 33,000 0 0 3,383 278,305

Financial liabilitiesInterest bearing loans and borrowings 31,542 0 0 0 0 0 0 0 31,542 7.0%Trade and other payables 0 0 0 0 0 0 0 4,559 4,559 n/aNet assets attributable to unitholders 0 0 0 0 0 0 0 166,520 166,520 n/aCross currency swap – Principal payable 56,236 0 0 18,587 0 0 0 0 74,823 10.1%Total financial liabilities 87,778 0 0 18,587 0 0 0 171,079 277,444

2006Financial assetsCash and cash equivalents 37,431 0 0 0 0 0 0 0 37,431 5.5%Trade and other receivables 0 0 0 0 0 0 0 75,023 75,023 n/aSecurities 53,286 0 0 0 18,587 33,000 0 1,491 106,364 8.1%Cross currency swap – Principal receivable 71,873 0 0 0 0 0 0 0 71,873 8.6%Total financial assets 162,590 0 0 0 18,587 33,000 0 76,514 290,691

Financial liabilitiesTrade and other payables 0 0 0 0 0 0 0 2,764 2,764 n/aNet assets attributable to unitholders 0 0 0 0 0 0 0 214,366 214,366 n/aCross currency swap – Principal payable 53,286 0 0 0 18,587 0 0 0 71,873 8.2%Total financial liabilities 53,286 0 0 0 18,587 0 0 217,130 289,003

(d) Credit riskCredit risk represents the risk that the counterparty to the financial instrument will fail to discharge an obligation and cause the Scheme to incur a financial loss.With respect to credit risk arising from the financial assets of the Scheme, the Scheme’s exposure to credit risk arises from default of thecounterparty, with a maximum exposure equal to the carrying amount of these instruments.Credit risk is minimised by the Scheme only undertaking transactions with major reputable counterparties or on recognised exchanges and theaggregate value of transactions are spread amongst those counterparties. In addition, receivable balances are monitored on an ongoing basis with the result that the Scheme’s exposure to bad debts is not significant.The maximum exposure to credit risk, excluding the value of any collateral or other security, at balance date to recognised financial assets is the carrying amount of those financial assets, net of any allowances for doubtful debts, as disclosed in the Balance Sheet and notes to the financial statements.

Concentration of credit riskThe Scheme’s credit exposures are detailed in the following notes:Trade and other receivables Note 10 Securities Note 11Derivative securities Note 18(g)

18. Financial instruments continued

(e) Foreign currency riskForeign currency risk arises when future commercial transactions and recognised assets and liabilities are denominated in a currency that is not the Scheme’s functional currency.The Scheme has unlisted and listed securities denominated in British Pounds Sterling, New Zealand Dollar and Euro. As a result, the Scheme’sBalance Sheet and Income Statement can be affected significantly by movements in the respective GBP/AUD, NZD/AUD and EUR/AUD foreignexchange rate. The details of forward foreign exchange contracts and cross currency swap contracts held by the Scheme with respect to unlistedsecurities denominated in foreign currencies are located at Note 18(g).All foreign currency investments are hedged to Australian dollars to minimise exposure to movements in foreign currency and interest rates as per policy.

(f) Liquidity risk and cash flow interest rate riskLiquidity risk is the risk that the Scheme will encounter difficulty in raising funds to meet commitments associated with financial instruments. Cash flow interest rate risk is the risk that future cash flows on a financial instrument will fluctuate because of changes in market interest rates.To control liquidity and cash flow interest rate risk, the Scheme invests in financial instruments, which under normal market conditions are readilyconvertible to cash. In addition, the Scheme invests within established limits to ensure there is no concentration of risk.

(g) Derivative securitiesCross currency swap contractsThe Scheme has cross currency swap contracts outstanding at 30 June 2007. These derivative securities are being used to reduce the Scheme’sexposure to foreign exchange risk and interest rate risk arising from its fair valued security holdings. The terms of the cross currency swap contractsclosely match the terms of the underlying fair valued security.Details relating to these cross currency swap contracts, including their fair values at balance date, are set out below:

Foreigncurrency AUD principal

Related principal payable receivable Interest rate Interest rate Fair valuenon-derivative Counter- Contract Maturity Foreign 2007 2006 2007 2006 payable receivable 2007 2006security party Date date currency ’000 ’000 $’000 $’000 per annum per annum $’000 $’000

AB Ports Westpac 30-Oct-06 16-May-11 GBP 5,000 n/a 12,367 n/a GBP-LIBOR-BBA AUD-BBR-BBSW 683 n/a+ 3.50% + 3.60%

Arqiva Westpac 02-Jun-05 29-Dec-06 GBP n/a 9,250 n/a 22,343 GBP-LIBOR-BBA AUD-BBR-BBSW n/a (473)+ 3.25% + 3.32%

Babcock Westpac 15-Jun-05 17-Nov-09 NZD 20,000 20,000 18,587 18,587 NZD Fixed AUD-BBR-BBSW 1,239 2,567& Brown 8.50% + 2.00%InfrastructureEircom Westpac 29-Sep-06 01-Apr-08 EURO 6,667 n/a 11,299 n/a EUR-EURIBOR- AUD-BBR-BBSW 846 n/a

TELERATE + 3.17%+ 3.04%

EnviroWaste ANZ 19-Jun-07 30-Jun-09 NZD 15,065 n/a 13,475 n/a NZD BKBM 3M AUD-BBR-BBSW (230) n/a+ 3.50% + 3.23%

European ANZ 16-Jan-06 30-Jun-07 EURO n/a 9,750 n/a 15,794 EUR-EURIBOR- AUD-BBR-BBSW 30 (959)Directories TELERATE + 4.69%

+ 4.50%Mid Kent Westpac 29-Jun-05 15-Apr-10 GBP 4,509 4,509 10,734 10,734 GBP-LIBOR-BBA AUD-BBR-BBSW 146 (392)Water + 3.50% + 3.65%Mid Kent ANZ 13-Apr-06 15-Apr-10 GBP 1,850 1,850 4,415 4,415 GBP-LIBOR-BBA AUD-BBR-BBSW 60 (167)Water + 3.50% + 3.62%Mid Kent ANZ 16-Apr-07 16-Jan-08 GBP 1,657 n/a 3,946 n/a GBP-LIBOR-BBA AUD-BBR-BBSW 54 n/aWater + 3.50% + 3.56%

2,828 576

Forward foreign exchange contractsThe Scheme had four forward foreign exchange contracts outstanding at 30 June 2007 (2006 – nil). These derivative securities are being used toreduce the Scheme’s exposure to foreign exchange risk arising from its fair valued security holdings. The terms of the forward foreign exchangecontracts closely match the terms of the underlying fair valued security.Details relating to these forward foreign exchange contracts, including their fair values at balance date, are set out below:

Buy Forward Sell Foreign Fair valueRelated non-derivative Foreign AUD exchange Currency 2007 2006security Counterparty Contract Date Value Date currency $’000 rate ’000 $’000 $’000

European Directories ANZ 29-Jun-07 31-Aug-07 EUR 15,734 0.629 (9,895) 30 n/aBAA Westpac 25-Aug-06 11-Jul-07 GBP 20,807 0.401 (8,344) 1,139 n/aThames Water ANZ 28-Feb-07 02-Jul-07 GBP 7,210 0.424 (3,059) 322 n/aCory Environmental Westpac 29-Jun-07 31-Jul-07 GBP 9,536 0.423 (4,034) 0 n/a

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19. Related party disclosures(a) Key management personnel Disclosures in relation to key management personnel during the year and until the date of this report are set out in Note 20.

(b) Other related parties – the Responsible EntityName of the Responsible EntityThe Responsible Entity of the Scheme is Hastings Funds Management Limited (Hastings) and the immediate parent entity of Hastings is Westpac Institutional Holdings Pty Limited.The ultimate parent entity of Westpac Institutional Holdings Pty Limited is Westpac Banking Corporation (Westpac) which throughout the year held100 percent of the ordinary issued capital of Westpac Institutional Holdings Pty Limited.

Responsible Entity and its related entities’ interests in the units issued by the Scheme Details of investments in the Scheme by the Responsible Entity and its related entities for the year are as follows:

Units held Units Units Units held30 June 2006 acquired disposed 30 June 2007

No. No. No. No.

Westpac 3,982,038 0 (3,982,038) 0


No. No. No. No.

Westpac 5,504,038 0 (1,522,000) 3,982,038

Transactions with the Responsible Entity and its related entitiesTransactions between the Scheme and the Responsible Entity and its related entities during the year are detailed below:

2007 2006$’000 $’000

Responsible Entity management fees paid or payableHastings 1,094 551

Responsible Entity performance fees paid or payableHastings 861 0

Reimbursement of expenses paid on the Scheme’s behalf byHastings 62 72

Interest received – derivative transactionsWestpac 5,815 4,521

Interest paid – derivative transactionsWestpac 4,411 4,274

Interest received – cash and cash equivalentsWestpac 435 2,751

Finance costs paid or payableWestpac 864 3

Distributions paid or payableWestpac 438 677

Outstanding balances with the Responsible Entity and its related entitiesBalances outstanding with the Responsible Entity and its related entities at 30 June 2007 are as follows:

2007 2006$’000 $’000

Responsible Entity management fees payableHastings 379 139

Expense reimbursement payableHastings 20 6

Interest receivable – derivative transactionsWestpac 1,009 464

Interest payable – derivative transactionsWestpac 856 424

Distributions payableWestpac 0 139

All related party transactions occurred on normal commercial terms and conditions.


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20. Key management personnel(a) Key management personnelThe key management personnel of the Scheme only include persons who are key management personnel of the Responsible Entity. The names of the key management personnel of the Responsible Entity during the year and until the date of this report are:Sean McElduff Resigned as Chairman on 26 October 2006 and continues as DirectorWilliam Forde Director since 30 January 2006 and appointed Chairman on 26 October 2006Mike HutchinsonTim Poole Resigned on 15 June 2007Guy Strapp Resigned on 26 October 2006Jim TateJim McDonald Appointed on 1 July 2007David Ridley Director, Alternative DebtGeorge Batsakis Chief Operating Officer – Hastings High Yield Fund

(b) Compensation of key management personnelKey management personnel of the Responsible Entity are paid by Hastings in their roles as key management personnel of the Responsible Entity,not of the Scheme. Key management personnel of the Responsible Entity are not remunerated by the Scheme. No securities of the Scheme were granted to key management personnel during the period as compensation.Compensation is paid to Hastings in the form of Responsible Entity fees which is disclosed in Note 19.

(c) Key management personnel’s interest in financial instruments issued by the SchemeInterests in the units issued by the Scheme held by the key management personal and their related entities at balance date are as follows:


No. No. No. No.

Tim Poole (1) 100,000 2,659 0 102,659David Ridley 107,496 9,626 0 117,122

(1) Interest held on 15 June 2007 when Tim Poole resigned.


No. No. No. No.

Tim Poole 100,000 0 0 100,000David Ridley 100,000 7,496 0 107,496

Mike Fitzpatrick held 2,500,000 units in the comparative year ended 30 June 2006.

(d) Distributions paid or payable by the Scheme to key management personnel Distributions paid or payable by the Scheme to key management personnel and their related entities during the year are as follows:

2007 2006$ $

Distributions paid or payableTim Poole 16,123 17,010David Ridley 17,874 17,604

Distributions paid or payable to Mike Fitzpatrick for the comparative year ended 30 June 2006 was $315,156.

(e) Outstanding balances between the Scheme and key management personnel Outstanding balances between the Scheme and key management personnel and their related entities are as follows:

2007 2006$ $

Distribution payableTim Poole 4,312 3,500David Ridley 4,919 3,762

Distribution payable to Mike Fitzpatrick was $87,500 in the comparative year ended 30 June 2006.All transactions between the Scheme and key management personnel occurred on normal commercial terms and conditions.

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21. Contingent assets, contingent liabilities and commitmentsThe Scheme had the following undrawn funding commitments in relation to its investment in unlisted securities:

less than more than1 year 1 to 5 years 5 years Total

Security name $’000 $’000 $’000 $’000

2007Mid Kent Water 2,907 0 0 2,907Cory Environmental 7,355 0 0 7,355

10,262 0 0 10,262

2006Mid Kent Water 4,101 3,052 0 7,153

4,101 3,052 0 7,153

There are no other outstanding contingent assets, contingent liabilities or commitments as at 30 June 2007 and 30 June 2006.

22. Subsequent eventsSteve Boulton was appointed as Chief Executive Officer of the Responsible Entity and as a director of the Responsible Entity’s board on 18 June 2007 with effect from 3 September 2007. Alan Freer was appointed as a director of Responsible Entity on 23 August 2007 with effect from 1 September 2007.On 31 July 2007, the Scheme invested £11,000,000 face value in the junior term facility issued by Arqiva/NGW. Arqiva/NGW is the leading providerof broadcast infrastructure and independent wireless site infrastructure in the United Kingdom. On 31 July 2007, the Scheme invested US$20,000,000 face value in the subordinated term facility of Maher Terminals. Maher Terminals is the largest terminal operator within the Port of New York and New Jersey in the United States and operator of a new terminal located on the westerncoast of Canada.On 31 July 2007, the multi-option facility limit was increased from $75,000,000 to $87,500,000. On 3 August 2007, the Scheme invested the £3,028,563 commitment in the junior term facility of Cory Environmental.


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In accordance with a resolution of the directors of Hastings Funds Management Limited as Responsible Entity for the Hastings High Yield Fund (the Scheme), I state that:In the opinion of the directors:(a) The financial statements and notes of the Scheme are in accordance with the Corporations Act 2001, including:

(i) giving a true and fair view of the financial position of the Scheme as at 30 June 2007 and of its performance for the year ended on that date; and

(ii) complying with Australian Accounting Standards and Corporations Regulations 2001; (b) there are reasonable grounds to believe that the Scheme will be able to pay its debts as and when they become due and payable; and(c) the financial report is in accordance with the provisions of the Scheme’s Constitution.This declaration has been made after receiving the declarations requested to be made to the directors in accordance with Section 295A of theCorporations Act 2001 for the year ended 30 June 2007. For and on behalf of the Hastings Funds Management Limited, as Responsible Entity of the Scheme.

William FordeChairman24 August 2007

Directors’ Declaration

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Independent Audit Report

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Independent Audit ReportH

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Ann

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The unitholder information set out below was applicable as at 23 August 2007.1. The voting rights are one vote per unit.2. The number of unitholders holding less than a marketable parcel was 37.3. The percentage of the total holdings held by or on behalf of the 20 largest holders of these units was 32.69 percent.

Twenty largest holders of units Number held % of total

Questor Financial Services Limited <TPS RF A/C> 6,752,155 7.53 Citicorp Nominees Pty Limited 4,015,395 4.48 Australian Executor Trustees Limited <No 1 Account> 3,111,123 3.47Cogent Nominees Pty Limited 2,535,000 2.83Log Creek Pty Ltd 2,500,000 2.79 UBS Wealth Management Australia Nominees Pty Ltd 1,849,437 2.06Mostia Dion Nominees Pty Ltd 1,666,667 1.86 Questor Financial Services Limited <TPS PIP A/C> 829,639 0.93 Fortis Clearing Nominees P/L <Settlement A/C> 760,166 0.85National Nominees Limited 752,275 0.84 Avanteos Investments Limited <Avantoeos Super fund No 2 A/C> 730,424 0.81Mostia Dion Nominees Pty Ltd 620,000 0.69ANZ Nominees Limited <Cash Income A/C> 611,550 0.68Aust Executor Trustees SA Ltd <Income Plus Fund A/C> 516,750 0.58Kentia Enterprises Pty Ltd 500,000 0.56Sandhurst Trustees Ltd <JMFG CONSOL A/C> 469,236 0.52 MF Custodians Limited 333,333 0.37Mr Peter Edwards & Mr David Leeton <Victor Smorgan Char Fund A/C> 252,659 0.28Mrs Krystyna Campbell Pretty <HJ Campbell Pretty & Assocs S/F A/C> 252,659 0.28Claybar Pty Ltd 250,000 0.28 Total 29,308,468 32.69

4. The distribution of holders was as follows:

Holding Number of holders % of total Units % of total

1 – 1,000 60 1.87 17,272 0.021,001 – 5,000 528 16.45 2,018,839 2.255,001 – 10,000 850 26.49 6,778,882 7.5610,001 – 100,000 1,695 52.82 43,297,682 48.28100,001 and over 76 2.37 37,564,451 41.89Total 3,209 100.00 89,677,126 100.00

5. Substantial holder notices have been received as at 24 August 2007 as follows:

Name Number of units % of total

Questor Financial Services Limited 7,615,294 8.51Merrill Lynch & Co. Inc 5,675,050 7.57

6. The Fund used the cash and assets in a form readily convertible to cash that it held at the time of admission to the ASX in a way consistent with its business objectives.

7. The Fund is a listed investment entity.(a) A list of all its investments is detailed in Note 11 to the financial statements.(b) There were seven transactions in securities during the period ended 30 June 2007 (2006 – four). There was no brokerage paid or accrued

for these transactions.(c) Hastings received management fees of $1,094,000 from the Fund for the period ended 30 June 2007 (2006 – $551,177). In addition,

performance fees of $861,000 were also receivable at 30 June 2007 (2006 – nil).

Investor Details

Investor Information

EnquiriesYou can access your unitholder information ina number of ways. The details are managedby the Fund’s registrar, ComputershareInvestor Services Pty Limited, and can beaccessed as detailed below.Please note, your Securityholder ReferenceNumber (SRN) or Holder Identification Number (HIN) is required for access.

InvestorPhoneInvestorPhone provides telephone access 24 hours a day, seven days a week.•Step 1: Call 1300 13 11 64•Step 2: Enter your SRN or HIN•Step 3: Follow the prompts to gain secure,

immediate access to your:– holding balance details– registration details– payment information.

Internet account accessThere are two levels of Internet access, single holding access and portfolio access(Investor Centre).

Single holding access•Step 1: Go to

www.computershare.com.au/investors•Step 2: Select ‘Access a single holding’

and enter HHY or Hastings High Yield Fund•Step 3: Enter your SRN or HIN•Step 4: Enter your postcode or select country

(if outside Australia)•Step 5: Enter the randomly generated code

displayed (all holders) and click ‘Submit’•Step 6: Access ‘Investor Centre’ to view,

evaluate and manage your holding online.

Investor centre•Step 1: Go to

www.computershare.com.au/investors•Step 2: If you are a member enter your

User ID and PIN and click ‘Submit’ or •Step 3: If you are not a member click the

‘Register Here’ button•Step 4: Follow the prompts to register.

For security purposes, Computershare will generate a PIN and mail it to yourregistered address

•Step 5: Access ‘Investor Centre’ to view,evaluate and manage your portfolio online.

Please address enquiries to: Computershare Investor Services Pty LimitedYarra Falls452 Johnston StreetAbbotsford VIC 3067 AustraliaGPO Box 2975Melbourne VIC 3001 AustraliaTelephone (within Australia) 1300 13 11 64Telephone (outside Australia) +61 3 9415 4243Facsimile +61 3 9473 2500Website www.computershare.com.auEmail [email protected].

Stock exchange listingThe units are listed on the Australian SecuritiesExchange under the name Hastings High Yield Fund and under the code HHY. The unitsparticipate in the Clearing House ElectronicSubregister System (CHESS).

Direct deposit of distributionsDistribution payments may be paid directly to anominated Australian bank account. Paymentsare electronically credited and confirmed bymail directly to the registered address of theunitholders. A form for this purpose is availablefrom the registrar.

Tax File Number (TFN) or AustralianBusiness Number (ABN) informationWhile it is not compulsory for unitholders toprovide a TFN, ABN or exemption notification,Hastings is normally obliged to deduct tax,from any payments to unitholders who havenot supplied such information. The rate atwhich the tax is deducted is dependent uponthe nature of the payment (i.e. whether it is a payment comprising interest, dividends or other amounts) and the residence of therecipient. The rate of tax deducted could be up to the highest marginal tax rate (plusMedicare levy for Australian residents).Unitholders are entitled to quote an ABNinstead of a TFN where the investment ismade in the course or furtherance of anenterprise that is carried on by the unitholder.Unitholders who have not supplied their TFN, ABN or exemption notification may do so by writing to: The RegistrarComputershare Investor Services Pty Limited GPO Box 2975Melbourne VIC 3001 Australia.

Change of address Unitholders who change their registeredaddress should immediately notify, in writing to:The RegistrarComputershare Investor Services Pty LimitedGPO Box 2975Melbourne VIC 3001 Australia.

PrivacyWe understand the importance you place onyour privacy and are committed to protectingand maintaining the confidentiality of thepersonal information you provide to us. TheFund adopted the privacy policy of HastingsFunds Management Limited.This policy may be updated by us from time to time. Unitholders may obtain a copy of our latest privacy statement by telephoningComputershare Investor Services on 1300 13 11 64 (within Australia) or +61 3 9415 4243 (outside Australia).

Annual ReportTo receive further copies of the HHY AnnualReport, please telephone ComputershareInvestor Services on 1300 13 11 64 (within Australia) or +61 3 9415 4243 (outside Australia).

Complaints handlingCustomer service representatives are availablebetween 8.30 am and 6.00 pm (AEST)weekdays, from anywhere in Australia, by calling the Registrar on 1300 13 11 64(within Australia) or on +61 3 9415 4243(outside of Australia).For investment advice, please see yourfinancial adviser.If you have a concern, please write to Hastingsat the address set out below or call theComplaints Manager to register your complaintby telephone on +61 3 9654 4477. Hastingswill acknowledge your concern, investigate it and report back to you.Hastings Funds Management Limited Complaints ManagerLevel 1590 Collins StreetMelbourne VIC 3000 Australia.If you are dissatisfied with Hastings’ response,you may raise the matter directly with theFinancial Industry Complaints Service (FICS).Its contact details are:Financial Industry Complaints Service LimitedPO Box 579Collins Street WestMelbourne VIC 8007 AustraliaTelephone 1300 78 08 08.Before you contact FICS, first try to resolveyour concern with Hastings by calling +61 3 9654 4477.

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Contents 02 Investment Philosophy 03 Highlights 04 Manager’s Report 07 Key Performance Indicators 08 Investments 20 Hastings Funds Management Limited Board 23 Corporate Governance 26 Directors’ Report 28 Financial Statements 51 Investor Details 52 Investor Information IBC Corporate Directory

Hastings High Yield FundThe Hastings High Yield Fund (the Fund) seeksto provide an attractive yield on units by makingquarterly cash distributions funded from interestreceived on investments in high yield securities,receipt of participation fees and realised gainsas well as annual distribution of associated tax credits.

About the ManagerHastings Funds Management Limited (Hastings) isthe Responsible Entity for the Fund. Established in 1994, Hastings specialises in managed fundsthat provide the investment community withaccess to infrastructure and alternative assets. Hastings’ suite of portfolios includes infrastructureinvestments, private equity, timberland and highyield securities. Hastings is presently managingapproximately $4.7 billion in investment funds.Hastings is a wholly owned subsidiary of Westpac Banking Corporation (Westpac).

About this reportHastings aims to make this Annual Report an accurate and easy-to-read document forunitholders and other key stakeholders. Thereport provides information about the Fund’sactivities and performance during the year. Your feedback and suggestions for improvementare welcomed. If you have any comments on the report, please contact the CompanySecretary of Hastings on +61 3 9654 4477 or [email protected].

Corporate Directory

Responsible EntityHastings Funds Management LimitedABN 27 058 693 388Holder of Australian Finance Services Licence No. 238309

Registered OfficeLevel 1590 Collins StreetMelbourne VIC 3000 AustraliaTelephone +61 3 9654 4477Facsimile +61 3 9650 6555Email [email protected] www.hfm.com.au

LondonLevel 163 St Mary AxeLondon EC3A 8LETelephone +44 20 7337 6720Facsimile +44 20 7929 2502

New York575 Fifth Avenue39th FloorNew York NY 10017-2422Telephone +1 212 551 1976Fax +1 212 551 1997

Hastings Board of DirectorsLiam Forde, ChairmanSteve Boulton, Chief Executive OfficerAlan FreerMike HutchinsonJim McDonaldSean McElduffJim Tate

Company SecretariesClaire FilsonKim Rowe

Disclaimer This report has been prepared by Hastings FundsManagement Limited, holder of Australian FinancialServices Licence number 238309, as responsibleentity for the Hastings High Yield Fund (the Fund).Hastings is a subsidiary of Westpac BankingCorporation (Westpac).

The information contained in this report is forinformational purposes only and does not constitutean offer to issue or arrange to issue, financialproducts. The information contained in this report is not financial product advice. This report has beenprepared without taking into account the investmentobjectives, financial situation or particular needs ofany particular person. Before making an investmentdecision, you should read the publicly availableinformation carefully and consider, with or without

the assistance of a financial adviser, whether aninvestment is appropriate in light of your particularinvestment needs, objectives and financialcircumstances. Past performance is no guarantee of future performance.

Neither Hastings, Westpac nor any other memberof the Westpac Group gives any guarantee orassurance as to the performance of the Fund or the repayment of capital. Investments in the Fundare not investments, deposits or other liabilities of Hastings, Westpac or other members of theWestpac Group. Members of the Westpac Groupmay invest in or lend or provide other services tothe Fund and may be paid fees and expenses inrelation to Hastings’ role as responsible entity.

Cert no. SCS-COC-00858

HastingsHigh YieldFundAnnual Report

www.hfm.com.au

hhy 2007 annual report - aspectfinancial.com.au

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