western australian treasury corporation

WESTERN AUSTRALIAN

TREASURY CORPORATIONFINANCING WA’S GROWTH

Annual Report 2007

Board of Directors 4

Chairperson’s and Chief Executive Officer’s Review 6

Performance Against Targets for 2006/07 8

Overview of the Corporation 10

Organisational Chart 12

Economic Overview and Outlook 13

Client Services 17

Accessing Capital Markets 21

Risk Management 26

Corporate Governance 28

Corporate Administration 32

Financial Statements 36

Western Australian Treasury Corporation Addresses 76

Contents

1

WESTERN AUSTRALIAN

TREASURY CORPORATIONFINANCING WA’S GROWTH

FinanCing Wa’s groWth

Head Office: Level 12, St George’s Square, 225 St George’s Terrace, PERTH WA 6000Postal Address: PO Box 7282, Perth Cloisters Square, WA 6850A.B.N. 22 300 359 323

Telephone: (+61) 8 9235 9100Facsimile: (+61) 8 9235 9199 Email: [email protected]: www.watc.wa.gov.au

THE HON. ERIC RIPPER, MLATREASURER OF WESTERN AUSTRALIA

In accordance with section 61 of the Financial Management Act 2006, we hereby submit for your information and presentation to Parliament the Annual Report of the Western Australian Treasury Corporation for the financial year ended 30 June 2007.

The Annual Report has been prepared in accordance with the provisions of the Financial Management Act 2006.

T M MARNEY M J WEBBCHAIRPERSON CHIEF EXECUTIVE OFFICER WESTERN AUSTRALIAN WESTERN AUSTRALIAN TREASURY CORPORATION TREASURY CORPORATION 14 September 2007 14 September 2007

2 WEstErn aUstraLian trEasUrY CorPoration - ANNUAL REPORT 2007

EspErancE port authority

an artist’s impression of the dual purpose container and bulk discharge crane, due to be delivered to the port in september 2007. treasury corporation provided foreign exchange and debt management services to Esperance port authority to assist this client with its acquisition of essential infrastructure.

3

Western Australian Treasury Corporation assists in the provision of State infrastructure by providing debt and financial risk management services to the WA public sector.

WEstErn poWEr

the recently constructed 330 kV Landwehr terminal, near Waroona, which connects two vital new generators to the electricity network. Debt funds provided by treasury corporation assist Western power in the provision of critical infrastructure.


Timothy M Marney, Chairperson

Mr Marney has been Chairperson of the Board since his appointment to the position of Under treasurer of the state of Western australia on 20 June 2005, before which he had been acting Chairperson since July 2004. he is also Chairperson of the remuneration Committee. Mr Marney holds an honours degree in Economics and has over fifteen years experience in economics and finance, which includes working with the reserve Bank of australia prior to joining the Department of treasury and Finance (“DtF”). Prior to his appointment as Under treasurer, Mr Marney was the Executive Director, agency resources.

Michael A Barnes, Deputy Chairperson

Mr Barnes was appointed to the Board as Deputy Chairperson with effect from 5 July 2005. he is also a member of the audit Committee. Mr Barnes is the Executive Director (Finance) in DtF. Prior to joining DtF in 1997, Mr Barnes worked in the Commonwealth treasury, where he commenced his career as a graduate in 1992. Mr Barnes holds a Bachelor of Business degree with honours in Economics.

Michael J Webb, Chief Executive officer

Mr Webb became a Director in March 2007 upon his appointment as Chief Executive officer. he is also a member of the remuneration Committee. Mr Webb holds a Masters degree in Economics and commenced his career as a graduate at DtF in 1991. Prior to his appointment as Chief Executive officer, Mr Webb held the position of general Manager, advisory, Corporate services and Compliance at treasury Corporation.

Gregory L Joyce

Mr Joyce has been a Director of treasury Corporation since 1 January 2003 and is also a member of the remuneration Committee. he is the former Director general of the Department of housing and Works. Mr Joyce holds a Bachelor of arts degree and is qualified to practise as a Barrister and solicitor in Western australia. he is the Chairman of WorkCover Western australia and the state’s Justice reform implementation Committee.

Gaye M McMath

Ms McMath has been a Director of treasury Corporation since 1 January 2003 and is also a member of the audit Committee. she is the Executive Director, Finance and resources, with the University of Western australia. Prior to this, Ms McMath was the Pro Vice Chancellor (resource Management) at Murdoch University (Perth) after a twenty-three year career with BhP Billiton in a wide range of financial, strategic planning, treasury and commercial management positions. she holds a Bachelor of Commerce degree and a Master of Business administration degree and is a Fellow of the australian institute of Company Directors and CPa australia. Ms McMath is a Director of silver Chain nursing association (incorporated) and home Building society Limited.

Catherine A Nance

Ms nance has been a Director of treasury Corporation since 1998 and is also Chairperson of the audit Committee and a member of the remuneration Committee. she is an actuary and Partner of PricewaterhouseCoopers with over fifteen years experience in the financial services industry advising governments and companies on actuarial and finance related matters. Ms nance has a Bachelor of science degree in pure and applied mathematics and physics and a Bachelor of arts degree in statistics. she is a Fellow of the institute of actuaries of australia, an affiliate of the institute of actuaries (London), a Fellow of the Financial services institute of australasia and a Member of the CFa institute. Ms nance is a Director of United Credit Union Limited and chairs an institute of actuaries national taskforce on retirement related issues.

Board of Directors

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From left to right:

Michael J Webb, Chief Executive officer

Catherine A Nance

Timothy M Marney, Chairperson

Gaye M McMath

Gregory L Joyce

Michael A Barnes, Deputy Chairperson


Value Proposition

Western australian treasury Corporation (“treasury Corporation”) exists to provide the Western australian public sector with access to the lowest cost debt financing and expert financial risk management advice and services. in this regard, treasury Corporation delivers five competencies to the state and its agencies. these are:

• sourcing lowest cost debt financing from global capital markets;

• managing the state’s liquidity;

• managing foreign exchange risk;

• financial risk modelling and evaluation; and

• project and asset financing advice.

Commitment to its people

in 2006/07, treasury Corporation undertook an inaugural Cultural Vitality survey. this externally facilitated survey met with a 98% response rate and highlighted key strengths in the areas of organisational support and teamwork. the survey also provided treasury Corporation with data to support strategies designed to further strengthen corporate culture. Focus areas in 2006/07 included operational planning, performance feedback and leadership. operational initiatives in these areas included the adoption of the Prince 2 project management framework together with the establishment of supporting project office capabilities, the implementation of a new competency based individual performance management system and the introduction of 360 degree behavioural assessments for all people managers.

treasury Corporation is committed to ensuring that its people offer the Western australian public sector specialised and relevant financial skills. to ensure this is sustained, treasury Corporation significantly increased its level of support to employees in the area of technical training. in 2006/07, treasury Corporation staff undertook an average of 84 hours of sponsored training, with 79% of staff undertaking a minimum of 20 hours.

treasury Corporation is also committed to sustaining a workforce that reflects the diversity of the community that it serves. Participation in the Department of treasury and Finance’s Vacation Employment Program, together with recruitments under the Department of Premier and Cabinet’s school Based traineeship Program and Entry Level Employment Program (aboriginal and torres strait islanders), were key actions in this area.

in February 2007, David Butler retired having completed nineteen years of service at treasury Corporation, the last three as Chief Executive officer. over his career at treasury Corporation, David was a resolute defender of the public interest through his expertise in interest rate markets and financial risk management. David’s high levels of personal integrity and accountability to stakeholders and clients alike made a defining contribution to the culture of treasury Corporation. on behalf of staff and directors, we would like to thank David for his significant contribution and wish David well in his retirement.

Sound financial management

a strong financial performance was achieved this year with a pre-tax profit of $14.2 million, an increase of $0.1 million on the previous year.

treasury Corporation prices its loan services based on its cost of borrowing. added to this is a charge that reflects the cost of borrowing related and administration expenses, together with the cost of capital retained to offset residual interest rate risk associated with the provision of lending services.

treasury Corporation targets a required return on capital based on the application of a Capital asset Pricing Model method. For 2006/07, the pre-tax return on capital was 24.11% against a required 8.45%. the higher than required return on capital result for 2006/07 can be partially attributed to a $16.6 million contribution of lending margins, fee income and earnings on retained capital against $9.9 million of administration expenses.

Chairperson's and Chief Executive officer's review

7

Changes in both the size and composition of the core asset and liability portfolio, together with the absolute level of and intra-year movements in the spread of treasury Corporation’s cost of debt against the australian dollar interest rate swap curve, can significantly influence profitability. in 2006/07, treasury Corporation’s asset and liability management portfolio activity contributed $7.4 million to the profit outcome. this result included contributions from funding and hedging outcomes in respect of significant debt retirements totalling $732 million, the launch of treasury Corporation’s 2015 “hot stock”, sustained demand for short term inscribed stock issues and the benefit of relatively stable interest rate swap spreads.

Sound risk management

For many years, treasury Corporation has placed a necessarily high degree of emphasis on risk management. this year saw a significant focus on improvements in operational risk management, including the establishment and testing of a disaster recovery site, the development of a formalised operational risk management framework and significant progress towards the completion of an anti-money laundering framework.

Partnering the Western Australian public sector in infrastructure delivery

to facilitate improved financial risk management service levels to its clients, treasury Corporation recently completed a restructure of its client service and business support divisions. the new organisational structure reflects treasury Corporation’s broader value proposition to the Western australian public sector, augmenting lending services with dedicated foreign exchange risk management, liquidity management, financial risk modelling and asset financing services.

2006/07 saw a significant increase in the number of clients assisted through non-debt service areas. a highlight in this regard included a review of the Public Bank account investment policy. this work, performed in conjunction with officers of the Department of treasury and Finance, will allow for an increase in the expected return to the fund whilst maintaining risk at a level consistent with the requirements of the new Financial Management act and associated regulations.

treasury Corporation offers its clients a very high degree of choice in the management of interest rate risk. the Quantitative Financial services team worked with a number of public utilities and agencies in applying advanced interest rate modelling and portfolio construction techniques to build customised interest rate risk management strategies.

significant debt retirements across the general government sector offset borrowings by government trading enterprises to produce a net reduction in the book value of client loan balances of $375 million.

sustaining Western australia’s remarkable rate of economic development and the associated growth in the community’s expectations for social and environmental improvements will be dependent on the delivery of high quality infrastructure. treasury Corporation plays a key role in ensuring value for money in the delivery of public infrastructure through partnering public authorities in the areas of financial risk and capital management.

We would like to thank staff and our fellow directors for their contribution this year to the fulfilment of this purpose.

T M Marney M J WebbChairperson Chief Executive officer


Performance against targets for 2006/07

the Board sets annual performance targets for treasury Corporation. these targets form part of the statement of Corporate intent which is published at the start of each financial year in accordance with section 16I (1) of the Western australian treasury Corporation act 1986.

treasury Corporation’s performance against its targets for 2006/07 is set out below.

1. Estimated Interest Rate Savings

in order to gauge its effectiveness in providing competitively priced loan funds to clients, treasury Corporation calculates the estimated interest rate savings to clients borrowing from treasury Corporation compared to the estimated cost to clients of borrowing in the corporate bond market. the following table shows the average of the estimated month end savings for the year. the results are summarised by the credit rating of the corporate bonds used in the calculation. it should be noted that the cost of borrowing from treasury Corporation does not include any guarantee fees collected by treasury Corporation on behalf of the state.

Target: savings>0.00%.

Outcome: refer to table below.

2006/07 Estimated Interest Rate Savings to Clients by Reference Bond Credit Rating and Term to Maturity*

Maturity Bucket (Years)

AAA AA+ AA AA-

1 to 2 0.24% 0.29% 0.27% 0.26%

2 to 3 0.26% 0.24% 0.26% 0.31%

3 to 4 0.28% 0.32% 0.33% 0.35%

4 to 5 0.28% 0.34% 0.39%

5 to 6 0.29% 0.38% 0.38% 0.45%

6 to 7 0.18%

7 to 8 0.29% 0.65%

8 to 9 0.25% 0.43% 0.46%

11 to 12 0.45%

12 to 13 0.39%

* a blank entry in the table means there is no reference bond available in the corporate bond market for comparative purposes.

2. Assessment of Satisfaction of Client Needs

treasury Corporation undertakes comprehensive independent client satisfaction surveys every second year. there was no survey for 2006/07, with the next survey of clients to be undertaken in 2007/08.

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3. Administration Ratio

treasury Corporation monitors its administrative efficiency by measuring its administration ratio. the administration ratio is a measure of the average administrative on-cost that must be borne by treasury Corporation’s clients.

administration ratio (%) = net administration Expense x 100 average Lending assets 1

net administration Expense is defined as total administration expenses less non-interest revenue. average Lending assets is defined as the average of the opening and closing book value of loans to clients for the year.

Target: administration ratio < 0.12%

Outcome: administration ratio = 0.09%

4. Return on Capital

in line with market practice, the target return on capital for treasury Corporation is adjusted for risk on the basis of the Capital asset Pricing Model.

return (%) = Pre-tax Profit x 100 adjusted average Capital for the Year 1

adjusted average Capital for the Year takes into account changing capital levels during the year as a result of additional dividends made to government or additional capital given to treasury Corporation by government and the timing of these payments.

Target: return = 8.45% - being the risk adjusted pre-tax return on capital required under the Board approved capital policy of treasury Corporation.

Outcome: return = 24.11%


overview of the Corporation

treasury Corporation fulfils the role of the state’s corporate treasury services provider, working with its public sector clients to assist them in achieving sound financial risk management. Within this broader role, treasury Corporation’s principal activities involve debt and interest rate risk management, the investment of the state’s surplus funds, assisting clients in the management of foreign exchange risk and the provision of financial advisory services.

Enabling Legislation

treasury Corporation was established on 1 July 1986 under the Western australian treasury Corporation act 1986 (the "act") as the state's central borrowing authority. amendments to the act during 1998 expanded treasury Corporation’s role to include the provision of financial management services to the Western australian public sector.

Responsible Minister

the hon. Eric ripper, MLa, Deputy Premier; treasurer; Minister for state Development.

Vision

Excellence in financial solutions for the Western australian public sector.

Mission

to work with our clients to satisfy their financial needs.

Corporate Objectives

the objectives of treasury Corporation are to:

• ensure that our financial products and services are competitively priced and meet client risk management requirements;

• understand the needs of our clients to assist them to meet their financial objectives within the framework of financial management policies established by government;

• ensure we continue to be well-regarded for our expertise in financial risk management;

• assist the state of Western australia in developing and implementing frameworks for aspects of financial risk management by the state and its agencies;

• manage our business in accordance with industry best practices and in a manner that is consistent with the requirements of our key stakeholders;

• conduct our affairs in an efficient and effective manner;

• act in accordance with our values; and

• continuously improve the capacities of our people.

Corporate Values

treasury Corporation’s values are shown on the "values wheel" below.

treasury Corporation’s Value statement is as follows:

“Value-adding

We will strive to add value to our stakeholders. We commit to providing the financial products, pricing and advice that can deliver measurable benefits to our stakeholders. We will seek ways to do business better and at a lower cost.

Accountability

We will take responsibility for the actions we take and the results we achieve. We will identify and manage the risks inherent in our business. We commit to transparency in our decision-making, accuracy in what we do and say, and responsibility for our actions. We will meet the obligations we set for ourselves in the performance of our duties and the satisfaction of stakeholder needs.

Learning

We believe in learning and self-development. We commit to life-long-learning in order to maintain our technical knowledge and to continue to have the skills needed to be able to deliver benefits to our stakeholders. We commit to self-examination and self-development as a way to enable us to have better personal interactions and to enable us to have enriched and rewarding working lives.

V

A

L

U

E

S

Value-adding

Understanding

Accountability

Learning

Sustainability

Ethics

Stakeholders

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Understanding

We will make every attempt to understand the needs of others. We commit to further developing the relationship with our stakeholders so we may understand their needs and provide appropriate solutions. We will seek to understand the needs of those with whom we work in order to ensure a harmonious working environment.

Ethics

We will act with honesty and fairness. We commit to avoiding actual or perceived conflict of interest. We commit to acting in accordance with relevant legislation, government directives and the various Corporation policies and codes put in place. We will treat people fairly and accept individual differences.

Sustainability

We will act in ways that provide economic, social and environmental benefits to the people we serve. We commit ourselves to long-term thinking – thinking beyond ourselves and our immediate needs to those of generations yet to come.

to demonstrate these values, we will:

• operate within the law at all times;

• comply with Corporation policies and procedures;

• act with mutual respect towards each other and treat our stakeholders with courtesy and respect;

• conduct our business with professional integrity and with full accountability;

• aspire to maintain improvement in all aspects of the Corporation’s operations through a commitment to the principles of quality and continuous improvement;

• be fair, honest and impartial in our representation of the Corporation in all its business relationships;

• avoid situations that may result in any conflict of interest or divided loyalty that brings disrepute to the Corporation;

• utilise the Corporation’s assets in a responsible, efficient and effective manner that is in the best interests of the Corporation; and

• strive to maintain a safe working environment.”

Administrative Structure

Board of Directors

at 30 June 2007, treasury Corporation’s Board comprised:

timothy M Marney Chairperson

Michael a Barnes Deputy Chairperson

Michael J Webb Chief Executive officer

gregory L Joyce

gaye M McMath

Catherine a nance

the secretary to the Board was Constance E Chapman, Manager governance and Corporate secretary.

State Guarantee

Under section 13(1) of the act, the financial liabilities incurred or assumed by treasury Corporation are guaranteed by the treasurer on behalf of the state. this guarantee is secured upon the Consolidated account of the state.

Credit Ratings

the debt of treasury Corporation is rated as follows:

Rating Agency Long Term Short Term

standard & Poor’s

aaa a-1+

Moody’s investors service

aaa Prime-1

all long term credit ratings currently have a “stable” rating outlook.


organisational Chart

STEVE LUFFManager, accounting

and operations

ROBERT BECKETTManager, information

technology

CONNIE CHAPMANManager governance

and Corporate secretary

STEPHEN MORHALLBusiness Manager asset

and Project Financing

BILL MCEWENChief risk officer

CHRIS RINSMABusiness Development

Manager

LISA BRADYBusiness Manager

Foreign Exchange and Liquidity

DES SEERYManager People and Performance

MARCO MOTTOLINIManager Quantitative

Financial services

EVONNE MEATHBusiness Manager Lending services

CLIENT SERVICESGOVERNANCE AND

PERFORMANCECORPORATE

SERVICESCORPORATE TREASURY

WAYNE CURRIECorporate treasurer

MELVIN NUNESDeputy Chief

Executive officer

MICHAEL WEBBChief Executive officer

BOARD

13

Economic overview and outlook

THE WESTERN AUSTRALIAN ECONOMY

Overview

since Western australia emerged as a leading producer and exporter of a wide variety of minerals in the 1960s, the state’s mining production has grown to approximately 45 per cent of the value of australia’s mining production. the value of Western australia’s merchandise exports in 2006 was $54.8 billion, of which 88% was comprised of minerals and petroleum exports.

Western australia’s real gross state Product (“gsP”) is estimated to have increased 6.0% in 2006/07, following growth of 4.9% in 2005/06. growth was once again underpinned by a robust domestic economy, with household consumption rising an estimated 5.75% while business investment increased by 9.0%. all told, state Final Demand is estimated to have increased 5.5% in the 2006/07 financial year. net exports (exports less imports) are estimated to have increased 7.5% in 2006/07, following a fall of 11.7% in 2005/06. the improvement was driven by an estimated 8.5% increase in export volumes, following a 0.7% decline in 2005/06, while import growth slowed to 9.5% from 15.2% in 2005/06. net exports are estimated to have contributed 1.6 percentage points of the estimated 6.0% gsP growth in 2006/07.

over the past decade, the Western australian economy has been one of the fastest growing of all australian states, averaging a rate of 4.3% growth per annum compared with growth of 3.6% nationally.

Significant Economic Outcomes during 2006/07

• gsP is estimated to have expanded 6.0% in real terms during 2006/07, following growth of 4.9% in 2005/06;

• Business investment is estimated to have grown 9.0% to a record $25.6 billion, following 37.0% growth in 2005/06;

• the state unemployment rate averaged 3.2% in 2006/07, including a low of 2.8% in both March and april 2007.

Some of the Major Projects Driving Business Investment

• Fortescue Metals group’s estimated $3.7 billion Pilbara iron ore and infrastructure project - production estimated to commence in March 2008;

• BhP Billiton’s $2.8 billion ravensthorpe nickel project – production estimated to commence in March 2008;

• north West shelf Consortium’s $2.4 billion fifth Lng train – production estimated to commence in august 2008;

• BhP Billiton's $2.1 billion rapid growth Project3, Port hedland – production estimated to commence in late 2007.

Outlook

real gsP growth is forecast to slow to 4.5% in 2007/08 due to slower domestic economic activity, with state Final Demand growth forecast to slow to 3.0%. the external sector is expected to make a greater contribution to gsP growth in 2007/08, with export volumes forecast to increase 10.0% during the year. increasing export volumes are expected to be the major driver behind an 11.75% rise in net exports, which is expected to contribute 2.6 percentage points to the forecast 4.5% gsP growth in 2007/08.

though annual employment growth is forecast to slow to 2.0% in 2007/08, following growth of 4.4% in 2005/06 and 3.4% in 2006/07, the labour market is expected to remain tight, with unemployment forecast to remain low at 3.25%. strong employment growth in recent years has seen the unemployment rate fall to an average of 3.2% over the twelve months of 2006/07, down from 4.0% in 2005/06. With the state’s buoyant economy attracting residents from interstate and overseas, wage pressures are expected to ease further in 2007/08, with annual wages growth, as measured by the change in the Wage Cost index, falling to 4.25% in 2007/08, compared with an estimated 4.50% in 2006/07.


Significant Government Infrastructure Projects for 2007/08

• $897 million capital investment in the state’s electricity infrastructure.

• $755 million investment by the Water Corporation in the state’s water infrastructure to meet the needs of a rapidly growing population.

• $706 million investment to enhance and maintain the state’s road network.

Government’s Fiscal Strategy

the government’s financial strategy is firmly based on achieving general government surpluses sufficient to maintain a Capital Works Program that meets the state’s needs for essential social and economic infrastructure, while containing net debt to affordable and sustainable levels.

the government’s financial targets for the 2007/08 Budget remain unchanged from those included in the last two budgets. specifically, the targets are to:

• maintain or increase the real net worth of the total public sector;

• achieve an operating surplus for the general government sector;

• retain Western australia’s triple-a credit rating, represented by the following specific targets:

o maintain the net debt to revenue ratio for the total non-financial public sector at or below 47%; and

o ensure that real per capita own-purpose expenses for the general government sector do not increase; and

• maintain Western australia’s tax competitiveness, as measured by maintaining tax revenue as a share of gsP below the average of other states.

Fiscal Outlook

With strong economic conditions in Western australia expected to continue, the state Budget forecast a general government operating surplus of $1,453 million for 2007/08, following an expected surplus of $1,853 million in 2006/07. similar surpluses are projected for 2008/09 and 2009/10, with the estimated surplus expected to moderate to around $850 million in 2010/11, the final year of the current forward estimates.

THE AUSTRALIAN ECONOMY

australian economic growth accelerated during the December quarter 2006 and March quarter 2007, with real gDP growth rising to 3.8% for the year to the end of March 2007, up from 2.4% for the 2005/06 year. the acceleration came

KEY STATE ECONOMIC INDICATORS(%)

7

6

5

4

3

2

1

0

Real GSP Growth

Source 2007/08 Budget Economic and Fiscal Outlook

2005/06 (Actual)

Employment Growth

Unemployment Rate

Wages Growth

In�ation

2006/07 (Estimated Actual) 2007/08 (Budget Estimate) 2008/09 (Forecast)

Economic overview and outlook (continued)

1�

despite a big decline in farm output due to the effects of the drought. the major contributors to growth during the first nine months of 2006/07 were household consumption expenditure, which rose 4.2% over the year to the end of March, and private business investment, which increased 7.3% over the same period. global economic conditions remained favourable to australia through 2006/07, with the terms of trade rising to its highest level since the early 1950s. however, capacity constraints continued to limit australia’s ability to capitalise on strong global economic conditions, with international trade again detracting from growth in the year to the end of March 2007, with 4.7% annualised growth in export volumes over the period being outweighed by 11.3% import growth. the labour market remained tight, with the unemployment rate falling to a near 33 year low of 4.2% in May 2007, before ticking up slightly to end the year at 4.3%.

global economic growth remains strong, with the international Monetary Fund estimating global growth of 5.5% for 2006 with a forecast of 5.2% for both 2007 and 2008. the pick up in growth during 2006 was largely based on a combination of accelerating growth in Japan and the Euro area and continuing strong growth in a host of emerging economies, particularly China and india.

Commodity prices remained elevated during 2006/07, with gold averaging $638.00 an ounce during the year, while oil prices also remained historically high, with the price of a barrel of the benchmark West texas intermediate crude averaging $63.41 over the course of 2006/07, only slightly lower than the average of $64.26 in

2005/06. Base metal prices also remained high with the London Metal Exchange index of base metal prices rising over 14% during the year, reaching a new record high in May 2007.

Financial Markets

Interest Rates

the reserve Bank of australia (“rBa”) increased the official overnight cash rate by a total of 50 basis points in two separate 25 point moves during 2006/07 to 6.25%. Both increases were in response to rising inflation and occurred following the release of the Consumer Price index for the June and september quarters of 2006. With inflation moderating through the December quarter 2006 and the March quarter 2007, the rBa held the official overnight cash rate thereafter. the cash rate reached its highest level since February 2001, when it was also 6.25%.

Us interest rates continued to be the major driver behind movements in australian long term interest rates. the 10-year australian Commonwealth government bond yield began the 2006/07 year at 5.78%, but a sharp increase in Us treasury yields over the last two months of the year pushed australian long term interest rates higher. the 10-year Commonwealth bond yield closed the 2006/07 year at 6.25%, its highest level since June 2002. the yield on treasury Corporation's 15 July 2017 hot stock opened the 2006/07 financial year at 6.07%, rising to 6.65% at year end. the chart below shows the movement in yields for three of treasury Corporation's hot stocks.

TREASURY CORPORATION HOT STOCK YIELDS(%)

6.80

6.60

6.40

6.20

6.00

5.80

5.60

Jul2006

Aug2006

Sep2006

Oct2006

Nov2006

Dec2006

Jan2007

Feb2007

Mar2007

Apr2007

May2007

Jun2007

WATC 15/10/2008 WATC 15/04/2011 WATC 15/07/2017


spreads between yields on semi-government stocks and Commonwealth bonds at the longer end of the curve widened during the year from their opening levels on 1 July 2006. spreads at the shorter end ended the year relatively unchanged from the start of 2006/07. For example, the spread between the yield on the 2017 treasury Corporation hot stock and the 2017 australian Commonwealth government bond widened from 29 basis points at 30 June 2006 to 40 basis points at 30 June 2007. the chart above shows the movement in spreads for three of treasury Corporation’s hot stocks to the equivalent Commonwealth bonds.

Australian Dollar

the australian dollar increased in value over the course of 2006/07, rising strongly against the

major currencies as rising commodity prices and comparatively high australian interest rates made the australian dollar attractive. the australian dollar began the 2006/07 year buying 74.30 Us cents but rose 14.2% through the year to close at 85.03 Us cents. the australian dollar also appreciated through the year against the other major currencies, rising a total of 22.5% against the Japanese Yen from ¥85.25 to ¥104.45, 7.8% against the Euro from €0.5842 to €0.6295 and 5.3% against the British Pound from £0.4051 to £0.4229. the australian dollar trade Weighted index rose to its highest level since mid-1985.

the chart below shows the movement of the australian dollar against key overseas currencies during 2006/07.

TREASURY CORPORATION HOT STOCK SPREAD TOAUSTRALIAN COMMONWEALTH GOVERNMENT BOND

(%)45

40

35

30

25

20

15

10

Jul2006

Aug2006

Sep2006

Oct2006

Nov2006

Dec2006

Jan2007

Feb2007

Mar2007

Apr2007

May2007

Jun2007

WATC08 - ACGB08 WATC11 - ACGB11 WATC17 - ACGB17

Australian Dollar - Year to 30 June 2007

0.90

0.85

0.80

0.75

0.70

0.65

0.60

0.55

114.0

109.0

104.0

99.0

94.0

89.0

84.0

79.0

74.0

Jul2006

Aug2006

Sep2006

Oct2006

Nov2006

Dec2006

Jan2007

Feb2007

Mar2007

Apr2007

May2007

Jun2007

AUD/USD (left axis) AUD/EUR (left axis) AUD/JPY (right axis)

Economic overview and outlook (continued)

17

Client services

Commitment To Clients

through its Lending and advisory, hedging and Funds Management services, treasury Corporation is committed to meeting the financing needs of its clients as well as assisting them with their financial risk management requirements.

treasury Corporation is focused on fulfilling its mission “to work with our clients to satisfy their financial needs”. in this regard, treasury Corporation’s three key objectives which are specifically client-oriented are to:

• ensure that lending products are competitively priced and meet client risk management requirements;

• understand the needs of its clients to assist them to meet their financial objectives within the framework of financial management policies established by government; and

• assist the state of Western australia in developing and implementing frameworks for aspects of financial risk management by the state and its agencies.

Lending

Overview

through its funding activities in the financial markets, treasury Corporation continued to take advantage of opportunities to provide debt funding to Western australian state agencies and local governments at the lowest possible cost and in the most efficient manner.

in 2006/07, net lending by treasury Corporation to 172 state government agencies and local governments decreased by $376 million, resulting in client book debt outstanding of $10,164 million at year end. the main reason for this result was the state government’s decision to utilise a part of the 2005/06 budget surplus to retire all “new Metrorail” project debt of $903 million in 2006/07.

at 30 June 2007, treasury Corporation’s clients included 44 state government agencies and 128 local governments. the graph below shows the distribution of clients’ debt outstanding to treasury Corporation at 30 June 2007.

CLIENT AUTHORITIES% Share of Debt Outstanding at 30 June 2007

Electricity Networks Corporation

Water Corporation

Housing Authority

Public Transport Authority

Electricity Generation Corporation

Government Employees Superannuation Board

State Supply Commission

Minister for Education

Local Government Clients

Other Clients

25

18

16

8

8

5

2

2

4

12


Loan Products

treasury Corporation is committed to offering its clients a comprehensive and flexible range of loan products that continues to meet their needs and delivers low cost funding. this range of products is continuously under review as treasury Corporation looks to new and more cost effective means of satisfying each client’s particular requirements. By working closely with its clients, treasury Corporation has been able to identify each client’s financing requirements and provide the financial solutions to meet these needs.

treasury Corporation’s array of loan products available to clients currently includes:

• Portfolio Lending arrangements (“PLa”);

• Fixed-rate principal and interest loans;

• interest only loans;

• Zero-coupon loans;

• structured loans designed to meet individual client needs;

• short term and liquidity facilities;

• term Floating rate loans; and

• Compound Cash rate loans.

treasury Corporation’s main loan product, PLa, essentially applies the principles of diversification to debt management by structuring borrowings into a variety of maturity dates and interest rates and provides each client with a debt mix between fixed and floating rate exposures. For most authorities, their portfolios are based on a debt mix of 70% fixed rate and 30% floating rate.

treasury Corporation's other loan products allow its clients to borrow for terms from one day to beyond twenty years.

the graph below shows the mix of treasury Corporation's loan products at 30 June 2007.

CLIENT AUTHORITIESDebt Outstanding by Product Type

%

Portfolio Lending Arrangements

Fixed-Rate principal and interest loans

Interest only loans

Short term and liquidity facilities

Structured loans

Term Floating Rate loans

34

14

32

5

2

13

Client services (continued)

1�

State Government Sector

During 2006/07, funds were advanced to state government agencies to finance key capital infrastructure projects in Western australia. a large portion of the loans were advanced to fund improvements to the state’s electricity generation, transmission and distribution infrastructure. a significant amount was spent on water, wastewater and drainage infrastructure, including the completion of the Perth seawater Desalination Plant.

Borrowings from treasury Corporation were also applied by the respective agencies towards the construction of schools and housing, ongoing activity at various ports around the state and towards various capital works projects at universities.

at 30 June 2007, the book value of loans to state government agencies and universities amounted to $9,785 million.

Local Government Sector

Funding to local governments increased by over $33 million during 2006/07 and at 30 June 2007, the total book value of lending to this sector was in excess of $379 million.

During 2006/07, funds were provided for various community projects including the construction of libraries, recreation, sporting and aquatic centres, underground power and marina improvements, accommodation facilities for the aged and various roadwork and streetscape projects. in addition, due to the strong economic conditions being experienced throughout the state, funds were provided to upgrade regional road networks, for residential and non-residential land development and for staff housing.

Advisory Services

treasury Corporation offers its clients and the Western australian public sector a full range of financial risk management advisory services. treasury Corporation likes to work collaboratively with clients in developing better risk analysis of client projects, with the clients bringing their business knowledge and desired objectives and treasury Corporation contributing its knowledge of financial markets and risk management expertise.

as part of its commitment to deliver a high level of expertise in its advisory services, treasury Corporation has enhanced its in-house expertise

in modelling interest rates. treasury Corporation has undertaken significant work to extend the range of analytical tools available to evaluate alternative methodologies for managing interest rate risk. traditionally, the major tool for managing the interest rate risk in a debt portfolio was to determine an acceptable duration for the debt portfolio. treasury Corporation can also model the effects of incorporating interest rate options in a debt portfolio. this expands the range of choices available to its clients.

the use of interest rate options such as interest rate caps allows clients to ensure that the cost of a debt portfolio does not exceed a defined maximum level. this approach to interest rate risk management ensures that the interest rate risk of the debt portfolio does not exceed the level that is deemed acceptable to the entity. in contrast, managing interest rate risk by incorporating fixed term debt into a portfolio dampens the degree of movement, and therefore the volatility, in the interest cost of the portfolio.

the enhancement of its in-house expertise has enabled treasury Corporation to optimise debt portfolios for its clients based on the business criteria established by the client. treasury Corporation has commenced work on more sophisticated approaches to credit risk modelling. in addition to developing better measures, and thus being able to provide better information on the true risk exposure of financial instruments, the longer term aim is to optimise debt and investment portfolios with respect to both market risk and credit risk.

treasury Corporation worked closely with the Department of treasury and Finance and the Department of Local government and regional Development to develop better policies in regard to financial risk management for structured investment products. treasury Corporation also undertook a major review of the investment policy for funds held in the Public Bank account on behalf of the Department of treasury and Finance. this is the major investment fund for public monies with in excess of $3 billion in the investment portfolio.

Complementing the advice it provides on financial risk management, treasury Corporation has provided advice on a broad range of corporate finance issues. in addition to its expertise in financial modelling, treasury Corporation is able to provide advice on the full range of corporate finance and financial risk management services.


some examples of the advisory work provided to clients over the past year include:

• debt structuring – interest rate risk management;

• review of risk and return characteristics of financial instruments in investment portfolios;

• evaluation of credit exposures;

• foreign exchange risk management;

• lease versus buy evaluation;

• analysis and evaluation of investment proposals;

• review of incorporating term floating rate debt into a debt portfolio;

• hedging evaluation;

• business case analysis for investment of funds;

• weighted average cost of capital calculation and analysis;

• review and analysis of industry beta; and

• rates of return analysis.

Hedging

Foreign Exchange Hedging

treasury Corporation currently works in partnership with 15 Western australian public sector agencies in a continuous process of foreign exchange risk identification, quantification and exposure management. treasury Corporation adds its expertise in risk management and knowledge of foreign exchange markets to the client’s knowledge of their operating environment and risk tolerance to design currency management strategies to meet the strategic objectives of each client.

Following the issuance of the treasurer’s instruction requiring management of foreign exchange risk, treasury Corporation developed relationships with several new clients. treasury Corporation now provides those clients with advice and assistance in the identification, quantification and management of their foreign exchange exposure. treasury Corporation continued to assist clients in developing an appropriate response to accounting standard aasB 139 on the treatment of foreign exchange hedging transactions and is currently working towards providing clients with several new products that will assist them in their response.

as a preferred client in the financial markets, treasury Corporation has direct access to wholesale foreign exchange markets, multi-currency funds settlements systems and dedicated capital markets information and treasury management systems. treasury Corporation provides rapid and efficient foreign exchange transaction services across all major currencies.

transactions treasury Corporation currently supports include:

• spot Foreign Exchange;

• Forward Foreign Exchange Contracts;

• European Put and Call options;

• american Put and Call options; and

• Combination options including low cost collars.

in addition to transaction execution, treasury Corporation provides full ongoing support through the provision of cash flow projections, audit confirmations and regular market valuations of current transactions.

Funds Management

treasury Corporation provides funds management services to the Department of treasury and Finance in relation to the investment of surplus funds standing to the credit of the Public Bank account. the average daily balance of funds invested during 2006/07 was $2,671 million.

During 2006/07, treasury Corporation launched the “overnight Cash Deposit Facility” which gives government agencies that carry out their own investments access to the overnight cash market.

Client services (continued)

21

Overview

treasury Corporation’s borrowing activities during 2006/07 centred primarily on:

• issuing across the yield curve to fund lending to its clients;

• maintaining sufficient volumes on issue and enhancing the liquidity in its existing lines of benchmark stocks (“hot stocks”) maturing in 2007, 2008, 2009, 2011, 2013, and 2017;

• launching the new 7.00% 15 april 2015 hot stock through a tender process;

• examining opportunities to issue through its Euro Medium term note (“EMtn”) Program to generate term floating rate funding;

• issuing short term paper either through domestic inscribed stock or the Eurocommercial Paper (“ECP”) Program for liquidity funding; and

• transacting in interest rate swaps to meet treasury Corporation's asset and liability management requirements and to generate floating rate funding for its clients.

the principal source of treasury Corporation's long term borrowings is the domestic fixed interest market. in the main, treasury Corporation sources most of its term funding through its hot stock lines. in addition, treasury Corporation also issues paper in other maturities which it gradually builds into future hot stocks.

overseas, treasury Corporation’s ongoing strategy is to tap markets on an opportunistic basis through bond issues, private loans and its range of continuous note issuance facilities such as its EMtn Program. When borrowing overseas, treasury Corporation aims to:

• save on the interest cost of borrowing, where it can obtain funding for the borrowing program at rates below equivalent domestic rates after hedging any foreign currency exposure;

• undertake issues in a range of currencies, with specific structures or of particular terms to meet any special portfolio or client requirements; and

• diversify its investor base.

Long Term Borrowings

Domestic Fixed Interest

the ongoing global demand for state resource exports and a vigorous state economy contributed to another strong budget surplus. the government has used its surpluses to retire around $2.4 billion in state debt over the past three years, including an allocation of its 2005/06 surplus to achieve debt free construction of the “new Metrorail” project. this entailed the buyback and retirement of approximately $1 billion of debt which had previously been issued into wholesale financial markets. treasury Corporation successfully managed the debt repayment and associated hot stock retirement without affecting price tension or perceived liquidity in its hot stock lines. Even though the general government sector is now net debt free, growth in spending on infrastructure projects by the government trading Enterprise sector and swap related hot stock issuance for portfolio management purposes has led to an increase in hot stocks outstanding to $8.38 billion at 30 June 2007. this represents an increase of $1.52 billion on the previous year.

During the course of the year, official price making ceased in treasury Corporation's 15 october 2007 stock line. ongoing client requirements in the long end of the yield curve necessitated the establishment of a new hot stock line to fill the gap between the 15 June 2013 and 15 July 2017 hot stocks. the new line was a 7.00% 15 april 2015 maturity which was issued in March 2007. the initial tender was for $300 million and was conducted on an Exchange for Physical basis. a further $300 million was offered on a consolidation basis against treasury Corporation’s 15 June 2013 and 15 July 2017 hot stocks. the total volume issued on the tender date was $599 million and by 30 June 2007, the amount on issue had grown to $720 million.

accessing Capital Markets


Market Making panel

treasury Corporation's Fixed interest Market Making Panel plays an ongoing key role in price making and distribution of treasury Corporation's hot stocks. there were no changes to treasury Corporation’s Fixed interest Market Making Panel during the year.

the Market Making Panel and contacts at 30 June 2007 are shown below.

Panel Members Contact TelephoneaBn aMro Bank nV Mr Michael Cheetham 03 9612 1342anZ Banking group Limited Mr Patrick o’Connor 02 9226 6706Citigroup global Markets australia Pty Ltd Mr simon Walters 03 8643 9820Commonwealth Bank of australia Mr Peter hendry 03 9675 7498Deutsche Capital Markets australia Ltd Ms Katrina stynes 02 8258 1444Macquarie Bank Limited Mr Mike Walsh 03 9635 9041national australia Bank Limited Ms Kim grunert 02 9295 1166rBC – Ds global Markets Mr richard sheahan 02 9033 3222toronto Dominion securities Mr anthony Everett 02 9619 8866UBs ag australia Branch Mr tim riley 02 9324 2222Westpac Banking Corporation Ms Emma stephenson 02 8204 2740

taking into account overall performance throughout the year, the leading institutions on treasury Corporation’s Market Making Panel for 2006/07 were:

• Deutsche Capital Markets australia Ltd

• national australia Bank Ltd

• aBn aMro Bank nV

• Westpac Banking Corporation

• Commonwealth Banking Corporation

turnover

turnover in treasury Corporation’s hot stocks for the financial year ended 30 June 2007 was $127,818 million.

accessing Capital Markets (continued)

Hot Stock Turnover2006/07

A$ billion20

15

10

5

0

Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun

2006 2007 2008 2009 2011 2013 2015 2017

23

treasury Corporation’s domestic hot stock volumes on issue at 30 June 2007 and the turnover volumes for the financial year were as follows:

Coupon % p.a. Maturity Date Volume On Issue Turnover Volume 5.50 16/10/2006 $0m $ 6,634m 8.00 15/10/2007 $1,061m $13,689m 5.50 15/10/2008 $1,269m $21,775m 7.50 15/10/2009 $1,786m $22,008m 7.00 15/04/2011 $1,360m $22,136m 8.00 15/06/2013 $1,495m $18,200m 7.00 15/04/2015 $ 691m $11,153m 8.00 15/07/2017 $ 720m $ 6,229m

Retail Borrowing

treasury Corporation maintained its presence in the retail market during the financial year. accordingly, $140.2 million was borrowed from retail investors during 2006/07. this amount comprised new investment funds and maturing principal reinvested by existing stockholders. of the amount raised through new investments, $98.4 million was borrowed from people seeking to migrate to australia under various schemes administered by the Commonwealth Department of immigration and Citizenship requiring the purchase of a designated investment from a participating semi-government authority.

Market yields were regularly monitored to ensure retail investors received a competitive rate of interest as well as the security of a government guaranteed investment.

Euro Medium Term Note Program

since the establishment of its Us$2,000 million EMtn Program in 1990, 35 issues have been made in australian dollars and other currencies. issues under this program can be made for terms from 1 month to 30 years either through the dealer panel or on a reverse inquiry basis.

the dealer panel for the Program comprises:

• Citigroup global Markets Limited

• Commonwealth Bank of australia

• Credit suisse First Boston (Europe) Limited

• Daiwa securities sMBC Europe Limited

• Deutsche Bank ag London Branch

• Merrill Lynch international

• Mizuho international plc

• national australia Bank Limited

• nomura international plc

• royal Bank of Canada Europe Limited

• UBs Limited

Citibank, n.a., London is the Fiscal agent, registrar and transfer agent for the Program. BnP Paribas Luxembourg is the Paying agent.

Demand for australian dollar securities in the Japanese retail market remained low during the year. as a result, treasury Corporation was unable to undertake any australian dollar-denominated issues despite quoting on a number of proposals.

the face amount of notes outstanding under the Program as at 30 June 2007 was a$170 million of australian dollar-denominated funding and nZ$64 million of new Zealand dollar-denominated funding.


Short Term Borrowings

approximately 26% of treasury Corporation's borrowings are raised in short term markets in australia and overseas.

Domestically, short term funds are raised through the issue of short term notes in the form of inscribed stock. in overseas markets, treasury Corporation utilises its ECP Program.

Short Term Inscribed Stock

During 2006/07, treasury Corporation issued a total of $13,153 million of short term inscribed stock with an average maturity of 82 days. this continued to be a reliable source of domestic short term funds for treasury Corporation. at 30 June 2007, $2,974 million was outstanding in short term inscribed stock.

End of month outstandings of short term inscribed stock are shown in the graph below.

accessing Capital Markets (continued)

Short Term Inscribed Stock Amount Outstanding at Month End for 2006/07

A$ billion

4

3

2

1

0


2�

Eurocommercial Paper Program

treasury Corporation maintains a Us$1,500 million multicurrency ECP Program. treasury Corporation has issued ECP in a number of currencies including Us dollars, australian dollars, British pounds, hong Kong dollars and Euros.

the total amount of ECP issued over the year rose slightly. issuance of ECP is still limited because treasury Corporation has been able to borrow domestically at more favourable rates. at 30 June 2007, Us$125 million of Us dollar-denominated debt and a$26 million of australian dollar-denominated debt was outstanding on this program.

issues under this program can be made for terms from 7 to 365 days through the dealer panel.

the dealer panel for the Program comprises:

• Barclays Bank plc

• Citibank international plc

• Commonwealth Bank of australia, hong Kong Branch

• Deutsche Bank ag, London

• Macquarie asia Limited

• national australia Bank Limited, hong Kong Branch

• Westpac Banking Corporation, hong Kong Branch

Citibank, n.a., London, is the issuing and Paying agent for the Program.

Foreign Exchange Management

During the year, all non-australian dollar funding raised through the ECP Program was swapped into australian dollars through the foreign exchange market.

Eurocommercial Paper ProgramAmount Outstanding at Month End for 2006/07

US$ million

350

300

250

200

150

100

50

0


Non USD Issues USD Issues


risk Management

treasury Corporation, as the state’s central borrowing authority, is responsible for providing cost effective funding to its clients. to ensure that this goal is successfully achieved, treasury Corporation has put in place policies and processes in order to manage its risks, including continuity plans in case of business disruptions.

treasury Corporation, like most financial institutions, is exposed to various risks in attempting to achieve its goals. Financially, treasury Corporation is exposed to market, liquidity and credit risk as a result of its dealings in the capital markets. treasury Corporation also faces operational risks which may arise as a result of inadequate or failed internal processes, internal fraud, health and safety issues, system failures or from external events. in order to reduce the possibility of adverse events occurring, treasury Corporation has put in place policies and procedures to ensure that its risks are efficiently managed. Line managers have responsibility for normal day to day operational processes and ensuring that policies and controls are applied in the appropriate manner. in addition, several committees, as well as senior management and the Board, are regularly kept informed to ensure that the risks facing treasury Corporation are assessed and properly managed by staff in accordance with its risk management policies.

the Chief risk officer heads a team of experienced risk analysts in Middle office who regularly review treasury Corporation’s risk exposures. Middle office is also implementing new policy frameworks for operational risk, business continuity and pandemic risk. this is part of treasury Corporation’s commitment to establishing an efficient and consistent risk management process across all sections of treasury Corporation which conform to the latest guidelines developed by the australian Prudential regulation authority (“aPra”) and government. treasury Corporation is also implementing an anti-money laundering framework to comply with the latest government regulations in this area. it is planned to have these initiatives in place before the end of 2007.

treasury Corporation’s exposure to credit and market risk has the potential to result in an adverse impact on its balance sheet. in the main, these exposures arise as a result of the strategic decision taken by treasury Corporation some years ago to stand between its lending clients and the market

place. as a result, treasury Corporation must manage the market risk carried due to mismatches between its lending assets and its funding liabilities. treasury Corporation also carries a significant investment portfolio in order to manage its liquidity risk and to support the market in its debt paper. the credit quality and diversification of this investment portfolio is controlled by treasury Corporation’s Credit Policy. there was no material change in market and credit risk management policy or practice introduced during the year.

the sections below describe the various risks faced by treasury Corporation and detail any impending changes in managing these risks.

Credit Risk

Credit risk is the risk that an entity is unable to meet its financial obligations when due. over the past year, there have been no cases where an entity has failed to meet its obligations to treasury Corporation. nonetheless, treasury Corporation will continue to control its exposure through the Credit Policy in order to minimise the potential impact of its credit exposures.

treasury Corporation’s Credit Policy sets maturity and counterparty limits based on credit rating. the policy also ensures diversification of treasury Corporation’s credit exposures. treasury Corporation’s credit policy is based on aPra standards, in this case aPs 112. this standard requires capital to be held against the credit exposure on investment, derivative and forward settling transactions based on market value, instrument type, counterparty and term to maturity. over the year, treasury Corporation’s credit risk capital requirement peaked at $17.92 million and averaged $15.98 million on a daily basis. this compares to a peak capital requirement of $18.3 million and an average daily capital requirement of $16.5 million in the previous year.

Market Risk

treasury Corporation’s assets and liabilities carry interest rate risk as changes in yield will have an impact on valuations. in respect to foreign exchange, treasury Corporation’s policy is not to take any foreign exchange risk apart from the minor exposure created by the need to maintain small balances in foreign currency bank accounts.

27

the composition of treasury Corporation’s balance sheet exposures changes from year to year as a result of changes in client funding requirements and strategic decisions taken by management in relation to portfolio funding and hedging. Most of treasury Corporation’s assets, which are primarily loans to its clients, are tightly hedged, thereby minimising market risk. the final responsibility for the level of market risk that can be carried by treasury Corporation rests with the Board.

treasury Corporation adopts aPra’s Prudential standard aPs 113 in respect to market risk. this standard requires treasury Corporation to hold risk capital equal to a multiple of its Value at risk ("Var"). treasury Corporation values its portfolio and calculates Var on a daily basis and the Var calculation incorporates all lending, funding and derivative exposures carried by treasury Corporation. During the year, Var peaked at $1.07 million and averaged $302,000 on a daily basis. this compared to a peak of $441,000 and an average daily Var of $306,000 in the previous year.

Operational Risk

to various degrees, all sections of treasury Corporation are exposed to operational risk. in order to mitigate this risk, treasury Corporation has a number of controls in place that ensure the segregation of duties and that appropriate reporting arrangements and procedures are documented and carried out. in addition, treasury Corporation has an independent middle office and compliance officer to check and report on exposures and compliance together with regular internal audit reviews.

During the year, the operational risk Committee continued to work on the development of treasury Corporation’s new operational risk Management Framework and is targeting a December 2007 implementation date. in the interim, treasury Corporation has retained $10 million of capital to cover its operational risk exposures and continued to maintain sound operational risk management practices through its existing operational risk management arrangements. as a matter of principle, and to the extent possible, treasury Corporation will seek to be consistent with the operational risk guidelines and standards proposed by aPra in its response to the Basel Capital accord.

treasury Corporation is the sole provider of funding to most government agencies. as such, it has a duty not only to carry out this function efficiently but also with a high level of reliability. Consequently, treasury Corporation regularly reviews its response strategies to ensure that key business operations continue should a major disruption occur. Following last years acquisition of a continuity suite, treasury Corporation is currently reviewing its Business Continuity Management framework to enable it to meet standards set by government. the new framework is expected to be implemented by December 2007.


Corporate governance

the Board of Directors (the "Board") of treasury Corporation is responsible for the performance of the functions of treasury Corporation under the Western australian treasury Corporation act 1986 (the "act").

in order to ensure that treasury Corporation carries out its functions in the best interests of the state, its clients and other stakeholders, the Board sets the strategic direction of treasury Corporation (with the agreement of the Minister) and establishes the policies and principles under which treasury Corporation operates.

the corporate governance processes established by the Board ensure that it is able to fulfil its statutory obligations, guide the affairs of treasury Corporation and oversee its performance.

the Board relies on, and holds to account, the Chief Executive officer for the operational management of treasury Corporation and implementing the strategic direction.

Board Composition

the membership of the Board is determined in accordance with section 5B of the act and comprises:

(i) the Under treasurer as Chairperson;

(ii) a treasury officer nominated by the Under treasurer from time to time as the Deputy Chairperson;

(iii) the Chief Executive officer or acting Chief Executive officer of treasury Corporation; and

(iv) up to three other persons with relevant commercial or financial experience appointed by the Minister ("appointed directors").

an appointed director may hold office for a term, not exceeding three years, as is specified in the instrument of appointment, but may be reappointed from time to time.

at 30 June 2007, the directors of treasury Corporation were:

Name Position First Appointed Term Expires

timothy Michael Marney Chairperson statutory statutory

Michael anthony Barnes Deputy Chairperson 5 July 2005 n/a

Michael John Webb 1 Chief Executive officer statutory statutory

gregory Louis Joyce Director 1 January 2003 31 December 2007

gaye Marie McMath Director 1 January 2003 31 December 2008

Catherine anne nance Director 15 July 1998 31 December 2009

1 Mr Webb is the only director with executive responsibilities. all other directors are independent directors.

2�

Board Responsibilities

the Board is responsible for the performance of the functions of treasury Corporation under the act. these functions include, to:

• borrow moneys and lend moneys to the Western australian public sector;

• develop and implement borrowing programs for the purposes of the act;

• manage the financial rights and obligations of treasury Corporation;

• advise on financial matters including debt management, asset management and project and structured financing;

• manage investments for the Department of treasury and Finance and other government agencies;

• assist authorities with managing their financial exposures; and

• assist the state with the management of any debt raised prior to the establishment of treasury Corporation.

in fulfilling this role, the Board guides and monitors the affairs of treasury Corporation. this includes:

• reviewing and establishing (with the Minister’s agreement) treasury Corporation's strategic Development Plan and statement of Corporate intent each year;

• monitoring the performance of treasury Corporation; and

• ensuring that appropriate accounting, risk management, budgeting, compliance, information technology and internal control policies, systems and reporting processes are in place. these include its risk management policy and business continuity plan.

Board Committees

to assist in the execution of its responsibilities, the Board has established an audit Committee and a remuneration Committee.

Audit Committee

the role of the audit Committee, as set out in the terms of reference approved by the Board, is essentially to give the Board additional assurance regarding the quality, integrity, reliability and the adequacy of treasury Corporation's accounting and internal control systems, financial reporting and compliance processes.

the audit Committee is responsible for contact with treasury Corporation’s external and internal auditors to ensure that significant issues and information arising from the auditors’ activities are brought to the attention of the Board. at meetings of the audit Committee, the external and internal auditors are invited to address the audit Committee without management present.

the Chairperson reports to the Board after each meeting, including any findings and recommendations of the Committee.

the members of the audit Committee at 30 June 2007 were:

Name Position

Catherine anne nance Chairperson

gaye Marie McMath Member

Michael anthony Barnes Member

all members of the audit Committee are non-executive directors.

Remuneration Committee

the remuneration Committee reviews and makes recommendations to the Board on remuneration packages and policies applicable to the employment terms and conditions of all members of treasury Corporation’s staff, including the Chief Executive officer, and the directors themselves.

With the approval of the Board, the remuneration Committee uses the services of external remuneration experts to advise it on appropriate levels of remuneration and other terms and conditions of employment for treasury Corporation staff including the Chief Executive officer.

the remuneration and allowances payable to appointed directors is determined by the treasurer on the recommendation of the Minister for Public sector Management. the terms and conditions of service for the Chief Executive officer require the concurrence of the Minister.

the members of the remuneration Committee at 30 June 2007 were:

Name Position

timothy Michael Marney Chairperson

gregory Louis Joyce Member

Catherine anne nance Member

Michael John Webb Member


Attendance at Meetings by Directors

Details of attendance at the Board and Board Committee meetings by each director during the year are as follows:

Director Board Audit Committee Remuneration Committee

Held Attended Held Attended Held Attended

t M Marney 11 9 1 1

M a Barnes 11 9 4 2

D V Butler 1 7 7

M J Webb 2 4 4 1 1

g L Joyce 11 11 1 1

g M McMath 11 8 4 4

C a nance 11 9 4 4 1 1

1. Mr Butler ceased to be a director on his retirement, effective 28 February 2007.

2. Mr Webb became a director on his appointment as Chief Executive officer, effective 1 March 2007.

Corporate governance (continued)

Constitution and Proceedings of the Board

the Constitution and Proceedings of the Board are provided for in schedule 2 to the act.

Statutory Corporations (Liability of Directors) Act 1��6

treasury Corporation’s directors are bound by the provisions of the statutory Corporations (Liability of Directors) act 1996. accordingly, directors are required to comply with the same fiduciary responsibilities and duties of loyalty and good faith owed by directors of companies incorporated under the Corporations act.

in accordance with Clause 18 of schedule 2 of the act, directors are required to leave the room and not take part in deliberations of matters in which they have some material personal interest.

Insurance Policy

an insurance policy has been taken out to indemnify members of the Board against liabilities under sections 13 and 14 of the statutory Corporations (Liability of Directors) act 1996. the amount of the insurance premium paid for 2006/07 was $80,162.

Ethical Standards and Codes of Conduct

the Board acknowledges the need for, and the continued maintenance of, the highest standards of corporate governance practices and ethical conduct by treasury Corporation’s directors and staff and has established codes of conduct for directors and staff respectively.

the staff Code of Conduct (the "Code") includes a "Values Wheel", which is a pneumonic to assist staff focus on the agreed behaviours in the course of carrying out their daily activities. the "Values Wheel", shown in page 10, comprises a wheel containing treasury Corporation's values of value-adding, accountability, learning, understanding, ethics and sustainability. the stakeholder is at the hub.

in accordance with the Directors' Code of Conduct, the Code will apply to directors unless there is an inconsistency, in which case the Directors’ Code of Conduct will apply.

treasury Corporation has also adopted the Western australian Public sector’s Code of Ethics and endorsed, in principle, the code of conduct developed by the australian Financial Markets association.

Professional Advice

Directors are entitled, with the prior approval of the Chief Executive officer, to obtain such resources and information from treasury Corporation, including direct access to management and professional advisers, as they may require in order to carry out their duties as directors. Directors are also entitled, with the prior approval of the Chairperson, to seek independent professional advice at the expense of treasury Corporation to assist them to carry out their duties as directors.

Performance Evaluation

the Board evaluates its performance each year. For 2006/07, this process was undertaken in september 2006.

31

Compliance

the role of treasury Corporation's compliance function is to ensure that treasury Corporation maintains its high prudential standards and has the appropriate procedures in place to comply with the act and other relevant legislation, its policies and industry standards.

Auditors

External Audit

section 21 of the act states:

"the provisions of the Financial Management act 2006 and the auditor general act 2006 regulating the financial administration, audit and reporting of statutory authorities apply to and in respect of the Corporation and its operations."

in accordance with the provisions of the Financial Management act 2006 and the auditor general act 2006, treasury Corporation's external auditor is the auditor general for Western australia. the auditor general utilises the services of Ernst & Young to conduct the annual audit.

Internal Audit

treasury Corporation's internal audit function is outsourced to KPMg.

appointment to this role by treasury Corporation is subject to tender. the appointment is for a term of three years with the option to extend the term for a further two one-year periods at treasury Corporation's sole discretion.

Information Statement

in accordance with Part 5 of the Freedom of information act 1992, treasury Corporation has prepared an information statement. this document is available for inspection at treasury Corporation’s office at Level 12, st george’s square, 225 st. george's terrace, Perth.

Legislation

Legislation AdministeredWestern australian treasury Corporation act 1986

Legislation Impacting On Treasury Corporation’s Activities

State Legislation Impacting On Activitiesauditor general act 2006Corruption and Crime Commission act 2003Disability services act 1993Electoral act 1907Electronic transactions act 2003Equal opportunity act 1984Fair trading act 1987Financial Management act 2006Freedom of information act 1992occupational safety and health act 1984Pay-roll tax assessment act 2002Public and Bank holidays act 1972Public interest Disclosure act 2003Public sector Management act 1994state records act 2000state superannuation act 2000state supply Commission act 1991statutory Corporations (Liability of Directors) act 1996Workers Compensation & injury Management act 1981

Commonwealth Legislation Impacting On Activitiesa new tax system (goods & services tax) act 1999anti-Money Laundering and Counter-terrorism Financing act 2006 Copyright act 1968income tax assessment act 1936superannuation guarantee (administration) act 1992taxation administration act 1953Workplace relations act 1996

Changes In Written Law

the Western australian treasury Corporation act was amended during the financial year by the:

• Machinery of government (Miscellaneous amendments) act 2006, with effect from 1 July 2006; and

• Financial Legislation amendment and repeal act 2006, with effect from 1 February 2007.

Ministerial Directives

no Ministerial Directives were received during the financial year.


Corporate administration

Staff

at 30 June 2007, treasury Corporation employed 45 staff; 12 female and 33 male.

a second Leadership Development Program commenced during 2007. involving 12 staff, the program follows on from the 2006 program which involved 12 staff. Both programs form part of treasury Corporation’s efforts to maintain a highly skilled workforce.

other actions commenced during the year in support of the strategic human resources plan. these include:

• the undertaking and report of a Cultural Vitality survey to measure staff satisfaction;

• development of a new behaviourally-based individual performance management framework to be implemented in July 2007;

• development of a new human resources information system to be implemented in July 2007;

• the expansion of the training and development budget; and

• the implementation of an employee assistance program employing trained counsellors to assist staff with personal difficulties or concerns.

a new organisational structure came into force on 19 June 2007 to prepare treasury Corporation for future challenges and to be better able to serve its stakeholders. a copy of the new organisational chart is shown at page 12.

Employee Relations

treasury Corporation’s Joint Consultative Committee meets at periodical intervals to discuss issues surrounding employment conditions and has a role in the implementation of amended and new human resources policies. it comprises management and elected staff representatives.

there were no disputes during the year.

Compliance with Public Sector Standards and Ethical Codes

treasury Corporation has complied with public sector standards, codes of ethics and codes of conduct. there were no breach claims lodged under the Public sector standards in human resource Management and no complaints lodged under any code of ethics or code of conduct adopted by treasury Corporation. treasury Corporation’s own code of conduct was reviewed during the year.

treasury Corporation has three trained contact officers to deal with any concerns in the areas of discrimination, harassment and grievance. a fourth will receive the appropriate training during the second half of 2007.

Staff Development

treasury Corporation’s strategic human resources plan identifies the maintenance of staff skills and capabilities as one of the essential strategies to aid staff attraction and retention and to cement the climate where continuous learning is the norm. to this end, the 2006/07 training and development budget saw a significant increase from 2005/06, with an even greater increase provided for 2007/08.

training and development includes the provision of financial support to staff undertaking tertiary studies (up to and including Masters level). a wide range of courses were accessed by staff during the year, with the greater percentage being in the behavioural areas.

treasury Corporation has continued to provide first aid training to interested staff. During the year, a further 4 staff were awarded the st John ambulance senior First aid Certificate and 6 were awarded accreditation to administer oxygen and use a defibrillator under st John ambulance’s First responder system. Under the First responder system, the trained staff are qualified to render assistance to heart attack victims inside and outside of treasury Corporation.

33

Equal Employment Opportunity ("EEO") and Diversity

treasury Corporation continues to provide a workplace that is free from sexual and racial harassment and harassment due to any grounds covered by equal opportunity legislation. treasury Corporation endeavours to have its policies and practices support its objectives in the areas of equity and diversity and ensure that they are free from bias and unlawful discrimination against employees or potential employees.

treasury Corporation’s key EEo initiatives and respective outcomes are listed in the table below.

Initiative Achievement Difference made to Treasury Corporation

Evaluation method

1.

Family-friendly work environment

staff survey indicated satisfaction in this area.

greater awareness of its culture. results have fed into its performance management framework.

survey carried out by external contractor. Feedback sessions held and staff input/questions addressed.

2.

Equitable access to training and development opportunities.

an increase in hours spent in training and personal development.

higher skills and awareness levels.

statistically from treasury Corporation's human resource information system.

3.

Collecting and reporting on EEo

new quarterly reports provided to Executive.

greater awareness of status and trends.

newly implemented. Yet to be evaluated.

4.

Management competencies

Competencies for managers determined as part of a new performance management framework.

greater awareness and acceptance throughout the organisation.

Developed during 2006/07. to be implemented in august 2007.

�.

Pro-active in recrutiment

hired 1 x VEt student (youth)

too soon to assess. By outcome.

treasury Corporation has undertaken and/or scheduled a number of activities for the forthcoming year. these include:

• proactive recruitment strategies (which will result in the engagement of an indigenous employee in July 2007);

• delivery of diversity training to all its employees in august 2007;

• refresher training for harassment Contact officers in august 2007; and

• the establishment of a quarterly equity and diversity profile internal reporting system.

these proactive measures are designed to provide treasury Corporation with the opportunity to raise equity and diversity issues and embed these principles within the workplace. the risks involved with this process primarily relate to ensuring that the employees understand and are engaged in these activities.


Corporate administration (continued)

Occupational Health and Safety

there were no workers’ compensation claims for the year and no staff were undergoing rehabilitation as at 30 June 2007.

Disability Services

no request was made during the year for treasury Corporation’s services to be modified to meet the needs of persons with special needs.

Sustainability

treasury Corporation undertook the necessary works during the year to deliver electricity savings identified during an earlier energy audit.

treasury Corporation has employed a Year 11 student under the state government’s Public school-Based traineeship scheme. the student works with treasury Corporation for two days per week acquiring work skills while attending regular school classes on the other days. at the end of two years, the student is expected to graduate with a taFE Certificate iii in information technology.

treasury Corporation recognises the value of diversity and its highly skilled workforce comprises staff from many countries. however, it is the case that no indigenous person has ever been employed by treasury Corporation. to address this issue, it has been decided, where possible, to recruit new staff from among the indigenous community. the first hiring under this arrangement will commence in July 2007.

Freedom of Information ("FOI")

treasury Corporation has an Foi Coordinator to facilitate the handling of requests and be the first point of contact for Foi enquiries and requests.

For the year ended 30 June 2007, treasury Corporation received no Freedom of information access applications in accordance with the Freedom of information act 1992.

During the year, one member of staff received training from the information Commissioner’s office.

Information Management

Performance indicators have been established under the requirements of treasury Corporation’s recordkeeping Plan, to measure the efficiency and effectiveness of treasury Corporation’s recordkeeping systems. ongoing monitoring of the systems is undertaken.

as part of treasury Corporation’s induction Program, all new employees receive advice and information relating to treasury Corporation’s recordkeeping systems and procedures. seven new staff were given induction training in treasury Corporation’s recordkeeping systems and procedures during the year.

ongoing advice and assistance is provided to all staff in the use of treasury Corporation’s recordkeeping systems. three staff attended external recordkeeping training sessions during the year.

Quarterly Report

With the exception of the June quarter, treasury Corporation submits a report on its operations during the preceding quarter to the treasurer. this report is tabled in Parliament by the treasurer.

Strategic Planning

treasury Corporation’s strategic planning is carried out on a rolling three year basis and is reviewed annually. During the year, treasury Corporation implemented a new strategic development plan which sets its objectives and operational strategies for the next three years. treasury Corporation’s strategic Development Plan for 2007 to 2010 has been agreed to by the treasurer.

a statement of Corporate intent, in which treasury Corporation reports on its progress towards meeting its functions and objectives, its dividend and accounting policies and performance targets for the 2007/08 financial year, was completed and submitted to the Parliament through the treasurer.

3�

Pricing Policy

the Corporation operates in a dynamic market where the price of its lending to the public sector is primarily driven by the costs of its borrowings. this cost fluctuates according to the prevailing level of interest rates. the Corporation sets its lending rates at a competitive level after taking into account the cost of funds, market risk, administration costs and the return on capital. the pricing for financial advice and funds management is determined on a cost recovery basis.

Registry and Treasury Operations

the Corporation is committed to providing its stockholders with a high quality registry service. the Corporation’s agent for the supply of registry services is Computershare investor services Pty Limited ("Computershare"). address details of the branch offices of Computershare are shown on the last page of this report.

the Corporation uses an electronic clearing and settlement system provided by asX austraclear to conduct the settlement of australian dollar financial market transactions. an electronic payment system provided by Bank of america is used for settlement of transactions in other currencies. an electronic clearing and settlement system provided by Clearstream Banking, Luxembourg is used for settlement of repurchases of the Corporation’s offshore issues.

Electoral Act Disclosures

Under the Electoral act, the Corporation is required to disclose any expenditure it makes to:

• advertising agencies;

• market research organisations;

• polling organisations;

• direct mail organisations; and

• media advertising organisations.

For the year ended 30 June 2007, the only disclosable expenditure incurred was in relation to advertising of staff vacancies, where an amount of $5,213 was spent.


Financial statements

Contents

Income Statement 37

Balance Sheet 38

Statement of Changes in Equity 3�

Statement of Cash Flows 40

Notes To and Forming Part of the Financial Statements 41

Certification of Financial Statements 66

Key Performance Indicators 67

Independent Audit Opinion 70

Client Authorities 71

Budget 2007/08 7�

37

income statementFor the year ended 30 June 2007

2007 2006Note $'000 $'000

INCOME

Revenue interest on investments 160,3�0 147,357 interest from authorities 602,1�2 591,779 Fee income 300 300 Total Revenue 762,802 739,436

Other Income gains from sale of Plant & Equipment 4 0 1 Total Other Income 0 1

Total Income 762,802 739,437

EXPENSES

Expenses interest on Borrowings 70�,033 714,975 Borrowing related Expenses 1,302 1,456 Depreciation 176 177 amortisation of intangible assets 234 463 administration Expenses 5 8,216 7,288 Foreign Exchange Loss 6 24 8 net Market Value Movement 7 2�,617 955 Loss from sale of Plant & Equipment 4 2 0 Total Expenses 748,604 725,322

Profit before income tax equivalent expense 14,1�8 14,115

income tax Equivalent Expense 8 4,262 3,813

Net Profit for the period �,�36 10,302

the income statement should be read in conjunction with the accompanying notes.


Balance sheetas at 30 June 2007

2007 2006 Note $'000 $'000

ASSETS - Cash assets 9 3,80� 2,048 - investments 10 2,710,��0 1,645,254 - receivables 11 331,623 344,717 - Loans to authorities 12 10,002,083 10,541,134 - tax assets 13 6�8 704 - Plant and Equipment 14 310 382 - intangible assets 15 218 321

totaL assEts 13,04�,331 12,534,560

LIABILITIES - Payables 17 343,14� 351,784 - Borrowings 18 12,637,848 12,118,540 - tax Liabilities 19 221 871 - Provisions 20 2,303 2,336

totaL LiaBiLitiEs 12,�83,�17 12,473,531

NET ASSETS 6�,814 61,029

EQUitY - retained Profits 6�,814 61,029 totaL EQUitY 6�,814 61,029

the Balance sheet should be read in conjunction with the accompanying notes.

3�

statement of Changes in EquityFor the year ended 30 June 2007

2007 2006 Note $'000 $'000

net income recognised directly in equity 0 0 net Profit for the period �,�36 10,302

Total recognised income and expense for the period �,�36 10,302

Movements in Equity

Retained Profits Balance at start of period 61,02� 55,601 net Profit for the period �,�36 10,302 total for the period 70,�6� 65,903 Dividend paid (�,1�1) (4,874) Balance at end of period 6�,814 61,029

the statement of Changes in Equity should be read in conjunction with the accompanying notes.


statement of Cash FlowsFor the year ended 30 June 2007

2007 2006 Note $'000 $'000

Cash Flows from Operating Activities

interest received on Loans to authorities 600,340 588,065 interest received on investments 1�4,64� 163,825 Proceeds from sale and Maturity of investments 2,3��,28� 1,848,370 Payment for investment securities (2,318,6�4) (1,712,901)Loans to Client authorities (3,�3�,444) (8,312,579)Loans repaid by Client authorities 3,�13,�13 7,607,566 Proceeds from issuance of Borrowings 11,�26,742 11,471,933 repayment of Borrowings (11,001,028) (12,025,746)Fee income 300 300 interest and other Cost of Finance paid (�80,310) (645,106)administration and Borrowing related Expenses (�,200) (8,848)Net Cash provided by Operating Activities 22b 1,146,��7 (1,025,121)

Cash Flows from Investing Activities

Payment for Plant & Equipment (107) (140)Payment for intangible assets (124) (175)Proceeds from sale of Plant & Equipment 1 1 Net Cash used in Investing Activities (22�) (314)

Cash Flows from Financing Activities

receipt/(Payment) on behalf of Client authorities 1,668 (614)Net Cash provided by Financing Activities 1,668 (614)

Cash Flows to State Government

Payment of Dividend (�,1�1) (4,874)Payment of taxation Equivalents (4,�06) (4,143)Net Cash provided to State Government (10,0�7) (9,017)

net increase(Decrease) in Cash and cash equivalents 1,137,�38 (1,035,066)Cash and cash equivalents at the Beginning of the Financial Year 707,710 1,742,784Unrealised foreign exchange loss (24) (8)Cash and cash equivalents at the End of the Financial Year 22a 1,84�,624 707,710

the statement of Cash Flows should be read in conjunction with the accompanying notes.

41

notes to and Forming Part of the Financial statementsFor the year ended 30 June 2007

NOTE 1

the Western australian treasury Corporation was established on 1 July 1986 under the Western australian treasury Corporation act 1986 as the state's central borrowing authority. the Corporation is located at Level 12, 225 st georges terrace, Perth, Western australia.

AUSTRALIAN EQUIVALENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS

General

the Corporation’s financial statements for the year ended 30 June 2007 have been prepared in accordance with australian equivalents to international Financial reporting standards ("aiFrs"), which comprise a Framework for the Preparation and Presentation of Financial statements ("the Framework") and australian accounting standards (including the australian accounting interpretations). the financial report also complies with international Financial reporting standards.

in preparing these financial statements, the Corporation has adopted, where relevant to its operations, new and revised standards and interpretations from their operative dates as issued by the australian accounting standards Board ("aasB").

the australian accounting interpretations are adopted through aasB 1048 ‘interpretation and application of standards’ and are classified into those corresponding to iasB interpretations and those only applicable in australia.

the aasB has decided to maintain the statements of accounting concepts (saC 1 and saC 2) and has continued to revise and maintain accounting standards and the Uig interpretations that are of particular relevance to the australian environment, especially those that deal more specifically with not-for-profit entity issues and/or do not have an equivalent iasB standard or interpretation.

Early adoption of standards

the Corporation cannot early adopt an australian accounting standard or interpretation unless specifically permitted by treasurer's instruction ("ti") 1101 ‘application of australian accounting standards and other Pronouncements’. no standards and interpretations that have been issued or amended but are not yet effective have been early adopted by the Corporation for the annual reporting period ended 30 June 2007.

NOTE 2

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

the following accounting policies have been adopted in the preparation of the financial statements under australian Equivalents to international Financial reporting standards.

(a) General Statement

(i) the financial statements constitute a general purpose financial report which has been prepared in accordance with australian accounting standards, the Framework, statements of accounting Concepts and other authoritative pronouncements of the australian accounting standards Board as applied by the treasurer's instructions. several of these are modified by the treasurer's instructions to vary application, disclosure, format and wording. such modifications are intended to provide certainty and ensure consistency and appropriate reporting across the public sector.

these modifications don't result in a departure from aiFrs.

the Financial Management act and the treasurer's instructions are legislative provisions governing the preparation of financial statements and take precedence over the accounting standards, the Framework, statements of accounting Concepts and other authoritative pronouncements of the australian accounting standards Board.

Where modification is required and has a material or significant financial effect upon the reported results, details of that modification and the resulting financial effect are disclosed in individual notes to the financial statements.


NOTE 2 (continued)

(a) General Statement (continued)

(ii) the financial statements are presented in australian Dollars and all values are rounded to the nearest thousand dollars ($'000).

(iii) the accounting policies adopted in the preparation of the financial statements have been consistently applied throughout all periods presented unless otherwise stated.

(b) Basis of Preparation - Fair Value Accounting

the financial statements have been prepared on the accrual basis of accounting using the historical cost convention except as noted below.

the Corporation maintains investments, Loans to authorities and Borrowings to fulfill its functions and measures these at fair value. all other assets, including receivables and prepayments, and other liabilities, including creditors, accruals and provisions are stated at historical cost. Plant and equipment is also stated at cost. the Corporation manages its business daily on a fair value basis as it believes it provides a better basis for making decisions and evaluating its portfolios. the external reporting of these fair values was seen as a natural extension of providing more meaningful information. this basis of measurement has also been common practice amongst state central borrowing authorities in australia.

critical accounting judgements and estimates

the judgements that have been made in the process of applying accounting policies that have an effect on the amounts recognised in the financial statements relate to the use of mid prices instead of bid-offer prices for the measurement of investments, Loans to authorities and Borrowings. the Corporation aims to minimise its exposure to risk in these financial assets and liabilities. to the extent that the risk positions in these items are offset, mid prices are used with bid-offer prices being applied to any net open position, if the Corporation had them.

the key assumptions made concerning the future, and other key sources of estimation uncertainty at the reporting date that have a risk of causing an adjustment to the carrying amount of assets within the next financial year, relate to intangible assets (computer software).

(c) Revenue

revenue is measured at the fair value of consideration received or receivable. revenue is recognised as shown below.

Fee Income

Fee income in respect of services provided is recognised in the period in which the service is provided.

Interest

interest revenue is recognised as it accrues and includes items of a similar nature realised in managing the relevant portfolios. any realised gains or losses on financial assets are also recognised as interest.

(d) Plant and Equipment

items of Plant and Equipment costing over $5,000 are recognised as assets and the cost of utilising assets is expensed (depreciated) over their useful lives. items of Plant and Equipment costing less than $5,000 are expensed direct to the income statement (other than where they form part of a group of similar items which are significant in total).

all items of Plant and Equipment are initially recognised at cost, including transaction costs. after initial recognition, Plant and Equipment are stated at cost less any accumulated depreciation and any impairment in value. Depreciation is calculated based on their estimated useful lives using the straight line method. the estimated useful lives for each class of depreciable asset are as follows:

notes to and Forming Part of the Financial statementsFor the year ended 30 June 2007 (continued)

43

2007 2006

- Computer Equipment 3-� years 3-5 years - other Equipment �-10 years 5-10 years

Impairment

the carrying values of Plant and Equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. if any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amount.

the recoverable amount of Plant and Equipment is the greater of fair value less costs to sell and the depreciated replacement cost.

impairment losses are recognised in the income statement.

(e) Intangible Assets

Computer software is the only intangible asset which the Corporation has in its financial statements. the cost of utilising the assets is expensed (amortised) over their useful life.

intangible assets acquired separately are capitalised at cost as at the date of acquisition. Following initial recognition, the cost model is applied to the class of intangible assets. the useful lives of these assets are assessed to be finite. intangible assets are amortised over a period of three years.

intangible assets are tested for impairment where an indicator of impairment exists. Useful lives are also examined on an annual basis and adjustments, where applicable, are made on a prospective basis.

(f) Investments

the Corporation classifies its investments as financial assets at fair value through profit and loss. the Corporation does not hold any investments that are classified as held to maturity or available for sale.

investments are initially recognised at fair value and subsequently measured at fair value applicable at reporting date. Unrealised gains or losses arising from this policy are brought to account in the income statement. Fair values are derived using market quoted mid point prices to the extent that investments are held in offsetting risk positions, otherwise bid prices are applied.

Commonwealth and state government investments are held for portfolio management purposes. Whilst these investments generally have maturity dates greater than twelve months, they are used in the ordinary course of business to economically hedge the Corporation's "hot stocks" and are therefore held in the expectation of being realised within twelve months.

(g) Loans to Authorities

Loans to authorities are initially recognised at fair value and subsequently measured at fair value applicable at reporting date and are recorded as assets in the Balance sheet. Unrealised gains or losses arising from this policy are brought to account in the income statement. Fair values are derived using market quoted mid point prices to the extent that loans to authorities are held in offsetting risk positions, otherwise bid prices are applied. in normal circumstances, upon maturity, Loans to authorities are either rolled over or refinanced.


NOTE 2 (continued)

(h) Borrowings

Borrowings are initially recognised at fair value and subsequently measured at the fair value applicable at reporting date. Unrealised gains or losses arising from this policy are brought to account in the income statement. Fair values are derived using market quoted mid point prices to the extent that borrowings are held in offsetting risk positions, otherwise ask prices are applied. in normal circumstances, maturities of borrowings are either rolled over or refinanced. Borrowing related expenses are charged to the income statement as incurred.

(i) Derivative Financial Instruments

Derivatives are used exclusively to provide an economic hedge of interest rate and foreign currency exposures. all derivatives are recognised in the balance sheet at fair value on trade date. all derivatives are classified as held for trading. the carrying value of a derivative is remeasured at fair value throughout the life of the contract. Unrealised gains or losses arising from this policy are brought to account in the income statement.

(j) Foreign Currency Translation

Foreign currency transactions are brought to account in australian dollars at trade date at the rate of exchange applying at that date. at reporting date, all monetary assets and liabilities are translated at the exchange rates existing at 30 June 2007. Exchange gains or losses are brought to account in the income statement.

Both the functional and presentation currency of the Corporation is australian Dollars ("aUD").

(k) Borrowing Costs

Borrowing Costs are recognised as an expense when incurred. interest expense is recognised as it accrues and includes items of a similar nature realised in managing the relevant portfolios. any realised gains or losses on financial liabilities are also recognised as interest.

(l) Employee Benefits

(i) Sick Leave

no provision is made for sick leave benefits as they are non-vesting and the sick leave taken in a financial year is not expected to exceed the benefit accruing in a year.

(ii) Annual Leave

this benefit is recognised at the reporting date in respect of employees' services up to that date and is measured at the nominal amounts plus oncosts expected to be paid when the liabilities are settled.

(iii) Long Service Leave

the liability for long service leave expected to be settled within 12 months of the reporting date is recognised in the provisions for employee benefits, and is measured at the nominal amounts plus oncosts expected to be paid when the liability is settled. the liability for long service leave expected to be settled more than 12 months from the reporting date is recognised in the provisions for employee benefits and is measured at the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given, when assessing expected future payments, to expected future salary levels including relevant on-costs, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows.


4�

(iv) Superannuation

the government Employees superannuation Board ("gEsB") administers the superannuation schemes detailed hereunder.

Employees may contribute to the Pension scheme, a defined benefit pension scheme now closed to new members, or to the gold state superannuation scheme ("gss"), a defined benefit lump sum scheme also closed to new members. Employees commencing employment prior to 16 april 2007 who are not members of either of these schemes became non-contributory members of the West state superannuation scheme ("Wss"). Employees commencing on or after 16 april 2007 became members of the gEsB super scheme ("gEsBs"). Both of these schemes are accumulation schemes. the Corporation makes concurrent contributions to gEsB on behalf of employees in compliance with the Commonwealth government’s superannuation guarantee (administration) act 1992. these contributions extinguish the liability for superannuation charges in respect of the Wss and gEsBs schemes.

the liabilities for superannuation charges under the gold state superannuation scheme, the West state superannuation scheme and the gEsB super scheme are extinguished by payment of employer contributions to the government Employees superannuation Board and are therefore referred to as defined contribution schemes.

the Corporation also has an unfunded superannuation liability as a result of prior service of current staff who were previously within the public service. the liability for these future payments is provided for at reporting date in the Balance sheet. the liability under this scheme has been calculated annually by Mercer human resource Consulting using the projected unit credit method.

the expected future payments are discounted to present value using market yields at the reporting date on national government bonds with terms to maturity that match, as closely as possible, the estimated future cash outflows.

the superannuation expense of the defined benefit plan is made up of the following elements:

- Current service cost; - interest cost (unwinding of the discount); - actuarial gains and losses; and - Past service cost.

actuarial gains and losses of the defined benefit plan are recognised immediately as income or expense in the income statement. the superannuation expense of the defined contribution plan is recognised as and when the contributions fall due.

(m) Dividend Policy

the Corporation's dividend policy has been formulated to ensure that the Corporation pays an appropriate dividend to the state which is consistent with sound commercial practice and has regard to the financial health of the Corporation. the Corporation's policy provides for dividends to be paid to the Consolidated Fund at a level of 50% of the Corporation's after tax equivalent profit subject to adjustments which have been agreed with the treasurer. Dividends for the current financial year will be declared by the Board and provided and paid in the subsequent financial year.

(n) Income Tax

the Corporation operates within a tax equivalent regime ("tEr") whereby an equivalent amount in respect of income tax is payable to the Western australian treasury. the calculation of the liability in respect of income tax is governed by tEr guidelines and directions approved by government.

as a consequence of participation in the tEr, the Corporation is required to comply with australian accounting standard aasB 112 "income taxes".


NOTE 2 (continued)

(n) Income Tax (continued)

the income tax expense or revenue for the period is the tax payable on the current period’s taxable income adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and to unused tax losses.

Deferred tax assets and liabilities are recognised for temporary differences at the tax rate expected to apply when the assets are recovered or liabilities settled, based on those tax rates which are enacted or substantively enacted. the relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. an exception is made for certain temporary differences arising from the initial recognition of an asset or liability. no deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction that at the time of the transaction did not affect either accounting profit or taxable profit or loss.

the carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.

(o) Segments

the Corporation is an individual reporting entity which operates within the Capital Markets as the central financing authority within Western australia. the Corporation operates entirely within this sector.

(p) Impairment of Assets

at each reporting date the Corporation assesses whether there is any indication that an asset may be impaired. Where an indicator of impairment exists, the Corporation makes a formal estimate of the recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.

recoverable amount is the greater of fair value less costs to sell and depreciated replacement cost. the risk of impairment is generally limited to circumstances where an asset's depreciation is materially understated, where the replacement cost is falling or where there is a significant change in useful life. Each relevant class of assets is reviewed annually to verify that the accumulated depreciation/amortisation reflects the level of consumption or expiration of asset’s future economic benefits and to evaluate any impairment risk from falling replacement costs.

(q) Receivables

receivables are recognised at cost, except for foreign currency receivables which are at fair value. an allowance for uncollectible amounts is made when there are indications that an asset is impaired. there is no previous evidence of amounts being uncollected due to the nature of the Corporation's clients.

(r) Payables

Payables are recognised as amounts to be paid in the future for goods and services received, whether or not billed. the carrying amount is equivalent to fair value, as they are generally settled within thirty days. Foreign currency payables are recognised at fair value.

(s) Cash and cash equivalents

Cash assets in the Balance sheet comprise cash at bank and in hand. the carrying amount is equivalent to fair value as these items are short term in nature. For the purpose of the Cash Flow statement, cash and cash equivalents includes cash in hand and short term deposits with original maturities of three months or less that are readily convertible to a known amount of cash and which are subject to insignificant risk of changes in value.


47

(t) Accrued Salaries

accrued salaries represent the amount due to staff but unpaid at the end of the financial year, as the end of the last pay period for that financial year does not coincide with the end of the financial year. accrued salaries are settled within a few days of the financial year end. the Corporation considers the carrying amount of accrued salaries to be equivalent to the fair value.

NOTE 3

FUTURE IMPACT OF AUSTRALIAN ACCOUNTING STANDARDS ISSUED BUT NOT YET OPERATIVE

the Corporation cannot early adopt an australian accounting standard or australian accounting interpretation unless specifically permitted by ti 1101 ‘application of australian accounting standards and other Pronouncements’. Consequently, the Corporation has not applied the following australian accounting standards and australian accounting interpretations that have been issued but are not yet effective. these will be applied from their application date:

(a) aasB 7 ‘Financial instruments: Disclosures’ (including consequential amendments in aasB 2005-10 ‘amendments to australian accounting standards [aasB 132, aasB 101, aasB 114, aasB 117, aasB 133, aasB 139, aasB 1, aasB 4, aasB 1023 & aasB 1038]’). this standard requires new disclosures in relation to financial instruments. the standard is required to be applied to annual reporting periods beginning on or after 1 January 2007. the standard is considered to result in increased disclosures, both quantitative and qualitative of the Corporation's exposure to risks, enhanced disclosure regarding components of the Corporation's financial position and performance and possible changes to the way of presenting certain items in the financial statements. the Corporation does not expect any financial impact when the standard is first applied.

(b) aasB 2005-10 ‘amendments to australian accounting standards [aasB 132, aasB 101, aasB 114, aasB 117, aasB 133, aasB 139, aasB 1, aasB 4, aasB 1023 & aasB 1038]’. the amendments are as a result of the issue of aasB 7 'Financial instruments: Disclosures', which amends the financial instrument disclosure requirements in these standards. the Corporation does not expect any financial impact when the standard is first applied. the standard is required to be applied to annual reporting periods beginning on or after 1 January 2007.

(c) aasB 2007-4 ‘amendments to australian accounting standards arising from ED 151 and other amendments (aasB 1, 2, 3, 4, 5, 6, 7, 102, 107, 108, 110, 112, 114, 116, 117, 118, 119, 120, 121, 127, 128, 129, 130, 131, 132, 133, 134, 136, 137, 138, 139, 141, 1023 & 1038)’. this standard introduces policy options and modifies disclosures. these amendments arise as a result of the aasB decision that, in principle, all options that currently exist under iFrss should be included in the australian equivalents to iFrss and additional australian disclosures should be eliminated, other than those now considered particularly relevant in the australian reporting environment. the Department of treasury and Finance has indicated that it will mandate to remove the policy options added by this amending standard. this will result in no impact as a consequence of application of the standard. the standard is required to be applied to annual reporting periods beginning on or after 1 July 2007.

(d) aasB 2007-7 ‘amendments to australian accounting standards (aasB 1, 2, 4, 5, 107 & 128).amending standard issued as a consequence of aasB 2007-4. refer to aasB 2007-4 above.

(e) aasB 101 ‘Presentation of Financial statements'. this standard is a disclosure standard so will have no direct impact on the amounts in the Corporation's financial statements. however, the revised standard may result in changes to the disclosures included in the financial report.


NOTE 3 (continued)

the following amendments are not applicable to the Corporation as they will have no impact:

AASB Amendment Affected StandardsaasB 8 'operating segments' aasB 123 'Borrowing Costs' aasB 1049 'Financial reporting of general government sectors by governments' aasB 2007-1 'amendments to australian accounting standards arising from aasB

interpretation 11 [aasB 2]'aasB 2007-2 'amendments to australian accounting standards arising from aasB

interpretation 12 [aasB 1, aasB 117, aasB 118, aasB 120, aasB 121, aasB 127, aasB 131 & aasB 139]' - paragraphs 1 to 8

aasB 2007-3 'amendments to australian accounting standards arising from aasB 8 [aasB 5, aasB 6, aasB 102, aasB 107, aasB 119, aasB 127, aasB 134, aasB 136, aasB 1023 & aasB 1038]'

aasB 2007-5 'amendments to australian accounting standards arising from aasB 102'aasB 2007-6 'amendments to australian accounting standards arising from aasB 123' interpretation 4 'Determining whether an arrangement Contains a Lease [revised]' interpretation 10 ’Financial reporting and impairment’interpretation 11 ’aasB 2 – group and treasury share transactions’interpretation 12 ’service Concession arrangements’interpretation 129 ’service Concession arrangements: Disclosures [revised]’

NOTE 4

2007 2006$'000 $'000

(LOSS)/GAIN FROM SALE OF PLANT AND EQUIPMENT

Computer Hardware gross proceeds of disposed hardware 1 1 Book Value of disposed hardware 3 0 (Loss)/gain on disposal of hardware (2) 1

NOTE �

ADMINISTRATION EXPENSES

the following employee benefit expenses are included in administration Expenses.

salaries 4,48� 4,155 Workers Compensation costs 17 22 superannuation expense 488 481 Long service Leave Provision (32) 42

4,��8 4,700


4�

NOTE 6

FOREIGN EXCHANGE LOSS

the Corporation maintains balances in its foreign currency bank accounts for the payment of expenses incurred through its overseas borrowings. at 30 June 2007, after taking account of exchange fluctuations, a loss of a$24 thousand (2006, loss of a$8 thousand) had resulted on this balance.

NOTE 7

2007 2006$'000 $'000

NET MARKET VALUE MOVEMENT

Market Value adjustment - investments 638 (1,116)Market Value adjustment - Loans to authorities (167,877) (202,278)Market Value adjustment - Borrowings 1�7,724 230,519 Market Value adjustment - Derivatives (20,102) (28,080)

(2�,617) (955)

the Corporation manages its operations on a portfolio basis to achieve its long term objective. realised gains and losses are reflected in interest revenue and expense. the net market value movement represents unrealised market value adjustments to be realised over the term of the underlying securities.

NOTE 8

INCOME TAX EQUIVALENT EXPENSE

the prima facie income tax equivalent expense on accounting profit reconciles to the income tax equivalent expense in the accounts as follows:

accounting Profit 14,1�8 14,115

income tax equivalent expense at 30% (2006, 30%) 4,2�� 4,234 tax effect of expenses that are not deductible/assessable in determining taxable profit sundry expenses 3 3 Pre itEr provision (treasurer's instructions) 0 (424)income tax equivalent expense 4,262 3,813

income tax equivalent expense comprises movements in:Current income tax equivalent expense 4,2�7 4,243 Deferred tax income relating to the origination and reversal of temporary differences � (430)Deferred tax expense relating to the origination and reversal of temporary differences 0 0total income tax equivalent expense 4,262 3,813

Deferred tax assets: Employee Provisions 6�1 701 Foreign Currency revaluation 7 3 total (note 13) 6�8 704

Deferred tax Liabilities: Payables (note 19) 6 6

�0 WEstErn aUstraLian trEasUrY CorPoration - ANNUAL REPORT 2007

NOTE �

2007 2006$'000 $'000

CASH ASSETS

Bank Deposits 3,�61 1,770 overseas Bank accounts 248 278

3,80� 2,048

average Balance �,423 3,312 interest revenue 163 131 average interest rate 3.01% 3.96%

Cash assets represent only those funds held in accounts with banks and does not include money market investments.

NOTE 10

INVESTMENTS - AT FAIR VALUE

investments comprise the following: short term Money Market investments 2,6�8,0�0 1,630,326 government stock 12,�40 14,928 total 2,710,��0 1,645,254

Maturity Profile at Call 77,�00 160,300 Up to 3 Months 2,033,4�� 993,969 3 to 12 Months 3�0,76� 289,850 1 to 5 Years 236,286 186,207 over 5 Years 12,�40 14,928 total 2,710,��0 1,645,254

repricing Profile at Call 77,�00 160,300 Up to 3 Months 2,26�,781 1,180,176 3 to 12 Months 3�0,76� 289,850 1 to 5 Years 0 0 over 5 Years 12,�40 14,928 total 2,710,��0 1,645,254

Credit Exposure rating % % aaa 18.01 22.95aa ��.04 54.46a 26.�� 22.59

100.00 100.00

average Balance 2,626,823 2,577,501interest revenue 160,187 147,219average interest rate 6.10% 5.71%

the Corporation invests its surplus funds in accordance with the Western australian treasury Corporation act. Further information on valuation methods is shown in note 21. all investments are classified as financial assets at fair value through profit and loss.


�1

NOTE 11

2007 2006$'000 $'000

RECEIVABLES

accrued interest receivable 126,�32 124,596 Foreign Currency receivable 204,6�1 220,121

331,623 344,717

accrued interest receivable comprises accruals relating to advances made to clients and investment sundry debtors due from financial institutions. Foreign currency receivables are discussed in more detail in note 21. there are no foreign currency amounts included which are not effectively economically hedged.

NOTE 12

LOANS TO AUTHORITIES - AT FAIR VALUE

12a. Loans to Authorities - non derivative �,��8,2�6 10,541,948

Maturity Profile Up to 3 Months 1,313,28� 1,535,466 3 to 12 Months 1,�33,4�3 1,776,939 1 to 5 Years 3,706,433 3,818,402 over 5 Years 3,44�,041 3,411,141 total �,��8,2�6 10,541,948

repricing Profile Up to 3 Months 2,��2,�6� 2,755,345 3 to 12 Months 1,2�3,7�� 1,657,131 1 to 5 Years 2,806,62� 2,818,432 over 5 Years 3,344,863 3,311,040 total �,��8,2�6 10,541,948

12b. Loans to Authorities - derivative 3,827 (814)

Maturity Profile Up to 3 Months 4,363 117 3 to 12 Months 406 314 1 to 5 Years (�42) (1,245)over 5 Years 0 0 total 3,827 (814)

repricing Profile Up to 3 Months 4,363 117 3 to 12 Months 406 314 1 to 5 Years (�42) (1,245)over 5 Years 0 0 total 3,827 (814)

total Loans to authorities - at Fair Value 10,002,083 10,541,134

average Balance �,770,141 9,921,589interest revenue 602,1�2 591,779average interest rate 6.16% 5.96%



NOTE 12 (continued)

the Corporation advances funds to state government and Local government authorities within Western australia. in normal circumstances, most advances are either rolled over or refinanced. state government advances (96.3% of total (2006, 96.7%)) are guaranteed by the state whilst Local government advances (3.7% of total (2006, 3.3%)) are secured by debenture and are charged in accordance with the provisions of the Local government act upon the general funds of the Local government. Loans to authorities are not readily traded on organised markets in standardised form. Further information on valuation methods is shown in note 21.

NOTE 13

2007 2006 $'000 $'000

TAX ASSETS

Deferred tax asset 6�8 704

NOTE 14

PLANT AND EQUIPMENT

Equipment (at cost) 1,264 1,292 Less accumulated Depreciation ��4 910 total Plant and Equipment 310 382

Reconciliation

Equipment

opening balance 382 436 additions 107 123 Disposals/Write-offs (13�) (223)Depreciation (176) (177)accumulated depreciation on disposal 132 223 Closing balance 310 382

NOTE 1�

INTANGIBLE ASSETS

intangible assets (at cost) �,�23 5,792 Less accumulated amortisation �,70� 5,471 total intangible assets 218 321

Reconciliation

intangible assets

opening balance 321 609 additions 131 175 Disposals 0 (1)amortisation (234) (463)accumulated amortisation on disposal 0 1 Closing balance 218 321

�3

NOTE 16

IMPAIRMENT OF ASSETS

there were no indications of impairment to Plant and Equipment and intangible assets at 30 June 2007. the Corporation held no goodwill or intangible assets with an indefinite useful life during the reporting period and at reporting date there were no intangible assets not yet available for use.

NOTE 17

2007 2006$'000 $'000

PAYABLES

interest accrued 127,366 119,934 Foreign Currency Payable 206,882 227,633 other Creditors 8,8�7 4,217

343,14� 351,784

Payables comprises accrued interest and sundry creditors relating to debt instruments and unpresented cheques. interest accrued is owed to financial institutions. Foreign currency payables are discussed in more detail in note 21. there are no foreign currency amounts included which are not effectively economically hedged.

NOTE 18

BORROWINGS - AT FAIR VALUE

ANALYSIS OF DEBT OUTSTANDING AT 30 JUNE

18a. Borrowings - non derivative 12,66�,3�0 12,175,175

Payable 12 months or less from 30 June - Domestic 4,17�,�03 3,955,485 - overseas 3�0,277 263,530

4,�2�,780 4,219,015

Payable more than 12 months from 30 June - Domestic 7,�01,712 7,324,960 - overseas �0,000 222,601

7,��1,712 7,547,561 Balance 30 June at face value 12,477,4�2 11,766,576

Maturity Profile Up to 3 Months 2,8�1,40� 2,018,581 3 to 12 Months 1,6�6,112 2,181,994 1 to 5 Years 4,��,812 5,072,453 over 5 Years 3,�62,017 2,902,147 total 12,66�,3�0 12,175,175

repricing Profile Up to 3 Months 2,8�1,40� 2,018,581 3 to 12 Months 1,6�6,112 2,181,994 1 to 5 Years 4,��,812 5,072,453 over 5 Years 3,�62,017 2,902,147 total 12,66�,3�0 12,175,175



NOTE 18 (continued)

2007 2006$'000 $'000

18b. Borrowings - derivative (27,�02) (56,635)

Maturity Profile Up to 3 Months 4,362 129 3 to 12 Months 721 1,404 1 to 5 Years (1�,177) (46,219)over 5 Years (13,408) (11,949)total (27,�02) (56,635)

repricing Profile Up to 3 Months �,440 2,736 3 to 12 Months 721 4,537 1 to 5 Years (20,2��) (51,959)over 5 Years (13,408) (11,949)total (27,�02) (56,635)

total Borrowings - at Fair Value 12,637,848 12,118,540

average Balance 12,276,36� 12,384,796 interest Expense 70�,033 714,975 average interest rate �.78% 5.77%

the Corporation raises its funds in the domestic and offshore capital markets. Under section 13(1) of the Western australian treasury Corporation act, the financial liabilities of the Corporation are guaranteed by the treasurer on behalf of the state of Western australia. the Corporation's borrowings are well diversified across markets and maturities. Further information on valuation methods is shown in note 21.

OVERSEAS BORROWINGS

includes australian currency and foreign currency loans. Foreign currency loans have been translated using the exchange rates applicable at 30 June 2007 and are shown below:

Exchange Rate Translation at 30/06/07

Payable 12 Payable More Months or Less than 12 Months

from 30/06/07 from 30/06/07 Foreign Currency Borrowing $A'000 $A'000

UsD 124,460,670 146,636 Nil nZD 64,000,000 �8,0�8 Nil

Exchange rate translation at 30/06/06

Payable 12 Payable More Months or Less than 12 Months

from 30/06/06 from 30/06/06 Foreign Currency Borrowing $a'000 $a'000

UsD 124,466,867 167,530 nil nZD 64,000,000 nil 52,601

��

at reporting date, all foreign currency loans have either been economically hedged, swapped or covered forward specifically or invested in the foreign currency. Consequently, any gain or loss on the translation of the overseas borrowing is matched by a corresponding loss or gain made on the foreign currency contract, the overseas investment or the back to back lending and the net exchange gain or loss is therefore zero.

NOTE 1�

2007 2006$'000 $'000

TAX LIABILITIES

Current income tax Equivalent Liability 21� 865 Deferred tax Liability 6 6

221 871

NOTE 20

PROVISIONS

annual Leave �� 589 Long service Leave 1,012 1,045 superannuation - defined benefit plans 732 702

2,303 2,336

the charge to the operating profit for the movement in the provision for employee benefits during the year was -$33 thousand (2006, -$214 thousand).

Gold State Superannuation Scheme

Accounting Policy

actuarial gains and losses are recognised immediately in profit and loss in the year in which they occur.

Scheme Information

some former Pension scheme members have transferred to gold state superannuation. in respect of their transferred benefit, the members receive a lump sum benefit at retirement, death or invalidity which is related to their salary during their employment and indexed during any deferral period after leaving public sector employment.

the following disclosures are in respect of the employer-financed benefits only.


NOTE 20 (continued)

2007 2006$'000 $'000

Reconciliation of the Present Value of the Defined Benefit Obligation

Present Value at beginning of year 702 980 (+) interest cost 40 49 (+) actuarial (gains)/losses (10) (21)(-) Benefits paid 0 306 Present Value at end of year 732 702 these defined benefit obligations are wholly unfunded, such that there are no assets. the Corporation contributes, as required, to meet the benefits paid.

Reconciliation of the Fair Value of Scheme Assets

Fair Value at beginning of year 0 0 (+) Employer contributions 0 306 (-) Benefits paid 0 306 Present Value at end of year 0 0

Reconciliation of the Assets and Liabilities Recognised in the Balance Sheet

Defined Benefit obligation 732 702 (-) Fair value of assets 0 0 Deficit/(surplus) 732 702 (-) Unrecognised past service cost 0 0 (-) Unrecognised net (gain)/loss 0 0 (+) adjustment for limitation on net asset 0 0 Liability/(asset) 732 702

Expense Recognised in Income Statement

interest cost 40 49 actuarial (gains)/losses (10) (21)superannuation expense/(income) 30 28

Scheme Assets

there are no assets in gold state superannuation for current employees to support the transferred benefits. hence, there is

no fair value of scheme assets; no asset allocation of scheme assets; no assets used by the employer; no expected return of scheme assets; and no actual return on scheme assets.


�7

Principal Actuarial Assumptions Used

2007 2006

Discount rate (active members) 6.06% 5.81%Discount rate (pensioners) 6.06% 5.81%Expected salary increase rate 4.�0% 4.50%Expected pension increase rate 2.�0% 2.50%

the discount rate is based on the 10 year government bond rate at the relevant date. the decrement rates used (eg mortality and retirement rates) are based on those used at the last actuarial valuation for the schemes.

Historical Information

2007 2006$'000 $'000

Present value of defined benefit obligation 732 702 Fair value of scheme assets 0 0 (surplus)/Deficit in scheme 732 702 Experience adjustments (gain)/loss - scheme assets 0 0 Experience adjustments (gain)/loss - scheme liabilities 6 2

the experience adjustment for scheme liabilities represents the actuarial loss (gain) due to a change in the liabilities arising from the scheme's experience (eg membership movements, unit entitlements) and excludes the effect of the changes in assumptions (eg movements in the bond rate).

Expected Contributions

2008$'000

Expected employer contributions 2�

Funding arrangements for employer contributions

(a) surplus/deficit

the following is a summary of the most recent financial position of gold state superannuation calculated in accordance with aas 25 "Financial reporting by superannuation Plans". note that the figures below relate to gold state superannuation as a whole and are therefore not restricted to Corporation employees.

2007 2006$'000 $'000

accrued benefits 4,�66,281 4,256,474 Less net market value of scheme assets 2,228,181 1,956,022 net deficit 2,338,100 2,300,452


NOTE 20 (continued)

(b) Contribution recommendations

the Corporation is contributing as required to pay benefits, when they fall due.

(c) Funding method

the funding method used by the Corporation and other agencies, whose employees are members of gold state superannuation, is the Pay-as-You-go method. this method affects the timing of the cost to the Corporation.

(d) Economic assumptions

the economic assumptions adopted for the last actuarial review as at 30 June 2006 of the scheme were:

Expected rate of return on assets (discount rate) 7.50%pa Expected salary increase rate 4.50%pa

Nature of asset/liability

the Corporation has recognised a liability in the balance sheet in respect of its defined benefit superannuation arrangements. gEsB does not impose a legal liability on the Corporation to cover any deficit that exists in the scheme.

NOTE 21

FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

in carrying out its mission, the Corporation is a borrower from the capital markets. this necessarily involves the management of market risk because as a borrower, the Corporation's objective is the opposite to that of investors. in order to obtain funds at the lowest cost, it seeks to satisfy the needs of investors and therefore must, for example, accept maturities which approximate the terms of the Corporation's lending portfolio. Derivative instruments, including swaps, forward rate agreements and futures, are used to economically hedge, or minimise, the risks incurred.

the amounts to be exchanged on these contracts are calculated with reference to the notional amount and other terms of the derivatives. Credit exposure represents the Corporation's estimate of its exposure at reporting date in the event of non-performance by counterparties. the Corporation has adopted the australian Prudential regulation authority's "Current Exposure Method" to determine the credit exposure arising from its derivative transactions. at 30 June 2007, the Corporation is confident that all its counterparties will meet their obligations.

Details of the notional amount, net fair value and credit exposure of the derivative instruments used for managing interest rate risk are shown below together with the credit rating quality of these exposures.


��

As at 30 June 2007 Notional Net Fair Credit Amount Value Exposure

$'000 $'000 $'000

Futures 171,700 2 0interest rate swaps 2,978,300 31,327 56,127

Credit Exposure by rating % aaa 0.00aa 100.00a 0.00

100.00

as at 30 June 2006 notional net Fair Credit amount Value Exposure $'000 $'000 $'000

Futures 128,500 (11) 0interest rate swaps 3,439,300 55,832 92,209

Credit Exposure by rating % aaa 0.00aa 100.00a 0.00

100.00

interest rate swaps allow the Corporation to swap long term fixed rate borrowings into floating rate borrowings with lower rates than if the Corporation had made the floating rate borrowings directly. at times, floating to fixed swaps are used to change floating rate borrowings to fixed rate borrowings in order to match the Corporation's lending to client authorities. With interest rate swaps, the Corporation agrees with counterparties to exchange at predetermined intervals the difference between fixed rate and floating rate interest amounts calculated by reference to an agreed notional face value. interest rate swaps are also used to provide term floating rate funds for client authorities. at 30 June 2007, the Corporation had lent funds amounting to $a1,513,300 thousand (2006, $a1,868,300 thousand) on this basis.

Forward rate agreements are used by the Corporation to secure a guaranteed return or cost on known cash flows as and when they fall due. these agreements establish an interest rate on a notional principal over a specified period. Futures contracts are used essentially for the same purpose as forward rate agreements. the contracts used by the Corporation are the bank bill, 3 year and 10 year bond contracts.

the interest rate risk for investments, Loans to authorities and Borrowings at balance date have been disclosed at note 10, 12 and 18 respectively. For receivables and Payables, no interest rate risk exists at balance date.

Liquidity risk involves the Corporation's ability to meet all financial commitments as they fall due. the Corporation maintains a minimum prudent level of highly liquid quality assets at all times to ensure that it will always meet its commitments. the risk to the Corporation of not being able to fund itself is minimised through the diversification of its funding activity across domestic and offshore markets and across the maturity spectrum.


NOTE 21 (continued)

With regard to foreign exchange risk, the policy is not to take any foreign exchange risk apart from the minor exposure created by the need to maintain small balances in foreign currency bank accounts. the Corporation borrows in foreign currencies when the all in cost after swapping back into australian dollars is cheaper than the equivalent domestic borrowing. Whereas the Corporation manages interest rate risk on a portfolio basis, it manages the exchange rate risk on foreign currency borrowings as part of the borrowing transaction. at 30 June, the Corporation had foreign currency swaps and forwards amounting to $a204,691 thousand (2006, $a220,121 thousand) with a fixed future obligation in australian dollars of $a206,690 thousand (2006, $a226,859 thousand). additionally the Corporation has arranged forward foreign exchange transactions for clients amounting to $a154,548 thousand (2006, $a170,479 thousand). these transactions are arranged with clients on a back to back basis and therefore the Corporation does not have any net exposure. the fair value of $3,827 thousand relating to these forward foreign exchange transactions receivable from authorities and payable to third parties is included in notes 12(b) and 18(b) respectively.

With regard to credit risk, the Corporation's lendings are either guaranteed by the state or secured by debentures. For other assets, the Corporation has counterparty limits and monitors these on a regular basis.

the Corporation regards the minimisation of these risks as a high priority. accordingly, the Corporation has in place policies and management structures to monitor and manage these risks. an asset and Liability Management Committee comprising the Chief Executive officer and other senior management provides policy advice to the Board in respect of the Corporation's financial risk management activities and a comprehensive report on the Corporation's activities is prepared monthly for the Board.

all financial assets and liabilities have been recognised at the balance date at their fair value. For valuation purposes, the Corporation uses quoted market rates wherever possible to discount cash flows to present values. those stocks without quoted market rates are valued using the Corporation's Zero Coupon Yield curves. as at 30 June, the market interest rates used by the Corporation for valuation purposes were:

Coupon Market Rate as at

30 June 2007

Market rate as at

30 June 2006

overnight - 6.2�% 5.75%90 days - 6.44% 5.98%180 days - 6.��% 6.10%15 october 2007 8.00% 6.36% 6.01%15 october 2009 7.50% 6.6�% 6.00%15 april 2011 7.00% 6.7�% 6.03%15 June 2013 8.00% 6.71% 6.03%15 July 2017 8.00% 6.66% 6.08%


61

Interest Rate Risk Exposure

the following table details the Corporation’s exposure to interest rate risk as at the reporting date:

2007 Weighted At Call Up to 3 3 to 12 1 to � Over � Non TotalAverage Months Months Years Years InterestEffective BearingInterest

Rate% $'000 $'000 $'000 $'000 $'000 $'000 $'000

Financial assets:Cash andCash Equivalents 3.01 3,809 3,809receivables 331,623 331,623investments 6.10 77,500 2,269,781 350,769 12,540 2,710,590Loans to authorities 6.16-non derivative 2,592,965 1,253,799 2,806,629 3,344,863 9,998,256-derivative 4,363 406 (942) 3,827

81,309 4,867,109 1,604,974 2,805,687 3,357,403 331,623 13,048,105FinancialLiabilities:Payables 343,145 343,145Borrowings 5.78-non derivative 2,851,409 1,656,112 4,595,812 3,562,017 12,665,350 -derivative 5,440 721 (20,255) (13,408) (27,502)

0 2,856,849 1,656,833 4,575,557 3,548,609 343,145 12,980,993

2006 Weighted at Call Up to 3 3 to 12 1 to 5 over 5 non totalaverage Months Months Years Years interestEffective Bearinginterest

rate% $'000 $'000 $'000 $'000 $'000 $'000 $'000

Financial assets:Cash andCash Equivalents 3.96 2,048 2,048receivables 344,717 344,717investments 5.71 160,300 1,180,176 289,850 14,928 1,645,254Loans to authorities 5.96 -non derivative 2,755,345 1,657,131 2,818,432 3,311,040 10,541,948 -derivative 117 314 (1,245) (814)

162,348 3,935,638 1,947,295 2,817,187 3,325,968 344,717 12,533,153FinancialLiabilities:Payables 351,784 351,784Borrowings 5.77 -non derivative 2,018,581 2,181,994 5,072,453 2,902,147 12,175,175 -derivative 2,736 4,537 (51,959) (11,949) (56,635)

0 2,021,317 2,186,531 5,020,494 2,890,198 351,784 12,470,324


NOTE 22

2007 2006$'000 $'000

NOTES TO THE STATEMENT OF CASH FLOWS

22a. Reconciliation of Cash For the purposes of the statement of Cash Flows, cash includes cash on hand and in banks and investments in money market instruments, net of outstanding bank overdrafts. Cash at the end of the reporting period as shown in the statement of Cash Flows is reconciled to the related items in the Balance sheet as follows:

Bank Deposits (note 9) 3,�61 1,770 short term Money Market investments 1,841,81� 705,662 overseas Bank accounts (note 9) 248 278

1,84�,624 707,710

22b. Reconciliation of Net Cash used in Operating Activities to Profit for the period

Profit for the period �,�36 10,302 Depreciation 176 177 amortisation of intangible assets 234 463 increase in receivables (2,372) (3,042) increase (Decrease) in accrued interest Payables 7,433 (29,012) increase in other Creditors 3�1 110 Current income tax equivalent expense 4,2�7 4,243 Decrease (increase) in deferred tax asset � (430) Unrealised Foreign Exchange (gain)/Loss 24 8 Profit From sale of Equipment 2 (1) Decrease in Employee Benefits (33) (214) Premium/discount amortisation 116,14� 114,677 Market Value adjustment 2�,617 955 Cash decrease in investments 76,�� 135,469 Cash decrease/(increase) in Lending 378,46� (705,013) Cash increase/(decrease) in Borrowings �2�,714 (553,813) net Cash provided by operating activities 1,146,��7 (1,025,121)

22c. Financing/Lending Facilities

the Corporation holds a substantial portfolio of liquid assets that can be readily converted into cash. these assets comprise highly liquid money market investments and longer term state government and Commonwealth government securities.

the Corporation also provides a committed lending facility of Us$76.5 million (nil drawn down as at 30 June 2007) (2006, Us$84.7 million (nil drawn down as at 30 June 2006)) to Public transport authority, a state government authority. the facility is to meet contingent obligations under a lease agreement that may eventuate during the life of the lease.


63

NOTE 23

2007 2006$'000 $'000

REMUNERATION OF DIRECTORS AND OTHER KEY MANAGEMENT PERSONNEL

Directors' Remuneration

the number of directors whose total of fees, salaries, superannuation and other benefits for the financial year fall within the following bands are:

$ 30,001 - 40,000 2 2

40,001 - 50,000 1 1 190,001 - 200,000 1 - 300,001 - 310,000 - 1 330,001 - 340,000 1 -

the total remuneration of the directors of the Corporation is: 641 424

the superannuation included here represents the superannuation expense incurred by the Corporation in respect of the directors. all amounts are regarded as short term benefits.

no directors are members of the Pension scheme.

the director in the $330,001 - $340,000 bracket represents the salary and accumulated leave benefits paid to the former Chief Executive officer upon retirement on 28 February 2007.

Other Key Management Personnel Remuneration

the number of other key management personnel, other than directors, whose total fees, salaries, superannuation and other benefits, including payout of entitlements, for the financial year, fall within the following bands are:

$ 80,001 - 90,000 - 1

130,001 - 140,000 1 - 140,001 - 150,000 1 - 150,001 - 160,000 1 1 160,001 - 170,000 1 - 220,001 - 230,000 1 - 230,001 - 240,000 - 1

the total remuneration of other key management personnel is: 831 481 the superannuation included here represents the superannuation expense incurred by the Corporation in respect of other key management personnel other than directors. all amounts are regarded as short term benefits.

no other key management personnel are members of the Pension scheme.

NOTE 24

aUDitor's rEMUnEration

amounts paid or due and payable to the office of the auditor general for auditing the financial statements and performance indicators. 218 218


NOTE 2�

EXPLANATORY STATEMENT

2�a. ACTUAL/BUDGET COMPARISON 2006/07

aCtUaL BUDgEt VarianCE CoMMEnt $'000 $'000 $'000

rEVEnUE interest on investments 160,350 147,500 12,850 1 interest from authorities 602,152 675,253 (73,101) 2 Fee income 300 300 0

762,802 823,053 (60,251)

EXPEnsEs interest on Borrowings 709,033 804,089 (95,056) 3 Borrowing related Expenses 1,302 1,640 (338) Depreciation 176 254 (78) amortisation of intangible assets 234 355 (121) administration Expenses 8,216 8,203 13 Foreign Exchange Loss 24 0 24 net Market Value Movement 29,617 0 29,617 4 Loss from sale of Plant & Equipment 2 0 2

748,604 814,541 (65,937) Profit before income tax equivalent 14,198 8,512 5,686

COMMENTS - REASONS FOR VARIATIONS FROM BUDGETED AMOUNTS

1. the increase in interest on investments compared to budget was due to higher than anticipated interest rates.

2. the decrease in interest from authorities compared to budget was due to the unanticipated reduction in the client authority borrowing program.

3. the decrease in interest on Borrowings compared to budget was due to lower than anticipated debt levels. there was a corresponding decrease in loans to authorities.

4. the relationship between net market value movement and interest income and expense is discussed at note 7. the budget does not separately identify unrealised gains or losses.


6�

2�b. COMPARISON BETWEEN 2006/07 AND THE PREVIOUS YEAR

2007 2006 ChangE CoMMEnt $'000 $'000 $'000

rEVEnUE interest on investments 160,350 147,357 12,993 1 interest from authorities 602,152 591,779 10,373 2 Fee income 300 300 0

762,802 739,436 23,366 gains gains from sale of Plant & Equipment (2) 1 (3)

total income 762,800 739,437 23,363

EXPEnsEs interest on Borrowings 709,033 714,975 (5,942) 3 Borrowing related Expenses 1,302 1,456 (154) Depreciation 176 177 (1) amortisation of intangible assets 234 463 (229) administration Expenses 8,216 7,288 928 Foreign Exchange Loss 24 8 16 net Market Value Movement 29,617 955 28,662

748,602 725,322 23,280 Profit before income tax equivalent 14,198 14,115 83

1. interest on investments has increased by $12.993 million from the previous year mainly due to a increase in investments.

2. interest from authorities has increased by $10.373 million from the previous year mainly due to higher interest rates during the year.

3. interest on Borrowings has decreased by $5.942 million from the previous year as a result of realised gains due to debt restructuring.

NOTE 26

COMMITMENTS

there are no expenditure commitments contracted for and payable at 30 June 2007 (2006, nil).


CERTIFICATION OF FINANCIAL STATEMENTS

the accompanying financial statements of the Western australian treasury Corporation have been prepared in compliance with the provisions of the Financial Management act 2006 from proper accounts and records to present fairly the financial transactions for the year ending 30 June 2007 and the financial position as at 30 June 2007.

at the date of signing we are not aware of any circumstances which would render any particulars included in the financial statements misleading or inaccurate.

S L LUFF, B.BUS, CPA M J WEBB T M MARNEY CHIEF FINANCE OFFICER CHIEF EXECUTIVE OFFICER CHAIRPERSON WEstErn aUstraLian WEstErn aUstraLian WEstErn aUstraLian trEasUrY CorPoration trEasUrY CorPoration trEasUrY CorPoration

17 august 2007 17 august 2007 17 august 2007


67

Key Performance indicatorsFor the Western australian treasury Corporation

Mission Statement (2006/07)

to work with our clients to satisfy their financial needs.

Key Outcome

a key outcome of this mission is that clients are able to borrow from treasury Corporation at a commercially competitive cost.

Key Output

a key output flowing from the pursuit of this mission is the delivery of loan funds to clients.

Glossary of Terms

a glossary of terms is provided at the end of this report to assist with the interpretation of the performance indicators.

Key Effectiveness Indicator – Estimated Interest Rate Savings

in order to gauge its effectiveness in providing competitively priced loan funds to clients, treasury Corporation monitors the australian corporate bond market.

the following table shows the estimated savings to clients borrowing from treasury Corporation compared to the estimated cost to clients of borrowing in the corporate bond market for the past three years. a direct cost comparison is impossible because none of treasury Corporation’s clients currently issue bonds in their own name.

table 1 - Estimated interest rate savings to Clients by reference Bond Credit rating and term to Maturity*

term to Maturity

as at 30/6/07 (Years)

aaa aa+ aa aa-

06/07 05/06 04/05 06/07 05/06 04/05 06/07 05/06 04/05 06/07 05/06 04/05

1 to 2 0.24% 0.17% 0.26% 0.29% 0.16% 0.27% 0.32% 0.27% 0.26% 0.23% 0.27%2 to 3 0.26% 0.25% 0.16% 0.24% 0.36% 0.26% 0.30% 0.45% 0.31% 0.27% 0.29%3 to 4 0.28% 0.26% 0.36% 0.32% 0.25% 0.49% 0.33% 0.36% 0.37% 0.35% 0.32% 0.33%4 to 5 0.28% 0.20% 0.28% 0.34% 0.33% 0.39% 0.35% 0.30%5 to 6 0.29% 0.27% 0.44% 0.38% 0.38% 0.45%6 to 7 0.18% 0.53% 7 to 8 0.29% 0.18% 0.65% 8 to 9 0.25% 0.24% 0.23% 0.43% 0.64% 0.46%9 to 10 0.39%10 to 1111 to 12 0.45%12 to 13 0.39%13 to 14 0.35%14 to 15 0.43%15 to 16 16 to 1717 to 18 * a blank entry in the table means there is no reference bond available in the corporate bond market for comparative purposes.

By way of example, the saving of 0.24% identified in the first row of the aaa 06/07 column represents the estimated interest rate saving to a client (able to borrow in the corporate bond market with an aaa credit rating) when borrowing from treasury Corporation.


the savings identified in table 1 would be significantly greater than shown for all but the largest of the treasury Corporation’s clients due to the relatively small size of individual client borrowing requirements. in reality, most clients would be unable to borrow at the interest rates available in the corporate bond market due to this constraint. in general, the market imposes a liquidity risk premium because a small issue volume implies a small secondary market in the bond. the premium compensates for the increased difficulty of selling at fair market prices in a small secondary market. as a guide, in the current market environment, issue volumes need to be of the order of $250 million to avoid the risk of incurring a significant liquidity risk premium.

in this regard, treasury Corporation’s effectiveness is further demonstrated by its ability to make available competitively priced loan funds to clients, with borrowing terms from 1 day to greater than 10 years, regardless of the size of client borrowing programs. By way of contrast, only the largest of corporate bond market participants are able to issue bonds with different terms to maturity. having multiple bond issues helps to reduce the initial interest cost of bond issues by improving the secondary market and hence liquidity of a borrower’s bonds.

Cost Estimation Methodology

a number of corporate bonds were selected for the purpose of comparison to treasury Corporation’s Portfolio Lending arrangement (“PLa”) interest rates. to be selected, a bond had to satisfy the following:

• be rated between aaa and aa-;

• be on issue at 30 June 2006 and have at least one year until maturity at 30 June 2007;

• not be guaranteed by the Commonwealth or other central governments; and

• not be subordinated debt (ie debt issued by banks for capital adequacy purposes).

the month end traded interest rates for the selected corporate bonds were tracked over the year. the rate for each bond was compared to the rate for an equivalent term PLa bond net of treasury Corporation’s on-cost margin. this margin was removed because it represents the loan issue and administration costs that clients would reasonably be expected to incur in arranging their own borrowing programs.

the estimated saving to the client for a given observation is defined as the observed corporate bond rate minus the net PLa rate. the savings shown in table 1 are defined as the average of the monthly observations. Where more than one bond falls into a particular maturity category, the results are also averaged.

Key Efficiency Cost Effectiveness Indicator – Administration Cost Ratio

in order to monitor its efficiency and cost effectiveness in funding client borrowing requirements over time, treasury Corporation monitors its administration cost ratio.

the administration cost ratio is defined as the ratio of net administration expense to average loan funds outstanding expressed as a percentage. net administration expense is defined as administration expenses (including loan raising expenses) less non-interest revenue while average loan funds outstanding is defined as the average of the opening and closing book value of loans to clients for the relevant year. treasury Corporation’s administration cost ratio for the previous five years is shown in table 2.

Table 2 - WATC Administration Cost Ratio 2002/2003 to 2006/2007

Year net administration Expense $m

average Loan Funds outstanding $m

administration Cost ratio

2002/2003 9.506 8,782 0.11%2003/2004 9.644 9,203 0.10%2004/2005 9.442 9,591 0.10%2005/2006 9.081 10,188 0.09%2006/2007 9.630 10,352 0.09%

Clients are able to benefit from the economies of scale that result from the centralised or pooled borrowing arrangements of treasury Corporation. through this pooling, treasury Corporation is able to reduce the administration cost per dollar of lending to the client.

Key Performance indicatorsFor the Western australian treasury Corporation (continued)

6�

the economies of scale achieved by treasury Corporation generate savings to the client that would not be available to individual clients attempting to fund their borrowing requirements directly from the market. in general, the level of specialisation and expertise provided by treasury Corporation would not be cost effective for an individual client to maintain.

treasury Corporation’s administration cost ratio will fluctuate from time to time due to changes in aggregate debt levels as well as direct management action. Changes in aggregate debt levels are impacted by government asset sales and debt management policy in general which is beyond the control of treasury Corporation.

Glossary of Terms

Term ExplanationLiquidity risk the risk that a bond owner, wanting to sell a bond in the secondary

market, is not able to find a buyer willing to pay a fair price for the bond having regard to currently observed market rates and the initial liquidity risk premium.

Liquidity risk Premium the increase in the interest rate required by the buyer of a bond to compensate for liquidity risk.

Maturity Date the date on which the final bond payment is to be made.term to Maturity the amount of time until the final bond payment is due.issue Volume the face value amount at issue date. this is the amount that a bond issuer

must repay on the maturity date of the bond.Corporate Bond Market the market in which bonds issued in the name of individual corporate

entities are bought and sold.reference Bond a corporate bond selected for comparison to the treasury Corporation’s

lending rates.

CERTIFICATION OF PERFORMANCE INDICATORS

We hereby certify that the performance indicators are based on proper records, are relevant and appropriate for assisting users to assess the Western australian treasury Corporation’s performance and fairly represent the performance of the Western australian treasury Corporation for the year ended 30 June 2007.

M J WEBB T M MARNEY CHIEF EXECUTIVE OFFICER CHAIRPERSONWEstErn aUstraLian WEstErn aUstraLiantrEasUrY CorPoration trEasUrY CorPoration

17 august 2007 17 august 2007


independent audit opinion

To the Parliament of Western Australia

WESTERN AUSTRALIAN TREASURY CORPORATIONFINANCIAL STATEMENTS AND KEY PERFORMANCE INDICATORSFOR THE YEAR ENDED 30 JUNE 2007

i have audited the accounts, financial statements, controls and key performance indicators of the Western australian treasury Corporation.

the financial statements comprise the Balance sheet as at 30 June 2007, and the income statement, statement of Changes in Equity and Cash Flow statement for the year then ended, a summary of significant accounting policies and other explanatory notes.

the key performance indicators consist of key indicators of effectiveness and efficiency.

Board’s Responsibility for the Financial Statements and Key Performance Indicators

the Board is responsible for keeping proper accounts, and the preparation and fair presentation of the financial statements in accordance with australian accounting standards (including the australian accounting interpretations) and the treasurer’s instructions, and the key performance indicators. this responsibility includes establishing and maintaining internal controls relevant to the preparation and fair presentation of the financial statements and key performance indicators that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; making accounting estimates that are reasonable in the circumstances; and complying with the Financial Management act 2006 and other relevant written law.

Summary of my Role

as required by the auditor general act 2006, my responsibility is to express an opinion on the financial statements, controls and key performance indicators based on my audit. this was done by testing selected samples of the audit evidence. i believe that the audit evidence i have obtained is sufficient and appropriate to provide a basis for my audit opinion. Further information on my audit approach is provided in my audit practice statement. refer "http://www.audit.wa.gov.au/pubs/audit-Practice-statement.pdf".

an audit does not guarantee that every amount and disclosure in the financial statements and key performance indicators is error free. the term “reasonable assurance” recognises that an audit does not examine all evidence and every transaction. however, my audit procedures should identify errors or omissions significant enough to adversely affect the decisions of users of the financial statements and key performance indicators.

Western Australian Treasury Corporation

Financial Statements and Key Performance Indicators for the year ended 30 June 2007

Audit Opinion

in my opinion,

(i) the financial statements are based on proper accounts and present fairly the financial position of the Western australian treasury Corporation at 30 June 2007 and its financial performance and cash flows for the year ended on that date. they are in accordance with australian accounting standards (including the australian accounting interpretations) and the treasurer’s instructions;

(ii) the controls exercised by the Corporation provide reasonable assurance that the receipt, expenditure and investment of money, the acquisition and disposal of property, and the incurring of liabilities have been in accordance with legislative provisions; and

(iii) the key performance indicators of the Corporation are relevant and appropriate to help users assess the Corporation’s performance and fairly represent the indicated performance for the year ended 30 June 2007.

COLIN MURPHYAUDITOR GENERAL

24 august 2007

71

Client authoritiesFace Value net Debt outstanding to the Corporation at 30 June 2007

AUTHORITY NAME Balance at Net Advances Balance at 1 July 2006 During Year 30 June 2007

$'000 $'000 $'000

albany City Council 13,250 5,726 18,976 albany Port authority 9,035 (1,200) 7,835 armadale City Council 1,610 800 2,410 ashburton shire Council 2,595 (208) 2,387 augusta-Margaret river shire Council 6,201 (590) 5,611 Bassendean town Council 1,892 (81) 1,812 Bayswater City Council 668 3,716 4,384 Belmont City Council 2,537 156 2,693 Beverley shire Council 333 121 453 Boddington shire Council 460 232 692 Boyup Brook shire Council 639 (36) 604 Bridgetown-greenbushes shire Council 842 (63) 779 Brookton shire Council 1,134 (38) 1,096 Broome Port authority 11,320 397 11,717 Broome shire Council 4,388 914 5,302 Broomehill shire Council 111 39 149 Bunbury City Council 7,334 (282) 7,052 Bunbury Port authority 12,696 (502) 12,194 Busselton shire Council 3,944 (542) 3,402 Cambridge town Council 9,336 1,273 10,610 Canning City Council 807 (205) 602 Capel shire Council 380 574 954 Carnamah shire Council 757 6 764 Carnarvon shire Council 656 (318) 338 Chapman Valley shire Council 220 70 290 Chittering shire Council 374 (23) 352 Collie shire Council 156 76 232 Commissioner of Main roads 111,102 (35,730) 75,372 Coolgardie shire Council 786 (133) 653 Coorow shire Council 1,119 86 1,205 Corrigin shire Council 1,023 (143) 879 Cottesloe town Council 351 (65) 286 Country high school hostels authority 11,988 (519) 11,469 Country housing authority 21,922 759 22,681 Cranbrook shire Council 410 (31) 378 Cuballing shire Council 175 (26) 149 Cue shire Council 157 (14) 143 Cunderdin shire Council 2,005 (121) 1,884 Curriculum Council 107 (10) 97 Curtin University of technology 25,868 1,816 27,685 Dalwallinu shire Council 567 (86) 482 Dampier Port authority 69,050 3,382 72,433 Dandaragan shire Council 1,770 (498) 1,271 Dardanup shire Council 3,299 (270) 3,029 Denmark shire Council 1,353 133 1,485


Client authoritiesFace Value net Debt outstanding to the Corporation at 30 June 2007 (continued)


$'000 $'000 $'000

Derby-West Kimberley shire Council 2,833 (34) 2,799 Disability services Commission 6,369 1,072 7,441 Donnybrook-Balingup shire Council 798 1,967 2,765 Dumbleyung shire Council 196 (41) 156 Dundas shire Council 290 (37) 253 East Fremantle town Council 1,136 (110) 1,026 East Pilbara shire Council 6,266 672 6,938 Eastern goldfields transport Board 542 (130) 412 Eastern Metropolitan regional Council 624 (303) 322 Edith Cowan University 25,908 30,822 56,730 Electricity generation Corporation 741,956 97,737 839,693 Electricity networks Corporation 2,123,552 396,326 2,519,878 Esperance Port authority 54,699 21,301 76,000 Esperance shire Council 485 2,495 2,980 Exmouth shire Council 85 (4) 81 Fire & Emergency services authority of Western australia 34,915 (2,050) 32,865 Forest Products Commission 90,461 1,192 91,653 Fremantle City Council 7,860 1,878 9,738 Fremantle Port authority 52,450 (1,875) 50,575 geraldton City Council 1,765 363 2,128 geraldton Port authority 120,411 15,411 135,822 gingin shire Council 2,385 479 2,864 gnowangerup shire Council 787 (84) 703 gold Corporation 3,500 0 3,500 goomalling shire Council 57 (27) 31 gosnells City Council 0 6,500 6,500 government Employees superannuation Board 545,204 (21,780) 523,424 greenough shire Council 1,104 (64) 1,040 halls Creek shire Council 980 (99) 882 harvey shire Council 2,136 (427) 1,709 housing authority 1,929,797 (335,662) 1,594,136 independent Market operator 3,228 3,107 6,335 irwin shire Council 382 18 401 Jerramungup shire Council 377 (103) 274 Joondalup City Council 3,672 (310) 3,361 Kalamunda shire Council 766 (62) 704 Kalgoorlie-Boulder City Council 7,446 (1,101) 6,344 Katanning shire Council 1,256 (268) 988 Kellerberrin shire Council 509 (62) 447 Kent shire Council 1,045 (83) 961 Kojonup shire Council 1,502 (272) 1,230 Kondinin shire Council 413 (44) 370 Kulin shire Council 180 (7) 174 Kwinana town Council 2,608 214 2,821 Lake grace shire Council 1,234 174 1,408

73


$'000 $'000 $'000

Laverton shire Council 9 (9) 0 Library Board of Western australia 18,643 (1,434) 17,210 Mandurah City Council 19,916 (709) 19,207 Manjimup shire Council 5,547 (404) 5,143 Melville City Council 5,316 (373) 4,943 Menzies shire Council 211 (21) 190 Merredin shire Council 1,719 (154) 1,565 Midland redevelopment authority 32,490 (17,403) 15,086 Mingenew shire Council 275 348 623 Minister for Education and training 215,906 (526) 215,380 Minister for science and innovation 6,323 (394) 5,929 Minister for health 114,256 (5,261) 108,995 Minister for Planning and infrastructure 13,358 (903) 12,455 Moora shire Council 1,433 323 1,756 Morawa shire Council 758 (81) 677 Mosman Park town Council 1,597 (157) 1,440 Mount Magnet shire Council 136 (5) 131 Mount Marshall shire Council 660 77 737 Mukinbudin shire Council 600 (80) 520 Mullewa shire Council 457 (81) 377 Mundaring shire Council 195 (28) 168 Murdoch University 3,625 9,502 13,127 Murray shire Council 1,622 70 1,692 nannup shire Council 142 (43) 99 narambeen shire Council 434 (60) 375 narrogin shire Council 392 (33) 359 narrogin town Council 3,792 (233) 3,559 nedlands City Council 5,652 (1,028) 4,623 northam shire Council 4 (1) 3 northam town Council 3,096 (233) 2,864 northampton shire Council 177 100 277 nungarin shire Council 333 (22) 310 Perenjori shire Council 365 (51) 313 Perth City Council 32,576 (3,259) 29,317 Perth Market authority 45,088 0 45,088 Pilbara College of taFE 805 (65) 740 Pingelly shire Council 432 175 607 Plantagenet shire Council 5,280 (192) 5,089 Port hedland town Council 3,897 318 4,215 Public transport authority 1,714,316 (860,024) 854,291 Quairading shire Council 115 (32) 83 ravensthorpe shire Council 2,781 (135) 2,646 regional Power Corporation 112,939 19,542 132,481 rockingham City Council 18,026 1,387 19,413 roebourne shire Council 6,588 (653) 5,935 rottnest island authority 4,691 0 4,691


Client authoritiesFace Value net Debt outstanding to the Corporation at 30 June 2007 (continued)


$'000 $'000 $'000

serpentine-Jarrahdale shire Council 3,701 (115) 3,587 shark Bay shire Council 1,050 (150) 899 south Perth City Council 2,968 (282) 2,686 south West Development Commission 6,781 (875) 5,906 southern Metropolitan regional Council 45,450 8,478 53,928 state supply Commission 224,105 2,335 226,440 subiaco City Council 4,517 3 4,520 swan City Council 7,713 2,852 10,566 swan river trust 137 (9) 128 tambellup shire Council 428 (40) 388 tammin shire Council 543 (57) 485 the state of Western australia through the Consolidated Fund 49,318 (49,318) 0 the state of Western australia through the Minister for agriculture and Forestry under the Loans (Co-operative Companies) act 2004 1,226 2,736 3,962 toodyay shire Council 511 377 889 trayning shire Council 383 29 412 Upper gascoyne shire Council 42 (9) 32 Victoria Park town Council 11,805 (1,021) 10,785 Victoria Plains shire Council 827 (179) 648 Vincent town Council 10,581 (1,031) 9,551 Wa Building Management authority 124,914 (10,147) 114,767 Wa Coastal shipping Commission 20,034 (2,571) 17,463 Wa Local government association 670 (110) 560 Wagin shire Council 83 (51) 32 Wanneroo City Council 0 8,556 8,556 Waroona shire Council 290 (55) 235 Water and rivers Commission 686 (200) 486 Water Corporation 1,478,000 332,000 1,810,000 West arthur shire Council 226 92 319 Westonia shire Council 85 (15) 70 Wickepin shire Council 767 (160) 607 Williams shire Council 19 (7) 12 Wongan-Ballidu shire Council 653 (27) 626 Wyalkatchem shire Council 34 490 524 Wyndham-East Kimberley shire Council 2,298 (139) 2,159 Yalgoo shire Council 755 (48) 707 Yilgarn shire Council 270 (32) 238 York shire Council 224 (103) 121 totaL 10,539,964 (375,815) 10,164,149

note: Due to rounding some figures do not add.

7�

Budget 2007/08

$'000

Revenueinterest on investments 150,000interest from authorities 680,109Fee income 325

830,434

Expensesinterest on Borrowings 813,162Depreciation/amortisation 558Borrowing related Expenses 1,729administration Expenses 9,048

824,497

Profit before income tax equivalent 5,937

income tax equivalent expense 1,781

Profit for the period 4,156


Western australian treasury Corporationaddresses

Head Office Postal Address

Level 12, st george’s square Po Box 7282225 st george’s terrace Perth Cloisters squarePErth Wa 6000 Wa 6850

telephone: (+61) 8 9235 9100 Email: [email protected]: (+61) 8 9235 9199 Website: www.watc.wa.gov.au

Registry Information

Following are address details relating to offices of Computershare investor services Pty Limited:

Western AustraliaLevel 2, Reserve Bank Building4� St George’s TerracePERTH WA 6000

VictoriaYarra Falls4�2 Johnston StreetABBOTSFORD VIC 3067

New South WalesLevel 3 60 Carrington StreetSYDNEY NSW 2000

QueenslandLevel 1�307 Queen StreetBRISBANE QLD 4001

South AustraliaLevel �11� Grenfell StreetADELAIDE SA �000

Stockholding Enquiries

Please ring Computershare investor services Pty Limited on Freecall 1800 098 828 for all stockholding enquiries.

western australian treasury corporation

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