Independence and the Flight to Quality

Against the backdrop of investment market turmoil, complex financial structures are no longer popular and the investment community’s desire for independent and transparent structures has seen the more traditional model re-emerge.

Our responsible entity (RE) business has benefited significantly from this flight to quality with assets under supervision increasing 12% during the year to $12.4 billion. As distressed structures begin to crumble, there is a growing need for replacement REs to take over the operation of funds. Trust has acted as a corporate trustee and custodian for five and a half decades, and is a well respected provider of RE and trustee services. As a result of our experience in both listed and unlisted funds, we have worked on a number of complex transactions where unit holders have exercised their rights for transparent and independent structuring of their investments. This has resulted in Trust being appointed as a replacement responsible entity for a number of listed funds.

Trust is also the leading specialist property and infrastructure custodian (PIC) in Australia with around 40% market share of listed property and infrastructure funds by volume. Total assets under supervision in the PIC business have increased 16% during the year to $73bn.

Expertise When it Really Matters

Trust has been at the forefront of the Federal Government’s moves to assist first home buyers. In October 2008 the policy regarding the First Home Savers Accounts (FHSA), a government initiative to help first home buyers save for their first home and help fight inflation, came into effect. Within six months Trust became one of only a handful of institutions to be awarded an FHSA license by the Australian Prudential Regulation Authority (APRA), and the very first Registrable Superannuation Entities (RSEs) licensee to receive a First Home Saver Account license. This achievement places Trust Company at the forefront of developing this new product.

Trust has been involved since 1954 as trustee for debt securities listed in Australia and we currently hold around 50% of this market by volume.

During 2008, the debt securities market has been impacted dramatically by the credit crisis. The combined effects of the global economic slowdown, downward pressures on prices in the commercial property market and massive reductions in some types of foreign mortgage backed securities (known as Collateralised Debt Obligations and Floating Rate Notes) led
to a spate of company failures, particularly in the non-bank finance sector.

The main efforts of the Structured Finance team have been the monitoring of issuers with regard to compliance of the Corporations Act, accounting standards and trust deeds. The team sought to identify corporate insolvencies early and prevent further erosion of returns ultimately available to investors in debt securities. Based on its monitoring and consistent with our duties as trustee for investors, the Structured Finance team was obliged to appoint external administrators to a number of entities and continued to be closely involved in each administration. Despite this continuing focus on issuers, Structured Finance was successful in attracting several new clients and also devised new processes to assist our current clients.

Dependability

Our investment management team has played an integral role in our success. Trust’s strong team culture and professionalism is backed by over 50 years of experience in funds management, investment and operations. Trust’s Australian equity funds have comfortably outperformed their benchmark over the past 12 months. In a volatile and hostile environment, Trust’s long term focused investment process positioned us favourably.

Our flagship, the Trust Imputation Fund outperformed the S&P/ASX 200 Accumulations Index by 4.85 % over the past 12 months. Van Eyk Research, the leading provider of managed fund research, has rated Trust Imputation Fund in the top quartile of retail Australian equity funds for one, three and five years, as of 28 February 2009.

Table of Performance

While the government guarantee on bank deposits pushed some investors to question cash and mortgage funds generally, our prudent investment strategy and engagement with clients resulted in a negligible increase in redemptions from those Funds.

Leading with Technology

Investment in technology and systems has been a key focus area in 2008. In wealth transfer planning we implemented a will scanning program. This has not only provided increased security and risk mitigation in the event of fire or damage; it has also provided a speedier response to client questions in the event of will review.

The service offering for property and infrastructure custody clients was enhanced considerably with the launch of our new online property custody system, TRUaccess. This innovative system gives our clients secure, 24/7 access to all their property portfolio documentation held in custody by Trust. Over the 12 months, we developed the new system and were able
to load data for each of our clients.

The adoption of this system is evidence of the innovative and forward thinking approach of the property and infrastructure custody team, and demonstrates the customer-centric outlook and the vision for future growth that encompasses all the teams within Trust.

Resilience

One of the longest running matters Trust has worked on is the Employees Productivity Award Superannuation Trust (EPAS). In 1998 Trust Company Superannuation Services Ltd, was appointed the replacement trustee to EPAS, a 26,000 member superannuation fund set up for people in the hospitality industry. Trust was called in after the fund had experienced a negative investment rate of return, its value reduced from $27 million to $18 million.

The former trustee of EPAS had been considering winding up the fund, however when Trust took over, it reassessed the position and decided to rationalise the assets and try to maximise the position of the members of the fund. What followed was a 10 year joint action with the regulator ASIC, to pursue two of the previous directors who inappropriately used their position to their own advantage. In July 2008, a commercial settlement of $10 million was reached by the Queensland Supreme Court, although the order for disbursement of funds did not occur until 16 February 2009.

Engagement Through Relationships

With over $400m in funds under trusteeship, Trust has one of the largest portfolios of charitable trusts under management in Australia.

We are leveraging off our long standing reputation in assisting individuals with philanthropic service to service corporate clients. Companies see the many benefits from engaging more proactively in philanthropy, such as staff engagement as well as demonstrating a corporate social responsibility footprint. Public funds in particular have provided a charitable focus in areas as diverse as medical research, the environment and social welfare. More than $20 million was distributed during the financial year from the 355 charitable trusts under management. Trust currently administers over 77 scholarships, with over $1 million distributed in 2008 to the arts, music, medical research and educational projects.

During the year, Trust also received a record number of requests for funding from charities, with 480 applications for grants received. We streamlined our processes to cope with demand, and more than 150 charities were successful in their applications. Charitable solutions included named management accounts within Trust Foundation, Public Funds and Prescribed Private Funds.

We maintain our belief that our operations in Asia will provide us with new growth opportunities, and are focusing on further developing and building our relationships in the region. Trust has raised its profile in Asia over a short period of time as a result of the work of Andrew Cannane, Trust leader in Singapore and his team. Andrew is on the Board of management of the Asian Public Real Estate Association (APREA) and is Co-Chair of its Events Committee. Through his involvement with the Association, Andrew has had the opportunity to present at a number of conferences including a Real Estate Investment Trust (REIT) Conference in Singapore and an APREA REIT Roundtable in Kuala Lumpur. This exposure of Trust and its expertise is leading to an increase in enquiries, notwithstanding the current global financial crisis.

We have expanded our service offering and now have a Capital Markets Service Licence in Singapore which allows us to provide custodial services for securities. This licence, along with the approval to act as a trustee for collective investment schemes, by the Monetary Authority of Singapore, means we are one of a few companies to be licenced as a trustee both in Australia and Singapore.

Asian investors are showing an increasing interest in investing in Australian property, and Trust is well positioned to provide customised solutions from our offices in Singapore and in Australia. Trust’s expertise in the administration of cross border REITs is recognised as we provide custodial services to 16 ASX listed offshore property funds with assets based in 19 countries in Asia-Pacific, Europe and North America.

Our third annual Asia-Pacific REIT survey was conducted in late 2008 and is available on our website. This year we received over 100 responses, which is almost double the rate of last year. Once again, Allens Arthur Robinson provided the country analysis section, which adds greater depth to the survey.

Funds Management Team, left to right: Cameron Mills / Ramsin Jajoo / Nathaniel Sheridan / Michael Annetta / Steven Marsh

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