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Annual Report for 2000 - 2001 - South Australia Government ...

South Australian GovernmentAnnual Report 2000 - 2001Financing Authority


ContentsGeneral Manager’s Overview 4SAFA’s Role 5Client Services 6Client Lending 6Investment Products and Services 7Client Portfolio Management Services 7Foreign Exchange Hedging Service 9Financial Risk Management Advisory Services 9Bureau Services 9Centralised Cash Management 10Alice Springs to Darwin Railway Project 10Financial Markets 11Medium Term Funding Strategy 11Economic and Financial Market Environment 11Domestic Financial Markets 13Overseas Financial Markets 14Communication with Financial Market Participants 14Corporate Governance Structure and Practices 15Risk Management 18Interest Rate Risk 18Credit Risk 18Liquidity Risk 19Funding Risk 19Currency Risk 19Operational Risk 19Legal Risk 19Derivatives: Usage and Policy 20Operations Recovery 20Human Resources 21Corporate and Trust Structures 22Financial Performance 23Financial Report 24Appendix A – SAFA’s Clients 60Appendix B – Staff Employed in SAFA’s Operations at 30 June 2001 61Appendix C – Directors of Affiliated Companies 62Appendix D – Dealer Panel Members 63Glossary of Abbreviations 64Contact Details 643


General Manager’sOverviewSAFA’s activities during 2000-01 were dominated, bothdirectly and indirectly, by initiatives linked to the completionof the sale/long-term lease of the State’s electricity businessesby the South Australian Government.By 30 June 2001, SAFA had:• successfully applied $4.9 billion of proceeds towards theretirement of State debt• developed and implemented a revised debt managementframework for the Treasurer’s managed debt, taking accountKevin Cantley,General Manager,SAFA.of the significantly reduced debt environment created bythe sale/lease process• reviewed its capital base in light of the$4.9 billion fall in its own balance sheet, leading theTreasurer to approve a progressive reduction in thatcapital base to $75 million over the period to 2004-05(from $263 million as at end of June 2001).With the sale/lease process completed, the Governmentdecommissioned the Electricity Reform and Sales Unit (ERSU)and integrated several of its activities into SAFA. Theseinclude the provision of administrative, secretarial,accounting, reporting and transaction management services tothe residual electricity entities and lessor corporations.During the year, SAFA also• provided a $26.4 million loan to the Alice Springs to DarwinRailway Project as part of South Australia’s share of thefunding arrangements• rationalised its corporate structure, by placing subsidiarycompanies Palantir Pty Limited and South AustralianFinance Limited in voluntary liquidationThese and other activities are highlighted throughout thisreport. They were achieved alongside SAFA’s ongoing work asthe State Government’s central financing authority. SAFAprovides a comprehensive range of financial services to itspublic sector clients, including the core functions of funding,asset and liability management and financial risk advisoryservices.Much was accomplished over the course of the year thanks tothe contribution and dedication of all SAFA staff. Theirindividual and collective efforts are acknowledged andappreciated.I would also like to acknowledge the contribution andguidance by members of the SAFA Advisory Board.In the year ahead, SAFA is committed to pursuing its keystrategic priorities. These include improvement in businessand risk management practices, a focus on expanding in theareas of financial, commercial and risk advisory services andpromoting itself as the corporate treasury of the SouthAustralian public sector.• assumed responsibility for a number of debt managementrelatedtasks and policy-related issues from the FinanceBranch of the Department of Treasury and Finance.SAFA made a consolidated operating profit before tax of$32.6 million, in line with expectations.Kevin CantleyGENERAL MANAGER, SAFA4


SAFA’s RoleStatutory and Organisational StructureSince 1983, SAFA has been the central financing authority forthe South Australian Government and its primary face tonational and international financial markets.It is a statutory authority constituted as the Under Treasurerunder the Government Financing Authority Act 1982, andsubject to the control and direction of the Treasurer. SAFA’sborrowings and general financial obligations are guaranteedby the South Australian Government.An Advisory Board (which can comprise up to six members)advises the Treasurer and the Under Treasurer with regard toSAFA’s operations.SAFA is resourced by staff of the Department of Treasury andFinance and the General Manager reports directly to theUnder Treasurer.FunctionSAFA develops and implements borrowing, investment andother financial programs for the State Government andprovides a range of services to public sector clients acrossthree key areas:• debt financing of the State and its instrumentalities• asset and liability management services• financial risk management advisory and reporting services.All of SAFA’s activities are in line with the Government’sdesired outcomes of strengthening State finances andimproving services.Operationally, SAFA is organised into six broadfunctional units:• Client Services• Financial Markets• Accounting and Settlements• Treasury Systems and Reporting• Legal• Policy and Planning.The Client Services and Financial Markets units focus directlyupon the performance of SAFA’s core functions, while theValuesSAFA strives to adopt practices that are ethical, prudent,efficient, cost effective and responsive to clients’ needs.The diversity of skills and opinions amongst staff is valued andSAFA is committed to the vocational and personaldevelopment of its people.SAFA’s decision-making processes are based upon openness,trust and mutual respect throughout the organisation.other units provide essential support services.ExecutiveManagementGroup.5


Client ServicesSAFA performs an integral role in the management of theState’s finances by providing an extensive range ofcost-effective lending, investment, portfolio management,financial advisory and bureau services to South Australianpublic sector clients.The Treasurer of South Australia is SAFA’s major client. A fullclient list is included as Appendix A.Client LendingSAFA’s clients are classified into three major sectors within theSouth Australian public sector:• non-commercialDavid Posaner,Assistant General Manager,Client Services.• commercial• financial institutions.As the figure below illustrates, loans to the non-commercialsector, on lent via the Treasurer of South Australia, compriseapproximately two thirds of the total borrowings from SAFA.Loans to the commercial sector represent 20% of total loans,while the remainder relate to financial institutions.Non-Commercial SectorNon-commercial sector lending is comprised mainly of theTreasurer of South Australia borrowing to fund governmentdepartments and agencies.At 30 June 2001, loans to the Treasurer of South Australiatotalled $3,756 million, a decrease of approximatelyFigure 1: SAFA’s distribution of loans per client typeas at 30 June 2001.$2,099 million from the previous year.Commercial Sector ClientsFinancial Institutions15% Non-commercial65%SAFA’s major commercial sector clients are SA WaterCorporation, Industrial and Commercial PremisesCorporation, Ports Corporation of South Australia and PrimaryIndustries Commercial Rural Loan Scheme.At 30 June 2001, loans to commercial sector clients totalled$1,163 million, a decrease of $264 million fromthe previous year.Financial InstitutionsCommercial20%Clients in this category include HomeStart Finance Ltd, SACommunity Housing Authority and the Local GovernmentFinance Authority.At 30 June 2001, client loans totalled $5,757 million,an overall decrease of $2,407 million from theprevious year.At 30 June 2001, loans to financial institution sector clientstotalled $838 million, a decrease of $44 million fromthe previous year.6


SAFA Staff withMichael Jones,Angela DeDuonniand Justin Shawfrom SA Water.Investment Products and ServicesSAFA offers a suite of five investment products, namely:• an At Call Account, whereby clients deposit surplus fundswith SAFA on an overnight basis• a Cash Management Fund, which is a pooled investmentportfolio invested in securities of up to six months duration• a Cash Enhanced Fund which is a pooled investmentportfolio which is actively managed and is invested in termfloating securities and other short term securities• a Term Deposit Facility, whereby clients can deposit fundsfor up to 10 years at fixed interest rates• a Composite Bond Indexed Investment, whereby clientscan deposit funds and earn the return of the UBS WarburgAustralia Government Index for the period thefunds are invested.Investments with SAFA continued to grow during the year. At30 June 2001, the Cash Management Fund and CashEnhanced Fund had $441 million in funds under managementand the Composite Bond Index Investment had $58 million.Treasurer of South AustraliaThe Treasurer of South Australia has appointed SAFA tomanage the non-commercial sector net debt.Nominal rate liabilities and hedge instruments form the majorpart of the Treasurer’s portfolio. The core nominal rate net debtpool excludes certain non-liquid nominal long-termborrowings (for example, Specific Purpose HousingAgreement loans between the Commonwealth and the States)and inflation indexed borrowings.Due to the substantial debt retirement resulting from thesale/lease of the State’s electricity assets, a revised debtmanagement framework was implemented which altered thebenchmark duration range and structure.As highlighted previously, during the year SAFA undertook amajor debt retirement study to consider the most appropriatemanagement framework for the remaining non-commercialsector debt. The study drew on the work from an independentexpert previously commissioned by the South AustralianDepartment of Treasury and Finance.Client Portfolio Management ServicesDuring 2000-01, SAFA provided a comprehensive portfoliomanagement service to a number of clients, notably theTreasurer of South Australia and the South Australian AssetManagement Corporation (SAAMC).Mark McKay andDamon Fisher fromSAFA withJustine Baggs andBiki Markov fromHomeStart.7


SAFA Staff at AdelaideCentral Markets.The study resulted in moving to a policy benchmark range of1 to 1.5 years for the Treasurer’s actively managed net debtportfolio from a single duration point of roundly 2.8 years. Abenchmark range was adopted as against a single point inorder to reduce transaction costs.In order to enhance the capacity of the portfolio manager tobe able to replicate the benchmark, a new benchmarkstructure was also implemented, based on SAFA’s majorprevailing funding lines, rather than a theoretical construct, aswas previously the case.New limits and guidelines including Value-at-Risk (VAR) limitswere also put in place.Active portfolio positioning within the duration range ispermitted but is considered a part of the overall managementof the portfolio rather than a separate strategic activity.The cost of funds for the Treasurer’s portfolio actively managedby SAFA is measured on a market value basis relative to thatof the policy benchmark range.The market value cost of funds for the 2000-01 financialyear, after adjusting for transaction costs, was 7.42% parelative to a range of 7.54% pa to 7.86% pa for the permittedminimum and maximum duration positions.Over a medium term perspective, for the period 1995-96 to2000-01, the cumulative cost of funds was 8.15% pa for theactual portfolio versus 8.27% pa against the lower bound ofthe benchmark range and 8.21% pa against the upper boundof the benchmark range.While SAFA manages the Treasurer’s core portfolio on a markto-marketbasis against a policy benchmark, its charge out rateto clients in the non-commercial sector is based upon theaverage historical accounting yield of the portfolio. Thisinterest cost charging mechanism, which is referred to as theCommon Public Sector Interest Rate (CPSIR), reduces thevolatility that would otherwise arise from applying a marketvalue based charge to non-commercial sector clients.For 2000-01, the average CPSIR charged to clients was8.35% pa compared with 8.55% pa for 1999-2000.There are many naturalplaces of interest inSouth Australia thatattract tourists tothe State.8


South Australian AssetManagement CorporationSAFA has managed the treasury portfolio of the SouthAustralian Asset Management Corporation (SAAMC) since1996. SAFA staff undertake the management of financial riskwithin the SAAMC Treasury portfolio, provide a policy riskadvisory role and perform settlements, accounting andseveral clients, and provided value-added services ininvestment management, structured finance and leasing.SAFA contributed to a concept paper on private financinginitiatives, which led to the creation of a new unit in theDepartment of Treasury and Finance focusing onpublic/private partnership projects for delivery ofinfrastructure and associated services.treasury administration functions. SAAMC treasury assets andliabilities reside on SAAMC’s balance sheet.SAAMC’s forecast profit outcome for its treasury portfolio wasexceeded again by SAFA in 2000-01.At 30 June 2001, SAAMC had treasury assets of $1.4 billionand off-balance sheet transactions with a notionalvalue of $3.7 billion.Foreign Exchange Hedging ServiceSAFA provides a foreign exchange hedging service to publicsector clients. Through this service, SAFA centralises thehedging of foreign exchange risks associated with thepurchase and sale of goods and services by public sectorentities. The hedging of these transactions allows clients tomanage their currency exchange movements without undueimpact on their budgets. In addition, SAFA provides advisoryMike Grdosic fromSAFA with Justin Shawand Michael Jonesfrom SA Water.services to public sector clients during the period between theapproval of a contract and actual execution of that contract.Major users of the service are SA Water Corporation,Department of Transport, Urban Planning and the Arts,Lotteries Commission, Department of Human Services andDepartment of Treasury and Finance.Some of the major currency exposures hedged includedUnited States dollars, pounds sterling, Germandeutschemarks, French francs, Singapore dollars andJapanese yen.Financial Risk ManagementAdvisory ServicesSAFA continued to strengthen its financial advisory and riskmanagement services. SAFA participated in a number ofBureau ServicesSAFA has significantly expanded the bureau services it offersclients. In particular SAFA has assumed responsibility for anumber of debt management-related tasks and policy-relatedissues from the Department of Treasury and Finance. Thesetasks include management of guarantee fee policy on behalf ofthe Treasurer; management of loan arrangements between theTreasurer and non-commercial sector agencies; and oversightof government finance and operating leases. In addition,SAFA has assumed responsibility for the provision ofadministrative, secretarial, accounting, reporting, andtransaction management services to the residualelectricity corporations.government-wide projects requiring expertise in financialmanagement and risk analysis. In particular, SAFA hasprovided advice and executed major debt restructures for9


Centralised Cash ManagementSAFA provides a centralised cash management service to theTreasurer and other public sector agencies.On behalf of the Treasurer, SAFA manages the Treasurer’s dailycash position to ensure that an overdraft is avoided and thatany surplus is pooled and centrally placed with SAFA. TheTreasurer’s cash balance consists of his own daily operatingbalance and deposits held on behalf of the majority ofgovernment agencies and authorities.This centralised service has a range of benefits which includes:• SAFA and the Treasurer having the ability to take a whole ofGovernment view in managing the Government’s financialassets and liabilities• the ability to earn higher returns on funds invested bydealing in larger sums under broader investment criteria• the elimination of credit exposures by individual publicsector entities to financial institutions• the more efficient use of overdraft and short-termborrowing facilities• the ability for SAFA to dedicate full time resources toidentifying and managing credit risk and interest rate risk,relieving agencies of this task.Alice Springs to Darwin Railway ProjectThe withdrawal of a private sector investor from the AliceSprings to Darwin Railway Project led to a funding shortfall forthe project. The South Australian Government had beencommitted to identifying a private sector participant to takeover its share of the funding shortfall. When all avenues in thisregard became exhausted, it became necessary for the fundingto be provided by the Government at short notice in order toenable the project to proceed.Pursuant to the Alice Springs to Darwin Railway Act 1997,SAFA, on the Government’s behalf, provided the necessaryfunding through its subscription to purchase $26.4 millionface value of subordinated and non-recourse notes issued byAsia Pacific Transport Finance Pty Ltd.Under the Alice Springs to Darwin Railway Act the Premierhas provided a guarantee and indemnity to SAFA in respect ofthe payment of principal, interest (including capitalisedinterest) and any costs, expenses and losses that may arise inrespect of its subscription for the notes.SAFA provided funding toenable the constructionof the Alice Springs toDarwin Railway tocommence.10


Financial MarketsThe dominant feature of the 2000-01 financial year in relationto SAFA’s financial market activities was the repayment of debtwith proceeds from the sale/long-term lease of the State’selectricity businesses.Leading up to the receipt of proceeds in calendar year 2000,the focus of funding efforts was primarily short-term to enabledebt retirement to be accomplished either through meetingmaturities as they fell due or by the early repayment ofsecurities where this was appropriate.As a consequence of the electricity asset sale/lease proceeds,SAFA had a nil net financing requirement for 2000-01.SAFA’s electricity proceeds management strategies resulted in$4.9 billion of State debt being successfully retired in calendarAndrew Thompson,Assistant General Manager,Financial Markets.year 2000.Medium Term Funding StrategySince the mid 1990’s, SAFA management identified thelikelihood that future borrowing programs would be reducedconsiderably from levels in previous years as a result of theThe global downturn was led by the US technology sector,rapidly developing into manufacturing recession as the strongUS dollar constrained the export sector. A key feature of theGovernment’s debt reduction policies.Against thisdownturn was the notable reduction in capital investment.background, SAFA developed a funding strategy to guide itsmarket operations over the medium-term.In the post-debt retirement era, it is still considered, from amedium to long-term perspective, that the basic tenets of thestrategy remain valid, including maintaining a presence in thedomestic market. The maintenance of long-term fundinginfrastructure implied by the strategy will allow for servicingany ongoing funding requirements of the South Australianpublic sector and managing the existing stock of debt.Economic and FinancialMarket EnvironmentIn 2000-01, the economic expansion slowed sharply in mostindustrialised countries, in response to the tightening ofmonetary policy by many of the world’s leading central banksand the dramatic increase in the price of oil. This ledmonetary authorities in Australia and overseas to reduce shortterminterest rates as the balance of risks shifted from excessgrowth and inflation to recession.The service sector was less affected.In response to a sharp drop in capital investment and asoftening in private consumption, the US Federal Reserveeased monetary policy a number of times, commencing witha reduction of 0.5% pa on 3 January 2001. The cumulativereduction in short-term interest rates of 275 basis points tookthe target Federal Funds rate from 6.50% pa to 3.75% pa as at30 June 2001.Domestically, interest rate markets have experienced anintriguing 12-month period. Cash rates peaked at 6.25% pa inAugust 2000, as the Reserve Bank of Australia (RBA) wasconcerned about the impact of income tax cuts related to theintroduction of the New Tax System and the effect of theSydney Olympics. However, the Australian economy beganto contract over the remainder of calendar 2000, due to thepronounced slowdown in the housing industry. This saw the10-year bond rate and three-month bill rate driftlower over this period, in expectation of rate cutsby the RBA.11


SAFA’s FinancialMarkets Section.In response to the post-GST slump in spending, particularly inthe housing sector, the RBA eased monetary policy, loweringthe overnight cash rate in a number of steps from 6.25% pa to5.0% pa, commencing on 7 February 2001. The yield curve(3 month to 10 year spread) subsequently steepenedconsiderably (refer Figure 2), as the market began to factor inthe impact on economic growth of the rate cuts and thefollow-on effects for inflation.Despite economic fundamentals similar to, and in areas betterthan the United States, the Australian dollar has sufferedconsiderably against the US dollar over the past financial year.From a high of around US$0.60 at the beginning of July 2000,the Australian dollar hit an all time low in early April ofBy the end of the June quarter, the slump in the USmanufacturing sector was showing signs of ending. It isgenerally assumed that given the reasonable levels ofconsumer confidence and a healthy US banking system, theeffects of the Federal Reserve’s 275 basis points of monetarypolicy easings will begin to impact the economy in a positivemanner in the second half of 2001. However, the signs ofcontinued slowdown in Japan and Europe suggest globalrecovery will likely be delayed until 2002. As is commonlythe case, the economic outlook in Australia will to a largeextent, be determined by the extent and length of the globalslowdown and whether the US economy is on theroad to recovery.US$0.48. Reassessment by the market over the remainder of2000-01 saw some consolidation of the currency to aroundUS$0.50 by the end of June 2001 (refer Figure 3).Figure 2 – Australian Interest Rates.Figure 3 – AUD/USD Exchange Rate.12


Domestic Financial MarketsFigure 4 – SAFA 2005 bond spread to swap 2000-01.As reported, due to the receipt of the electricity sale/long-termlease proceeds SAFA’s requirement for funding was nil. Shorttermcommercial paper facilities were used to fund any timingdifferences between receipt of proceeds and maturing debt.SAFA’s Select Lines were not required for funding purposesduring 2000-01, although they were used as part of its debtmanagement activities.Over $1.8 billion of inscribed stock debt was retired as a resultof the maturity of SAFA’s October 2000 stock.The volume of SAFA’s Select Lines outstanding as at 30 June2001 were as follows:Coupon Maturity $M10% 15 January 2003 808.86.5% 15 August 2005 700.67.5% 15 October 2007 836.5SAFA did not issue any inflation-indexed securities during thecourse of the year, however, there were moderateopportunities to repurchase some of this debt.The outstandings for SAFA’s indexed bonds as at30 June 2001 were:During 2000-01, spreads on SAFA’s Select Lines traded in afairly narrow range relative to other State Government issuers,while more volatile spread movements occurred against boththe swap and government yield curves. The spread to swapagainst SAFA’s 2005 Select Line is depicted in Figure 4.Capital Indexed BondsCoupon Maturity $M4% 20 August 2002 104.04% 20 February 2003 20.04% 20 August 2015 73.0Indexed Annuity BondsMaturity $M15 September 2005 55.015 December 2011 142.015 June 2016 71.0South Australia isrenowned for itswine industry.13


Overseas Financial MarketsAs expected following the receipt of sale/long-term leaseproceeds, there was no requirement during 2000-01 for SAFAto undertake a longer-term offshore issue.The focus of offshore issuance remained with the EuroCommercial Paper programme, which provided the most costeffective, short-term funding opportunities. Averageoutstandings for the year ranged from $300 millionto $450 million.SAFA’s US commercial paper programme has not been utilisedfor some time and, as such, was deactivated during thefinancial year.Consistent with long-standing policy, all foreign currencyborrowings in offshore markets were hedged or converted toAustralian dollars to eliminate foreign currency exposures.Communication with FinancialMarket ParticipantsJohn Strawbridge and Scott Bradley from SAFAwith David Price and Greg O’Rielley from theReserve Bank of Australia.During 2000-01, SAFA continued its long-standing practiceof ensuring ongoing open communication with financialmarket participants.Aside from the day-to-day contact with financial marketintermediaries, a series of one-on-one meetings wasundertaken with individual intermediaries in Sydney andMelbourne primarily to discuss the status of the State’s assetsales, consequent implications for the State’s debt and thereview being undertaken with respect to debt management forthe Treasurer’s debt portfolios.During 2000-01, SAFA developed a comprehensive newwebsite to provide information on its funding program andfinancial market activities. The contributed Bloomberg pagesare also in the process of being redesigned with the aim ofproviding wholesale financial market participants with agreater degree of information. The website can be located atwww.safa.sa.gov.au and Bloomberg users can accessinformation via SAFA . Information on SAFA’sfunding programs can also be located on Telerate,pages 22640 to 22645.SAFA raises fundsfor South Australia’sinfrastructure.14


Corporate Governance Structure and PracticesIntroductionFigure 5: Schematic Representation of SAFA’sCorporate Governance Structure.SAFA’s governance practices are contained in its PolicyManual, which has been approved by the Treasurer of SouthAustralia, and defines the roles, responsibilities anddelegations of authority of all parties associated with SAFA.TREASURERIn controlling the operations of SAFA, the Under Treasurermust consider advice given to him by the South AustralianGovernment Financing Advisory Board, a body created in June1995 to replace the SAFA Board, following amendmentsto the Act.SAFA Advisory BoardThe Advisory Board’s composition is determined according toprovisions in the Act.UNDERTREASURER(In his capacityas the Authority)GENERALMANAGER,SAFAADVISORYBOARDADVISORYBOARDAUDITCOMMITTEEINTERNALAUDITMembershipThe Advisory Board comprised the following members at30 June 2001:Role and Responsibility• Mr Jim Wright, Under Treasurer (Presiding Member)• Mr Barry Brownjohn, Company Director• Mr Michael Doyle, Financial Consultant• Ms Yvonne Sneddon, Partner, Deloitte Touche Tohmatsu.During the year, the following also were members of theAdvisory Board:• Ms Alice McCleary, Company Director and Consultant,whose term expired on 8 June 2001• Ms Susan Filby, General Manager, TransAdelaide, whoresigned on 13 April 2001• Ms June Roache, Chief Executive, Lotteries Commission ofSouth Australia, who was deputy to Ms Filby until13 April 2001.The Advisory Board has responsibility for providing advice tothe Under Treasurer and the Treasurer of South Australia onissues pertaining to SAFA’s operations.The Advisory Board has two functions under SAFA’scontrolling legislation:• at the request of the Treasurer or the Under Treasurer it willprovide advice to the Treasurer (in writing) or the UnderTreasurer (orally or in writing) on any question relating tothe exercise by SAFA of its powers, functions or dutiesunder the Act• if it believes it should provide advice to the Treasurer or theUnder Treasurer on any matter relating to the exercise bySAFA of its powers, functions or duties under the Act, it mayprovide that advice even though a special request hasnot been made.Should any advice given to the Under Treasurer or theTreasurer not be followed, it must be noted in SAFA’s AnnualReport, together with sufficient reasoning as to why it was notfollowed. There were no such occurrences in 2000-01.15


The Presiding Member of SAFA’sAdvisory Board, Jim Wright withAdvisory Board membersMichael Doyle, Yvonne Sneddonand Barry Brownjohn.Throughout the year, the Advisory Board receivedand reviewed:• monthly reports from the General Manager summarisingoperational and financial matters• quarterly reports on SAFA’s portfolio managementassignments, financial statements, progress against itsbusiness plan and matters related to credit riskRemunerationFour appointed members of the Advisory Board were entitledto receive allowances and expenses. Total remuneration forthe year was $107,680.Members who are permanently employed under the PublicSector Management Act 1995, or on similar terms, are notentitled to remuneration.• other policy-related papers.Appointment and Retirement of AdvisoryBoard MembersAdvisory Board members (excluding the Under Treasurer asPresiding Member) are appointed by the Governor of SouthAustralia for a term (up to three years) as stated in theinstrument of appointment and are eligible for re-appointmentat the end of that term.Details of Advisory Board members’ attendance for 2000-01was as follows:Conflict of InterestNo conflicts of interest relating to Advisory Board memberswere registered during the year.Internal Controls and AuditTo ensure the highest level of review and assessment, SAFAhas adopted a three-tiered internal control structure,complemented by the external auditing of its accounts bySouth Australia’s Auditor-General.Advisory Board Meetings Eligible MeetingsMember to Attend AttendedMr Jim Wright 6 5Mr Barry Brownjohn 6 6Mr Michael Doyle 6 5Ms Yvonne Sneddon 6 5Ms Alice McCleary 6 4Ms Susan Filby 5 4Deputy MemberMs June Roache 1 0Advisory Board Audit CommitteeThe highest level of internal control is the Advisory BoardAudit Committee, which is a sub-committee of the full SAFAAdvisory Board. Three members of the Advisory Board formthe Advisory Board Audit Committee.In 2000-01 the committee members were Ms Alice McCleary(Chairman until 8 June 2001), Mr Michael Doyle andMs Yvonne Sneddon. The committee met four timesduring the year.Mr John Hill presided at one meeting of the Advisory Board asActing Under Treasurer.16


The committee operates under clearly defined terms ofreference and an internal audit charter ratified by the AdvisoryBoard. Its primary role is to assist the Under Treasurer and theAdvisory Board in determining that sound financial riskmanagement operating policies and practices are adheredto within SAFA.Internal AuditAt the second level is an independent internal audit function,which reports directly to the Advisory Board Audit Committeeto ensure it remains independent of management.During 2000-01, the internal audit function was provided byDean Pontifex with Angela Wilson fromPricewaterhouseCoopers.PricewaterhouseCoopers. This allowed SAFA to have itsoperations audited and benchmarked by staff with exposure toa range of other industry practitioners, thereby ensuringthey remained at levels consistent with financeindustry best practice.To ensure audit coverage is effective and cost efficient, workprograms are coordinated between the internal auditorsand SAFA’s external auditor, the Auditor-General ofSouth Australia.PricewaterhouseCoopers was reappointed in October 2000to perform the internal audit function, following aselective tender.In house Compliance FunctionThe third level of control is provided by SAFA’s in housecompliance unit which reports directly to theGeneral Manager.The internal auditors review all work undertaken by thecompliance unit and include its findings andrecommendations in reports to the Audit Committee. TheAudit Committee ensures that recommendations regardingfindings submitted by both internal and external auditors areinvestigated and appropriate remedial actions are takenby management.The multi-tiered approach to monitoring and maintainingSAFA’s control environment operates to ensure that internalcontrol systems within SAFA function effectively in themanagement of all identifiable tasks.Members of SAFA’sAccounting Section.17


Risk ManagementSAFA faces a number of risks in performing its functions,including interest rate risk, credit risk, liquidity risk, fundingrisk, currency risk, operational risk, and legal risk. The natureof these risks and their relevance in SAFA’s operations areexplained in more detail below.Members of SAFA’sPolicy and PlanningSection.Interest Rate RiskCredit RiskSAFA’s interest rate risk is the risk of financial loss and/orincreased costs due to adverse movements in the value of itsassets and liabilities as a result of changes in interest rates.SAFA uses a variety of methods to measure interest raterisk, including basis point sensitivity, duration/modifiedduration and VAR.Interest rate risk limits for SAFA’s portfolios are approved bythe Under Treasurer, while limits on interest rate risk forportfolios managed on behalf of clients are set in consultationwith the clients.SAFA’s credit risk is the risk of financial loss, and anyassociated costs, resulting from the failure of counterparties tomeet their financial obligations as and when they fall due.Credit risk arises during the course of SAFA’s investmentactivities related to its core functions of fundraising, asset andliability management and liquidity management.To minimise the potential for credit losses, SAFA’s investmentsmust comply with stringent credit guidelines. Thoseguidelines, which have been developed with reference tocredit ratings assigned by Standard & Poor’s credit ratingagency, permit SAFA to deal only with counterparties whopossess a strong capacity to meet their financial commitments,including the timely payment of principal and interest.SAFA’s credit guidelines are designed to promotediversification of credit risk amongst counterparties, whileensuring credit exposure is limited to highly rated Australianand international institutions.18


SAFA measures credit exposure of direct investments at facevalue, and the credit exposure of derivative transactions usinga mark-to-market methodology that includes an additionalfactor to cover potential future adverse market movements.Credit exposure is monitored on a daily basis and a summaryof credit and maturity limit overexposures is distributed torelevant managers each day.No credit losses were incurred by SAFA over the year,reflecting its prudent and conservative credit risk policy andmanagement practices.Funding RiskSAFA’s funding risk is a medium-term risk associated with itnot being able to raise funds when required, or raising fundsat a substantially higher cost.Guidelines are set to ensure that SAFA is not exposed to asignificant refinancing risk in any financial year.Currency RiskSAFA’s currency risk is the risk of financial loss and/orincreased costs from adverse exchange rate movementsrelating to payment for foreign goods and services, overseasAA- 23%A+ 2%A6%A- 2%Other 1%AAA 55%borrowings and hedging services provided to clients.SAFA avoids currency risk by hedging its exposure relating toforeign currency borrowings. This is achieved through swaps,or by purchasing matching foreign currency assets.Operational RiskSAFA’s operational risk is the risk of financial loss and/orAA 7%AA+ 4%increased costs due to mis-management, fraud or speculativeuse of techniques or products.SAFA has established policies for managing operational risk,Figure 6: SAFA’s credit exposures as at 30 June 2001,grouped by credit rating categories, as set byStandard & Poor’s Ratings Group.including reporting requirements, delegated authorities and arobust internal control framework as detailed in the CorporateGovernance section of this report.Liquidity RiskSAFA’s liquidity risk is the risk of financial loss and/orincreased costs due to unanticipated events or errors in dayto-dayoperating cash flow forecasts, which could result inhigher borrowing costs, reduced investment income or, in theworst case, an inability to meet financial or operationaldemand for funds.In order to mitigate this risk, SAFA has in place a frameworkwhich includes the use of short-term liquidity guidelines. Theguidelines require SAFA to hold a base level of liquidity orsufficient liquid assets to meet debt maturities for the next 30days. Liquid assets comprise cash, term cash, discountLegal RiskSAFA’s legal risk is the risk that contracts to which SAFA is aparty are not legally enforceable or documented correctly.This includes risks arising from insufficient documentation,insufficient capacity or authority of a counterparty(ultra vires), uncertain legality and enforceability inbankruptcy or insolvency.Legal risks exist in all of SAFA’s activities, particularly infunding transactions, derivative transactions, investmenttransactions and client lending and deposit transactions. Theyare limited and managed through policies and guidelinesdeveloped by SAFA’s legal counsel.securities, and any other marketable securities includingCommonwealth Government and semi-government bonds.19


SAFA Staff outside the Art Galleryof South Australia.Derivatives: Usage and PolicySAFA uses the following derivative instruments as partof its operations:• interest rate, currency, and foreign exchange swaps• financial futures contracts transacted on the SydneyFutures Exchange• forward rate agreements• interest rate options.By definition, the value and existence of these instrumentsdepends upon the value of, or changes in the value of, anunderlying asset, index or reference rate.The notional principal value of derivatives outstanding at 30SAFA uses derivatives to:• lower funding costs• facilitate diversification of funding sources• reconfigure interest rate profiles consistent with asset andliability management strategies• convert foreign currency exposures into Australian dollars.SAFA transacts only in foreign currency and interest ratederivative instruments to hedge financial risks, or to takestrategic interest rate risk management positions, consistentwith approved limits. SAFA’s compliance area monitorsderivatives exposure against prescribed limits on a daily basis.Additional information on the use of derivative instruments isprovided in the notes to SAFA’s financial report.June 2001 was $8,952 million, compared with$17,475 million at 30 June 2000. The reduction in derivativesoutstanding was primarily due to maturing swaps relating todebt retirement and offshore borrowing activities.SAFA undertakes derivative transactions to achieve desiredinterest rate or currency exposures, in a manner consistentwith approved policies.Operations RecoverySAFA maintains an Operations Recovery Plan to re-establishits operations in the event of an emergency, a disaster ordisruption to building services. The plan also provides forthe care and evacuation of SAFA personnel underappropriate circumstances.20


Human ResourcesAt 30 June 2001, 39 staff were employed directly in SAFA’soperations (a staff list is provided at Appendix B). A specialistalso was employed during the year to assist with informationsystems software maintenance.Permanent staff are employed by the South AustralianGovernment under the Public Sector Management Act. Somespecialist staff also are employed under this Act on anuntenured contract basis.Staff are required to comply with the codes of ethics of therelevant professional associations such as CPA AustraliaLimited, the Finance and Treasury Association Limited, theSecurities Institute of Australia and the Australian FinancialMarkets Association.Enterprise BargainingSAFA staff are bound by the South Australian public sector’senterprise bargaining framework. Enterprise bargainingnegotiations for non-salary-related issues such as workplaceproductivity and efficiency are conducted through the singlebargaining centre comprising management and staffrepresentatives from the Department of Treasury and Finance.From 1 July 1999, the department became a party to thewhole-of-government wages parity enterprise bargainingagreement for the determination of salaries.Staff Training and DevelopmentSAFA maintained a strong commitment to staff training anddevelopment during the year, sustained by an appropriatebudget allocation.Staff training needs are assessed regularly and allpersonnel are encouraged to attend work-related courses andseminars. A number of staff participated in managementtraining courses during the year, consistent with corporateleadership initiatives.Staff also are encouraged to pursue relevant tertiary studies.Support is provided though paid study leave and thereimbursement of tuition fees following successful completionof work-related subjects.At 30 June 2001, two SAFA staff members were enrolled in thePublic Sector Management Course, a national managementdevelopment program hosted in South Australia by the Officefor the Commissioner for Public Employment.Legal ServicesSAFA’s legal work is undertaken by a Senior Solicitor and LegalOfficer, both outposted from the Crown Solicitor’s Office toSAFA. Additional legal work, as required, is carried out atan hourly rate by staff from the Crown Solicitor’s Officeor private lawyers.Equal Opportunity EmploymentSAFA supports equal opportunity in employment andselects staff on the basis of merit for all positions withinthe organisation.Occupational Health and SafetySAFA strives to meet WorkCover Corporation’s highest level inoccupational health and safety standards. Quarterly safetyaudits are conducted to highlight any workplace hazards ormaintenance matters requiring attention and an action planhas been developed consistent with the requirements of theWorkCover performance standards for self insurers.21


Corporate and Trust StructuresSAFA’s subsidiaries and controlled companies are accountableto the Treasurer of South Australia, and ultimately to the SouthAustralian Parliament, by virtue of legislative andadministrative arrangements. SAFA has security over theassets of the overseas companies and guarantees theirobligations to third parties.With the exception of Palantir Pty Limited, SAFA’s subsidiaries,controlled companies and trusts were established over tenyears ago to facilitate various financing transactions.Generally, they play no further role in meeting the State’sfinancing requirements. SAFA’s current corporate structure isillustrated in Figure 7.South Australian Finance Trust LimitedSouth Australian Finance LimitedSouth Australian Finance Limited (SAFL), domiciled in theUnited Kingdom, undertook one external borrowing in 1985,the year it was established. This transaction matured inDecember 2000. The company paid a dividend to SAFA ofGBP 6.8 million in 2000-01. The company was placed intovoluntary liquidation on 1 June 2001.South Australian Finance Trust Limited (SAFTL) wasestablished in November 1985 to undertake two mainfunctions; to act as Trustee for the South Australian FinanceTrust (SAFT) and to participate in certain structured financingtransactions.SAFT has since been terminated. SAFTL contained assets andliabilities in respect to structured financing transactions, whichhave all now matured. The company made a distribution of$1.1 million to SAFA in June 2001, and it is expected that thecompany will be wound up in 2001-02.South Australian Finance(Hong Kong) LimitedSABT Pty LimitedSABT Pty Limited (SABT) acted as an intermediary in thefinancing of a series of long-dated promissory notes issued bySAFA which have now matured. At 30 June 2001 the companywas inactive and will be wound up during 2001-02.Palantir Pty LimitedSAFA acquired shares in Palantir Pty Limited on 15 June 2000in terminating a structured financing transaction. Thecompany had no economic value to SAFA and was placedinto voluntary liquidation on 29 June 2001.South Australian Finance (Hong Kong) Limited (SAF(HK)L) wasestablished in 1986 to facilitate the issue of a US dollardenominated Eurobond. The proceeds were invested in highqualitysecurities at a positive margin.The company also acts as Trustee of the South AustralianFinance Trust (Hong Kong) (SAFT(HK)), of which SAFA is thesole beneficiary.SAF(HK)L has not undertaken any new external borrowingssince July 1987. The company will remain in existenceuntil the maturity of outstanding transactions, whichcontinue until 2004.22


Figure 7: SAFA’s Corporate Structure.TREASURER OF SOUTH AUSTRALIASOUTH AUSTRALIANFINANCE TRUST LIMITED(SAFTL)50% InterestUnited KingdomResident CompanySOUTH AUSTRALIANGOVERNMENT FINANCINGAUTHORITY (SAFA)Hong KongResident CompanyAustralianResidentCompanySABT PTY LTD(SABT)SOUTH AUSTRALIANFINANCE LIMITED(in voluntary liquidation)SOUTH AUSTRALIANFINANCE (HONG KONG)LIMITED (SAF(HK)L)PALANTIRPTY LTD(in voluntaryliquidation)Trustee ofSOUTH AUSTRALIANINVESTMENTS (SAI)(in voluntary liquidation)SOUTH AUSTRALIANFINANCE TRUST(HONG KONG) (SAFT(HK)L)Financial PerformanceStatement of Financial PerformanceStatement of Financial PositionOn a consolidated basis, SAFA achieved an operating surplusbefore taxation of $32.6 million. As parent entity, SAFArecorded an operating surplus before taxation of$44.7 million, which included intra-company dividendsof $18.5 million.The operating surplus was consistent with expectations. TheAt 30 June 2001, on a consolidated basis SAFA had assetstotalling $8,017 million. This is a decrease of $5,878 millionfrom 1999-2000, which is largely due to the reduction inloans to the Treasurer and the maturity of a structuredfinancing transaction and associated investment in the UnitedKingdom subsidiary.main sources of SAFA’s operating surplus are return on capitaland margins and fees on client loans and other services.Figure 8: Consolidated group financial data for the last 5 years.2000-01 1999-00 1998-99 1997-98 1996-97$M $M $M $M $MOperating Surplus Before Taxation 33 42 54 77 119Taxation 9 12 14 45 39Distribution - - - 47 93Retained Earnings 269 246 216 176 191Capital - - - - 150Total Assets 7,886 13,895 15,356 15,270 17,07523


Financial ReportIndexStatement of Financial Position 25Statement of Financial Performance 26Statement of Cash Flows 27Note 1 - Summary of Significant Accounting Policies 28Note 2 - Cash and Short Term Assets 32Note 3 - Investments 33Note 4 - Loans to the South Australian Government 34Note 5 - Loans to Semi-Government Authorities 35Note 6 - Loans to Public Sector Financial Institutions 36Note 7 - Capital Investments 36Note 8 - Currency Swaps - Receivable 37Note 9 - Other Assets 37Note 10 - Deposits and Short Term Borrowings 38Note 11 - Bonds, Notes and Debentures 39Note 12 - Obligations to Commonwealth Government 40Note 13 - Currency Swaps - Payable 40Note 14 - Other Liabilities 41Note 15 - Retained Surplus 41Note 16 - Contingent Assets 41Note 17 - Contingent Liabilities 42Note 18 - Interest Revenue and Expense 43Note 19 - Dividends 44Note 20 - Other Non-Interest Revenues 44Note 21 - Non-Interest Expenses 45Note 22 - Cash Flow Information 45Note 23 - Additional Financial Instrument Disclosures 46Note 24 - Net Fair Value of Financial Instruments 53Note 25 - Fiduciary Activities 55Note 26 - Auditor’s Remuneration 55Note 27 - Remuneration of SAFA Advisory Board Members 55Note 28 - Controlled Entities 56Note 29 - Related Party Transactions 57Note 30 - Segment Information 57Statement by Responsible Officers 5824


Statement of Financial PositionSAFAConsolidatedNote 2001 2000 2001 2000Assets $M $M $M $MCash and Short Term Assets 2 909 2,227 924 2,343Investments 3 473 930 473 1,449Loans to the South Australian Government 4 3,756 5,854 3,756 5,854Loans to Semi-Government Authorities 5 1,163 1,427 1,163 1,427Loans Provided to Public SectorFinancial Institutions 6 838 882 838 842Capital Investments 7 0 6 - -Currency Swaps - Receivable 8 685 1,376 678 1,498Other Assets 9 186 437 186 482Total Assets 8,010 13,139 8,018 13,895LiabilitiesDeposits and Short Term Borrowings 10 1,880 3,211 1,880 3,204Bonds, Notes and Debentures 11 4,163 6,976 4,197 7,621Obligation to Commonwealth Government 12 844 935 844 935Currency Swaps - Payable 13 589 1,321 582 1,436Other Liabilities 14 271 469 246 453Total Liabilities 7,747 12,912 7,749 13,649Capital and ReservesRetained Surplus 15 263 227 269 246Total Capital and Reserves 263 227 269 246Total Capital, Reserves and Liabilities 8,010 13,139 8,018 13,895Contingent Assets 16 - - - -Contingent Liabilities 17 - - - -25


Statement of Financial PerformanceSAFAConsolidatedNote 2001 2000 2001 2000$M $M $M $MInterest Revenue 18 729.2 1,061.8 773.9 1,142.3Less Interest Expense 18 704.2 1,034.1 742.5 1,104.9Net Interest Revenue 25.0 27.7 31.4 37.4Dividends 19 18.5 - - -Other Non-Interest Revenues 20 11.0 14.8 11.5 13.0Less Non-Interest Expenses 21 9.8 8.3 10.3 8.7Operating Surplus Before Income Tax 44.7 34.2 32.6 41.7Income Tax (TER) attributable toOperating Surplus 8.9 12.3 8.9 12.5Net profit after Income Tax 35.8 21.9 23.7 29.2Total changes in equity other than those resultingfrom transactions with owners as owners 35.8 21.9 23.7 29.226


Statement of Cash FlowsSAFAConsolidatedCash Flows from Note 2001 2000 2001 2000Operating Activities $M $M $M $MCash Flows from Operating Activities $M $M $M $MInterest received on Loans to Clients 558 785 558 783Interest received on Investments 178 255 264 278Dividends received 19 - - -Other Income 13 192 12 190Interest paid on Borrowings (571) (956) (577) (965)Administration Fees paid (14) (8) (14) (9)TER Income Tax paid (9) (22) (10) (23)Net cash provided by Operating Activities 22 174 246 233 254Cash Flows from Investing ActivitiesNet proceeds from payments forLoans to Clients 2,414 2,397 2,414 2,419Purchase of Investments (10,003) (11,426) (10,036) (11,671)Proceeds from Investments 11,509 10,532 12,328 10,772Net cash provided by Investing Activities 3,920 1,503 4,706 1,520Cash Flows from Financing ActivitiesRepayment of Obligations toCommonwealth Government (91) (172) (91) (172)Repayment of Borrowings (4,279) (1,317) (5,124) (1,344)Net cash used in Financing Activities (4,370) (1,489) (5,215) (1,516)Net increase/(decrease) in cash held (276) 260 (276) 258Cash at the beginning of the financial year 429 169 436 177Effect of Exchange Rate Changes 1 0 2 1Cash at the end of the Financial Year 22 154 429 162 43627


Note 1. Summary of significant accounting policiesa. Principal Accounting PoliciesIn the Financial Report, the South Australian Government Financing Authority, the ‘Parent Entity’, is referred to as ‘SAFA’, and the‘Economic Entity’, consists of SAFA and all entities in which it has control. The consolidated accounts comprise the accounts ofthe Economic Entity. The registered address of SAFA is Level 5, State Administration Centre, 200 Victoria Square East, Adelaide,South Australia, 5000.The Financial Report has been prepared as a general purpose financial report in accordance with the Australian AccountingStandards (Accounting Standards), Urgent Issues Group (UIG) Consensus Views and the requirements of the Treasurer'sInstructions relating to financial reporting by statutory authorities which are issued pursuant to the South Australian PublicFinance and Audit Act, 1987.The accounting policies adopted are consistent with those of the previous year unless otherwise stated.b. Principles of ConsolidationThe consolidated Financial Report of the Economic Entity include the accounts of SAFA, being the Parent Entity, and its controlledentities listed in Note 28. All assets and liabilities of the affiliated entities are consolidated as of 30 June 2001. If the basecurrency of the affiliated entity is in a foreign currency then the assets and liabilities are converted at the exchange rate existingas at 30 June 2001. Where entities have been acquired or sold during the year, their operating results have been included fromthe date of acquisition or to the date of disposal. All material balances and transactions between members of the Economic Entityhave been eliminated on consolidation.c. Statutory GuaranteeUnder Section 15 of the Government Financing Authority Act, 1982, all financial obligations incurred or assumed by SAFA areguaranteed by the Treasurer on behalf of the State of South Australia.d. Historical Cost ConventionThe historical cost convention has been adopted and, unless otherwise stated, the amounts presented in the Statement ofFinancial Position do not reflect realisable values of assets and liabilities or changes in the purchasing power of money.e. Foreign Currency TranslationForeign currency assets and liabilities are brought into the Financial Report at the exchange rate applying at 30 June 2001.Revenue and expense items are translated at the exchange rate current at the date at which those items were recognised in theFinancial Report. Revaluation of foreign currency assets and liabilities are recognised as unrealised gains or losses and arebrought to account in the Statement of Financial Performance.Forward foreign exchange contracts are translated at the exchange rate applying at 30 June 2001. Resulting exchange differencesare recognised in the Statement of Financial Performance.f. Interest RecognitionInterest income and expense is accrued in accordance with the terms and conditions of the underlying financial instrument andpremiums and discounts are amortised over the life of the associated borrowing.28


g. Non - Interest Revenue RecognitionFee income in respect of services provided is recognised in the period in which the service is provided.Income from the Commonwealth Government is provided under the terms and conditions of the Financial Agreement Act 1994as compensation for refinancing of previous borrowings undertaken by the Commonwealth Government. The revenue isrecognised on an accrual basis in the period to which it relates.h. Employee BenefitsAll officers engaged on SAFA business are employees of the South Australian Department of Treasury and Finance (Treasury).SAFA pays a fee to Treasury for services rendered, including staffing resources as part of a Service Level Agreement. Theresponsibility to provide for employer contributions to superannuation benefits rests with Treasury and for this reason SAFA is notrequired to establish a provision. Long service leave liabilities are met by Treasury as they fall due. The controlled entitiescomprising the Economic Entity do not have any employees.i. Recognition of Gains and LossesGains and losses result from the early termination of assets, liabilities and derivative transactions, the daily mark-to-marketrevaluation of financial futures and the realised gains and losses resulting from forward rate agreements. These gains and lossesare recognised immediately in the Statement of Financial Performance. Where the transaction relates to the management ofliabilities on behalf of the Treasurer of South Australia, SAFA recoups the gain or loss by making an adjustment to the Treasurer’sdebt level.j. Tax Equivalent DisclosureSAFA and its controlled entities came under a Tax Equivalent Regime (TER) as from 1 July 1995 and are taxed (at 34% for 2000-01) using the Accounting Profits Tax Model. SAFA receives a credit against its TER liability for any income tax paid directly orby its controlled entities in Australia or in other jurisdictions.South Australian Finance Trust Limited (SAFTL), which previously came under the Commonwealth income tax jurisdiction,commenced under the TER as from 1 July 1995 and is assessed under a Substantive Tax Model which adopts as its basis theIncome Tax Assessment Act, 1936 and the Income Tax Assessment Act, 1997.k. Goods and Services TaxRevenues, expenses and assets are recognised net of the amount of goods and service tax (GST), except:• where the GST is not recoverable, it is recognised as part of the cost of acquisition of an asset or as part of an item of expense;or• for receivables and payables which are recognised inclusive of GST.The net amount of GST recoverable from or payable to the taxation authority is included as part of receivable or payables. Noamounts were included in the Statement of Cash Flows as GST paid to and GST received from the Australian Tax Office as bothwere less than $500,000.29


l. Derivative InstrumentsThe Economic Entity utilises derivative instruments in fund raising, debt management and client activities. They are used toconvert funding costs, facilitate diversification of funding sources, reconfigure interest rate risk profiles and manage foreigncurrency exposures.The specific policies applying to derivative instruments are detailed below:Currency swaps – recorded in the Statement of Financial Position on a gross basis and translated at the exchange rate applyingat 30 June 2001. Resulting exchange differences are recognised in the Statement of Financial Performance. Interest receipts andinterest payments are accrued on a gross basis in other assets and other liabilities respectively in the Statement of FinancialPosition and classified as interest revenue and interest expense in the Statement of Financial Performance.Interest rate swaps – accounted for on an historic cost basis with interest receipts and interest payments accrued on a gross basisin other assets and other liabilities respectively in the Statement of Financial Position. Net interest expense is recorded againstBonds, Notes and Debentures in the Statement of Financial Performance.Financial futures and exchange traded interest rate option contracts – marked to market daily and the resultant change in valueis recognised directly in the Statement of Financial Performance.Forward rate agreements – realised gains or losses are recognised directly in the Statement of Financial Performance.Forward foreign exchange contracts – translated at the exchange rate applying at 30 June 2001. Resulting exchange differencesare recognised in the Statement of Financial Performance.m. Cash and Short Term AssetsPrimarily, Short Term Money Market Deposits and Negotiable Discount Securities which are held for liquidity and investmentpurposes. Cash and Short Term Assets are recorded at cost with interest income accrued in accordance with the termsof the transaction.n. InvestmentsInvestments are assets originating outside the South Australian public sector, which are purchased as part of portfoliomanagement and may be sold prior to maturity in response to various factors including changes in interest rates and fundingrequirements of the South Australian public sector.Investments are recorded at cost with the cost adjusted for the amortisation of premiums and accretion of discounts until maturity.The cost of securities sold is calculated on a closest yield basis of identification.The Economic Entity does not hold investments for trading purposes.o. Loans and AdvancesLoans and advances are recognised at recoverable amount, after assessing required provisions for impairment. The Treasurer ofSouth Australia guarantees all loans and advances to South Australian public sector entities. The loan portfolio is reviewedregularly and an impairment of a loan would be recognised when there is reasonable doubt that not all the principal and interestcan be collected in accordance with the terms of the relevant agreement. There are no impaired loans as at 30 June 2001.30


p. Repurchase AgreementsSecurities sold under an agreement to repurchase are retained within the investment category. The obligation to repurchase isrecorded as a Contingent Liability. The difference between the sale and repurchase price represents the interest income/expenseand is recognised in the Statement of Financial Performance over the term of the repurchase agreement.q. Bonds, Notes and DebenturesFunds are raised through various instruments including bonds, notes and debentures. These instruments are recorded at historicalcost and the effective historic cost of the transaction is recognised in the Statement of Financial Performance on an accrual basis.All borrowings are raised on an unsecured basis.r. Other Assets and LiabilitiesOther assets, including debtors, prepayments and accruals, and other liabilities, including creditors, expense accruals andprovisions, are all stated at cost.s. Maturity of Assets and LiabilitiesThe maturity classification of the assets and liabilities is determined by the length of time from the date of the Financial Report,30 June 2001, to the contractual repayment date of the individual assets and liabilities.t. Average BalancesThe average balances presented in Note 18 have been calculated on a daily balance with the average rate resulting from a simplecalculation of average balance and interest.u. ComparativesThe comparative amounts for the previous year have been reclassified to facilitate comparison with changes in presentation inthe current year.v. RoundingUnless otherwise indicated, all amounts have been rounded to the nearest million Australian dollars.31


Note 2. Cash and Short Term AssetsSAFAConsolidated2001 2000 2001 2000$M $M $M $MCarrying ValueCash at Bank 6.3 16.4 14.8 24.1Short Term Money Market Deposits 147.4 413.1 147.4 413.1Negotiable Discount Securities 754.8 1,797.8 761.7 1,906.1908.5 2,227.3 923.9 2,343.3Net Fair ValueCash at Bank 6.3 16.4 14.8 24.1Short Term Money Market Deposits 147.4 413.1 147.4 413.1Negotiable Discount Securities 754.8 1,798.0 761.7 1,906.1908.5 2,227.5 923.9 2,343.3Maturity Analysis ofCash and Liquid AssetsAt Call 172.7 429.5 181.2 437.2Due in less than 3 months 696.5 993.6 703.4 999.5Longer than 3 and not longer than 12 months 39.3 804.2 39.3 906.6Longer than 1 and not longer than 5 years - - - -Longer than 5 years - - - -908.5 2,227.3 923.9 2,343.332


Note 3. InvestmentsSAFAConsolidated2001 2000 2001 2000$M $M $M $MCarrying ValueSemi-Government Securities - 362.4 - 362.4Commonwealth Government Guaranteed Securities 255.2 255.5 255.2 255.5Local Government Securities 24.8 33.2 24.8 33.2Indexed Securities 96.1 93.1 96.1 93.1Mortgage Backed Securities 8.1 10.7 8.1 10.7Corporate Securities and Loans 88.8 175.0 88.8 693.8473.0 929.9 473.0 1,448.7Net Fair ValueSemi-Government Securities - 360.0 - 360.0Commonwealth Government Guaranteed Securities 256.3 252.7 256.3 252.7Local Government Securities 38.2 47.7 38.2 47.7Indexed Securities 100.4 93.0 100.4 93.0Mortgage Backed Securities 9.6 11.9 9.6 11.9Corporate Securities and Loans 89.2 176.4 89.2 710.5493.7 941.7 493.7 1,475.8Maturity Analysis of Investment SecuritiesAt Call 0.2 - 0.2 -Due in less than 3 months 20.1 0.4 20.1 0.4Longer than 3 and not longer than 12 months 91.7 120.9 91.7 639.7Longer than 1 and not longer than 5 years 182.3 212.0 182.3 212.0Longer than 5 years 178.7 596.6 178.7 596.6473.0 929.9 473.0 1,448.733


Note 4. Loans to the South Australian GovernmentSAFAConsolidated2001 2000 2001 2000$M $M $M $MCarrying ValueLoans to SA Government at CPSIR 3,647.6 5,737.8 3,647.6 5,737.8Loans to SA Government at Market 108.2 116.0 108.2 116.03,755.8 5,853.8 3,755.8 5,853.8Net Fair ValueLoans to SA Government at CPSIR 3,810.3 5,932.9 3,810.3 5,932.9Loans to SA Government at Market 122.6 130.3 122.6 130.33,932.9 6,063.2 3,932.9 6,063.2Maturity Analysis of Loans toSA GovernmentAt Call 8.6 8.7 8.6 8.7Due in less than 3 months 5.0 11.8 5.0 11.8Longer than 3 and not longer than 12 months 8.5 - 8.5 -Longer than 1 and not longer than 5 years 31.0 25.8 31.0 25.8Longer than 5 years 3,702.7 5,807.5 3,702.7 5,807.53,755.8 5,853.8 3,755.8 5,853.8The Common Public Sector Interest Rate (CPSIR) is the charging mechanism through which the Government allocates the netinterest cost paid on debt owing to the external financial market within the South Australian public sector. The CPSIR is the ratecharged on the majority of the South Australian Government’s debt with SAFA. The CPSIR is set by the Treasurer on a quarterlybasis and interest is payable by public sector entities to the Treasurer and by the Treasurer to SAFA.Effectively, the CPSIR loan to the Treasurer is the mirror of all the assets and liabilities that constitute the Treasurer’s Portfolios (seeNote 23). SAFA recovers the net interest expense of these assets and liabilities plus a margin through the rate charged on theTreasurer’s CPSIR loan.Gains and losses resulting from debt management activities on behalf of the Treasurer in the Treasurer’s Portfolios (see Note 23)are passed on to the Treasurer as an adjustment to the balance of the loans at CPSIR.The net fair value of the loans at CPSIR is considered to be the net fair value of the net Australian dollar borrowingsfunding those loans.34


Note 5. Loans to Semi-Government AuthoritiesSAFAConsolidated2001 2000 2001 2000$M $M $M $MCarrying ValueRESI Corporation - 47.6 - 47.6ElectraNet SA - 227.9 - 227.9Flinders Power Pty Ltd - 9.5 - 9.5Minister for Primary Industries 18.8 23.2 18.8 23.2Minister for Transport 6.9 7.6 6.9 7.6South Australian Ports Corporation 9.2 16.8 9.2 16.8Industrial and Commercial Premises Corporation 37.9 35.0 37.9 35.0South Australian Water Corporation 1,090.4 1,059.7 1,090.4 1,059.71,163.2 1,427.3 1,163.2 1,427.3Net Fair ValueRESI Corporation - 47.6 - 47.6ElectraNet SA - 257.2 - 257.2Flinders Power Pty Ltd - 9.5 - 9.5Minister for Primary Industries 18.9 23.2 18.9 23.2Minister for Transport 7.0 7.8 7.0 7.8South Australian Ports Corporation 9.4 16.8 9.4 16.8Industrial and Commercial Premises Corporation 41.3 38.5 41.3 38.5South Australian Water Corporation 1,092.9 1,083.9 1,092.9 1,083.91,169.5 1,484.5 1,169.5 1,484.5Maturity Analysis of Loans toSemi-Government AuthoritiesAt Call 33.0 230.8 33.0 230.8Due in less than 3 months 126.3 78.4 126.3 78.4Longer than 3 and not longer than 12 months 102.6 155.6 102.6 155.6Longer than 1 and not longer than 5 years 499.1 390.6 499.1 390.6Longer than 5 years 402.2 571.9 402.2 571.91,163.2 1,427.3 1,163.2 1,427.335


Note 6. Loans to Public Sector Financial InstitutionsSAFAConsolidatedNote 2001 2000 2001 2000$M $M $M $MCarrying ValueLocal Government Finance Authority 34.4 69.0 34.4 69.0HomeStart Finance (1) 690.6 662.1 690.6 662.1South Australian Finance Trust Ltd - 10.1 - -South Australian Finance Limited (UK) - 30.0 - -South Australian Community Housing Authority 112.7 110.6 112.7 110.6837.7 881.8 837.7 841.7Net Fair ValueLocal Government Finance Authority 37.2 72.1 37.2 72.1HomeStart Finance (1) 689.1 660.3 689.1 660.3South Australian Finance Trust Ltd - 10.1 - -South Australian Finance Limited (UK) - 30.0 - -South Australian Community Housing Authority 115.8 114.0 115.8 114.0842.1 886.5 842.1 846.4Maturity Analysis for Loans toPublic Sector Financial InstitutionsAt Call 1.1 35.6 1.1 32.0Due in less than 3 months 229.7 203.3 229.7 203.3Longer than 3 and not longer than 12 months 14.2 52.8 14.2 16.3Longer than 1 and not longer than 5 years 523.4 460.7 523.4 460.7Longer than 5 years 69.3 129.4 69.3 129.4837.7 881.8 837.7 841.7(1) The carrying amount of this loan has not been reduced to its net fair value as it is considered that the full carryingamount will be recovered.Note 7. Capital InvestmentsSAFAConsolidated2001 2000 2001 2000$M $M $M $MCarrying ValueSouth Australian Finance Ltd (UK) - Capital 0.0 5.8 - -36


Note 8. Currency Swaps - ReceivableSAFAConsolidated2001 2000 2001 2000$M $M $M $MCarrying ValueCurrency Swaps- Receivable 685.2 1,376.3 678.4 1,497.6Net Fair ValueCurrency Swaps- Receivable 719.8 1,402.9 712.9 1,527.0Maturity Analysis ofCurrency Swaps - ReceivableAt Call - - - -Due in less than 3 months - - - -Longer than 3 and not longer than 12 months 151.3 699.8 151.3 826.9Longer than 1 and not longer than 5 years 533.9 676.5 527.1 670.7Longer than 5 years - - - -685.2 1,376.3 678.4 1,497.6Note 9. Other AssetsSAFAConsolidated2001 2000 2001 2000$M $M $M $MCarrying ValueAccrued Interest 181.9 419.6 181.9 460.1Prepayments 3.9 17.5 3.9 17.5Sundry Debtors 0.5 0.2 0.4 3.9186.3 437.3 186.2 481.5Net Fair ValueAccrued Interest 181.9 419.6 181.9 460.1Prepayments - - - -Sundry Debtors 0.5 0.2 0.4 3.9182.4 419.8 182.3 464.037


Note 10. Deposits and Short Term BorrowingsSAFAConsolidated2001 2000 2001 2000$M $M $M $MCarrying ValueDeposits 191.6 32.4 191.6 32.4Deposits from the Treasurer of South Australia 1,027.6 2,632.3 1,027.6 2,632.3Deposits from Semi-Government Authorities 424.6 391.4 424.6 391.4South Australian Asset Management Corporation 33.2 51.8 33.2 51.8Commercial Paper - 103.3 - 95.6Euro Commercial Paper 203.3 - 203.3 -1,880.3 3,211.2 1,880.3 3,203.5Net Fair ValueDeposits 178.5 32.4 178.5 32.4Deposits from the Treasurer of South Australia 1,036.1 2,632.6 1,036.1 2,632.6Deposits from Semi-Government Authorities 440.0 410.0 440.0 410.0South Australian Asset Management Corporation 29.6 51.7 29.6 51.7Commercial Paper - 107.0 - 99.3Euro Commercial Paper 202.5 - 202.5 -1,886.7 3,233.7 1,886.7 3,226.0Maturity Analysis of Deposits andShort Term BorrowingsAt Call 1,351.6 2,533.8 1,351.6 2,533.8Due in less than 3 months 222.8 182.9 222.8 182.9Longer than 3 and not longer than 12 months 8.9 445.5 8.9 437.8Longer than 1 and not longer than 5 years 97.8 16.8 97.8 16.8Longer than 5 years 199.2 32.2 199.2 32.21,880.3 3,211.2 1,880.3 3,203.538


Note 11. Bonds, Notes and DebenturesSAFAConsolidated2001 2000 2001 2000$M $M $M $MCarrying ValueInscribed Stock 2,221.9 3,863.6 2,221.9 4,482.8Inflation Linked Bonds and Annuities 506.4 534.4 506.4 534.4Debentures 2.8 2.9 36.9 28.6Eurobonds 554.8 653.6 554.8 653.6Samurai Bonds 214.2 624.7 214.2 624.7Medium Term Notes 266.2 770.1 266.2 770.1Borrowings from Financial Institutions 255.4 254.5 255.4 254.5Annuities 140.9 272.7 140.9 272.74,162.6 6,976.5 4,196.7 7,621.4Net Fair ValueInscribed Stock 2,385.0 4,024.4 2,385.0 4,656.3Inflation Linked Bonds and Annuities 565.3 611.6 565.3 611.6Debentures 2.9 3.0 31.1 29.0Eurobonds 653.3 756.7 653.3 756.7Samurai Bonds 214.0 618.6 214.0 618.6Medium Term Notes 327.4 842.3 327.4 842.3Borrowings from Financial Institutions 279.0 282.3 279.0 282.3Annuities 140.4 275.8 140.4 275.84,567.3 7,414.7 4,595.5 8,072.6Maturity Analysis of Bonds,Notes and DebenturesAt Call - - - -Due in less than 3 months 64.9 353.5 64.9 353.5Longer than 3 and not longer than 12 months 425.5 2,165.0 425.5 2,784.2Longer than 1 and not longer than 5 years 2,528.6 2,434.3 2,562.7 2,460.0Longer than 5 years 1,143.6 2,023.7 1,143.6 2,023.74,162.6 6,976.5 4,196.7 7,621.439


Note 12. Obligations to Commonwealth GovernmentSAFAConsolidated2001 2000 2001 2000$M $M $M $MCarrying ValueObligations to Commonwealth Government 844.4 935.2 844.4 935.2Net Fair ValueObligations to Commonwealth Government 682.0 761.2 682.0 761.2Maturity Analysis of Obligations toCommonwealth GovernmentAt Call - - - -Due in less than 3 months 23.9 74.2 23.9 74.2Longer than 3 and not longer than 12 months 17.9 5.2 17.9 5.2Longer than 1 and not longer than 5 years 62.3 75.0 62.3 75.0Longer than 5 years 740.3 780.8 740.3 780.8844.4 935.2 844.4 935.2Note 13. Currency Swaps – PayableSAFAConsolidated2001 2000 2001 2000$M $M $M $MCarrying ValueCurrency Swaps - Payable 588.6 1,320.5 581.8 1,435.5Net Fair ValueCurrency Swaps - Payable 591.3 1,324.1 584.5 1,438.8Maturity Analysis ofCurrency Swaps - PayableAt Call - - - -Due in less than 3 months 0.6 0.5 0.6 0.5Longer than 3 and not longer than 12 months 124.4 725.5 124.4 846.3Longer than 1 and not longer than 5 years 463.6 594.5 456.8 588.7Longer than 5 years - - - -588.6 1,320.5 581.8 1,435.540


Note 14. Other LiabilitiesSAFAConsolidatedCarrying Value2001 2000 2001 2000$M $M $M $MAccrued Interest 222.0 417.6 194.7 398.3Interest Received in Advance 13.1 2.6 13.1 2.6Income Tax Liability 0.1 - 2.2 3.0Provisions - 29.6 - 29.6Sundry Creditors 35.3 19.2 35.5 19.4Net Fair Value270.5 469.0 245.5 452.9Accrued Interest 222.0 417.6 194.7 398.3Interest Received in Advance - - - -Income Tax Liability 0.1 - 2.2 3.0Provisions - 29.6 - 29.6Sundry Creditors 35.3 19.2 35.5 19.4257.4 466.4 232.4 450.3Note 15. Retained SurplusSAFAConsolidated2001 2000 2001 2000$M $M $M $MBalance at the beginning of the year 227.4 205.5 245.5 216.3Add transfer from Statement of Financial Performance 35.8 21.9 23.7 29.2Distribution as determined by the Treasurer of SA - - - -Balance at the end of the year 263.2 227.4 269.2 245.5The Treasurer of South Australia determined that there would be no distribution from SAFA for 2000-01.Note 16. Contingent AssetsZero Coupon Bond 2015SAFA exercised a right to redeem a zero coupon bond borrowing in April 2000. The terms upon which SAFA could redeem theborrowing were disputed. Legal proceedings were commenced by SAFA to resolve the dispute and the zero coupon bondborrowing was subsequently redeemed in full but without prejudice to SAFA’s position in the legal proceedings. As the transactionformed part of the Treasurer’s Portfolios, any result will not have a direct impact on SAFA’s financial performance, but would bepart of the net interest cost recovered from the Treasurer (see Note 23). SAFA reached settlement with one of the parties to thelegal proceedings on 3 July 2001 and is continuing with the legal proceedings in respect of the remaining party.41


Note 17. Contingent LiabilitiesGeneralSAFA, the Parent Entity, has guaranteed the financial obligations of its subsidiary entities in the United Kingdom (UK) and HongKong. The guarantees have been given in consideration for guarantee fees and in each instance SAFA has secured a first chargeover the assets of those companies which comprise high credit status securities. As of 1 June 2001, the UK subsidiary was placedinto voluntary liquidation.SAFA has provided an indemnity to SAFTL for the aggregate borrowing costs and expenses properly incurred in the normal courseof business, where it is shown that income of SAFTL is insufficient. Since November 2000, SAFTL has only had cash at bank andhas paid administrative expenses. It is expected that SAFTL will be wound up in 2001-02 without any further activity.Management does not consider that the indemnity will be invoked.Other indemnities provided by SAFA have been primarily provided to third parties involved, either directly or indirectly, infinancing arrangements with SAFA, other statutory authorities and financial institutions of the State, and relate to financialadvantages which are expected to be available to those parties or to preserve existing financial advantages. No indemnities havebeen given for income tax aspects of any financing arrangement undertaken since July 1988.GuaranteesIn the past, SAFA has issued guarantees in favour of South Australian agencies with respect to certain offshore funding transactions.As at 30 June 2001, one transaction remains where there is any exposure to SAFA. Management considers that there is littlechance for the guarantee to be called.Repurchase AgreementsAs of 30 June 2001, SAFA had sold $689.8 million of Semi-Government and Commonwealth Government Guaranteed Securitiesthrough repurchase agreements. Under the terms of the repurchase agreements, SAFA will repurchase the investments within 1month.Unused Loan FacilitiesAs of 30 June 2001, SAFA had extended loan facilities that were unutilised totalling $221 million.42


Note 18. Interest Revenue and Expense2001 2000SAFA Average Interest Average Average Interest AverageBalance rate Balance rateInterest Revenue $M $M % $M $M %Cash and Short Term Assets 1,304 75.4 5.78% 2,213 120.4 5.44%Investments 1,238 90.2 7.29% 1,268 97.3 7.67%Loans to SA Government 4,178 332.7 7.96% 6,719 566.0 8.42%Loans to Semi-Government Authorities 1,260 94.2 7.48% 1,697 128.6 7.58%Loans to Public Sector Financial Institutions 843 55.1 6.54% 1,044 61.2 5.86%Capital Investments 2 - 0.00% 6 - 0.00%Currency Swaps - Receivable 1,375 81.6 5.93% 1,610 88.3 5.48%10,200 729.2 7.15% 14,557 1,061.8 7.29%Interest ExpenseDeposits & Short Term Borrowings 2,396 152.4 6.36% 4,266 248.5 5.83%Bonds, Notes and Debentures 5,325 390.1 7.33% 7,621 601.8 7.90%Obligations to Commonwealth Government 868 42.1 4.85% 987 57.7 5.85%Currency Swaps - Payable 1,332 119.6 8.98% 1,471 126.1 8.57%9,921 704.2 7.10% 14,345 1,034.1 7.21%2001 2000Consolidated Average Interest Average Average Interest AverageBalance rate Balance rateInterest Revenue $M $M % $M $M %Cash and Short Term Assets 1,381 80.1 5.80% 2,328 127.3 5.47%Investments 1,520 124.3 8.18% 1,808 162.0 8.96%Loans to SA Government 4,178 332.7 7.96% 6,719 566.0 8.42%Loans to Semi-Government Authorities 1,260 94.2 7.48% 1,697 128.6 7.58%Loans to Public Sector Financial Institutions 840 54.0 6.43% 979 56.2 5.74%Capital Investments - - - - - -Currency Swaps - Receivable 1,371 88.6 6.46% 1,731 102.2 5.90%Interest Expense10,550 773.9 7.34% 15,262 1,142.3 7.48%Deposits & Short Term Borrowings 2,396 152.2 6.35% 4,264 248.4 5.83%Bonds, Notes and Debentures 5,705 427.9 7.50% 8,234 672.9 8.17%Obligations to Commonwealth Government 868 42.1 4.85% 987 57.7 5.85%Currency Swaps - Payable 1,327 120.3 9.07% 1,543 125.9 8.16%10,296 742.5 7.21% 15,028 1,104.9 7.35%The net interest expense for interest rate swaps has been included in the interest expense figure for Bonds,Notes and Debentures. This classification was followed as it was considered to be the most appropriate for a betterunderstanding of the interest costs of the Economic Entity.The average balance has been calculated on a daily basis. The average interest rate equals interest revenue/ expense dividedby the average balance of interest bearing assets and liabilities.43


Note 19. DividendsSAFAConsolidated2001 2000 2001 2000$M $M $M $MDividends from South Australian Finance Trust Ltd 1.1 - - -Dividends from South Australian Finance Ltd (UK) 17.4 - - -18.5 0.0 0.0 0.0Note 20. Other Non-Interest RevenuesSAFAConsolidatedNote 2001 2000 2001 2000$M $M $M $MDebt Redemption Assistance fromCommonwealth Government 7.8 11.9 7.7 11.9Indemnity and Guarantee Fees 0.6 1.2 - -Option Fees 2.6 - 2.6 -Foreign Currency Translation Movements (1) (1.4) 0.4 (0.6) (0.1)Management Fees 0.8 1.1 0.8 1.1Other 0.6 0.2 0.6 0.1Sub-total 11.0 14.8 11.1 13.0Gains(Losses)Losses from Treasurer's debt management (4.6) (186.9) (4.6) (186.9)Gains from adjustment toTreasurer's debt level (2) 4.6 186.9 4.6 186.9Other Gains - - 0.4 -Net Profit/(Loss) - - 0.4 -11.0 14.8 11.5 13.0(1) Reflects the effects of the translation of foreign currency retained surpluses.(2) Gains and losses result from the early termination of assets, liabilities and derivative transactions, the daily mark-to-marketrevaluation of financial futures and the realised gains and losses resulting from forward rate agreements. These gains and lossesare recognised immediately in the Statement of Financial Performance. Where the transaction relates to the management ofliabilities on behalf of the Treasurer of South Australia as part of the Treasurer’s Portfolios (see Note 23), SAFA recoups the gain orloss by making an adjustment to the Treasurer’s debt level.44


Note 21. Non-Interest ExpensesSAFAConsolidated2001 2000 2001 2000$M $M $M $MService Level Agreement with Treasury 4.5 5.1 4.5 5.1Financial Institution's Duty 0.7 1.0 0.7 1.4Program and Debt Management Fees 1.3 1.5 1.3 1.5Option Fees 2.6 - 2.6 -Other 0.7 0.7 1.2 0.79.8 8.3 10.3 8.7The Service Level Agreement is between SAFA and Treasury. Treasury provides services to SAFA in order to enable SAFA toundertake its business activities in a manner so that SAFA may achieve its key outcomes. Treasury provides SAFA withappropriately trained and skilled staff together with necessary infrastructure support including internal audit. The majority of thefee relates to staffing, accommodation, internal audit and network systems.Program and debt management fees include the costs of raising funds in the financial markets, futures brokerage, registry andcredit rating fees. Other includes audit, Board and legal fees.Note 22. Cash Flow Information1. Reconciliation of CashIncludes cash on hand and in banks and investments in moneySAFAConsolidated2001 2000 2001 2000$M $M $M $Mmarket instruments, net of outstanding bank overdrafts 154 429 162 4362. Reconciliation of Net cash providedby Operating Activities to OperatingSurplus after Income TaxSAFAConsolidated2001 2000 2001 2000$M $M $M $MOperating surplus after Income Tax 36 22 24 29Accrued interest income (Increase)/Decrease 238 (31) 278 (32)Accrued interest expense Increase/(Decrease) (196) 23 (204) 17Amortisations 106 231 146 247Debtors (Increase)/Decrease 0 1 3 (3)Creditors Increase/(Decrease) (13) (4) (14) (5)Increase/(Decrease) in interest received in advance (11) (64) (11) (66)(Increase)/Decrease in interest paid in advance 14 67 14 67FX movement 0 1 (3) -Net cash provided by operating activities 174 246 233 2543. Non Cash Financing and Investing ActivitiesDuring 2000-01, $4.6 million was adjusted against the Treasurer’s debt for book gains and losses arising from debtmanagement activity.45


Note 23. Additional Financial Instrument DisclosuresSAFA’s core functions are fundraising, asset and liability management and the provision of financial risk management servicesto its public sector clients. SAFA aims to undertake its functions in a risk neutral fashion and to protect the interest ofits owner and clients.To assist in the management of SAFA’s operations and its associated risks, SAFA’s business activities have been separated intoportfolios. SAFA’s portfolio structure consists of a number of Principal Portfolios and two Treasurer’s Portfolios. Any profit andloss resulting from the operations of Principal Portfolios is for SAFA’s account whilst net expenses in the Treasurer’s Portfolios arefor the account of the Treasurer.The Principal Portfolios are managed on very tight risk limits with little exposure to SAFA. The majority of transactions form theTreasurer’s Portfolios. These portfolios are managed within duration limits and value at risk limits with all the risk being borneby the Treasurer.Interest Rate RiskThe Economic Entity uses interest rate futures contracts, interest rate swaps, interest rate options and forward rate agreements tomanage interest rate risk. The use of interest rate derivatives enables the management of the volatility of the portfolio of debt andassets without requiring transactions in physical securities.(i) Interest Rate Futures ContractsA futures contract is an obligation to buy or sell an underlying commodity or financial instrument of a standardised amount andquantity at a specified future date with the price being set by an open auction system at the time when the contract is made.The futures contracts principally transacted by SAFA are 90-day bank bill futures contracts and 3-year and 10-year bond futurescontracts traded on the Sydney Futures Exchange.The Economic Entity utilises futures contracts to manage interest rate exposures on a specific transaction or portfolio oftransactions.Futures contracts are closed out on or before maturity and physical delivery of the underlying instrument does not occur.As at 30 June 2001, open interest rate futures positions represented a total notional principal of $1,252 million. The mark-tomarketmovement in futures contracts is taken to the Statement of Financial Performance where if it was undertaken as part of theTreasurer’s Portfolios is passed onto the Treasurer as an adjustment to his debt level (see Note 1i). During 2000-01, all futurescontracts entered into were undertaken as part of the Treasurer’s Portfolios.(ii) Interest Rate SwapsAn interest rate swap is a financial contract between two parties agreeing to exchange interest obligations over a fixed term onfixed dates. Interest amounts are calculated on a notional principal.The Economic Entity utilises interest rate swaps to manage interest rate exposures on a specific transaction or portfolio oftransactions.Contracts principally involve the payment or receipt of interest payments on a quarterly or semi-annual basis. As at 30 June 2001,the notional value of interest rate swaps totalled $6,005 million.All interest rate swaps, except those undertaken on behalf of clients, were part of the Treasurer’s Portfolios and are captured in theCPSIR recharge to the Treasurer.(iii) Exchange Traded Interest Rate OptionsAn interest rate option is a contract between two parties where one party grants to the other party (in consideration for a premiumpayment) the right, but not the obligation, to receive a payment equal to the amount by which an interest rate differs to a specificstrike rate. As at 30 June 2001, there was outstanding interest rate option contracts with notional value $48 million.(iv) Forward Rate Agreements (FRAs)A forward rate agreement is a contractual agreement between two parties to lock in a preset interest rate on an agreed notionalprincipal for a given period of time commencing at a specific future date.46


The Economic Entity utilises forward rate agreements to manage interest rate exposures on a specific transaction or portfolio oftransactions. The notional value of forward rate agreements as at 30 June 2001 is $790 million.The settled amount for FRAs is recognised immediately in the Statement of Financial Performance, where, if it was undertaken aspart of the Treasurer’s Portfolios it is passed onto the Treasurer as an adjustment to his debt level (see Note 1i). During 2000-01,all FRAs entered into were as part of the Treasurer’s Portfolios.(v) Forward Starting DerivativesAs part of its debt management activities, SAFA may enter into forward starting derivatives to hedge identified future exposuresand as part of its service to Public Sector Clients. As at 30 June 2001, SAFA had entered into forward starting interest rate swapstotalling $178.8 million in notional face value. These forward starting swaps were related to hedging future client transactions oras part of managing the Treasurer’s Portfolios.(vi) Interest Rate Risk ExposuresThe Economic Entity’s exposure to interest rate risk, repricing maturities and effective interest rates on financial instruments as at30 June 2001 consolidated into Australian dollars is detailed below.AssetsSecurities contracted to mature or reprice in:2001 Weighted Non- At 3 Months 3 Months 1 to 5 5 Years TOTALaverage Interest Call or Less to 1 Year Years or moreeffective Bearinginterestrate% $M $M $M $M $M $M $MCash and Short Term Assets 4.97 - 181 704 39 - - 924Investments 5.53 - 0 109 46 139 179 473Loans to SA Government 6.68 - 9 3,652 9 31 55 3,756Loans to Semi-GovernmentAuthorities 6.94 - 33 183 103 455 389 1,163Loans to Public SectorFinancial Institutions 5.48 - 1 690 14 64 69 838Currency Swaps - Receivable 5.34 - - 19 168 491 - 678Other Assets - 186 - - - - - 186Total Assets 186 224 5,357 379 1,180 692 8,018LiabilitiesDeposits and Short TermBorrowings 5.06 - 1,359 397 1 98 25 1,880Bonds, Notes and Debentures 7.56 - 34 65 461 2,527 1,110 4,197Obligations toCommonwealth Government 4.84 - - 24 18 62 740 844Currency Swaps - Payable 5.44 - - 460 81 41 - 582Other Liabilities - 246 - - - - - 246Total Liabilities 246 1,393 946 561 2,728 1,875 7,749Off Balance SheetInterest Rate Swaps 0.04 - - 1,170 (501) (844) 175 -47


Securities contracted to mature or reprice in:2000 Weighted Non- At 3 Months 3 Months 1 to 5 5 Years TOTALaverage Interest Call or Less to 1 Year Years or moreeffective Bearinginterestrate% $M $M $M $M $M $M $MAssetsCash and Short Term Assets 6.18 - 429 1,008 906 - - 2,343Investments 8.31 - - 25 641 187 596 1,449Loans to SA Government 8.90 - 9 5,749 26 59 11 5,854Loans to Semi-GovernmentAuthorities 7.58 - 230 159 89 383 566 1,427Loans to Public SectorFinancial Institutions 6.40 - 32 665 16 66 63 842Currency Swaps - Receivable 6.69 - - 137 734 627 - 1,498Other Assets - 482 - - - - - 482Total Assets 482 700 7,743 2,412 1,322 1,236 13,895LiabilitiesDeposits and Short TermBorrowings 6.14 - 372 2,366 417 17 32 3,204Bonds,Notes and Debentures 8.99 - - 420 2,784 2,429 1,988 7,621Obligations toCommonwealth Government 5.55 - - 74 5 75 781 935Currency Swaps - Payable 6.47 - - 484 902 50 - 1,436Other Liabilities - 453 - - - - - 453Total Liabilities 453 372 3,344 4,108 2,571 2,801 13,649Off Balance SheetInterest Rate Swaps 0.01 - - (1,520) 1,196 951 (627) (0)48


Foreign Exchange RiskThe Economic Entity has a policy of avoiding foreign currency risk and has limits in place to protect against movements in foreigncurrency exchange rates.(i) Currency SwapsA cross currency swap is a financial contract between two parties agreeing to exchange interest obligations in two differentcurrencies over a fixed term on fixed dates. Interest amounts are calculated on currency principals which are usually exchangedat the start of the transaction.The Economic Entity utilises cross currency swaps to eliminate foreign currency exposures associated with foreign currencyborrowings.(ii) Foreign Exchange and Forward Exchange ContractsA foreign exchange contract is an agreement between two parties to buy and sell one currency against another currency eitheron a spot basis or on a specified future date.The Economic Entity utilises foreign exchange contracts (spot and forward) to manage foreign exchange risk associated withforeign currency borrowings and to manage exposures arising from the Foreign Exchange Hedging Service provided to SouthAustralian public sector agencies and to hedge profits from overseas subsidiaries.The Economic Entity has entered into forward foreign exchange contracts to hedge exposures arising from the Foreign ExchangeHedging Service provided to Public Sector Clients. These transactions totalled $3 million in face value as at 30 June 2001.(iii) Currency ExposuresThe following table summarises the Economic Entity’s exposure to exchange risk. The value to be received under the currencycontracts is designed to hedge the exposure to the net foreign currency liabilities.USD GBP JPY EUR CADA$M A$M A$M A$M A$MLess than 1 yearNet Foreign Currency Assets 14.9 0.7 (133.3) 0.1 -Currency Swaps - - 133.3 - -Net Forward Exchange Contracts (7.5) - - (0.1) -NET 7.4 0.7 - - -Greater than 1 yearNet Foreign Currency Assets - - (329.7) - (113.4)Currency Swaps - - 329.7 - 113.6Net Forward Exchange Contracts - - - - -NET - - - - 0.2TOTAL NET 7.4 0.7 - - 0.249


Credit RiskCredit risk is the risk of financial loss and associated costs, resulting from the failure of a counterparty to meet its financialobligations as and when they fall due.The Economic Entity incurs credit risk through undertaking its core functions of fundraising, debt management and liquiditymanagement.The Economic Entity’s dealings in physical securities and other financial contracts, including derivatives, are transacted only withcounterparties possessing strong to extremely strong safety characteristics regarding timely payment of principal and interest.To minimise the potential for credit loss, the Economic Entity complies with stringent credit guidelines. The guidelines aredesigned to promote diversification of credit risk amongst counterparties while limiting exposure only to highly rated institutionsworldwide. The credit guidelines do not apply to loans to South Australian governmental entities.No credit losses were incurred by the Economic Entity over the reporting period.The Economic Entity calculates credit risk for both recognised and unrecognised classes of financial assets.The maximum credit risk for recognised assets excluding cross currency swaps represents the book value of the asset in theEconomic Entity’s financial statements. For unrecognised assets and cross currency swaps, the maximum credit risk representsthe current market value. Credit risk amounts do not take into account netting or the right of set off between instruments of similaror different classes unless there is a legal netting agreement in place.An analysis of credit risk exposure by country, counterparty class, asset class and credit rating as at 30 June 2001 is detailed below.2001 RatingAsset Class AAA AA+ AA AA- A+ A A- NR Total$M $M $M $M $M $M $M $M $MLoans/Investments 1,325 53 44 439 60 137 49 6,728 8,835Currency Swaps 46 50 44 37 - - - 15 192Interest Rate Swaps 2 5 86 81 - 3 - 41 218FX Contracts - - 0 0 - - - - 0Total 1,373 108 174 557 60 140 49 6,784 9,2452000 RatingAsset Class AAA AA+ AA AA- A+ A A- NR Total$M $M $M $M $M $M $M $M $MLoans/Investments 1,691 195 205 1,936 151 133 41 8,919 13,271Currency Swaps 53 57 32 48 54 - - 16 260Interest Rate Swaps 31 11 124 206 - 10 - 51 433FX Contracts - - 0 - - - - 1 1Total 1,775 263 361 2,190 205 143 41 8,987 13,965NR represents loans within the South Australian Government which are not classified under a particular rating.50


Consolidation 2000-2001Counterparty Asset Class CountryClassAustralia (AA+)*Canada (AA+)France (AAA)Germany (AAA)Netherlands (AAA)Switzerland (AAA)United Kingdom (AAA)United States (AAA)Total$M $M $M $M $M $M $M $M $MSouthAustralianGovernmentCommonwealth/State GovernmentBanksLoans/Investments 6,708 - - - - - - - 6,708Currency Swaps 14 - - - - - - - 14Interest Rate Swaps 38 - - - - - - - 38Sub total 6,760 - - - - - - - 6,760Loans/Investments 1,235 - - - - - - - 1,235Sub total 1,235 - - - - - - - 1,235Loans/Investments 349 126 35 60 - - 45 69 684Currency Swaps 55 - - - - 94 - - 149Interest Rate Swaps 51 3 - 6 7 35 72 4 178Sub total 455 129 35 66 7 129 117 73 1,011Corporate/OtherLoans/Investments 208 - - - - - - 208Currency Swaps - - - - - - 28 - 28Interest Rate Swaps 3 - - - - - - - 3Sub total 211 - - - - - 28 - 239Total by Country 8,661 129 35 66 7 129 145 73 9,245AustraliaCanadaFranceGermanyNetherlandsSwitzerlandUnited KingdomUnited StatesTotal$M $M $M $M $M $M $M $M $MTotal byAsset ClassLoans/Investments 8,500 126 35 60 - - 45 69 8,835Currency Swaps 69 - - - - 94 28 - 191Interest Rate Swaps 92 3 - 6 7 35 72 4 219Total by Country 8,661 129 35 66 7 129 145 73 9,245SAFA’s credit guidelines also permit SAFA to undertake credit exposure transactions with counterparties from New Zealand,Norway, Singapore and selected Supranationals. As at 30 June 2001, SAFA did not have any credit exposure to these countriesor Supranationals.* Standard & Poor’s long-term foreign currency credit rating.51


Consolidation 1999-2000Counterparty Asset Class CountryClassAustralia (AA+)*Canada (AA+)France (AAA)Germany (AAA)Japan (AAA)Netherlands (AAA)Switzerland (AAA)United Kingdom (AAA)United States (AAA)Total$M $M $M $M $M $M $M $M $M $MSouthAustralianGovernmentCommonwealth/State GovernmentBanksLoans/Investments 8,892 - - - - - - - - 8,892Currency Swaps 16 - - - - - - - - 16Interest Rate Swaps 51 - - - - - - - - 51FX Contracts 1 - - - - - - - - 1Sub total 8,960 - - - - - - - - 8,960Loans/Investments 1,574 - - - - - - - - 1,574Sub total 1,574 - - - - - - - - 1,574Loans/Investments 1,382 55 - 78 - 70 - 643 147 2,375Currency Swaps 63 3 - 4 54 4 77 - 4 209Interest Rate Swaps 113 4 5 13 - 3 37 162 36 373Sub total 1,558 62 5 95 54 77 114 805 187 2,957Corporate/OtherLoans/Investments 49 - 201 - - - 180 - - 430Currency Swaps - - - - - - - 34 - 34Interest Rate Swaps - - 10 - - - - - - 10Sub total 49 - 211 - - - 180 34 - 474Total by Country 12,141 62 216 95 54 77 294 839 187 13,965AustraliaCanadaFranceGermanyJapanNetherlandsSwitzerlandUnited KingdomUnited StatesTotal$M $M $M $M $M $M $M $M $M $MTotal byAsset ClassLoans/Investments 11,897 55 201 78 - 70 180 643 147 13,271Currency Swaps 79 3 - 4 54 4 77 34 4 259Interest Rate Swaps 164 4 15 13 - 3 37 162 36 434FX Contracts 1 - - - - - - - - 1Total by Country 12,141 62 216 95 54 77 294 839 187 13,965* Standard and Poor’s long-term foreign currency credit rating.52


Liquidity RiskIn order to manage liquidity risk, SAFA has in place liquidity management guidelines which require SAFA to hold a base levelof liquidity comprising of highly marketable financial assets. Liquid assets include cash, promissory notes, Commonwealthnotes, floating rate notes and negotiable discount securities. The level of financial asset holdings by SAFA on any given day mustbe sufficient to cover the higher of: a base liquidity buffer of $250 million or the sum of debt maturities over the next 30 days.Adherence to these guidelines enables SAFA to be in a position to meet the forecasted cash demands and any unanticipatedfunding requirements of the South Australian public sector.SAFA has chosen an approach to minimise medium-term refinancing risks, which involves diversification of physical borrowingsacross the maturity spectrum, diversification of funding sources and the holding of liquid assets to assist in the management ofrefinancing and liquidity risk.These strategies result in SAFA facing manageable funding demands from financial markets in any given period. This approachassists the maintenance of an orderly market place for SAFA’s securities when refinancing maturing debt obligations.Note 24. Net Fair Value of Financial InstrumentsAn analysis of the net fair value of financial instruments is detailed below.The Economic Entity has calculated net fair value by one of the following methods:• Market rate for financial instruments actively traded in financial markets. Such instruments include Futures contracts,Commonwealth bonds and Semi-Government bonds.• Discounting cash flows using a zero coupon curve derived from observable rates in the financial markets. In some cases, amargin is applied to an observable curve to calculate the fair value of a particular financial instrument.The resultant net fair values represent the Economic Entity’s best estimate of replacement cost. It is considered that the costs ofrealising the fair values is immaterial. Furthermore, management considers that all classes of financial instruments, excludingfinancial futures and exchange traded interest rate options, cannot be readily traded on organised markets in a standardised form.53


The figures below are the net fair value of transactions less their respective outstanding accruals.Net fair value of Financial InstrumentsConsolidated2001 2000Note Notional Net Fair Notional Net FairValue Value Value Value$M $M $M $MFinancial AssetsCash and Short Term Assets 924 924 2,343 2,343Investments 473 494 1,449 1,476Loans to South Australian Government 3,756 3,933 5,854 6,063Loans to Semi-Government Authorities 1,163 1,170 1,427 1,485Loans to Public Sector Financial Institutions 838 842 842 846Currency Swaps – Receivable 678 713 1,498 1,527Other Assets 186 182 482 464Total 8,018 8,258 13,895 14,204Financial LiabilitiesDeposits and Short Term Borrowings 1,880 1,887 3,204 3,226Bonds, Notes and Debentures 4,197 4,596 7,621 8,073Obligation to Commonwealth Government 844 682 935 761Currency Swaps – Payable 582 585 1,436 1,439Other Liabilities 246 232 232 450Total 7,749 7,982 13,649 13,949Off Balance Sheet InstrumentsInterest Rate Swaps (1) 6,005 - 10,883 -Forward Rate Agreements 790 0 2,497 1Financial Futures 852 1 1,555 1Exchange Traded Interest Rate Options - - - -Embedded Options 620 - 613 -(1) Interest Rate Swaps' Net Fair Value $43.1m loss is included in the net fair value for Bonds, Notes & Debentures54


Note 25. Fiduciary ActivitiesSouth Australian Asset Management CorporationSAFA is responsible for the management and administration of the treasury portfolio of the South Australian Asset ManagementCorporation (SAAMC) in accordance with a management agreement. SAAMC had treasury assets of $1.4 billion and off balancesheet transactions with a notional value of $3.7 billion as at 30 June 2001. SAAMC has also appointed a financial institution tomanage US$ assets totalling A$840 million. SAFA maintains administrative responsibility for those assets with SAAMCmaintaining overall management responsibility. SAFA recognised fee income of $0.7 million during 2000-01 for its managementof SAAMC’s treasury portfolio.Cash Management FundThis is a pooled investment portfolio comprising cash and short term money market securities. The daily earnings from theportfolio’s investments are applied to clients’ investment balances less a margin. As at 30 June 2001, total funds invested byclients totalled $356 million and the return on the fund for 2000-01 was 5.81%.Cash Enhanced FundThis fund is a pooled investment portfolio comprising term investments of high credit quality and marketability. Investments arevalued on a market value basis. SAFA charges a margin. Total market value of the fund as at30 June 2001 was $83.5 million and the market value return on the fund for 2000-01 was 6.33%.Note 26. Auditor’s RemunerationSAFA2001 2000$'000$'000Remuneration paid to external Audit 90 6390 63Note 27. Remuneration of SAFA AdvisoryBoard MembersSAFA2001 2000Remuneration $1- $10,000 - 1Remuneration $10,001- $20,000 - -Remuneration $20,001- $30,000 4 34 4The Advisory Board as at 30 June 2001 comprised 4 members: Mr J Wright (Presiding Member),Mr B Brownjohn, Mr M Doyle, and Ms Y Sneddon. During 2000-01, Ms A McCleary’s term as a member expired on 8 June 2001and Ms S Filby resigned as a member as at 13 April 2001. The fees paid to Advisory Board Members are set by Executive Councilin accordance with approved procedures. Those members who are permanently employed under the Public Sector ManagementAct, 1995, or on similar terms, are not entitled to fees. During 2000-01 only four members were entitled to receive the approvedfee. The total remuneration payable to those members was $107,680 (1999-00: $75,200).55


Note 28. Controlled EntitiesEntities Place of Ownership Operating Total TotalIncorporation Profit Assets Liabilities2001 2001% $M $M $MSouth Australian Finance Trust Limited (1) Aust 0 0 0 0South Australian Finance (Hong Kong) Limited HK 100 0 1 0South Australian Finance Trust (Hong Kong) HK 100 1 47 41South Australian Finance Limited (2) UK 100 5 1 0SABT Pty Limited (3) Aust 0 - - -Palantir Pty Limited (4) Aust 100 - - -1. South Australian Finance Trust Limited is included in the consolidated group, as although it is not owned by SAFA it is controlledby SAFA. It is expected that SAFTL will be wound up in 2001-02 following the wind-up of SABT Pty Limited.2. South Australian Finance Limited was placed into voluntary liquidation on 1 June 2001.3. There has been no activity in SABT Pty Limited since November 1999 and it is expected that it will be wound up in 2001-02.4. SAFA acquired the shares, $2, in Palantir Pty Limited on 15 June 2000. Palantir Pty Ltd is of no value and was placed into voluntaryliquidation as at 29 June 2001.5. Zero represents balances less than $500,000.56


Note 29. Related Party TransactionsSouth Australian Asset Management CorporationRelated party transactions with the South Australian Asset Management Corporation are disclosed in Note 10 and Note 3 of theStatement of Financial Position. As at 30 June 2001, SAAMC had a deposit of $33.2 million with SAFA. Interest expense on thedeposit totalled $2.9 million. SAFA also had a currency swap with face value $42 million and an interest rate swap with notionalface value of $41 million with SAAMC. During 2000-01 , the net interest expense for the interest rate swap was $4.6 million andthat for the currency swap was $0.2 million.South Australian Finance Limited (SAFL)During 2000-01, SAFA lent money to SAFL at market rates with interest payable annually. Total loans of GBP 12.1 million withinterest of GBP 0.8 million were repaid on 18 December 2000. On 30 March 2001, SAFL made a dividend distribution to SAFAof GBP6.8 million and repaid GBP2.3 million of SAFA’s capital investment on 29 June 2001.South Australian Finance (Hong Kong) Limited (SAFHKL)SAFA has entered into 3 currency swaps with SAFHKL which enable SAFHKL to match its interest rate and currency risk exposureon certain fixed debentures. The currency swaps transactions are at market rates. As at 30 June 2001, the 3 currency swapstotalled $6.8 million with a net interest expense to SAFA of $1.3 million. The 3 swaps mature before 15 June 2004.South Australian Finance Trust Limited (SAFTL)During 2000-01, SAFTL had a call deposit of $3.6 million with SAFA for a short period. On 29 June 2001, SAFTL made a dividenddistribution of $1.1 million to SAFA as per a direction signed by the Treasurer of South Australia.Note 30. Segment InformationSAFA acts predominantly in the finance industry and lends funds and provides financial advice to the South AustralianGovernment, Semi-Government Authorities, Public Sector Financial Institutions and Government agencies.57


Statement by Responsible OfficersWe, the undersigned, hereby state that, in our opinion, the foregoing Finance Report has been drawn up in accordance withTreasurer’s Instructions promulgated under the provisions of the Public Finance and Audit Act, 1987, appropriate AustralianAccounting Standards and other mandatory professional reporting requirements (Urgent Issues Group Consensus Views) so as toprovide financial information regarding the operations of SAFA for the year ended 30 June 2001 and the affairs of SAFA at 30 June2001 which is relevant and reliable and which satisfies the test of materiality. Furthermore, it is considered that the internalcontrols over financial reporting have been effective throughout the reporting period. These controls include timelyreconciliations and confirmations, comprehensive management information and a stringent internal audit function.Ignacio P WelchCHIEF ACCOUNTANT, SAFAKevin M CantleyGENERAL MANAGER, SAFAJim WrightUNDER TREASURER58


Appendix A – SAFA’S ClientsAdelaide Entertainment CentreAdelaide Festival Centre TrustAustralasia Railway CorporationComhouse Co-operative LimitedCountry Fire Service BoardDepartment for Transport, Urban Planning and the ArtsDepartment of Human ServicesDistribution Lessor CorporationEnfield General Cemetery TrustFlinders Medical CentreFlinders UniversityGeneration Lessor CorporationHomeStart FinanceIndustrial and Commercial Premises CorporationLegal Services CommissionLocal Government Finance Authority of South AustraliaLotteries Commission of South AustraliaMedical Board of South AustraliaMinister for TourismMotor Accident CommissionPhylloxera and Grape Industry BoardPorts Corporation of South AustraliaPrimary Industries and Resources SAQueen Elizabeth HospitalRESI CorporationRoyal Adelaide HospitalSA Motor Sport BoardSouth Australian Asset Management CorporationSouth Australian Community Housing AuthoritySouth Australian Council for Social ServicesSouth Australian Cricket AssociationSouth Australian Film CorporationSouth Australian Government Captive Insurance CorporationSouth Australian School Investment FundSA Water CorporationState Opera Company of South AustraliaState Theatre Company of South AustraliaTreasurer of South AustraliaTransmission Lessor CorporationUniversity of South AustraliaWest Beach TrustWomen’s and Children’s HospitalWorkCover Corporation60


Appendix B – Staff employed in SAFA’S operationsat 30 June 2001*ExecutiveKevin CantleyAlexandria CookJacinta JohnDean PontifexGeneral ManagerPersonal AssistantPersonal Assistant (m) (p/t)Compliance OfficerFinancial MarketsAndrew Thompson Assistant General Manager, Financial MarketsMike Grdosic Senior DealerDamon Fisher Senior DealerBruno Bellon DealerTracie Dawber DealerTroy Macklin Trainee Quantitative AnalystLaura Chapman Administrative Officer (Contractor)Client ServicesDavid PosanerDeborah KerryMark McKaySimon KitsonZafar IqbalRichard CooreyAssistant General Manager, Client ServicesManager, Client Services (m)Graduate Client Services OfficerPortfolio ManagerPortfolio Manager (s)Finance and Administration Manager, Electricity EntitiesAccounting and SettlementsIgnacio Welch Chief AccountantJulie MeadAccountant (p/t)Trisca PriceAccountantPia Guglielmin Senior AccountantMichelle Hammond Accounting Officer (p/t)Sally LawAccounting Officer (Contractor)John Strawbridge Manager, SettlementsNigel Harvey Senior Settlements OfficerScott Bradley Senior Settlements OfficerTreasury Systems and ReportingTom AuldSenior Manager, Treasury Systems and ReportingLisa EllulManager, Risk Analysis and Reporting (m) (p/t)Michael Russell Senior Applications Development OfficerJenni HaggerSenior Finance OfficerTania Milohis Senior Business AnalystPeter ByrneBusiness AnalystRobert Arnold Senior Quantitative AnalystRex Whitford Quantum System Manager (Contractor)LegalRob FullerToby FordeLegal Counsel (outposted Crown Law)Legal Officer (outposted Crown Law)Policy and PlanningMike VroulisSenior Manager, Policy and PlanningMike Sharrad Senior Projects ManagerReshma Pawelski Senior Policy OfficerKathy Yankoff Policy Officer (p/t)Andrew Wilson Senior Legal OfficerLegend:(p/t) part-time position(m) maternity leave(s) study leave* Under the terms and conditions of a Service Level Agreement, SAFA is staffed by employees of theDepartment of Treasury and Finance.61


Appendix C - Directors of Affiliated CompaniesList of Directors as at 30 June 2001South Australian Finance Trust LimitedMr K M Cantley (i)Mr A P ThompsonMr D R Posaner(Chairman), General Manager, SAFAAssistant General Manager, Financial Markets, SAFAAssistant General Manager, Client Services, SAFASouth Australian Finance (Hong Kong) LimitedMr J BrewerMr J W FultonMr K M Cantley (i)Mr A W WilsonConsultant, Astec (BSR) PLCExecutive Director, PCS LimitedGeneral Manager, SAFASenior Legal Officer, SAFA (alternate to Mr K M Cantley)SABTMr K M CantleyMr A W WilsonMs K P MatherMr R A LeslieGeneral Manager, SAFASenior Legal Officer, SAFAExecutive Director, Macquarie Bank LimitedExecutive Director, Macquarie Bank Limited(i) Nominated by the Treasurer of South Australia under the Articles of Association.62


Appendix D – Dealer Panel MembersSAFA Inscribed Stock Dealer PanelABN Amro Bank – Australian BranchCredit Suisse First Boston Australia LimitedCommonwealth Bank of AustraliaDeutsche Bank AG – Sydney BranchMacquarie Bank LimitedMerrill Lynch International (Australia) LimitedNational Australia Bank LimitedRBC DS Global MarketsSalomon Smith Barney Australia LimitedUBS Warburg Australia LimitedWestpac Banking CorporationSAFA Indexed Annuities Placement PanelABN Amro Bank – Australian BranchMacquarie Bank LimitedUBS Warburg Australia Limited (Lead Manager)SAFA Commercial Paper Dealer PanelAustralia and New Zealand Banking Group LimitedCommonwealth Bank of AustraliaJB Were Capital Markets LimitedMacquarie Bank LimitedNational Australia Bank LimitedWestpac Banking CorporationEuro Medium Term Note Debt Instrument Program PanelDaiwa SBCM EuropeDeutsche Bank AGGoldman Sachs InternationalMerrill Lynch InternationalMorgan Stanley Dean WitterNomura International PLCRBC DS Global MarketsSalomon Brothers International LimitedUBS Warburg AGEuro Commercial Paper Debt Instrument Program PanelBA Asia LimitedBarclays Bank PLCCitibank International PLCDeutsche Bank AGGoldman Sachs InternationalUBS Warburg AG63


Glossary of AbbreviationsAct Government Financing Authority Act, 1982Advisory Board South Australian Government Financing Advisory BoardCPSIRCommon Public Sector Interest RateECPEuro Commercial PaperERSUElectricity Reform and Sales UnitFRAsForward Rate AgreementsFXForeign ExchangeGSTGoods and Services TaxIWTInterest Withholding TaxMTFSMedium Term Funding StrategyRBAReserve Bank of AustraliaSAAMCSouth Australian Asset Management CorporationSABTSABT Pty LimitedSAFASouth Australian Government Financing AuthoritySAF(HK)L South Australian Finance (Hong Kong) LimitedSAFLSouth Australian Finance LimitedSAFTSouth Australian Finance TrustSAFT(HK) South Australian Finance Trust (Hong Kong)SAFTLSouth Australian Finance Trust LimitedSAISouth Australian InvestmentsTERTax Equivalent RegimeUSCPUnited States Commercial PaperVARValue-at-RiskContact DetailsSouth Australian Government Financing AuthorityLevel 5State Administration Centre200 Victoria SquareAdelaide South Australia 5000GPO Box 1045Adelaide South Australia 5001Telephone: 618 8226 9444Facsimiles: 618 8226 9458618 8226 9478618 8226 9496ABN: 75 277 967 856E-mail:safa.mail@saugov.sa.gov.auInternet:http://www.safa.sa.gov.auSAFA Bonds: SAFA Inscribed Stock RegistrarToll Free: 1800 088 585Internet:http://www.safa.sa.gov.au/markets/retail.htmlReply Paid 539 Adelaide South Australia 5001Photography:Editors:Printer:Philip Martin PhotographySouth Australian Tourism CommissionSA Water CorporationKevin CantleyNick CarneLane Print Group64

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