Management arrangements summary

Description

The principal investment policy is to seek to invest in and manage energy utility assets in OECD countries, principally in Australia and New Zealand.

The principal investment policy may be varied from time to time upon giving reasonable notice to security holders.

DUET 2004 PDS – section 1.3

DUET 2009 Annual Report page 3

DUET Triple Staple 2006 Information Circular – section 3

DUET Quadruple Staple 2007 Information Circular – section 3

MSA clauses 1 and 3

Company Manager

The manager under the terms of the MSA is responsible to the company for:

• Investment and divestment evaluation and recommendations
• Implementation of investment/divestment instructions given by the board
• Asset management
• Asset valuations
• Capital and financial management recommendations
• Financial reporting
• Board reporting
• Investor communications and meetings
• General fund administration including company secretarial services (subject to outsourcing of registry services to Computershare Investor Services Pty Limited ABN 48 078 279 277 and trust custodial services to Trust Company Limited ABN 59 004 027 749 and Perpetual Trustee Company Limited ABN 42 000 001 007
• Monitoring of fund operational risk, insurances and compliance
• Litigation management
• Provision of suitably qualified personnel to perform the CEO and CFO roles for the fund.

MSA clause 3

DUET Quadruple Staple 2007 Information Circular – section 10.1.4

Trust constitutions clause 12

Corporations Act s601FB, s601FC

Trust constitutions clause 21

MSA clause 11

The trusts and company may terminate the appointment of the responsible entities and manager, without cause, by security holder vote. The manager of the company can only be removed if either or both of the responsible entities of DUET1 or DUET2 have been removed.

For each trust and the company the resolution must be passed by at least 50% of votes cast at meeting by security holders entitled to vote. Managers and associates may vote their securities on the resolution.

The manager of the company can also be removed for cause being where the manager is in liquidation, ceases to carry on business, lacks the appropriate licence or authorisation or commits a material breach which cannot be remedied.

In the case of the trusts, ASIC or a court may replace the responsible entities where there are solvency issues or members are likely to suffer a loss because the responsible entity has breached the Corporations Act.

Pursuant to the Corporations Act the responsible entity of the trust can retire if it first convenes a unitholders meeting to explain its reason for retirement and to enable unitholders to vote on a resolution to choose a new responsible entity.

The manager of the company may resign by giving written notice.

Where removal events have occurred in the case of the company, its directors retain discretion as to whether to terminate the manager. As the directors must act in the interest of security holders, it is considered unlikely that they would not terminate the MSA in the situation where security holders have voted to remove the responsible entities and the manager.

Trust constitutions clause 13

Corporations Act s601FL, s601FM, s601FN, s253E, s915B

MSA clause 11

Base fee

Payable quarterly.

Base Fee = 1% per annum of Net Investment Value.

Net Investment Value is the Market Value of DUET securities plus the amount of any external borrowings and the amount firmly committed to future investments less the amount invested in cash or cash equivalents.

Market Value is the volume weighted average market capitalisation over the last 20 ASX trading days of each quarter.

Performance fee

Payable at 30 June and 31 December if earned.

Payable in the event that the DUET accumulation index (the Return) outperforms the S&P/ASX 200 Industrials Accumulation Index (the Benchmark Return) for the period having made up for under performance in previous periods.

Performance fee = 20% of the amount (if any) by which the Return exceeds the Benchmark Return for that period.

Any underperformance deficit from prior periods must be made up before future performance fees can be earned.

The responsible entity and the manager may nominate another person to apply the performance fee in subscription for DUET securities. The price of the DUET securities is the volume weighted average trading price of the DUET securities traded on ASX during the last 20 ASX trading days of the relevant period.

Other services provided by Macquarie and AMP companies

Additional market-based fees may be payable for other services such as financial advisory, underwriting, broking and hedging provided on a transactional basis by Macquarie and AMP companies and as approved under the DUET related party protocol.

Trust constitutions clause 20

MSA clause 8

The responsible entity and the manager are entitled to be reimbursed for expenses incurred in relation to the proper performance of their duties.

Expense reimbursement does not include manager administration costs such as premises, staff and facilities.

Trust constitutions clause 20

Corporations Act s601GA(2)

MSA clause 9

The manager is engaged by the company on an exclusive basis, although the manager itself may act for other parties.

The responsible entities may act for other parties with the approval of Macquarie and AMPCH and can outsource their general management responsibilities to other Macquarie or non-Macquarie managers (but remain liable for their actions).

Macquarie and AMPCH have agreed to use their best efforts to refer investment opportunities in energy utility assets in Australia and New Zealand which meet DUET’s investment mandate to the responsible entities. DUET has no obligation to accept any investment opportunities.

MSA clause 4

Trust constitutions clauses 12 and 17

Corporations Act s601FB

2004 IPO PDS section 8.6

The board of the responsible entity of the trusts makes all significant investment/divestment and operational decisions.

The manager mandate for the company is non discretionary. All significant investment/divestment and operational decisions are made by the board of the company based on manager recommendations.

The performance of management generally is oversighted by the independent directors on the responsible entity and company boards.

Trust constitutions clause 12

MSA clause 4

The trusts and the company have adopted a detailed related party protocol covering transactions with and services provided by Macquarie and AMP companies and managed vehicles.

All related party transactions or services must be on arms length terms and approved by the DUET independent directors only.

Asset acquisition or sale transactions with related parties for 5% or greater of fund value must generally be supported by an independent valuation.

Mandates for the provision of services are subject to third party independent review unless the independent directors determine otherwise on the basis of appropriate market information or practice.

Third party independent review is mostly carried out by the corporate advisory divisions of large accounting firms. In the case of the provision of services, the reviewers have regard to market evidence gathered from their own enquiries, including information requested from Macquarie and AMP. For asset sales or acquisitions, the reviewer carries out its own valuation
if required.

DUET independent directors have put in place a panel of reviewers (which does not include
the DUET auditor).

Swap and foreign exchange transactions with Macquarie companies solely for hedging purposes are given standing approval if certain conditions are met.

Significant volume securities transactions with a Macquarie broker require independent director approval.

Fees paid or payable by DUET group entities for related party services are disclosed in the DUET financial statements.

DUET Related Party Policy

MSA clause 7

Part 5C.7 and Chapter 2E of the Corporations Act, which governs related party transactions by trusts and companies

DUET co-invests from time to time with other Macquarie companies or managed vehicles. Co-investment arrangements may include pre-emption and tag-along or drag-along rights in favour of each other including rights which are triggered on removal of the Macquarie or DUET manager typical of those agreed with third party co-investors. 

In addition loan facilities for DUET and its businesses may provide for acceleration of loan payments if DUET is no longer managed by a Macquarie or AMP company. Removal of manager trigger events are typically put in place because counterparties (both equity and debt providers) require ongoing Macquarie and AMP company involvement in the management of the fund or particular businesses.

The DUET independent directors obtain separate legal advice as necessary and the arrangements are approved by the independent directors and disclosed to security holders.

Any variations adverse to security holders rights or in respect of changes to fee structures to increase fees would involve trust constitution amendments and therefore effectively require approval by 75% by value of votes cast at meeting by security holders entitled to vote.

There are however no specific requirements in the MSA for variations to the agreement to be approved by security holders but given the stapled structure it is unlikely that any changes would result in material inconsistency with the trusts’ provisions particularly as regards investment policy, manager termination or fees.

Trust constitutions clause 23

Corporations Act s601GC

The responsible entities of the trusts have combined director appointment rights for 100% of the board of the company.

Macquarie and AMPCH each appoint one director to the board of the responsible entities of the trusts and are each able to nominate one independent director to the board of the responsible entities as they are Macquarie and AMPCH joint venture vehicles. The third independent director on the board of the responsible entities is appointed by the other two independent directors.