Wallace Funds Management

Corporate Governance Policy

BOARD FUNCTIONS
The functions of the Board include:

Charting the direction, strategies and financial objectives of Wallace Absolute Return Limited (“the Company”);
Overseeing and monitoring organisational performance against these strategies and objectives;
Ensuring any significant risks facing the Company and its investments have been identified and appropriate control, monitoring and reporting mechanisms are in place;
Monitoring financial performance including approval of the annual and half-year financial reports and liaising with the Company's auditors;
Enhancing the reputation of the Company;
Appointing and assessing the performance of the Managing Director and Wallace Funds Management Pty Ltd’s (“the Manager”) investment portfolio; and
Communicating with and protecting the rights and interests of all shareholders and other stakeholders.

BOARD COMPOSITION
The composition of the Board is subject to shareholder approval. All nominations for appointment to the Board are considered by the current Board. The Board comprises 2 independent directors: Kenneth Barry (Chairman) and Alan Liddle, and one executive director: Richard Wallace. The Chairman is responsible for leadership of the Board and for the efficient organisation and conduct of the Board’s function. The executive director’s role is to manage the affairs of the Company including its relationship with the Manager. The details of the directors’ experience, qualifications, special responsibilities and attendance at meetings are set out in the Directors’ Report.

At each annual general meeting, one third of the Board (other than the Managing Director) must retire and, if those directors so choose, may offer themselves for re-election.

The Board has in place formal processes for performance evaluation of the directors and key executives. No evaluation has taken place during the reporting period.

POLICIES
Board policies relevant to the composition and functions of Directors include:

The Board must consist of a majority of independent Directors and the membership of the Audit Committee must consist solely of independent Directors.
The Audit Committee must be chaired by an independent Director other than the Board Chairman.
The Board will generally meet monthly with an agenda designed to provide adequate information about the affairs of the Company, allow the Board to guide and monitor management and assist involvement in discussions and decisions on strategy.
The Board has an agreed policy on the circumstances in which Directors are entitled to obtain access to company documents and information.

THE MANAGER
The Board generally meets monthly and receives a summary financial report from the Manager incorporating the results from the investment activities.
The Manager reports to the Board at each meeting on the largest positions, largest gains and largest losses of the Company’s investment portfolio. The Manager keeps the Board informed of any enhancements of its process, and reports back to the Board with any information the directors may require from time to time.

The Board has established a number of internal control procedures and an extensive risk management framework within which the Manager operates to protect the interests of the Company and its shareholders. These are monitored by the Board at its meetings through information provided by both the Manager and independent external consultants employed directly by the Company.

INDEPENDENCE
The Board assesses the independence of each Director. For this purpose an independent Director is:

A non-executive Director whom the Board considers to be independent of management and free of any business or other relationship that could materially interfere with the exercise of unfettered and independent judgment;
Is not a substantial shareholder of the Company (as defined in section 9 of the Corporations Act 2001);
Within the last two years has not been employed in an executive capacity by the Company;
Within the last two years has not been a principal of a material professional advisor or a material consultant to the Company;
Is not a material supplier or customer of the Company;
Has no material contractual relationship with the Company.

In addition to being required to conduct themselves in accordance with the ethical policies of the Company, Directors are required to be meticulous in their disclosure of any material contract or relationship in accordance with the Corporations Act 2001 and this disclosure extends to the interests of family companies and spouses. Directors are required to strictly adhere to the constraints on their participation and voting in relation to matters in which they may have an interest in accordance with the Corporations Act 2001 and the Company's policies.

Each of the current non-executive Directors of the Company has been assessed as independent. In reaching that determination, the Board has taken into account (in addition to the matters set out above):

The specific disclosures made by each Director as referred to above;
Where applicable, the related party dealings referable to each Director, noting that those dealings are not material under accounting standards;
That no independent Director has ever been employed by the Company or any of its subsidiaries;
That no Director is, or has been associated with a supplier, professional adviser, consultant to or customer of the Company which is material under accounting standards; and
That no independent Director personally carries on any role for the Company otherwise than as a Director of the Company.

The Company does not consider that term of service on the Board is a factor affecting a Director's ability to act in the best interests of the Company. Independence is judged against the ability, integrity and willingness of the Director to act.

Due to the size of the Company and the Board no nomination committee has been established.

RESOURCES AVAILABLE TO DIRECTORS
Independent directors have the right to seek independent professional advice in the furtherance of their duties as directors of the Company at the Company’s expense. The Chairman’s prior approval of such expenditure is required.

BUSINESS CONDUCT
Conflicts of Interest
In accordance with the Constitution of the Company and the Corporations Act 2001, Directors must disclose to the Board any material contract in which they may have an interest in compliance with section 195 of the Corporations Act 2001 and any Director with a material personal interest in a matter being considered by the Board must not be present when the matter is being considered and must not vote on the matter.

Confidentiality
Directors must not use or publish non-public information of the Company except where disclosure is authorised or legally mandated.

Fair Dealing
The Company actively promotes a set of values designed to assist all personnel in their dealings with each other, competitors, customers and the community.

Company Assets
All employees of the Company are required to protect and ensure efficient use of the Company’s assets for legitimate business purposes.

Legal Compliance
The Company actively promotes compliance with laws and regulations, the reporting of unlawful/unethical behaviour, and protection for those who report violations in good faith.

DIRECTOR DEALINGS IN COMPANY SECURITIES
The Board has a policy in place for directors of the Company which prohibits them from dealing in the Company’s shares without the consent of at least one other director. Directors must not deal if they are in possession of information which is price sensitive. The Board is aware of its obligation to keep the market fully informed.

AUDIT ARRANGEMENTS

COMMITTEES
The Board has established an Audit Committee to assist in the execution of its duties and to allow detailed consideration of complex financial and other issues. Due to the size of the Board other committees have not been established.

AUDIT COMMITTEE
The Board’s Audit Committee comprises Alan Liddle (Chairman) and Kenneth Barry who are independent directors. The main responsibilities of the Audit Committee include reviewing the effectiveness of the internal control environment, prudent management of financial risks, fulfilling the Company’s accounting and financial reporting obligations, reviewing the effectiveness and efficiency of operations, and maintaining an effective and efficient audit.
In performing these functions, the Committee:

Reviews the financial statements and reports of the Company;
Reviews accounting policies to ensure compliance with current laws, relevant regulations and accounting standards;
Conducts any investigations relating to financial matters, records, accounts and reports which it considers appropriate; and
Reviews all material matters requiring exercise of judgment by management and reports those matters to the Board.

The Board makes use of external independent specialists to ensure that appropriate risk management practices are in place.

The Board has appointed Rivergum Investors Pty Limited (Rivergum) as its compliance and risk management consultant to monitor the operations of the Manager, and ensure investments remain within set limits. Rivergum reports directly to the Board. UBS Nominees Pty Limited as the custodian independently reconciles the Company’s trades on a daily basis.

INDEPENDENCE OF AUDITORS
The Board:

Monitors the independence of its auditors;
Reviews the independent safeguards put in place by its auditors;
Requires the rotation of the audit partner every 5 years;
Reviews and may restrict the type of non-audit services which can be provided by its auditors;
Undertakes a review of non-audit fees paid to its auditors.

Auditor:
Moore Stephens Sydney is the Auditor of the Company appointed by the Board and continues in that office.

CONTINUOUS DISCLOSURE
The Corporations Act 2001 and the ASX Listing Rules (Listing Rules) require that a company discloses to the market matters which could be expected to have a material effect on the price or value of the Company’s securities. Management processes are in place to ensure that all material matters which may potentially require disclosure are promptly reported to the Managing Director. Matters reported are assessed and, where required by the Listing Rules, reported to the Australian Stock Exchange (ASX). The Managing Director is responsible for communications with the ASX and for ensuring that such information is not released to any person until the ASX has confirmed its release to the market.

SHAREHOLDER COMMUNICATIONS
The Board aims to keep shareholders informed of all major developments affecting the Company's activities and its state of affairs through announcements to the ASX, releases to the media and dispatch of financial reports. All such announcements are also placed on the website at www.wallacefunds.com.au

BUSINESS RISKS
The Board is the vehicle to facilitate the identification of significant areas of business risk and to implement procedures to manage those risks. The Company’s procedures manual contains detailed procedures in relation to the identification, analysis, evaluation, treatment and communication of risks associated with the Company’s business.

INTERNAL CONTROL FRAMEWORK
The Company has developed a set of policies and procedures (set out in the Company’s procedures manual) in relation to the Company’s compliance and risk programs. This provides the Board and management with an ongoing program to identify, monitor and manage compliance issues and significant risks with a view to protecting the value of the shareholder's investment and safeguarding the Company’s investments.

REMUNERATION
Due to the size of the Board no remuneration committee has been established.

The Board is responsible for the following:

Considering changes in remuneration policy likely to have a material impact on the Company;
Considering senior executive appointments;
Determining remuneration for senior management; and
Leadership performance of employees, legislative compliance in relation to employment issues, and any incentive plans operating within the Company.

The Company’s policies regarding the terms and conditions of remuneration relating to the appointment and retirement of Board members are approved by the Board following receipt and consideration of professional advice where this is considered appropriate. A director of the Company who is an employee or principal of the Manager is not entitled to any remuneration as a director of the Company. Any increase in the maximum total remuneration of the directors of the Company, which was set at $250,000 in 2002, is subject to the approval of shareholders. Directors’ remuneration, totalled $119,900 for the year 30 June 2005.

ETHICAL STANDARDS
The Company sets standards of behavior required of all employees including:

To act properly and efficiently in pursuing the objectives of the Company;
To avoid situations which may give rise to a conflict of interest;
To know and adhere to the Company’s Equal Employment Opportunity policy and programs;
To maintain confidentiality in relation to the affairs of the Company and its suppliers of services; and
To be absolutely honest in all professional activities.

These standards are communicated to staff. In addition, the Company has established insider trading guidelines for staff to ensure that unpublished price sensitive information about the Company or any other company is not used in an illegal manner.

BEHAVIOUR ISSUES
The Company is committed to providing fair, safe, challenging and rewarding work, recognising the importance of attracting and retaining the best staff and consequently, being in a position to provide good service to its investors.

There are various policies and systems in place to enable achievement of these goals, including:

Discrimination Guidelines;
Health and Safety Guidelines;
Recruitment and Selection Guidelines;
Performance feedback and review processes;
Development and Progress Assessment Timetable; and
Internal and External Industry Related Training Programs.

The Company is strongly committed to maintaining an ethical workplace and complying with legal and ethical responsibilities. Staff are required to report fraud, corrupt conduct, mal-administration and serious and substantial waste by other working staff. A system has been established which allows staff to remain anonymous, if they wish, for reporting of these matters.

GOVERNANCE PHILOSOPHY
The Board places significant importance on the governance of the Company, which it believes is vital to its well-being. The Company has adopted a comprehensive framework of Corporate Governance Guidelines which are designed to properly balance performance and conformance and thereby allow the Company to undertake, in an effective and prudent manner, the investment activities which are the basis of its business.