First Graphene Ltd. — AGM Information 2004

Oct 21, 2004

A.C.N 007 870 760 Level 29, 35 Collins Street, Melbourne Victoria 3000 Australia Telephone: (03) 9242 4000 Facsimile: (03) 9242 4040

TNL

22 October 2004

Companies Announcements Office Australian Stock Exchange Limited Exchange Centre 20 Bond Street SYDNEY NSW 2000

Dear Sir/Madam,

TOLHURST NOALL GROUP LTD

Notice of Annual General Meeting

The attached notice has been mailed to the shareholders of Tolhurst Noall Group Ltd today.

Yours faithfully,

Colored

CRAIG GRAHAM-SMITH Company Secretary

Notice of annual general meeting and
explanatory notes

Tolhurst Noall Group Ltd ABN 50 007 870 760

	Date: 23 November 2004
Time: 11.00am
	Place: Level 29, 35 Collins Street, Melbourne, VIC 3000

Notice of annual general meeting

Notice is given that the annual general meeting of shareholders of Tolhurst Noall Group Ltd (Company or TNL) will be held at Level 29, 35 Collins Street, Melbourne, Victoria at 11.00am on Tuesday 23 November 2004.

Business

Financial Statements and Reports $\mathbf{1}$ .

To table the financial statements of the Company for the year ended 30 June 2004 and to provide the members with the opportunity to raise any issues or ask questions generally of the directors concerning those financial statements or the business and operations of the Company.

$2.$ Ordinary Resolutions

To consider, and if thought fit, to pass each of the following resolutions as an ordinary resolution:

Resolution 1 - Re-election as a director

That John Harry, a director retiring in accordance with the Company's Constitution, being eligible and having signified his candidature for the office, be and is hereby re-elected as a director.

Resolution 2 - Re-election as a director

That Craig Graham-Smith, a director retiring in accordance with the Company's Constitution, being eligible and having signified his candidature for the office, be and is hereby re-elected as a director.

Resolution 3 - Re-election as a director

That Peter Leigh, a director retiring in accordance with the Company's Constitution, being eligible and having signified his candidature for the office, be and is hereby re-elected as a director.

3. Other business:

To transact any other business which may legally be brought before the meeting.

18^th October 2004 DATED

BY ORDER OF THE BOARD

lylight

Craig Graham-Smith Company Secretary

Voting

The Company has determined, in accordance with regulation 7.11.37 of the Corporations Regulations 2001 (Cth), TNL's shares quoted on Australian Stock Exchange Limited at 9.00am on 22 November 2004, will be taken, for the purposes of the annual general meeting, to be held by the persons who held them at that time. Accordingly those persons are entitled to attend and vote at the meeting.

Proxies

• A shareholder who is entitled to attend and vote at the meeting may appoint up to two proxies to attend and vote on behalf of that shareholder. If you require an additional proxy form, please contact the Company on $(03)$ 9242 4000.
• If a shareholder appoints two proxies, the appointment of the proxies may specify the proportion or the number of that shareholder's votes that each proxy may exercise. If the appointment does not so specify, each proxy may exercise half of the votes. Fractions of votes will be disregarded.
• Where a shareholder appoints more than one proxy, neither proxy is entitled to vote on a show of hands.
• A proxy need not be a shareholder of the Company.
• To be effective, the Company must receive the completed proxy form and, if the form is signed by the shareholder's attorney, the authority under which the proxy form is signed (or a certified copy of the authority) by no later than 9.00am on Monday 22 November 2004.
• Proxies may be lodged with the Company:
• by mail, to the Company Secretary, using the enclosed reply envelope to:

Level 29, 35 Collins Street, Melbourne 3000.

• by facsimile:
• (03) 9242 4040
• by delivery to TNL's registered office Level 29, 35 Collins Street, Melbourne 3000.
• Proxies given by corporate shareholders must be executed in accordance with their constitutions, or signed by a duly authorised officer or attorney.
• A proxy may decide whether to vote on any motion, except where the proxy is required by law or the Constitution to vote, or abstain from voting, in their capacity as proxy. If a proxy is directed how to vote on an item of business, the proxy may vote on that item only in accordance with the direction. If a proxy is not directed how to vote on an item of business, the proxy may vote as he or she thinks fit.
• If a shareholder appoints the chairperson of the meeting as the shareholder's proxy and does not specify how the chairperson is to vote on an item of business, the chairperson will vote, as proxy for that shareholder, in favour of that item on a poll.

Background

The purpose of the explanatory notes is to provide shareholders with an explanation of the business of the meeting and of the resolutions to be proposed and considered at the Annual General Meeting on 23 November 2004 and to allow shareholders to determine how they wish to vote on those resolutions.

Business of the Meeting

• A To table the financial statements of the Company for the year ended 30 June 2004 and to give the members the opportunity to raise issues and ask questions generally concerning the financial statements or business operations of the Company.
• $\bf{B}$ To consider and vote on resolutions relating to the re-election of directors.

Why the meeting is being held

$\mathbf{1}$ . Financial Statements and Reports

Pursuant to the Corporations Act, the directors of a public company that is required to hold an annual general meeting must table the financial statements and reports of the Company for the previous year before members at that annual general meeting.

Shareholders have been provided with all relevant information concerning the Company's financial statements in the Annual Report of the Company for the year ended 30 June 2004. A copy of the Annual Report has been forwarded to each shareholder. A copy of the Annual Report will be tabled at the meeting.

Shareholders should note that the sole purpose of tabling the financial statements of the Company or the reports on the Company's operations at the annual general meeting is to provide the shareholders with the opportunity to be able to ask questions or discuss matters arising from the financial statements at the meeting. It is not the purpose of the meeting that the financial statements be accepted, rejected or modified in any way and as it is not required by the Corporations Act, no resolution to that effect with be put to the members at the meeting.

Resolutions 1 and 2: Re-election of directors - John Harry and Craig $2.$ Graham-Smith

The Company's constitution requires that at each annual general meeting one-third of the directors (other than the managing director) must retire from office. A director appointed during the year either to fill a casual vacancy or as an addition to the directors is not taken into account in determining the directors who must retire by rotation. Therefore, two of the seven, excluding the managing director, must retire by rotation. The following directors, drawn by ballot from among the directors who have longest been in office, retire and are eligible for re-election. Accordingly they seek re-appointment as directors:

• John Harry; and $(a)$
• $(b)$ Craig Graham-Smith.

$3.$ Re-election of director - Peter Leigh

The Company's constitution requires that a person appointed as a director to fill a casual vacancy may hold office only until the next annual general meeting of the Company and is then eligible for election as a director. Therefore, Peter Leigh, who was appointed as a director to fill a casual vacancy on 1 October 2004, retires and is eligible for re-election. Accordingly he seeks reappointment as a director.

Directors' approval and recommendation

• ĺ. Each director who has an interest in the outcome of a particular resolution has, in accordance with the Listing Rules, abstained from making a recommendation on those resolutions.
• $2.$ Each of the directors who do not have an interest in the outcome of a particular resolution voted in favour of the resolutions being put to the shareholders.
• 1. On the basis of the information set out in these explanatory notes, each of the directors believes the transactions are in the best interests of shareholders and accordingly recommends that shareholders vote in favour of the resolutions. In addition, each of the directors approves the contents of these explanatory notes.
• 1. Notwithstanding this recommendation the directors believe that shareholders should carefully consider all the information set out in these explanatory notes.
• 1. These explanatory notes are dated 18th October 2004.

PROXY FORM

	The Secretary Tolhurst Noall Group Ltd Level 29, 35 Collins Street, Melbourne 3000
I/We	(please print) of $\overline{\phantom{a}}$ (please print)
	being a member(s) of Tolhurst Noall Group Ltd appoint:
	Name of Proxy
	Address of Proxy
	or, in his/her absence:
Name of Proxy
	Address of Proxy .
	or, if I/we have not nominated a proxy or if all the nominees are is absent from the meeting, the Chairperson of the meeting as my/our proxy to vote on my/our behalf in accordance with the following instructions (or if no instructions are given, as the proxy sees fit) at the annual general meeting with discretion as to any other business arising at the annual general of Tolhurst Noall Group Ltd to be held on Tuesday 23 November 2004 and at any adjournment of that meeting.
exercise	If two proxies are being appointed, complete the following sentence: This proxy is authorised to
	Directing your Proxy
	To instruct your proxy how to vote, insert 'X' in the appropriate column against each item of business set out below. If you do not instruct your proxy how to vote on a resolution, your proxy may vote as he/she thinks fit or abstain from voting.
	I/We instruct my/our proxy to vote as follows:
1.	To re-elect John Harry as a Director of the Company	For	Against	Abstain
2.	To re-elect Craig Graham-Smith as a Director of the Company
3.	To re-elect Peter Leigh as a Director of the Company

Chairperson's voting intentions

The Chairperson's voting intentions in relation to undirected proxies are:

		For	Against	Abstain
1.	To re-elect John Harry as a Director of the Company
2.	To re-elect Craig Graham-Smith as a Director of the Company
3.	To re-elect Peter Leigh as a Director of the Company
	If you do not wish to direct your proxy how to vote, please place a mark in the box.

By marking this box, you acknowledge that the Chairperson (if he or she is your proxy) may exercise your proxy even if he or she has an interest in the outcome of the resolution and votes cast by him other than as proxy holder will be disregarded because of that interest.

This proxy must be signed by each appointing member (or the member's attorney). Proxies given by a company must be executed in accordance with section 127 of the Corporations Act 2001 (Cth) or signed by a duly authorised officer or attorney.

Dated: ....................................

COMMON SEAL	SIGNATURE(S)	$ $ NAME (print)

The proxy form and the power of attorney or other authority (if any) under which it is signed (or a certified copy) must be received by the company, by no later than 5.00pm on Friday 19 November 2004:

• by mail to the Company Secretary using the enclosed reply envelope to: Level 29, $(a)$ 35 Collins Street, Melbourne 3000;
• $(b)$ by facsimile: (03) 9655 8431;
• $(c)$ by delivery to Tolhurst Noall Group Ltd's registered office at Level 29, 35 Collins Street, Melbourne 3000.

Notes:

• $\mathbf{1}$ . A member who is entitled to vote at the meeting may appoint:
• one proxy if the member is only entitled to one vote; or $(a)$
• (b) one or two proxies if the member is entitled to more than one vote.
• $2.$ Where the member appoints two proxies, the appointment may specify the proportion or number of votes that each proxy may exercise. If the appointment does not specify a proportion or number, each proxy may exercise one-half of the votes in which case any fraction of votes will be disregarded.
• 1. If you require an additional proxy form, the company will supply it on request.
• $\ddot{4}$ A proxy need not be a member of the company.

CRAND RAVIR LAD ANNUAL PIEPORT

TOLFILITSTAKEALL

ALMA ALLE DE LE LUI DE LE LUI DE

ABN 50 007 870 760

ANNUAL REPORT

30 JUNE 2004

CORPORATE INFORMATION

Board of Directors Chairman John Harry

Managing Director and Chief Executive Officer John Wilson

Russell McKimm Craig Graham-Smith Peter Chapman Andrew McDouall

Secretary Craig Graham-Smith

Auditors Moore Stephens HF Level 14, 607 Bourke Street Melbourne Victoria 3000

Lawyers Minter Ellison 525 Collins Street Melbourne Victoria 3000

Bankers ANZ Bank

Registered Office

Level 29, 35 Collins Street Melbourne Victoria 3000 Tel: 61 3 9242 4000 Fax: 61 3 9242 4040 www.tolhurst.com.au

Share Register

Computershare Registry Services Pty Ltd Level 11, 115 Grenfell Street Adelaide South Australia 5000

Stock Exchange Listing

Tolhurst Noall Group Ltd shares are listed on the Australian Stock Exchange Limited (Code: TNL)

Our Annual Report

Our Annual Report comprehensively records the activities and achievements of the Company for the financial year ended 30 June 2004. In doing so, it complies with the Financial Audit and Administration Act 1977 and with management's operational policy of transparency and full disclosure in reporting.

ANNUAL REPORT - 30 JUNE 2004

CONTENTS	PAGE
CORPORATE INFORMATION
CHAIRMAN'S REVIEW
CORPORATE GOVERNANCE PRINCIPLES
TNGL RISK MANAGEMENT REPORT
DIRECTORS' REPORT
STATEMENT OF FINANCIAL PERFORMANCE
STATEMENT OF FINANCIAL POSITION
STATEMENT OF CASH FLOWS
NOTES TO THE FINANCIAL STATEMENTS
DIRECTORS' DECLARATION
AUDITOR'S REPORT
ADDITIONAL STOCK EXCHANGE INFORMATION

NOTICE OF ANNUAL GENERAL MEETING

NOTICE is hereby given that the Annual General Meeting of Tolhurst Noall Group Ltd ("the Company") will
be held at Level 29, 35 Collins Street, Melbourne Vic, 3000 on the 23rd day of November 2004 at 11 am AEST.

See separate Notice for Agenda of Meeting

THE CHAIRMAN'S REVIEW OF THE YEAR ENDED 30 JUNE 2004

The reported Group pre-tax profit for the year ended 30 June 2004 was \$3,444,749, which compares to a pre-tax loss of \$503,806 for the previous corresponding period. The Directors consider this a good result as the Group was able to take advantage of favourable trading conditions with most divisions contributing to the improved result. The result was achieved despite the regulatory changes and additional compliance costs we have introduced during the year for our stockbroking and responsible entity businesses. It was a busy year in which we also recapitalised the balance sheet, raised capital, sold non-core assets and repaid loans.

After estimated taxation, the Group net profit was \$2,826.525 (2003: \$147.819). Based on recent, updated advice from its taxation consultants, the Group now expects to lose the benefit of some past tax losses as a result of the rules in the Taxation Consolidations System. However, the calculations are incomplete and the final taxation liability will not be known for some months.

The key Broking Division (Equities and Options) achieved revenues up 14.3% on last year and TNGL would like to record its appreciation of the effort that consultants and staff made to reach this result, which was above budget. Our Corporate and Arbitrage teams produced record net profit contributions and again there were excellent performances taking full advantage of the favourable market conditions.

As previously reported, we divested our 50% owned funds management investment in Albury for \$2.0M and the final tranche of \$1.0M cash is due in November 2004. We also sold \$1.7M of property in Cairns and repaid associated loans of \$1.3M.

In terms of capital raisings, we allotted \$78,000 of staff shares in October 2003; on revised terms we received the balance of the Balgreggan subscription of \$168,000 and allotted the monies received last financial year of \$260,000; the Rights Issue in December 2003 raised a gross amount of \$708,000; and the Share Purchase Plan in June 2004 raised a gross amount of \$750,000. All of these funds were used for working capital purposes, in particular to replace off-balance sheet facilities from two major shareholders.

At the 21 November 2003 Annual General Meeting, Shareholders approved the allotment of 3,400,000 options to the Managing Director exercisable at 25 cents expiring 21 November 2007 and 4,000,000 options to executive directors, staff and consultants exercisable at 25 cents expiring 21 November 2005.

As a result of the operating profit and asset and capital changes, the working capital ratio at 30 June 2004 was 1.28 (2003: 1.06) and the gross interest paying debt to equity ratio was 0.32 (2003: 1.27). At 30 June 2004, the Group's net cash at bank was \$8,324,402 (2003: \$749,290).

In response to the new regulatory environment and the granting of our new licences, the Group has significantly increased its resourcing in Compliance. These resources include an Internal Auditor, a new front office operations manager, a financial planning compliance manager and various new software applications. Compliance is actively monitored through the Board's Audit & Risk Management Committee and the Compliance Committee.

The Directors wish to acknowledge the dedication and commitment of staff and consultants, many of whom have shouldered much responsibility during the year and put in considerable additional hours.

Michael Maloney, our Director of Institutional Sales, sadly passed away on Sunday 22 August 2004. Michael was making a major contribution to our business and was much respected throughout the firm and across our institutional client base. He was a person of integrity and professionalism and a team builder. He will be greatly missed.

Since the end of the financial year the Group's profitability has declined. The Group continues to experience satisfactory broking turnover numbers in line with 2003/04, but costs have increased. Our other divisions have been mixed, with Corporate and Arbitrage behind budget since year end. The outlook for all businesses over 2004/2005 is difficult to predict. A profit is estimated to be earned in each of July and August 2004.

luy

John Harry - Chairman

CORPORATE GOVERNANCE PRINCIPLES

The Board of Directors ("the Board") is committed to TNGL achieving superior financial performance and longterm growth, while meeting stakeholders' expectations of sound corporate governance practices. This Statement outlines TNGL's main corporate governance practices as at 30 June 2004.

The Board determines the corporate governance arrangements for TNGL and regularly reviews developments in corporate governance to confirm that those arrangements are the most appropriate for TNGL. The TNGL Board is governed by its Charter and the Constitution of the Company. As detailed in this Statement, the Company considers that its governing practices are appropriate for TNGL but in some cases do not comply with all of the ASX Corporate Governance Council's best practice recommendations. An explanation for material departures from these recommendations is provided in this Statement.

In addition, the Company has posted copies of its Board Charters to its website, www.tolhurst.com.au.

Principle 1: Laying Solid Foundations for Management and Oversight

The role of the Board of Directors is to set goals and policies for the operation of the Company, to oversee the Company's management, to regularly review performance and to generally monitor the Company's affairs in the best interests of shareholders. For these responsibilities the Board is accountable to shareholders.

1.1 Role and Responsibilities

The primary role of the Board is to promote the long-term health and growth of TNGL. To accomplish this, the Board is responsible for:

• Setting strategic direction of Tolhurst Noall and monitoring management's performance within that framework:
• Ensuring there are adequate resources available to meet Tolhurst Noall's objectives including; monitoring its past; appointing and removing the Managing Director and overseeing succession plans for the senior executive team;
• Approving and monitoring financial reporting and capital management;
• Approving and monitoring the progress of business objectives;
• Ensuring that adequate risk management procedures exist and are being used;
• Ensuring that Tolhurst Noall has appropriate corporate governance structures in place including standards of ethical behaviour and a culture of corporate and social responsibility with special reference to TNGL's licence obligations; and
• Ensuring that the Board is and remains appropriately skilled to meet the changing needs of the company.

The Board has delegated specific authorities to the Chairman and the Board.

The Chairman is responsible for:

• Leading the Board in its duties to TNGL;
• Ensuring there are processes and procedures in place to evaluate the performance of the Board, its committees and individual directors;
• Facilitating effective discussions at Board Meetings; and
• Ensuring effective communications with shareholders.

Subject to these delegated matters, the Managing Director is responsible for:

• Policy direction of the operations of TNGL;
• The efficient and effective operation of TNGL;
• Ensuring directors are provided with accurate and clear information in a timely manner to promote effective decision making by the Board; and
• Ensuring all material matters affecting TNGL are brought to the Board's attention.

1.2 Chairman

The Company has noted the ASX Corporate Governance Council's best practice recommendation that listed companies have an independent director as chairman. Mr John Harry, the Chairman of TNGL, is an independent non-executive director and:

• Is not a substantial shareholder of the company or an officer of, or otherwise associated directly with, a substantial shareholder of the company;
• Within the last three years has not been employed in an executive capacity by the company or another group member, or been a director after ceasing to hold any such employment:
• Within the last three years has not been a principal of a material professional adviser or a material consultant to the company or another group member, or an employee materially associated with the service provided;
• Is not a material supplier or customer of the company or other group member, or an officer of or otherwise associated directly or indirectly with a material supplier or customer and has no contractual relationship with the company or another group member other than as a director of the company;
• Has not served on the board for a period which could, or could reasonably be perceived to, materially interfere with the director's ability to act in the best interests of the company; and
• Is free from any interest and any business or other relationship which could, or could be reasonably perceived to, materially interfere with the director's ability to act in the best interests of the company.

Mr Harry's experience in the law and in financial services, and as a director of listed companies, is also important in ensuring that the Board is provided by management adequate information to facilitate effective decision making. His wide experience enables him to provide support and advice to the Managing Director.

TNGL's dependence on the performance of its staff is a reason why. like many financial services companies. TNGL believes it to be in shareholders' interests to have a number of Board members with operating experience of the businesses.

TNGL has adopted a number of practices to regulate the division of responsibilities between the Board and management, and the accountability of management to the Board, including:

• The separation of the role of Chairman from that of the Managing Director.
• Mr McDouall is Chairman of the Board's Remuneration Committee. $\bullet$
• Mr Harry is Chairman of the Board's Audit and Risk Management Committee. $\bullet$
• Senior compliance executives have direct access to the TNGL Board and to the Chairman.

Principle 2: Structuring the Board to Add Value

2.1 Board Composition

The Board believes that its membership should comprise directors with an appropriate mix of skills, experience and personal attributes that allow the directors individually, and the Board collectively to:

• Discharge their duties and responsibilities under law efficiently and effectively;
• Understand the business of TNGL and the environment within which TNGL operates so as to be able to oversee management and determine the objectives, goals and strategic direction to maximise shareholder value; and
• Assess the performance of management in meeting those objectives.

The current membership of the Board is set out below. TNGL has six directors; one independent director, one non-executive director who is associated with a substantial shareholder of the Company and four executive directors. The TNGL Board composition does not conform with ASX Best Practice Recommendation 2.1, which recommends that a majority of the board should be independent directors. TNGL considers that, for a company of its size and resources, in the financial services industry, the Board size and composition must be designed to meet the tests of cost and contribution to the business.

Over the course of 2004/05 a search will be conducted for a new independent director with relevant experience. Certain large shareholders have indicated that they may seek board representation in the future.

Details of each individual Director's background are set out in the schedule to the Directors' Report, which immediately follows this Corporate Governance Statement.

The roles of chairman and managing director are not exercised by the same individual.

The Company's constitution further provides that the maximum number of Directors shall be ten (10) unless amended by a resolution of the Directors. The number of Directors necessary to constitute a quorum is two (2).

Current Board Composition

Voting Director	Board Membership	Date of Appointment
John Harry	Independent Chairman	17 September 2001
John Wilson	Managing Director	24 March 2003
Craig Graham-Smith	Company Secretary and Executive	17 September 2001
Russell McKimm	Executive	17 September 2001
Peter Chapman	Executive	30 November 1999
Andrew McDouall	Non-Executive Executive	15 November 2002

Board Practices

The Board meets eleven times a year and at other times as needed. An annual Board strategy meeting is held in conjunction with senior management at which the strategic direction for the Company in the short and longer term is discussed.

The monthly Board papers, normally distributed several days prior to the relevant meeting, make the Board aware of current and forthcoming issues relevant to the Company's operations and performance. These contain the monthly and year-to-date performance of all Divisions, compliance and risk reports from the Audit and Risk Committee and the Compliance Committee and papers relating to particular issues. Where the Chairman or the Company Secretary is aware that potential conflict of interest may arise in relation to a Director, the Director concerned does not receive a copy of the relevant Board paper and withdraws from the Board meeting while the matter is being considered.

Senior management present significant matters to the Board. The Board may seek further information on any issue, including requesting that a particular Division Head present to it on the performance, strategy or outlook for that Division. The Board also has a policy of enabling Directors to seek independent professional advice for company-related matters at the Company's expense, subject to the estimated costs being approved by the Chairman in advance as being reasonable.

2.2 Board Committees

Three standing Board Committees have been established to assist in the execution of the Board's responsibilities. All Board members are free to attend any meeting of any Board Committee. The membership of each Committee is outlined in the table below.

It is the policy of the Board that the Chairman of each Board Committee should be an independent Director or a non-executive Director.

The number of times each Board Committee met and the number of those meetings attended by the members of each Committee is set out in the Directors' Report.

Committee Membership

	Audit and Risk	Corporate	Remuneration
Executive Voting Directors
John Wilson	Member	Member
Russell McKimm	Member
Craig Graham-Smith	Member	Member	Member
Non-Executive Directors
John Harry	Chairman	Chairman
Andrew McDouall			Chairman

The functions of the Audit and Risk. Remuneration and Corporate Committees are discussed later in this Statement.

2.3. Nomination and Performance of Directors

2.3.1 Nomination of Directors

The Board established a Board sub-committee to advise on nominations on 5^th May 2004. The Nominating-Sub Committee comprises the Chairman and Mr McDouall.

The Nominating Sub-Committee's role is to review and consider the structure and balance of the Board and make recommendations regarding appointments, retirements and the terms of office. In particular the Committee is to:

• Identify and recommend to the Board, candidates for the Board after considering the necessary ă competencies of new Board members;
• Review induction procedures for new appointees to the Board to assist them to effectively discharge their responsibilities;
• Assess and consider the time required to be committed by a Director to properly fulfil their Board functions; and
• Review succession plans for the Board with a view to maintaining an appropriate balance of skills and experience on the Board.

When a vacancy exists or whenever it is considered that the Board would benefit from the services of a new Director, the Nominating Sub-Committee will seek to identify the competencies required to enable the Board to fulfil its responsibilities and recommend candidates with the appropriate expertise and experience. The Nominating Sub-Committee has also identified the following fundamental factors as relevant to the selection and appointment of new directors:

• Extensive and senior commercial experience, preferably with a listed company or a financial services company;
• Cultural fit with existing Board members and empathy to the Company's culture;
• High level of personal integrity;
• Independent state of mind:
• Free of conflicts as identified by TNGL, ASX and ASIC; and
• Time available to meet the commitment required.

The Nominating Sub-Committee has unlimited access to the senior management of TNGL and is able to consult independent experts where it considers it necessary to carry out its duties and responsibilities with all costs borne by the Company.

$2.3.2$ Tenure

No term of office has been set for Non-Executive Directors.

Where a Director is appointed to fill a casual vacancy on the Board, they are required to submit to election at the next general meeting. In addition, currently one-third of Directors (excluding the Managing Director and rounded down) must retire from office at the Annual General Meeting (AGM) each year; such retiring directors are eligible for re-election. Directors standing for election in these circumstances are subject to a formal performance appraisal prior to the Board determining whether to recommend their re-election.

2.3.3 Performance of Directors and Key Executives

The performance of non-executive directors is reviewed by the Chairman and, if necessary, by the Board Nominations Sub-Committee. The performance of the Managing Director is reviewed by the Remuneration Committee. The performance of other executive directors is reviewed by the Managing Director.

Principle 3: Promotion of Ethical and Responsible Decision Making

3.1 Code of Ethics and Conduct

TNGL's Directors and staff are required to maintain high ethical standards of conduct.

TNGL's Code of Ethics and Conduct covers TNGL's dealing with external parties and how the Company operates internally. It is periodically reviewed and fully endorsed by the Board.

The Code of Ethics and Conduct is intended to help Directors and staff to understand their responsibilities to uphold the goals and values to which TNGL aspires and to conduct business in accordance with applicable laws and regulations.

The Code is reflected in, and supported by, a broad range of TNGL's internal policies and procedures. A copy of the Code is available on TNGL's website.

Staff and Director Trading in TNGL's Securities $3.2 -$

TNGL has a formal policy dealing with trading in TNGL shares which is applicable to all Directors, employees. consultants and a person over whom an employee or consultant has or is deemed to have investment control or influence.

TNGL Board members may only trade in TNGL securities with prior approval from the Chairman and in the case of all other employees – the consent of the Company Secretary of TNGL, who will, on the granting of permission, report that fact to the Chairman for noting. However, at any time, if an individual possesses material non-public price sensitive information about TNGL, that person is prohibited from trading.

Principle 4: Safeguarding Integrity in Financial Reporting

TNGL's Board has the ultimate responsibility for the integrity of the Company's financial reporting. To assist the Board in fulfilling this responsibility it has adopted the processes discussed below aimed at ensuring that the financial statements and notes of TNGL are complete, in accordance with applicable accounting standards and provide a true and fair view.

4.1 Financial Assurance

The Board maintains an Audit and Risk Committee and its functions have been expanded to encompass compliance matters. Because of the lack of independent directors, the current composition of the Board Audit and Risk Committee does not conform with that suggested by the ASX Corporate Governance Council.

Under its charter, the Committee assists the Board in discharging its responsibility to exercise due care, diligence and skill in relation to Tolhurst Noall in the following areas.

• Financial and External reporting
• The committee is expected to review all audited Tolhurst Noall financial statements intended for publication prior to recommending their approval by the Board. This includes audited quarterly reports, if audited quarterly accounting is adopted by the Board.
• In undertaking reviews of financial and external reporting the Committee will do so from the shareholder's perspective, with a view to ensuring the information is adequate for their needs.
• The Committee will be copied into all formal communications with regulators and will review all licence applications or corrections.
• Audit Activities, Audit Scope and Audit Independence
• The key responsibility of the Committee in relation to the activities of external audit and internal audit are to ensure that the audit approach covers all financial statement areas where there is a risk of material misstatement and that audit activities are carried out throughout Tolhurst Noall in the most effective, efficient and comprehensive manner with due regard to the differing roles of external audit and internal audit. The Committee is responsible for ensuring that the external auditor meets the required standards for auditor independence.
• Risk Management and Internal Control Structure

• Within the area of risk management and internal control the committee is responsible for monitoring and reviewing the effectiveness of the risk management and internal control structure implemented by management (including the processes supporting external reporting) and advise on significant changes to that structure so as to obtain reasonable assurance that the Tolhurst Noall assets are safeguarded and that reliable financial records are maintained. Special attention will be paid to overview of the credit risk in the business, covering physical transactions, options and warrants. The Committee will also review all risks identified in the ASX Rules including operational risk, issuer risk, position risk, large counter-party risk and any special risks applying to the business.

• Compliance with Tolhurst Noall's Licence Conditions

• The Committee is responsible for the overview of management's processes as adopted to comply with Tolhurst Noall's FSR licence conditions and all the requirements imposed on Tolhurst Noall by the ASX Rules and related Clearing and Settlement Rules.
• The Committee is responsible for forming a view on the adequacy of internal controls and risk management involved in the systems and processes adopted by the company.
• The Committee shall receive and consider every three months reports from the Compliance Committee which describe the outcome of compliance for the proceeding three months and summarise any breaches of the rules, including application of the disciplinary policies. The Committee shall approve all notification of breaches to the ASX and ASIC and if these are urgent will meet on an adhoc basis to provide such approvals.
• Corporate Governance and Integrity
• The Committee is responsible for overviewing management's application of the ASX Corporate Governance Council Guidelines in respect of financial reporting and risk oversight.
• The Committee provides assurance that Tolhurst Noall is adequately managing risk relating to corporate governance and market integrity and is maintaining appropriate controls against conflicts of interest and fraud.

The Board Audit and Risk Committee also has responsibilities in relation to the external auditor disclosed below under "Auditor Independence".

The Board Audit and Risk Committee meetings are held periodically throughout the year.

The Board Audit and Risk Committee has unlimited access to the external auditors, the Group's compliance officers and to senior management of the Group. The Committee also has the power to conduct or authorise investigations into, or consult independent experts on, any matters within the Committee's scope of responsibility. In accordance with current TNGL policy, Committee members may seek independent professional advice for company-related matters at the Company's expense, subject to the estimated costs being approved by the Chairman, in advance, as being reasonable.

$4.2$ Certification by the Managing Director and Chief Financial Officer

The Managing Director and the Chief Financial Officer provide the Board with written confirmation that TNGL's financial reports present a true and fair view, in all material respects, of TNGL's financial condition and operational results and are in accordance with relevant accounting standards.

4.3 Auditor Independence

The Board Audit and Risk Committee is also responsible for overseeing the external audit of TNGL. Its duties and responsibilities include to:

• Recommend to the Board the appointment and removal of external auditors. This may include periodic ٠ reviews of the external auditor and tenders may be called to assist in deciding which external auditor should be recommended.
• Review, consider and advise the Board on:
  • The fees proposed by the external auditor;
  • The qualification, expertise and resources of the external auditor annually; and
  • Whether an effective, comprehensive and complete audit can be conducted for the fee.
• Monitor the effectiveness, objectivity and independence of the external auditors.
• Develop and recommend to the Board TNGL's policy in relation to the provision of non-audit services by the auditor in order that the provision of such services does not impair the external auditor's independence or objectivity.

To assist it in monitoring the independence of the external auditors, the Committee has adopted the following policy:

• The external auditor is not to provide non-audit services under which the auditor assumes the role of management, becomes an advocate for TNGL, or audits its own professional expertise;
• Significant permissible non-audit assignments awarded to external auditors must be approved in advance by the Committee; and
• Any fee arrangement between TNGL and the external auditor must not contain any contingent or success fees element.

The auditor has been invited to attend this year's AGM and be available to answer questions about the conduct of the audit and the preparation and content of the auditor's report.

Principle 5: Timely and Balanced Disclosure

As a listed entity, the Company has an obligation under the ASX Listing Rules to maintain an informed market with respect to its securities. Accordingly, we keep the market advised of all information required to be disclosed under the Rules which we believe would have material affect on the price or value of the Company's securities.

TNGL believe that shareholders and the investment community generally should be informed of all material events that influence TNGL in a factual, timely manner and shareholders are encouraged to participate in general meetings.

5.1 Communications

It is TNGL's policy that all external communications by TNGL will be:

• Factual and subject to internal vetting and Board authorisation before issue;
• Not omit material information; and
• Be timely and expressed in a clear and objective manner.

TNGL's Board considers potentially price-sensitive information in order to meet TNGL's continuous disclosure obligations. The Company Secretary is responsible for coordinating disclosure of information to ASX and shareholders and for educating Directors and staff on TNGL's disclosure policies and procedures.

It is TNGL's policy that any price-sensitive material for public announcement, including annual and interim profit announcements will be lodged with ASX as soon as practical and before external disclosure elsewhere.

Principle 6: Respecting the Rights of Shareholders

The Board's primary responsibility to the shareholders is to do its utmost to meet the Company's objectives and so increase the Company's value. As owners of the Company, the Board maintains active communication with shareholders as often as practicable. Annual Reports are forwarded to all shareholders unless they advise us not to send them.

TNGL usually holds its AGM of members of the Company in November of each year.

The Notice of AGM will be accompanied by explanatory notes on the items of business and together they will seek to clearly and accurately explain the nature of business of the meeting. In that regard, TNGL will be cognisant of best practice, including the Guidelines for Notices of Meetings produced by the ASX Corporate Governance Council. A full copy of the Notice of AGM will be placed on TNGL's website.

Shareholders are encouraged to attend the meeting or, if unable to attend, to vote on the motions proposed by appointing a proxy. The proxy form included with the Notice of AGM will seek to clearly explain how the proxy form is to be completed and submitted.

Unless specifically stated in the Notice of the AGM, all holders of fully paid ordinary shares are eligible to vote on all resolutions.

Principle 7: Recognising and Managing Risk

There are many risks in the markets in which TNGL operates. A range of factors, some of which are beyond TNGL's control, can influence performance. In many of its businesses, TNGL assumes financial risk. TNGL has in place limits and a range of procedures to monitor the risk in its activities, and these are periodically reviewed by the Audit and Risk Committee of the Board.

Further information on TNGL's system of risk oversight and management is set out below and also in the Risk Management Report which is included in the TNGL 2004 Financial Report.

7.1 Board Oversight

The duties of the TNGL Audit and Risk Committee are set out above. In addition, the Committee will:

• Review and endorse TNGL's risk management framework, and any variations to it; $\bullet$
• Review and endorse TNGL's risk profile in each risk area of market liquidity, equity, credit, regulatory and operational risk. There should also be a review of the experience of losses in each risk category to provide confidence that TNGL's policy reflects experience;
• Review and endorse TNGL's capital management plan;
• Review and approve matters requiring Board approval including:
• Significant variations to policies, limits and delegations of authority
• Individual transactions beyond the authority delegated to management
• Review limit and policy breaches above certain thresholds; and
• Assess the risk management framework against the expectations of ASIC, ASX and other regulators.

The Board Audit and Risk Committee has the power to consult independent experts on any matters within the Committee's scope of responsibility. Committee members may seek independent professional advice for company-related matters at the Company's expense subject to the estimated cost being approved by the Chairman of the Board, in advance, as being reasonable.

7.2 Risk Management Framework

TNGL's approach to risk management is described in detail in the Risk Management Report in TNGL's 2004 Financial Report.

7.3 Managing Director and Chief Financial Officer Certification

The Managing Director and the Chief Financial Officer provide the Board with written confirmation that subject to the content of the TNGL Risk Management Report:

• The integrity of TNGL's financial statements is founded on a system of risk management and internal ٠ compliance and control which implements the policies adopted by the Board;
• The company's risk management and internal compliance and control system in force at the date of this report is operating efficiently and effectively in all material respects; and
• In the event that this confirmation is qualified, the Managing Director and the Chief Financial Officer explain to the Board the departures from best practice and the steps taken to manage the implications of any departures.

Principle 8: Encouraging Enhanced Performance

The Board has established a Nomination Committee to assist in its responsibilities to review the performance of the Board and to deal with the attendant issues related to the orderly process of self-renewal. (Refer to Principle 2 for a description of the Nomination Committee's responsibilities).

In order to provide a specific opportunity for performance matters to be discussed with each Director, each year, the Board Chairman has established a formal Director review process. He meets with each Director individually to discuss issues including performance and effectiveness of the Board as a whole, individual Directors and the Chairman, with the intention of providing mutual feedback. Given the nature of the Company's activities it was felt that this was sufficient formality in the process of evaluation of the Board, individual Directors and the Chairman at this point in the Company's development. This process is under way with respect to the current year.

Each Director of the Company is encouraged to have a financial interest in the Company. Each current Director has a meaningful shareholding or option holding in the Company and a number are also holders of subordinated debt. These security holdings have been acquired from their own resources. (For details of the holdings refer to the Financial Report). As shareholders in the Company, Directors benefit in the same way as all other shareholders in improving shareholder value.

Principle 9: Fair and Responsible Remuneration

9.1 Remuneration Policy

As a financial services provider, TNGL's performance is critically dependent on the skill, experience and calibre of its staff and consultants. Hence, the Company has designed its remuneration practices to be sufficiently competitive to attract and retain the quality of personnel that it seeks and also to encourage long-term

commitment and superior performance from its employees. The Company believes this will lead to it achieving above average returns and creating long-term value for its shareholders.

In setting its remuneration arrangements, reference is made to current employment market conditions in the markets in which TNGL operates.

TNGL's remuneration practices include:

• Base remuneration for staff determined by reference to market conditions;
• Bonuses for staff based on the profitability of TNGL and individual contributions;
• Connectitive remuneration of consultants, based on revenue achieved, which may include deferred commissions:
• Staff equity participation through offers of options and distributions of equity in TNGL; and
• Profit share in some of TNGL's business entities.

Key elements of the arrangements are reviewed by the Board Remuneration Committee (discussed below) and revised where appropriate, having regard to prevailing market conditions. Flexibility is retained to vary or make exceptions to the employment arrangements where special circumstances arise.

For 2003/04 the following equity issues were made to staff and consultants:

• $\overline{1}$ November 2003. The shareholders of TNGL approved the issue of
• 3,400,000 4 year options, exercisable at \$0.25 per share, to the Managing Director. $\bullet$
• 4,000,000 2 year options, exercisable at \$0.25 per share to certain staff and consultants (including $\bullet$ executive directors) of TNGL.

The detailed terms and conditions of these series of options are set out in the Directors' Report on page 20.

December 2003. 390,000 shares in TNGL were allotted to staff of TNGL (500 per person). This issue 2) excluded the executive directors of the Company. The options issued to TNGL staff and consultants are not linked to performance hurdles (but were issued above the ruling share price) and in this respect the remuneration does not comply with ASX Best Practice recommendations.

9.2 Executive Director Remuneration

TNGL's remuneration policy for Executive Directors is discussed in the Directors' Report. The amount of remuneration paid to Executive Directors and the five highest paid Executives of TNGL is also set out in the Directors' Report.

Executive Directors receive base remuneration, which is determined by reference to market conditions, and are eligible to participate in bonuses and offers of options or equity in TNGL.

The remuneration policy is designed to encourage superior and long-term commitment to TNGL.

Executive Directors do not receive any fees for being Directors of TNGL or for attending Board and Board Committee meetings.

The employment contract with the Managing Director provides ordinarily for termination of employment by TNGL giving 12 months' notice (or a lesser time in certain circumstances, including misconduct). The Managing Director is entitled to a schedule of bonuses linked to TNGL's profit before tax. With respect to 2004, the Managing Director received a bonus on this formula of \$150,000.

TNGL's total employment expense is shown in the Statement of Financial Performance on page 22 of the 2004 Financial Report. In total, consultants commission, staff salaries and directors fees amount to \$19.8 million, which is 54.7% of TNGL's revenue. TNGL considers that this level of remuneration is necessary to deliver sound performance and long term value for shareholders.

All executive directors, non-executive directors and responsible executives of TNGL are entitled to an Indemnity and Access Agreement under which, inter alia, they are indemnified as far as possible under the law for their actions as directors and officers of TNGL.

9.3 Setting Remuneration Arrangements

The Board has established the Remuneration Committee. The current composition of the Remuneration Committee is Mr. McDouall and Mr. Graham-Smith. This does not conform with the composition suggested by the ASX Corporate Governance Council. To assist Mr McDouall as Chairman, independent advice is sought when he deems this appropriate. If a new independent director is appointed, the director will be asked to join the Remuneration Committee.

The primary functions of the Remuneration Committee are to assist the Board in developing remuneration policies and in making recommendations to the Board on:

• Executive remuneration and incentive policies;
• The remuneration packages of senior management; $\bullet$
• ۰ TNGL's recruitment, retention and termination policies for senior management;
• Incentive schemes: $\bullet$
• Superannuation arrangements; and
• The remuneration framework for directors,

The Remuneration Committee has access to the senior management of TNGL and is able to consult independent experts where it considers it necessary to carry out its duties and responsibilities, with all costs borne by TNGL.

9.4 Non-Executive Director Remuneration

The remuneration policy for TNGL's Non-Executive Directors and the amount of remuneration paid to NEDs, is discussed in detail in the Note 18 (see pages 42 to 45).

The remuneration policy for NEDs is designed to remunerate NEDs for their time, commitment and responsibilities. NEDs are remunerated for their services from the maximum aggregate amount (currently \$200,000 per annum) approved by shareholders for that purpose. They receive a base fee for their Committee and other duties.

There are no termination payments to NEDs on their retirement from office other than with respect to the Chairman. Under an agreement with the Company in 2001 the Chairman is entitled to a sliding scale of termination payments, commencing from September 2004. An amount of \$200,000 was provided in 2004 with respect to the retirement benefit accrued at September 2004.

Principle 10: Recognising Legitimate Interest of Stakeholders

Tolhurst Noall's key stakeholders are its shareholders, agents, staff, dealers, clients and creditors.

As noted above, the Company's principles of conduct are intended to guide its activities to ensure that the legal requirements and the obligations to our stakeholders are complied with at all times.

TNGL RISK MANAGEMENT REPORT

The Company is committed to the establishment and maintenance of a sound system of risk oversight, management and internal control.

The Board is responsible for ensuring that there are adequate policies in relation to risk oversight and management, and internal control systems. In summary, the Company policies are designed to ensure that strategic, operational, legal, regulatory, reputation and financial risks are identified, assessed, addressed and monitored to enable achievement of the Company's business objectives. The Company operates in an environment of high risk, and this risk profile is accepted because the Company seeks to participate in a business segment with these risk characteristics.

The Company's risk management policy is managed by the Audit and Risk Committee of the Board. Major matters are referred to the Board for evaluation and decision. The Audit and Risk Committee of the Board reviews the progress of business units in managing risk and in developing continuously better procedures for managing risk. During 2004/05 the Audit and Risk Committee of the Board has met at frequent intervals to review the performance of the Company in meeting its compliance objectives and in developing new policies. New and improved policies have been issued and implemented in many areas of the Company, including Options, Settlements and Research.

All business units are required to sign off on risks relevant to their areas and this sign off is given to the Audit and Risk Committee of the Board.

The Managing Director and the Finance Director have stated to the Board in writing that, subject to the matters set out in this Annual Report and especially in the discussion of Risk in the Annual Report:

• 1. The financial statements are founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the Board, and
• 1. At the date of this Annual Report, the Company's risk management and internal compliance and control system is operating efficiently and effectively in all material respects.

Any qualifications to this confirmation are explained to the Board, describing the departures from best practice and the steps taken to manage the implications of any departures.

Investment Risk

The Company has an arbitrage business that accepts principal risk. The Company seeks to reduce this risk by establishing limits for the Company's exposures and by clearing its positions rapidly.

From time to time, the Company takes principal positions or is obliged to accept shortfall stock. These positions are managed in part by the Board Corporate Committee that approves underwriting exposures.

Credit Risk

The Company accepts material credit risk in its dealings with clients. In the Corporate Finance business and other activities of the Company, large counterparty risks are accepted from time to time. In addition, in the case of the Options business, if margin calls apply subsequent to the initial trade, or the client is obliged to meet exercise of options, and the client is unable to satisfy the requirements of the ACH, then the Company is responsible for the client's position. This is a very material risk for the Company because options are a major component of its retail business.

The Company seeks to reduce this risk by (a) a sell out policy if clients fail to meet commitments and (b) review of counterparties by the board Corporate Committee.

Liquidity Risk and Liquid Margin Risk

The Company requires cash to settle trades and liquid margin (as defined by the ASX as regulator) to support the risk in trades.

The Company is building its banking facilities and capital base to mitigate this risk and orders over \$3M require prior approval. Nevertheless, the Company may find itself short of the funds and liquid margin necessary to support its business.

Litigation Risk

The Company receives client complaints and manages these as required by Law and its licence conditions. Some of these complaints become the subject of FICS investigations or law suits. Material claims are possible, including potentially large claims in connection with Corporate Finance mandates and its client advisory business.

The Company seeks to reduce the incidence and financial impact of these claims by complying with the service requirements of the relevant legislation, by insurance cover for large claims and by documentation of client relationships and management with the client of specific matters and concerns.

Insurance risk

To maintain its licences and ASX participation, the Company is required to have various insurances, including professional indemnity insurance. The Company's insurance cover extends at present to 30 June 2005. Continuation of this insurance depends on both matters outside the control of the Company (such as insurance conditions applying to financial services) and matters relating to the Company (such as the Company's claims experience).

Compliance Risk

The Company operates under two licences, both of which impose significant compliance obligations. The Company's licence is its prime asset and meeting the licence obligations and conditions is of the first importance to the Company. The company must also comply with the market rules of the ASX and its related bodies.

In 2003/04 the Company has been audited by both ASX and ASIC and these audits have assisted in the identification of improvements that needed to be made to internal systems and procedures. The Company is working with the regulators to ensure that all changes required are identified and implemented. The Company has created the position of Manager, Corporate Affairs and Financial Planning to assist in this process.

ASX and ASIC fines, penalties and other sanctions are a risk for the Company.

Accounting and Finance and Settlements

The Company's financial obligations and contingent obligations are described in the financial statements. The wider risks in this area are described below.

The company processes several billions of dollars in transactions annually and there is always a risk of processing error. Some such errors occurred in 2003/04.

The Company is continuing to develop and improve reconciliation and other procedures to mitigate this risk. In addition, the settlements department and front office compliance have been strengthened by the appointment of a new senior manager.

The Company relies on certain outsource providers, in particular for information technology support. The main providers to the Company have significant market shares and a history of sound service to the Company. Nevertheless, the reliance on outsiders remains a risk for the Company.

The Company is attempting to standardise its contracts within and without the business. These contracts cover a range of agreements, including outsourcing contracts and alliance agreements. The Company's lawyers, Minter Ellison, review most new agreements but the range of exposure to contracts is a risk for the Company.

Disaster recovery

The Company's business would be adversely affected by a fire or other natural disaster that affected one of its premises, in particular a disaster affecting the communications hub in Head Office.

The Company's Disaster Recovery Plan provides for off-site storage of data tapes and our national based operations provide a range of options in the event of unforeseen problems. However, these procedures are not expected to be fully in place for several months. We have service contracts with all our major hardware and software providers and we would rely on their turnaround recovery times.

Personnel risks

The Company relies on a number of key personnel and is affected by any departure of senior people. After year end, a senior dealer with the Company sadly died, which resulted in some loss of business. The Company does not have key man insurance.

The Company is insured for theft by employees. No such claim was made in 2003/04. Nevertheless, fraud remains an important risk for a financial institution. The Company has a policy of separation of duties designed to reduce this risk.

Subject to certain exclusions, the Company indemnifies Board members (who may be responsible executives as approved by the ASX) for their conduct of the business.

Other Operating Risks

The extent of the Company's operations, both across businesses and across locations, creates significant demands on management. There are risks of procedural failure in such a diversified business. The Company seeks to minimise these risks through national communication, co-ordination and controls.

Conflicts of Interest

The Company has a range of policies designed to eliminate or manage conflict of interest and thereby to protect the Firm's clients. For example, the Company requires separation of the Research function from its Corporate Finance and Sales activities.

Nevertheless, the need to protect client's interests is a requirement for a licenced dealer and necessary to support the integrity and goodwill of the business. Failure to fully enforce such policies poses a risk for the business that management seeks actively to manage and control.

The Capital of the Business

The Company maintains an equity capital base that it considers necessary for its needs at the date of this report. However, the Company intends to continue to build its capital base to provide additional support to the business.

In the event that unexpected events and consequent losses deplete the capital of the Company, there can be no assurance that the capital markets will provide the capital and/or debt funds necessary to sustain the Company.

Taxation risks

The Company seeks to comply with all taxation laws and seeks professional advice on its taxation compliance programme. Nevertheless, the complexity of taxation laws creates a risk for the Company.

Competitive position

Some of the Company's businesses operate in highly competitive markets and some of its major competitors are well established in those markets. Increased competition may have an adverse effect on the Company.

Economic factors

Factors such as, but not limited to, political changes, stock market trends, interest rates, currency movements, inflation levels, commodity prices, industrial disruption, taxation changes or legislative or regulatory changes may all have an adverse effect on the Company's operating costs, revenues, profit margins or asset values.

A sustained downturn in business investment or stock exchange turnover would have a material adverse effect on the Company.

DIRECTORS' REPORT

Your Directors present their report on the company and its controlled entities for the financial year ended 30 June 2004.

DIRECTORS

The names and details of the Directors of in office during or since the end of the year are:

John Harry Chairman, Appointed September 2001

John is a senior partner at Allens Arthur Robinson, and has extensive experience in all aspects of project structuring and financing, mergers and acquisitions, stock exchange compliance and capital markets transactions. He has advised on numerous public floats and trade sales of private and state assets ranging from gold to new technology. Presently he is group chairman and also serves on the Audit and Risk Management Committee and Corporate Committees of the group.

From 1995 to 1998, John was responsible for the development of the Allens Arthur Robinson office in Singapore. During this period, he advised a core group of blue chip clients and financial intermediaries on investment, regulatory and financing issues. He subsequently became the Executive Partner, Asia, for the Allens Arthur Robinson Group, from which he resigned in 2000.

John is chairman of Sedimentary Holdings Limited and is a member of the Board of the Singapore Australia Business Alliance Forum. He is also a member of the Executive Committee of Allens Arthur Robinson.

John Wilson Managing Director, Appointed March 2003

John commenced with Tolhurst Noall Group Ltd in March 2003 as Managing Director. In addition to this role, he is actively involved with the corporate department of the Group as the firm continues to develop its successful capital markets and advisory practice.

John joined Potter Partners in January 1981 and in that firm held a number of senior positions as a partner and later director, including member of the executive committee and of the Australian board of directors, operating head of corporate finance and director in charge of risk management. In 1985 John became a member of the Stock Exchange of Melbourne Ltd.

With over 35 years experience in investment banking, accounting and risk management, John brings a depth of experience to the Group as it broadens its client services.

Russell McKimm Executive Director, Appointed September 2001

Russell commenced with D&D-Tolhurst in January 1995 and serves on the group's Audit and Risk Management Committee.

With over 20 years experience in the financial and investment industry, Russell specialises in sharebroking and financial planning advice for private clients.

Russell is a member of the Australian Stock Exchange, a foundation member of the International Association for Financial Planning, a fellow of the Securities Institute of Australia and a Certified Financial Planner. In 1995 Russell was the President of the Financial Planning Association of Australia.

Russell has appeared for many years on 2GB as a talkback finance expert.

Craig Graham-Smith Executive Director, Appointed September 2001

Craig Graham-Smith commenced with D&D-Tolhurst in March 1999 as Chief Financial Officer/Company Secretary. He was appointed Finance Director of the Tolhurst Group in August 2000 and in June 2002 was appointed Company Secretary. Craig serves on the Remuneration, Audit and Corporate Committees of the group.

Craig holds a Bachelor of Business (Accounting) and is a Certified Practising Accountant. Craig has over 20 years experience in finance roles including Brambles and Pioneer Concrete and has successfully negotiated management buyouts, major acquisitions and EBAs.

Executive Director, Appointed November 1999 Peter Chapman

Peter's career in the stockbroking and financial services industry spans 30 years during which time he has held positions as Chief Executive, Senior Partner and Director.

Peter joined William Noall Limited in 1990 as an Executive Director and a major shareholder. He is also an Affiliate of The Australian Stock Exchange Limited and a previous Director of The Australian Stock Exchange (Melb) Limited, an Associate of The Securities Institute of Australia and a Fellow of The Australian Institute of Company Directors.

His career experience has provided Peter with expertise in Equities, Government and Semi-Government Bonds, Fixed Interest Securities, Corporate Debentures, Unsecured Notes and Preference Shares, plus experience in both the London and New York markets.

Andrew McDouall Non Executive Director, Appointed November 2002

Andrew McDouall has a Bachelor of Commerce and Administration (BCA) from Victoria University in Wellington, and is a New Zealand Exchange (NZX) Stockbroker.

Andrew has spent 20 years in the finance industry in New Zealand, including ten years at the Reserve Bank of New Zealand, predominantly in the Economics and Financial Markets Departments. In addition to this Andrew spent three years working at HRL Morrison & Co / Infratil Management Limited, a New Zealand based Infrastructure specialist investment bank, and six years at Forsyth Barr. During his time at Forsyth Barr, Andrew led a management buy-out of around half that company, and was instrumental in turning Forsyth Barr into New Zealand's largest retail sharebroking firm. When Andrew resigned from Forsyth Barr in November 2001, he was on the board of the parent company, and had executive responsibilities as the Director of Investment Banking for the group.

In January 2002 Andrew founded McDouall Stuart Group a trans-tasman investment bank and stockbroking group, and is Managing Director of that company and its subsidiaries, including NZX Stockbroking firm McDouall Stuart Securities Limited.

Andrew is also a Director of NZX listed stock and station company, Allied Farmers Limited, and is a Director of Allied Farmers Finance Limited, Allied Farmers Wools Limited, Balgreggan Financial Investments Limited, Tartan Securities Limited and a number of private companies.

The following directors resigned during the year:

John Nagle -- 15 March 2004 Don Taig - 3 May 2004 Ian Johnson - 2 July 2004

DIRECTORS' INTERESTS

As at the date of this report the interest of Directors in the shares and options of the company and related bodies corporate are:

	Interest in Ordinary Fully Paid Shares	Interest In Options over Ordinary Shares
Russell McKimm	1.569,800	150,000
Peter Chapman	1,331,567
Craig Graham-Smith	637,500	250,000
John Harry	211,538
Andrew McDouall	8.344.737	ш
John Wilson		3.400,000

There have been no share issues during or since the year-end as a result of the exercise of ordinary share options.

PRINCIPAL ACTIVITIES

The principal activities during the financial year of entities within the consolidated entity were:

• ◆ Private client investment advisory services, stockbroking and associated financial services
• $\triangle$ Corporate advisory services
• $\div$ Property investment
• $\triangle$ Property management

	CONSOLIDATED
EARNINGS PER SHARE	2004	2003
Basic earnings per share (cents per share)	3.41	0.22
Diluted earnings per share	3.41	0.22
Weighted average number of ordinary shares used
in the calculation of basic earnings per share	82,980,259	67,895,792
Weighted average number of ordinary shares used in the calculation of
diluted earnings per share	82,980,259	67,895,792

FINANCIAL RESULTS

The consolidated profit of the consolidated entity for the financial year after income tax was \$2,826,525 (2003: \$147,819).

DIVIDENDS

No dividends have been paid or declared since the start of the financial year.

The Directors do not recommend the payment of a dividend in respect of the year ended 30 June 2004.

SIGNIFICANT CHANGES IN STATE OF AFFAIRS

In the opinion of the Directors, there were no other significant changes to the state of affairs of the Company that occurred during the financial year not otherwise disclosed in this report or the Company's financial statements.

SIGNIFICANT MATTERS OCCURRING AFTER BALANCE DATE

No matters or circumstances have arisen since the end of the financial year which significantly affected or may significant affect the operations of the Company, the results of those operations, or the state of affairs of the Company in future financial years.

REVIEW OF OPERATIONS

A review of the operations for the year is set out in the Chairman's Review.

DIRECTORS' AND OTHER OFFICERS' EMOLUMENTS

Details of the remuneration policy for Directors and other officers are included in Principle 9: Remunerate fairly and responsibly (pages $11 - 13$ ) of the Corporate Governance Principles.

Details of the nature and amount of emoluments for each Director of the company and executive officers are included in Note 18.

FUTURE AND LIKELY DEVELOPMENTS

The directors have excluded from this report any further information on the likely developments in the operations of the consolidated entity and the expected results of those operations in future financial years, other than as mentioned in the Chairman's report as the directors have reasonable grounds to believe that market volatility makes it impractical to forecast future profitability and other material financial events.

ENVIRONMENTAL ISSUES

The consolidated entity's operations are not regulated by any significant environmental regulation under a law of the Commonwealth or of a state or territory.

PROCEEDINGS ON BEHALF OF COMPANY

No person has applied for leave of Court to bring proceedings on behalf of the company or intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for all or any part of those proceedings.

The company was not a party to any such proceedings during the year.

SHARE OPTIONS

Unissued shares

As at the date of this report, there were 11,480,100 unissued ordinary shares under options as follows:

• ÷ 300,000 options to take up one ordinary share in Tolhurst Noall Group Ltd at an issue price of \$0.268 #. The options expire on 10 December 2004.
• ÷ 150,000 options to take up one ordinary share in Tolhurst Noall Group Ltd at an issue price of \$0.718 #. The options expire on 21 August 2005.
• 130,100 options to take up one ordinary share in Tolhurst Noall Group Ltd at an issue price of \$0.438 #. ÷ The options expire on 14 August 2005.
• ÷ 234,000 options to take up one ordinary share in Tolhurst Noall Group Ltd at an issue price of \$0.298 #. The options expire on 25 July 2006.
• ÷ 50,000 options to take up one ordinary share in Tolhurst Noall Group Ltd at an issue price of \$0.168 #. The options expire on 28 February 2005.
• ÷ 600,000 options to take up one ordinary share in Tolhurst Noall Group Ltd at an issue price of \$0.218 #. The options expire on 30 June 2005.
• ÷ 2,616,000 options to take up one ordinary share in Tolhurst Noall Group Ltd at an issue price of \$0.218 #. The options expire on 30 June 2006.
• ÷ 3,400,000 options to take up one ordinary share in Tolhurst Noall Group Ltd at an issue price of \$0.25. The options expire on 21 November 2007.
• ÷ 4,000,000 options to take up one ordinary share in Tolhurst Noall Group Ltd at an issue price of \$0.25. The options expire on 21 November 2005.

Option holders do not have any right, by virtue of the option, to participate in any share issue of the company or any related body corporate or in the interest issue of any other registered scheme.

As announced to the market on 17 December 2003, these option series were re-priced in Accordance with ASX Listing Rule 6.22.2 following the pro-rata issue to shareholders.

DIRECTORS' MEETINGS

The number of meetings of Directors (including meetings of committees of Directors) held during the year and the number attended by each Director were as follows:

	Directors Meeting (16)		Audit and Risk Management Committee (5)		Remuneration Committee $(4)$		Corporate Committee (13)
	Meetings Attended	Entitled tο Attend	Meetings Attended	Entitled to Attend	Meetings Attended	Entitled to Attend	Meetings Attended	Entitled to. Attend
No. of Meetings held
Peter Chapman	14	16	a.	w			w	u.
Donald Taig	8	13	2	4	2	3	$\overline{\phantom{a}}$
John Nagle	4	12			÷
John Harry	15	16	4	5			13	13
lan Johnson	14	16			4	4	13	13
Russell McKimm	15	16	4	5	w
Graham- Craig Smith	15	16	5	5	4	4	13	13
John Wilson	16	16	5	5			12	13
Andrew McDouall	13	16	$\blacksquare$	u.			$\mathbf{u}$	$\overline{\phantom{a}}$

There also exists a Related Party Transactions Sub Committee comprising of Mr Harry and Mr Taig (resigned 3 May 2004) who meet to approve the participation of Directors in corporate transactions. Directors are permitted to participate in corporate transactions only if this is deemed by the Committee to be in the interests of the clients and the firm.

INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS

In relation to the stockbroking activities of the company, during or since the financial year, the company has paid premiums in respect of indemnifying the Directors and Officers of the company against costs incurred in defending:

• (a) any writ, summons, application or other originating legal or arbitral proceedings, cross claim or counterclaim issued against or served upon any Director or Officer alleging any Wrongful Act; or
• (b) any written or verbal demand alleging any Wrongful Act communicated to any Director or Officer under any circumstances and by whatever means.

The total amount paid for this insurance was \$135,520.

In relation to the other activities of the Company, the Company has not, during or since the financial year, in respect of any person who is or has been an officer of the Company or a related body corporate paid any premiums in regards to indemnification and insurance of directors and officers.

No indemnity or insurance is in place in respect of the auditors.

Signed in accordance with a Resolution of the Directors.

Jakhow

. . . . . . . . . . . . . . . . . . . JOHN W. WILSON DIRECTOR

Dated at Melbourne this 30^th day of September 2004.

of high

CRAIG A. GRAHAM-SMITH DIRECTOR

STATEMENT OF FINANCIAL PERFORMANCE FOR THE FINANCIAL YEAR ENDED 30 JUNE 2004

		CONSOLIDATED		COMPANY
	NOTE	2004	2003	2004	2003
		\$	\$	\$	\$
Revenue from ordinary activities	2	36,231,649	25,989,459	7,501	1,135,312
Dealers rebates		(12, 322, 144)	(10, 458, 536)
Sub-underwriting paid		(2,577,702)	(481, 227)
Administration costs		(7,267,720)	(5,349,708)	(34, 120)	(366,200)
Depreciation and amortisation
expense	3	(671,059)	(1,068,960)
Borrowing costs	3	(508, 248)	(543,082)	(43)	(3, 154)
Employee benefits expense		(7,500,863)	(5,591,266)	(558, 197)	(136, 663)
Occupancy costs		(1,512,899)	(1,580,682)
Communication costs		(1, 130, 032)	(1,259,276)	(264)
Share of net profit/(loss) of associate accounted for using the equity
method	9		(247, 692)
Profit on disposal of associate	9	627,104
Provision for diminution of
investments in controlled entities				1,650,000	(735,606)
Loss on disposal of group companies				(255, 132)
Net unrealised gain from investments		76,663	87,165
Profit / (loss) from ordinary
activities before income tax expense		3,444,749	(503, 806)	809,745	(106, 311)
Income tax benefit / (expense)
relating to ordinary activities	4	(618, 224)	651,625	(618, 230)	3,300
Profit/(loss) from ordinary
activities after income tax expense		2,826,525	147,819	191,515	(103, 011)
Total changes in equity other than those resulting from transactions
with owners as owners		2,826,525	147,819	191,515	(103, 011)
Earnings per share	21
Basic earnings per share (cents per share)		3.41	0.22
Diluted earnings per share (cents per share)		3.41	0.22

Note: Franked dividends per share have not been disclosed, as the consolidated entity did not distribute any dividends during the financial year.

STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2004

		CONSOLIDATED		COMPANY
	NOTE	2004	2003	2004	2003
		\$	S	Ŧ	S
CURRENT ASSETS
Cash assets	22(i)	13,656,260	5,965,920		571
Receivables	5	23,999,716	24,303,986	62,278	4,668,573
Other	6	230,721	155,509
Investment properties	8		82,500
Financial assets	7	798,894	290,263		1,247
TOTAL CURRENT ASSETS		38,685,591	30,798,178	62,278	4,670,391
NON-CURRENT ASSETS
Receivables	5			4,952,204	1,285,252
Investments accounted for using the
equity method	9		1,122,897
Investment properties	8		82,500
Financial assets	7	1,925,675	3,356,297	1,650,001	42,896
Property, plant and equipment	10	1,098,919	1,190,526
Deferred tax assets	4	450,213	653,759	450,213	3,300
Other	6	70,759	147,766
TOTAL NON-CURRENT ASSETS		3,545,566	6,553,745	7,052,418	1,331,448
TOTAL ASSETS		42,231,157	37,351,923	7,114,696	6,001,839
CURRENT LIABILITIES
Payables	11	29,104,378	27,165,571	234,462	373,446
Interest bearing liabilities	12	123,907	1,320,796		180,000
Current tax liabilities	4	416,918	42,637	416,918
Provisions	13	584,371	483,472
TOTAL CURRENT LIABILITIES		30,229,574	29,012,476	651,380	553,446
NON-CURRENT LIABILITIES
Interest bearing liabilities	12	2,665,645	3,772,577		1,140,580
Deferred tax liabilities	4		2,234
Provisions	13	519,876	539,087
TOTAL NON-CURRENT LIABILITIES		3,185,521	4,313,898		1,140,580
TOTAL LIABILITIES		33,415,095	33,326,374	651,380	1,694,026
NET ASSETS		8,816,062	4,025,549	6,463,316	4,307,813
SHAREHOLDERS' EQUITY
Contributed equity Accumulated losses	14 15	21,036,478 (12,220,416)	19,072,490 (15,046,941)	21,036,478 (14, 573, 162)	19,072,490 (14,764,677)
TOTAL SHAREHOLDERS' EQUITY		8,816,062	4,025,549	6,463,316	4,307,813

STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2004

		CONSOLIDATED		COMPANY
	NOTE	2004	2003	2004	2003
		\$	\$	S	S
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers		36,096,343	26, 191, 595
Payments to suppliers and employees		(29,926,060)	(26,046,211)	(489,702)	(309,769)
Dividends received		175,988	114,328		839,027
Borrowing costs		(508, 246)	(597,092)	(43)	(3, 154)
Interest received		571,506	287,779	1,011	163
Income tax (paid) / credit received		(42, 642)	7,183
Net cash provided by/(used in) operating activities	22(ii)	6,366,889	(42, 418)	(488, 734)	526,267
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of investments		2,752,858	809,343	6,490	296,122
Purchase of investments		(623, 199)	(110,300)
Proceeds from sale of property plant & equipment		7,038	75,378
Acquisition of property, plant & equipment		(502, 448)	(384, 621)
Net cash provided by investing activities		1,634,249	389,800	6,490	296,122
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings		833,850	1,340,057	98,265	260,000
Repayment of borrowings		(2,007,872)	(399, 324)	(1,320,580)	(1,677,332)
Proceeds of share issues		1,703,988	602,500	1,703,988	602,500
Net cash provided by / (used in) financing activities		529,966	1,543,233	481,673	(814, 832)
Net increase/(decrease) in cash held		8,531,104	1,890,615	(571)	7,557
Cash at the beginning of the financial year		5,065,124	3,174,509	571	(6,986)
Cash at the end of the financial vear	22(i)	13,596,228	5,065,124		571

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2004

NOTE 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES

The significant policies which have been adopted in the preparation of these financial statements are:

(a) Basis of Preparation

The financial report is a general purpose financial report and has been drawn up in accordance with Australian Accounting Standards, the Corporations Act 2001, Urgent Issues Group Consensus Views and other authoritative pronouncements of the Australian Accounting Standards Board. They have been prepared on an accruals basis and are based on historical costs and do not take into account changing money values or, except where stated, current valuations of non-current assets.

The financial report covers the consolidated entity of Tolhurst Noall Group Ltd and controlled entities of Tolhurst Noall Group Ltd as an individual parent entity.

Tolhurst Noall Group Ltd is a listed public company, incorporated and domiciled in Australia.

The following is a summary of the material accounting policies adopted by the consolidated entity in the preparation of the financial report. The accounting policies have been consistently applied, unless otherwise stated.

(b) Principles of Consolidation

A controlled entity is any entity controlled by Tolhurst Noall Group Ltd. Control exists where Tolhurst Noall Group Ltd has the capacity to dominate the decision-making in relation to the financial and operating policies of another entity so that the other entity operates with Tolhurst Noall Group Ltd to achieve the objectives of Tolhurst Noall Group Ltd. A list of controlled entities is contained in Note 7 to the financial statements.

All inter-company balances and transactions between entities in the economic entity, including any unrealised profits or losses have been eliminated on consolidation.

Where controlled entities have entered or left the economic entity during the year, their operating results have been included from the date control was obtained or until the date control ceased.

(c) Goodwill

Goodwill, representing the excess of the purchase consideration plus incidental costs over the fair value of the identifiable net assets acquired on the acquisition of businesses, is amortised on a straight-line basis over the period of time which the benefits are expected to arise, which is taken to be 10 years.

The unamortised balance of goodwill is reviewed at least at each reporting date. Where the balance exceeds the value of expected future benefits, the difference is charged to net profit/(loss).

(d) Cash and Cash Equivalents

Cash on hand and in banks and short-term deposits are stated at the lower of cost and net realisable value.

For the purposes of the Statement of Cash Flows, cash includes cash on hand and in banks, and money market investments readily convertible to cash within 30 days, net of outstanding bank overdrafts.

Bank overdrafts are carried at the principal amount. Interest is charged as an expense as it accrues.

The Cash Trusts account is used for the retention of client funds and is subject to the regulations under the ASX Market Rules.

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2004

(e) Receivables

Trade receivables are recognised and carried at original invoice amount less a provision for any uncollectible debts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off as incurred.

Receivables from related parties are recognised and carried at the nominal amount due. Interest is taken up as income on an accrual basis.

(f) Provision for Doubtful Debts

The collectibility of debts is assessed at year-end and a provision is made for any specific doubtful accounts. In addition a general provision is maintained.

$(g)$ Taxes

Income Taxes

The consolidated entity adopts the liability method of tax-effect accounting whereby the income tax expense is based on the profit from ordinary activities adjusted for any permanent differences.

Timing differences which arise due to the different accounting periods in which items of revenue and expense are included in the determination of accounting profit and taxable income are brought to account as either a provision for deferred income tax or as a future income tax benefit at the rate of income tax applicable to the period in which the benefit will be received or the liability will become payable.

Future income tax benefits are not brought to account unless realisation of the asset is assured beyond reasonable doubt. Future income tax benefits in relation to tax losses are not brought to account unless there is virtual certainty of realisation of the asset.

The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation and the anticipation that the economic entity will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law.

Tolhurst Noall Group Ltd and it's wholly owned Australian subsidiaries have decided to form an income tax consolidated group under the Tax Consolidations System from 1 July 2003. Tolhurst Noall Group Ltd, as the head entity of the tax consolidated group, is responsible for recognising the current and deferred tax assets and liabilities for the tax consolidated group. The tax consolidated group has not as yet entered into a tax sharing agreement and/or tax contributions agreement. Therefore, the tax liability of the group remains with Tolhurst Noall Group Ltd.

Goods and services tax (GST)

Revenues, expenses and assets are recognised net of the amount of GST except:

• where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and
• receivables and payables are stated with the amount of GST included.

The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the Statement of Financial Position.

Cash flows are included in the Statement of Cash Flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows.

Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority.

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2004

(h) Financial Assets

Current

Marketable equity securities are valued at market value. Other securities are carried at the lower of cost or recoverable amount. Dividends are brought to account as they are received. The gains or losses, whether realised or unrealised, are included in profit from ordinary activities before income tax.

Non-Current

Controlled Entities

Investments in controlled entities are carried in the company's financial statements at the lower of cost and recoverable amount. Dividends and distributions are brought to account to net profit/(loss) when they are proposed by the controlled entities except when dividends are paid from pre-acquisition retained earnings. These dividends are netted against the carrying value of the investment.

Other Securities

Marketable equity securities are valued at the lower of cost and net market value. Other securities are carried at the lower of cost or recoverable amount. Dividends are brought to account as they are received.

$(i)$ Investments in Associates

Investments in associate companies are recognised in the financial statements by applying the equity method of accounting.

(j) Investment Properties

Investment units and land are at either directors or independent valuation.

(k) Property, Plant and Equipment

Plant and equipment are measured on the cost basis. All fixed assets are depreciated so as to write off the depreciable amount of each item over its estimated useful life.

The gain or loss on disposal of all fixed assets is determined as the difference between the carrying amount of the asset at the time of disposal and the proceeds of disposal, and is included in the results of the consolidated entity in the year of disposal.

Depreciation is provided on a diminishing value basis or straight-line method on all property, plant and equipment.

Major depreciation periods are:	2004	2003
$\bullet$ Leasehold Improvements	$6.5 - 10$ years	$6.5 - 10$ years
$\bullet$ Plant and Equipment	$2.5 - 7$ years	$2.5 - 7$ years
$\bullet$ Motor Vehicles	$4 - 5$ years	$4 - 5$ years

Recoverable Amount of Non-Current Assets $\bf{I}$

Non-current assets are written down to recoverable amount where the carrying value of any non-current asset exceeds recoverable amount. In determining the recoverable amount of non-current assets, the expected net cash flows have not been discounted to their present value.

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2004

(m) Payables

Liabilities for trade creditors and other amounts are carried at cost which is the fair value of the consideration to be paid in the future for goods and services received, whether or not billed to the consolidated entity.

Payables to related parties are carried at the principal amount. Interest, when charged by the lender, is recognised as an expense on an accruals basis.

Deferred cash settlements are recognised as the present value of the outstanding consideration payable on the acquisition of an asset discounted at prevailing commercial borrowing rates.

(n) Interest Bearing Liabilities

All loans are measured at the principal amount. Interest is charged as an expense as it accrues. Finance lease liability is determined in accordance with the requirements of AASB 1008, Leases.

(o) Employee Benefits

Provision is made for the company's liability for employee benefits arising from services rendered by employees to balance date. Employee benefits expected to be settled within one year together with entitlements arising from wages and salaries, annual and sick leave which will be settled after one year, have been measured at the amounts expected to be paid when the liability is settled, plus related on-costs. Other employee benefits payable later than one year have been measured at the present value of the estimated future cash outflows to be made for those benefits.

The value of the Employee Share Scheme as described in Note 19 is being charged as an employee entitlement expense.

(p) Leases

Leases are classified at their inception as either operating or finance leases based on the economic substance of the agreement so as to reflect the risks and benefits incidental to ownership.

Operating leases

The minimum lease payments of operating leases, where the lessor effectively retains substantially all of the risks and benefits of ownership of the leased item, are recognised as an expense in the periods in which they are incurred.

Finance leases

Leases which effectively transfer substantially all of the risks and benefits incidental to ownership of the leased item to the consolidated entity are capitalised at the present value of the minimum lease payments and disclosed as property, plant and equipment under lease. A lease liability of equal value is also recognised.

Capitalised lease assets are depreciated over the shorter of the estimated useful life of the assets and the lease term. Minimum lease payments are allocated between interest expense and reduction of the lease liability with the interest expense calculated using the interest rate implicit in the lease and charged directly to net profit/(loss).

The cost of improvements to or on leasehold property is capitalised, disclosed as leasehold improvements, and amortised over the unexpired period of the lease or the estimated useful lives of the improvements, whichever is the shorter.

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2004

(q) Contributed Equity

Issued and paid up capital is recognised at the fair value of the consideration received by the company. Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as a reduction of the share proceeds received.

(r) Earnings Per Share

Basic earnings per share is calculated as net profit attributable to members, adjusted to exclude costs of servicing equity (other than dividends) and preference share dividends, divided by the weighted average number of ordinary shares adjusted for any bonus element.

Diluted earnings per share is calculated as net profit attributable to members, adjusted for:

• costs of servicing equity (other than dividends) and preference share dividends;
• the after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses; and
• other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares;

divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element.

(s) Financial Instruments

Refer to note 25 for accounting policies, terms and conditions associated with other financial instruments.

(t) Revenue Recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the entity and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised:

Revenue from the rendering of a service is recognised upon the delivery of the service to the customers.

Revenue from share trading is recognised at the time of completion of the contract.

Dividend revenue is recognised when the right to receive a dividend has been established.

Interest revenue is recognised when the right to receive the interest has been established.

(u) Reclassification of Prior Year Comparatives

Where applicable, prior year figures have been reclassified to enhance comparability with current year figures.

(v) Adoption of Australian Equivalents to International Financial Reporting Standards

Australia is currently preparing for the introduction of International Financial Reporting Standards (IFRS) effective for financial years commencing 1 January 2005. This requires the production of accounting data for future comparative purposes at the beginning of the next financial year.

The economic entity's management, along with its auditors, are assessing the significance of these changes and preparing for their implementation. An IFRS committee has been established to oversee and manage the economic entity's transition to IFRS. We will seek to keep stakeholders informed as to the impact of these new standards as they are finalised.

The directors are of the opinion that the key differences in the economic entity's accounting policies which will arise from the adoption of IFRS are:

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2004

Income Tax

Currently, the economic entity adopts the liability method of tax-effect accounting whereby the income tax expense is based on the accounting profit adjusted for any permanent differences. Timing differences are currently brought to account as either a provision for deferred income tax or future income tax benefit. Under the Australian equivalent to IAS 12, AASB 112, the economic entity will be required to adopt a balance sheet approach under which temporary differences are identified for each asset and liability rather than the effects of the timing and permanent differences between taxable income and accounting profit.

Share Based Payments

Under the new IFRS, share based compensation is to recognised at fair value as an expense in the Statement of Financial Performance. For employee-related transactions, the expense will be determined based on the fair value of on grant date as adjusted for the cash amount of any employee contribution. As at 30 June 2004, The Tolhurst Noall Group had outstanding options over ordinary share capital. Any options taken up to date may potentially need to be expensed as a share based payment.

Goodwill on Consolidation

Under the proposed changes to the IAS 22: Business Combinations, goodwill is to be capitalised to the statement of financial position and subjected to an annual impairment test. Amortisation of goodwill is to be prohibited. Current accounting policy of the entity is to amortise goodwill on a straight line basis over the period of 10 years.

Impairment of Assets

The economic entity currently determines the recoverable amount of an asset on the basis of undiscounted net cash flows that will be received from the assets use and subsequent disposal. In terms of pending AASB 136: Impairment of Assets, the recoverable amount of an asset will be determined as the higher of fair value less costs to sell and value in use. It is likely that this change in accounting policy will lead to impairments being recognised more often than under the existing policy.

Non-current Assets Held for Sale

Under the pending AASB 5: Non-current assets held for sale and discontinuing operations, non-current assets classified as held for sales are to be measured at the lower of its carrying amount and the fair value less present value of the costs to sell. The Tolhurst Group holds various shareholdings in unrelated companies that it trades for profit. The carrying value of these shares does not currently include a provision for costs likely to be incurred when the investments are sold.

The above should not be regarded as a complete list of changes in accounting policies that will result from the transition to Australian equivalents to IFRS, as not all standards have been analysed as yet, and some decisions have not yet been made where choices of accounting policies are available. For these reasons it is not yet possible to quantify the impact of the transition to Australian equivalents to IFRS on the Tolhurst Noall Group's financial position and reported results.

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2004

	CONSOLIDATED		COMPANY
	2004	2003	2004	2003
	S	\$	\$	\$
NOTE 2 REVENUE FROM ORDINARY ACTIVITIES
Revenue from operating activities
Broking and commission	24,374,640	21,339,717
Underwriting	5,378,909	1,477,499
Management services	83,938	135,380
Share trading	2,618,700	1,578,433
Total revenues from operating activities	32,456,187	24,531,029
Revenues from non-operating activities Dividends
Other Corporations	175,988	114,328
Controlled entities Interest				839,027
Other persons	534,202	224,893	1,011	163
Proceeds from sale of investments	2,752,858	809,343	6,490	296,122
Proceeds from sale of property, plant and
equipment	7,038	75,378
Rental revenue	305,376	234,488
Total revenues from outside the operating activities	3,775,462	1,458,430	7,501	1,135,312
Total revenues from ordinary activities	36,231,649	25,989,459	7,501	1,135,312
NOTE 3 EXPENSES AND LOSSES
Depreciation of non-current assets
Plant and equipment	593,510	933,934
Total depreciation of non-current assets	593,510	933,934
Amortisation of non-current assets
Expenditure carried forward	77,549	85,026
Goodwill on Consolidation		50,000
Total amortisation of non-current assets	77,549	135,026
Total depreciation and amortisation expenses	671,059	1,068,960
Borrowing costs expensed Interest expense
Directors	298,015	288,861
Other persons	210,233	254,221	43	3,154
Total borrowing costs expensed	508,248	543,082	43	3,154
Bad and doubtful debts - trade debtors Operating lease rental	89,591 1,566,057	69,339 1,643,701
Net gain/(loss) on disposal of assets
- property, plant & equipment	7,038	(51, 554)
- investments	203,147	(8,771)	24,728	(4,348)

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2004

	CONSOLIDATED		COMPANY
	2004	2003	2004	2003
	S	\$	S	\$
NOTE 4 INCOME TAX
The prima facie tax on profit from ordinary activities before income tax is reconciled to the income tax as follows:
Prima facie tax payable on profit from ordinary activities before income tax at 30% - consolidated - the company	1,033,425	(151, 141)	242,924	(31, 893)
- other members of the income tax consolidated group net of intercompany transactions			790,501
	1,033,425	(151, 141)	1,033,425	(31, 893)
Add tax effect of: - non deductible depreciation and amortisation - other non allowable items - losses transferred to other group entities	181,162	15,000 152,675	181,162	3,622 21,606
- tax losses not brought to account		260,104		199,076
	1,214,587	276,638	1,214,587	192,411
Less tax effect of: - rebateable dividends - over provision of income tax in prior years - equity accounting profit	6 188,131	17,971 100	188,131	181,311
- timing differences and tax losses brought to account	408,226	910,192	408,226	14,400
Income tax expense/(benefit) attributable to operating profit/(loss)	618,224	(651, 625)	618,230	(3,300)
Deferred tax assets and liabilities Current tax payable Provision for deferred income tax - non current	416,918	42,637 2,234	416,918
Future income tax benefit - non current Timing differences	450,213	653,759	450,213	3,300
Income Tax Losses Future income tax benefits not brought to account as assets
Tax losses – revenue Tax losses - capital	1,116,954 900,389 2,017,343	1,527,050 900,450 2,427,500	1,116,954 900,389 2,017,343	1,242,743 835,402 2,078,145

Taxation benefits will only be obtained if the company:

a) has future assessable income of a nature and of an amount sufficient to enable the benefit from the deductions to be realised;

b) continues to comply with the conditions for deductibility imposed by income tax law; and

c) is not adversely affected by changes in income tax legislation in relation to the benefit from the deductions.

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2004

		CONSOLIDATED		COMPANY
		2004	2003	2004	2003
		\$	\$	\$	\$
NOTE 5 RECEIVABLES
Current
Client and dealer balances		22,221,156	23,597,849
Provision for doubtful debts		(266,000)	(276,000)
		21,955,156	23,321,849
Sundry debtors	5(a)	1,402,285	315,847	62,278
Unsecured loans	5(a)	49,440	(6,320)
Amounts other than trade debts
receivable from related parties:
Wholly-owned group
- controlled entities	20				4,668,573
Directors and director related entities
- directors	20		120,000
- director-related	20	36,901	147,609
Other related parties	20
- associated companies		555,934	405,001
		23,999,716	24,303,986	62,278	4,668,573
Non-current
Amounts receivable from related parties:
Wholly-owned group
- controlled entities	20			4,952,204	1,285,252
				4,952,204	1,285,252

(a) Terms and conditions

Terms and conditions relating to the above financial instruments

• Client and dealer balances are on 3 business day terms and are interest bearing at the ANZ reference rate plus 2% on all $(i)$ balances overdue (ie T+3).
• Sundry debtors are non-interest bearing and include the balance due on the sale of the investment in Tolhurst Funds $(ii)$ Management Ltd.
• Unsecured loans are payable within 12 months and are generally interest bearing at the ANZ reference rate plus 2%. $(iii)$
• Details of the terms and conditions of related party receivables are set out in note 20. $(iv)$

NOTE 6 OTHER ASSETS

L

Current
Prepayments and other debtors	230,721	155,509
	230,721	155,509
Non-current
Expenditure carried forward:
ASX membership fee	125,000	125,000
Capitalised costs	187,192	187,192	a.
Software licence fees	59,339	59,339
	371,531	371,531
Accumulated amortisation	(300, 772)	(223, 765)
	70,759	147,766

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2004

		CONSOLIDATED		COMPANY
		2004	2003	2004	2003
		S	\$	S	3
NOTE 7 FINANCIAL ASSETS
Current
Shares listed on a prescribed stock
exchange at market value		610,763	94,763		1,247
Shares listed on a prescribed stock
exchange at cost	7(f)	188,131	195,500
		798,894	290,263		1,247
Non-current - at cost
Shares in controlled entities	7(c)			7,280,664	7,280,766
Provision for diminution				(5,630,663)	(7,280,663)
				1,650,001	103
Shares in listed public company at cost	7(b)		42,793		42,793
Investment Property Units - Grosvenor	7(a)	742,403	2,419,727
Provision - Writedown	7(a)	(101, 130)	(326, 227)
Shares in other corporations	7(e)	1,284,402	1,220,004
		1,925,675	3,356,297	1,650,001	42,896

(a) The fair value of the units has been determined by reference to a directors valuation. The valuation is performed on an open market basis, being the amounts for which the assets could be exchanged between a knowledgeable willing buyer and a knowledgeable seller in an arms length transaction at the valuation date. With respect to security refer to note $12(a)$

$\overline{a}$

63.139

(b) Quoted market value of shares listed on a prescribed stock exchange

(c) Investments in controlled entities are unquoted and comprise:

	Class of Share	2004	2004	2003	2003
		% Holding	\$	% Holding	S
William Noall Holdings Limited Provision for diminution	Ordinary	100	1.650,000	100	1.650,000 (1,650,000)
			1,650,000
Wevton Pty Limited	Ordinary			100	100
Alliance Properties Strata (Qld) Pty	Ordinary	$\overline{\phantom{a}}$	$\mathbf{a}$	100
Limited
Alliance Properties (Cairns) Pty Limited	Ordinary	100		100
Tolhurst Securities Ltd	Ordinary	100	5.630,663	100	5.630,663
Provision for diminution			(5,630,663)		(5,630,663)
			1.650,001		103

All subsidiaries are incorporated in Australia

(d) Deeds of cross-guarantee between Tolhurst Securities Ltd, William Noall Holdings Ltd, Tolhurst Noall Group Ltd, Tolhurst Holdings Pty Ltd and Company Zebra Ltd were enacted during the financial year and relief was obtained from preparing a financial report for Tolhurst Securities Ltd, William Noall Holdings Ltd and Company Zebra Ltd under ASIC Class Order 98/1418. Under the deeds, Tolhurst Noall Group Ltd guarantees to support the liabilities and obligations of Tolhurst Securities Ltd, William Noall Holdings Ltd and Company Zebra Ltd.

Tolhurst Noall Group Ltd and William Noall Holdings Ltd belong to Closed Group 1 and Tolhurst Noall Group Ltd, Tolhurst Securities Ltd, Tolhurst Holdings Pty Ltd and Company Zebra Ltd belong to Closed Group 2. "Closed Group" being the holding entity and wholly owned entities which are parties to the deed of cross-guarantee. The "parties to the deed of cross guarantee" are the same as Closed Group 1 and Closed Group 2 mentioned above.

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2004

NOTE 7 FINANCIAL ASSETS (cont)

		Closed Group 1	Closed Group 2
Financial information in relation to:
Statement of financial performance (i) Profit/(loss) from ordinary activities before income tax Income tax benefit relating to ordinary activities		(928, 997) 618,230	1,438,316 618,230
	Profit/(Loss) from ordinary activities after income tax benefit	(1, 547, 227)	820,086
owners as owners	Total changes in equity other than those resulting from transactions with	(1, 547, 227)	820,086
(ii) Retained Profits Accumulated losses at the beginning of the financial year	Profit/(Loss) from ordinary activities after income tax benefit	(12,088,524) (1, 547, 227)	(15,200,928) 820,086
Accumulated losses at the end of the financial year		(13,635,751)	(14,380,842)
(iii) Statement of Financial Position
CURRENT ASSETS Receivables		62,278	1,268,211
TOTAL CURRENT ASSETS		62,278	1,268,211
NON-CURRENT ASSETS Receivables Financial assets Deferred tax asset		1,549,553 6,740,063 450,213	3,973,591 1,700,001 450,213
TOTAL NON-CURRENT ASSETS		8,739,829	6,123,805
TOTAL ASSETS		8,802,107	7,392,016
CURRENT LIABILITIES Payables Current tax liabilities		234,462 416,918	319,462 416,918
TOTAL CURRENT LIABILITIES		651,380	736,380
NON-CURRENT LIABILITIES Payables Interest bearing liabilities		750,000
TOTAL NON-CURRENT LIABILITIES		750,000
TOTAL LIABILITIES		1,401,380	736,380
NET ASSETS		7,400,727	6,655,636
EQUITY Contributed equity Accumulated losses		21,036,478 (13,635,751)	21,036,478 (14,380,842)
		7,400,727	6,655,636

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2004

NOTE 7 FINANCIAL ASSETS (conf)

(e) Other investments

The shares in other corporations include:

• The consolidated entity holds 20% (2003:20%) ownership interest in Carroll Pike & Piercy Pty Ltd. The carrying amount of this investment at 30 June 2004 is \$1,200,000 (2003: \$1,200,000).
• The consolidated entity holds 20% (2003:20%) ownership interest in THG Investments Pty Ltd. The carrying amount of this investment at 30 June 2004 is \$14,402 (2003: \$2).
• The consolidated entity holds 20% (2003:20%) ownership interest in Tolhurst, Wells and Lee Pty Ltd. The carrying amount of this investment at 30 June 2004 is \$20,000 (2003: \$20,000).

(f) Included in listed shares are two parcels of Medical Monitors Ltd, an ASX listed stock, which were the subject of a subunderwriting shortfall. These shares have been valued at cost. Mr Johnson has guaranteed a shortfall of up to \$75,000 (2003: \$75,000).

	CONSOLIDATED		COMPANY
	2004	2003	2004	2003
NOTE 8 INVESTMENT PROPERTIES
Current
Land at fair value		82,500
Non Current
Land at fair value		82,500		-

The fair value of the land has been determined by reference to an independent valuation previously obtained from Michael Henderson, AAPI Certified Practising Valuer of Herron Todd White, the report dated 27 June 2001. The valuations are performed on an open market basis, being the amounts for which the assets could be exchanged between a knowledgeable willing buyer and a knowledgeable seller in an arms length transaction at the valuation date.

NOTE 9 INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

Investment in associates	1,122,897 $\overline{\phantom{a}}$	$\blacksquare$
(a) Interest in associates Name	Balance date		Ownership interest
		2004	2003
Tolhurst Funds Management Pty Ltd	30 June	$0\%$	50%

(i) Principal activity

Tolhurst Funds Management Pty Ltd provides investment services to domestic and international clients.

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2004

	CONSOLIDATED			COMPANY
	2004	2003	2004	2003
			¢
NOTE 9 INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD (cont)
(ii) Share of associate's profits/(losses)
Share of associate's:
- Net loss from ordinary activities before income
tax expense		(247, 692)
- Income tax expense
Share of associate's net losses from ordinary
activities after income tax		(247, 692)
Profit on disposal of associate	627,104
The associated entity was sold in November 2003 and consequently no dividends are payable to the shareholders of Tolhurst
Noall Group Ltd.
(iii) Carrying amount of investment in associate
Balance at beginning of the financial year	1,122,897	1,370,589
- share of associate's net losses for the financial
year		(247, 692)
- disposal of investment	(1, 122, 897)
Carrying amount of investment in associate at the end of the financial year		1,122,897
(iv) Share of associate's assets and liabilities
Current assets		201,959
Non current assets		583,132
Current liabilities		(537, 043)
Non current liabilities
Net assets		248,048
(v) Accumulated losses of the consolidated entity attributable to associate
Balance at the beginning of the financial year	(627,104)	(379, 412)
Share of associate's net losses		(247, 692)
Disposal of investment	627,104
Balance at the end of the financial year		(627, 104)

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2004

		CONSOLIDATED		COMPANY
		2004	2003	2004	2003
NOTE 10 PROPERTY, PLANT & EQUIPMENT		S	\$	\$	3
Plant and equipment - cost		3,795,699	5,342,746
Accumulated depreciation		(2,848,128)	(4,152,220)
		947,571	1,190,526
Leased plant and equipment		192,252
Accumulated depreciation		(40,904)
		151,348
		1,098,919	1,190,526
Reconciliations of the carrying amounts of property, plant and equipment
Plant and Equipment:
Carrying amount at beginning		1,190,526	1,866,771
Additions		324,497	384,620
Depreciation expense		(552,606)	(933, 934)
Disposals		(14, 846)	(126, 931)
		947,571	1,190,526
Leased Plant and Equipment:
Carrying amount at beginning
Additions		192,252
Depreciation expense		(40, 904)
		151,348
Assets pledged as security Refer Note 12a
NOTE 11 PAYABLES
Current
Client and dealer balances payable	11(a)	23,771,456	23,682,638
Funds held in trust			260,000		260,000
Other creditors and accruals	11(a)	4,978,226	3,052,082	219,462	98,346
Amounts payable to related parties:
Wholly-owned group
- controlled entities	20				100
Directors and director related entities
- director related	20	153,252	100,000	15,000	15,000
Other related parties
- associated companies	20	201,444	70,851
		29,104,378	27,165,571	234,462	373,446

(a) Terms and conditions

Terms and conditions relating to the above financial instruments:

Client and dealer balances payable are non-interest bearing and on 3 business day terms. $(i)$

$(ii)$ Other creditors and accruals are non-interest bearing and are normally settled within 30 days.

$(iii)$ Details of terms and conditions of related party payables are set out in note 20.

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2004

		CONSOLIDATED		COMPANY
		2004	2003	2004	2003
		S	\$	S	\$
NOTE 12 INTEREST BEARING LIABILITIES
Current
Bank overdraft	12(a)	60,032	900,796
Lease liability	12(a)	63,875
$Loans - secured$	12(a)		420,000		180,000
		123,907	1,320,796		180,000
Non-current
Subordinated loans	12(a)	1,822,284	1,822,284
Lease liability		93.361
$Loans - secured$	12(a)		1,200,293		1,140,580
Directors and director related entities
- directors	12(a)	450,000	450,000
- director related	12(a)	300,000	300,000
		2,665,645	3,722,577		1,140,580

(a) Terms and conditions

Terms and conditions relating to the above financial instruments

• The bank overdraft is secured by a registered mortgage debenture over the assets and undertakings of the company, $(i)$ excluding Grosvenor. Interest is charged at the bank's benchmark rate.
• The secured loans were secured by a first registered mortgage over the "Grosvenor", Corner of McLeod and Grove St, $(ii)$ Cairns (2004: nil; 2003: \$1,320,580). Also, Tolhurst Noall Ltd had guaranteed a fully drawn advance facility, drawn down by a related entity, with the ANZ Banking Group (2004 nil; 2003 \$299,713).
• (iii) Lease liabilities are secured via a charge of the assets to which they relate. The average interest rate implicit in the liability is 8% and the average repayment term is 4 years.
• (iv) Subordinated loans and director loans are interest bearing at an average rate of 12%. There is no agreed repayment term. Refer note 20.

NOTE 13 PROVISIONS

19	584,371	483,472	$\overline{\phantom{a}}$
	584,371	483,472
13(a)	500,000	513,993
19		25,094
	519,876	539,087	$\overline{\phantom{0}}$
		19,876

(a) The non-current claims and penalties provision exists to cover reported and non-reported client claims, fines, penalties or other settlements incurred prior to 30 June 2004. Any ultimate recovery in relation to these provisions is not currently known or measurable.

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2004

		CONSOLIDATED		COMPANY
		2004	2003	2004	2003
		S	\$	\$	\$
NOTE 14 CONTRIBUTED EQUITY
Issued and paid up capital
98,948,425 ordinary shares	14(a)	21,036,478	19,072,490	21,036,478	19,072,490
Fully Paid (2003: 69,368,696)
(a) Movements in shares on issue
Beginning of the financial year		19,072,490	18,469,990	19,072,490	18,469,990
Allotted to Balgreggan @ 25 cents		260,000	540,000	260,000	540,000
Allotted to Balgreggan $(a)$ 4 cents		168,000		168,000
Allotment of rights issue $@$ 4 cents		707,988		707,988
Allotment of staff shares $(a)$ 20 cents	19	78,000	62,500	78,000	62,500
$(2003: 25 \text{ cents})$ Allotment of share purchase plan $(a)$ 12		750,000		750,000
cents
End of the financial year		21,036,478	19,072,490	21,036,478	19,072,490
		No.	No.	No.	No.
Beginning of financial year		69,368,696	66,958,696	69,368,696	66,958,696
Allotted to Balgreggan		1,040,000	2,160,000	1,040,000	2,160,000
Allotted to Balgreggan		4,200,000		4,200,000
Alotment of rights issue		17,699,697		17,699,697
Allotment of staff shares		390,000	250,000	390,000	250,000
Allotment of share purchase plan		6,250,032		6,250,032
		98,948,425	69,368,696	98,948,425	69,368,696

(b) Terms and condition of contributed equity

Ordinary shares have the right to receive dividends as declared and, in the event of winding up the company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on shares held. Ordinary shares entitle their holder to one vote, either in person or by proxy, at a meeting of the company.

(c) Share options

During the financial year, 7,400,000 options were issued over ordinary shares. The options have an exercise price of \$0.25.

Unissued shares

As at the date of this report, there were 11,480,100 unissued ordinary shares under options as follows:

• ÷ 300,000 options to take up one ordinary share in Tolhurst Noall Group Ltd at an issue price of \$0.268. The options expire on 10 December 2004.
• ÷ 150,000 options to take up one ordinary share in Tolhurst Noall Group Ltd at an issue price of \$0.718. The options expire on 21 August 2005.
• ÷. 130,100 options to take up one ordinary share in Tolhurst Noall Group Ltd at an issue price of \$0.438. The options expire on 14 August 2005.
• ❖ 234,000 options to take up one ordinary share in Tolhurst Noall Group Ltd at an issue price of \$0.298. The options expire on 25 July 2006.
• ❖ 50,000 options to take up one ordinary share in Tolhurst Noall Group Ltd at an issue price of \$0.168. The options expire on 28 February 2005.
• ❖ 600,000 options to take up one ordinary share in Tolhurst Noall Group Ltd at an issue price of \$0.218. The options expire on 30 June 2005.
• ÷ 2,616,000 options to take up one ordinary share in Tolhurst Noall Group Ltd at an issue price of \$0.218. The options expire on 30 June 2006.
• ÷ 3,400,000 options to take up one ordinary share in Tolhurst Noall Group Ltd at an issue price of \$0.25. The options expire on 21 November 2007.
• ÷ 4,000,000 options to take up one ordinary share in Tolhurst Noall Group Ltd at an issue price of \$0.25. The options expire on 21 November 2005.

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2004

	CONSOLIDATED			COMPANY
	2004	2003	2004	2003
	\$	\$	\$	\$
NOTE 15 ACCUMULATED LOSSES
Balance at the beginning of year	(15,046,941)	(15, 194, 760)	(14, 764, 677)	(14,661,666)
Net profit/(loss) attributable to members of the дгоир	2,826,525	147,819	191,515	(103, 011)
Balance at end of year	(12, 220, 416)	(15,046,941)	(14,573,162)	(14,764,677)
NOTE 16 AUDITORS' REMUNERATION
Amounts received or due and receivable by the Auditors of the Company for: - an audit of the financial reports of the entity and
any other entity in the consolidated entity - other services	62,233 90,137	72,000 69,733	12,000 5,530	11,000 300.
	152,370	141,733	17,530	11,300
NOTE 17 CAPITAL AND LEASING COMMITMENTS
Finance Lease Commitments
Not later than 1 year	73,953
Later than 1 year but not later than 5 years Later than 5 Years	98,603
Minimum lease payments	172,556
Less future finance charges	15,320
Total Lease Liability	157,236
The finance lease relates to computer hardware and is a four-year lease.
Operating Lease Commitments Non-cancellable operating leases contracted for but not capitalised in the financial statements
Not later than 1 year	1,829,580	1,774,732
Later than 1 year but not later than 5 years	4,673,860	5,437,946
Later than 5 Years u,	71,896	431,379
	6,575,337	7,644,057

These payments represent amounts owing on operating lease agreements for premises occupied by and office equipment utilized by the controlled entities. The lease terms vary from 0 to 6 years.

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2004

NOTE 18 REMUNERATION OF DIRECTORS AND EXECUTIVE OFFICERS

a) The names and positions of Tolhurst Noall Group Ltd directors and specified executives in office at any time during the financial year were:

Tolhurst Noall Group Ltd - Directors

Peter Chapman	Director – Executive
Donald Taig	Director $\sim$ Non executive (resigned 3 May 2004)
John Nagle	Director – Non executive (resigned 15 March 2004)
John Harry	Chairman – Non executive
Ian Johnson	Director – Executive (resigned 2 July 2004)
Russell McKimm	Head of Retail Broking, ASX Responsible Executive & ASIC Responsible Officer
Craig Graham-Smith	Finance Director, Company Secretary, ASX Responsible Executive & ASIC Responsible
	Officer
John Wilson	Managing Director, ASX Responsible Executive & ASIC Responsible Officer
Andrew McDouall	Director – Non executive
Specified Executives
Peter Leigh	Director, Investment Banking & Wholesale Business, ASX Responsible Executive &
	ASIC Responsible Officer
Graeme Whitelaw	Director, Corporate Finance Operations
Luke Murphy	Director, Corporate Finance
Mark Barsdell	Research Manager

Research Manager Manager, Legal & Compliance Jessica Leong

b) Tolhurst Noall Group Ltd - Directors Remuneration

2004	Salary, Fees &.	Superannuation Contribution	Cash Bonus	Equity &	Retirement Benefit	Total
	Commissions			Options	Entitlement
Peter Chapman	47,178	4.248			$\overline{\phantom{a}}$	51,426
Donald Taig	22,000	$\overline{\phantom{a}}$			$\overline{\phantom{a}}$	22,000
John Nagle	18,000	w	as .	AM	$\overline{\phantom{a}}$	18,000
John Harry	76,453	23.547		$\overline{\phantom{a}}$	200,000	300,000
Ian Johnson	202,333	18,210			w	220,543
Russell McKimm	173,873.	35,415			$\tilde{\phantom{a}}$	209,288
Craig Graham-Smith	160.034	14.966	75,000		$\tilde{\phantom{a}}$	250,000
John Wilson	225,000	$\blacksquare$	150,000		$\tilde{\phantom{a}}$	375,000
Andrew McDouall	25,000					25,000
	949,871	96,386	225,000		200,000	1.471.257

2003	Salary, Fees &	Superannuation Contribution	Cash Bonus	Equity &.	Retirement Benefit	Total
	Commissions			Options	Entitlement
Peter Chapman	24,369	1,857			w	26,226
Donald Taig	24,000	$\bullet$			$\overline{\phantom{a}}$	24,000
John Nagle	24,000				$\overline{\phantom{a}}$	24,000
John Harry	42,645	67,355			$\omega$	110,000
Ian Johnson	187,308	16,858	w		$\overline{\phantom{a}}$	204,166
Russell McKimm	160,578	12,926	$\overline{\phantom{a}}$		$\tilde{\phantom{a}}$	173,504
Craig Graham-Smith	142,030	11.303	w		$\overline{\phantom{a}}$	153,333
John Wilson	54,615	$\overline{\phantom{a}}$			w	54,615
Andrew McDouall	14,583					14,583
	674,128	110,299	$\overline{\phantom{a}}$			784.427

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2004

NOTE 18 REMUNERATION OF DIRECTORS AND EXECUTIVE OFFICERS (cont)

c) Specified Executives Remuneration

2004	Salary, Fees & Commissions	Superannuation Contribution	Cash Bonus	Equity & Options	Total
Peter Leigh	162.416	12,583	175,000	500	350,499
Graeme Whitelaw	113,000	12,450	91,000	500	216.950
Luke Murphy	105.505	9,495	91,000	500	206,500
Mark Barsdell	105,275	9,475	15,000	500	130,250
Jessica Leong	94,587	8,513	25,000	500	128,600
	580,783	52,516	397,000	2,500	1,032.799
2003	Salary, Fees & Commissions	Superannuation Contribution	Cash Bonus	Equity & Options	Total
Peter Leigh	147,816	10,518	$\tilde{\phantom{a}}$		158,334
Graeme Whitelaw	108,000	12,000		1,000	121,000
Luke Murphy	105,505	9.495	$\overline{\phantom{a}}$	1,000	116,000
Mark Barsdell	108.257	9,743		1,000	119,000
Jessica Leong	90.527	8,055	w	1,000	99,582
	560,105	49,811		4,000	613,916

d) Remuneration options

Options granted as remuneration	Vested No.	Granted No.	Grant Date	Value per option at grant date $(*)$	Exercise Price	First Exercise Date	Last Exercise Date
J Wilson	3,400.000	3,400,000	$21-Nov-03$	\$37,867	25 cents	$21-Nov-03$	$21-Nov-07$
C Graham-Smith	250,000	250,000	$21 - Nov-03$	\$5,580	25 cents	$21-Nov-03$	$21-Nov-05$
R McKimm	150.000	150,000	$21-Nov-03$	\$3.348	25 cents	$21-Nov-03$	$21-Nov-05$
P Leigh	250.000	250,000	$21-Nov-03$	\$5,580	25 cents	$21-Nov-03$	$21-Nov-05$
G Whitelaw	150.000	150.000	$21-Nov-03$	\$3,348	25 cents	$21-Nov-03$	$21-Nov-05$
L Murphy	100.000	100,000	$21 - Nov-03$	\$2,232	25 cents	$21-Nov-03$	$21 - Nov - 05$
M Barsdell	150.000	150.000	$21-Nov-03$	\$3,348	25 cents	$21-Nov-03$	$21 - Nov - 05$
J Leong	50.000	50,000	$21 - Nov-03$	\$1,116	25 cents	$21-Nov-03$	$21-Nov-05$

(*) The assessed value at grant date of options granted to directors and specified executives is allocated equally over the period from grant date to vesting date, and the amount is included in the remuneration tables above. Fair values at grant date are determined using a Black-Scholes option pricing model that model that takes into account the exercise price, the term of the option, the non-tradeable nature of the option, the lack of stock liquidity, the share price at grant date and expected price volatility of the underlying share and the risk-free interest rate for the term of the option.

No shares have been issued as the result of the exercise of remuneration options.

As part of Mr Harry's terms of engagement he is entitled to an issue of options which are yet to be approved by the Board of Tolhurst Noall Group Ltd. When these matters have been determined, a resolution will be put to shareholders.

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2004

NOTE 18 REMUNERATION OF DIRECTORS AND EXECUTIVE OFFICERS (cont)

e) Option Holdings

Number of options held by specified directors and executives	Balance $1/7/03$ .	Granted as remuner- ation	Options exercised	Net change other	Balance 30/6/04	Total vested 30/6/04	Total exercisable 30/6/04	Total un- exercisa ble 30/6/04
J Wilson	$\omega$	3,400.000		w	3,400.000	3,400.000	3,400,000
C Graham-Smith	w.	250,000		$\overline{\phantom{a}}$	250.000	250,000	250.000
R McKimm	$\overline{\phantom{a}}$	150,000		w	150.000	150.000	150,000
P Leigh	20.000	250,000		$\tilde{\phantom{a}}$	270.000	260.000	260.000	10,000
G Whitelaw	24.000	150.000		$\tilde{\phantom{a}}$	174.000	162.000	162.000	12,000
L Murphy	24.000	100.000		$\tilde{\phantom{a}}$	124.000	112.000	112.000	12,000
M Barsdell	24.000	150.000	$\mathbf{a}$	$\tilde{\phantom{a}}$	174.000	162.000	162.000	12,000
J Leong	24.000	50,000		$\overline{\phantom{a}}$	74,000	62.000	62.000	12,000
	116.000	4.500,000		w	4.616.000	4,558,000	4.558.000	58.000

f) Shareholdings

Number of shares held by directors and specified executives.	Balance 1/7/03	Received as Remuneration	Options Exercised	Net Change Other	Balance 30/6/04
Directors
Peter Chapman	1,029,039			302,528	1,331,567
Donald Taig	237,526	w.	÷	59,382	296,908
John Nagle	3,533,004			966,586	4,499,590
John Harry	169,203		w	42,308	211,538
Ian Johnson	16,446,364	u.	w	4,194,925	20,641,289
Russell McKimm	1,239,173	w	w	330,627	1,569,800
Craig Graham-Smith	750,000		w	(112,500)	637,500
John Wilson		w	w
Andrew McDouall	2,242,456		w	6,102,281	8,344,737
Specified Executives
P Leigh	250,000	2,500		63,125	315,625
G Whitelaw	109,769	2,500		53,068	165,337
L Murphy	4,000	2,500			6,500
M Barsdell	4,000	2,500		1,000	7,500
J Leong	4,000	2,500	w	1,625	8,125
	26,018,534	12,500	w	12,004,955	38.036,016

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2004

NOTE 18 REMUNERATION OF DIRECTORS AND EXECUTIVE OFFICERS (cont)

g) Remuneration Practices

The company's policy for determining the nature and amount of emoluments of board members and senior executives of the company is:

The remuneration structure for executive officers, including executive directors, is based on a number of factors, including length of service, particular experience of the individual concerned, and overall performance of the company. The contracts for service between the company and specified directors and executives are on a continuing basis the terms of which are not expected to change in the immediate future. Upon retirement specified directors and executives are paid employee benefit entitlements accrued to date of retirement.

The group seeks to emphasise payment for results through providing various cash bonus reward schemes, specifically, the incorporation of incentive payments based on the achievement of sales targets and return on capital ratios. Bonuses included per Note 18(b) and 18(c) are based on these targets. The objective of the reward schemes is to both reinforce the short and long-term goals of the company and to provide a common interest between management and shareholders. The bonuses were granted to both directors and specified executives to be paid on 15 September 2004. There has been no alteration to the terms of the bonuses paid since grant date.

	CONSOLIDATED		COMPANY
	2004	2003	2004	2003
NOTE 19 EMPLOYEE BENEFITS	S	\$		S
The aggregate of employee benefits liability is comprised of:
Accrued wages, salaries and on costs	1,260.307	120,775	200,000
Provisions – current	584,371	483,472
Provisions - non-current	19,876	25.094
	1,864,554	629,341	200,000
Number of employees and advisors at year end	175	172

Employee/Advisor share option arrangement:

An employee/advisor share option scheme has been established where employees/advisors of the consolidated entity are issued with options over the ordinary shares of Tolhurst Noall Group Ltd. The options, issued for nil consideration, are issued in accordance with performance guidelines established by the Directors of Tolhurst Noall Group Ltd. The options cannot be transferred and will not be quoted on the ASX. All employees/advisors are eligible to be considered for this scheme.

Details of share options outstanding as at 30 June 2004:

• 2,616,000 (2003: 2,734,000) options with an exercise price of 21.8 cents (2003: 25 cents) $\bullet$
• 130,100 (2003: 132,100) options with an exercise price of 43.8 cents (2003: 47 cents) $\bullet$
• 234,000 (2003: 237,000) options with an exercise price of 29.8 cents (2003: 33 cents) ٠
• 50,000 (2003: 50000) options with an exercise price of 16.8 cents (2003: 20 cents) $\bullet$
• 3,400,000 (2003: nil) options with an exercise price of 25 cents $\bullet$
• $4,000,000$ (2003: nil) options with an exercise price of 25 cents

Expiry dates are 31 December 2006, 14 August 2005, 25 July 2006, 28 February 2005, 21 November 2007 and 21 November 2005 respectively.

During the year no options were exercised under the Employee Option Scheme, (2003: nil). During the year 123,000 Options lapsed as a result of employment ceasing for a particular employee. The value of the employee option scheme is not being charged as an employee entitlement expense.

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2004

Employee share arrangement:

A Staff Share Plan has been established whereby eligible employees of the consolidated entity are issued with up to \$1,000 of ordinary shares of Tolhurst Noall Group Ltd at the discretion of the Board. All employees are eligible to be considered for this scheme. The shares, issued for nil consideration, may not be disposed of by the employee until the earlier of:

• $(i)$ the end of the period of 3 years commencing at the time of acquisition of the Shares by the employee;
• $(ii)$ the time when the employee is no longer employed by the company; and
• the end of such other period or such other circumstances as determined by the Board. $(iii)$

During the year 390,000 shares were issued pursuant to the Staff Share Plan.

At 30 June 2004 there are 563,500 shares on issue under the Staff Share Plan (2003: 250,000).

The value of the employee share scheme is being charged as an employee entitlement expense (2004: \$78,000: 2003) \$62,500).

The shares have the same dividend and voting rights attaching to ordinary shares as disclosed in Note 14.

NOTE 20 RELATED PARTY INFORMATION

Interests in Tolhurst Noall Group Ltd:

Included in directors shareholdings are beneficial interest held via related companies as disclosed.

Tizon Pty Ltd, a company controlled by Mr Taig, holds 296,908 Shares (2003: 237,526 shares).

MT Consumer Services Limited, a company controlled by Mr Nagle holds 3,942,725 Shares (2003: 3,120,846 shares).

Fexco, a company controlled by Mr Nagle holds 556,865 shares (2003: 412,158 shares).

Loquela, a company controlled by Mr Johnson holds 241,667 shares (2003: 160,000 shares).

Balgreggan Financial Investments Limited, a company controlled by Mr McDouall holds 8,241,667 shares (2003: 2,160,000) Tartan Securities Limited, a company controlled by Mr McDouall holds 103,070 shares (2003: 82.456 shares) Dorcan Pty Ltd, a company controlled by Mr Chapman, holds 112,259 Shares (2003: 89,807 shares).

During the year, Tolhurst Noall Limited acted as broker for transactions conducted on behalf of directors and director controlled entities. These transactions involved the purchase and sale of shares and were conducted under normal trading terms and conditions.

During the year, Mr Johnson and Mr McKimm provided sub-underwriting. The Related Party Transactions Sub-Committee approved all such transactions.

No other benefits have been received or are receivable by directors, other than those already disclosed in the notes to the financial statements.

Tolhurst Noall Group Ltd is the ultimate parent entity.

Liquidity guarantee by Directors

Mr Johnson and Mr Edwards, a director of the broker Tolhurst Noall Ltd (TNL), have signed various letters of undertaking on behalf of themselves and private companies in which they have a controlling interest, whereby they have lodged a portfolio of ASX listed securities with the broker. These letters expired on 31 December 2003 and 30 June 2004 and are not being renewed. The undertakings provided up to 100% of the value of each of these portfolios giving TNL unencumbered access to the entire share portfolio for the purpose of securing various staff and inter-company loans treated as current assets by the broker in the calculation of ASX capital liquidity requirement, Rule 1A. The value of these guarantees at 30 June 2004 was $\text{snil}(2003; \text{ }3,909,954)$ . Fees of $\text{$}44,428$ (2003: $\text{snil}$ ) have been paid or accrued on these guarantees.

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2004

NOTE 20 RELATED PARTY INFORMATION (cont)

		CONSOLIDATED		COMPANY
		2004	2003	2004	2003
		S	\$	\$	\$
Transactions with controlled entities/directors/employees
Wholly owned group
Loan to Alliance Strata (Qld) Pty Ltd	1)				255,130
Loan to APL (Cairns) Pty Ltd	$\mathbf{1}$			620,451	2,395,034
Loan to William Noall Holdings Limited	$\bf{1)}$			3,353,140	1,285,252
Loan to Tolhurst Noall Limited	1)				2,018,409
Loan from Wevton Pty Limited	$\left{ \right}$				(100)
Loan to Tolhurst Securities Ltd	$\left \right $			978,613
Associated companies
Loan to Carroll, Pike and Piercy Pty Ltd	$\left \right $	150,000	300,000
Loan to Tolhurst Funds Management P/L	1)	405,934	85,001
Loan to Elstree Tolhurst Investment	$\mathbf{1}$		20,000
Management Pty Ltd
Loan from Carroll, Pike and Piercy Pty Ltd	$\bf{1)}$	(46,352)	(6,231)
Loan from THG Investments Pty Ltd	$\mathbf{1}$	(155,092)	(64, 620)
Loans from directors & director related entities
Dorcan Pty Ltd **	1)	(15,000)	(15,000)	(15,000)	(15,000)
TM Edwards	4)	(200,000)	(200,000)
RA McKimm	4)	(100,000)	(100,000)
BJ & JK Dunn ****	4)	(30,000)	(30,000)
MA Wigzell ****	4)	(70,000)	(70,000)
GL Leigh ****	4)	(50,000)	(50,000)
Loquela Pty Ltd *	4)	(200,000)	(200,000)
Dorcan Pty Ltd **	4)	(50,000)	(50,000)
Tamanich Securities Pty Ltd *	4)	(36,000)	(36,000)
Katarina Corp Pty Ltd ****	4)	(14,000)	(14,000)
Success in Planning Pty Ltd *	$\left \right $	(40,000)	(40,000)
Minapet Finance Pty Ltd *	$\mathbb{I}$	(45,000)	(45,000)
Pensive Investments Pty Ltd ***	$\left \right $	(53,252)
Loan to directors & director related entities
C Graham-Smith	3)		90,000
M Wigzell ****	3)		30,000
Pensive Investments Pty Ltd ***	$\mathbb{I}$		110,828
Success in Planning Pty Ltd *	$\mathbf{1}$	36,781	36,781
Subordinated debt
I M Johnson & entities related to I M Johnson	2)	(699,000)	(699,000)
T M Edwards	2)	(533, 284)	(533, 284)
C Graham-Smith	2)	(340,000)	(340,000)
R Mc Kimm	2)	(250,000)	(250,000)

$\frac{d\mathbf{r}}{d\mathbf{r}}$ entities controlled by I M Johnson

** entity controlled by P F Chapman

*** entity controlled by I M Johnson & T M Edwards

**** entities and persons associated with directors of Tolhurst Noall Ltd

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2004

NOTE 20 RELATED PARTY INFORMATION (cont)

1) There is no interest charge or fixed repayment term on the loan.

2) Interest is charged at $12\%$ and there is no fixed repayment term on the loans.

3) During the 2003 year the Group advanced funds of \$30,000 to Mr Wigzell (a director of the subsidary Tolhurst Noall Ltd) and \$90,000 to Mr Graham-Smith. Both loans have been fully repaid. Interest is charged on both loans 12%.

4) Interest is charged at $12\%$ and there is no fixed repayment term on the loans.

NOTE 21 EARNINGS PER SHARE

The following reflects the income and share data used in the calculations of basic and diluted earnings per share:

	CONSOLIDATED
	2004	2003
		S
Earnings used in calculating basic and diluted earnings per share	2,826,525	147,819
Weighted average number of shares used to calculate basic earnings per share Effect of diluted securities:	82.980,259	67,895,792
Share options	w
Adjusted weighted average number of ordinary shares used in calculating diluted earnings per share	82.980,259	67,895,792

There are no potential ordinary shares outstanding at 30 June 2004 that are dilutive as the exercise prices on the 11,480,100 options are greater than the market price of the shares. There have been no other conversions to, calls of, or subscriptions for ordinary shares or issues of potential ordinary shares since the reporting date and before the completion of this financial report.

		CONSOLIDATED		COMPANY
	2004	2003	2004	2003
			w
ALCOHOL AAL CUP LUPEN SENATORUM CATALOG LOTS TOT CARRIEL

NOTE 22 STATEMENT OF CASH FLOWS

i) Reconciliation of cash

For the purposes of the statement of cash flows, cash includes cash on hand and at bank, net of outstanding bank overdrafts. Cash at the end of the financial year as shown in the statement of cash flows is reconciled to the related items in the balance sheet as follows:

	13,596,228	5,065,124	$\overline{\phantom{a}}$	571
Bank overdraft	(60.032)	(900.796).	$\overline{\phantom{a}}$
	13.656,260	5,965,920		571
Trust Account	5,271,826	4,316,834	-	$\overline{\phantom{a}}$
Cash at bank	8,384,434	1.649.086		571

Included in cash at bank is a term deposit of \$170,000, which are funds deposited with the ANZ bank as security for bank guarantees to support various lease agreements.

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2004

	CONSOLIDATED		COMPANY
	2004	2003	2004	2003
	\$	\$	£.	\$
NOTE 22 STATEMENT OF CASH FLOWS (cont.)
(i) Reconciliation of operating profit/(loss) after income tax to net cash provided by operating activities
Profit/(loss) from ordinary activities after income tax	2,826,525	147,819	191,515	(103, 011)
Depreciation	593,510	933,934
Amortisation of goodwill		50,000
Other amortisation costs	77,549	85,026
Decrement/(increment) in value of investments	(76, 663)	(87, 165)
Net (profit) / loss on disposal of financial assets	(78, 286)	8,771	(24, 728)	(4,348)
Net (profit) / loss on disposal of property, plant and
equipment	(7,038)	51,554
Provision for diminution of investment in controlled entities			(1,650,000)	735,606
Loss on equity accounting	(627, 104)	247,692
Net loss on wind up of group companies			255,132
Changes in assets & liabilities net of effects from acquisition/disposal of controlled entities
Debtors	3,376,279	2,891,496
Prepayments and sundry debtors	(140, 652)	(85,982)		1,518
Payables	(383, 426)	(3,626,426)	121,177	(100, 198)
Provisions	806,195	(659, 137)	618,230	(3,300)
Net cash provided by operating activities	6,366,889	(42, 418)	(488, 734)	526,267
(iii) Financing facilities available

At balance date, the following financing facilities had been negotiated and were available:

Total facilities:
- asset finance revolving	212,000	150,000
- bank loans		1,620,713	1,321,000
- bank overdraft
- credit card facility	40,000
- foreign currency dealing limit	20,000	20,000
- indemnity guarantee	1,398,000	1,489,500
Facilities used at balance date:
- asset finance revolving	172,556
- bank Ioans		1,619,993	1,321,000
- bank overdraft	373,426	900,796
- less unpresented cheques	(373, 426)	(900,796).
- bank overdraft utilized
- credit card facility
- foreign currency dealing limit
- indemnity guarantee	1,347,508	1,385,818
Facilities unused at balance date:
- asset finance revolving	39,444	150,000
- bank Ioans		720
- bank overdraft
- credit card facility	40,000
- foreign currency dealing limit	20,000	20,000
- indemnity guarantee	50,492	103,682

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2004

	CONSOLIDATED		COMPANY
2004	2003	2004	2003
	з	٠П	\$

NOTE 23 SEGMENT INFORMATION

Segment products and locations

The consolidated entities operating companies are organised and managed separately according to the nature of products and services that they provide, with each segment offering different products and serving different markets.

The primary segment, stockbroking, provides extensive knowledge of overseas and Australian equity markets to a mix of institutional and private clients.

Funds management provides investment services to domestic and international clients. The group invests in property with the intention of generating capital profits and rental returns.

Geographically the Group operates within Australia.

Segment accounting policies

The group does not undertake any inter segment sales and transfers. Segment accounting policies are the same as the consolidated entity's policies described in Note 1. During the financial year, there were no changes in segment accounting policies that had a material effect on segment information.

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2004

NOTE 23 SEGMENT INFORMATION (cont)

Business Segments				Funds		Property
	Stockbroking			Management		Investment		Other	Consolidated
	2004	2003	2004	2003	2004	2003	2004	2003	2004	2003
	\$'000	\$7000	\$'000	\$7000	\$'000	\$'000	\$'000	\$'000	\$'000	\$'000
Revenue
Revenue outside the	35,092	24,104	995	1,394	145	195		296	36,232	25,989
economic entity
Share of net profit/(loss)
of equity accounted
investment			627	(248)					627	(248)
Total segment revenue	35,092	24,104	1,622	1,146	145	195		296	36,859	25,741
Result
Segment result	2,855	641	530	(227)	60	27		(945)	3,445	(504)
Unallocated expenses										۰
Consolidated entity profit / (loss) from ordinary activities before income tax									3,445	(504)
Income tax benefit/(expense)									(618)	652
Net profit from ordinary activities									2,827	148
Assets
Segment assets	40,035	32,988	1,377	1,269	914	2,397		45	42,231	36,698
Unallocated assets										654
Total assets									42,231	37,352
Liabilities
Segment liabilities	33,321	31,232	94	398		1,321		373	33,415	33,324
Unallocated liabilities										2
Total liabilities									33,415	33,326
Business Segments				Funds		Property
	Stockbroking			Management		Investment		Other	Consolidated
	2004	2003	2004	2003	2004	2003	2004	2003	2004	2003
	\$'000	\$'000	\$'000	\$'000	\$'000	\$'000	\$'000	\$'000	\$'000	\$'000
Other segment information
Equity accounted
investments included in
segment assets				1,123						1,123
Depreciation &
amortisation	671	1,019		50					671	1,069
Acquisition of Property
plant and equipment	517	385							517	385

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2004

NOTE 24 SUBSEQUENT EVENTS

There have been no events, other than noted elsewhere occurring after balance date that materially affect the financial statements as at 30 June, 2004.

NOTE 25 FINANCIAL INSTRUMENTS

25 (a) Interest rate risk

The consolidated entity's exposure to interest rate risks and the effective interest rates of financial assets and financial liabilities, both recognised and unrecognised at the balance date, are as follows:

Financial Instruments	Floating interest rate	Fixed interest rate maturing in: 1 year or less	Non-interest bearing	Total carrying amount as per the statement of	Weighted average effective
	2004	2004	2004	financial position 2004	interest rate 2004
	Ś.	Š.	\$	\$	₩.
(i) Financial assets
Cash	1,844,434	6,540,000	5,271,826	13,656,260	2.96
Trade debtors			21,955,157	21,955,157	N/A
Sundry debtors			1.402,286	1,402,286	N/A
Listed Shares			798,894	798,894	N/A
Investment in Grosvenor			641,273	641,273	N/A
Unlisted shares			1.284,402	1,284.402	N/A
Total financial assets	1,844,434	6,540,000	31,353,838	39,738,272
(ii) Financial liabilities
Bank overdraft			60.032	60.032	N/A
Current Payables			23,771,456	23,771,456	N/A
Other creditors and accruals			4,978,226	4,978,226	N/A
Subordinated loans	1,822,284			1,822,284	12.0
Loans - Related parties	750,000		354,696	1,104,696	12.0
Loans - Secured		157,235		157,235	7.85
Total financial liabilities	2,572,284	157,235	29,164,410	31,893,929

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2004

NOTE 25 FINANCIAL INSTRUMENTS (cont)

Financial Instruments	Floating interest rate	Fixed interest rate maturing in: 1 year or less	Non-interest bearing	Total carrying amount as per the statement of financial position	Weighted average effective interest rate
	2003 ۰.	2003 \$	2003 \$	2003 S	2003 ₩
Financial assets A)
Cash		1,328,423	4,637,497	5,965,920	Nil
Trade debtors			23,321,849	23,321,849	N/A
Sundry debtors			352,508	352,508	N/A
Listed Shares			333,056	333.056	N/A
Investment in Grosvenor			2,093,500	2,093,500	N/A
Unlisted shares			2,342,901	2,342,901	N/A
Total financial assets		1,328,423	33,081,311	34,409,734
(ii) Financial liabilities
Bank overdraft			900,796	900,796	N/A
Current Payables			23,942,638	23,942,638	N/A
Other creditors and accruals			3,010,082	3,010,082	N/A
Subordinated loans	1,822,284			1,822,284	12.0
Loans - Related parties	750,000		170,851	920,851	12.0
Loans - Secured		1,620,293		1,620,293	6.06
Total financial liabilities	2,572,284	1,620,293	28,024,367	32,216,944

$25(b)$ Net Fair Value

The carrying values of financial assets and liabilities approximate fair values. The following methods and assumptions are used to determine the net fair values of financial assets and liabilities:

Cash and cash equivalents: The carrying amount approximates fair value because of their short-term to maturity.

Trade receivables, trade creditors: The carrying amount approximates fair value.

Short-term borrowings: The carrying amount approximates fair value because of their short-term to maturity.

Long-term borrowings: Long-term borrowings are stated at carrying values except for employee entitlements which are estimated using discounted cash flow analysis based on current incremental borrowing rates.

Long-term financial assets: A reasonable estimate of the fair value is determined by reference to the underlying net asset base of the controlled entity.

$25(c)$ Credit Risk

The maximum exposure to credit risk, excluding the value of any collateral or other security, at balance date to recognise financial assets is the carrying amount, net of any provisions for doubtful debts, as disclosed in the statement of financial position and notes to the financial statements.

The economic entity does not have any material credit risk exposure to any single debtor or group of debtors under financial instruments entered into by the economic entity.

DIRECTORS DECLARATION

FOR THE FINANCIAL YEAR ENDED 30 JUNE 2004

In accordance with a resolution of the Directors of Tolhurst Noall Group Ltd, we state that:

In the opinion of the directors:

• $(a)$ the financial statements and notes of the company and of the consolidated entity are in accordance with the Corporations Act 2001, including:
• giving a true and fair view of the company's and consolidated entity's financial $\left( i\right)$ position as at 30 June 2004 and of their performance for the year ended on that date; and
• complying with Accounting Standards and Corporations Regulations 2001; and $(ii)$
• $(b)$ there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable.

On behalf of the Board

Grahav.

. . . . . . . . . . . . . . . . . . . . JOHN W. WILSON DIRECTOR

Contact

CRAIG A. GRAHAM-SMITH DIRECTOR

Dated at Melbourne this 30th day of September 2004.

INDEPENDENT AUDIT REPORT TO THE MEMBERS OF TOLHURST NOALL GROUP LIMITED AND CONTROLLED ENTITIES

Scope

The financial report and directors' responsibility

The financial report comprises the statement of financial position, statement of financial performance, statement of cash flows, accompanying notes to the financial statements, and the directors' declaration for both Tolhurst Noall Group Limited (the company) and Tolhurst Noall Group Limited and Controlled Entities (the consolidated entity), for the year ended 30 June 2004. The consolidated entity comprises both the company and the entities it controlled during that year.

The directors of the company are responsible for the preparation and true and fair presentation of the financial report in accordance with the Corporations Act 2001. This includes responsibility for the maintenance of adequate accounting records and internal controls that are designed to prevent and detect fraud and error, and for the accounting policies and accounting estimates inherent in the financial report.

Audit approach

We conducted an independent audit in order to express an opinion to the members of the company. Our audit was conducted in accordance with Australian Auditing Standards, in order to provide reasonable assurance as to whether the financial report is free of material misstatement. The nature of an audit is influenced by factors such as the use of professional judgement, selective testing, the inherent limitations of internal control, and the availability of persuasive rather than conclusive evidence. Therefore, an audit cannot guarantee that all material misstatements have been detected.

We performed procedures to assess whether in all material respects the financial report presents fairly, in accordance with the Corporations Act 2001, including compliance with Accounting Standards and other mandatory financial reporting requirements in Australia, a view which is consistent with our understanding of the company's and the consolidated entity's financial position, and of their performance as represented by the results of their operations and cash flows.

We formed our audit opinion on the basis of these procedures, which included:

• examining, on a test basis, information to provide evidence supporting the amounts and disclosures in the financial report, and
• assessing the appropriateness of the accounting policies and disclosures used and the reasonableness of significant accounting estimates made by the directors.

While we considered the effectiveness of management's internal controls over financial reporting when determining the nature and extent of our procedures, our audit was not designed to provide assurance on internal controls.

Independence

In conducting our audit, we followed applicable independence requirements of Australian professional ethical pronouncements and the Corporations Act 2001.

Audit Opinion

In our opinion, the financial report of Tolhurst Noall Group Limited and Tolhurst Noall Group Limited and Controlled Entities is in accordance with:

• $(a)$ the Corporations Act 2001, including:
• giving a true and fair view of the company's and consolidated entity's financial position as at 30 June ${i}$ 2004 and of their performance for the year ended on that date; and
• complying with Accounting Standards in Australia and the Corporations Regulations 2001; and 7ii)
• $(b)$ other mandatory financial reporting requirements in Australia.

MOORE STEPHENS HF Chartered Accountants

$\Omega$

SD PITT Partner Melbourne, 30 September 2004

55

Moore Stephens HF ABN 39 533 589 331 14th Floor, 607 Bourke Street, Melbourne, Victoria, 3000 Australia. Telephone: +61 3 9614 4444 Facsimile: +61 3 9614 6039 Email: firm@mshf.com.au Web: www.mshf.com.au

A member of the Moore Stephens International Limited Group of Independent Firms

Additional Stock Exchange Information

Additional information required by the Australian Stock Exchange Limited and not shown elsewhere in this report is as follows. This information is completed as at 27 September 2004.

Substantial Shareholders $(a)$

Ĭ.

The following shareholders have lodged a Notice of Substantial Shareholding in the company.

Name of Holder of relevant interest	Number of Shares	$\%$
Ian Meredith Johnson & Loquela Pty Ltd	20,641,289	20.86
Trevor Michael Edwards	12,267,321	12.40
Roger Basil Coombes	8,728.541	8.82
Balgreggan Financial Investments Limited	8,241,667	8.33
Keygrowth Trading Pty Ltd	7,268,508	7.35
Charmof Nominees Pty Ltd	5,422,495	5.48

$(b)$ Distribution of Shareholdings - Fully Paid Ordinary Shares

Size of holding		Number of shareholders	Number of shares
	$-1,000$	142	111,556
1.001	$-5.000$	248	781,118
5.001	$-10,000$	24	185.696
10.001	$-100,000$	122	4,911,587
100.001	- and over	$\frac{65}{2}$	92,958,468
		601	98,948.425

(c) Top 20 Security Holders Ordinary Fully Paid Shares as at 27 September 2004

Name	Number of ordinary shares held	℅
Ian Meredith Johnson & Loquela Pty Ltd	20,641,289	20.86
Trevor Michael Edwards	12,267,321	12.40
Roger Basil Coombes	8,728,541	8.82
Balgreggan Financial Investments Limited	8,241,667	8.33
Keygrowth Trading Pty Ltd	7,268,508	7.35
Charmof Nominees Pty Ltd	5,422,495	5.48
Fexco Money Transfer Limited	3,942,725	3.98
James Grimaldi Perry	3,033,564	3.07
Twelfth Vilmar Pty Ltd	2,195,745	2.22
Snail Tracks Pty Ltd	2,014,504	2.04
Jat Meng Tsang	1,989,658	2.01
Russell Allan McKimm	1,569,800	1.59
Peter Marfleet	1,055,129	1.07
D&D Nominees Pty Ltd	1,041,900	1.05
Peter Chapman	925,478	0.94
Ann Merrilyn Wood	881,603	0.89
Craig Anthony Graham-Smith	637,500	0.64
Barbara Ellen Fleischer	565,802	0.57
Peter Robert Ramsden	565,802	0.57
Fexco	556,865	0.56
TOTAL TOP 20	83,545,896	84.43
Other shareholders	15,402,529	15.57
TOTAL SHAREHOLDERS	98,948,425	100.00

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la arabanan ang mga mga mga mga mga mga mga mga mga mg

en altres de la companyation de la companyation de la companyation de la companyation de la companyation de la
La companyation de la companyation de la companyation de la companyation de la companyation de la companyation

en
Kongon om de generale en de antalente de la

.
Koongoogaan ay ay ahaan ahaan ahaan ahaan ahaan ahaan ahaan ahaan ahaan ahaan ahaan ahaan ahaan ahaan ahaan ah

.
Erek erek erek erek erek erek erek erek

GRAMA GRAMA (GRAMA GRAMA GRAM

COOLS COOLS ON

।
स्वरूपम् सामग्रीहरू कृष्णाम् अस्ति । स्वरूपम् सामग्रीहरू सामग्रीहरू । स्वरूपम् सामग्रीहरू सामग्रीहरू सामग्रीहर

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₩.

m.

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